The 2nd Circuit Contributes To Fair Use Week With An Odd And Problematic Ruling On TVEyes

from the fair-us-has-no-predictive-value dept

For years, we've quoted a copyright lawyer/law professor who once noted that the standards for fair use are an almost total crapshoot: nearly any case can have almost any result, depending on the judge (and sometimes jury) in the case. Even though there are "four factors" that must be evaluated, judges will often bend over backwards to twist those four factors to get to their desired result. Some might argue that this is a good thing in giving judges discretion in coming up with the "right" solution. But, it also means that there's little real "guidance" on fair use for people who wish to make use of it. And that's a huge problem, as it discourages and suppresses many innovations that might otherwise be quite useful.

Case in point: earlier this week the 2nd Circuit rejected a lower court decision in the Fox News v. TVEyes case. If you don't recall, TVEyes provides a useful media monitoring service that records basically all TV and radio, and makes the collections searchable and accessible. It's a useful tool for other media companies (which want to use clips), for large PR firms tracking mentions, and for a variety of other uses as well. The initial ruling was a big win for fair use (even when done for profit) and against Fox News' assertion of the obsolete doctrine of "Hot News" misappropriation. That was good. However, that initial ruling only covered some aspects of TVEyes' operations -- mainly the searching and indexing. A second ruling was more of a mixed bag, saying that archiving the content was fair use, but allowing downloading the content and "date and time search" (as opposed to content search) was not fair use.

Some of this was appealed up to the 2nd circuit -- specifically that second ruling saying parts of the service were not fair use. Thankfully, Fox didn't even bother appealing the "hot news" ruling or the "fair use on index search" ruling. As you'd expect, the court runs through a four factors test, and as noted above, the analysis is... weird. Once again, it seems clear that the court decided Fox should win and then bent its four factors analysis to make that happen. The court separates out TVEyes operations into two things: "Search" and "Watch." Whereas the lower court separated out "Watch" into various components, here the court decides that the entire "Watch" part is not fair use, and thus there's no need to examine the components (the "Search" part remains covered by fair use -- which, again, Fox did not challenge).

First, the court explores "the purpose and character" of the use, and whether or not its transformative, which would lean towards fair use. Much of the discussion focuses on the Google Books case, in which the same court found that Google scanning books and making them searchable was transformative and thus, fair use. Here, the court notes the similarities that make TVEyes transformative, which is a good start:

TVEyes’s copying of Fox’s content for use in the Watch function is similarly transformative insofar as it enables users to isolate, from an ocean of programming, material that is responsive to their interests and needs, and to access that material with targeted precision. It enables nearly instant access to a subset of material‐‐and to information about the material‐‐that would otherwise be irretrievable, or else retrievable only through prohibitively inconvenient or inefficient means.

Sony Corporation of America vs. Universal City Studios, Inc. is instructive. See 464 U.S. 417 (1984). In Sony, a television customer, who (by virtue of owning a television set) had acquired authorization to watch a program when it was broadcast, recorded it in order to watch it instead at a later, more convenient time. That was held to be a fair use. While Sony was decided before “transformative” became a term of art, the apparent reasoning was that a secondary use may be a fair use if it utilizes technology to achieve the transformative purpose of improving the efficiency of delivering content without unreasonably encroaching on the commercial entitlements of the rights holder.

The Watch function certainly qualifies as technology that achieves the transformative purpose of enhancing efficiency: it enables TVEyes’s clients to view all of the Fox programming that (over the prior thirty‐two days) discussed a particular topic of interest to them, without having to monitor thirty‐two days of programming in order to catch each relevant discussion; and it eliminates the clients’ need even to view entire programs, because the ten most relevant minutes are presented to them. Much like the television customer in Sony, TVEyes clients can view the Fox programming they want at a time and place that is convenient to them, rather than at the time and place of broadcast. For these reasons, TVEyes’s Watch function is at least somewhat transformative.

Of course the "at least somewhat" qualifier on "transformative" should be a foreshadowing of what comes next. First, the court notes that the commercial nature of TVEyes walks back at least some of its fair use argument, but concludes the first factor goes into TVEyes' corner "albeit slightly."

On the 2nd factor, "the nature of the copyrighted work," the court correctly notes that this is kind of a superfluous factor that almost never matters in any copyright lawsuit. The 3rd factor is a big one: "the amount and substantiality of the portion used." In the Google Books ruling, this same court correctly and usefully pointed out that this is not about the "percentage of the overall" that is used, but rather if the user was using more than is necessary for the use at hand. Under that understanding, it would seem that this should lean towards TVEyes' position, since it would need to offer up all the content as part of its service. But the court feels otherwise.

