Advanced Copyright Issues on the Internet

ADVANCED COPYRIGHT ISSUES ON THE INTERNET

David L. Hayes, Esq.0F* FENWICK &WEST LLP

(updated versions of this work are regularly made available online at no charge at https://www.fenwick.com/publications/pages/advanced-copyright-issues-on-the-internet.aspx)

* Partner and past Chairman of the Intellectual Property Practice Group, Fenwick & West LLP, Mountain View & San Francisco, California. B.S.E.E. (Summa Cum Laude), Rice University (1978); M.S.E.E., Stanford University (1980); J.D. (Cum Laude), Harvard Law School (1984). An early version of this work appeared in David L. Hayes, “Advanced Copyright Issues on the Internet,” 7 Tex. Intell. Prop. L.J. 1 (Fall 1998). The author expresses appreciation to Matthew Becker for significant contributions to Section III.E (“Streaming and Downloading”).

- 1 -

TABLE OF CONTENTS

I. INTRODUCTION 17

II. RIGHTS IMPLICATED BY TRANSMISSION AND USE OF WORKS ON THE INTERNET 18

A. The Right of Reproduction 19

1. The Ubiquitous Nature of “Copies” on the Internet 19

2. Whether Images of Data Stored in RAM Qualify as “Copies” 20

3. The WIPO Treaties & the European Copyright Directive Are Unclear With Respect to Interim “Copies” 26

(a) Introduction to the WIPO Treaties & the European Copyright Directive 26

(b) The WIPO Copyright Treaty 29

4. The Requirement of Volition for Direct Liability 34

(a) The Netcom Case 35

(b) The MAPHIA Case 37

(d) The Frena Case 40

(e) The Webbworld Case 41

(f) The Sanfilippo Case 42

(g) The Free Republic Case 42

(h) The MP3.com Cases 44

(i) The CoStar Case 48

(j) The Ellison Case 49

(k) Perfect 10 v. Cybernet Ventures 49

(l) Field v. Google 50

(m) Parker v. Google 51

(n) The Cablevision Case 51

(o) Arista Records v. Usenet.com 55

(p) Quantum Systems v. Sprint Nextel 55

(q) Arista Records v. Myxer 56

(r) Disney Enterprises v. Hotfile 57

(s) Perfect 10 v. Megaupload 59

(t) Wolk v. Kodak Imaging Network 60

(u) Fox Broadcasting v. Dish Network 60

(v) Perfect 10 v. Giganews 72

(w) Capitol Records v. ReDigi 76

(x) Hearst Stations v. Aereo 78

(y) In Re Autohop Litigation (Dish Network v. American Broadcasting) 78

(z) Oppenheimer v. Allvoices 80 - 2 -

(aa) The Supreme Court’s Aereo Decision 80

(bb) Gardner v. CafePress 81

(cc) Rosen v. eBay 82

(dd) Summary of Case Law 82

5. The Reproduction Right Under WIPO Implementing Legislation 83

(a) United States Legislation 83

(1) The Digital Millennium Copyright Act 84

(2) Legislation Not Adopted 84

(b) The European Copyright Directive 86

6. Peer-to-Peer File Sharing 91

(a) BMG Music v. Gonzalez 91

(b) Columbia Pictures v. Bunnell 92

(d) Capitol Records v. Thomas-Rasset 97

7. The Immunity of the Audio Home Recording Act (AHRA) 100

(a) The Diamond Multimedia Case 101

(b) The Napster Cases 101

(d) Atlantic Recording Corp. v. XM Satellite Radio 102

8. Fair Use Cases 105

(a) Fox News v. TVEyes 105

B. The Right of Public Performance 107

1. Isochronous Versus Asynchronous Transmissions 108

2. The Meaning of “Publicly” 110

3. Live Nation Motor Sports v. Davis 110

4. United States v. ASCAP 111

5. The Cablevision Case 112

6. Ringtones – In re Application of Cellco Partnership 114

7. Arista Records v. Myxer 116

8. Warner Bros. v. WTV Systems 116

9. Capitol Records v. MP3tunes 120

10. American Broadcasting v. Aereo 120

11. The BarryDriller Case 136

12. Fox v. FilmOn 139

13. Hearst Stations v. Aereo 142

14. Community Television of Utah v. Aereo 144

15. CBS v. FilmOn 146

16. Capitol Records v. Escape Media 148

17. Fox Broadcasting v. Dish Network 148

C. The Right of Public Display 150

1. The Frena, Marobie-FL, Hardenburgh and Webbworld Cases 150

2. Kelly v. Arriba Soft 152

3. Ticketmaster v. Tickets.com 156 - 3 -

4. Perfect 10 v. Google (aka Perfect 10 v. Amazon) 156

5. Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey 168

6. ICG-Internet Commerce Group, Inc. v. Wolf 170

7. Perfect 10 v. Yandex 170

D. The Right of Public Distribution 172

1. The Requirement of a “Copy” 172

(a) Cases Addressing Whether Mere “Making Available” Is a Distribution 173

(1) Cases Holding That Mere “Making Available” Is a Distribution 173

(i) Playboy Enterprises v. Frena 173

(ii) Playboy Enterprises v. Chuckleberry Publishing 174

(iii) Playboy Enterprises v. Webbworld 174

(iv) Marobie-FL v. National Association of Fire Equipment Distributors 174

(v) A&M Records v. Napster 175

(vi) Interscope Records v. Duty 175

(vii) Warner Bros. Records v. Payne 175

(viii) Universal City Studios v. Bigwood 176

(ix) Motown Record Co. v. DePietro 176

(x) United States v. Carani 177

(xi) ICG-Internet Commerce Group v. Wolf 177

(xii) Maverick Recording Co. v. Harper 177

(xiii) Columbia Pictures v. Fung 178

(2) Cases Holding That Mere “Making Available” Is Not a Distribution 178

(i) Religious Technology Center v. Netcom 178

(ii) In re Napster Copyright Litigation 179

(iii) Perfect 10 v. Google 180

(iv) Latin American Music Co. v. Archdiocese of San Juan 181

(v) London-Sire Records v. Doe 181

(vi) Elektra Entertainment Group v. Barker 183

(vii) Atlantic Recording Corp. v. Howell 184

(viii) Capitol Records v. Thomas 186

(ix) Fox Broadcasting v. Dish Network 188

(x) BMG v. Cox Communications 188

(xi) Alticor v. UMG Recordings 188

(3) Cases Refusing To Decide the Issue 189

(b) Other Cases Adjudicating the Scope of the Distribution Right 190

(1) Hearst Stations v. Aereo 190

(2) Fox Broadcasting v. Dish Network 191

2. The Requirement of a “Public” Distribution 191

3. The Requirement of a Rental or Transfer of Ownership 192

4. The Right of Distribution Under the WIPO Treaties 193

5. The Right of Distribution Under WIPO Implementing Legislation 194 - 4 -

(a) United States Legislation 194

(b) The European Copyright Directive 194

E. The Right of Importation 194

F. The New Right of Transmission and Access Under the WIPO Treaties 195

1. The Right of Communication to the Public in the WIPO Copyright Treaty 196

2. The Right of Making Available to the Public in the WIPO Performances and Phonograms Treaty 198

3. The Right of Transmission and Access Under WIPO Implementing Legislation 200

(a) United States Legislation 200

(b) The European Copyright Directive 200

G. New Rights and Provisions Under The Digital Millennium Copyright Act, the European Copyright Directive & Legislation That Did Not Pass 203

1. Circumvention of Technological Measures and Rights Management Information Under the DMCA 203

(a) Circumvention of Technological Protection Measures 204

(1) Prohibition on Conduct 204

(i) Exemptions Adopted by the Librarian of Congress 205

a. Scope of the Network Connection Exemption – The TracFone Cases 221

(ii) Epic Games v. Altmeyer 224

(iii) Facebook v. Power Ventures 224

(iv) Bose v. Zavala 225

(v) MGE UPS Systems v. GE 225

(vi) Granger v. One Call Lender Services 226

(vii) Eyepartner v. Kor Media Group 226

(viii) Granger v. Dethlefs 227

(ix) D&J Optical v. Wallace 227

(x) NNG v. AVA Enterprises 228

(xi) VBConversions v. Gulf Coast Ventures 230

(2) Prohibition on Devices 231

(i) Sony Computer Entertainment America v. Gamemasters 232

(ii) The DirecTV Cases 233

a. DirecTV, Inc. v. Borow 233

b. DirecTV, Inc. v. Carrillo 233

(iii) Sony Computer Entertainment America v. Divineo 233

(iv) Ticketmaster L.L.C. v. RMG Technologies, Inc. 235

(v) The Tracfone Cases 235

(vi) Movida Communications, Inc. v. Haifa 236

(vii) Microsoft Corp. v. EEE Business Inc. 236

(viii) MDY Industries v. Blizzard Entertainment 237

(ix) Coupons, Inc. v. Stottlemire 242 - 5 -

(x) CoxCom, Inc. v. Chafee 243

(xi) The DISH Network Cases 244

a. Dish Network v. Sonicview 244

b. Dish Network v. SatFTA 244

c. Dish Network v. Dimarco 245

d. Dish Network v. Sonicview 246

e. Dish Network v. Alejandri 246

(xii) Realnetworks v. DVD Copy Control Association. 247

(xiii) Apple v. Psystar 249

(xiv) Blizzard Entertainment v. Reeves 252

(xv) The Craigslist Cases 252

a. Craigslist v. Naturemarket 252

b. Craigslist v. Mesiab 253

c. Craigslist v. Hubert 254

d. Craigslist v. Branley 254

e. Craigslist v. Kerbel 254

(xvi) Echostar v. Viewtech 255

(xvii) Adobe Systems v. Feather 255

(xviii) NNG v. AVA Enterprises 255

(xix) Beco Dairy Automation v. Global Tech Systems 256

(3) What Constitutes an Effective Technological Measure 256

(i) Auto Inspection Services v. Flint Auto Auction 256

(ii) Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey 257

(iii) Apple v. Psystar 260

(4) No Requirements With Respect to Design of a Product 260

(5) Other Rights Not Affected 260

(6) Exemption for Nonprofit Organizations and Law Enforcement 261

(7) Reverse Engineering for Interoperability 262

(i) Universal City Studios Inc. v. Reimerdes 267

(ii) Storage Technology Corporation v. Custom Hardware Engineering & Consulting 268

(iii) Chamberlain Group, Inc. v. Skylink Technologies, Inc. 268

(iv) Lexmark International, Inc. v. Static Control Components, Inc. 269

(v) Davidson Assocs. v. Internet Gateway 269

(vi) Sony Computer Entertainment America v. Divineo 274

(8) Encryption Research 274

(9) Protection of Minors 274

(10) Protection of Personally Identifying Information 275

(11) Security Testing 275

(12) Copy Restrictions To Be Built Into VCRs and Camcorders 275

(13) Other Cases Filed Under the Anti-Circumvention Provisions 276

(i) Sony Computer Entertainment, Inc. v. Connectix, Inc. 276 - 6 -

(ii) RealNetworks, Inc. v. Streambox Inc. 277

(iii) Universal City Studios, Inc. v. Reimerdes 281

(iv) A Related DVD Case Involving Trade Secret Claims – DVD Copy Control Association, Inc. v. McLaughlin (the Bunner case) 287

(v) A Related DVD Case – Norwegian Prosecution of Jon Johansen 290

(vi) Another Challenge to the DMCA – The Felten Case. 290

(vii) Pearl Investments, LLC v. Standard I/O, Inc. 291

(viii) 321 Studios v. Metro Goldwyn Mayer Studios, Inc. 292

(ix) I.M.S. Inquiry Management Systems, Ltd. v. Berkshire Information Systems, Inc. 294

(x) Paramount Pictures Corp. v. 321 Studios. 294

(xi) Macrovision Corp. v. 321 Studios 295

(xii) Comcast of Illinois X v. Hightech Electronics, Inc. 295

(xiii) Davidson & Assocs. v. Internet Gateway 296

(xiv) Agfa Monotype Corp. v. Adobe Sys. 296

(xv) Egilman v. Keller & Heckman 298

(xvi) Macrovision v. Sima Products Corp. 299

(xvii) Nordstrom Consulting, Inc. v. M&S Technologies, Inc. 300

(xviii) R.C. Olmstead v. CU Interface 301

(xix) Avaya v. Telecom Labs 301

(xx) Actuate v. IBM 302

(xxi) Navistar v. New Baltimore Garage 303

(xxii) Dice Corp. v. Bold Technologies 303

(xxiii) Ford Motor Co. v. Autel Intelligent Technology 304

(14) Criminal Prosecutions Under the DMCA 305

(i) The Sklyarov/Elcomsoft Case 305

(ii) Other Criminal Prosecutions Under the DMCA 306

(iii) The Requirement of Willfulness – Deliberate Ignorance 307

(15) Other Uses of the Anti-Circumvention Provisions as a Sword 309

(i) Lexmark International, Inc. v. Static Control Components, Inc. 310

(ii) Chamberlain Group, Inc. v. Skylink Technologies, Inc. 316

(iii) In re Certain Universal Transmitters for Garage Door Openers 322

(iv) Storage Technology Corporation v. Custom Hardware Engineering & Consulting 323

(b) Integrity of Copyright Management Information 328

(1) Definition of CMI 328

(i) Cases Requiring CMI to be Part of a Technological System or Process 328

a. The IQ Group, Ltd. v. Wiesner Publishing, LLC 328

b. Textile Secrets Int’l, Inc. v. Ya-Ya Brand Inc. 331 - 7 -

c. Jacobsen v. Katzer 332

d. Silver v. Lavadeira 333

(ii) Cases Not Requiring CMI to be Part of a Technological System or Process 333

a. McClatchey v. The Associated Press 333

b. Associated Press v. All Headline News Corp. 334

c. Fox v. Hildebrand 335

d. Faulkner Press v. Class Notes 335

e. Interplan Architect v. C.L. Thomas 336

f. Agence France Presse v. Morel 337

g. Murphy v. Millennium Radio 339

h. William Wade Waller Co. v. Nexstar Broadcasting 340

i. Leveyfilm v. Fox Sports 340

j. Williams v. Roberto Cavalli S.p.A. 341

(2) Prohibitions on False CMI and Removal/Alteration of CMI 342

(i) Cases re Removal or Alteration of CMI 342

a. Kelly v. Arriba Soft Corp. 342

b. Thron v. Harper Collins Publishers 343

c. Gordon v. Nextel Communications 344

d. Monotype Imaging, Inc. v. Bitstream Inc. 345

e. Keogh v. Big Lots Corp. 347

f. Goldman v. Healthcare Management Systems 347

g. Thomas M Gilbert Architects v. Accent Builders 348

h. Banxcorp v. Costco 348

i. Agence France Presse v. Morel 349

j. Scholz Design v. Custom Homes 350

k. Personal Keepsakes v. PersonalizationMall.com 350

l. Frost-Tsuji Architects v. Highway Inn 352

m. Tomelleri v. Zazzle, Inc. 353

n. Stevens v. CoreLogic 357

(ii) Cases re False CMI 359

a. Schiffer Publishing, Ltd. v. Chronicle Books, LLC 359

b. Agence France Presse v. Morel 359

c. Personal Keepsakes v. PersonalizationMall.com 360

d. Drauglis v. Kappa Map Group 360

e. Stevens v. CoreLogic 361

(3) Exceptions and Limitations 361

(1) Statutory Damages and Disgorgement of Profits for Violations of Section 1201 362

(i) Sony Computer Entertainment America v. Filipiak 362

(ii) Sony Computer Entertainment v. Divineo 363

(iii) Stockwire Research Group v. Lebed 364

(iv) MDY Industries, LLC v. Blizzard Entertainment, Inc. 364 - 8 -

(v) Nexon America v. Kumar 365

(vi) Point 4 Data Corp. v. Tri-State Surgical Supply 365

(2) Statutory Damages and Disgorgement of Profits for Violations of Section 1202 369

(i) McClatchey v. The Associated Press 369

(ii) Goldman v. Healthcare Management Systems 370

(iii) Stockwire Research Group v. Lebed 370

(iv) Stockart.com v. Engle 370

(v) Granger v. One Call Lender Services 371

(vi) Pacific Stock v. MacArthur & Co. 372

(vii) Agence France Presse v. Morel 372

(3) Jurisdictional Issues – Blueport Co. v. United States 373

(d) Alternative Approaches to the DMCA That Did Not Pass 373

(e) The Battle Between Content Owners and Technology Companies Over Built-In Technological Measures 374

2. Anticircumvention Provisions Under the European Copyright Directive 375

3. Anti-Circumvention Provisions in Other Foreign Countries 379

4. Fair Use 379

(a) United States Legislation That Did Not Pass 379

(b) The European Copyright Directive 380

5. Expansion of Library/Archives Exemptions 381

6. Distance Education 381

7. Copying in the Course of Computer Maintenance or Repair 382

8. Other Provisions of the DMCA 383

(a) Evaluation of Impact of Copyright Law on Electronic Commerce 383

(b) Clarification of the Authority of the Copyright Office 384

(d) Statutory Licenses With Respect to Performances of Sound Recordings 385

(e) Assumption of Contractual Obligations Related to Transfers of Rights in Motion Pictures 385

(f) Protection of Certain Industrial Designs 386

(1) Protection of Designs Embodied in Useful Articles 386

(2) Originality 386

(3) Exclusions from Protection 387

(4) Adaptations of Unprotectable Elements 388

(5) Duration of Protection and Design Notice 388

(6) Rights of a Design Owner and Limitations 388

(7) Standard of Infringement 389

(8) Benefit of Foreign Filing Date 389

(9) Vesting and Transfer of Ownership 389

(10) Remedies of Injunctive Relief, Damages, Attorneys’ Fees and Destruction 390

(11) Private Rights of Action Against Pirated Designs 390 - 9 -

(12) Relation to Design Patents and Retroactive Effect 390

(g) Limitation of Liability of Online Service Providers 390

(h) Subpoenas to Service Providers 390

(1) Jurisdictional Issues 391

(2) RIAA v. Verizon Internet Services 392

(3) The Charter Communications Litigation 395

(4) Fatwallet v. Best Buy 396

(5) In re Subpoena to University of North Carolina at Chapel Hill 396

(6) Subpoenas in John Doe Actions 397

(7) Interscope Records v. Does 1-7 398

(8) In re Maximized Living 398

(9) In re Subpoena Issued to Birch Communications 398

(10) In re DMCA Subpoena Issued to eBay, Inc. 399

9. Proposed Limitation of Scope of Shrinkwrap and Clickwrap Licenses That Did Not Pass 400

III. APPLICATION OF COPYRIGHT RIGHTS TO SPECIFIC ACTS ON THE INTERNET 401

A. Browsing 401

B. Caching 404

1. Types of Caching 404

2. The Detriments of Caching 405

3. The Netcom Case and Application of the Fair Use Doctrine 407

(a) Purpose and Character of the Use 407

(b) Nature of the Copyrighted Work 408

(d) Effect of Use on the Potential Market 409

4. Cases Adjudicating Caching Under the Fair Use and Implied License Doctrines 411

(a) Field v. Google 411

(b) Perfect 10 v. Google (aka Perfect 10 v. Amazon) 415

(d) Parker v. Yahoo!, Inc. 417

5. Other Caching Cases 418

(a) Facebook v. Power Ventures 418

C. Liability of Online Service Providers 418

1. Direct Liability 418

(a) Louis Vuitton v. Akanoc Solutions 419

(b) Flava Works v. Gunter 420

(d) UMG Recording v. Escape Media 425

(e) Milo & Gabby v. Amazon.com 427

(f) Smith v. Barnesandnoble.com 427 - 10 -

(g) BWP Media v. Polyvore 429

2. Contributory Liability 431

(a) The Netcom Case 431

(b) The MAPHIA Case 432

(1) The Napster Cases 433

(2) The Scour.com Lawsuit 469

(3) The Aimster/Madster Lawsuits 470

(4) The StreamCast/Kazaa/Grokster Lawsuits 477

(5) The Supreme Court’s Grokster Decision 484

(6) The Grokster Decision on Remand 500

(i) The Ruling on Liability 500

(ii) The Permanent Injunction 504

(7) The Audiogalaxy Case 507

(8) The Hummer Winblad/Bertelsmann Litigation 508

(9) Arista Records v. Lime Group 512

(d) The CoStar Case 512

(e) Ellison v. Robertson 512

(f) Perfect 10 v. Cybernet Ventures 513

(g) Perfect 10 v. Visa International 515

(h) Parker v. Google 516

(i) MDY Industries v. Blizzard Entertainment 517

(j) Louis Vuitton v. Akanoc Solutions, Inc. 519

(k) Arista Records v. Usenet.com 522

(l) Hermeris v. Brandenburg 523

(m) Flava Works v. Gunter 524

(n) Perfect 10 v. Giganews 527

(o) Masck v. Sports Illustrated 534

(p) Rosen v. Global Net Access 535

(q) Capitol Records v. Escape Media 536

(r) UMG Recording v. Escape Media 536

(s) Fox Broadcasting v. Dish Network 536

(t) Smith v. Barnesandnoble.com 536

(u) Hart v. Amazon.com, Inc. 537

(v) Tomelleri v. Zazzle, Inc. 537

(w) BMG v. Cox Communications 537

(x) Live Face on Web v. The Control Media Group 551

(y) BWP Media v. Polyvore 553

(z) Summary 553

3. Vicarious Liability 554

(a) The Netcom Case and its Progeny 554

(b) The Napster Cases 556

(d) Perfect 10 v. Cybernet Ventures 556 - 11 -

(e) The Aimster/Madster Lawsuits 557

(f) The StreamCast/Kazaa/Grokster Lawsuits 558

(g) Perfect 10 v. Visa International 560

(h) Parker v. Google 562

(i) Louis Vuitton v. Akanoc Solutions 563

(j) Live Face on Web v. Howard Stern Productions 563

(k) Arista Records v. Usenet.com 564

(l) Corbis v. Starr 565

(m) Arista Records v. Lime Group 565

(n) Hermeris v. Brandenburg 565

(o) Luvdarts v. AT&T Mobility 565

(p) Flava Works v. Gunter 567

(q) Perfect 10 v. Giganews 567

(r) Masck v. Sports Illustrated 567

(s) Disney Enterprises v. Hotfile 567

(t) Capitol Records v. Escape Media 568

(u) UMG Recording v. Escape Media 568

(v) Gardner v. CafePress 568

(w) BMG v. Cox Communications 568

4. Inducement Liability 568

(a) The Supreme Court’s Grokster Decision 568

(b) Arista Records v. Usenet.com 569

(d) Arista Records v. Lime Group 575

(e) Flava Works v. Gunter 581

(f) Disney Enterprises v. Hotfile 581

(g) UMG Recording v. Escape Media 583

5. Adequacy of Pleadings of Secondary Liability Against Service Providers 583

(a) Miller v. Facebook 583

(b) Williams v. Scribd 584

6. Limitations of Liability of Online Service Providers in the DMCA 585

(a) History of the Various Legislative Efforts 585

(b) The OSP Liability Provisions of the DMCA 587

(1) Safe Harbors – Definition of a “Service Provider” 587

(i) Acting as a Mere Conduit for Infringing Information – Section 512(a) 588

a. The Napster Case 589

b. Ellison v. Robertson 591

c. The Aimster/Madster Lawsuits 596

d. Perfect 10 v. CCBill 598

e. Columbia Pictures v. Fung 605

f. American Broadcasting v. Aereo 607

g. Rosen v. Global Net Access 607

h. BMG v. Cox Communications 607 - 12 -

(ii) Caching – Section 512(b) 618

a. Field v. Google 620

b. Parker v. Google 621

c. Perfect 10 v. Google 622

(iii) Innocent Storage of Infringing Information – Section 512(c) 626

a. The ALS Scan Case – What Constitutes a “Substantially” Compliant Notice 629

b. Hendrickson v. eBay 632

c. CoStar v. LoopNet 637

d. Perfect 10 v. Cybernet Ventures 645

e. The Aimster/Madster Lawsuits 648

f. Hendrickson v. Amazon.com 649

g. Rossi v. MPAA 651

h. Perfect 10 v. CCBill 652

i. Corbis Corp. v. Amazon.com, Inc. 653

j. Tur v. YouTube, Inc. 659

k. Io Group v. Veoh Networks 660

l. UMG Recordings v. Veoh Networks 664

m. Perfect 10 v. Amazon 679

n. Louis Vuitton v. Akanoc Solutions 681

o. Viacom v. YouTube 682

p. Perfect 10 v. Google 693

q. Wolk v. Kodak Imaging Network 693

r. Arista Records v. Myxer 697

s. Flava Works v. Gunter 701

t. Capitol Records v. MP3tunes 702

u. Obodai v. Demand Media 711

v. Agence France Presse v. Morel 712

w. Columbia Pictures v. Fung 719

x. Ventura Content v. Motherless 722

y. Disney Enterprises v. Hotfile 727

z. Capitol Records v. Vimeo 730

aa. Perfect 10 v. Giganews 740

bb. Rosen v. Global Net Access 743

cc. Mavrix Photographs v. LiveJournal 743

dd. Rosen v. eBay 745

ee. Capitol Records v. Escape Media 746

ff. BWP Media v. Clarity Digital 749

gg. Milo & Gabby v. Amazon.com 753

(iv) Referral or Linking to Infringing Material (Information Location Tools) – Section 512(d) 754

a. The Napster Case 755

b. Perfect 10 v. Cybernet Ventures 757 - 13 -

c. The MP3Board Case 757

d. The Aimster/Madster Lawsuits 757

e. The Diebold Lawsuit 758

f. Perfect 10 v. CCBill 760

g. Columbia Pictures v. Fung 762

h. Perfect 10 v. Google 763

i. Perfect 10 v. Yandex 763

(2) General Requirements for Limitations of Liability 764

(i) What Constitutes a “Standard Technical Measure” 765

a. Perfect 10 v. CCBill 765

b. Wolk v. Kodak Imaging Networks 765

c. Obodai v. Demand Media 766

d. Capitol Records v. Vimeo 766

e. BWP Media v. Polyvore 766

(3) Special Provisions for Nonprofit Educational Institutions 767

(4) Filing of False DMCA Notices – Section 512(f) 767

(i) Rossi v. MPAA 768

(ii) Online Policy Group v. Diebold, Inc. 768

(iii) Dudnikov v. MGA Entertainment 768

(iv) Novotny v. Chapman 768

(v) BioSafe-One, Inc. v. Hawks 769

(vi) Lenz v. Universal Music Corp. 770

(vii) UMG Recordings v. Augusto 779

(viii) Capitol Records v. MP3tunes 780

(ix) Brave New Films v. Weiner 781

(x) Cabell v. Zimmerman 781

(xi) Design Furnishings v. Zen Path 782

(xii) Amaretto Ranch Breedables v. Ozimals 783

(xiii) Shropshire v. Canning 783

(xiv) Rock River Communications v. Universal Music Group 784

(xv) Smith v. Summit Entertainment 785

(xvi) Ouellette v. Viacom 786

(xvii) Tuteur v. Crosley-Corcoran 787

(xviii) Flava Works v. Gunter 788

(xix) Disney Enterprises v. Hotfile 789

(xx) Flynn v. Siren-Bookstrand 790

(xxi) Crossfit v. Alvies (based on a trademark claim under the DMCA) 791

(xxii) Automattic v. Steiner 792

(xxiii) Distribuidora v. Guerra 793

(5) Other Provisions 795

(6) Injunctions Against Service Providers 795

(7) Designation of Agent to Receive Notification of Claimed Infringement 796 - 14 -

