By Vanessa Michaud
On October 6, 2016, the Second Circuit Court of Appeals affirmed the decision of the United States District Court for the Southern District of New York and tossed out a lawsuit filed against Barnesandnoble.com by Cheryl Smith over copyright infringement claims relating to a contract between Louis Smith, the husband of the plaintiff, and Smashwords, an e-book distributor. The plaintiff, after her husband terminated his agreement with Smashwords, believed that Barnes & Noble, a partner of Smashwords, engaged in copyright infringement when it left the listing of Smith’s book on its site after the agreement was terminated. The Second Circuit, however, chose not to deal with these “novel” copyright questions in cloud computing.
Louis Smith authored and copyrighted a book entitled The Handscrabble Zone. In 2009, Mr. Smith contracted with Smashwords to market his book, which included marketing to its partner, Barnes & Noble. The contract between Mr. Smith and Smashwords “did not provide that a customer’s right to use a validly obtained sample (or the entire work) would terminate, even if the distribution agreement was cancelled.” Disappointed with the sales of the book, Smith terminated his agreement with Smashwords, but not before a customer bought a digital copy.
When a customer downloads a free digital sample through a Barnes & Noble account, the sample is stored on the customer’s digital locker, which is a cloud-based system. As the Second Circuit explained, “cloud computing uses remote servers and networks for data storage which may be accessed using web-enabled devices . . . ”. Despite this, the Second Circuit did not address the copyright nature of cloud computing, due to the “sparse facts of the case” and further suggested that cloud computing was still a very novel area to set a hard-lined rule on its copyright potential.
The Second Circuit’s avoidance of this issue follows the same path taken by the Supreme Court in 2014 when the Court avoided the question of full copyright protection for cloud computing services in American Broadcasting Companies, Inc. v. Aereo, Inc. Instead, the Court held that Aereo violated copyright law by selling programming through the Internet without paying licensing fees to the copyright holders of the television programs by interpreting the Transmit Clause of the Copyright Act to “allow the aggregation of separate transmissions from separate copies passing to different consumers as an infringing ‘public performance’.” Aereo utilized cloud computing to store TV shows and then deliver the live or recorded programming to its customers. The Court said that questions on copyright in cloud computing should “await a case in which they are squarely presented.”
Justin Schultz, stated that Aereo’s ruling “is dangerous because . . . providers now have additional responsibilities to think about, which may vary user-by-user and file-by-file.” The Second Circuit retained similar ambiguity for cloud computing companies in its decision in the Barnesandnoble.com case. This ambiguity, however, could come at a price for cloud storage companies.
While Schultz claimed that Aereo’s ruling would have a serious impact on innovation in television Internet start-ups because of the lack of clarity, the same could be said for companies like Barnes & Noble that want to create an e-book system with digital lockers because cloud developers would be unclear about the legal implications of their e-book systems, and thus, may be discouraged from investing in companies that use cloud technologies. Additionally, these companies may have to bear the burden of a higher cost in doing business to avoid copyright infringement cases like those brought against Aereo and Barnes & Noble.
Although the Supreme Court and the Second Circuit have both “dodged” the copyright question “bullet” in cloud computing, the ever-evolving nature of cloud technologies may inevitably bring a case before the courts that will contain enough facts to consider a more definitive rule for copyright in cloud technologies. Smith plans to bring an en banc rehearing of her case.
While the possibility remains that the court will rule the same way, the court should apply a long-followed rule in the Second Circuit known as the Sony-Betamax rule–“producers of products that can be used to violate copyright law shouldn’t be held liable for . . . copyright infringement if the product has substantial law uses“—although the Second Circuit used both this rule and the lack of conscious conduct needed for copyright infringement to toss out the case. Therefore, while the court may have gotten closer to answering questions on copyright in cloud computing in the Barnes & Noble case, the increasing technology surrounding cloud computing industries and the push for innovation should serve as a tipping point for courts to rule on this issue in a similar case, and possibly sidestep the lack of pertinent facts.
 Smith v. Barnesandnoble.com, LLC, 2016 U.S. App. LEXIS 18149, at *1-2 (2d Cir. October 6, 2016). Bill Donahue, 2nd Circ. Dodges ‘Novel’ Cloud Storage Copyright Questions, Law360 (Oct. 15, 2016, 5:00 PM), https://www.law360.com/media/articles/849009/2nd-circ-dodges-novel-cloud-storage-copyright-questions?nl_pk=2ee9e58f-6033-4044-b78b-d17887bd8312&utm_source=newsletter&utm_medium=email&utm_campaign=media.
 Barnesandnoble.com, U.S. App. LEXIS 18149, at *3, 5. Donahue, supra note 1.
 Donahue, supra note 1.
 Barnesandnoble.com, U.S. App. LEXIS 18149, at *3.
 Barnesandnoble.com, U.S. App. LEXIS 18149, at *4.
 Donahue, supra note 1.
 Alex Barinka & Caitlin McCabe, Aereo Ruling Sidesteps Cloud Computing Copyright Question, BloombergTechnology (Oct. 15, 2016, 5:39 PM), https://www.bloomberg.com/news/articles/2014-06-26/aereo-ruling-sidesteps-cloud-computing-copyright-question.
 Id. (citing American Broad. Co., Inc. v. Aereo, Inc., 189 L. Ed. 2d 476, 493 (2014)).
 Associate Professor of Clinical Law and Director of New York University’s Technology Law and Public Clinic.
 Samuel J. Dykstra, Note, Weighing Down The Cloud: The Public Performance Right and the Internet After Aereo, 46 Loy. U. Chi. L.J. 989, 1056-57 (2015).
 Alex Barinka & Caitlin McCabe, supra note 6.
 See Dykstra, supra note 12 ,at 995.
 Donahue, supra note 1.