Source: https://www.manatt.com/Insights/Newsletters/Entertainment-and-Media-Litigation-Update/Be-Reasonable-The-U-S-Supreme-Court-Agrees-to-Re
Timestamp: 2019-04-18 22:42:05+00:00

Document:
To Be or Not to Be… Is Internet Streaming a "Cable System" Under the Copyright Act?
Why it matters: On January 15, 2016, the U.S. Supreme Court granted certiorari in the case of Supap Kirtsaeng DBA Bluechristine99 v. John Wiley & Sons, Inc., agreeing to review the issue of what constitutes the appropriate standard for awarding attorneys' fees to prevailing parties under Section 505 of the Copyright Act. The Court took the case due to, among other things, what appears to be a bona fide circuit split in the interpretation and application of Section 505. If the case sounds familiar, it is. In 2013, the Court ruled that the actions of Supap Kirtsaeng, a Thai national who had purchased foreign editions of textbooks overseas at low prices and sold them in the United States for a profit, were protected by the "first-sale" doctrine under the Copyright Act and that Kirtsaeng was therefore not liable for copyright infringement in a suit brought by academic textbook publisher John Wiley & Sons. Now Kirtsaeng—the prevailing party in the dispute—is before the Court again, seeking his "reasonable" attorneys' fees from that litigation.
Detailed discussion: On January 15, 2016, the U.S. Supreme Court granted certiorari in the case of Supap Kirtsaeng DBA Bluechristine99 v. John Wiley & Sons, Inc., agreeing to review the single question presented of "[w]hat is the appropriate standard for awarding attorneys' fees to a prevailing party under § 505 of the Copyright Act?" This constitutes the second time that the Court has granted certiorari in connection with this case. In 2013, the Court reversed the decisions of the district court and the Second Circuit and held that the actions of Supap Kirtsaeng (Petitioner), a citizen of Thailand who purchased foreign editions of textbooks overseas at a low price and then resold them in the United States for a profit, were protected by the "first-sale" doctrine so as not to constitute copyright infringement under the Copyright Act of 1976 (Copyright Act). Since that decision, Petitioner—as the prevailing party—has been unsuccessfully attempting to collect his Section 505 "reasonable" attorneys' fees incurred in connection with the litigation. Both the district court and the Second Circuit declined to award him his fees, and the Supreme Court agreed to take the case due to, among other considerations, a split among the circuits on the issue.
Section 505 of the Copyright Act provides that a "court may ... award a reasonable attorney's fee to the prevailing party." In his Petition for Writ of Certiorari (Writ), the Petitioner pointed to a split in the circuits regarding the interpretation of Section 505 and argued that the split adversely affected the outcome of his fee award based solely on where he was originally sued: "Had Kirtsaeng prevailed in the Ninth or Eleventh Circuit, he would have obtained his reasonable attorneys' fees. Had he prevailed in the Fifth or Seventh Circuits, he would have had a rebuttable presumption in favor of obtaining his attorneys' fees. Had he prevailed in the Third, Fourth, or Sixth Circuits, Kirtsaeng very likely would have obtained his attorneys' fees. Unluckily for Kirtsaeng, Wiley sued him in the Southern District of New York, and so when Kirtsaeng prevailed, he prevailed in the Second Circuit, where Second Circuit precedent meant Kirtsaeng could not obtain his attorneys' fees."
The Petitioner argued in the Writ that the circuits are "in utter disarray" and "hopelessly split" on the appropriate standard for awarding attorneys' fees under Section 505 ("Eight courts of appeals have split at least four ways in considering … fee requests under § 505"). For example, the Petitioner argued that the Second Circuit, unlike the other circuits, looks to case law precedent and places "substantial weight" on whether the losing party's claim or defense was "objectively unreasonable," i.e., whether it was "clearly without merit or devoid of legal or factual basis." In the Petitioner's case, the Second Circuit upheld the district court's denial of attorneys' fees—even though many factors weighed in favor of awarding them—because " 'th[o]se factors did not outweigh the "substantial weight" afforded to John Wiley and Sons' objective reasonableness.' " Petitioner argued in the Writ that "[b]y definition, a claim or defense that is 'unreasonable' is one that is outside the norm of a usual claim, so, by applying a rule that attorneys' fees are generally not awarded except when the losing party's claim or defense was unreasonable, the Second Circuit has created a presumption against awarding fees."
By contrast, the Petitioner cited applicable circuit case law precedent to demonstrate that, in determining Section 505 awards (a) the Ninth and Eleventh Circuits ask only whether "the prevailing party's claim or defense furthered the interests of the Copyright Act, with no presumptions one way or the other"; (b) the Fifth and Seventh Circuits "apply a presumption in favor of a fee award for prevailing parties"; and (c) the Third, Fourth, and Sixth Circuits have "forged yet another path" and rely on the four "non-exclusive factors" listed in the Supreme Court's 1994 decision in Fogerty v. Fantasy, Inc.: " 'frivolousness, motivation, objective unreasonableness ...[,] and ... considerations of compensation and deterrence.' "
For these and other reasons, the Petitioner urged the Supreme Court to agree to hear the case, arguing that "[b]ecause the Second Circuit's decision splits with the approaches of the other courts of appeals and is inconsistent with this Court's precedent, this Court should grant cert to address the proper standard for awarding fees under the Copyright Act." The Supreme Court agreed. As always, we will be watching and report back.
Click here to read the Petition for Writ of Certiorari in Supap Kirtsaeng DBA Bluechristine99 v. John Wiley & Sons, Inc.