This factor clearly favors Fox because TVEyes makes available virtually the entirety of the Fox programming that TVEyes users want to see and hear. While “courts have rejected any categorical rule that a copying of the entirety cannot be a fair use,” “a finding of fair use is [less] likely . . . when the copying is extensive, or encompasses the most important parts of the original.” Id. at 221. In this respect, the TVEyes Watch function is radically dissimilar to the service at issue in Google Books.

What kills TVEyes here in the Google Books comparison is that Google Books had a "snippet" function that only showed parts of the book, rather than the whole thing:

Googleʹs snippet function was designed to ensure that users could see only a very small piece of a book’s contents. Each snippet was three lines of text, constituting approximately one‐eighth of a page; a viewer could see at most three snippets per book for any searched term, and no more than one per page. Users were prevented from performing repeated searches to find multiple snippets that could be compiled into a coherent block of text. Approximately 22% of a book’s text was “blacklist[ed]”: no snippet could be shown from those pages. Id. at 222. And snippets were not available at all for such books as dictionaries or cookbooks, in which a snippet might convey all the information that a searcher was likely to need. While the snippets allowed a user to judge whether a book was responsive to the user’s needs, they were abbreviated to ensure that it would be nearly impossible for a user to see a meaningful exposition of what the author originally intended to convey to readers.

TVEyes redistributes Fox’s news programming in ten‐minute clips, which‐‐given the brevity of the average news segment on a particular topic‐‐likely provide TVEyes’s users with all of the Fox programming that they seek and the entirety of the message conveyed by Fox to authorized viewers of the original. Cf. Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 564‐65 (1985) (finding no fair use when the copying involved only about 300 words, but the portion copied was “the heart of the book”). TVEyes’s use of Fox’s content is therefore both “extensive” and inclusive of all that is “important” from the copyrighted work.

TVEyes was hoping that by cutting things down to 10 minute clips that would support the fair use snippets argument, but it didn't really fly.

The fourth factor is where things get really odd and potentially dangerous to fair use. This is "the effect on the market," which is often the determining factor on fair use. For many (though, thankfully not all) courts, if they see that you're somehow diminishing the original market, you lose on fair use. Many copyright holders have tried to obliterate all fair use cases by basically arguing that the fact that a for-profit entity is making use of their work proves there's a market for the works, and thus only the copyright holder should be entitled to that market, or else the user is clearly diminishing the market (even if the copyright holder is not even in that market). In short "if there's a market anywhere related to this content, the copyright holder should own that entire market." Many courts have rejected that line of thinking as it effectively obliterates fair use. But... not this court.

The success of the TVEyes business model demonstrates that deep‐pocketed consumers are willing to pay well for a service that allows them to search for and view selected television clips, and that this market is worth millions of dollars in the aggregate. Consequently, there is a plausibly exploitable market for such access to televised content, and it is proper to consider whether TVEyes displaces potential Fox revenues when TVEyes allows its clients to watch Fox’s copyrighted content without Fox’s permission.

Such displacement does occur. Since the ability to re‐distribute Fox’s content in the manner that TVEyes does is clearly of value to TVEyes, it (or a similar service) should be willing to pay Fox for the right to offer the content. By providing Fox’s content to TVEyes clients without payment to Fox, TVEyes is in effect depriving Fox of licensing revenues from TVEyes or from similar entities. And Fox itself might wish to exploit the market for such a service rather than license it to others. TVEyes has thus “usurp[ed] a market that properly belongs to the copyright‐holder.” Kirkwood, 150 F.3d at 110. It is of no moment that TVEyes allegedly approached Fox for a license but was rebuffed: the failure to strike a deal satisfactory to both parties does not give TVEyes the right to copy Fox’s copyrighted material without payment.

In short, by selling access to Fox’s audiovisual content without a license, TVEyes deprives Fox of revenues to which Fox is entitled as the copyright holder. Therefore, the fourth factor favors Fox.

That's... bad. This will undoubtedly be quoted in lots of other copyright/fair use cases, and used to argue that any successful market involving the fair use of a copyright-covered work will deprive the copyright holder of license revenue. As EFF notes in its analysis of the ruling, this appears to completely ignore a fundamental principle of how fair use works:

If use of someone’s words was contingent on the permission of the person who said them, you would never be able to critique what was being said. Fair use allows the use of copyrighted material without permission for this very reason. It’s not in the interest of anyone to license out clips of their material for the purpose of it being debunked, which is why the service provided by TVEyes is so valuable.