(i) CoStar v. Loopnet 797

(ii) Wolk v. Kodak Imaging Network 797

(iii) Perfect 10 v. Yandex 798

(iv) Oppenheimer v. Allvoices 798

(v) BWP Media v. Hollywood Fan Sites 799

(8) Whether the Safe Harbors Apply to Pre-1972 Sound Recordings 800

(i) Cases Concluding the Safe Harbors Apply to Pre-1972 Sound Recordings 800

(ii) Cases Concluding the Safe Harbors Do Not Apply to Pre-1972 Sound Recordings 802

(9) Applicability of the Communications Decency Act to Pre-1972 Sound Recordings 803

7. Limitations of Liability of Online Service Providers under the Communications Decency Act 803

(a) Stoner v. eBay 804

(b) Perfect 10 v. CCBill 805

8. Secondary Liability of Investors 806

(a) The Hummer Winblad/Bertelsmann Litigation 806

(b) UMG Recordings v. Veoh Networks 806

9. Class Actions 808

D. Linking and Framing 808

1. The Shetland Times Case 811

2. The Total News Case 812

3. The Seattle Sidewalk Case 814

4. The Futuredontics Case 815

5. The Bernstein Case 816

6. The Intellectual Reserve Case 817

7. Ticketmaster v. Tickets.com 818

8. The MP3Board Case 821

9. Kelly v. Arriba Soft 824

10. Batesville Services, Inc. v. Funeral Depot, Inc. 824

11. Live Nation Sports v. Davis 826

12. Perfect 10 v. Google (aka Perfect 10 v. Amazon) 827

13. Pearson Education v. Ishayev 827

E. Streaming and Downloading 827

1. The Digital Performance Right – The Section 114(d)(1) Exemption and Streaming by FCC-Licensed Broadcasters 828

2. The Digital Performance Right – Statutory Licenses Under Section 114 for Certain Nonsubscription and Subscription Services 832

(a) Preexisting Subscription Services 835

(b) Eligible Nonsubscription Services (Webcasters) 839

3. The Digital Performance Right – What Constitutes an “Interactive” Service 854 - 15 -

(a) Arista Records v. Launch Media 856

4. The Reproduction Right – Mechanical Licenses and Streaming/Downloading 858

(a) Applicability of the Section 115 Compulsory License to Streaming 860

(b) The Copyright Office’s Position – The 2001 DMCA Report and Comment Proceedings 862

(d) The Interactive Streaming and Limited Download Agreement of 2008 866

(e) 2008 Interim Regulation re Compulsory DPD License 867

(f) Applicability of the Section 115 Compulsory License to Ringtones 869

(g) Subsequent Determinations of Compulsory License Rates by the CRB 870

5. The Section 111 Compulsory License for Cable Systems 870

(a) WPIX v. ivi 870

(b) CBS v. FilmOn 871

(d) Fox Television v. AereoKiller 871

(e) Fox Television v. FilmOn X 873

(f) FilmOn X v. Window to the World Communications 874

6. International Licensing Efforts 875

F. First Sales in Electronic Commerce 875

1. Capitol Records v. ReDigi 878

G. Pop-Up Advertising 879

1. The Gator Litigations 879

2. The WhenU Litigations 881

(a) U-Haul v. WhenU.com 881

(b) Wells Fargo v. WhenU.com 882

3. The MetroGuide Litigation 887

4. The D Squared Litigation 888

5. International Decisions 888

H. Harvesting of Web Data 889

1. The FatWallet Dispute 889

2. Nautical Solutions Marketing v. Boats.com 889

3. Craigslist v. 3Taps 890

IV. CONCLUSION 891 - 16 -

ADVANCED COPYRIGHT ISSUES ON THE INTERNET

I. INTRODUCTION

Over the years, the Internet has become the basic foundational infrastructure for the global movement of data of all kinds. With continued growth at a phenomenal rate, the Internet has moved from a quiet means of communication among academic and scientific research circles into ubiquity in both the commercial arena and private homes. The Internet is now a major global data pipeline through which large amounts of intellectual property are moved. As this pipeline is increasingly used in the mainstream of commerce to sell and deliver creative content and information across transnational borders, issues of intellectual property protection for the material available on and through the Internet have taken on great importance.

Copyright law provides one of the most important forms of intellectual property protection on the Internet for at least two reasons. First, much of the material that moves in commerce on the Internet is works of authorship, such as musical works, multimedia works, audiovisual works, movies, software, database information and the like, which are within the usual subject matter of copyright. Second, because the very nature of an electronic online medium requires that data be “copied” as it is transmitted through the various nodes of the network, copyright rights are obviously at issue.

Traditional copyright law was designed to deal primarily with the creation, distribution and sale of protected works in tangible copies.1F1 In a world of tangible distribution, it is generally easy to know when a “copy” has been made. The nature of the Internet, however, is such that it is often difficult to know precisely whether a “copy” of a work has been made and, if so, where it resides at any given time within the network. As described further below, information is sent through the Internet using a technology known as “packet switching,” in which data is broken up into smaller units, or “packets,” and the packets are sent as discrete units. As these packets pass through the random access memory (RAM) of each interim computer node on the network, are “copies” of the work being made?

The case of MAI Systems Corp. v. Peak Computer2F2 held that loading a computer program into the RAM of a computer constituted the making of a “copy” within the purview of copyright law. This case has been followed by a number of other courts. Under the rationale of this case, a “copy” may be created under United States law at each stage of transmission of a work through the Internet. The language of two treaties discussed extensively in this paper – the

1 For example, under United States law, copyright protection subsists only in “works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” 17 U.S.C. § 102(a).

2 991 F.2d 511 (9th Cir. 1993), cert. dismissed, 114 S. Ct. 672 (1994).

- 17 -

WIPO Copyright Treaty3F3 and the WIPO Performances and Phonograms Treaty4F4 – leave unclear the crucial question whether the MAI approach will be internationalized. In any event, these two treaties would strengthen copyright holders’ rights of “distribution” and would create new rights of “making available to the public” a copyrighted work, both of which are implicated by transmissions through the Internet nearly as broadly as the right of reproduction.

The ubiquitous nature of “copying” in the course of physical transmission gives the copyright owner potentially very strong rights with respect to the movement of copyrighted material through the Internet, and has moved copyright to the center of attention as a form of intellectual property on the Internet. If the law categorizes all interim and received transmissions as “copies” for copyright law purposes, or treats all such transmissions as falling within the right of distribution of the copyright owner, then activities that have been permissible with respect to traditional tangible copies of works, such as browsing and transfer, may now fall within the control of the copyright holder.

This work discusses the multitude of areas in which copyright issues arise in an online context. Although the issues will, for simplicity of reference, be discussed in the context of the Internet, the analysis applies to any form of online usage of copyrighted works. Part II of this work discusses the various copyright rights that may be implicated by transmissions and use of works on the Internet, including new rights and remedies, as well as certain limitations on liability for online service providers afforded under federal statutes. Part III then analyzes the application of those rights to various activities on the Internet, such as browsing, caching, operation of an online service or bulletin board, linking to other sites, creation of derivative works, and resale or subsequent transfer of works downloaded from the Internet. Part III also analyzes the application of the fair use doctrine and the implied license doctrine to various Internet activities. Because the law is still developing with respect to many of these issues, considerable uncertainty is likely to exist as the issues are worked out over time through the courts and the various relevant legislative bodies and industry organizations.

II. RIGHTS IMPLICATED BY TRANSMISSION AND USE OF WORKS ON THE INTERNET

This Part discusses the various rights of the copyright holder – the right of reproduction, the right of public performance, the right of public display, the right of public distribution, the right of importation, and the new rights of transmission and access – that are implicated by the transmission and use of works on the Internet.

3 World Intellectual Property Organization Copyright Treaty, Apr. 12, 1997, S. Treaty Doc. No. 105-17 (1997).

4 World Intellectual Property Organization Performances and Phonograms Treaty, Apr. 12, 1997, S. Treaty Doc. No. 105-17 (1997).

- 18 -

A. The Right of Reproduction

The single most important copyright right implicated by the transmission and use of works on the Internet is the right of reproduction. As elaborated below, if the law categorizes all interim and received transmissions as “copies” for copyright law purposes, then a broad range of ordinary activities on the Internet, such as browsing, caching, and access of information, may fall within the copyright holder’s monopoly rights.

1. The Ubiquitous Nature of “Copies” on the Internet

Under current technology, information is transmitted through the Internet using a technique known broadly as “packet switching.” Specifically, data to be transmitted through the network is broken up into smaller units or “packets” of information, which are in effect labeled as to their proper order. The packets are then sent through the network as discrete units, often through multiple different paths and often at different times. As the packets are released and forwarded through the network, each “router” computer makes a temporary (ephemeral) copy of each packet and transmits it to the next router according to the best path available at that instant, until it arrives at its destination. The packets, which frequently do not arrive in sequential order, are then “reassembled” at the receiving end into proper order to reconstruct the data that was sent.5F5 Thus, only certain subsets (packets) of the data being transmitted are passing through the RAM of a node computer at any given time, although a complete copy of the transmitted data may be created and/or stored at the ultimate destination computer, either in the destination computer’s RAM, on its hard disk, or in portions of both.

To illustrate the number of interim “copies,” in whole or in part, that may be made when transmitting a work through the Internet, consider the example of downloading a picture from a website. During the course of such transmission, no less than seven interim copies of the picture may be made: the modem at the receiving and transmitting computers will buffer each byte of data, as will the router, the receiving computer itself (in RAM), the Web browser, the video decompression chip, and the video display board.6F6 These copies are in addition to the one that may be stored on the recipient computer’s hard disk.7F7

5 If any packet is lost along the way, the originating computer automatically resends it, likely along a different path than the lost packet was originally sent.

6 Mark A. Lemley, “Dealing with Overlapping Copyrights on the Internet,” 22 U. Dayton L. Rev. 547, 555 (1997).

7 Even if a complete copy of the picture is not intentionally stored on the recipient computer’s hard disk, most computers enhance performance of their memory by swapping certain data loaded in RAM onto the hard disk to free up RAM for other data, and retrieving the swapped data from the hard disk when it is needed again. Some of this swapped data may be left on the hard disk when the computer is turned off, even though the copy in RAM has been destroyed.

- 19 -

2. Whether Images of Data Stored in RAM Qualify as “Copies”

Do these interim and final copies of a work (many of which are only partial) being transmitted through the Internet qualify as “copies” within the meaning of United States copyright law? The copyright statute defines “copies” as:

material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term “copies” includes the material object, other than a phonorecord, in which the work is first fixed.8F8

The language of the definition raises two issues concerning whether images9F9 of transmitted data in RAM qualify as “copies.” First, depending upon where the data is in transit through the Internet, only a few packets – or indeed perhaps only a single byte – of the data may reside in a given RAM at a given time. For example, the modem at the receiving and transmitting computers may buffer only one or a few bytes of data at a time. A node computer may receive only a few packets of the total data, the other packets being passed through a different route and therefore a different node computer’s RAM. Should the law consider these partial images a “copy” of the work? Should the outcome turn on whether all or most of the packets of data comprising the work pass through a given RAM, or only a portion? How can interim partial images of data stored in RAM be deemed a “copy” of a work, in the case where there is no point in time at which the entire work is available in a single RAM?

The White Paper published by the Working Group on Intellectual Property Rights of President Clinton’s Information Infrastructure Task Force (referred to herein as the “NII White Paper”) implicitly suggests that at least interim, partial copies of a work created in RAM in interim node computers during transmission may not themselves constitute a “fixed” copy:

A transmission, in and of itself, is not a fixation. While a transmission may result in a fixation, a work is not fixed by virtue of the transmission alone. Therefore, “live” transmissions via the NII [National Information Infrastructure] will not meet the fixation requirement, and will be unprotected by the Copyright Act, unless the work is being fixed at the same time as it is being transmitted.10F10

The second general issue raised by the definition of “copies” is whether images of data stored in RAM are sufficiently “permanent” to be deemed “copies” for copyright purposes. The

8 17 U.S.C. § 101.

9 The word “image” is being used here to refer to an image of data stored in RAM to avoid use of the word “copy,” which is a legal term of art. Whether an image of data in RAM should be deemed a “copy” for copyright law purposes is the question at issue.

10 Information Infrastructure Task Force, “Intellectual Property and the National Information Infrastructure: The Report of the Working Group on Intellectual Property Rights” at 27 (1995).

- 20 -

definition of “copies” speaks of “material objects,” suggesting an enduring, tangible embodying medium for a work. With respect to an image of data stored in RAM, is the RAM itself to be considered the “material object”? The image of the data in RAM disappears when the computer is turned off. In addition, most RAM is “dynamic” (DRAM), meaning that even while the computer is on, the data must be continually refreshed in order to remain readable. So the data is in every sense “fleeting.” Is its embodiment in RAM sufficiently permanent to be deemed a “copy”?

The legislative history of the Copyright Act of 1976 would suggest that data stored in RAM is not a “copy.” As noted above, a “copy” is defined as a material object in which a work is “fixed.” The statute defines a work to be “fixed in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.”11F11 The legislative history states:

[T]he definition of “fixation” would exclude from the concept purely evanescent or transient reproductions such as those projected briefly on a screen, shown electronically on a television or other cathode ray tube, or captured momentarily in the “memory” of a computer.12F12

This language suggests that images of data temporarily stored in RAM do not constitute “copies.”13F13

Several cases, however, have held to the contrary. The leading case is MAI Systems Corp. v. Peak Computer, Inc.,14F14 which held that loading an operating system into RAM for maintenance purposes by an unlicensed third party maintenance organization created an illegal “copy” of the program fixed in RAM.15F15 When the MAI decision first came down, it was unclear whether that decision would support a legal principle that any storage of a copyrighted work in RAM, no matter how transiently, constituted a “copy” within the purview of copyright law, for the Ninth Circuit’s opinion in MAI seemed somewhat qualified. The court in MAI noted that the “copy” of the operating system was stored in RAM for several minutes (rather than only a few seconds). In addition, the court emphasized that while in RAM, output of the program was viewed by the user, which confirmed the conclusion that the RAM “copy” was capable of being perceived with the aid of a machine:

11 17 U.S.C. § 101 (definition of “fixed in a tangible medium of expression”).

12 H.R. Rep. No. 94-1476, at 53 (1976), reprinted in U.S.C.C.A.N. 5659, 5666.

13 But see R. Nimmer, Information Law ¶ 4.02[2], at 4-6 (2001) (“This language refers to subject matter protection and not whether particular acts create an infringing copy. The exclusion of transient works refers to the work itself, not a copy. It presumes that there was no copy of the work other than the transient display or memory.”)

14 991 F.2d 511 (9th Cir. 1993), cert. dismissed, 114 S. Ct. 672 (1994).

15 Id. at 518.

- 21 -

[B]y showing that Peak loads the software into the RAM and is then able to view the system error log and diagnose the problem with the computer, MAI has adequately shown that the representation created in the RAM is “sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.”16F16

In addition, a decision from the Seventh Circuit handed down shortly after MAI, NLFC, Inc. v. Devcom Mid-Am., Inc.,17F17 although somewhat unclear on both the facts involved in the case and whether the court really understood the issue, contains language that may suggest that merely proving that the defendant has remotely accessed the plaintiff’s software through a terminal emulation program is not sufficient to prove that a “copy” has been made.18F18 Moreover, an earlier Ninth Circuit decision in the case of Lewis Galoob Toys, Inc. v. Nintendo of America, Inc.19F19 implied that an image of data stored in RAM may not qualify as a “copy.” At issue in that case was whether a device that altered certain bytes of data of a video game “on the fly” as such information passed through RAM created an infringing derivative work. The court held that it did not, because although a derivative work need not be fixed, it must have some “form” or “permanence,” which were lacking in the enhanced displays created by the device. The court stated, however, that even if a derivative work did have to be fixed, the changes in the displayed images wrought on the fly by the accused device did not constitute a fixation because the transitory images it created were not “embodied” in any form.

Notwithstanding these earlier decisions, however, a great many courts have now followed MAI,20F20 and some earlier decisions also support its conclusion.21F21 Although the opinion in one of

16 991 F.2d at 518.

17 45 F.3d 231 (7th Cir. 1995).

18 Id. at 236.

19 964 F.2d 965 (9th Cir. 1992).

20 See VBConversions LLC v. Gulf Coast Ventures, Inc., 2016 U.S Dist. LEXIS 105760 at *11 (C.D. Cal. Aug. 10, 2016) (citing MAI for the proposition that copying for purposes of copyright law occurs when a computer program is transferred from a permanent storage device to a computer’s RAM); Live Face on Web, LLC v. The Control Group Media, 2015 U.S. Dist. LEXIS 166063 at * 14 (E.D. Penn. Dec. 10, 2015) (under MAI, a visitor to one of the defendants’ web pages featuring the plaintiff’s software would download a copy into his computer’s RAM, thereby infringing the copyright on the software); Carson v. Verismart Software, 2012 U.S. Dist. LEXIS 4166 at *8-9 (N.D. Cal. Mar. 27, 2012) (pleading alleging that defendants were “using” plaintiff’s software without authorization was sufficient to state a copyright claim because the software had to be loaded into RAM to run, which constitutes the making of a fixed copy under MAI); Costar Realty Information, Inc. v. Field, 2010 U.S. Dist. LEXIS 135016 at *19 (D. Md. Dec. 20, 2010) (copies of web pages stored automatically in a computer’s cache or RAM upon a viewing of the web page fall within the definition of “copy”); DocMagic, Inc. v. Ellie Mae, Inc., 745 F. Supp. 2d 1148 (N.D. Cal. 2010) (unauthorized loading of software into RAM constitutes an act of copying and thus of infringement); Apple, Inc. v. Psystar Corp., 673 F. Supp. 2d 931, 935 (N.D. Cal. 2009) (turning on computers that loaded into RAM copies of Apple’s Mac OS X operating system containing unauthorized modifications constitute direct infringement of Apple’s reproduction right); Quantum Sys. Integrators, Inc. v. Sprint Nextel Corp., 2009 U.S. App. LEXIS 14766 at *18-19 (4th Cir. July 7, 2009) (loading of software into RAM from unauthorized copies on hard disk was sufficiently fixed for purposes of copyright infringement); SimplexGrinnell LP v. Integrated Sys. & Power, Inc., 2009 U.S. Dist. LEXIS 30657 at - 22 -

these decisions suggests that only copies that exist for several minutes should constitute a “copy” within the purview of copyright law,22F22 the others appear not to focus on how transitorily an image may be stored in RAM in ruling that such an image constitutes a “copy” for purposes of copyright law.

One of these decisions, Intellectual Reserve, Inc. v. Utah Lighthouse Ministry, Inc.,23F23 was the first decision to focus on whether the act of browsing on the Internet involves the creation of “copies” that implicate the copyright owner’s rights. In that case, the court, citing the MAI decision, flatly stated, “When a person browses a website, and by so doing displays the [copyrighted material], a copy of the [copyrighted material] is made in the computer’s random access memory (RAM), to permit viewing of the material. And in making a copy, even a temporary one, the person who browsed infringes the copyright.”24F24 This decision, although quite direct in its holding, appears to address only the final “copy” that is made in the RAM of a Web surfer’s computer in conjunction with viewing a Web page through a browser. It does not address the trickier issue of whether whole or partial interim copies made in RAM of node

*42 (S.D.N.Y. Apr. 8, 2009) (embodiment requirement is satisfied when a program is loaded for use into a computer’s RAM and the duration requirement is satisfied when the program remains in RAM for several minutes or until the computer is shut off); MDY Industries, LLC v. Blizzard Entertainment, Inc., 2008 U.S. Dist. LEXIS 53988 (D. Ariz. July 14, 2008) (under MAI, copying software into RAM constitutes making a “copy” within the purview of copyright law, so that if a person is not authorized by the copyright holder through a license or by law (e.g. Section 117) to copy the software to RAM, the person commits copyright infringement when using the software in an unauthorized way); Ticketmaster L.L.C. v. RMG Technologies, Inc., 507 F. Supp. 2d 1096, 1005 (C.D. Cal. 2007) (copies of web pages stored in a computer’s cache or RAM upon a viewing of the web page fall within the Copyright Act’s definition of a “copy”); Storage Technology Corp. v. Custom Hardware Engineering & Consulting, Inc., 2004 U.S. Dist. LEXIS 12391 at *11-12 (D. Mass. July 2, 2004) (unauthorized copying of a program into RAM for use of the program infringes the copyright in the program); Lowry’s Reports, Inc. v. Legg Mason, Inc., 271 F. Supp. 2d 737, 745 (D. Md. 2003) (“Unauthorized electronic transmission of copyrighted text, from the memory of one computer into the memory of another, creates an infringing ‘copy’ under the Copyright Act.”); Stenograph L.L.C. v. Bossard Assocs., 144 F.3d 96 (D.C. Cir. 1998) (holding that an infringing copy of a computer program was made when that program was loaded into RAM upon boot up and used for its principal purposes); Triad Sys. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995), cert. denied, 116 S. Ct. 1015 (1996); Intellectual Reserve, Inc. v. Utah Lighthouse Ministry, Inc., 53 U.S.P.Q.2d 1425 (D. Utah 1999); Tiffany Design, Inc. v. Reno-Tahoe Specialty, Inc., 55 F. Supp. 1113 (D. Nev. 1999); Marobie-FL Inc. v. National Association of Fire Equipment Distributors, 45 U.S.P.Q.2d 1236 (N.D. Ill. 1997); Advanced Computer Servs. v. MAI Sys., 845 F. Supp. 356 (E.D. Va. 1994); see also 2 M. Nimmer & D. Nimmer, Nimmer on Copyright § 8.08[A][1], at 8-114 (1999) (suggesting that RAM copies are fixed).

21 See Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 260 (5th Cir. 1988) (“the act of loading a program from a medium of storage into a computer’s memory creates a copy of the program”); Apple Computer, Inc. v. Formula Int’l, 594 F. Supp. 617, 621 (C.D. Cal. 1984) (noting that copying a program into RAM creates a fixation, albeit a temporary one); Telerate Sys. v. Caro, 8 U.S.P.Q.2d 1740 (S.D.N.Y. 1988) (holding that the receipt of data in a local computer constituted an infringing copy).

22 Advanced Computer Services v. MAI Systems, 845 F. Supp. 356, 363 (E.D. Va. 1994).

23 53 U.S.P.Q.2d 1425 (D. Utah 1999).

24 Id. at 1428.

- 23 -

computers during the course of transmission through the Internet also constitute “copies” within the purview of a copyright owner’s copyright rights.