Why it matters: On December 31, 2015, The Authors Guild filed a petition for writ of certiorari with the U.S. Supreme Court seeking the Court's review of the Second Circuit's October 16, 2015, opinion in The Authors Guild v. Google, Inc. In that opinion, the Second Circuit held that the digital replication of copyrighted books by Google, Inc., as part of its Google Books digital database and Library Project programs, and the search and snippet display features of its Google Books search engine, constitute fair use so as to defeat copyright infringement claims asserted by the books' authors. The first line of the Second Circuit's opinion stated that "[t]his copyright dispute tests the boundaries of fair use." The Authors Guild is hoping that the U.S. Supreme Court agrees, and that the Second Circuit's opinion was sufficient to create a valid circuit split so as to warrant the Court taking the case up for review.
"1. Whether, in order to be 'transformative' under the fair use exception to copyright, the use of the copyrighted work must produce 'new expression, meaning, or message,' as this Court stated in Campbell and as the Third, Sixth, and Eleventh Circuits have held, or whether the verbatim copying of works for a different, nonexpressive purpose can be a transformative fair use, as the Second, Fourth, and Ninth Circuits have held.
2. Whether the Second Circuit's approach to fair use improperly makes 'transformative purpose' the decisive factor, replacing the statutory four-factor test, as the Seventh Circuit has charged.
3. Whether the Second Circuit erred in concluding that a commercial business may evade liability for verbatim copying by arguing that the recipients of those copies will use them for lawful and beneficial purposes, a rationale that has been flatly rejected by the Sixth Circuit."
A review of the Second Circuit's opinion is in order. Before we go on, however, a brief explanation of the "Google Books" and "Library Project" programs that are at issue: According to the facts set forth in the Second Circuit's opinion, Google's Library Project commenced in 2004, pursuant to which Google entered into agreements with numerous "major research libraries" (including those at Harvard, Stanford and University of Michigan) to create digital scans of books owned and submitted by the libraries for inclusion in the project. In addition to creating the digital scans, the agreements with the libraries permit Google to extract and index machine-readable texts from the scans for inclusion in its Google Books online digital database. Google then gives the libraries access to download and retain digital copies of the books they submitted for their own use. Since 2004, Google has created digital scans of and indexed more than 20 million books, including both copyrighted and public domain works, many of which are nonfiction or out of print. To the extent the books are subject to a valid copyright, Google does not seek the copyright holding author's permission to create the digital copies. Google created the Google Books search engine so as to enable the public to conduct searches of the "digital corpus" online database for specific words or phrases (which would allow, for example, a searcher to ascertain the frequency of usage of such search terms in different historical periods) and see short snippets of text from digital scans that contain the search terms. Google Books has built-in protections to block widespread dissemination of the digital scans via an aggregation of the snippets, such as "blacklisting," which makes one snippet of text on each page and one complete page out of every ten permanently unavailable. In addition, Google Books does not provide snippet views of certain books—such as cookbooks or dictionaries—where a view of the snippet would typically satisfy the search. Moreover, if the copyright-holding author so requests, Google will refrain from providing snippets of text from that author's book.
The decade-long procedural path to the Second Circuit was a circuitous one. In September 2005, the three Plaintiff authors, whose books were digitally scanned as part of the Library Project and incorporated into the Google Books database, brought a putative class action in the Southern District of New York on behalf of themselves and similarly situated copyright-holding authors. After years of negotiations, the parties reached a proposed settlement in 2011 that would have allowed Google more extensive use of the digital scans in exchange for royalty payments to the rights holders. That proposed settlement was rejected by the district court in March 2011. In October 2011 the plaintiffs filed a fourth amended class action complaint, which was the complaint at issue before the Second Circuit. The district court certified a class in May 2012, which the Second Circuit later decertified without addressing the merits of the case pending resolution of Google's motion for summary judgment with respect to its fair use defense (which, if granted, would "moot" many of the class certification issues before the Second Circuit). On November 14, 2013, the district court granted Google's motion for summary judgment, ruling that Google's "use" of the copyrighted books (i.e., the digital copies of those books) as part of the Library Project and the Google Books database met all of the elements of fair use under Section 107. On December 10, 2013, the district court entered an amended judgment dismissing the plaintiffs' case with prejudice. The plaintiffs thereafter appealed to the Second Circuit, which affirmed.
The Second Circuit began its analysis with a review of the "Law of Fair Use," commencing with its common law origins and noting that "while authors are undoubtedly important intended beneficiaries of copyright, the ultimate, primary intended beneficiary is the public, whose access to knowledge copyright seeks to advance." The Court said that common law "thus developed the doctrine, eventually named fair use, which permits unauthorized copying in some circumstances, so as to further 'copyright's very purpose' " of promoting the public's access to knowledge. The Court went on to state that the doctrine of fair use was officially codified by Congress in Section 107 of the Copyright Act, which lists the following four "factors to be considered" when determining whether there has been fair use in any particular instance: "(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purpose; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work."
The Court noted that Section 107 on its face "does not furnish standards for recognition of fair use," but that the courts have developed such standards, most notably in the Supreme Court's 1994 decision in Campbell v. Acuff-Rose Music, Inc., which "undertook a comprehensive analysis of fair use's requirements, discussing every segment of Section 107." Noting the Supreme Court's ruling in Campbell that the Section 107 factors must be considered and weighed together on a case-by-case basis, and noting further that the Supreme Court in later rulings has deemed the first and fourth factors to be "more significant than [the] others" and thus entitled to greater weight, the Court stated that "[e]ach factor thus stands as part of a multifaceted assessment of the crucial question: how to define the boundary limit of the original author's exclusive rights in order to best serve the overall objectives of the copyright law to expand public learning while protecting the incentives of authors to create for the public good."
