MPAA Will Collect $80 Million Settlement in Big Lawsuit Against Hotfile

The cyberlocker will shut down after being ordered to employ "digital fingerprinting" technology to protect copyrighted works.

When the Motion Picture Association of America first filed a lawsuit against Hotfile in February 2011, some questioned whether Hollywood had gone too far in targeting a cyberlocker. On Tuesday, after more than two years of fighting, Hollywood studios will be collecting $80 million after the parties agreed to resolve the high-profile battle. In addition, the court has ordered Hotfile to cease operations unless it employs copyright filtering technologies, according to the MPAA.

The settlement comes on the verge of a major trial that was set up by a Florida judge's determination in August that Hotfile was vicariously liable for the actions of its users. The ruling was a significant one, and not only for the reason that it involved one of the world's 100 most popular online destinations. In legal papers, the MPAA had painted Hotfile as "more egregious" than Napster, Grokster and Limewire and "indistinguishable" from Megaupload.  U.S. District Judge Kathleen Williams agreed, saying that "the extent of infringement by Hotfile's users was staggering."

Hotfile attempted to claim protections from liability under the safe harbor provisions of the Digital Millennium Copyright Act, but the judge pointed to ways in which the cyberlocker had failed to adequately address piracy problems. Despite receiving 8 million notices for 5 million users, for instance, Hotfile had only terminated the accounts of 43 before the lawsuit was filed. "Aside from infringement notices," the judge ruled, "Hotfile had no alternative method for preventing repeat infringments by its users."

In determining that Hotfile had essentially enabled piracy, Judge Williams said the cyberlocker hadn't obeyed all the necessary protocols by failing to respond promptly to infringement notices and not registering a DMCA agent. The judge left open the possibility that Hotfile may have possessed "red flag knowledge" but allowed the determination of liability for inducement and contributory infringement for trial. "While Hotfile may have a difficult time explaining its 'innocence' to a jury," Judge Williams said there needed to be further discussion about Hotfile's knowledge, intentions and actions.

At a trial that was scheduled to begin next Monday, the MPAA was looking to hold Hotfile accountable for infringing the copyrights on nearly 3,500 works, including movies such as The Karate Kid, The Bourne Identity and The Matrix and TV shows like Lost, Prison Break and Friends.

Maximum statutory damages for willful copyright infringement run up to $150,000 per work, meaning Hotfile was staring at a potential bill of about $500 million. Given that statutory damages more typically run between $10,000 to $50,000 per work, though, the MPAA's more realistic aim was to collect a jury award of around $100 million.

The settlement is the second major one that the MPAA has completed in as many months. In October, Hollywood studios announced a $110 million deal with IsoHunt that resulted in the shutdown of the BitTorrent indexer.

Much of the litigation in both the Hotfile and IsoHunt cases was handled by intellectual property litigator Steven Fabrizio, who was recently appointed as the MPAA's new senior executive vp and global general counsel.

"This judgment by the court is another important step toward protecting an Internet that works for everyone," said Chris Dodd, chairman of the MPAA. "Sites like Hotfile that illegally profit off of the creativity and hard work of others do a serious disservice to audiences, who deserve high-quality, legitimate viewing experiences online."

The MPAA is also cheering news of the judge's order that Hotfile must employ "digital fingerprinting" copyright filtering, saying that it has been proven to work.

In Hollywood's battle against Hotfile, the defendant brought a counterclaim against Warner Bros. for abusing its piracy tool. In the judge's August summary judgment ruling, the counterclaim survived the studio's motion to defeat it. The settlement puts an end to that counterclaim as well.

Twitter: @eriqgardner