However, a 2004 decision from the Fourth Circuit, CoStar v. Loopnet,25F25 held that transient copies made by an OSP acting merely as a conduit to transmit information at the instigation of others does not create fixed copies sufficient to make it a direct infringer of copyright. “While temporary electronic copies may be made in this transmission process, they would appear not to be ‘fixed’ in the sense that they are ‘of more than transitory duration,’ and the ISP therefore would not be a ‘copier’ to make it directly liable under the Copyright Act.”26F26 The court drew a distinction between the final copy of a work made in the RAM of the ultimate user’s computer, and the transient copies made by an OSP in the course of transmitting such copies:

In concluding that an ISP has not itself fixed a copy in its system of more than transitory duration when it provides an Internet hosting service to its subscribers, we do not hold that a computer owner who downloads copyrighted software onto a computer cannot infringe the software’s copyright. See, e.g., MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 518-19 (9th Cir. 1993). When the computer owner downloads copyrighted software, it possesses the software, which then functions in the service of the computer or its owner, and the copying is no longer of a transitory nature. See, e.g., Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255, 260 (5th Cir. 1988). “Transitory duration” is thus both a qualitative and quantitative characterization. It is quantitative insofar as it describes the period during which the function occurs, and it is qualitative in the sense that it describes the status of transition. Thus, when the copyrighted software is downloaded onto the computer, because it may be used to serve the computer or the computer owner, it no longer remains transitory. This, however, is unlike an ISP, which provides a system that automatically receives a subscriber’s infringing material and transmits it to the Internet at the instigation of the subscriber.27F27

A 2008 decision of the Second Circuit, The Cartoon Network LP v. CSC Holdings, Inc.,28F28 addressed the issue of RAM copying in considerable detail, ruling that buffer copies in RAM made by Cablevision Systems Corp. in the course of converting channels of cable programming from the head end feed into a format suitable for storage of individual programs by a network digital video recording service upon customer demand were not fixed for sufficient duration to constitute “copies.”29F29 Cablevision made the buffer copies in conjunction with offering its “Remote Storage” Digital Video Recorder (RS-DVR) service that enabled

25 373 F.3d 544 (4th Cir. 2004).

26 Id. at 551.

27 Id.

28 536 F.3d 121 (2d Cir. 2008), cert. denied sub nom. CNN, Inc. v. CSC Holdings, Inc., 557 U.S. 946 (2009).

29 Id. at 129-30.

- 24 -

Cablevision customers to record copies of particular programs, like a normal DVR, but to store the recorded programs on Cablevision’s servers rather than on a DVR device at their homes. Cablevision created buffer copies, one small piece at a time, of the head end programming in two buffers – a primary ingest buffer and a Broadband Media Router (BMR) buffer – even if no customer requested that a copy of particular programming be stored on its behalf in the RS-DVR service. The primary ingest buffer held no more than 0.1 seconds of each incoming channel’s programming at any moment. The data buffer in the BMR held no more than 1.2 seconds of programming at any time. The plaintiffs argued that these buffer copies made Cablevision a direct infringer of their copyrights.30F30

The lower court found Cablevision a direct infringer largely in reliance on MAI and cases following it.31F31 The Second Circuit, however, reversed. The court noted that to satisfy the statutory definition of “copies,” two requirements must be met – an “embodiment” requirement (embodiment in a tangible medium from which it can be perceived or reproduced) and a “duration” requirement (embodiment for a period of more than transitory duration). The Second Circuit found that the district court had mistakenly limited its analysis to the embodiment requirement, and that its reliance on MAI and cases following it was misplaced.32F32

In general, those cases conclude that an alleged copy is fixed without addressing the duration requirement; it does not follow, however, that those cases assume, much less establish, that such a requirement does not exist. Indeed, the duration requirement, by itself, was not at issue in MAI Systems and its progeny.… Accordingly, we construe MAI Systems and its progeny as holding that loading a program into a computer’s RAM can result in copying that program. We do not read MAI Systems as holding that, as a matter of law, loading a program into a form of RAM always results in copying.33F33

Turning to the facts of the case at hand, the Second Circuit ruled that, although the embodiment requirement was satisfied by the buffers because the copyrighted works could be copied from them,34F34 the duration requirement had not been satisfied. The court noted that no bit of data remained in any buffer for more than a fleeting 1.2 seconds, unlike the data in cases like MAI, which remained embodied in the computer’s RAM until the user turned the computer off.35F35 “While our inquiry is necessarily fact-specific, and other factors not present here may alter

30 Id. at 123-24, 127.

31 Twentieth Century Fox Film Corp. v. Cablevision Sys. Corp., 478 F. Supp. 2d 607, 621-22 (S.D.N.Y. 2007).

32 Cartoon Network, 536 F.3d 121 at 127.

33 Id.

34 Id. at 129. “The result might be different if only a single second of a much longer work was placed in the buffer in isolation. In such a situation, it might be reasonable to conclude that only a minuscule portion of a work, rather than ‘a work’ was embodied in the buffer. Here, however, where every second of an entire work is placed, one second at a time, in the buffer, we conclude that the work is embodied in the buffer.” Id.

35 Id.

- 25 -

the duration analysis significantly, these facts strongly suggest that the works in this case are embodied in the buffer for only a ‘transitory’ period, thus failing the duration requirement.”36F36 Accordingly, the acts of buffering in the operation the RS-DVR did not create “copies” for which Cablevision could have direct liability.37F37

The court in Costar Realty Information, Inc. v. Field38F38 ruled that an allegation that the defendant accessed a password-protected database without authorization, which contained the plaintiff’s copyrighted photographic images, raised a genuine dispute of material fact as to whether the defendant engaged in direct copyright infringement when he viewed the copyrighted work on a website that he did not have proper authorization to enter.39F39 Citing the Intellectual Reserve case, the court ruled that “simply browsing a website that contains copyrighted material is sufficient to constitute copyright infringement because a copy of the work is made in the computer’s RAM to enable the images to display on the computer monitor.”40F40

3. The WIPO Treaties & the European Copyright Directive Are Unclear With Respect to Interim “Copies”

The language of two copyright treaties adopted during 1996 by the World Intellectual Property Organization (WIPO)41F41 leaves open the issue of whether transitory images of data stored in RAM constitute “copies.”42F42

(a) Introduction to the WIPO Treaties & the European Copyright Directive

The WIPO treaties were adopted as a result of the Diplomatic Conference on Certain Copyright and Neighboring Rights Questions hosted byWIPO in Geneva on December 2-20, 1996. More than 700 delegates from approximately 160 countries attended this Conference, which was aimed at tightening international copyright law to respond to issues arising from worldwide use of the Internet. The Conference was also designed to bring existing legislation on copyrights more in line with the provisions of the Trade Related Intellectual Property (TRIPS)

36 Id.

37 Id. at 130.

38 2010 U.S. Dist. LEXIS 86567 (D. Md. Aug. 23, 2010).

39 Id. at *37-38.

40 Id. at *38

41 WIPO is a United Nations organization which handles questions of copyrights and trademarks.

42 The treaties enter into force three months after 30 instruments of ratification or accession by member States have been deposited with the Director General of WIPO.

- 26 -

sections of the Uruguay Round trade agreement, which in 1994 set up the World Trade Organization (WTO).43F43

Three new treaties were considered, only two of which were adopted: the “WIPO Copyright Treaty” and the “WIPO Performances and Phonograms Treaty.”44F44 The WIPO Copyright Treaty strengthens the Berne Convention for the Protection of Literary and Artistic Works (the “Berne Convention”),45F45 established in 1886, which was the first international copyright treaty. The WIPO Performances and Phonograms Treaty strengthens the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, completed in Rome in 1961 (the “Rome Convention”).46F46

Each of the treaties required 30 nations to accede to it before it would enter into force. On Dec. 5, 2001, Gabon became the 30th nation to accede to the WIPO Copyright Treaty, and on Feb. 20, 2002, Honduras became the 30th nation to accede to the WIPO Performances and Phonograms Treaty. Accordingly, each of those treaties entered into force ninety days thereafter, on March 6, 2002 and May 20, 2002, respectively.47F47 The treaties are not self executing under United States law, and implementing legislation will have to be passed by Congress.

The two adopted treaties will effect important substantive changes in international copyright law that have potentially far reaching implications for the Internet, and the relevant provisions of these treaties will be discussed throughout this paper. The legislative history to the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty took the form of several “Agreed Statements.” Under the Vienna Convention, an Agreed Statement is evidence of the scope and meaning of the treaty language.48F48 Relevant portions of the Agreed Statements will also be discussed in this paper.

Each of the signatories to the WIPO treaties was required to adopt implementing legislation to conform to the requirements of the treaties. The scope of legislation required in any particular country depends upon the substantive extent of that country’s copyright law existing at the time of the treaty, as well the country’s own views concerning whether its existing

43 Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments – Results of the Uruguay Round vol. 31; 33 I.L.M. 81 (1994).

44 The proposed WIPO Treaty on Intellectual Property in Respect of Databases generated huge controversy, and was not adopted at the Conference. “WIPO Delegates Agree on Two Treaties,” 2 BNA’s Electronic Info. Pol’y & L. Rep. 22, 22 (1997).

45 Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, 828 U.N.T.S. 221.

46 International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, Oct. 26, 1961, 496 U.N.T.X. 43.

47 “WIPO Copyright Treaty Enters Into Force As Gabon Becomes 30th Nation to Accede,” BNA’s Electronic Commerce & Law Report (Dec. 12, 2001) at 1224; “U.N. Announces Music Piracy Pact” (Feb. 21, 2002), available as of Feb. 21, 2002 at http://news.com.com/2100-1023-842169.html.

48 Vienna Convention on the Law of Treaties, May 23, 1969, art. 31(2), 1155 U.N.T.S. 331.

- 27 -

laws already conform to the requirements of the treaties. As discussed in detail below, WIPO implementation legislation in the United States took a largely minimalist view of the changes to United States copyright law required to conform to the WIPO treaties. It is curious that all the implementing legislation introduced in Congress implicitly took the position that U.S. law already contains most of the rights required under the WIPO treaties, in view of the fact that, as analyzed below, much of the language describing mandatory copyright rights in the WIPO treaties appears to go beyond the correlative rights in current United States law or to set up new rights entirely. The possibility that other countries would adopt legislation implementing the WIPO treaty rights in their seemingly broader form raises the prospect of varying scopes of rights in different countries, a situation that the WIPO treaties were intended to avoid in the first place.49F49

In contrast to the United States implementing legislation, the European Commission’s “European Copyright Directive on the Harmonization of Certain Aspects of Copyright and Related Rights in the Information Society”50F50 to update and harmonize member state copyright laws (which will be referred to herein as the “European Copyright Directive”) seems to take a more expansive view, although individual member states are free to interpret the extent to which their own copyright laws already conform to the dictates of the European Copyright Directive in adopting legislation in response to it.51F51 The WIPO implementation legislation in the United States and the European Copyright Directive will be discussed at length throughout this paper as they relate to the various issues treated herein.

49 WIPO Copyright Treaty, Preamble, at 4; WIPO Performances and Phonograms Treaty, Preamble, at 22.

50 The text of the European Copyright Directive may be found at http://europa.eu.int/servlet/portail/RenderServlet?search=DocNumber&lg=en&nb_docs=25&domain=Legislation&coll=&in_force=NO&an_doc=2001&nu_doc=29&type_doc=Directive (available as of January 1, 2002).

51 The European Copyright Directive was first circulated for comments among European legal experts. It was then officially published at the end of 1997 for a more public debate of its provisions. The European Parliament approved a final draft of the Directive on February 14, 2001. The European Commission, acting through the European Union ministers, accepted the final draft of the Directive on April 9, 2001.

- 28 -

(b) The WIPO Copyright Treaty

Article 7 of an earlier draft of the WIPO Copyright Treaty would apparently have adopted the approach of MAI to the question of whether RAM copies fall within the reproduction right of the copyright holder.52F52 The proposed Article 7(1) provided:

(1) The exclusive right accorded to authors of literary and artistic works in Article 9(1) of the Berne Convention of authorizing the reproduction of their works, in any manner or form, includes direct and indirect reproduction of their works, whether permanent or temporary.

The reference to “temporary” reproductions would have seemed to cover copies in RAM. The reference to “indirect” reproductions, particularly when coupled with the inclusion of “temporary” reproductions, might have been broad enough to cover interim, partial reproductions in RAM in the course of transmission of a work through the Internet, as well as complete copies of a work made in RAM and/or on a hard disk at the receiving computer.

52 The WIPO Copyright Treaty contains a number of important provisions relevant to the Internet that are not discussed elsewhere in this paper. Article 2 codifies the idea/expression dichotomy of copyright law: “Copyright protection extends to expressions and not to ideas, procedures, methods of operation or mathematical concepts as such.” Article 4 expressly extends copyright protection to computer programs in all forms as literary works: “Computer programs are protected as literary works within the meaning of Article 2 of the Berne Convention. Such protection applies to computer programs, whatever may be the mode or form of their expression.”

Article 5 adopts the approach of the Supreme Court’s decision in Feist Publications, Inc. v. Rural Telephone Serv., 499 U.S. 340 (1991), which held that only the selection or arrangement of a compilation of facts such as a database, and not the facts themselves, can be protected under copyright. Article 5 provides: “Compilations of data or other material, in any form, which by reason of the selection or arrangement of their contents constitute intellectual creations, are protected as such. This protection does not extend to the data or the material itself and is without prejudice to any copyright subsisting in the data or material contained in the compilation.” The proposed WIPO Treaty on Intellectual Property in Respect of Databases would have extended protection to the information itself in a database where such database was the fruit of substantial labor to compile. Basic Proposal for the Substantive Provisions of the Treaty on Intellectual Property in Respect of Databases to be Considered by the Diplomatic Conference, art. 1(1), WIPO Doc. CRNR/DC/6 (Aug. 30, 1996) <www.wipo.org/eng/diplconf/6dc_all.htm>. The controversy generated by this Treaty precluded its adoption by WIPO.

Article 7(1) provides that authors of computer programs, cinematographic works, and works embodied in phonograms shall enjoy the exclusive right of authorizing commercial rental to the public of the originals or copies of their works. Under Article 7(2), this rental right does not apply “in the case of computer programs where the program itself is not the essential object of the rental” or “in the case of cinematographic works, unless such commercial rental has led to widespread copying of such works materially impairing the exclusive right of reproduction.” The Agreed Statement for Articles 6 and 7 notes that the expressions “copies” and “original and copies,” being subject to the right of rental, “refer exclusively to fixed copies that can be put into circulation as tangible copies.”

Article 6 of an earlier draft of the treaty would have required Contracting Parties to abolish non-voluntary broadcasting licenses within seven years of ratifying or acceding to the Treaty. This Article was deleted in the final adopted version.

- 29 -

In addition, proposed Article 7(2) of the treaty seemed to recognize the possibility that the language of Article 7(1) might be read to cover interim, partial reproductions during transmission, for it would have allowed signatory members (referred to as “Contracting Parties” in the treaty) to limit the right of reproduction in those instances:

(2) Subject to the conditions under, and without prejudice to the scope of applicability of, Article 9(2) of the Berne Convention, it shall be a matter for legislation in Contracting Parties to limit the right of reproduction in cases where a temporary reproduction has the sole purpose of making the work perceptible or where a temporary reproduction is of a transient or incidental nature, provided that such reproduction takes place in the course of use of the work that is authorized by the author or permitted by law in accordance with the Berne Convention and this Treaty.53F53

The proposed Article 7, and the subject of interim transmission copies in general, generated a lot of controversy at the Conference. Telecommunications companies and Internet providers particularly objected to Article 7 because they feared that protection for temporary copying would impose liability for the interim copying that inherently occurs in computer

53 Although this provision apparently was designed to ameliorate the potential mischief that might result from deeming all interim copies of a work in the course of transmission to be within the copyright owner’s rights, it suffered from a number of potential problems. First, it would have left the issue up to the individual Contracting Parties whether to legislate exemptions. Thus, some Contracting Parties could have legislated such exemptions, while others did not, and the scope of the exemptions could have varied from country to country. As a result, whether interim copies during the course of transmission constitute infringement could have turned on the countries through which the transmission path passes, which is arbitrary under the current transmission technology of the Internet.

Second, Article 7(2) stated that the exemptions would apply only to transient or incidental reproductions taking place in the course of an authorized use of a work. Thus, if the transmission itself is unauthorized, the exemptions would not have applied, and there could still have been potential liability for the interim reproductions. Yet the operators of the node computers in which the interim copies are made would have no way of knowing whether any particular packet passing through the node is part of an authorized transmission. Article 7(2) therefore was flawed.

Article 10(1) of the adopted version affords a more generic vehicle for the adoption of exemptions or exceptions to rights conferred in the Treaty: “Contracting Parties may, in their national legislation, provide for limitations of or exceptions to the rights granted to authors of literary and artistic works under this Treaty to an extent consistent with exceptions or limitations provided for in the Berne Convention in certain special cases that do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the author.”

The requirement that exceptions “not unreasonably prejudice the legitimate interests of the author” provides little guidance as to where the boundaries should lie around exceptions that Contracting Parties may wish to adopt in implementing legislation. The Agreed Statement concerning Article 10 does nothing to clarify the uncertainty: “It is understood that the provisions of Article 10 permit Contracting Parties to carry forward and appropriately extend into the digital environment limitations and exceptions in their national laws which have been considered acceptable under the Berne Convention. Similarly, these provisions should be understood to permit Contracting Parties to devise new exceptions and limitations that are appropriate in the digital network environment.”

- 30 -

networks. On the other hand, content providers such as the software, publishing and sound recording industries, opposed any open-ended approach that would permit all temporary copying.54F54

To resolve the controversy, the proposed Article 7 was ultimately simply deleted entirely from the adopted version of the treaty.55F55 The Agreed Statement pertaining to the right of reproduction (Previous Article 7) provides:

The reproduction right, as set out in Article 9 of the Berne Convention, and the exceptions permitted thereunder,56F56 fully apply in the digital environment, in particular to the use of works in digital form. It is understood that the storage of a protected work in digital form in an electronic medium constitutes a reproduction within the meaning of Article 9 of the Berne Convention.

The Assistant Secretary of Commerce and Commissioner of Patents and Trademarks at the time, Bruce Lehman, who headed the U.S. delegation to the Conference, stated at the end of the Conference that the Agreed Statement was intended to make clear that the reproduction right includes the right to make digital copies, but also that certain copying, e.g., for temporary digital storage, will be permitted. Commissioner Lehman further expressed the view that the treaty language is broad enough to permit domestic legislation that would remove any liability on the part of network providers where the copying is simply the result of their functioning as a conduit for network services.57F57 However, the Agreed Statement itself does nothing more than reference Article 9 of the Berne Convention, which of course was adopted long before digital copies were an issue under copyright law, and makes no explicit reference to “temporary digital storage.” In addition, the phrase “storage of a protected work in digital form in an electronic medium” could potentially include temporary digital storage in a node computer during transmission. It is therefore difficult to agree with Commissioner Lehman that the Agreed Statement makes anything “clear.”

Rather, the Agreed Statement seems to leave virtually open ended the question of whether temporary images in RAM will be treated as falling within the copyright owner’s right of reproduction. The uncertainty surrounding the scope of the reproduction right in a digital environment that, at least early on, seemed to divide U.S. courts therefore appears destined to replicate itself in the international arena. The uncertainty is heightened by the fact that Article 9 of the Berne Convention allows signatories to adopt certain exceptions to the reproduction right,

54 “WIPO Delegates Agree on Two Treaties,” 2 BNA’s Electronic Info. Pol’y & L. Rep. 22, 22 (1997).

55 Id.

56 Article 9(2) of the Berne Convention provides, “It shall be a matter for legislation in the countries of the Union to permit the reproduction of such works in certain special cases, provided that such reproduction does not conflict with a normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author.”

57 “WIPO Delegates Agree on Two Treaties,” 2 BNA’s Electronic Info. Pol’y & L. Rep. 22, 22-23 (1997).

- 31 -

raising the prospect of inconsistent exceptions being adopted from country to country. As a result, whether interim copies made during the course of transmission constitute infringement may turn on the countries through which the transmission path passes, which is arbitrary under the current transmission technology of the Internet. The issue ignited debate in the United States in connection with the federal legislation to implement the treaty.

Curiously, despite the focus on and ultimate removal of the proposed Article 7 of the WIPO Copyright Treaty, Article 7 as adopted in the WIPO Performances and Phonograms Treaty appears to come closer to adopting the approach of MAI. Article 7 gives performers the exclusive right of “authorizing the direct or indirect reproduction of their performances fixed in phonograms” (emphasis added). As originally proposed, Article 7 contained language even closer to the MAI logic, for it expressed the reproduction right of performers as one of “authorizing the direct or indirect reproduction, whether permanent or temporary, of their performances fixed in phonograms” (emphasis added). The use of the phrase “permanent or temporary” would more strongly have suggested that temporary interim reproductions of performances would be within the performer’s right of reproduction.

In addition, Article 7(2) in an earlier draft was also deleted, which made reference to transient copies as follows:

Subject to the conditions under, and without prejudice to the scope of applicability of, Article 19(2), it shall be a matter for legislation in Contracting Parties to limit the right of reproduction in cases where a temporary reproduction has the sole purpose of making the fixed performance perceptible or where a temporary reproduction is of a transient or incidental nature, provided that such reproduction takes place in the course of use of the fixed performance that is authorized by the performer or permitted by law in accordance with this Treaty.

The Agreed Statement that was issued with respect to the right of reproduction in the WIPO Performances and Phonograms Treaty is very similar to the Agreed Statement on the same subject that was issued with the WIPO Copyright Treaty. The Agreed Statement issued with the WIPO Performances and Phonograms Treaty provides:

The reproduction right, as set out in Articles 7 and 11, and the exceptions permitted thereunder through Article 16, fully apply in the digital environment, in particular to the use of performances and phonograms in digital form. It is understood that the storage of a protected performance or phonogram in digital form in an electronic medium constitutes a reproduction within the meaning of these Articles.

- 32 -

Thus, the Agreed Statement for the WIPO Performances and Phonograms Treaty contains the same ambiguities noted above with respect to the Agreed Statement for the WIPO Copyright Treaty.

Similar to Article 7, Article 11 gives producers of phonograms the “exclusive right of authorizing the direct or indirect reproduction of their phonograms, in any manner or form.” As in the case of Article 7, an earlier proposed version of Article 11 contained the phrase “whether permanent or temporary,” but this phrase was deleted in the final adopted version.58F58

Both Articles 7 and 11 define the rights recited therein in terms of “phonograms.” “Phonogram” is defined in Article 2(b) as any “fixation” of the sounds of a performance or of other sounds other than incorporated in a cinematographic or other audiovisual work.

“Fixation” is defined broadly in Article 2(c) as “the embodiment of sounds or the representations thereof, from which they can be perceived, reproduced or communicated through a device.” Storage in RAM would seem to satisfy this definition of fixation. Thus, any unauthorized transmission of a performance, or of the sounds embodied in a phonogram fixing such performance, to RAM memory would potentially violate the rights of both the owner of the performance and of the phonogram.59F59

58 Article 11(2) in an earlier draft, similar to the proposed and later deleted Article 7(2), was also deleted. Article 11(2) would have provided: “Subject to the conditions under, and without prejudice to the scope of applicability of, Article 19(2), it shall be a matter for legislation in Contracting Parties to limit the right of reproduction in cases where a temporary reproduction has the sole purpose of making the phonogram audible or where a temporary reproduction is of a transient or incidental nature, provided that such reproduction takes place in the course of use of the phonogram that is authorized by the producer of the phonogram or permitted by law in accordance with this Treaty.”

59 The WIPO Performances and Phonograms Treaty contains a number of important provisions relevant to the Internet that are not discussed elsewhere in this paper. Article 4 requires Contracting Parties to afford national treatment to nationals of other Contracting Parties. Article 5(1) affords moral rights to performers: “Independently of a performer’s economic rights, and even after the transfer of those rights, the performer shall, as regards his live aural performances or performances fixed in phonograms, have the right to claim to be identified as the performer of his performances, except where omission is dictated by the manner of the use of the performance, and to object to any distortion, mutilation or other modification of his performances that would be prejudicial to his reputation.” A proposed Article 5(4), which was deleted in the final version, would have allowed any Contracting Party to declare in a notification deposited with the Director General of WIPO that it will not apply the provisions of Article 5.

Article 6 grants performers the exclusive right of authorizing the broadcasting and communication to the public of their unfixed performances (except where the performance is already a broadcast performance) and the fixation of their unfixed performances. Articles 9 and 13 grant performers and producers of phonograms, respectively, the exclusive right of authorizing the commercial rental to the public of the original and copies of their performances fixed in phonograms and of their phonograms.

Article 15 provides that “[p]erformers and producers of phonograms shall enjoy the right to a single equitable remuneration for the direct or indirect use of phonograms published for commercial purposes for broadcasting or for any communication to the public.” The Agreed Statement for Article 15 provides: “It is understood that Article 15 does not represent a complete resolution of the level of rights of broadcasting and communication to

- 33 -

Thus, the WIPO Performances and Phonograms Treaty replicates the same uncertainty as the WIPO Copyright Treaty with respect to the issue of whether transient “copies” of performances and phonograms will fall within the copyright owner’s right of reproduction.60F60 Indeed, the definition of the right of reproduction in Article 7 and Article 11 to include “direct or indirect” reproductions, together with the broad definition of “fixation” in Article 2(c), arguably adopt an approach that is closer to the MAI decision than the WIPO Copyright Treaty.