Given this background, the Court went on to "discuss each of the statutory factors, as illuminated by Campbell and subsequent case law, in relation to the issues here in dispute." First up for the Court were the Google Books "search and snippet view functions." With respect to the first Section 107 factor, the Court cited Campbell to find that these functions were "transformative uses" of the copyrighted books, which, when found, "tend to favor a fair use finding because a transformative use is one that communicates something new and different from the original or expands its utility, thus serving copyright's overall objective of contributing to public knowledge." The Court thus had "no difficulty concluding that Google's making of a digital copy of Plaintiff's books for the purpose of enabling a search for identification of books containing a term of interest to the searcher involves a highly transformative purpose, in the sense intended by Campbell." Further, the "[s]nippet view adds important value to the basic transformative search function, which tells only whether and how often the searched term appears in the book," and thus "adds importantly to the highly transformative purpose of identifying books of interest to the searcher." The Court then addressed the Plaintiffs' argument that Google's use was "commercial in nature," thus outweighing its transformative purpose. Here, the Plaintiffs had argued that, although Google derived no direct revenues from the operation of Google Books, Google is nonetheless "profit-motivated and seeks to use its dominance of book search to fortify its overall dominance of the Internet search market" so as to indirectly profit. To this argument, the Court stated that it has "repeatedly rejected the contention that commercial motivation should outweigh a convincing transformative purpose and absence of significant substitutive competition with the original," and thus "we see no reason in this case why Google's overall profit motivation should prevail as a reason for denying fair use over its highly transformative purpose, together with the absence of significant substitutive competition, as reasons for granting fair use."
The Court then looked at the Google Books functions in relation to factors two and three of Section 107 and found both favored a finding of fair use in this case. With respect to the second factor, which the Court stated has "rarely played a significant role in the determination of a fair use dispute," the Court found it "favors fair use…because the secondary use transformatively provides valuable information about the original, rather than replicating protected expression in a manner that provides a meaningful substitute for the original." With respect to the third factor, the Court stated that "a finding of fair use is more likely when small amounts, or less important passages, are copied than when the copying is extensive, or encompasses the most important parts of the original." Here, the Court acknowledged that the copyrighted books were digitally copied in their entirety for Google Books' purposes, but stated that "[c]omplete unchanged copying has repeatedly been found justified as fair use when the copying was reasonably appropriate to achieve the copier's transformative purpose and was done in such a manner that it did not offer a competing substitute with the original." The Court found that the copying in this case, while unauthorized, was "made to enable the search function to reveal limited, important information about the books" and that at no time was the entire copied book revealed to the public. With respect to the snippet views of text revealed as part of the Google Books search, the Court concluded that, while this feature could be troubling depending on how much of the book is excerpted "as presently structured by Google, the snippet view does not reveal matter that offers the marketplace a significantly competing substitute for the copyrighted book."
Turning to the fourth factor of Section 107—which the Court said is of "great importance in making a fair use assessment" due to the commercial nature of copyright—the Court considered whether the snippet views, while transformative, brought to the marketplace "a competing substitute for the original, or its derivative, so as to deprive the rights holder of significant revenues because of the likelihood that potential purchasers may opt to acquire the copy in preference to the original." The Court answered this question in the negative, concluding that "we think it would be a rare case in which the searcher's interest in the protected aspect of the author's work would be satisfied by what is available from snippet view, and rarer still—because of the cumbersome, disjointed, and incomplete nature of the aggregation of snippets made available through snippet view—that snippet view could provide a significant substitute for the purchase of the author's book."
After thus considering the four Section 107 fair use factors "in light of the goals of copyright," the Court held that "Google's making of a complete digital copy of Plaintiffs' works for the purpose of providing the public with its search and snippet view functions (at least as snippet view is presently designed) is a fair use and does not infringe Plaintiffs' copyrights in their books." The Court dismissed as "without merit" the Plaintiffs' argument that they had derivative rights under Section 106(2) of the Copyright Act in the Google Books search and snippet view functions, finding that "the copyright that protects Plaintiffs' works does not include an exclusive derivative right to supply such information through query of a digitalized copy." The Court also dismissed the Plaintiffs' arguments that Google Books' storage of the digitalized copies of their books exposed them to the risk of wide dissemination by hackers, thereby destroying the value of their copyrights; while these arguments were "theoretically sound," the Court found them to be not supported by the evidence.
The Court next addressed and dismissed the Plaintiffs' argument that the Library Project was not a fair use of the Plaintiffs' books and exposed them to risk of copyright devaluation if the digital copies provided to the participating libraries were used in an infringing manner or if the libraries failed to keep them secure from hackers. The Court pointed out that the Library Project consists of participating libraries contracting with Google to create for them digital copies of books that they already own for their use in a noninfringing fair use manner, typically consisting of making the digital scans available to be searched by library patrons (similar to Google Books). The Court further pointed out that it would be fair use if the libraries had made their own digital copies of their books for patron search purposes and it did not become infringement simply because the libraries contracted with Google (with its expertise and resources) to create the libraries for them. Moreover, the Court noted that Google's contracts with the libraries contain provisions requiring the libraries to use the digital copies in a manner consistent with copyright law and to take security precautions to prevent hacking resulting in their wide dissemination to the public. The Court thus concluded that "Google's creation for each library of a digital copy of that library's already owned book in order to permit that library to make fair use through provision of digital searches is not an infringement." The Court further reasoned that if the libraries were in the future to use the digital copies in an infringing manner or insecurely store them so as to expose them to risk from hacking, then the Plaintiffs could bring suit against the libraries, not Google, unless it could be proven that Google was a contributory infringer. The Court found this argument, however, to be purely speculative and not supported by the facts before them.
