Ninth Circuit upholds district court’s grant of preliminary injunction against streaming service that filters out “objectionable” content for customers, finding that film studios were likely to succeed on their DMCA and copyright infringement claims.

VidAngel Inc. operates an unlicensed video-on-demand streaming service for movies and television shows that filters out “objectionable content” as chosen by customers from a list of possible edits provided by VidAngel. To watch a movie or television show on VidAngel, a customer first “purchases” a physical copy in DVD or disc format from VidAngel, which is kept by VidAngel, and then chooses the type of content within the work they want VidAngel to filter for the streaming. Customers may or may not choose to receive the physical copy of the video (almost none choose to receive the copy), and once the video has been streamed and watched, they can resell the DVD back to VidAngel for almost full credit, so a viewer pays $20 to VidAngel for the DVD and, after streaming the program, can sell the DVD back to VidAngel for $19; thus the viewer sees the movie for only $1. More than 99 percent of customers take advantage of the ability to sell the DVDs back to VidAngel. In addition, while VidAngel advertises that customers can filter out “objectionable” content like nudity and violence to make the streamed video “family friendly,” customers can choose to filter out very little — up until the lawsuit, they could choose to filter out only the credits. VidAngel doesn’t pay royalties to the studios for the streaming and may offer the content to customers prior to the time it would be available through other, royalty-paying streaming services if there is a DVD sales window — the time that movies are available on DVD before they are released for streaming.

Major film studios Disney Enterprises Inc., Lucasfilm Ltd. LLC, Twentieth Century Fox Film Corporation and Warner Bros. Entertainment Inc. sued VidAngel Inc., alleging that VidAngel violated their rights under §106 of the Copyright Act and pursuant to §1201(a) of the Digital Millennium Copyright Act. The studios also moved for a preliminary injunction.

Last December, the district court granted the studios’ motion for preliminary injunction, finding that the studios had shown a “strong likelihood of success” on the merits of their DMCA and copyright claims (read our summary of this district court decision here.

In upholding the injunction against VidAngel, the panel found that the district court did not abuse its discretion in finding that the studios had a likelihood of success on the merits of their claims – the most important factor in the preliminary injunction calculus. On appeal, VidAngel argued two primary defenses to the district court’s conclusion that its copying infringed the studios’ exclusive reproduction right. First, VidAngel posited that the Family Movie Act of 2005 exempted VidAngel from liability for copyright infringement. The FMA was designed to allow consumers to skip objectionable audio and video content in motion pictures without committing copyright infringement. Specifically, the FMA permits “the making imperceptible . . . of limited portions of audio or video content of a motion picture, during a performance in or transmitted to [a private household], from an authorized copy of the motion picture.” 17 U.S.C. § 110(11). VidAngel argued that because it “begins its filtering process with an authorized copy” – i.e., a disc lawfully purchased by a consumer – “any subsequent filtered stream” is also “from” that authorized copy.

Interpreting the FMA as a matter of first impression, the panel rejected VidAngel’s reading. The panel wrote that VidAngel’s interpretation of the FMA was contrary to both the plain language of the statute and the statute’s legislative intent of protecting intellectual property rights. The court held that the copy that VidAngel created on its server and from which it streamed to the viewers was not an “authorized” copy. VidAngel’s reading of the statute, the court wrote, “would create a giant loophole in copyright law, sanctioning infringement so long as it filters some content and a copy of the work was lawfully purchased at some point.” The panel therefore upheld the district court’s determination that VidAngel was unlikely to succeed on the merits of its FMA defense to the studios’ claims of copyright infringement.

As a second defense to copyright infringement, VidAngel argued fair use. Again, the panel upheld the district court’s conclusion that VidAngel’s use was both commercial and nontransformative and thus not fair use. Moreover, the panel rejected VidAngel’s argument that its service constituted “a paradigmatic example of fair use: space-shifting.” Under this theory, VidAngel was simply decrypting DVDs to allow them to be viewed in another format. The panel found no legal support for this argument; moreover, the panel concluded that even if space-shifting were fair use, VidAngel’s use constituted commercial, non-personal space-shifting: “it makes illegal copies of pre-selected movies and then sells streams with altered content and in a different format than that in which they were bought.”

VidAngel also appealed the district court’s determination that the studios were likely to succeed on their DMCA claim. The DMCA provides, in relevant part, that “no person shall circumvent a technological measure that effectively controls access to a work protected under this title.” Under the statute, circumvention means “to decrypt an encrypted work . . . without the authority of the copyright owner.” 17 U.S.C. § 1201(a)(3)(A). VidAngel argued that it was in fact authorized to decrypt the studios’ technology protection measures because “an individual who buys a DVD has the ‘authority of the copyright owner’ to view the DVD, and therefore is exempted from the DMCA . . . .” The panel agreed with the district court that this argument failed and that VidAngel was decrypting the access to the technology protection measures on the studios’ discs without authorization and in violation of the DMCA.

Finally, in examining each of the other factors considered in whether or not to grant a preliminary injunction, the panel agreed with the district court’s conclusions that each factor militated toward a grant of the injunction. The panel concluded that the district court could have found irreparable injury, because there was sufficient evidence that VidAngel’s service undermined the value of the studios’ copyrighted works and that the studios’ loss of goodwill, negotiating leverage and other nonmonetary terms in the studios’ licenses could not readily be remedied with damages. The panel also agreed that any financial hardship to VidAngel did not outweigh the potential irreparable harm to the studios, because VidAngel was just being deprived of revenue from what was likely infringing activity and the preliminary injunction was in the public interest, since the public “has a compelling interest in protecting copyright owners’ marketable rights to their work and the economic incentive to continue creating television programming.”

VidAngel therefore remains enjoined from copying and “streaming, transmitting, or otherwise publicly performing or displaying any of Plaintiff’s copyrighted works,” “circumventing technological measures protecting [the studios’] copyrighted works,” and “engaging in any other activity that violates, directly or indirectly” either the Copyright Act or the DMCA.