4. The Requirement of Volition for Direct Liability

Even assuming the rationale of the MAI case and the provisions of the WIPO Treaties are applied to deem all reproductions during transmission of a work through the Internet to be “copies” within the copyright owner’s rights, a difficult issue arises as to who should be responsible for the making of such copies. Multiple actors may be potentially connected with a particular copy or copies of a work on the Internet, such as a work posted to a bulletin board service (BBS) – the original poster of the work, the BBS operator, the Online Service Provider (OSP) through which the BBS is offered, a user downloading a copy of the work from the BBS, and perhaps the operators of node computers through which a copy of the work may pass during the course of such downloading. Which one or more of these actors should be deemed to have made the copy or copies?

The most difficult aspect of the issue of which actors should be liable for copies made in the course of the downloading, viewing or other transmission of a work through the Internet stems from the fact that many such copies will typically be made automatically. For example, “copies” of the work (in whole or in part) will automatically be made in the RAM (and possibly in temporary hard disk storage) of each interim node computer within the transmission path of the work through the Internet. And the modems on the initiating and receiving ends of the transmission will buffer the data to be transmitted. Internet search engine services may use

the public that should be enjoyed by performers and phonogram producers in the digital age. Delegations were unable to achieve consensus on differing proposals for aspects of exclusivity to be provided in certain circumstances or for rights to be provided without the possibility of reservations, and have therefore left the issue to future resolution.”

Under Article 17(1), the term of protection to be granted to performers under the Treaty is at least 50 years from the end of the year in which the performance was fixed in a phonogram. Under Article 17(2), the term of protection to be granted to producers of phonograms under the Treaty is at least 50 years from the end of the year in which the phonogram was published, or failing such publication within 50 years from fixation of the phonogram, 50 years from the end of the year in which the fixation was made.

60 Article 16 affords a generic vehicle for the adoption of exemptions or exceptions to rights conferred in the Treaty. Article 16(1) provides that “Contracting Parties may, in their national legislation, provide for the same kinds of limitations or exceptions with regard to the protection of performers and producers of phonograms as they provide for in their national legislation, in connection with the protection of copyright in literary and artistic works.” Article 16(2) provides, however, similar to the WIPO Copyright Treaty, that “Contracting Parties shall confine any limitations of or exceptions to rights provided for in this Treaty to certain special cases which do not conflict with a normal exploitation of the phonogram and do not unreasonably prejudice the legitimate interests of the performer or of the producer of phonograms.”

- 34 -

“spiders” to “crawl” through the Internet and make copies in RAM of materials on websites in the course of creating an index of that material.

Should a volitional act be required on the part of a third party to be liable for a copy made during transmission? If so, is a direct volitional act to cause the copy to be made required (as in the case of the original poster or the ultimate recipient of the copy), or is it sufficient if there was a volitional act in setting up the automatic process that ultimately causes the copy to be made (as in the case of the BBS operator, the OSP or the search engine service)? In view of the fact that copyright law has traditionally imposed a standard of strict liability for infringement,61F61 one could argue that a direct volitional act may not be required.62F62

In addition to copies made automatically on the Internet, many infringing copies may be made innocently. For example, one may innocently receive an e-mail message that infringes the copyright rights of another and print that message out. Or one may innocently encounter (and copy into the RAM of one’s computer or print out) infringing material in the course of browsing.

Several cases have addressed the issue of direct liability on the part of OSPs, BBS operators, and others for infringement of the reproduction right by users of the service, and in particular how much of a volitional act is required for direct infringement liability:63F63

(a) The Netcom Case

The well known case of Religious Technology Center v. Netcom On-Line Communication Services64F64 refused to impose direct infringement liability on an OSP for copies made through its service, at least where the OSP had no knowledge of such infringements. In that case the plaintiffs sought to hold liable the OSP (Netcom) and the operator of a BBS which gained its Internet access through the OSP for postings of the plaintiffs’ copyrighted works on the bulletin board. The works in question were posted by an individual named Erlich65F65 to the BBS’s computer for use through Usenet.66F66 The BBS’s computer automatically briefly stored

61 Religious Technology Center v. Netcom On-Line Communications Servs., 907 F. Supp. 1361, 1367 & n.10 (N.D. Cal. 1995); R. Nimmer, Information Law ¶ 4.06, at 4-25 (2001). Intent can, however, affect statutory damages to be awarded to the plaintiff. Netcom, 907 F. Supp. at 1367.

62 But cf. R. Nimmer, Information Law ¶ 4.06, at S4-50 (2001 Cum. Supp. No. 2) (“Although copyright is a strict liability statute, there should be some [sort] of volition or causation which is lacking where a defendant’s system is merely used to create a copy by a third party.”).

63 See also cases discussed in Section III.C.1 below pertaining to direct liability of online service providers.

64 907 F. Supp. 1361 (N.D. Cal. 1995).

65 In an earlier order, the court had entered a preliminary injunction against Erlich himself.

66 The Usenet is “a worldwide community of electronic BBSs that is closely associated with the Internet and with the Internet community. The messages in Usenet are organized into thousands of topical groups, or ‘Newsgroups’ .... As a Usenet user, you read and contribute (‘post’) to your local Usenet site. Each Usenet site distributes its users’ postings to other Usenet sites based on various implicit and explicit configuration settings, - 35 -

them. The OSP then automatically copied the posted works onto its computer and onto other computers on the Usenet. In accordance with usual Usenet procedures, Usenet servers maintained the posted works for a short period of time – eleven days on Netcom’s computer and three days on the BBS’s computer.67F67 The OSP neither created nor controlled the content of the information available to its subscribers, nor did it take any action after being told by the plaintiffs that Erlich had posted infringing messages through its system.68F68

The court cast the issue of direct liability as “whether possessors of computers are liable for incidental copies automatically made on their computers using their software as part of a process initiated by a third party.”69F69 The court distinguished MAI, noting that “unlike MAI, the mere fact that Netcom’s system incidentally makes temporary copies of plaintiffs’ works does not mean that Netcom has caused the copying. The court believes that Netcom’s act of designing or implementing a system that automatically and uniformly creates temporary copies of all data sent through it is not unlike that of the owner of a copying machine who lets the public make copies with it.”70F70 The court held that, absent any volitional act on the part of the OSP or the BBS operator other than the initial setting up of the system, the plaintiffs’ theory of liability, carried to its natural extreme, would lead to unreasonable liability:

Although copyright is a strict liability statute, there should still be some element of volition or causation which is lacking where a defendant’s system is merely used to create a copy by a third party.71F71

Accordingly, the court refused to hold the OSP liable for direct infringement. The court also refused to hold the BBS operator liable for direct infringement. “[T]his court holds that the storage on a defendant’s system of infringing copies and retransmission to other servers is not a direct infringement by the BBS operator of the exclusive right to reproduce the work where such copies are uploaded by an infringing user.”72F72 The court further held that the warning of the presence of infringing material the plaintiffs had given did not alter the outcome with respect to direct infringement liability:

Whether a defendant makes a direct copy that constitutes infringement cannot depend on whether it received a warning to delete the message. This distinction

and in turn receives postings from other sites.” Daniel P. Dern, The Internet Guide for New Users 196-97 (1994).

67 Netcom, 907 F. Supp. at 1367.

68 Id. at 1368.

69 Id.

70 Id. at 1369.

71 Id. at 1370.

72 Id. at 1370-71 (emphasis in original).

- 36 -

may be relevant to contributory infringement, however, where knowledge is an element.73F73

The result of the Netcom case with respect to liability for direct infringement for the transmission and intermediate storage of copyrighted materials by an OSP was codified in the first safe harbor for OSPs set forth in Section 512(a)(1) of the Digital Millennium Copyright Act,74F74 discussed in detail in Section III.C below.

(b) The MAPHIA Case

Another well known case, Sega Enterprises Ltd. v. MAPHIA,75F75 adopted the logic of the Netcom case and refused to hold a BBS and its system operator directly liable for the uploading and downloading of unauthorized copies of Sega’s video games, even though the defendants participated in encouraging the unauthorized copying, which was not true in Netcom. (As discussed below, the court did, however, find contributory liability.) The evidence established that the system operator had knowledge that the infringing activity was going on through the bulletin board, and indeed that he had specifically solicited the uploading of the games for downloading by users of the bulletin board.76F76 The system operator also sold video game “copiers,” known as “Super Magic Drives,” through the MAPHIA BBS, which enabled subscribers to the BBS to play games which had been downloaded from the BBS.77F77

In granting a motion by Sega seeking summary judgment and a permanent injunction, the court refused to impose direct liability for copyright infringement on the BBS and its system operator, Chad Sherman. The court cited the Netcom case for the proposition that, although copyright is a strict liability statute, there should be some element of volition or causation which is lacking where a defendant’s system is merely used to create a copy by a third party.78F78 The court further stated:

While Sherman’s actions in this case are more participatory than those of the defendants in Netcom, the Court finds Netcom persuasive. Sega has not shown that Sherman himself uploaded or downloaded the files, or directly caused such

73 Id. at 1370.

74 H.R. Rep. No. 105-551 Part 1, at 11, 24 (1998).

75 948 F. Supp. 923 (N.D. Cal. 1996).

76 Id. at 928.

77 Id. at 929. The Super Magic Drive consisted of a connector which plugged into the video game console, a receptacle which accepted video game cartridges, a main unit having a RAM to store games, and a floppy disk drive. “A MAPHIA BBS user can download video programs through his or her computer onto a floppy disk and make copies with his or her computer or play those game programs through the adaptor drive. To play a downloaded game, the user places the floppy disk into the video game copier. The user can choose the ‘run program’ option and run the video game program from the floppy disk without a video game cartridge. The adaptor drive also allows the user to copy the contents of a game cartridge onto a floppy disk.”Id.

78 Id. at 932.

- 37 -

uploading or downloading to occur. The most Sega has shown is that Sherman operated his BBS, that he knew infringing activity was occurring, and that he solicited others to upload games. However, whether Sherman knew his BBS users were infringing on Sega’s copyright, or encouraged them to do so, has no bearing on whether Sherman directly caused the copying to occur. Furthermore, Sherman’s actions as a BBS operator and copier seller are more appropriately analyzed under contributory or vicarious liability theories. Therefore, because Sega has not shown that Sherman directly caused the copying, Sherman cannot be liable for direct infringement.79F79

Similarly, in Sega Enterprises Ltd. v. Sabella,80F80 the court refused to hold a BBS operator liable for direct infringement of the reproduction right where there was no evidence that the operator did any unauthorized copying herself. The defendant, Sabella, was the system operator of a BBS called “The Sewer Line,” which contained a directory called “Genesis,” into which were uploaded and downloaded infringing copies of Sega’s video games by subscribers to the BBS. The defendant also sold copiers that enabled users to play Sega games directly from floppy disks without the need for a Sega game cartridge, and allowed purchasers of her copiers to download files from her BBS without charge for a certain time period.

79 Id. (citations to Netcom omitted). An earlier opinion in the case, issued in conjunction with the granting of a preliminary injunction to Sega, although somewhat unclear in its holding, seemed to suggest that the defendants could be held liable for direct infringement, at least for the unauthorized copies being uploaded through the bulletin board, although not for the subsequent downloading of copies by user of the bulletin board. See Sega Enterprises Ltd. v. MAPHIA, 857 F. Supp. 679, 683 (N.D. Cal. 1994). The court in the later opinion, however, disavowed this interpretation of its earlier opinion. With respect to its earlier order granting a preliminary injunction, the court stated, “To the extent that order can be read to suggest that Sherman may be liable for direct copyright infringement, it is clarified and superseded by this order.” Sega Enterprises Ltd. v. MAPHIA, 948 F. Supp. 923, 932 n.5 (N.D. Cal. 1996).

The court also rejected a fair use defense raised by Sherman. With respect to the first fair use factor, the purpose and character of the use, the court found that Sherman’s activities in encouraging the uploading and downloading of Sega’s games was clearly commercial. “Sherman intended to profit directly from the content of the information made available on his BBS because his copier customers could use the game files to play the games rather than purchase Sega game cartridges. This distinguishes Sherman from the Internet provider in Netcom who did not gain anything from the content of the information available to subscribers.” Id. at 934.

With respect to the second fair use factor, the nature of the copyrighted work, the court noted that the Sega video games were for entertainment uses and involved fiction and fantasy, so that the second factor weighed against fair use. Id. The court found that the third factor, the extent of the work copied, weighed against fair use because BBS users copied virtually entire copyrighted works, and Sherman had not shown any public benefit or explanation for the complete copying. Id. at 935. Finally, the court found that the fourth factor, the effect of the use upon the market, also weighed against fair use. “Even if the users are only playing the games in their own homes and even if there are currently only a limited number of users that have copiers, unrestricted and widespread conduct of this sort would result in a substantial adverse impact on the market for the Sega games.”Id.

80 1997 Copyr. Law. Dec. ¶ 27,648 (N.D. Cal. Dec. 18, 1996).

- 38 -

Although the court agreed that the defendant’s activities were more participatory than those of the defendant in Netcom, the court nevertheless found the Netcom court’s logic persuasive. “Sega has not shown that Sabella herself uploaded or downloaded the files, or directly caused such uploading or downloading to occur. The most Sega has shown is that Sabella should have known such activity was occurring, that she sold copiers that played games such as those on her BBS, and that she gave her copier customers downloading privileges on her BBS.”81F81 Citing Netcom, the court concluded that “whether Sabella knew her BBS users were infringing on Sega’s copyright or encouraged them to do so, has no bearing on whether Sabella directly caused the copying to occur.”82F82

The court did rule, however, that Sabella was liable for contributory infringement. The court cited the Ninth Circuit’s holding in Fonovisa, Inc. v. Cherry Auction, Inc. that “providing the site and facilities for known infringing activity is sufficient to establish contributory liability.” 83F83 The court noted that Sabella provided the BBS as a central depository site for the unauthorized copies of games, and allowed subsequent distribution of the games by user downloads. “She provided the facilities for copying the games by providing, monitoring, and operating the BBS software, hardware, and phone lines necessary for the users to upload and download games.”84F84 Accordingly, she was liable for contributory infringement under the Fonovisa standard.85F85

The court went further, however, holding that even an alternative and higher standard of “substantial participation,” Sabella was liable. “Sabella did more than provide the site and facilities for the known infringing conduct. She provided a road map on the BBS for easy identification of Sega games available for downloading.”86F86 The court also rejected Sabella’s fair use defense, issued a permanent injunction against Sabella, and awarded Sega statutory damages of $5,000 per infringed work.

In contrast to the preceding cases, several cases have held that where a defendant BBS operator has a more direct participation in the acts of infringement of its subscribers or users, there can be direct infringement liability for those acts:

81 Id. at 29,847-48.

82 Id. at 29,848.

83 76 F.3d 259, 264 (9th Cir. 1996).

84 Sabella, 1997 Copyr. Law. Dec. ¶ 27,648 at 29,849.

85 Another recent case applied the Fonovisa standard to hold the defendant Cyrix Corporation liable for contributory infringement for posting on its website some copyrighted applet software of the plaintiff from which it could be downloaded for use with the defendant’s sound boards. “Cyrix is probably also contributorily liable because it encouraged and provided the resources for known infringing activity, i.e. the copying by others of the applet software that Cyrix made available on its website.” Creative Labs, Inc. v. Cyrix Corp., 42 U.S.P.Q.2d 1872, 1875-76 (N.D. Cal. 1997).

86 Sabella, 1997 Copyr. Law. Dec. ¶ 27,648 at 29,849.

- 39 -

(d) The Frena Case

Playboy Enterprises, Inc. v. Frena,87F87 decided before Netcom, MAPHIA and Sabella, goes further than those cases and established liability for the acts of subscribers without a direct volitional act on the part of the operator. In that case, the court held the operator of a BBS, Frena, responsible for infringement of the rights of distribution and display (although curiously not the right of reproduction) with respect to the plaintiff’s copyrighted photographs, which were distributed and displayed through the bulletin board by subscribers, despite evidence that the operator never himself uploaded any of the photographs onto the bulletin board and removed the photographs as soon as he was made aware of them. 88F88 “There is no dispute that Defendant Frena supplied a product containing unauthorized copies of a copyrighted work. It does not matter that Defendant Frena claims he did not make the copies [himself].” 89F89 Although the case did not generate a finding of liability with respect to the right of reproduction, the court’s logic with respect to finding infringement of the rights of distribution and display would seem to apply to the reproduction right as well.

The reach of Frena may be limited, however, because the BBS was apparently one devoted to photographs, much of it of adult subject matter, and subscribers routinely uploaded and downloaded images therefrom. Thus, the court may have viewed Frena as a more direct participant in the infringement, having set up a bulletin board that was devoted to the kind of activity that would foreseeably lead to infringement. The undisputed evidence of the presence on the bulletin board of the plaintiff’s photographs, some of which had been edited to remove the plaintiff’s trademarks and to add Frena’s advertisements, was apparently evidence of sufficient involvement for the court to find direct infringement of the public distribution right. Similarly, Frena’s selection of the infringing content for inclusion in the bulletin board was apparently sufficient involvement to find direct infringement of the public display right.90F90

In addition, as discussed in detail below, the legislative history of the Digital Millennium Copyright Act, which contains a number of safe harbors that address the issue of OSP liability, states that it was intended to overrule the Frena case, at least to the extent Frena suggested that passive, automatic acts engaged in through a technological process initiated by another through the facilities of an OSP could constitute direct infringement on the part of the OSP.91F91 In a case decided in 2001, the Fourth Circuit held that the Digital Millennium Copyright Act had indeed

87 839 F. Supp. 1552 (M.D. Fla. 1993).

88 Id. at 1554.

89 Id. at 1556.

90 K. Stuckey, Internet and Online Law § 6.10[2][a], at 6-80 (2013).

91 H.R. Rep. No. 105-551 Part 1, at 11 (1998).

- 40 -

overruled Frena “insofar as that case suggests that [passive, automatic acts engaged in through a technological process initiated by another] could constitute direct infringement.”92F92

(e) The Webbworld Case

In a case factually similar to Frena, a company operating a website was held directly liable for the posting of copyrighted material on its site which could be downloaded by subscribers. In Playboy Enterprises, Inc. v. Webbworld, Inc.,93F93 the defendant Webbworld, Inc. operated a website called Neptics, which made adult images available to subscribers who paid $11.95 per month. Over a period of several months, images became available through the Neptics website which were originally created by or for the plaintiff Playboy Enterprises, Inc.

The court rejected the defendant’s argument that it could not be held directly liable for infringement under the logic of the Netcom case. The court distinguished the Netcom case on the ground that Netcom did not create or control the content of the information available to its subscribers, but rather merely provided access to the Internet. In contrast, the court noted that Neptics was receiving payment selling the images it stored on its computers, and therefore was acting as more than merely an information conduit.94F94

The defendant also argued that it could not be held liable for direct infringement because it had no control over the persons who posted the infringing images to the adult newsgroups from which Neptics obtained its material. The court rejected this argument: “While this may be true, Neptics surely has control over the images it chooses to sell on the Neptics’ website. Even the absence of the ability to exercise such control, however, is no defense to liability. If a business cannot be operated within the bounds of the Copyright Act, then perhaps the question of its legitimate existence needs to be addressed.”95F95

92 ALS Scan, Inc. v. RemarQ Communities, Inc., 239 F.3d 619, 622 (4th Cir. 2001). A subsequent district court cited with approval the Fourth Circuit’s decision on this point. See Costar Group Inc. v. Loopnet, Inc., 164 F. Supp. 2d 688, 695-96 (D. Md. 2001), aff’d, 373 F.3d 544 (4th Cir. 2004).

93 968 F. Supp. 1171 (N.D. Tex. 1997).

94 Id. at 1175.

95 Id. The court also held that the principals of Webbworld could be held vicariously liable for the infringements. Although the principals had no control over those responsible for originally uploading the infringing images onto the Internet sites from which Webbworld drew its images, the principals had the right and ability to control what occurred on the Neptics website. The court ruled that the $11.95 subscription fee gave the principals a sufficient direct financial benefit from the infringing activity to hold them vicariously liable. Id. at 1177.

The court made its rulings in the context of a motion for summary judgment by the plaintiff. The court granted summary judgment of infringement with respect to sixty-two copyrighted images, but denied summary judgment with respect to sixteen additional images because of the presence of material issues of fact. In a subsequent ruling, the court found the defendants directly and vicariously liable with respect to these sixteen additional images based on a similar legal analysis of liability. See Playboy Enterprises, Inc. v. Webbworld, Inc., 45 U.S.P.Q.2d 1641 (N.D. Tex. 1997).

- 41 -

(f) The Sanfilippo Case

In Playboy Enterprises, Inc. v. Sanfilippo,96F96 the court found the defendant operator of a website through which 7475 of the plaintiff’s copyrighted images were available directly liable for infringement. The defendant admitted copying 16 files containing a great many of the images from a third party source onto his hard drive and CD-ROM. He also admitted that 11 other files containing such images were uploaded to his hard drive by a third party. The court found that, because the defendant had authorized the third party to upload such files to his site, the defendant was directly liable for such upload as a violation of the exclusive right under Section 106 of the copyright statute to “authorize” others to reproduce a copyrighted work. The court also found that the defendant had willfully infringed 1699 of the copyrighted images.

One of the most interesting aspects of the Sanfilippo case is the amount of damages the court awarded. The plaintiff sought statutory damages, and argued that a statutory damages award should be made for each individual image that was infringed. The defendant argued that, in awarding damages, the court should consider the fact that the copied images were taken from compilations and, therefore, an award should be made only with respect to each particular magazine’s copyright from which the images were taken. The court rejected this argument and allowed a statutory damage award for each image on the grounds that each image had an independent economic value on its own, each image represented “a singular and copyrightable effort concerning a particular model, photographer, and location,”97F97 and the defendant marketed each one of the images separately. The court awarded statutory damages of $500 per image, for a total damage award of $3,737,500.98F98

(g) The Free Republic Case

Even where there is a direct volitional act on the part of a website operator in copying copyrighted material onto its site, difficult questions relating to First Amendment and fair use rights may arise, particularly where the Web is used to facilitate free ranging discussion among participants. For example, in 1998, the Los Angeles Times and The Washington Post filed a copyright infringement lawsuit against the operator of a website called the Free Republic. The site contained news stories from dozens of sources (including the plaintiffs), posted both by the operator of the site and its users, and users were allowed to attach comments to the stories.99F99 The plaintiffs argued that, because verbatim complete copies of their news stories were often posted on the website, it was reducing traffic to their own websites on which the articles were posted, and was harming their ability to license their articles and to sell online copies of archived

96 1998 U.S. Dist. LEXIS 5125 (S.D. Cal. 1998).

97 Id. at *18-19.

98 The plaintiff requested an astronomical $285,420,000 in statutory damages ($20,000/image for 5776 images that were not willfully infringed, and $100,000/image for 1699 images that were willfully infringed).

99 Los Angeles Times v. Free Republic, 54 U.S.P.Q.2d 1453, 1455-56 (C.D. Cal. 2000).

- 42 -

articles.100F100 The defendants raised defenses under the fair use doctrine and under the First Amendment.101F101 The defendants moved for summary judgment on all claims and the plaintiffs cross moved for summary judgment on the defendants’ defense of fair use.

The court rejected the defendants’ fair use argument and ruled that the defendants might be liable for infringement.102F102 The court ruled that the first fair use factor (purpose and character of the use) favored the plaintiffs, noting there was little transformative about copying the entirety or portions of the articles, since the articles on the defendants’ site served the same purpose as that for which one would normally seek to obtain the original – for ready reference if and when websites visitors needed to look at it.103F103 The court also rejected the addition of commentary to the articles as favoring the defendants under the first factor, noting that the first posting of an article to the site often contained little or no transforming commentary, and in most cases it was not necessary to copy verbatim the entire article in order for users to be able to comment on the article.104F104 Finally, the court noted that the Free Republic site was a for-profit site, for which the copying enhanced the defendants’ ability to solicit donations and generate goodwill for their website operation and other businesses of the website operator.105F105

The second fair use factor (nature of the copyrighted work) favored the defendants, because the copied news articles were predominantly factual in nature.106F106 The third fair use factor (amount and substantiality of the portion used in relation to the copyrighted work as a whole) favored the plaintiffs, because in many cases exact copies of the entire article were made and the court had previously found that copying of the entire article was not necessary to comment on it.107F107 Finally, the fourth fair use factor (effect of the use on the potential market for or value of the copyrighted work) favored the plaintiffs, because the court found that the availability of complete copies of the articles on the Free Republic site fulfilled at least to some extent demand for the original works and diminished the plaintiffs’ ability to sell and license

100 Id. at 1457.

101 Id. at 1454-55.

102 The court limited its opinion to the availability of the defenses on which the defendants had moved for summary judgment. The court stated it was expressing no opinion as to whether, “given that the ‘copying’ of news articles at issue in this case is to a large extent copying by third-party users,” the plaintiffs could prove a claim against the defendants for copyright infringement. Id. at 1458.