The Court thus concluded by holding that "(1) Google's unauthorized digitizing of copyright-protected works, creation of a search functionality, and display of snippets from those works are non-infringing fair uses. The purpose of the copying is highly transformative, the public display of text is limited, and the revelations do not provide a significant market substitute for the protected aspects of the originals. Google's commercial nature and profit motivation do not justify denial of fair use. (2) Google's provision of digitized copies to the libraries that supplied the books, on the understanding that the libraries will use the copies in a manner consistent with the copyright law, also does not constitute infringement. Nor, on this record, is Google a contributory infringer."
The Second Circuit's opinion certainly does seem to "test the boundaries of fair use" among the circuits. We will be watching with avid interest to see if the Supreme Court agrees to review the case and report back.
Click here to read the Petition for a Writ of Certiorari filed with the U.S. Supreme Court by The Authors Guild on 12/31/15.
Click here to read the Second Circuit's 10/16/15 opinion in The Authors Guild et al. v. Google, Inc.
Why it matters: On November 12, 2015, a D.C. federal judge ruled in Fox Television Stations, Inc. v. FilmOn X LLC that the FilmOnX Internet streaming service is not a "cable system" entitled to a compulsory license under Section 111 of the Copyright Act. As a result, the judge ruled that the service was liable to broadcaster copyright holders for infringing their exclusive public performance rights via the unlicensed streaming of their programming. That case has now been appealed to the D.C. Circuit. The district court's opinion is in direct contrast to a ruling handed down by a Central District of California court in July 2015 (now on appeal to the Ninth Circuit) involving the same players and facts that the Internet streaming service does potentially qualify as a cable system under the Copyright Act. Based on what happens on appeal in these two cases, the issue of whether Internet streaming services can be classified as cable systems entitled to compulsory licenses under the Copyright Act could be heading to the U.S. Supreme Court to decide.
Detailed discussion: On November 12, 2015 (redacted opinion unsealed on December 1, 2015), Judge Rosemary Collyer of the D.C. district court ruled in Fox Television Stations, Inc. v. FilmOn X LLC that Internet streaming service FilmOnX was not a "cable system" under the Copyright Act of 1976 (Copyright Act) and thus was not entitled to a compulsory license under Section 111 thereof (Section 111 Compulsory License). As a result, Judge Collyer ruled that FilmOnX was liable under the Copyright Act to the plaintiff broadcasters and programmers (collectively, "Plaintiffs") for streaming their programming without authorization. Judge Collyer certified the case for appeal to the D.C. Circuit on January 5, 2016. Contrast Judge Collyer's ruling with a ruling by a Central District of California judge in July 2015 in Fox Television Stations, Inc. v. FilmOn X LLC.—involving the same players and facts—that reached the opposite conclusion and held that the Internet streaming service does potentially qualify as a "cable system" that is entitled to a Section 111 Compulsory License. That latter decision is now before the Ninth Circuit on interlocutory appeal—more on that later.
Judge Collyer began her detailed, 45-page opinion by succinctly framing the issue she was being asked to resolve: "whether a service that engages in Internet retransmission of over-the-air television programming violates the Copyright Act." The opinion then provides a synopsis of the relevant facts and procedural history, which we briefly summarize here: In 2010, the Plaintiffs sued FilmOnX's predecessor, FilmOn, in the Southern District of New York for copyright infringement based on FilmOn's unauthorized streaming of their programming. FilmOn was described in court papers as a service that streamed broadcast signals over the Internet on a "live basis." In that litigation, FilmOn claimed that it was essentially a "cable system" within the meaning of the Copyright Act and was thus entitled to a Section 111 Compulsory License. The district court disagreed, holding that FilmOn was not a cable system and thus its retransmissions were infringements of the Plaintiffs' copyrights. The Second Circuit affirmed that decision. Subsequently, FilmOn was permanently enjoined from streaming the Plaintiffs' programming without permission. In 2012, FilmOnX was launched. The "new and improved" FilmOnX was described as a service that "captures the signals of multiple television channels that are broadcast over-the-air and streams them over the Internet to the public." Unlike the prior system, FilmOnX relied on "mini-antenna/data video recorder technology" (including thousands of dime-sized antennas distributed in major metropolitan areas throughout the United States) that provided individual viewers with "both time-delayed and nearly simultaneous retransmissions of copyrighted content." Also unlike the prior system, FilmOnX expressly denied that it was a cable system within the meaning of the Copyright Act and instead maintained it was a "remote storage DVR" exempted from copyright liability altogether under then applicable Second Circuit precedent. A Southern District of New York judge agreed with this "remote storage DVR" argument in connection with separate litigation over a virtually identical Internet streaming service called Aereo (Barry Diller's start-up) (Aereo I). As a result, FilmOnX was not part of the injunction imposed upon its predecessor FilmOn.
