A unanimous three-judge panel of the United States Court of Appeals for the Second Circuit has affirmed the decision of the United States District Court for the Southern District of New York holding that ivi.com, an Internet-based streaming service, is not a “cable system,” and thus is not eligible for use of the cable compulsory copyright license. The appellate court upheld the district court’s grant of a motion filed by various broadcast television stations and other owners of copyright broadcast television programming seeking a preliminary injunction against ivi.

The court of appeals noted at the outset that in reviewing ivi.com’s appeal of the district court’s ruling, the issue was whether the lower court had abused its discretion. The appellate court noted that the lower court had found against ivi. com on all four prongs of the test for granting a preliminary injunction: (i) the plaintiff copyright owners were likely to succeed on the merits of their infringement action against ivi.com because ivi.com is not a cable system eligible for the compulsory license and does not otherwise claim to have a license to retransmit broadcast television programming; (ii) the copyright owners would suffer irreparable harm absent the grant of an injunction; (iii) the “balance of harms” favored granting the injunction; and (iv) granting the injection would not disserve the public interest. The appeals court, while focusing principally on the first two prongs of the test, agreed with each element of the district court’s analysis.

With respect to the first prong, the Second Circuit applied a “Chevron” analysis to determine whether Congress had spoken unambiguously to the eligibility of Internet-based services for the cable compulsory license and, if not, whether the Copyright Office’s position (which was that the license did not apply to Internet-based services) was reasonable. The court found

  1. that the statutory language of Section 111 of the Copyright Act (establishing the cable compulsory license) was ambiguous as to whether ivi. com’s Internet-based retransmission service was a “facility” that used “wires, cables, microwaves or other communications channels” to provide subscribers with broadcast signals and programming;
  2. the statute’s legislative history, development, and purpose (including the fact compulsory licenses should be construed narrowly and Congress had never amended the Copyright Act to create a separate license for Internet-based services or expressly identified the Internet as a “communications channel” for purposes of Section 111) indicate that Congress intended for the cable compulsory license to apply to “localized” services rather than to Internet transmissions capable or reaching a nationwide (or arguably international) audience;
  3. that the Copyright Office’s long and consistently-held interpretation of Section 111 as not applying to Internet-based broadcast retransmission services aligns with Congress’ intent and is reasonable.

Thus, the court concluded that the district court did not abuse its discretion in finding that the plaintiff copyright owners were likely to succeed on the merits of their infringement action against ivi.com.

With respect to the issue of irreparable harm, the court found that allowing ivi.com to provide broadcast programming to subscribers without permission would diminish the value of the programming by reducing the revenue that copyright owners obtain from licensing their programming and by reducing broadcasters’ advertising revenues. The court also relied on evidence that ivi.com would lack the resources to pay a damages judgment in favor of plaintiffs. The court also quickly reviewed and agreed with the district court’s holding that the balance of hardships and the public interest both favored enjoining ivi.com.

The outcome in the ivi.com case had been expected. It should be noted, however, that the court’s analysis was not without its flaws and omissions. For example, while the court found that ivi.com threatened to “drastically change” the broadcast industry to the plaintiffs’ detriment, the court confused the broadcasters’ “retransmission consent” rights with respect to their signals with the intellectual property rights covered by the Copyright Act. Indeed, the court incorrectly assumed, without discussing, that if ivi.com was entitled to the compulsory copyright license, it wouldn’t need retransmission consent.

It is not clear whether ivi.com will seek Supreme Court review of the Second Circuit’s decision. However, regardless of what ivi.com decides to do next, it is likely that the status of Internet-based services under both the Copyright Act and the Communications Act will continue to be debated in the courts, at the Copyright Office and FCC, and ultimately by Congress.