103 Id. at 1460-61.

104 Id. at 1461 & 1463-64. The most telling fact on the latter point was that the Free Republic provided a hypertext link to Jewish World Review’s website at its request, and asked that Free Republic visitors no longer copy the publication’s articles verbatim. Id. at 1463.

105 Id. at 1464-66.

106 Id. at 1467.

107 Id. at 1468.

- 43 -

their articles.108F108 On balance, then, the court concluded that the defendants could not establish a fair use defense.109F109

The court also rejected the defendants’ First Amendment defense on the ground that the defendants had failed to show that copying entire news articles was essential to convey the opinions and criticisms of visitors to the site. The court noted that visitors’ critiques could be attached to a summary of the article, or Free Republic could have provided a link to the plaintiffs’ websites where the articles could be found.110F110

The parties subsequently settled the case, pursuant to which the court entered a stipulated final judgment enjoining the defendants from copying, posting, uploading, downloading, distributing or archiving any of the plaintiffs’ works, or encouraging others to do so, or operating any website or other online service that accomplished or permitted any of the foregoing, except as otherwise permitted by the plaintiffs in writing or by the fair use doctrine. The defendants agreed to pay $1,000,000 in statutory damages for past infringing acts.111F111

(h) The MP3.com Cases

In 2000, the Recording Industry Association of America, Inc. (RIAA), on behalf of 10 of its members, filed a complaint in federal court in the Southern District of New York for willful copyright infringement against MP3.com, based on MP3.com’s new “My.MP3” service.112F112 According to the complaint, this service allowed users to gain access through the Internet, and download digital copies of, commercial CDs, using one of two component services:

“Instant Listening Service” – Under this service, a user could place an order for a commercial CD through one of several online CD retailers cooperating with MP3.com, and then immediately have access to the song tracks on that CD stored on an MP3.com server, before arrival of the shipment of the physical CD ordered by the user.113F113

“Beam-it” – Under this service, a user could insert a commercial CD or a copy thereof (authorized or unauthorized) into his or her computer CD-ROM drive. If the MP3.com server

108 Id. at 1470-71. The court rejected the defendants’ argument that its site was increasing hits to the plaintiffs’ sites through referrals off its own site, noting that the defendants had not addressed how many hits to the plaintiffs’ sites were diverted away as a consequence of the posting of articles to the Free Republic. The court also cited several cases rejecting the argument that a use is fair because it increases demand for the plaintiff’s copyrighted work. Id. at 1471.

109 Id. at 1472.

110 Id. at 1472-73.

111 Los Angeles Times v. Free Republic, 56 U.S.P.Q. 2d 1862 (C.D. Cal. 2000).

112 Complaint for Copyright Infringement, UMG Recordings, Inc. v. MP3.com, Inc., No. 00 Civ. 0472 (S.D.N.Y. Jan. 21, 2000).

113 Id. ¶ 4 & App. A.

- 44 -

was able to recognize the CD, the user was then given access to the song tracks contained on the CD stored on an MP3.com server.114F114

In order to offer the My.MP3 service, MP3.com purchased and copied the tracks from several tens of thousands of commercial CDs onto its servers.115F115 When users accessed sound recordings through My.MP3, it was these reproductions made by MP3.com that were accessed, and not any copies made from the users’ own CD.116F116 The plaintiffs sought a ruling that the copying of the commercial CDs onto the MP3.com servers constituted willful infringement of the copyright rights of the plaintiffs.

The case raised the very interesting issue of whether, assuming that users who are the owners of a lawful copy of a CD could lawfully upload a copy thereof to an MP3.com server for their own private use under Section 1008117F117 of the Audio Home Recording Act of 1992118F118 or under the fair use doctrine, it should be lawful for MP3.com to assist users in accomplishing that, and, if so, whether it should be permissible to do so by advance copying of tracks in anticipation of a user ordering or already owning a CD containing those tracks.

The court ruled that the copying by MP3.com of the commercial CDs made out a prima facie case of direct copyright infringement,119F119 and rejected the defendant’s assertion that such copying was a fair use. The court ruled that the first fair use factor (purpose and character of the use) weighed against the defendant because the defendant’s purpose for the use was commercial – although defendant was not charging users a fee for the service, “defendant seeks to attract a sufficiently large subscription base to draw advertising and otherwise make a profit.”120F120 The court rejected the defendant’s argument that the copying was transformative because it allowed users to “space shift” their CDs into another format in which they could enjoy their sound recordings without lugging around physical CDs, ruling that the argument was “simply another

114 Id.

115 UMG Recordings Inc. v. MP3.com Inc., 92 F. Supp. 2d 349, 350 (S.D.N.Y. 2000).

116 Id.

117 Section 1008 provides: “No action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.” 17 U.S.C. § 1008.

118 Pub. L. No. 102-563, 106 Stat. 4244 (1992).

119 “Thus, although defendant seeks to portray its service as the ‘functional equivalent’ of storing its subscribers’ CDs, in actuality defendant is re-playing for the subscribers converted versions of the recordings it copied, without authorization, from plaintiffs’ copyrighted CDs. On its face, this makes out a presumptive case of infringement under the Copyright Act of 1976 ….” 92 F. Supp. 2d at 350.

120 Id. at 351.

- 45 -

way of saying that the unauthorized copies are being retransmitted in another medium – an insufficient basis for any legitimate claim of transformation.”121F121

With respect to the second factor (nature of the copyrighted work), the court held that, because the copyrighted works at issue were creative musical works, this factor weighed against defendant.122F122 The third factor (amount and substantiality of the copyrighted work used) also weighed against the defendant because the defendant had copied, and the My.MP3 service replayed, the copyrighted works in their entirety.123F123

Finally, with respect to the fourth factor (effect of the use upon the potential market for or value of the copyrighted work), the court noted that the defendant’s activities “on their face invade plaintiffs’ statutory right to license their copyrighted sound recordings to others for reproduction.”124F124 The defendant argued that its activities enhanced the plaintiffs’ sales, since subscribers could not gain access to recordings through MP3.com unless had already purchased, or agreed to purchase, their own CD copies of those recordings. The court rejected this argument on the following rationale:

Any allegedly positive impact of defendant’s activities on plaintiffs’ prior market in no way frees defendant to usurp a further market that directly derives from reproduction of the plaintiffs’ copyrighted works. This would be so even if the copyrightholder had not yet entered the new market in issue, for a copyrightholder’s “exclusive” rights, derived from the Constitution and the Copyright Act, include the right, within broad limits, to curb the development of such a derivative market by refusing to license a copyrighted work or by doing so only on terms the copyright owner finds acceptable.125F125

The court therefore ruled that the defendant was not entitled to a fair use defense as a matter of law, and entered partial summary judgment holding the defendant to have infringed the plaintiffs’ copyrights.126F126 Subsequent to the court’s ruling of infringement, the defendant settled with all but one of the plaintiff record companies (Universal Music Group) by taking a license to reproduce the plaintiffs’ recordings on its servers and to stream them over the Internet to its subscribers, for which MP3.com reportedly paid $20 million to each of the record companies and

121 Id. Contrast this holding with the Ninth Circuit’s statement in RIAA v. Diamond Multimedia Sys., 180 F.3d 1072, 1079 (9th Cir. 1999), in which the Ninth Circuit found space shifting of a recording from a CD onto the “Rio” portable MP3 player device (through a process known as “ripping,” or re-encoding of music data encoded in CD format into the MP3 file format) to be “paradigmatic noncommercial personal use entirely consistent with the purposes of the [Audio Home Recording Act].”

122 UMG, 92 F. Supp. 2d at 351-52.

123 Id. at 352.

124 Id.

125 Id. (citations omitted).

126 Id. at 353.

- 46 -

agreed to pay a few pennies each time a user placed a CD in his or her locker, plus a smaller amount each time a track was played.127F127

Universal Music Group pursued a claim of statutory damages against MP3.com. The court concluded that MP3.com’s infringement was willful, and awarded statutory damages of $25,000 per CD illegally copied by MP3.com.128F128 Even based on the defendant’s assertion that there were no more than 4,700 CDs for which the plaintiffs qualified for statutory damages (an issue that was to have been the subject of a separate trial), the statutory damages award would have come to $118,000,000.129F129 On the eve of trial, the defendant settled with Universal Music Group by agreeing to pay the plaintiff $53.4 million and to take a license to Universal’s entire music catalog in exchange for unspecified royalty payments.130F130

MP3.com’s legal troubles did not end with the settlements with the RIAA plaintiffs. On Aug. 8, 2001, a group of over 50 music publishers and songwriters filed suit against MP3.com on claims of copyright infringement very similar to those asserted by the RIAA plaintiffs. The plaintiffs sought to hold MP3.com liable for the copies of their works made in connection with the My.MP3.com service, as well as for the subsequent “viral distribution” of copies of their works allegedly done through services such as Napster, Gnutella, Aimster, and Music City by MP3.com users after they download digital copies through MP3.com.131F131 Numerous other suits were brought against MP3.com as well. For example, in Sept. of 2001, Isaac, Taylor & Zachary Hanson also sued MP3.com for copying of their copyrighted songs on My.MP3.com.132F132

Numerous opinions have been issued as a result of these lawsuits, holding MP3.com liable for willful copyright infringement and ruling it collaterally estopped from denying that it

127 See Jon Healey, “MP3.com Settles with BMG, Warner,” San Jose Mercury News (June 10, 2000), at 1A; Chris O’Brien, “MP3 Sets Final Pact: Universal Music Group Will Get $53.4 Million,” San Jose Mercury News (Nov. 15, 2000) at 1C, 14C.

128 UMG Recordings Inc. v. MP3.com, Inc., 56 U.S.P.Q.2d 1376, 1379, 1381 (S.D.N.Y. 2000). The court rejected the plaintiffs’ argument that a statutory damages award should be made for each song copied, rather than each CD. The court cited 17 U.S.C. § 504(c)(1), which provides that a statutory damages award may be recovered in a specified range “with respect to any one work,” and further provides that “all parts of a compilation or derivative work constitute one work.” UMG Recordings Inc. v. MP3.com Inc., 109 F. Supp. 2d 223, 224-25 (S.D.N.Y. 2000).

129 56 U.S.P.Q.2d at 1381.

130 O’Brien, supra note 127, at 1C.

131 “Music Publishers, Songwriters Sue MP3.com for ‘Viral Distribution’ of Copyrighted Works,” BNA’s Electronic Commerce & Law Report (Aug. 29, 2001) at 933. In late August of 2001, MP3.com was acquired by media company Vivendi Universal.

132 Steven Bonisteel, “Hanson Sues Music Locker Service Over Copyright” (Sept. 26, 2001), available as of Jan. 6, 2002 at www.newsbytes.com/news/01/170530.html.

- 47 -

willfully infringed the plaintiffs’ various copyrighted works when it created the “server copies” of thousands of CDs in late 1999 and early 2000.133F133

(i) The CoStar Case

In CoStar Group Inc. v. LoopNet, Inc.,134F134 the plaintiff CoStar maintained a copyrighted commercial real estate database that included photographs. The defendant LoopNet offered a service through which a user, usually a real estate broker, could post a listing of commercial real estate available for lease. The user would access, fill out, and submit a form for the property available. To include a photograph of the property, the user was required to fill out another form. The photograph would initially be uploaded into a separate folder on LoopNet’s system, where it would first be reviewed by a LoopNet employee to determine that it was in fact a photograph of commercial property and that there was no obvious indication the photograph was submitted in violation of LoopNet’s terms and conditions. If the photograph met LoopNet’s criteria, the employee would accept it and post it along with the property listing. CoStar claimed that over 300 of its copyrighted photographs had been posted on LoopNet’s site, and sued LoopNet for both direct and contributory copyright liability.135F135

CoStar argued that LoopNet should be directly liable for copyright infringement because, acting through its employees’ review and subsequent posting of the photographs, LoopNet was directly copying and distributing the photographs, citing the Frena case discussed above in Section II.A.4(d). The district court rejected this argument, noting that the Fourth Circuit in the ALS Scan case had concluded that the legislative history of the DMCA indicated Congress’ intent to overrule the Frena case and to follow the Netcom case, under which an OSP’s liability for postings by its users must be judged under the contributory infringement doctrine.136F136

The Fourth Circuit affirmed this ruling on appeal.137F137 Citing its own decision in the ALS Scan case, the Fourth Circuit noted that it had already held that the copyright statute implies a requirement of volition or causation, as evidenced by specific conduct by the purported infringer, for direct liability.138F138 Mere ownership of an electronic facility by an OSP that responds automatically to users’ input is not sufficient volition for direct liability. “There are thousands of owners, contractors, servers, and users involved in the Internet whose role involves the storage and transmission of data in the establishment and maintenance of an Internet facility. Yet their

133 See, e.g., Country Road Music, Inc. v. MP3.com, Inc., 279 F.Supp.2d 325 (S.D.N.Y. 2003); Zomba Enters., Inc. MP3.com, Inc., No. 00 Civ. 6833 (S.D.N.Y. Jun. 8, 2001); Teevee Toons, Inc. v. MP3.com, Inc., 134 F. Supp. 2d 546 (S.D.N.Y. 2001); UMG Recordings, Inc. v. MP3.com, Inc., No. 00 Civ. 472, 200 WL 1262568 (S.D.N.Y. 2000).

134 164 F. Supp. 2d 688 (D. Md. 2001).

135 Id. at 691-92.

136 Id. at 695-96.

137 CoStar v. LoopNet, 373 F.3d 544 (4th Cir. 2004).

138 Id. at 549.

- 48 -

conduct is not truly ‘copying’ as understood by the Act; rather, they are conduits from or to would-be copiers and have no interest in the copy itself.”139F139

The court also inferred a requirement of volition from the statute’s concept of “copying,” which requires the making of “fixed” copies. For the reasons discussed in Section II.A.2 above, the court concluded that transient copies made by an OSP acting merely as a conduit to transmit information at the instigation of others does not create sufficiently fixed copies to make it a direct infringer of copyright.140F140 Accordingly, the court concluded, “[a]greeing with the analysis in Netcom, we hold that the automatic copying, storage and transmission of copyrighted materials, when instigated by others, does not render an ISP strictly liable for copyright infringement under §§ 501 and 106 of the Copyright Act.”141F141 The court also affirmed the district court’s ruling that the quick review of photographs performed by LoopNet’s employees before allowing them to be posted on the site did not amount to “copying,” nor did it add volition to LoopNet’s involvement in storing the copy.142F142

(j) The Ellison Case

The case of Ellison v. Robertson,143F143 discussed in detail in Section III.C.6(b)(1)(i) below, refused to hold an OSP liable for direct infringement based on infringing materials posted on its service by users without its knowledge on Usenet servers hosted by AOL (infringing copies of fictional works).

(k) Perfect 10 v. Cybernet Ventures

In Perfect 10, Inc. v. Cybernet Ventures, Inc.,144F144 the court refused to hold the defendant Cybernet, an “age verification service” that enrolled subscribers, after verifying their age as an adult, to a service that would enable them to gain access for a monthly fee to a large number of member sites displaying pornographic pictures, liable as a direct copyright infringer based on the unauthorized presence of the plaintiffs’ copyrighted photographs on several of the member sites. The court discussed the Netcom, MAPHIA, and Hardenburgh cases (the Hardenburgh case is discussed in Section II.C below), then concluded as follows:

The principle distilled from these cases is a requirement that defendants must actively engage in one of the activities recognized in the Copyright Act. Based on the evidence before the Court it appears that Cybernet does not use its hardware to

139 Id. at 551.

140 Id.

141 Id. at 555.

142 Id. at 556.

143 189 F. Supp. 2d 1051 (C.D. Cal. 2002), aff’d in part and rev’d in part, 357 F.3d 1072 (9th Cir. 2004) (district court’s ruling of no direct infringement not challenged on appeal).

144 213 F. Supp. 2d 1146 (C.D. Cal. 2002).

- 49 -

either store the infringing images or move them from one location to another for display. This technical separation between its facilities and those of its webmasters prevents Cybernet from engaging in reproduction or distribution, and makes it doubtful that Cybernet publicly displays the works. Further, there is currently no evidence that Cybernet has prepared works based upon Perfect 10’s copyrighted material. The Court therefore concludes that there is little likelihood that Perfect 10 will succeed on its direct infringement theory.145F145

(l) Field v. Google

In Field v. Google,146F146 discussed in greater detail in Section III.B.4(a) below, the court ruled that Google should not be liable as a direct infringer for serving up through its search engine, in response to user search queries, copies of the plaintiff’s copyrighted materials that had been cached by Google’s automated crawler, the Googlebot. Citing the Netcom and CoStar cases, the court noted that a plaintiff must “show volitional conduct on the part of the defendant in order to support a finding of direct copyright infringement.”147F147 For some unknown reason, the plaintiff did not allege that Google committed infringement when its Googlebot made the initial copies of the plaintiff’s Web pages on which his copyrighted materials had been placed and stored those copies in the Google cache, nor did the plaintiff assert claims for contributory or vicarious liability. Instead, the plaintiff alleged that Google directly infringed his copyrights when a Google user clicked on a link on a Google search results page to the Web pages containing his copyrighted materials and downloaded a cached copy of those pages from Google’s computers.148F148

The court rejected this argument:

According to Field, Google itself is creating and distributing copies of his works. But when a user requests a Web page contained in the Google cache by clicking on a “Cached” link, it is the user, not Google, who creates and downloads a copy of the cached Web page. Google is passive in this process. Google’s computers respond automatically to the user’s request. Without the user’s request, the copy would not be created and sent to the user, and the alleged infringement at issue in this case would not occur. The automated, non-volitional conduct by Google in response to a user’s request does not constitute direct infringement under the Copyright Act.149F149

145 Id. at 1168-69.

146 412 F. Supp. 2d 1106 (D. Nev. 2006).

147 Id. at 1115.

148 Id.

149 Id.

- 50 -

(m) Parker v. Google

In Parker v. Google,150F150 pro se plaintiff Gordon Parker was the owner of copyright in an e-book titled “29 Reasons Not To Be A Nice Guy.” He posted Reason # 6 on USENET. Parker asserted that Google’s automatic archiving of this USENET posting constituted a direct infringement of his copyright. He also claimed that when Google produced a list of hyperlinks in response to a user’s query and excerpted his web site in that list, Google again directly infringed his copyrighted work.151F151

The district court rejected these claims. Citing the Costar and Netcom cases, the district court held that “when an ISP automatically and temporarily stores data without human intervention so that the system can operate and transmit data to its users, the necessary element of volition is missing. The automatic activity of Google’s search engine is analogous. It is clear that Google’s automatic archiving of USENET postings and excerpting of websites in its results to users’ search queries do not include the necessary volitional element to constitute direct copyright infringement.”152F152

On appeal, the Third Circuit affirmed in an unpublished decision.153F153 The court noted that, “to state a direct copyright infringement claim, a plaintiff must allege volitional conduct on the part of the defendant,” and Parker’s allegations failed to allege any volitional conduct on the part of Google.154F154

(n) The Cablevision Case

In Twentieth Century Fox Film Corp. v. Cablevision Sys.,155F155 the district court ruled that Cablevision was liable for direct copyright infringement based on the offering of a network digital video recording system known as the “Remote-Storage DVR System” (RS-DVR), which permitted customers to record cable programs on central servers at Cablevision’s facilities and play the programs back for viewing at home. The technology underlying the RS-DVR worked as follows. Cablevision took the linear programming signal feed received at its head end and reconfigured it by splitting the feed into a second stream, which was then reformatted through a process known as “clamping” to convert the bitrate of the stream into one that was more efficient. In the process of clamping, portions of programming were placed into buffer memory. The stream was then converted into a number of single program transport streams, one channel per stream. The converted streams were then fed into a special set of “Arroyo” servers, which at

150 422 F. Supp. 2d 492 (E.D. Pa. 2006), aff’d, 2007 U.S. App. LEXIS 16370 (3d Cir. July 10, 2007).

151 Id. at 496.

152 Id. at 497.

153 Parker v. Google, 2007 U.S. App. LEXIS 16370 (3d Cir. July 10, 2007).

154 Id. at *6, 8.

155 478 F. Supp. 2d 607 (S.D.N.Y. 2007), rev’d, 536 F.3d 121 (2d Cir. 2008), cert. denied sub nom. CNN, Inc. v. CSC Holdings, Inc., 557 U.S. 946 (2009).

- 51 -

any given moment in time, stored in a buffer three frames of video from each of the linear channels carried by Cablevision, so that if a customer requested that a particular program be recorded, the appropriate packets could be retrieved from the buffer memory and copied to the customer’s designated hard drive storage space on the Arroyo server.156F156

The RS-DVR service allowed customers to request that a program be recorded in one of two ways. The customer could navigate an on-screen program guide and select a future program to record, or while watching a program, the customer could press a “record” button on a remote control. In response, the Arroyo server would receive a list of recording requests, find the packets for the particular programs requested for recording, then make a copy of the relevant program for each customer that requested it be recorded. A separate copy would be stored in each customer’s designated hard drive storage space on the Arroyo server. If no customer requested that a particular program be recorded, no copy of that program was made on the hard drives of the Arroyo server. When the customer selected a recorded program for playback, the Arroyo server would locate the copy of the desired program stored on the customer’s designated hard drive storage space, then cause the program to be streamed out. The stream containing the program would be transmitted to every home in the node where the requesting customer was located, but only the requesting set-top box would be provided the key for decrypting the stream for viewing.157F157

The plaintiffs alleged direct copyright infringement based on Cablevision’s creation of the copies on the hard drives of the Arroyo servers and of the buffer copies. Although Cablevision did not deny that these copies were being made, it argued that it was entirely passive in the process and the copies were being made by its customers. It also argued, based on the Sony case, that it could not be liable for copyright infringement for merely providing customers with the machinery to make the copies.158F158

The court rejected these arguments, ruling that the RS-DVR was not merely a device, but rather a service, and that, by providing the service, it was Cablevision doing the copying. In particular, the court found the relationship between Cablevision and RS-DVR customers to be significantly different from the relationship between Sony and VCR users. Unlike a VCR, the RS-DVR did not have a stand-alone quality. Cablevision retained ownership of the RS-DVR set-top box, and the RS-DVR required a continuing relationship between Cablevision and its customers. Cablevision not only supplied the set-top box for the customer’s home, but also decided which programming channels to make available for recording, and housed, operated, and maintained the rest of the equipment that made the RS-DVR’s recording process possible. Cablevision also determined how much memory to allot to each customer and reserved storage

156 Id. at 613-14.

157 Id. at 614-16.

158 Id. at 617-18.

- 52 -

capacity for each customer on a hard drive at its facility. Customers were offered the option of acquiring additional capacity for a fee.159F159

In sum, the court concluded that the RS-DVR was more akin to a video-on-demand (VOD) service than to a VCR or other time-shifting device. The court noted that the RS-DVR service was in fact based on a modified VOD platform. With both systems, Cablevision decided what content to make available to customers for on-demand viewing. As in VOD, the number of available pathways for programming delivery was limited; if there were none available, the customer would get an error message or busy signal. Thus, in its architecture and delivery method, the court concluded that the RS-DVR bore a striking resemblance to a VOD service – a service that Cablevision provided pursuant to licenses negotiated with programming owners.160F160 Accordingly, the court ruled that a reasonable fact finder could conclude only that the copying at issues was being done not by the customers, but by Cablevision itself.161F161

With respect to the buffer copies, Cablevision argued that the buffer copies were not sufficiently fixed to be cognizable as “copies” under copyright law. The court rejected this argument, noting that the buffer copies were sufficiently permanent to make the Arroyo hard disk copies from, and were therefore capable of being reproduced, as required by the definition of “fixation.” The court also cited the numerous court decisions, and the Copyright Office’s August 2001 report on the DMCA, concluding that RAM copies are “copies” for purposes of the copyright act. Accordingly, the court concluded that summary judgment of direct infringement was warranted with respect to both the Arroyo server copies and the buffer copies.162F162

Finally, the court ruled, based on similar logic, that Cablevision was engaged in infringing transmissions and public performances to its customers.163F163 The court noted that, “where the relationship between the party sending a transmission and party receiving it is commercial, as would be the relationship between Cablevision and potential RS-DVR customers, courts have determined that the transmission is one made ‘to the public.’”164F164

On appeal, the Second Circuit reversed in The Cartoon Network LP v. CSC Holdings, Inc.165F165 The Second Circuit’s rulings with respect to the issue of buffer copies are discussed in Section II.A.2 above. With respect to the copies created on the hard drives of the Arroyo servers, the court noted that Netcom and its progeny direct attention to the volitional conduct that causes the copy to be made. In the case of an ordinary VCR, the court noted that it seemed clear

159 Id. at 618-19.

160 Id. at 619.

161 Id. at 621.

162 Id. at 621-22.

163 Id. at 622-23.

164 Id. at 623.

165 536 F.3d 121 (2d Cir. 2008), cert. denied sub nom. CNN, Inc. v. CSC Holdings, Inc., 557 U.S. 946 (2009).