The Plaintiffs next filed suit against FilmOnX in the Central District of California in 2012 in Fox Television Stations, Inc. v. FilmOn X LLC (f.k.a. Aereokiller). At that time, Central District of California Judge George Wu disagreed with the decision in Aereo I, and preliminarily enjoined FilmOnX from the unauthorized streaming of the Plaintiffs' broadcasts… but only within the Ninth Circuit. After the Second Circuit affirmed Aereo I in 2013 (Aereo II), the Plaintiffs filed suit in the District of Columbia, still hoping to obtain a nationwide injunction against FilmOnX. In September 2013, Judge Collyer ruled that FilmOnX's unauthorized retransmission "likely" infringed upon the Plaintiffs' copyrights and preliminarily enjoined FilmOnX from continuing the unauthorized streaming of their programming. In 2014, the U.S. Supreme Court overturned both Aereo I and Aereo II in its landmark decision in American Broadcasting Companies, Inc. v. Aereo, Inc. (Aereo III) and ruled that the retransmission of over-the-air broadcasts to Internet-connected devices did indeed constitute an unlicensed and unauthorized public performance of the Plaintiffs' copyrighted programming in violation of the Copyright Act. Key to what was argued later in the D.C. district court and other cases was the analogy the Supreme Court drew in Aereo III between the Internet streaming systems (e.g., FilmOnX and Aereo) and the "highly similar" community antenna television (CATV) systems (the precursors to modern cable systems) that Congress brought within the scope of the Copyright Act in 1976, which the Supreme Court used to conclude that "retransmitting copyrighted programming over the Internet constitutes a public performance within the meaning of the [Copyright Act]."
Which brings us to the present case. The motion before Judge Collyer had to do with FilmOnX, after initially denying that it was a cable system within the meaning of the Copyright Act, now using the Supreme Court's analogy in Aereo III to claim that it was indeed a cable system entitled to a Section 111 Compulsory License. After first noting that Aereo unsuccessfully tried this same argument on remand to the Southern District of New York (Aereo was permanently enjoined on a nationwide basis and is now defunct), and also noting that the judge in the Central District of California FilmOnX case reached the opposite conclusion in July 2015, Judge Collyer held that FilmOnX, as an Internet streaming service, did not fall within the definition of a "cable system" under the Copyright Act, and was thus not entitled to a Section 111 Compulsory License.
Judge Collyer began her analysis by noting "the question here is whether FilmOn X is a cable system in light of the analogies in Aereo III and the text of § 111(c)." With respect to Aereo III, FilmOnX argued that, while the Supreme Court did not explicitly decide the issue of whether Internet-based streaming services qualify as cable systems under the Copyright Act, the Court impliedly did so when it "embraced a technology-agnostic" interpretation of the Copyright Act by analogizing Internet streaming services to CATV and cable systems and highlighting their "overwhelming likeness." Judge Collyer disagreed, stating that FilmOnX "overread Aereo III" and that the Supreme Court made its analogy for purposes of determining infringement liability under the Copyright Act, and not for determining whether an entity constitutes a cable system for purposes of obtaining a Section 111 Compulsory License.
Judge Collyer next looked to the "plain language" of the definition of "cable system" in Section 111(f)(3) of the Copyright Act: "a facility, located in any State, Territory, Trust Territory, or Possession, that in whole or in part receives signals transmitted or programs broadcast by one or more television broadcast stations licensed by the Federal Communications Commission, and makes secondary transmissions of such signals or programs by wires, cables, microwave, or other communications channels to subscribing members of the public who pay for such service." Judge Collyer rejected FilmOnX's myriad arguments that it fit into this definition for the following main reasons: (1) under the definition a facility must both receive and retransmit signals, FilmOnX's only "physical facilities" are the small antennas it uses to capture the broadcast signals, but those "facilities" do not also retransmit the signals as required by the definition (it relies on separate Internet service providers to do that); (2) a cable system must be "located in a State, Territory, Trust Territory, or Possession," and, by contrast, the Internet has no physical geographical location and "exists in cyberspace"; and (3) Internet delivery is not limited to "wires, cables, microwave or other communications channels." The judge also rejected FilmOnX's argument that Congress meant to embrace any new forms of delivery technologies—such as the Internet—with the "other communications channels" language, stating that "Congress did not consider the Internet in 1976 when § 111 was enacted and has not amended the definition since to include anything resembling a distribution medium with a global footprint." Finally, Judge Collyer looked for guidance to the Copyright Office's interpretation of Section 111, and found that "[f]or over fifteen years, the Copyright Office has taken the position that Internet-based retransmission services are not cable systems and do not fall within § 111."
Given her finding that FilmOnX is not a cable system entitled to a Section 111 Compulsory License, Judge Collyer went on to find FilmOnX liable under the Copyright Act for infringing the Plaintiffs' exclusive public performance rights. On January 5, 2016, Judge Collyer certified the case for immediate appeal to the D.C. Circuit. As for the Central District of California litigation, on July 24, 2015 (after the parties had filed cross-motions for summary judgment in light of Aereo III), Judge Wu reached the opposite conclusion as Judge Collyer, and held that FilmOnX does indeed potentially qualify as a cable system under the Copyright Act and is therefore entitled to a Section 111 Compulsory License, but remains potentially liable for "non-compliant secondary transmissions." Judge Wu recognized the import of his ruling, stating that the "legal issues [in the case] are close and of significant commercial importance. This Order and the Court's Opinion disagree with the analysis of both the United States Court of Appeals for the Second Circuit in an analogous case … and the United States Copyright Office, and will materially affect the outcome of this litigation." Judge Wu then certified the case for interlocutory appeal to the Ninth Circuit to resolve the issue. The Ninth Circuit agreed to take the appeal on September 16, 2015.
We will keep an eye on both these appeals and report back. Depending on the outcomes, there could be another circuit split and another trip to the U.S. Supreme Court.
Click here to read the D.C. district court's 11/12/15 opinion in Fox Television Stations, Inc. v. FilmOn X LLC.
