In an important decision involving video recording and commercial-skipping, the U.S. District Court for the Central District of California held that Dish Network's service, which allows the wholesale copying of prime-time network broadcasts, was not likely to be found to infringe Fox Broadcasting Company's copyrights because it was consumers, not Dish, who engaged in the copying, and that consumers' copying constituted fair use. Fox Broad. Co. v. Dish Network, L.L.C., 2012 WL 5938563 (Nov. 7, 2012). The court also held that Dish's own copying of the same programming in order to perfect its ad-skipping feature was likely not fair use. Even so, Fox was not entitled to a preliminary injunction because it could not show irreparable harm. The fair use issue involved a difficult issue of indirect alleged harm to Fox, and the court's ruling appeared at odds with established law on "transformativeness."

Background

Dish offers its customers a "Hopper" set-top box that allows large blocks of broadcast programming to be copied for time-shifted replay. In January 2012 Dish announced a Hopper feature, "PrimeTime Anytime" (PTAT), that allows consumers to concurrently record all primetime broadcast programming for all four networks, including Fox, on the user's local device. Once a consumer selects "enable" for this feature, the Hopper will by default record the entire primetime window for all four networks for every day of the week.

In May, Dish announced AutoHop, a feature that lets consumers skip commercials in PTAT recordings. The feature appears to rely on markings in the recordings indicating when commercials begin and end (the details were redacted from the court's public order). To ensure that no portion of the program is inadvertently skipped, Dish copies all programming onto its own computers, then has a technician review the copies for "quality assurance," to confirm the accuracy of the marking.

Fox sued, alleging that PTAT and AutoHop infringed Fox's copyrights and that Dish breached its retransmission agreements with Fox by offering these features. In August 2012, Fox moved for a preliminary injunction.

The Court's Rulings and Analysis Regarding Fox's Claims

  1. Dish Is Not Secondarily Liabile for Copyright Infringement. Fox included a claim of secondary copyright infringement, "[but] identified no specific theory under which individual PTAT users could themselves be [directly] liable for copyright infringement" in light of Sony v. University City Studios, 464 U.S. 417 (1984). Sony holds copying of television programming by consumers for time-shifting to be fair use. Absent any underlying infringement by them, there was no likelihood Dish would be secondarily liable.
  2. Offering PTAT Does Not Make Dish a Direct Copyright Infringer.  Fox alleged a direct infringement claim based on the PTAT copying onto Dish's customers' devices. The court identified the "threshold question" as simply: "Who makes the copies?" Under a line of cases beginning with Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 1361 (N.D. Cal. 1995), including CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d 544 (4th Cir. 2004), and Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2nd Cir. 2008), courts have regularly held that volition or causation is required for copyright infringement, and that a company that "passively" provides a technology used for copying will not be deemed the copier. Fox argued that several characteristics of the Dish/PTAT system distinguished it from cases like Netcom and Cartoon Network: Dish decides which networks will be recorded; Dish decides how long recorded programs will be available for viewing before they are automatically deleted; and Dish determines the definition of "primetime." The court nevertheless held the consumer was the copier since the consumer must take the initial step of enabling Hopper to create copies. Accordingly, Dish was not liable for direct infringement for creating PTAT copies.
  3. Dish's Copying for the AutoHop Feature Is Not Fair Use. Dish's copying of programming to its own servers represented prima facie copyright infringement. The issue was whether copying to ensure the reliability of the commercials-skipping feature was fair use. Dish argued that these were "intermediate" copies, in relation to end-users' time-shifted copies, and therefore non-infringing under Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992). The district court rejected the analogy with Sega; applied the four-factor test of 17 U.S.C. § 107; and rejected the fair use defense.