- 53 -

that the operator of the VCR – the person actually pressing the button to make the recording, supplies the necessary element of volition, not the manufacturer of the device. The court concluded that the RS-DVR customer was not sufficiently distinguishable from a VCR user to impose liability as a direct infringer on a different party for copies that were made automatically upon that customer’s command. The court distinguished cases holding liable a copy shop making course packs for college professors, finding a significant difference between making a request to a human employee, who then voluntarily operates the copying system to make the copy, and issuing a command directly to a system, which automatically obeys commands and engages in no volitional conduct.166F166 “Here, by selling access to a system that automatically produces copies on command, Cablevision more closely resembles a store proprietor who charges customers to use a photocopier on his premises, and it seems incorrect to say, without more, that such a proprietary ‘makes’ any copies when his machines are actually operated by his customers.”167F167

Nor was Cablevision’s discretion in selecting the programming that it would make available for recording sufficiently proximate to the copying to displace the customer as the person who “made” the copies. Cablevision’s control was limited to the channels of programming available to a customer and not to the programs themselves. Cablevision had no control over what programs were made available on individual channels or when those programs would air, if at all. In that respect, Cablevision possessed far less control over recordable content that it did in the VOD context, where it actively selected and made available beforehand the individual programs available for viewing. Thus, Cablevision could not have direct liability for the acts of its customers, and any liability on its part would have to be based on contributory liability. The district court’s noted “continuing relationship” with its RS-DVR customers, its control over recordable content, and the instrumentality of copying would be relevant to contributory liability, but not direct liability.168F168

With respect to the issue of direct liability, the Second Circuit concluded: “We need not decide today 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. We conclude only that on the facts of this case, copies produced by the RS-DVR system are ‘made’ by the RS-DVR customer, and Cablevision’s contribution to this reproduction by providing the system does not warrant the imposition of direct liability.”169F169

The Second Circuit’s rulings with respect whether Cablevision was engaged in unauthorized public performances through the playback of the RS-DVR copies are discussed in Section II.B.5 below.

166 Id. at 131.

167 Id. at 132.

168 Id. at 132-33.

169 Id. at 133.

- 54 -

(o) Arista Records v. Usenet.com

In Arista Records LLC. v. Usenet.com, Inc.,170F170 the defendants operated a Napster-like Usenet service that advertised to and targeted users who wanted to download music files. Unlike peer-to-peer filing sharing networks, the files were stored on “spool” news servers operated by the defendants. The defendants created designated servers for newsgroups containing music binary files to increase their retention time over other types of Usenet files.171F171

The plaintiffs contended that the defendants directly infringed their copyrights by engaging in unauthorized distribution of copies of their musical works to subscribers who requested them for download. The court, relying on the Netcom and Cablevision cases, ruled that a finding of direct infringement of the distribution right required a showing that the defendants engaged in some volitional conduct sufficient to show that they actively participated in distribution of copies of the plaintiffs’ copyrighted sound recordings. The court found sufficient volitional conduct from the following facts. The defendants were well aware that digital music files were among the most popular files on their service, and took active measures to create spool servers dedicated to MP3 files and to increase the retention times of newsgroups containing digital music files. They took additional active steps, including both automated filtering and human review, to remove access to certain categories of content (such as pornography), while at the same time actively targeting young people familiar with other file-sharing programs to try their services as a supposedly safe alternative to peer-to-peer music file sharing programs that were getting shut down for infringement. From these facts, the court ruled that the defendants’ service was not merely a passive conduit that facilitated the exchange of content between users who uploaded infringing content and users who downloaded such content, but rather the defendants had so actively engaged in the distribution process so as to satisfy the volitional conduct requirement. Accordingly, the court granted the plaintiffs’ motion for summary judgment on their claim for direct infringement of the distribution right.172F172

(p) Quantum Systems v. Sprint Nextel

In Quantum Sys. Integrators, Inc. v. Sprint Nextel Corp.,173F173 Quantum sued Sprint for copyright infringement based on the automated loading of Quantum’s software into the RAM of 13 Sprint computers from unauthorized copies on the hard disk when those computers were turned on or rebooted. The jury found liability and Sprint argued on appeal that the district court erred in denying its JMOL motion and sustaining the jury’s finding of infringement because

170 633 F. Supp. 2d 124 (S.D.N.Y. 2009).

171 Id. at 130-31.

172 Id. at 132, 146-49. As a sanction for litigation misconduct, including spoliation of evidence and sending key employees out of the country on paid vacations so they could not be deposed, the court precluded the defendants from asserting an affirmative defense of protection under the DMCA’s safe harbor provisions. Id. at 137-42.

173 2009 U.S. App. LEXIS 14766 (4th Cir. July 7, 2009).

- 55 -

there was no evidence that Sprint engaged in volitional copying, since the RAM copies were automatically generated when the computers containing unauthorized, but unutilized, copies of the software on the hard disk were turned on. The court rejected this argument, distinguishing its Costar decision, which involved an ISP that merely provided electronic infrastructure for copying, storage, and transmission of material at the behest of its users. By contrast, in the instant case the copying was instigated by the volitional acts of Sprint’s own employees who loaded the original copies of the software onto Sprint computers and then rebooted the computers, thereby causing the RAM copies.174F174

(q) Arista Records v. Myxer

In Arista Records LLC v. Myxer Inc.,175F175 the defendant Myxer operated a website that enabled registered users to upload recorded music to the site and then, through the use of Myxer’s software, to transcode the music into a format to create and download ringtones. Users could make ringtones they had created available for download to other users. In addition to uploading and downloading ringtones, Myxer users could play portions of any of the sound recordings on Myxer’s site. Users could also select a sound recording on Myxer’s site and share it on certain third party websites such as Facebook. Finally, users could select a sound recording on Myxer’s site, often a full-length recording, and “Customize It” (using editing tools provided by Myxer) by selecting a desired start and stop point for a ringtone. UMG Records, a competitor in the ringtone market, contended that, by storing copies of UMG’s sound recordings on its servers, allowing users to download copies of its sound recordings to users’ cell phones, and allowing users to preview its sound recordings on either the Myxer site or on users’ cell phones, Myxer was a direct infringer of UMG’s reproduction, distribution and digital public performance rights, as well as a secondary infringer under theories of contributory and vicarious liability.176F176

UMG moved for summary judgment on its direct infringement claim. Myxer opposed such motion based on the volitional requirement for direct liability under Netcom and other cases, arguing that the user, not Myxer, engaged in the acts of direct copying, distribution, and public performance (if any). The court found that the undisputed facts in the case established a prima facie case that Myxer had directly infringed at least one of UMG’s exclusive rights.177F177 The court noted that it was “well-established that copyright infringement is a strict liability tort: there is no need to prove the defendant’s mental state to establish copyright infringement.” 178F178 Given that fact, and the fact that the Ninth Circuit had never expressly adopted a volitional conduct requirement as an element of direct liability, the court concluded that it was not inclined to adopt such a requirement absent clear instruction from the Ninth Circuit.179F179 (Note, however,

174 Id. at *1-3 & 15-18.

175 2011 U.S. Dist. LEXIS 109668 (C.D. Cal. Apr. 1, 2011).

176 Id. at *2, 15-18.

177 Id. at *37-39.

178 Id. at *45.

179 Id. at *46-49.

- 56 -

that the Ninth Circuit subsequently did expressly adopt a volitional conduct requirement as an element of direct liability in the Fox Broadcasting v. Dish Network case discussed in Section II.A.4(u) below.) Nevertheless, the court denied UMG’s motion for summary judgment because of genuine issues of material fact pertaining to Myxer’s assertion of the safe harbor of Section 512(c), as discussed in Section III.C.6(b)(1)(iii).r below.180F180

The court also denied UMG’s motion for summary judgment with respect to its claims of contributory and vicarious liability. With respect to contributory liability, the court noted that there were substantial noninfringing uses of the Myxer site, because many of the ringtones and recordings available were directly authorized by their copyright holder or users had certified that they controlled the rights. Nevertheless, the court found summary judgment to be inappropriate because contributory infringement requires a showing of direct copyright infringement, which had not yet been definitively established. With respect to vicarious liability, the court noted that, to the extent Myxer used the Audible Magic filtering technology to keep infringing material from being uploaded onto its site, as well as other means to stop or limit the alleged copyright infringement, there were genuine issues of material fact as to whether Myxer sufficiently exercised a right to stop or limit the alleged copyright infringement. And, as in the case of contributory infringement, it remained unclear whether there was an underlying claim of direct infringement.181F181

(r) Disney Enterprises v. Hotfile

In Disney Enterprises, Inc. v. Hotfile Corp.,182F182 the defendant operated the web site www.hotfile.com, at which users could upload electronic files to Hotfile’s servers. Upon upload, the user received a unique link to the file. The Hotfile servers would then automatically make five additional copies of the uploaded files and assign each copy a unique link. Each link acted as a locator, allowing anyone with the link to click it or plug it into a web browser in order to download the file. Third party sites, not Hotfile, catalogued, allowed searching of, and/or spread the links that allowed persons to download the files.183F183

Hotfile made a profit in two ways. First, although anyone could use a link to download a file, Hotfile charged members a fee that enabled them to download files much faster than non-members. Second, Hotfile sold “hotlinks” that allowed third party sites to post a link that, when clicked, automatically began to download the file, without ever directing the person clicking the link to hotfile.com. To increase its number of members, Hotfile paid users to upload the most popular content to its servers and asked that the users promote their links. Hotfile’s affiliate program, for example, paid those uploading files cash when the file was downloaded 1000 times.

180 Id. at *3.

181 Id. at *137-141. The court also concluded that as a matter of law, Myxer’s use of UMG’s works did not qualify as fair use. See id. at *109-135.

182 798 F. Supp. 2d 1303 (S.D. Fla. 2011).

183 Id. at 1306.

- 57 -

The complaint alleged that, as a result of their popularity, copyright-infringing files constituted the bulk of files downloaded through Hotfile, Hotfile’s business encouraged persons to upload material with copyright protection, and Hotfile understood the consequences of its business model.184F184

The defendants filed a motion to dismiss the plaintiff’s claims for direct and secondary liability for copyright infringement. The court granted the motion as to direct infringement, invoking the requirement of Netcom that there must be some volitional act on the part of the defendant in making the copies in order to establish direct liability. Here the hotfile.com web site merely allowed users to upload and download copyrighted material without volitional conduct on the part of the defendants.185F185 The court found unpersuasive two cases relied on by the plaintiffs, the Mp3Tunes186F186 and Usenet.com187F187 cases, to support their argument that the defendants, by creating a plan that induced infringement, were liable for direct infringement. Although the court noted that the two cases supported the plaintiffs’ argument, the court stated that it believed the cases were not correctly decided. The court also rejected the plaintiffs’ attempt to distinguish Netcom on the ground that it applied only where a defendant violated a copyright holder’s right to reproduce – but not to distribute. The court noted that the Netcom court stated it considered the copyright holder’s right to distribute in its analysis. The court also rejected the plaintiffs’ argument that they had alleged a volitional act in the form of Hotfile’s making of additional copies once the copyrighted material was uploaded to its server, because courts had repeatedly held that the automatic conduct of software, unaided by human intervention, is not volitional.188F188

The court found, however, that the plaintiffs had adequately pled claims for inducement, contributory, and vicarious liability. Inducement and contributory infringement were adequately pled by allegations that hotfile.com was a web site that Hotfile used to promote copyright infringement and that Hotfile took affirmative steps to foster the infringement by creating a structured business model that encouraged users to commit copyright infringement. Vicarious liability was adequately pled by allegations that Hotfile had complete control over the servers that users employed to infringe, had the technology necessary to stop the infringement, refused to

184 Id. at 1306-07.

185 Id. at 1307-08.

186 Capitol Records, Inc. v. Mp3Tunes, LLC, 2009 U.S. Dist. LEXIS 96521 (S.D.N.Y. Oct. 16, 2009), which held, without much analysis, that a company’s knowledge of massive infringement plausibly alleged volitional conduct.

187 Arista Records LLC v. Usenet.com, Inc. 633 F. Supp. 2d 124 (S.D.N.Y. 2009), which held that a company, having a policy encouraging infringement plus the ability to stop that infringement, was liable for direct copyright infringement.

188 Hotfile, 798 F. Supp. 2d at 1307-09.

- 58 -

stop the massive infringement, and actually encouraged the infringement because the infringement increased its profits.189F189

The court’s subsequent rulings upon various motions for summary judgment with respect to the DMCA safe harbors and secondary liability are discussed in Sections III.C.3(s), III.C.4(f) and III.C.6(b)(1)(iii).y below.

In Dec. 2013, the MPAA announced a settlement under which the district court had awarded damages of $80 million to the plaintiffs and ordered Hotfile to either shut down its operations or use digital fingerprinting technology to prevent copyright infringement by its users.190F190

(s) Perfect 10 v. Megaupload

In Perfect 10, Inc. v. Megaupload Limited,191F191 the defendant operated a file storage service through the “Megaupload” web site (among others), which allowed users to upload files. After upload, the web site created a unique URL to the file, and anyone with the URL could then download the file from Megaupload’s servers. Both Megaupload and its users disseminated URLs for various files throughout the Internet. In order to view, copy, or download files from the web sites without a waiting period, users were required to pay a membership fee. The plaintiff sued the defendants for direct and secondary copyright infringement because thousands of its copyrighted photographs were uploaded to Megaupload and available for downloading. Those photos contained copyright notices and were labeled “Perfect 10” or “Perfect-10.” The complaint alleged that Megaupload depended on, and provided substantial payouts to, affiliate web sites who catalogued the URLs providing access to a mass of pirated content on Megaupload’s servers, and that Megaupload encouraged its users to upload materials through a rewards program. The defendant moved to dismiss the direct and secondary liability claims.192F192

With respect to the direct infringement claim, the court noted that under Netcom, an important element of direct infringement is volitional conduct, and the element of volitional conduct applies to all exclusive rights under the copyright act.193F193 Drawing all reasonable inferences in the plaintiff’s favor, the court found that the plaintiff had adequately pled a claim for direct infringement:

189 Id. at 1301.

190 “Hotfile To Pay $80M to MPAA, Studios In Copyright Suit,” Law360 (Dec. 3, 2013), available as of Dec. 7, 2013 at http://www.law360.com/ip/articles/493076?nl_pk=be5fde4e-8dc1-4d81-b621-f0352bcdff74&utm_source=newsletter&utm_medium=email&utm_campaign=ip.

191 2011 U.S. Dist. LEXIS 81931 (S.D. Cal. July 27, 2011).

192 Id. at *3-5.

193 Id. at *10.

- 59 -

Megaupload serves as more than a passive conduit, and more than a mere “file storage” company: it has created distinct websites, presumably in an effort to streamline users’ access to different types of media (e.g., megaporn.com, megavideo.com); it encourages and, in some cases pays, its users to upload vast amounts of popular media through its Rewards Programs; it disseminates URLs for various files throughout the internet; it provides payouts to affiliate websites who maintain a catalogue of all available files; and, last, at a minimum, it is plausibly aware of the ongoing, rampant infringement taking place on its websites. Taken together, Perfect 10 has adequately alleged Megaupload has engaged in volitional conduct sufficient to hold it liable for direct infringement.194F194

The court also concluded that claims of contributory infringement were adequately pled. Knowledge of infringement had been adequately pled because, in addition to takedown notices (which the court noted doubt as to whether takedown notices automatically imply knowledge), many of the allegations giving rise to direct infringement also gave rise to knowledge. The plaintiff had also adequately pled a material contribution to infringement in that Megaupload encouraged, and in some cases, paid its users to upload vast amounts of popular media through its rewards programs, disseminated URLs that provided access to such media, and provided payouts to affiliates who catalogued the URLs for all available media.195F195

The court concluded, however, that the plaintiff had not adequately pled claims of vicarious liability, because it did not allege facts suggesting that Megaupload had the right and ability to supervise infringing conduct of its third party users. Accordingly, the court dismissed the claim for vicarious liability without prejudice.196F196

(t) Wolk v. Kodak Imaging Network

This case, which refused to find direct liability on the part of Kodak Imaging Network for lack of volitional conduct, is discussed in Section III.C.6(b)(1)(iii).q below.

(u) Fox Broadcasting v. Dish Network

The First Preliminary Injunction Ruling

Fox sought a preliminary injunction against Dish Network, which had a contract with Fox granting it the right to retransmit Fox broadcast material to its subscribers, for offering a high definition digital video recorder called the “Hopper” and two associated services called “PrimeTime Anytime” (PTAT) and “AutoHop.” Because the Hopper was designed to service multiple televisions, it had three tuners and a two-terabyte hard drive, which allowed Hopper users to watch or record on three different television stations at once. The Hopper had the

194 Id. at *11-12 (citations to the complaint omitted).

195 Id. at *16-17.

196 Id. at *19.

- 60 -

additional unique capability of streaming all four of the major television networks on a single satellite transponder, which allowed a user to watch or record all four network broadcasts while leaving the other two tuners available for recording non-network programs or watching them on other television sets equipped with additional set top boxes. The PTAT feature allowed subscribers to set a single timer on the Hopper to record all primetime programming on any of the four major broadcast networks each night of the week. Dish determined the start and end time of the primetime block each night. In order to use PTAT, the user had to specifically enable it from the main menu. Once enabled, a screen appeared allowing the user to choose to disable recordings of certain networks on certain days of the week. If the user did not select otherwise, the default settings caused the Hopper to record the entire primetime window on all four of the major networks every day of the week. A user could begin watching the recorded programs immediately after PTAT started recording, and could cancel a particular PTAT recording on a given day up until 20 minutes before primetime programming began. All PTAT recordings were stored locally on the Hopper in users’ homes. Unless the user selected otherwise, PTAT recordings were automatically deleted after eight days. The Hopper also worked with the “Sling Adapter,” which allowed subscribers to view Hopper content on their computers and mobile devices via the Internet.197F197

AutoHop was a feature that allowed users to skip commercials in PTAT recordings with the click of their remote control. If AutoHop was available for a particular PTAT program, the user was given the option to enable it for that show. If the user enabled AutoHop, the Hopper would automatically skip commercial breaks during that program. Markers inserted into the PTAT recordings to mark the beginning and end of the commercials were checked manually by technicians who viewed a separate quality assurance (“QA”) copy of the recording made by Dish and stored on its servers. The technician would view the QA recording, fast-forwarding through the program itself to the commercial breaks, to ensure that the markings were accurate and no portion of the program was cut off. If the QA copies revealed an error in the marking process, technicians could correct the error on a later broadcast to ensure that AutoHop functioned properly for users who enabled it. If there was not enough time to correct a marking error before the last broadcast ended, then AutoHop would not be available for that particular show.198F198

Fox sought a preliminary injunction against the PTAT and AutoHop functions on grounds of copyright infringement. The court turned first to whether Fox could have secondary liability for any infringing acts of its subscribers. Applying the Supreme Court’s Sony case, the court noted that nothing suggested Hopper users were using the PTAT copies for anything other than time-shifting in their homes or on mobile devices, an activity determined to be a fair use in Sony. Because there was therefore no direct infringement on the part of PTAT users, Dish could not have secondary copyright liability.199F199

197 Fox Broadcasting Co. v. Dish Network, L.C.C., 905 F. Supp. 2d 1088, 1093-95 (C.D. Cal. 2012), aff’d (as amended), 747 F.3d 1060 (9th Cir. 2014).

198 Id. at 1096.

199 Id. at 1097-98.

- 61 -

The court then turned to whether Dish could have liability for direct copyright infringement for the making of the PTAT copies or the QA copies of Fox’s programming. Citing the Netcom and Cablevision cases, the court concluded that it was Dish’s subscribers, and not Dish itself, who were making the copies. The court considered the various ways in which Fox attempted to distinguish the facts at hand from the Cablevision case:

– Dish decided which networks were available on PTAT and defaulted the PTAT settings to record all four networks. Those decisions, while undoubtedly discretionary authority that Dish maintained, were similar to Cablevision’s unfettered discretion in selecting the programming available for recording. But Dish had no control over what programs Fox and the other networks chose to make available during primetime, and Dish recorded the programs only if the user made the initial decision to enable PTAT. The court concluded that the default settings did not support Fox’s contention that Dish, rather than its users, made the copies. – Dish decided the length of time each copy was available for viewing before automatic deletion after a certain number of days and a user could neither delete nor preserve the original PTAT copy before that time. The court was not convinced, however, that this control, being exercised after the creation of the copies, was relevant to whether Dish caused the copies to be made in the first place, which were created only upon the users choosing to enable PTAT.

– Dish decided when primetime recordings started and ended each night and the user could not stop a copy from being made during the copying process, but had to wait until the recording ended before disabling the link to it on the hard drive. The court acknowledged that these limitations on user choice evinced Dish’s greater participation in the copying process, but nevertheless found that such involvement was not materially different from an Internet service provider that copied a file in automatic response to a user’s request, as in the Loopnet case. Although Dish defined some of the parameters of copyright for time-shifting purposes, it was ultimately the user who caused the copy to be made by enabling PTAT.

Accordingly, the court ruled that it was the user, not Dish, who was the most significant and important cause of the copy, and Fox had therefore not established a likelihood of success on the merits of its claim that by Dish directly infringed on its exclusive right to reproduction through PTAT.200F200

The court next ruled that Dish’s making of the QA copies did not constitute a fair use under the application of the four statutory fair use factors. Under the first factor, while the QA copies themselves were not sold or otherwise monetized, they were made for the commercial purpose of providing a high quality commercial skipping product that more users would want to activate. The copies were not transformative because they did not alter their originals with new expression, meaning or message. The first factor therefore weighed against fair use. The creative nature of the copyrighted works copied entitled them to heightened protection and cut against fair use under the second factor. The third factor also weighed against Dish because the

200 Id. at 1099-1102.

- 62 -

entire works were copied, although the court noted that the third factor was of considerably less weight than the other factors due to the limited nature of the ultimate use.201F201

Turning to the fourth factor, the court noted that the QA copies were used to perfect the functioning of AutoHop, a service that, standing alone, did not infringe. However, the record showed that a market existed for the right to copy and use Fox programs, given that Fox licensed copies of its programs to companies including Hulu, Netflix, iTunes, and Amazon to offer viewers the Fox programs in various formats. In fact, the record suggested that Dish chose to offer AutoHop to its subscribers in order to compete with other providers who paid for the rights to use copies of the Fox programs through licensing agreements. By making an unauthorized copy for which it had not paid and using it for AutoHop, Dish harmed Fox’s opportunity to negotiate a value for those copies and also inhibited Fox’s ability to enter into similar licensing agreements with others in the future by making the copies less valuable. Therefore, the fourth factor also cut against Dish, and the court ruled that the QA copies did not constitute a fair use. The fact that consumers ultimately used AutoHop in conjunction with PTAT for private home use, a fair use under Sony, did not render the intermediate copies themselves a fair use as well.202F202

The court then considered whether Dish was liable for violation of Fox’s distribution right and found that it was not. Citing the Perfect 10 v. Amazon case,203F203 the court noted that infringement of the distribution right requires actual dissemination of a copy by sale or other transfer of ownership, or by rental, lease, or lending. Here, a PTAT-enabled Hopper recorded primetime programming locally and, at most that local copy was disseminated within a single household. PTAT and AutoHop therefore did not involve any actual distribution of unauthorized copies, so the court concluded that Fox had not established a likelihood of success on the merits of its distribution claim.204F204

Lastly, the court turned to a consideration of whether a preliminary injunction should issue based on the court’s finding that the QA copies were infringing.205F205 The court concluded that no preliminary injunction should issue because Fox had not established a likelihood of irreparable harm if Dish were not enjoined from making and using the QA copies. The record suggested that the extent of harm caused by the QA copies was calculable in money damages. The fact that Fox had licensing agreements with other companies showed that copies of the Fox programs had a market value that other companies already paid in exchange for the right to use the copies. Although Fox had submitted evidence that some irreparable harms, such as loss of control over its copyrighted works and loss of advertising revenue, might stem from the ad-

201 Id. at 1104.

202 Id. at 1105-06.

203 Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1162 (9th Cir. 2007).

204 Fox Broadcasting, 905 F. Supp. 2d at 1106.

205 The court observed that “neither the marking announcements nor the ad-skipping effect of AutoHop implicates any copyright interest ….” Id. at 1110.