Click here to read the Central District of California's 7/24/15 Order on Cross- Motions for Partial Summary Judgment and Certification of Immediate Appeal in Fox Television Stations, Inc. v. FilmOn X LLC.
Why it matters: Following a two-week trial in the case of BMG Rights Management (US) LLC v. Cox Communications, Inc., on December 17, 2015, a federal jury found high-speed Internet service Cox Communications liable for willful contributory copyright infringement for "turning a blind eye" to the repeated illegal downloading and sharing of music files by its subscribers. The jury awarded damages in the amount of $25 million in the first case where an Internet service provider (ISP) has been held responsible for its subscribers' music piracy. Prior to the trial's start, the judge ruled that Cox Communications could not avail itself of a safe harbor defense afforded to ISPs under the Digital Millennium Copyright Act, which defense potentially could have shielded Cox Communication against any liability.
Detailed discussion: In the first time that an ISP has been held responsible for its subscribers' music piracy, on December 17, 2015, a federal jury in BMG Rights Management (US) LLC v. Cox Communications, Inc. found high-speed ISP Cox Communications, Inc. (Cox) liable for willful contributory copyright infringement and awarded damages in the amount of $25 million. The jury's verdict was based on evidence presented at the two-week trial that Cox had "turned a blind eye" to the illegal downloading and sharing of music by its subscribers, including not terminating—or "soft" terminating but then reactivating—the accounts of known "repeat infringers." Prior to the trial's start, the judge ruled that Cox did not qualify for one of the safe harbor defenses afforded to ISPs under the Digital Millennium Copyright Act (DMCA), which would have limited Cox's liability. More on that later.
First, a brief summary of the background of the case: BMG Rights Management (US), LLC (BMG) and Round Hill Music LP (collectively, Plaintiffs), the putative owners or administrators of approximately 1,400 musical composition copyrights, sued Cox in 2014 for, among other things, contributory copyright infringement, alleging that the ISP did nothing to stop its subscribers—many of them "repeat infringers"—from using peer-to-peer (P2P) file sharing to illegally upload and download music files. The evidence to back up these claims came through Plaintiffs' use of Rightscorp, Inc. (Rightscorp) as their agent to identify infringing uses of their copyrighted works. Rightscorp's process involved using software to search websites that index P2P files and, through a complicated process, identifying those P2P files that contained one or more of the Plaintiffs' copyrighted works. Once identified, Rightscorp was able to obtain the date, time and IP addresses of the peers between whom the P2P files were shared. In March 2011, Rightscorp began sending infringement notices (ultimately totaling over 2.5 million) to Cox, the ISP associated with the recorded IP addresses, using an email address specifically provided by Cox for the purpose. A large percentage of these infringement notices related to repeat infringer subscriber accounts. After much back and forth between the parties having to do with the settlement offers contained in Rightscorp's infringement notices (Cox asked for the offers to be removed; Rightscorp kept them in), Cox at first blacklisted, then outright blocked, email delivery of the notices by October 2011. The Plaintiffs subsequently filed their complaint against Cox in November 2014 in the Eastern District of Virginia. In its answer, Cox claimed as one of its defenses that, as an ISP, its liability for copyright infringement was limited because it was protected by one of the "safe harbors" for ISPs contained in the DMCA, namely that it was a "mere conduit" for "transitory digital networking communications," and that it did "nothing more than transmit, route, or provide connections for copyrighted material (Conduit Safe Harbor). "
Prior to the trial's start, District Court Judge Liam O'Grady heard oral arguments in connection with cross-summary judgment motions filed by the parties. As part of their summary judgment motion, the Plaintiffs requested that the judge find that Cox was not entitled to the Conduit Safe Harbor defense, which the judge granted on December 1, 2015. In his analysis, the judge noted that, in order to benefit from any one of the four safe harbors in the DMCA, ISPs such as Cox must meet certain "threshold requirements," the most relevant to this case being the requirement that the ISP demonstrate that it has "adopted and reasonably implemented, and informed subscribers and account holders of the service provider's system or network of, a policy that provides for the termination in appropriate circumstances of subscribers and account holders of the service provider's system or network who are repeat infringers."
The fact that Cox had such a policy in place at the time of the events leading up to the lawsuit was not in dispute—Cox's Acceptable Use Policy (AUP) prohibited its subscribers from "post[ing], copy[ing], transmit[ting], or disseminat[ing] any content that infringes the patents, copyrights, trade secrets, trademark, moral rights, or proprietary rights of any party." The AUP further provided that "[v]iolation of any terms of this AUP may result in the immediate suspension or termination of either . . . access to the Service and/or [the] Cox account." Claims regarding subscriber copyright infringement were handled through Cox's abuse department using a written "graduated response procedure" for repeat infringers with delineated steps (warnings, etc.) to be taken leading up to an account being suspended or terminated.
Per Judge O'Grady, the issue turned on whether Cox had "reasonably implemented" its AUP policy toward repeat infringers. After reviewing the evidence, the judge determined that it had not. The judge pointed to internal Cox emails showing that Cox employees in actuality employed an "unwritten semi-policy" to delay the termination of and/or reactivate repeat infringers in order to maintain subscriber revenue. Tellingly, Judge O'Grady found that "[t]he record conclusively establishes that before the fall of 2012 Cox did not implement its repeat infringer policy. Instead, Cox publicly purported to comply with its policy, while privately disparaging and intentionally circumventing the DMCA's requirements. Cox employees followed an unwritten policy put in place by senior members of Cox's abuse group by which accounts used to repeatedly infringe copyrights would be nominally terminated, only to be reactivated upon request. Once these accounts were reactivated, customers were given clean slates, meaning the next notice of infringement Cox received linked to those accounts would be considered the first in Cox's graduate response procedure." The judge further found that Cox amended its AUP in October 2012 to add two additional suspension steps to its graduated response procedure, which resulted in fewer repeat infringers being terminated. Finally, the evidence showed that "Cox did not terminate account holders despite knowing that they were using Cox's service to repeatedly infringe."