Regarding the first factor, the purpose and character of the use, the court concluded that Dish's purpose was commercial and held the copies Dish made were not "transformative" because "they [did] not alter [the original works] ‘with new expression, meaning, or message,'" quoting Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994). The court did not mention the line of cases holding that the purpose of the use of a work can be transformative and fair, even though the copied work itself is not altered. See, e.g., Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (9th Cir. 2007) (image search engine) ("even making an exact copy of a work may be transformative so long as the copy serves a different function than the original work"); A.V. v. iParadigms, LLC, 562 F.3d 630 (4th Cir. 2009) (verbatim copying of student papers for use in plagiarism detection software was transformative) ("The use of a copyrighted work need not alter or augment the work to be transformative in nature. Rather, it can be transformative in function or purpose …."); Nunez v. Caribbean Int'l News Corp., 235 F.3d 18 (1st Cir. 2000) (reproduction of unchanged photos to illuminate news story on controversy over photos held transformative). As in iParadigms, Dish's use of the works at issue "was completely unrelated to expressive content," and the argument is strong that the use was transformative.

The second factor, the nature of the copyrighted work, was held to cut against fair use because the copied programming likely included fictional works that are primarily creative. Had the court considered the use transformative, this factor presumably would have been held neutral or to weigh lightly, since Dish's use did not exploit the creative nature of the programming, only where it stopped and started.

The third factor, the amount and substantiality of the copying, was also held to cut against fair use since Dish copied the entirety of the works. The court deemed this factor "of considerably less weight than the other factors due to the limited nature of the ultimate use." But had the court considered the purpose transformative, the court ought to have held this factor neutral under Perfect 10, since copying the entirety was required for the transformative purpose.

The fourth fair use factor is "the effect of the use upon the potential market for or value of the copyrighted work." The court held this factor went against fair use. The court's analysis seems to miss the central issue: whether the "harm" is cognizable for fair use purposes when the use is solely to extract data not protected by copyright—the time commercials start and stop—for use in a non-infringing feature of a non-infringing copy.

The court focused on the significance of the unauthorized copying for Dish's competitive position vis-à-vis other Fox licensees. Acknowledging that AutoHop, "standing alone, does not infringe," the court noted that "the [quality assurance] copies are used to perfect the functioning of AutoHop" and "the record suggests that Dish chose to offer AutoHop to its subscribers in order to compete with other providers who pay for the rights to use copies of the Fox Programs through licensing agreements." But Dish is entitled to compete with the other providers, and Dish's customers are entitled to create the copies of Fox programming on which AutoHop is used.

As the Supreme Court instructed in Acuff-Rose, all harms are not recognized for fair use analysis. What is cognizable is a commercial use that "‘supersede[s] the objects'. . . of the original and serves as a market replacement for it." Dish's use of its unauthorized copy for QA does not serve as a market substitute for authorized copies of Fox's programming. In the context of parody, the Acuff-Rose court held that fair use allows harms that injure the original work by suppressing demand for it, although not by usurping demand. AutoHop injures Fox's licensees by eroding consumer demand for their copies; consumers prefer to watch their own lawful Hopper-made and AutoHop-enhanced PTAT copies. This seems more akin to suppressing, rather than usurping, demand.

  1. Likelihood of Success on Merits Did Not Require a Preliminary Injunction. Under eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), and Flexible Lifeline Systems, Inc. v. Precision Lift, Inc., 654 F.3d 989 (9th Cir. 2011), a court cannot presume irreparable harm as the result of a copyright infringement. The court agreed that Fox suffered harm as a result of Dish's unauthorized copying. But "[e]conomic injury alone will not support a finding of irreparable harm because it can generally be remedied by money damages," and Fox did not show "intangible injuries" that might support an injunction.

Dish benefited from being able to offer the ad-skipping feature. But since that feature did not itself represent copyright infringement or a contract breach, it was the loss of a license fee for making the QA copies that constituted the harm. "Because the alleged harms that Fox will suffer as a result of the QA copies is essentially contractual in nature, the Court finds that the injury is compensable with money damages and does not support a finding of irreparable harm." Query whether this characterization of the harm is entirely consistent with the court's explanation, in its fair use analysis, of the damage to the value of the copyrighted work.

Unless the case was to settle, these issues will likely be addressed by the U.S. Court of Appeals, Ninth Circuit in a decision next year.