- 63 -

skipping use to which the QA copies were put, the record did not show that those harms flowed from the QA copies themselves. Rather, if those harms were to materialize, they would be a result of the ad-skipping itself, which did not constitute copyright infringement. The court therefore concluded that any injury was compensable with money damages and did not support a finding of irreparable harm.206F206

On appeal, the Ninth Circuit affirmed.207F207 The Ninth Circuit expressly noted that direct infringement requires volitional conduct, by reciting that there are three elements to a prima facie case of direct infringement: (1) ownership of the allegedly infringed material, (2) violation of at least one exclusive right granted to copyright holders, and (3) volitional conduct by the defendant.208F208 It found that the district court did not abuse its discretion in determining that Fox was unlikely to succeed on its claim of direct copyright infringement regarding PTAT.209F209 “[O]perating a system used to make copies at the user’s command does not mean that the system operator, rather than the user, caused copies to be made. Here, Dish’s program creates the copy only in response to the user’s command. Therefore, the district court did not err in concluding that the user, not Dish, makes the copy.”210F210 Citing Cablevision, the court noted the facts that Dish decided how long copies are available for viewing, modified the start and end times of the prime-time block, and prevented a user from stopping a recording might be relevant to a secondary or perhaps even a direct infringement claim, but they did not establish that Dish made the copies.211F211

The Ninth Circuit also determined that the district court did not abuse its discretion in concluding that Fox was unlikely to succeed on its claim of secondary copyright infringement for the PTAT and AutoHop programs because the activities of Dish’s users in making copies of Fox’s shows constituted fair use. The Ninth Circuit noted, as the district court held, that commercial skipping did not implicate Fox’s copyright interest because Fox owned the copyrights to the television programs, not to the ads aired in the commercial breaks.212F212 “If recording an entire copyrighted program is a fair use, the fact that viewers do not watch the ads not copyrighted by Fox cannot transform the recording into a copyright violation. … Thus, any analysis of the market harm should exclude consideration of AutoHop because ad-skipping does not implicate Fox’s copyright interests.”213F213

206 Id. at 1109-11.

207 Fox Broadcasting Co., Inc. v. Dish Network L.L.C., 747 F.3d 1060 (9th Cir. 2014).

208 Id. at 1067.

209 Id. at 1066.

210 Id. at 1067.

211 Id.

212 Id. at 1067-68.

213 Id. at 1068.

- 64 -

The Ninth Circuit found that Dish had demonstrated a likelihood of success on its customers’ fair use defense. With respect to the first factor, the court noted that Dish customers’ home viewing was noncommercial under Sony. Sony also governed the analysis of the second and third factors, by virtue of its holding that because time-shifting merely enables a viewer to see a work the viewer had been invited to witness in its entirety free of charge, the fact that the entire work is reproduced does not have its ordinary effect of militating against a finding of fair use. With respect to the fourth factor, the court noted that because Fox licenses its programs to distributors such as Hulu and Apple, the market harm analysis was somewhat different than in Sony, where no such secondary market existed for the copyright holders’ programs. However, the court noted that the record before the district court established that the alleged market harm raised by Fox resulted from the automatic commercial skipping, not the recording of programs through PTAT. Specifically, it was the ease of skipping commercials, rather than the on-demand availability of Fox programs, that caused any market harm.214F214

Finally, turning to the issue of Dish’s direct infringement by making the QA copies, the Ninth Circuit ruled that the district court did not err in concluding that the QA copies were not a cause of Fox’s alleged harm. That Dish used the copies in the process of implementing AutoHop did not suggest that those copies were integral to AutoHop’s functioning. Rather, the record demonstrated that the AutoHop files containing the marking of commercials, which were the files distributed to users, were created using an entirely separate manual process and the QA copies were used only to test whether the marking process was working correctly. The Ninth Circuit also determined that the district court did not err in holding that monetary damages could compensate Fox for any losses from the QA copies. Accordingly, the Ninth Circuit concluded that the district court did not abuse its discretion in declining to grant Fox a preliminary injunction.215F215

In Mar. 2014 Dish reached a settlement with the plaintiff Walt Disney Co. under which it agreed to disable the AutoHop function for ABC programming during the first three days after shows aired. In return Dish received the rights to stream content from ABC, ESPN and other Disney properties through a new, Internet-based TV service.216F216

The Second Preliminary Injunction Ruling

On Feb. 21, 2013, Fox filed a first amended complaint and again sought a preliminary injunction against the following new functionalities that Dish had introduced in January of 2013 with its second generation Hopper DVR set-top box called “Hopper with Sling” that had Sling technology (which transcoded video content from its source at the DVR set-top box and transmitted it to remote devices over the Internet) built into the box itself:

214 Id. at 1068-69.

215 Id. at 1072-73.

216 Bill Donahue, “Dish, ABC Settle Ad-Skipping Fight with Broad TV Deal,” Law360 (Mar. 7, 2014), available as of Mar. 7, 2014 at www.law360.com/articles/515052/print?section=IP. - 65 -

-- Dish Anywhere, a mobile access application utilizing the Sling technology to allow subscribers to watch live television or television programs recorded on the Hopper from any location on remote devices connected to the Internet. No copies were made to facilitate the remote viewing via Dish Anywhere. The content was transferred via Internet directly from the Hopper with Sling to the remote device and was not stored in and did not pass through any central server.217F217 -- Hopper Transfers, which allowed Dish customers to copy pre-recorded programs from their DVRs to Apple iPad tablets (and later, other types of mobile devices) so they could be viewed on the go. An app paired the iPad (or other mobile device) with the customer’s Hopper with Sling using the home wireless network, after which the customer could then use his or her home wireless network to copy recordings from the Hopper with Sling onto the iPad (or other mobile device). A Hopper Transfers-enabled device was required to reconnect via wireless Internet with the Hopper with Sling at least once every 30 days to verify the user’s Dish subscription. If the device stayed disconnected for too long, the recordings stored on it were deleted.218F218

The court denied the preliminary injunction on the grounds that Fox had not demonstrated irreparable harm. The court rejected the following bases that Fox asserted for irreparable harm:

-- Fox asserted that if Dish were allowed to offer the new services, other multi-channel video programming distributors (MVPDs) that competed with Dish and with whom Fox also had agreements would demand the same rights or other concessions to mitigate the risk of losing subscribers to Dish. The court found that Fox had presented no compelling evidence that other MVPDs would demand rights that were yet to be legally established rather than wait to see the result of the litigation before altering their contracts with Fox. And, because the new services were available only as an add-on to paid satellite television subscriptions, they did not threaten to diminish the value of the Fox programs. If Fox were to prevail on its claims, damages would be calculable.219F219

-- Fox asserted it was likely to lose revenue from digital download services like Amazon.com and Apple iTunes, which Hopper Transfers threatened to supersede. The court rejected this argument, noting that Fox had not explained why its own digital download contracts with companies like Apple could not serve as benchmarks in calculating any damages caused by Hopper Transfers, were it found illegal. Nor had Fox refuted evidence that multi-screen live

217 Fox Broadcasting Co. v. Dish Network, L.C.C., 2013 U.S. Dist. LEXIS 187499 at *2-7 (C.D. Cal. Sept. 23, 2013), aff’d, 583 Fed. Appx. 618 (9th Cir. 2014) (non-precedential).

218 Id. at *8.

219 Id. at *15-17.

- 66 -

linear platform (MLLP) viewing enabled by Dish’s new services increases viewership, and that historically, increased viewership can enhance viewer loyalty and increase revenue.220F220

-- Fox argued that Dish’s services would cause it to lose one of its most important and valuable rights – the ability to control the timing and manner in which its copyrighted programs were distributed. The court rejected this argument, noting that the new services were available only to preexisting Dish subscribers, and the fact that Fox and Dish already had a distribution agreement suggested that any loss of control could be readily remedied because the number of users was limited and ascertainable. In addition, the wide variety of similar services available to consumers would facilitate the calculation of damages, if necessary.221F221 -- Fox also suggested irreparable harm from the fact that, because the new services were not authorized by Fox, they were not sufficiently protected from piracy and other online security risks. The court rejected this, noting that Sling hardware encrypted content to protect against piracy, and neither of the new services allowed users to make copies that could be duplicated or transferred beyond what was immediately authorized.222F222 -- Finally, Fox asserted that, because the new services would divert viewers from traditional viewing to Internet-based viewing (which tracking services like Nielsen were at that time unable to track), they would inhibit Fox’s efforts to ascertain an accurate demographic profile of its audience, which would erode advertising value. The court rejected this, noting that although Nielsen did not currently track online viewing, it had announced that it would soon begin measuring viewership delivered through online connections. The court found Nielsen’s announcement at least demonstrated that the trend in viewing practices was not going unnoticed, and it strongly suggested that the entities that gathered advertising data were ready and willing to adapt to the new landscape.223F223

On appeal, the Ninth Circuit affirmed in a brief, non-precedential opinion finding that the district court had committed no legal error and made no clearly erroneous factual findings in its denial of a preliminary injunction.224F224

The Rulings on Motion for Summary Judgment

After discovery, Fox moved for summary judgment on Fox’s claims for direct copyright infringement.225F225 With respect to the PTAT service, the district court began by noting that the

220 Id. at *18-19.

221 Id. at *19-20.

222 Id. at *21-22.

223 Id. at *22-23.

224 Fox Broadcasting Co. v. Dish Network L.L.C., 583 Fed. Appx. 618 (9th Cir. 2014) (non-precedential).

225 Fox Broadcasting Co. v. Dish Network LLC, 2015 U.S. Dist. LEXIS 23496 at *5 (C.D. Cal. Jan. 21, 2015).

- 67 -

Ninth Circuit had upheld its earlier finding that the user, not Dish, made the PTAT copies. The district court noted that the current record reflected essentially the same facts about how PTAT worked and how much control Dish had over the process as it did at the preliminary injunction stage. Fox contended that the Supreme Court’s Aereo decision (discussed in Section II.B.10 below) altered the test for direct infringement by rejecting the argument that only the subscriber who pushes the button initiating the infringing process is liable for direct infringement. The district court ruled, however (for the reasons discussed in Section II.B.16 below) that Aereo did not fundamentally alter the volitional conduct requirement for direct infringement. The court noted that, although more than one actor may be liable for direct infringement, there must still be some volitional conduct for direct liability. A system that operates automatically at a user’s command to make a recording does not in itself render the system’s provider a volitional actor for purposes of direct infringement. While Dish had set certain parameters and controls for PTAT, PTAT was essentially a more targeted version of a DVR that is set to make block recordings or recordings of an entire season of a show. The ability to set a DVR and then leave it to automatically record without having to select individual programs or set it repeatedly for each recording occasion was not unique to PTAT, and was not enough to show direct infringement by the service provider.226F226

A similar volitional conduct analysis applied to any direct infringement claim based upon “distribution.” The court found that PTAT did not “distribute” Fox’s programming because, as the court had previously held in its ruling on the first motion for a preliminary injunction, distribution under the copyright statute requires actual dissemination of a copy that changes hands. PTAT was a system for automatically recording programming as it was being received by a subscriber’s set-top box, inside the subscriber’s home. Those recordings were therefore not distributed, delivered, or transmitted to any other location or person using PTAT alone. The court also rejected Fox’s argument that the mere “making available” of Fox’s programming to subscribers was sufficient to constitute a distribution. The district court observed that, while neither the Ninth Circuit nor any other circuit court had addressed the “make available” theory of distribution under the copyright statute, it had been considered by a number of courts, and the great majority of courts that had considered the question had stopped short of fully endorsing the “make available” right. The district court found those cases persuasive and concluded that Dish’s act of merely “making available” copyrighted programming to its subscribers through PTAT did not amount to distribution without actual dissemination.227F227

The court then turned to whether Dish could have secondary liability for PTAT use by Dish subscribers. To adjudicate that issue, the court had to determine whether such subscribers’ use of PTAT constituted direct infringement or was a fair use. The court concluded that the subscribers’ use of PTAT for time shifting was indeed a fair use. The court began by noting that the immunity of Sony is not absolute, and a challenge to a noncommercial use of a copyrighted work requires proof that either the particular use is harmful, or that if it should become

226 Id. at *56-59.

227 Id. at *59-61.

- 68 -

widespread, there is some meaningful likelihood it would adversely affect the potential market for the copyrighted work. As of the time of the preliminary injunction request, the record established that any market harm resulted from the automatic commercial skipping and not simply the recording of programs through PTAT. However, at this later stage in the litigation, Fox had produced additional evidence of a secondary market for its programming. In addition to licensing the right to stream live its programming to certain MVPDs, Fox licensed third parties such as Apple, Amazon, Vudu and Microsoft the right to distribute its programs in a commercial-free, downloadable format, available the day after a program aired and viewable on mobile devices, personal computers, or certain Internet-connected televisions. Fox also licensed older seasons of its programming to subscription video-on-demand services such as Netflix and Amazon Prime.228F228

The court therefore concluded that the record then before it established that a market for Fox programming on demand existed beyond the value of the advertisements. Nonetheless, the record did not create a triable issue as to the likelihood of future harm to that market. While Fox had provided some evidence that PTAT co-existed with services like Hulu that offered streaming of Fox programming with commercials, and that PTAT may help Dish attract subscribers, it had not demonstrated that any of this was genuinely likely to cause harm to the secondary market for Fox programming that went beyond the speculative, such that the question should be presented to a jury. Only Dish subscribers had access to PTAT, and those subscribers also had access to a litany of other services, including the ability to record prime time programming manually using more traditional DVR technology. Furthermore, PTAT recordings were available only for up to eight days, unless the subscriber made the effort to save them in a special folder for a longer period. Services that offered older seasons of Fox programming could not be in competition with recordings that were available only for up to eight days after a program aired. Similarly, the commercial-free programming Fox licensed to third parties was only potentially in competition with PTAT for up to eight days after a show aired, and then only for the group of people who both subscribed to Dish and used PTAT. Even in the unlikely event it were possible to demonstrate that Dish subscribers were less likely to purchase Fox programming on Amazon, or that potential Microsoft or Vudu customers would eschew those services in favor of Dish (which the record did not demonstrate beyond conjecture), it would be highly speculative and likely impossible to demonstrate that PTAT in particular, as opposed to other Dish features and services, would be the likely cause of market harm, or likely to be in the future. Accordingly, the court concluded that Dish subscribers’ use of PTAT was fair use under Sony, and Dish was not liable for contributory infringement. The court therefore ruled that Dish did not directly or secondarily infringe Fox’s right of reproduction or distribution by offering PTAT to its subscribers and therefore granted Dish summary judgment on those claims.229F229 (The court also ruled that Dish did not directly or secondarily infringe Fox’s right of public performance by offering PTAT to its subscribers. See the discussion in Section II.B.16 below.)

228 Id. at *61-64.

229 Id. at *63-68.

- 69 -

The court then turned to whether Dish had direct liability for the QA copies of Fox programming that it made (until July 20, 2012) to ensure that AutoHop functioned properly on PTAT recordings made by Dish subscribers. Dish argued that the AutoHop service was non-infringing and the QA copies were fair use because they were intermediate copies that allowed for testing and development of new, non-infringing technology without affecting any licensing market in which Fox participated or reasonably would participate. In rebuttal, Fox first challenged whether AutoHop was infringing, arguing that the Ninth Circuit had upheld the ruling that it was not infringing on the ground that, if recording an entire copyrighted program was a fair use, the fact that viewers did not watch the ads not copyrighted by Fox could not transform the recording into a copyright violation. Since that ruling, Fox presented uncontroverted evidence that it aired a significant number of commercials advertising its own programming, and that it owned copyrights for the clips used in those commercials. Fox argued that fact changed the analysis regarding whether AutoHop was non-infringing. The district court ruled, however, that it did not. The Ninth Circuit’s observation was merely a point of emphasis to show how unlikely it would be for Fox to prevail on its claim that AutoHop infringed its copyrights – if Sony permits a consumer to record an entire copyrighted program under fair use, there could not be less protection for a consumer who declined to watch an ad that was not even copyrighted by Fox. The linchpin of the copyright infringement analysis was whether Dish had infringed Fox’s rights of reproduction and distribution. AutoHop neither copied nor distributed anything – it skipped ads. Absent unauthorized copying or distribution, it was immaterial for purposes of the copyright infringement claim that the ads being skipped were Fox’s own commercials.230F230

Nevertheless, the court reaffirmed its previous ruling from the preliminary injunction stage that creation of the QA copies was not a fair use. The QA copies were not transformative, because they were simply used to allow users to automatically skip commercials in the copyrighted programming rather than to create original programming or content. The QA copies in no way altered their originals with new expression, meaning or message. The commercial purpose of the QA copies weighed against fair use, as well as the creative nature of the copyrighted works. With respect to market harm, the court found the record reflected that there was a market for the right to copy and use Fox programs, given that Fox licensed copies of its programming to third parties like Hulu, Netflix and Amazon. Although there was no demonstrable existing market for the intermediate copies themselves, there was no material issue of disputed fact that Fox, as a normal course of business, monetized the right to copy its programming, whether directly (charging for the direct use of copies) or indirectly (allowing the use of copies as a part of a comprehensive licensing agreement). The fact that Dish’s use of the QA copies was sui generis and had never been attempted before by any other entity did not, in the court’s mind, mean that it had no intrinsic value. Accordingly, the court ruled that Dish’s unauthorized use of QA copies would impair Fox’s ability to monetize that use, not only as to Dish but also as to any other future technology creator that made analogous use of such copies, and thus did not constitute fair use.231F231

230 Id. at *72-74.

231 Id. at *75-77.

- 70 -

The court therefore granted summary judgment in favor of Dish on the copyright infringement claim as to the AutoHop feature, and granted summary judgment in favor of Fox as to Dish’s liability for direct infringement for creation of the QA copies.232F232

Finally, the court turned to Fox’s claims for direct and secondary liability of the reproduction right and the distribution right for offering the Hopper Transfers service. The court noted that Dish’s control over the Hopper Transfers process was significantly less than its control over the PTAT process. Dish subscribers, not Dish, made and transferred the Hopper Transfers copies using Dish’s equipment. Any potential distribution or performance was also by Dish subscribers, not Dish, so Dish was not liable for direct infringement by offering Hopper Transfers.233F233

Nor could Dish be secondarily liable because subscribers’ creation of Hopper Transfers copies was a fair use. The court noted that Hopper Transfers was a technology that permitted non-commercial time shifting and place shifting of recordings already validly possessed by subscribers, which is paradigmatic fair use under existing law (citing the Ninth Circuit’s Diamond Multimedia234F234 case).235F235 As with PTAT, where the subscriber engaged in the volitional conduct of copying, Fox had not demonstrated that Dish subscribers’ use of Hopper Transfers standing alone was likely to cause harm to the secondary market for Fox programming that rose beyond the speculative, such that the question should be presented to a jury. Accordingly, subscribers’ activation of Hopper Transfers was a fair use, and Dish was not liable for secondary infringement. The court therefore granted summary judgment in favor of Dish as to copyright infringement by Hopper Transfers.236F236

In February 2016, Fox and Dish reached a settlement. Dish agreed to turn off its DVR’s ad-skipping function for the first seven days after broadcast, according to a joint statement. No further details of the agreement were made publicly available. This settlement followed earlier, similar settlements Dish had reached with Walt Disney Co., ABC, and CBS.237F237 In June 2016,

232 Id. at *79. Fox sought statutory damages, compensatory damages in the form of reasonable royalties, and disgorgement of profits based on infringement by the QA copies. The court ruled that, although all such remedies are available under the copyright statute and potentially available if Fox prevailed at trial as to damages, it granted Dish’s motion for summary judgment that Fox could not recover disgorgement of profits. The court noted that the QA copies facilitated one of the services that Dish offered its subscribers in order to convince them to subscribe. Fox had not demonstrated, however, that it could separate out Dish’s profits that flowed from the use of the AutoHop feature, let alone those that emanated solely from the limited-time use of the QA copies. Id. at *91.

233 Id. at *82.

234 Recording Indus. Ass’n of Am. v. Diamond Multimedia Sys., 180 F.3d 1072, 1079 (9th Cir. 1999).

235 Fox v. Dish, 2015 U.S. Dist. LEXIS 23496 at *82-83.

236 Id. at *83.

237 Bill Donahue, “Fox, Dish Settle Copyright Fight Over Ad-Skipping DVR,” Law360 (Feb. 11, 2016), available as of Feb. 11, 2016 at http://www.law360.com/articles/758147. In March of 2014, Walt Disney Co. and ABC had settled with Dish, dropping their similar lawsuits and giving Dish streaming right to ESPN in return for a - 71 -

Fox and NBC reached a settlement under which Dish agreed to turn off its DVR’s ad-skipping function for the first seven days after broadcast. That settlement resolved the last remaining portion of the copyright litigation first instituted in 2012 by all four major networks over Dish’s Hopper.238F238

(v) Perfect 10 v. Giganews

In Perfect 10, Inc. v. Giganews, Inc.239F239 the defendants (Giganews and Livewire) were providers of access to USENET for a monthly fee starting at $4.99 per month. The content posted by the defendants’ subscribers and other USENET users, including infringing content, was stored on the defendants’ servers. Before filing its complaint, the plaintiff sent a letter to one of the defendants, Giganews, notifying that it was infringing the plaintiff’s copyrights, and included a DVD containing hundreds of Perfect 10 images, characterizing them as a sampling of its copyrighted materials that Giganews’ site had offered for sale without authorization. Giganews responded by stating that each article posted on USENET has a unique message identification numbers, and if the plaintiff provided the identification numbers of the articles containing the infringing content, Giganews would be able to find the specific infringing material and remove it. The plaintiff did not do so. The plaintiff then filed a complaint for direct, contributory and vicarious copyright infringement and the defendants moved to dismiss all claims under Fed. R. Civ. Pro. 12(b)(6).240F240

With respect to the claims of copyright infringement, the court (Judge Matz) noted that the plaintiff’s complaint was unclear as to the facts supporting those claims, but it appeared to be basing them on the following allegations: “(1) that Defendants are USENET providers who charge their subscribers a fee; (2) that Defendants program their computers to copy USENET content from other USENET servers and make this content available to their subscribers; (3) that USENET is now primarily used by its subscribers or visitors to exchange pirated content; (4) that Defendants are not only aware of the rampant piracy committed by USENET users but rely on the piracy as part of their business model; and (5) that Plaintiff has found at least 165,000 unauthorized Perfect 10 images on Defendants’ USENET service.”241F241

The court then considered the volitional conduct requirement for direct infringement, noting that although the Ninth Circuit had not spoken on the issue, the Netcom principle that volitional conduct is required for direct liability had been widely accepted. The court noted, however, that the concept of “volitional” can be confusing, sometimes meaning “intentional,”

three-day suspension of Hopper’s ad-skipping feature. CBS struck a similar deal in December 2014, though it secured a seven day suspension of ad-skipping. Id.

238 Bill Donahue, “BNC, Dish Settlement Finally Ends Ad-Skipping DVR War,” Law360 (June 17, 2016), available as of June 20, 2016 at http://www.law360.com/articles/808198.

239 2013 U.S. Dist. LEXIS 71349 (C.D. Cal. Mar. 8, 2013).

240 Id. at *1-7.

241 Id. at *12-13.

- 72 -

and yet no showing of intent is required for direct infringement liability.242F242 “In this Court’s view, the key to understanding the so-called ‘volitional conduct’ requirement is to equate it with the requirement of causation, not intent. ‘Just who caused the copyright material to be infringed?’ The Second Circuit’s opinion in Cartoon Network is particularly helpful in this regard. In the words of that court, ‘the question is who made this copy.’”243F243 The court cited the Cybernet Ventures and MAPHIA cases approvingly for their descriptions of the volitional conduct requirement as requiring that the defendant must “actively engage” or “directly cause” the infringing activity in order to be held liable for direct infringement.244F244

Applying these standards to the facts of the case, the court found that the plaintiff had not alleged that the defendants were the direct cause of, or actively engaged in, direct infringement. The plaintiff had alleged that the defendants copied all of the material on their servers from content uploaded onto USENET, stored these materials, most of which were infringing, on their servers, programmed their servers to distribute and download the infringing content, and controlled which materials were distributed to and copied from other third party servers. The court ruled that these facts did not indicate that it was the defendants themselves that committed the acts of copying, displaying or distributing the plaintiff’s copyrighted content and, as in Netcom, the defendants had merely engaged in the act of designing or implementing a system that automatically and uniformly created temporary copies of all data sent through it. Such conduct did not constitute a volitional act.245F245

Nor did the plaintiff’s allegations regarding the defendants’ knowledge of the pirated content on its servers salvage the plaintiff’s direct infringement claim. As the Netcom court pointed out, knowledge is not a required element of direct infringement, and the court ruled that a participant in the chain of events that ultimately allows viewers to obtain infringed material does not become the direct cause of the copying merely because he learned of it. The court noted that the Arista Records v. Usenet, MegaUpload, MP3tunes, and Playboy Enterprises cases had taken into account a defendant’s knowledge in determining whether that defendant engaged in volitional conduct, but disagreed with those decisions.246F246 “By focusing on the defendant’s awareness or state of mind – rather than on who actually caused the infringement – these cases effectively hold defendants liable for copyright infringement committed by third parties without requiring a full assessment of the additional elements of secondary copyright infringement claims.”247F247

242 Id. at *16-17.

243 Id. at *17 (citations omitted).

244 Id. at *18.

245 Id. at *21-22.

246 Id. at *22-25.

247 Id. at *25.

- 73 -

Moreover, the court held the plaintiff’s allegation that the defendants controlled the content on their servers, without a good faith allegation specifying how the defendants exercised that control to directly create copies, could not alone create an inference that the defendants engaged in a volitional act directly causing infringement. Accordingly, the court dismissed the plaintiff’s claims for direct copyright infringement with leave to amend.248F248

The plaintiffs amended the complaint and the defendants again moved to dismiss. A different judge (Judge Collins) reaffirmed Judge Matz’s conclusion that the allegations did not support a claim for direct infringement against Giganews as a matter of law – because they mostly amounted to saying that Giganews programmed its servers to automatically copy, distribute, and display content uploaded by USENET users and/or at a user’s request, which did not amount to a volitional act249F249 – except that Judge Collins permitted Perfect 10’s claim for direct infringement against Giganews to proceed solely on the newly alleged theory that Giganews “plac[ed] copies of copyrighted material from various internet locations onto its own servers, and not at the request of customers …”250F250 The amended complaint further alleged that, in view of how comprehensive, organized, and laborious the uploading of the plaintiff’s images had been, and in view of the financial benefit that Giganews reaped from the materials accessible to users through its server, it could be inferred that Giganews itself, through employees, uploaded some of the infringing materials. The court found this possibility to be rendered more plausible by the example of Megaupload, which the Dept. of Justice had recently found to have itself, and not at the request of users, uploaded massive quantities of copyrighted works to its own servers. Accordingly, the court concluded that the allegations that Giganews itself had uploaded the plaintiff’s copyrighted materials were sufficiently plausible to survive a motion to dismiss.251F251

Judge Collins refused, however, to dismiss the claims of direct infringement against defendant Livewire, noting that, unlike Giganews, the material that Livewire made available to users was not posted on Livewire’s websites or servers by users. Rather, Livewire contracted with Giganews to obtain that content. However, because Livewire sold copies of that material to its customers, it had engaged in volitional conduct that could give rise to direct liability.252F252

248 Id. at *22-23, 26.

249 Perfect 10, Inc. v. Giganews, Inc., 2013 U.S. Dist. LEXIS 98997 at *7-8 (C.D. Cal. July 10, 2013).

250 Id. at *7.

251 Id. at *7-8. The court also dismissed Perfect 10’s allegation that Giganews directly infringed its display rights through the Mimo newsreader. The court noted that Mimo was just a reader, a piece of software that allowed a user to view an image. To the extent Mimo was used to view infringing images, that was done by the user. Furthermore, a user could use a number of other readers to view infringing content. That users might use Giganews’ reader to display infringing images did not constitute volitional conduct by Giganews. Id. at *6.