Because he found Cox's implementation of its repeat infringer policy to be unreasonable, the judge granted summary judgment in favor of the Plaintiffs and ruled that Cox could not avail itself of the Conduit Safe Harbor defense, with the result that "[i]f Cox is determined [at trial] to be liable for contributory … copyright infringement, BMG will not be limited in the remedies it seeks." Two weeks later, on December 17, the jury returned the $25 million willful contributory copyright infringement verdict against Cox.
Click here and here to read the (1) 12/1/15 Memorandum of Opinion ruling on cross-summary judgment motions and (2) 12/17/15 Jury Verdict in BMG Rights Management (US) LLC v. Cox Communications, Inc.
Why it matters: On January 4, 2016, the Eleventh Circuit in Rosa and Raymond Parks Institute for Self Development v. Target Corporation held that, under Michigan common law, an individual's right of publicity can be outweighed by a "qualified privilege" protecting matters of public interest. Thus, in this case, the Court found that the public's interest in merchandise bearing the name and likeness of civil rights icon Rosa Parks outweighed the right of publicity claims brought by the institute that owns her name and likeness rights.
Detailed discussion: On January 4, 2016, the Eleventh Circuit in Rosa and Raymond Parks Institute for Self Development v. Target Corporation affirmed a lower court ruling granting summary judgment in favor of national retailer Target Corporation (Target) in a right of publicity lawsuit brought by the Rosa and Raymond Parks Institute for Self Development (Institute). A brief summary of the facts: The Institute is a Michigan 501(c)(3) nonprofit corporation that owns the name and likeness of the late Rosa Parks (Parks) through a right-of-publicity assignment. In 2011, Target began selling several books about Parks as well as the DVD of the television movie made about her life starring Angela Bassett. In addition, Target began selling a "collage-style" commemorative plaque bearing Parks' likeness. The facts show that Target was merely offering this merchandise for sale and that there was no indication that it was affiliated with Target in any way. In 2013, the Institute filed a complaint against Target in the Middle District of Alabama alleging unjust enrichment, right of publicity and misappropriation claims under Michigan common law. In particular, the complaint alleged that Target had unfairly, and "without [the Institute's] prior knowledge, or consent, used [Parks'] name, likeness, and image to sell products and did promote and sell products using [Parks'] name, likeness, and image for [Target's] own commercial advantage." The district court granted summary judgment in favor of Target, and the Eleventh Circuit affirmed on appeal.
The Eleventh Circuit began its analysis by reviewing the applicable Michigan common law on right of publicity, explaining that "[a]ppropriation for the defendant's advantage, of the plaintiff's name or likeness" is one of the four prongs that Michigan's common law right of privacy protects against. The Court pointed out, however, that this right of publicity is "not absolute" and that the Michigan constitution recognizes the right to free speech. The Court noted that, based on this state constitutional right, "Michigan courts have long recognized that individual rights must yield to the qualified privilege to communicate on matters of public interest," which privilege "is not a constant but varies with the situation and the importance of the social issues at stake."
With this precedent in mind, the Court stated that "[o]f course, it is beyond dispute that Rosa Parks is a figure of great historical significance and the Civil Rights Movement a matter of legitimate and important public interest." Moreover, "the Institute has not articulated any argument as to why Michigan's qualified privilege for matters of public concern would not apply to these works, in light of the conspicuous historical importance of Rosa Parks. Nor can we conceive of any." The Court concluded that "[t]he use of Rosa Parks's name and likeness in the books, movie, and plaque is necessary to chronicling and discussing the history of the Civil Rights Movement—matters quintessentially embraced and protected by Michigan's qualified privilege. Indeed, it is difficult to conceive of a discussion of the Civil Rights Movement without reference to Parks and her role in it. And Michigan law does not make discussion of these topics of public concern contingent on paying a fee. As a result, all six books, the movie, and the plaque find protection in Michigan's qualified privilege protecting matters of public interest."
Click here to read the Eleventh Circuit's 1/4/16 opinion in Rosa and Raymond Parks Institute for Self Development v. Target Corporation.
Why it matters: On December 28, 2015, the Fifth Circuit in Machete Productions, L.L.C. v. Page upheld a lower court's dismissal of a complaint brought by a film company that had been denied a grant under Texas's film incentive program. The production company claimed in its complaint that the incentive program violates the First Amendment because it allows Texas film commission officials to deny incentive grants for any film that they subjectively deem contains "inappropriate" content or "portrays Texas or Texans in a negative fashion." The Fifth Circuit disagreed, holding that, so long as the Texas Film Commission's grant program does not engage in content censorship or effectively prevent the expression of ideas, it does not violate the First Amendment merely by withholding funds for content it deems inappropriate or not in the public interest.
Detailed discussion: On December 28, 2015, the Fifth Circuit upheld a lower court's dismissal of a complaint brought by film production company Machete Productions L.L.C. (Machete) that alleged, among other things, that Texas's film incentive program violates the First Amendment because it allows the office overseeing it to deny incentive grants based on its subjective view of a film's content.
