Fox v. Dish: is copyright law keeping pace with new technology?

September 2013 | PROFESSIONAL INSIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

Thirty years ago, the Supreme Court (‘Court’) grappled with applying copyright law to a new technology – home video tape recorders (‘VTR’) – and held that a user’s unauthorised recording of copyrighted broadcasts for later home viewing (‘time-shifting’) was non-infringing “fair use” under the copyright law, and thus the VTR seller was not a “contributory” infringer because the VTR was “capable of commercially significant non-infringing uses”. Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984). The Court noted, however, that the copyright statute “never contemplated such a calculus of interests,” and that “it may well be that Congress will take a fresh look at this new technology…”

Although VTRs are obsolete, Sony has since been applied in many cases, including in a recent decision in Fox’s suit concerning digital video recorder (‘DVR’) technology offered by Dish Network.

In Fox, Dish introduced a DVR (the ‘Hopper’) having a PrimeTime Anytime (‘PTAT’) feature allowing subscribers to record programming to their local hard drive and an ‘AutoHop’ feature allowing users to skip commercials on playback. Concerned about losing advertising revenue, Fox sued for copyright infringement and breach of contract and requested a preliminary injunction. The District Court (‘court’) denied the request. Fox Broad. Co. v. Dish Network L.C.C., No. CV 12-04529 DMG (C.D. Cal. Nov. 12, 2012). Fox appealed to the Ninth Circuit, which affirmed. Fox Broad. Co., Inc. v. Dish Network LLC, No. 12-57048 (9th Cir. Jul. 24, 2013). On 8 August, Fox petitioned the Ninth Circuit for rehearing.

In its preliminary injunction motion, Fox asserted that Dish was liable for both “derivative/secondary” and “direct” copyright infringement and alleged that Dish contributorily infringed by encouraging subscribers to copy Fox’s programming (making the PTAT copies) and thereby directly infringe. The court, however, found that subscribers principally used the PTAT copies for time-shifting and Fox had not shown how they could be infringers without circumventing Sony. On appeal, the Ninth Circuit noted that Fox asserted that customers used AutoHop and PTAT for purposes other than time-shifting – commercial-skipping and library-building – that Sony had not expressly found to be fair use.

The Ninth Circuit ruled AutoHop’s commercial-skipping feature was legally irrelevant, as Fox did not own the copyrights in the commercials. AutoHop relied on Dish (not the user) making a Quality Assurance (‘QA’) copy of the PTAT copy, which kept the commercials but marked their beginning and ending to enable later skipping.

The Ninth Circuit then ruled the PTAT copies were fair use, considering the purpose of the use; the nature of the copyrighted work; the amount of the work used; and the effect of the use on the copyrighted work’s potential market. In discussing the potential market effect, the Ninth Circuit rejected Fox’s argument that it would be harmed in the market for licensing its programming – a “secondary” market not present in Sony. On this issue, the court had found AutoHop’s commercial-skipping feature “harms Fox’s opportunity to negotiate a value for [authorized] copies and also inhibits Fox’s ability to enter into similar licensing agreements with others…by making the copies less valuable”. The Ninth Circuit, however, deemed this market harm irrelevant because AutoHop’s QA copies did not implicate Fox’s copyright interests.

As to direct infringement, the court applied a causation-based legal test under which only the person who “makes the copies” could be a direct infringer. Dish maintained the user rather than Dish “makes” the PTAT copies. The court agreed, relying on Cartoon Network LP v. CSC Holdings, Inc. (‘Cablevision’), 536 F.3d 121 (2d Cir. 2008). In that case, Cablevision provided DVR systems permitting customers to record and play back programming Cablevision recorded on remote hard drives. Cablevision determined that the user initiated the copies, and Cablevision’s control over the recordable content and provision of copying equipment was insufficient to pass the causation test. The Fox court acknowledged that Dish’s involvement in making the PTAT copies went beyond Cablevision’s involvement: Dish decides when recordings start and end and can modify those times; and the user cannot stop a copy from being made during copying. But the court said “while this factor undoubtedly brings Dish closer to the line...it does not push Dish into infringing territory” because “it is ultimately the user who causes the copy to be made by enabling PTAT”. Although Dish defaulted the PTAT settings to record all primetime programming, the user had to confirm/select the default settings. The court, therefore, held that “at this stage of the proceedings” it was “not satisfied that PTAT has crossed over the line that leads to direct liability”, since the user is the “most significant and important cause” of the copy.

The Ninth Circuit affirmed, holding that the court did not abuse its discretion in concluding Fox had not established a likelihood of success on its direct infringement claim against Dish. Notably, the Ninth Circuit said Dish’s degree of control of the PTAT copies “might be relevant to a secondary or perhaps even a direct infringement claim”, citing Cablevision’s reservation of the question “whether one’s contribution to the creation of an infringing copy may be so great that it warrants holding that party directly liable for the infringement, even though another party has actually made the copy”. This seems to invite Fox to continue to pursue a theory of joint infringement by Dish and the users.

As to the QA copies, the court found that Fox had shown a likelihood of success on its claim that the copies infringed Fox’s exclusive reproduction right. Dish did not dispute that it made the copies, and the court rejected Dish’s fair use argument, finding that all fair use factors favoured Fox: the QA copies were made for the commercial purpose of providing users with a high-quality commercial skipping product; Fox’s programming included primarily creative, not fact-based, works; the QA copies reproduced the entire broadcast; and Fox’s licensing market would be harmed. Nonetheless, the court found that Fox could not show “irreparable harm” necessary to support a preliminary injunction, because any injury was compensable in money damages. On appeal, the Ninth Circuit held the court did not abuse its discretion on this issue.

Some initial commentary touts Fox as a major decision reflecting a judicial bent to apply copyright law in a manner that, like Sony, does not restrict technological development. Fox, however, appears to be of more limited scope. The Fox court only decided that Fox had not met its burden for a preliminary injunction, and the Ninth Circuit held only that the court had not abused its discretion “[g]iven our ‘limited and deferential’ review of preliminary injunction appeals”. Fox might still be able to prevail on its copyright claims at trial after development of a full factual record. Ultimately, it may be time for Congress to accept Sony’s 30-year old invitation to revise copyright law to account for new technological developments. Indeed, the Register of Copyrights, Maria A. Pallante, recently called for Congress to undertake a comprehensive review and update of the law to bring it into the 21st century.Whether Congress will take up the challenge remains to be seen.

Donald J. Curry is a partner and Chair of the Copyright Practice Group and Yuanheng ‘Sally’ Wang is an associate at Fitzpatrick, Cella, Harper & Scinto. Mr Curry can be contacted on +1 (212) 218 2296 or by email: dcurry@fchs.com. Ms Wang can be contacted on +1 (212) 218 2340 or by email: swang@fchs.com.

Donald J. Curry and Yuanheng ‘Sally’ Wang

Fitzpatrick, Cella, Harper & Scinto