Jonathan Band, over at the Disruptive Competition Project finds more to like in the ruling -- specifically citing the fact that much of the ruling upholds the important fair use parameters set forth in the Google Books ruling and doesn't really mess with those. He also doesn't seem as bothered by that fourth factor analysis, but does worry about one aspect of the transformative analysis: the part that cites the Sony Betamax ruling:

In support of its transformativeness conclusion, the panel cited the Supreme Court’s Betamax decision, which found that consumers’ time shifting of television programming was a fair use. The panel stated that

Betamax’s “apparent reasoning was that a secondary use may be a fair use if it utilizes technology to achieve the transformative purpose of improving the efficiency of delivering content without unreasonably encroaching on the commercial entitlements of the rights holder.” However, most observers don’t view Betamax as a transformative use. And there is no reason to treat Betamax as a transformative use case; transformativeness is not a requirement for fair use. The panel’s odd reading of Betamax compelled a concurring decision by Judge Kaplan (a district court judge sitting by designation) that strongly disagreed with this interpretation. Indeed, the panel itself was not that convinced by its reasoning. Later in its first factor discussion, it acknowledged that “the Watch function has only a modest transformative character because, notwithstanding the transformative manner in which it delivers content, it essentially republishes that content unaltered from its original form, with no ‘new expression, meaning or message.’”

The other issue that the court reviewed was the incredibly broad permanent injunction that the district court had issued on TVEyes after finding some of its service not to be fair use. Without much discussion, the 2nd Circuit notes that since that injunction was based on mistakes about what was fair use, it's sending that back to the lower court to review.

It is possible that this will all get appealed to the Supreme Court, though it's not at all clear that this is a case the Supreme Court would actually take (and, there's an argument that a majority of the Supreme Court may be fans of Fox News, in which case, Fox may get something of an edge...). However, this does seem like yet another in a long list of copyright cases, where we see useful innovations likely killed off by copyright. Having a system for professionals to monitor the media and make use of it is incredibly useful. And yet, with this ruling such things can be massively restricted. And, on top of that, with the language in the 4th factor above, we should all be worried about what other innovations will now be shut down (or never even started) going forward.

Filed Under: archiving, commercial use, copyright, fair use, search, watch
Companies: fox, tveyes

Court Soundly Rejects Watchmaker's Attempt To Abuse Copyright Law To Stop Sale Of Its Watches At Costco

from the copyright-misuse! dept

In a perfectly timed ruling by the 9th Circuit appeals court, watchmaker Omega's weak attempt to abuse copyright law to block the sale of some of its watches at Costco has again been rejected [pdf]. The timing is perfect because today is "You Bought It, You Own It" day for Copyright Week, and that was the key principle at stake in this case. This case has gone on for many, many years and we've covered many of the twists and turns.

The short(ish) version is that Costco bought a bunch of Omega watches intended for sale in Europe, not the US, then imported them and put them on sale in its stores, at a much lower price than Omega normally sells its watches in the US. Omega, in an attempt to block just this sort of thing, had inscribed a tiny globe on the back of the watch (where no one would ever really see it), then copyrighted that image, and sued Costco for infringement. The case was first fought on first sale grounds, with the 9th Circuit originally siding with Omega, arguing that because the globe wasn't "lawfully made under this title" (because it was made in Europe, not under US law), "first sale" rights didn't apply. The case went up to the Supreme Court which ended in a 4-4 tie, because Justice Kagan didn't take part (she had filed an amicus brief in the case while she was Solicitor General). The case then went back down to the district court to determine whether or not it was still copyright misuse, even if first sale wasn't an issue.

In a bit of a surprise, the district court agreed that it was copyright misuse. This is pretty rare. While people sometimes argue copyright misuse, it rarely gets very far, so it was good to see the court agree.

Omega appealed (of course) and now the 9th Circuit has sided with the lower court, mainly by revising its first sale opinion, thanks to the Kirtsaeng ruling in the Supreme Court on whether or not first sale rights apply to books purchased outside the US and then imported. That case faced similar issues as the original Costco/Omega case, but with all 9 Justices, the Supreme Court was able to get it right.

In reviewing the case, the 9th Circuit notes that, thanks to Kirtsaeng, Costco selling the watches was easily protected under the First Sale doctrine. There's barely any discussion at all, because the ruling is now completely clear: of course Costco can sell those watches.

