• by Wendy Davis  @wendyndavis, July 11, 2011

A federal judge has ruled that a lawsuit by the motion picture industry against digital locker service Hotfile can proceed to trial. 

In a ruling issued late last week, U.S. District Court Judge Adalberto Jordan in the Southern District of Florida held that the Motion Picture Association of America made sufficient allegations to warrant further proceedings on charges that Hotfile induced its users to infringe copyright.

"The complaint alleges that hotfile.com is a Web site that Hotfile uses to promote copyright infringement and alleges that Hotfile took affirmative steps to foster this infringement by creating a structured business model that encourages users to commit copyright infringement," Jordan wrote. "At this stage, that suffices to plead a claim for inducing copyright infringement."

But Jordan also gave a partial victory to Hotfile by dismissing a count alleging that the company itself (as opposed to its users) infringed copyright.

The case dates to February, when the MPAA filed a lawsuit arguing that Hotfile's business model encourages users to infringe copyright. The company allows people to upload and distribute files for free, but at restricted speeds.

Hotfile also offers premium memberships without the speed limits at prices ranging from $9 a month to $55 a year. In addition, it operates an affiliate program that compensates users who upload popular files, according to the court papers.

The MPAA argues that this system encourages users to upload copyrighted videos and promote the links on other sites in order to garner referral fees.

Hotfile argued in a motion to dismiss the lawsuit that the MPAA had not alleged a plausible reason to hold Hotfile responsible for users' piracy and that its compensation system does not encourage infringement. "At most," Hotfile asserted, its payment system "shows an intent to reward users who publicize the materials they upload instead of merely using the service for personal storage (such as backups)."

Although Jordan rejected Hotfile's bid to dismiss the case at a preliminary stage, Hotfile can still argue that it ultimately should prevail under the safe harbor provisions of the Digital Millennium Copyright Act. The safe harbors generally protect sites from infringement liability based on material uploaded by users, as long as the site takes down pirated material upon request of the owner.