A bit of background: Like many states, the Texas legislature established a grant program entitled The Moving Image Industry Incentive Program (Incentive Program) in order to promote the Texas film industry and entice film production companies to film in that state. The Incentive Program is administered by the Music, Film, Television and Multimedia Office (Office) and the Texas Film Commission (TFC), and requires production companies to meet certain statutory requirements in order to qualify for grants. At issue in this case is the language contained in the Incentive Program that provides that, even if the statutory requirements for a grant are met by a production company, "[t]he [O]ffice is not required to act on any grant application and may deny an application because of inappropriate content or content that portrays Texas or Texans in a negative fashion, as determined by the [O]ffice, in a moving image project. In determining whether to act on or deny a grant application, the [O]ffice shall consider general standards of decency and respect for the diverse beliefs and values of the citizens of Texas."
According to the relevant facts set forth in the opinion, in 2009, Machete's affiliated company, Machete ChopShop (ChopShop) received preliminary approval for a grant under the Incentive Program for the film "Machete." In 2010, however, ChopShop's grant application was officially denied by the TFC because the film contained "inappropriate content or content that portrays Texas or Texans in a negative fashion." Despite this, Machete again applied for a grant under the Incentive Program for "Machete Kills" (the sequel to "Machete"), even though Governor Rick Perry's office warned Machete that the film "would never receive an Incentive Program grant due to the perceived political nature and content of the film." In June 2012, the TFC denied Machete's application due to "inappropriate content," at which point Machete sued the TFC and its individual current and former directors in Texas state court (later removed to the federal court in the Western District of Texas). Machete's amended complaint alleged, among other things, that the Incentive Program violated the First Amendment and sought injunctive relief enjoining the TFC from enforcing it. The district court dismissed Machete's complaint in its entirety, and Machete appealed to the Fifth Circuit.
The Fifth Circuit upheld the district court's dismissal of Machete's complaint. In analyzing Machete's First Amendment claims, the Court first addressed Machete's argument that it was being "discriminated against on the basis of viewpoint, thus violating its First Amendment rights." The Court rejected this argument, quoting U.S. Supreme Court precedent to hold that " '[t]he [g]overnment can, without violating the Constitution, selectively fund a program to encourage certain activities it believes to be in the public interest, without at the same time funding an alternative program which seeks to deal with the problem in another way. In so doing, the [g]overnment has not discriminated on the basis of viewpoint; it has merely chosen to fund one activity to the exclusion of the other.' " To hold otherwise, the Court said, " 'would render numerous [g]overnment programs constitutionally suspect.' " Moreover, the Court said, Supreme Court precedent provides that " '[a] government funding provision will not compromise First Amendment values as long as it '[does] not silence speakers by expressly threaten[ing] censorship of ideas,' or 'introduce considerations that, in practice, would effectively preclude or punish the expression of particular views.' "
Given this precedent, the Court affirmed the district court's dismissal of Machete's lawsuit with respect to its First Amendment claims, stating that "Machete has not shown that [the TFC's] denial of an Incentive Program grant 'effectively preclude[d] or punish[ed]' Machete from or for holding particular viewpoints in Machete Kills. . . Nor does it appear that the grant denial effectively prohibited Machete from engaging in protected First Amendment activity 'outside the scope' of the Incentive Program . . . Despite the denial of an Incentive Program grant, Machete Kills was still filmed in Texas, produced, and released. Machete does not dispute that it was free to engage in protected First Amendment activity without the benefit of an Incentive Program grant, and in fact did engage in such activity by making the film. Machete has not shown that it is clearly established that the First Amendment requires a state which has an incentive program like this one to fund films casting the state in a negative light. As such, it cannot show that [the TFC] violated Machete's clearly established rights in this context."
Click here to read the Fifth Circuit's 12/28/15 opinion in Machete Productions, L.L.C. v. Page.
SoundCloud licensing deals: On January 13, 2016, numerous news outlets reported that SoundCloud had entered into a multiyear license agreement with Universal Music Group (follow-up to the article "Thunderheads on the Horizon for SoundCloud?" in our June 2015 newsletter).
Pandora rate setting cases: On December 22, 2015, Pandora announced that it had entered into multiyear license agreements with ASCAP and BMI and, as a result, it was dropping its appeal of the May 28, 2015, Southern District of New York rate-setting decision in its lawsuit with BMI. The license agreements with ASCAP and BMI follow the December 16, 2015, ruling by the Copyright Royalty Board that Pandora and other free webcasting services such as iHeartRadio will have to pay 17 cents per 100 song plays, up from the current rate of 14 cents per 100 plays (follow-up to the article "Opening a Pandora's Box—Pandora Ordered to Pay ASCAP and BMI Drastically Disparate Rates in Parallel Rate Case Decisions" in our October 2015 newsletter).
"Dancing Baby" case: On October 21, 2015, both sides filed petitions for rehearing en banc with the Ninth Circuit, which at the time of this writing had yet to rule (follow-up to the article "The 'Dancing Baby' Case—Ninth Circuit Rules That 'Fair Use' Must First Be Considered Before Sending Takedown Notices Under the DMCA" in our October 2015 newsletter).
Google third-party subpoena case: On October 16, 2015, Southern District of Mississippi Judge Henry Wingate heard oral argument on whether the studios should be compelled to comply with the third-party subpoenas issued by Google in connection with its lawsuit against Mississippi Attorney General Jim Hood. Judge Wingate took the matter under submission and, at the time of this writing, had yet to rule (follow-up to the article "Google Seeks to Compel Studios to Respond to Third-Party Subpoenas in Case Against Mississippi AG Alleging Speech Suppression and Retaliation" in our October 2015 newsletter).

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