It is clear, then, that Omega has no infringement cause of action against Costco. Omega’s only allegation is that Costco violated Omega’s copyright-based importation and distribution rights by selling gray market watches without a prior authorized first sale in the United States. Omega concedes that it authorized a first sale of the watches in a foreign jurisdiction. Omega’s right to control importation and distribution of its copyrighted Omega Globe expired after that authorized first sale, and Costco’s subsequent sale of the watches did not constitute copyright infringement. Kirtsaeng, 133 S. Ct. at 1366; 17 U.S.C. § 109(a). Thus, application of the first sale doctrine disposes of Omega’s claim, resolves this case in Costco’s favor, and conclusively reaffirms that copyright holders cannot use their rights to fix resale prices in the downstream market.

Because of this, the court doesn't really need to get into the copyright misuse claim, but a concurring opinion, by Judge Wardlaw, discuses it anyway, saying that copyright misuse would apply here, even if the First Sale issue didn't turn out the way it did:

The district court correctly held that Omega misused its copyright “by leveraging its limited monopoly in being able to control the importation of [the Globe Design] to control the importation of its Seamaster watches.” The district court did not clearly err in finding that: (1) Omega copyrighted the Globe Design, at the advice of its legal department, to control the importation and distribution of Omega watches into the United States; and (2) Omega told its authorized distributors that the purpose of suing Costco was to “stem the tide of the grey market” and the “unauthorized importation of Omega watches into the U.S.” In other words, Omega attempted to use the copyrighted Globe Design to decrease competition in the U.S. importation and distribution of its watches by it and its authorized dealers—an obvious leveraging of a copyright to control an area outside its limited monopoly on the design.

Omega argues that its anti-competitive motives are irrelevant to the issue of copyright misuse. According to Omega, our inquiry should instead focus on the copyright holder’s objective conduct or use. But Omega’s semantic hairsplitting is unpersuasive. By definition, “use” includes an inquiry into purpose.... However, we need not decide whether Omega’s motives are sufficient to establish copyright misuse. The undisputed record shows that before this lawsuit consumers were able to a buy a genuine Omega Seamaster watch from Costco for 35% less than Omega’s suggested retail price. This is no longer the case. Thus, at least one consequence of Omega’s lawsuit has been a reduction of intrabrand price competition for uncopyrightable Omega watches in the United States.

Later, the concurrence notes:

The Copyright Office granted Omega the exclusive right to control the importation and distribution of the Globe Design into the United States. It did not empower Omega to restrict competition from unauthorized retailers selling genuine, gray market Seamaster watches in the United States. Although the Globe Design engraved on the underside of the Seamaster watches was copyrighted, Omega misused its copyright when it used its intellectual property protection to obtain a copyright-like monopoly over uncopyrightable Seamaster watches.... Omega’s expansion of its copyrightlike monopoly eliminated competition from unauthorized watch retailers like Costco, thereby allowing Omega to control—through its exclusive distributor, Swatch U.S.A.—the retail pricing of Seamaster watches sold in the United States. If the copyright law allowed Omega to use its copyright to combat the importation and sale of all gray market watches that are stamped with the Globe Design, it would effectively grant Omega a copyright-like monopoly over the distribution and sale of Omega watches in the United States. Because such an outcome directly controverts the aims of copyright law, it is impermissible.

And, finally, it concludes:

“The limited scope of the copyright holder’s statutory monopoly, like the limited copyright duration required by the Constitution, reflects a balance of competing claims upon the public interest: Creative work is to be encouraged and rewarded, but private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and the other arts.” Twentieth Century Music Corp., 422 U.S. at 156 (footnote omitted). Omega’s attempt to expand the scope of its statutory monopoly by misusing its copyright in the Globe Design upset this balance. The watchmaker’s anticompetitive acts promoted neither the broad public availability of the arts nor the public welfare. Instead, they eliminated price competition in the retail market for Omega watches and deprived consumers of the opportunity to purchase discounted gray market Omega watches from Costco. Omega misused its copyright by engraving the Globe Design on the underside of its watches, and attempting to use copyright law to eliminate intrabrand competition from Costco in the retail watch market. Because the district court correctly held that Omega misused its copyright in the Globe Design by attempting to leverage its limited monopoly over the design to control the importation and sale of Seamaster watches, I would affirm the district court on the issue of copyright misuse.

While I understand why the majority ruling just went with the easy out with First Sale, it's too bad that this concurring ruling isn't the majority ruling, as we could use more useful opinions like this one when it comes to copyright misuse. Either way, kudos to the court for properly recognizing that even if you buy a watch outside the US, you should actually own it, and that copyright law shouldn't be able to get in the way of those property rights.

Filed Under: 9th circuit, copyright, copyright misuse, first sale, watch
Companies: costco, omega