252 Id. at *9.

- 74 -

After discovery, the defendants moved for partial summary judgment with respect to direct copyright liability. A third judge (Judge Birotte) granted the defendants’ motion.253F253 The court first turned to the question of whether there is a volitional requirement for direct liability. The court noted that the Ninth Circuit had not passed on Netcom’s causation analysis, although the court (inexplicably) did not cite the Ninth Circuit’s decision in Fox Broadcasting v. Dish Network (discussed in Section II.A.4(u) above), which did expressly adopt a volitional conduct requirement. The court noted some district court decisions in California that had not adopted the Netcom volitional conduct requirement, but declined to follow them. Although the court found the Netcom court’s passing use of the term “volition” to be somewhat confusing, as it might suggest a level of intent or willfulness that has no place in a claim for copyright infringement, the court found that the so-called “volition” element of direct infringement is not a judicially-created element of intent or knowledge, but rather is a basic requirement of causation. Specifically, direct liability must be premised on conduct that can reasonably be described as the direct cause of the infringement with a nexus sufficiently close and causal to the illegal copying that one could conclude the alleged infringer himself trespassed on the exclusive domain of the copyright owner.254F254

Turning to each of the defendants separately, the court ruled with respect to Giganews that Perfect 10 could not prove causation for direct infringement as a matter of law. The court rejected Perfect 10’s reliance on various cases that allegedly read the inaptly-named “volitional” conduct requirements as focusing on the defendant’s awareness or state of mind, rather than on who actually caused the infringement. The court held that a claim of direct liability requires evidence that the defendants directly or actively caused the infringement, and Perfect 10’s continued insistence that the defendants allowed their subscribers to upload, download, and view infringing material was the stuff of indirect or secondary liability, not direct liability. The court also found that Perfect 10 had failed to introduce any evidence on the single theory that Judge Collins had allowed to go forward – specifically, there was no evidence that Giganews’ employees or agents themselves uploaded, downloaded, otherwise copied, displayed, or modified any work to which Perfect 10 held a copyright. All other bases on which Perfect 10 continued to allege direct liability had been previously rejected by both Judge Matz and Judge Collins, and Judge Birotte found no reason to depart from their previous analysis. After extensive discovery, the evidence before the court merely showed that Giganews offered its subscribers access to servers for a flat monthly fee, and there was no evidence that Giganews specifically sold access to Perfect 10 copyrighted materials as opposed to access to the entire USENET (of which Perfect 10 content was a fraction of a fraction), or even to erotic content in general.255F255

With respect to Livewire, the court found the evidence of direct infringement to be even more sparse. The sum total of evidence before the court was that Livewire paid Giganews to provide subscribers access to Giganews’ USENET servers and, in turn, charged its subscribers a

253 Perfect 10, Inc. v. Giganews, Inc., 2014 U.S. Dist. LEXIS 183592 (C.D. Cal. Nov. 14, 2014).

254 Id. at *22-26.

255 Id. at *29-34.

- 75 -

fee to access those servers. There was no evidence that Livewire operated any USENET servers of its own, or that any infringing material had ever appeared on any of the Web servers Livewire did own and operate. In denying Livewire’s previous motion to dismiss Perfect 10’s claim for direct infringement, Judge Collins had relied exclusively upon Perfect 10’s allegation that Livewire sold the infringing material it received from Giganews at different prices, depending on usage. Despite extensive discovery, however, there was no evidence to support the allegation that Livewire sold any of Perfect 10’s copyrighted material. Indeed, there was no evidence that Livewire even had a property interest in any of the content on Giganews’ servers that Livewire was capable of selling.256F256

Accordingly, Judge Birotte granted partial summary judgment in favor of Giganews and Livewire on Perfect 10’s claims of direct infringement. In addition, because Perfect 10’s other theories of indirect liability as to Livewire had already been dismissed without leave to amend, the court ruled that its order completely disposed of all of Perfect 10’s claims against Livewire. The court separately addressed Perfect 10’s remaining claims for indirect liability as to Giganews in a separate order, granting partial summary judgment in favor of Giganews on those claims (see discussion in Section III.C.2(n) below).257F257

(w) Capitol Records v. ReDigi

In Capital Records, LLC v. ReDigi, Inc.,258F258 ReDigi operated a web site that enabled users to “resell” their legally acquired iTunes music files and purchase “used” iTunes files from others at a fraction of the price on iTunes. To sell music on ReDigi’s web site, a user was required to download ReDigi’s “Media Manager” to his or her computer. Once installed, Media Manager analyzed the user’s computer to build a list of digital music files eligible for sale. A file was eligible only if it was purchased on iTunes or from another ReDigi user; music downloaded from a CD or other file-sharing web sites was ineligible for sale. After the validation process, Media Manager continually ran on the user’s computer and attached devices to ensure that the user had not retained music that had been sold or uploaded for sale. However, Media Manager could not detect copies stored in other locations. If a copy was detected, Media Manager prompted the user to delete the file. The file was not deleted automatically or involuntarily, although ReDigi’s policy was to suspend the accounts of users who refused to comply.259F259

Once uploaded, a digital music file underwent a second analysis to verify eligibility. If ReDigi determined that the file had not been tampered with or offered for sale by another user, the file was stored in ReDigi’s “Cloud Locker,” and the user was given the option of simply storing and streaming the file for personal use or offering it for sale in ReDigi’s marketplace. If a user chose to sell a digital music file, the user’s access to the file was terminated and

256 Id. at *34-38.

257 Id. at *43.

258 934 F. Supp. 2d 640 (S.D.N.Y. 2013).

259 Id. at 645.

- 76 -

transferred to the new owner at the time of purchase. When users purchased a file (at 59 cents to 79 cents), the seller received 20%, 20% went to an escrow fund for the artist, and 60% was retained by ReDigi. Capitol Records sued ReDigi for direct, contributory and vicarious copyright infringement.260F260

The court found ReDigi liable under all three theories. With respect to direct infringement, the court noted that courts had not previously addressed whether the unauthorized transfer of a digital music file over the Internet – where only one file exists before and after the transfer – constitutes reproduction within the meaning of the Copyright Act. The court held that it does. The court characterized the reproduction right as the exclusive right to embody, and to prevent others from embodying, a copyrighted work in a new material object. The court concluded that, because the reproduction right is necessarily implicated when a copyrighted work is embodied in a new material object, and because digital music files must be embodied in a new material object following their transfer over the Internet, the embodiment of a digital music file on a new hard disk is a reproduction within the meaning the meaning of the Copyright Act. The court determined this to be true regardless whether one or multiple copies of the file exist.261F261 “Simply put, it is the creation of a new material object and not an additional material object that defines the reproduction right.”262F262 The court found it to be beside the point that the original phonorecord no longer existed – it mattered only that a new phonorecord had been created.263F263

The court found sufficient volitional conduct on the part of ReDigi to hold it liable for direct infringement. The court noted that ReDigi’s founders had built a service where only copyrighted works could be sold. Media Manager scanned a user’s computer to build a list of eligible files that consisted solely of protected music purchased on iTunes. While the process was automated, absolving ReDigi of direct liability on that ground alone would be a distinction without a difference. The fact that ReDigi’s founders programmed their software to choose copyrighted content satisfied the volitional conduct requirement and rendered ReDigi’s case indistinguishable from those where human review of content gave rise to direct liability. Moreover, ReDigi provided the infrastructure for its users’ infringing sales and affirmatively brokered sales by connecting users who were seeking unavailable songs with potential sellers. The court concluded that such conduct transformed ReDigi from a passive provider of a space in which infringing activities happened to an active participant in the process of copyright infringement.264F264

Capitol Records also argued that ReDigi violated it distribution rights by simply “making available” Capitol Records’ recordings for sale to the public, regardless whether a sale occurred.

260 Id. at 646.

261 Id. at 648-50.

262 Id. at 650 (emphasis in original).

263 Id.

264 Id. at 657.

- 77 -

The court cited a number of courts that had cast significant doubt on a “making available” theory of distribution,265F265 but concluded that because actual sales on ReDigi’s web site infringed Capitol Records’ distribution right, the court need not reach this additional theory of liability.266F266

The court found ReDigi contributorily liable because it knew or should have known that its service would encourage infringement, was aware that copyrighted content was being sold on its web site, and provided the site and facilities for the direct infringement. The court found that the site was, by virtue of its design to deal solely in music files from iTunes, not capable of substantial noninfringing uses. The court also ruled ReDigi to be vicariously liable because it exercised complete control over its web site content, user access, and sales, and benefitted financially from every infringing sale when it collected 60% of each transaction fee.267F267 The court rejected ReDigi’s fair use defense because its web site made commercial use of the music files and did nothing to transform them, and ReDigi’s sales were likely to undercut the market for or value of the copyrighted works.268F268

For the reasons set forth in Section III.F.1 below, the court rejected ReDigi’s assertion that the first sale doctrine permitted users to resell their digital music files on ReDigi’s web site.

(x) Hearst Stations v. Aereo

This case was apparently the first one within the First Circuit to present the question whether a plaintiff claiming direct infringement must show volitional conduct on the part of the defendant. The court agreed with decisions in the Second, Third, and Fourth Circuits ruling that volitional conduct is required. The facts and rulings of this case are discussed in Section II.B.13 below.

(y) In Re Autohop Litigation (Dish Network v. American Broadcasting)

In In re Autohop Litigation,269F269 Dish Network brought a declaratory judgment action against several broadcasting companies seeking a declaration that its PrimeTime Anytime (PTAT) and AutoHop services (which are described in Section II.A.4(u) above) did not infringe the plaintiffs’ copyrights. Several of the plaintiffs affiliated with ABC (including Disney) moved for a preliminary injunction preventing Dish from offering its PTAT and AutoHop services to its subscribers. The plaintiffs argued that Dish was liable for directly infringing their copyrights in

265 Elektra Entertainment Group, Inc. v. Barker, 551 F. Supp. 2d 234, 243 (S.D.N.Y. 2008); London-Sire Records, Inc. v. John Doe 1, 542 F. Supp. 2d 153, 169 (D. Mass. 2008).

266 ReDigi, 934 F. Supp. 2d at 651 n.6.

267 Id. at 658-60.

268 Id. at 653-54.

269 2013 U.S. Dist. LEXIS 143492 (S.D.N.Y. Oct. 1, 2013). The opinion states in its caption that it is related to Dish Network, L.L.C. v. American Broadcasting Cos.

- 78 -

their primetime programs by virtue of its involvement in creating the key system settings and options subscribers could choose for recording broadcasts via PTAT. The plaintiffs argued that Dish did not simply and automatically obey subscriber commands because the start and stop times of recordings were set by Dish and Dish prevented a subscriber from stopping a recording once it was in progress. The plaintiffs pointed out that Dish did not limit the copying to the programs that the subscriber intended to watch and argued that Dish had control over the content of the programming because its agents allegedly consulted an electronic program guide to determine which programs fell into primetime and which should be recorded.270F270

The district court found it unnecessary to resolve the disputed question of whether the primetime programming was identified through the operation of software or through human review of program schedules because under the Second Circuit’s Cartoon Network (Cablevision) case, the pivotal factor for direct liability is initiation of the act of copying rather than the selection of offerings for possible copying or the creation of the technological structure. The possible involvement of Dish’s agents in determining the time parameters of programming available for PTAT/Hopper recording was therefore insufficient to render Dish a direct infringer. The court noted that Dish had no control over which programs would be shown on the plaintiffs’ networks or in what order, just as it had no control over which of its subscribers would choose to copy those programs. It was the Dish subscriber who decided if he or she wanted to use the PTAT feature and the subscriber was required to enable PTAT before the Hopper would record any programs. The subscriber also selected which of the networks’ primetime offerings to record and which nights to record and, once the subscriber enabled the PTAT, the recordings were saved on the subscriber’s personal hard drive on the Hopper, rather than at Dish headquarters. The subscriber also decided the length of time the recordings should be kept. Accordingly, the court ruled that the subscribers made the copies, and the plaintiffs had therefore failed to demonstrate a likelihood of success on a claim for direct infringement liability.271F271

The court also ruled that Dish had no secondary liability for its subscribers’ copying under either vicarious or contributory theories. With respect to vicarious liability, the court found that Dish had no control over whether its subscribers enabled the PTAT technology or what they chose to copy. The court also concluded that Dish was likely to establish that it could have no secondary liability under the Sony case because the copying by Dish’s subscribers for private, non-commercial time shifting use in the home was a fair use. Accordingly, the court denied the plaintiffs’ request for a preliminary injunction.272F272

270 Id. at *1-2, 16-19.

271 Id. at *19-21.

272 Id. at *22-26, 48. The court also found that the plaintiffs had failed to establish irreparable harm. The plaintiffs argued they would suffer irreparable harm because AutoHop’s efficient commercial skipping feature would deprive them of advertising revenues premised on PTAT/AutoHop commercial viewing patterns, such as live TV-watching, commercial-inclusive VOD without fast-forwarding ability, and Hulu, which all exposed viewers to opportunities to watch commercials during primetime programming, thus harming the plaintiffs’ relationships and negotiations with authorized licensees. The court found, however, that the plaintiffs had not proffered any evidence of actual and imminent injury. The court noted that Nielsen’s C3 rating system did not

- 79 -

(z) Oppenheimer v. Allvoices

In this case, the plaintiff brought claims for copyright infringement for unlicensed use of his photographs on the defendant Allvoices’ web site. Allvoices was an online service provider that operated a web site set up as a community for its users to share and discuss news, by contributing related text, video and images, and commenting. Citizen journalists who posted news, videos, images and commentary were paid consideration for their article contributions based on the popularity of, and web traffic to, their articles. Allvoices filed a motion to dismiss the plaintiff’s direct infringement claim on the basis that it could not have direct liability under the volitional conduct requirement. The court noted that, although the Netcom requirement of volitional conduct for direct liability had been adopted by the Second and Fourth Circuits, the Ninth Circuit had not yet addressed the issue, and district courts within the Ninth Circuit were split on the issue. But even if a direct copyright infringement claim requires a plaintiff to allege that the defendant engaged in volitional conduct that caused the infringement, the court found the plaintiff had done so. Contrary to Allvoices’ suggestion, the plaintiff had not alleged that contributors infringed the plaintiff’s photographs on their own by uploading them onto Allvoices. Rather, the plaintiff’s first amended complaint alleged that Allvoices, both directly and through contributors, reproduced and displayed the photographs without the plaintiff’s permission. Such allegations were sufficient to deny the defendant’s motion to dismiss the direct infringement claim.274F274

(aa) The Supreme Court’s Aereo Decision

Although the Supreme Court’s majority opinion in American Broadcasting Co. v. Aereo, Inc.275F275did not address the volitional conduct requirement in copyright law, a strong dissenting opinion by Justice Scalia articulated the position that the volitional conduct doctrine, though not ever addressed expressly by the Supreme Court, had become well established in the appellate courts, was consistent with Supreme Court precedent, and Aereo could not be found to have

distinguish between commercial-skipping using AutoHop and commercial skipping using other, preexisting technologies, instead measuring only whether the commercial had been skipped or not. The record therefore did not support the conclusion that there would likely be an incremental increase in commercial skipping from AutoHop. In fact, the plaintiffs’ corporate designee and expert on consumer behavior had testified that DVRs in general had actually boosted the C3 ratings of its programming. Id. at *30-31.

273 Bill Donahue, “Dish, ABC Settle Ad-Skipping Fight with Broad TV Deal,” Law360 (Mar. 7, 2014), available as of Mar. 7, 2014 at www.law360.com/articles/515052/print?section=IP.

274 Oppenheimer v. Allvoices, Inc., 2014 U.S. Dist. LEXIS 80320 at *1-2, 19-22 (N.D. Cal. June 10, 2014).

275 134 S. Ct. 2498, 2504 (2014).

- 80 -

“performed” the works at issue by virtue of that doctrine. See the discussion of the case in Section II.B.10 below.

(bb) Gardner v. CafePress

The case of Gardner v. CafePress Inc.276F276 was the first case decided after the Supreme Court’s Aereo decision to rule that Aereo did not eliminate the volitional conduct requirement for direct liability. CafePress operated an e-commerce site that allowed users to upload images of artwork, slogans and designs for printing by CafePress on items such as shirts, bags and mugs. The images were uploaded at the direction of CafePress users and were stored on CafePress’s servers through its web site. CafePress users could also offer the uploaded images for sale to third parties who then selected one of CafePress’s unbranded items on which to print the images. Several CafePress users uploaded copies of the plaintiff’s works to CafePress’s service without permission and then sold items bearing copies of the plaintiff’s works through CafePress’s web site and other web sites. CafePress received revenue from these infringing sales. CafePress also purchased advertisements which displayed copies of the plaintiff’s works and generated revenue from users who clicked on those advertisements. The plaintiff brought claims for direct and vicarious copyright liability against CafePress and CafePress sought summary judgment in its favor on liability.277F277

With respect to direct liability, the plaintiff argued that the Supreme Court’s decision in Aereo militated against a volitional conduct requirement for direct liability. The district court rejected this argument, noting that the Supreme Court expressly decided not to address the volitional conduct issue, which therefore left undisturbed the Ninth Circuit’s decision in Fox Broadcasting Co. v. Dish Network L.L.C.,278F278 which expressly held that volitional conduct on the part of the defendant is one of three elements required to establish a prima facie case of direct infringement. Here the court found volitional conduct on the part of CafePress sufficient for direct liability in the form of the production and sale of allegedly infringing items bearing the plaintiff’s copyrighted images. CafePress did not contend that its production facility and shipping processes were completely automated and thus devoid of human employees engaging in volitional conduct. Rather, CafePress’s employees responded to customer requests to purchase items by operating the machinery used to create the allegedly infringing items.279F279

With respect to vicarious liability, the court found direct financial benefit from the infringing activity on the part of CafePress because it was undisputed that a certain number of CafePress customers saw ads bearing images of the plaintiff’s copyrighted works, clicked through those ads, and generated revenue for CafePress, and that some CafePress customers bought items bearing images of the plaintiff’s copyrighted works. The court also found the

276 2014 U.S. Dist. LEXIS 168328 (S.D. Cal. Dec. 4, 2014).

277 Id. at *1-4. The plaintiff did not assert claims for contributory liability.

278 747 F.3d 1060 (9th Cir. 2014).

279 CafePress, 2014 U.S. Dist. LEXIS 168328 at *8-12.

- 81 -

evidence showed that CafePress had active control over at least some of the allegedly infringing items during the process in which CafePress produced and then shipped those items to customers.280F280 “While CafePress’s actions in response to allegedly infringing uploads may be similar to Amazon and eBay where it is not actively involved and can only engage in after-the-fact removal and access blocking, CafePress’s production of allegedly infringing items at its production facility does appear to be ‘purposeful conduct’ such that CafePress has the ‘right and ability to control.’”281F281 Accordingly, the court denied CafePress’s motion for summary judgment in its favor with respect to liability for direct and vicarious infringement.282F282

(cc) Rosen v. eBay

In this case, the plaintiff Rosen was the owner of copyrights in several photographs. He sought to hold eBay liable for copyright infringement based on the offering for sale of unauthorized copies of his photographs through the eBay marketplace. Rosen alleged eBay had committed direct copyright infringement based on the fact that, in creating the listings on its marketplace, eBay created a copy of his copyrighted photos and stored it on eBay’s servers. The court denied liability for direct infringement on the ground that a third party’s infringing use of a defendant’s automated system does not render the defendant directly liable. Accordingly, eBay could not be a direct infringer as a result of its users putting his photos on eBay’s servers and making them publicly available.283F283

(dd) Summary of Case Law

To sum up, under a majority of the cases, a direct volitional act of some kind is required for liability for direct copyright infringement. The MAPHIA and Sabella, Cablevision, and Hotfile cases suggest that it is insufficient for direct liability for an actor such as a BBS or web site operator to have provided only encouragement of the acts (such as initial uploading of unauthorized copies) that lead to infringement. Similarly, the CoStar, Ellison and Perfect 10 v. Cybernet Ventures cases suggest that an OSP will not have direct liability for infringing material posted on its service by users or available through its service on third party sites where the OSP has not encouraged such posting or had advance knowledge of it. And the Field v. Google and Parker v. Google cases hold that a search engine operator will not have direct liability for serving up cached copies of copyrighted materials in an automated response to user requests based on search results. Rather, for direct liability the defendant must have engaged in the very acts of infringement themselves in a volitional way. The Perfect 10 v. Giganews case, while agreeing with Netcom that a volitional act is required for direct infringement, equated the “volitional conduct” requirement with a requirement of causation, not intent. That court cited the Cybernet Ventures and MAPHIA cases approvingly for their descriptions of the volitional conduct

280 Id. at *13-16.

281 Id. at *16.

282 Id. at *18.

283 Rosen v. eBay, Inc., 2015 U.S. Dist. LEXIS 49999 at *2, 14-16 (C.D. Cal. Jan. 16, 2015).

- 82 -

requirement as requiring that the defendant must “actively engage” or “directly cause” the infringing activity in order to be held liable for direct infringement.

However, the Frena, Webbworld, Sanfilippo, Quantum Systems, Megaupload and ReDigi cases (as well as the Hardenburgh and Webbworld cases discussed in Section II.C below with respect to the public display and distribution rights) suggest that where an actor such as a BBS operator or web site operator has some form of substantial direct involvement in the anticipated acts that lead to infringement or in the infringing acts themselves (such as resale of the infringing material), there may be a finding of sufficient volitional activity to impose direct liability. And the Arista Records v. Usenet.com case suggests that direct liability for violation of the distribution right can be premised on active promotion of sharing of illicit files coupled with close control over what types of material are featured for distribution in the first instance. Thus, to establish direct liability for infringement one must look at whether the defendant participated in the very acts of infringement themselves.

One district court case – the Myxer case – simply refused to adopt the volitional requirement for direct infringement, noting that the Ninth Circuit had never expressly adopted the volitional requirement and finding such a requirement to be inconsistent with copyright infringement being a strict liability tort. The Ninth Circuit subsequently did, however, expressly adopt the volitional requirement in the 2014 Fox Broadcasting v. Dish Network case.

As discussed in Section III.C below, the Digital Millennium Copyright Act284F284(referred to herein as the “DMCA”) defines certain safe harbors against liability for OSPs who act as merely passive conduits for infringing information and without knowledge of the infringement. An OSP must meet quite specific detailed requirements to qualify for the safe harbors relating to acting as a passive conduit and innocent storage of infringing information. Where an OSP does not qualify for these safe harbors, the standards under the case law discussed above will apply to determine liability.

5. The Reproduction Right Under WIPO Implementing Legislation

(a) United States Legislation

Four bills were introduced in Congress to implement the WIPO treaties. Two of them, neither of which were ultimately enacted, would have attempted to clarify the issue of whether interim copies made during the course of transmission infringe the reproduction right. The bill that was adopted – The Digital Millennium Copyright Act – contains nothing explicitly addressing the scope of the reproduction right in a digital environment.

284 Pub. L. No. 105-304, 112 Stat. 2860 (1998).

- 83 -

(1) The Digital Millennium Copyright Act

The DMCA was signed into law by President Clinton on Oct. 28, 1998. It is essentially an enactment of H.R. 2281, introduced in the House in July of 1997 by Rep. Howard Coble, and its nearly identical counterpart in the Senate, S. 1121, introduced by Sen. Orrin Hatch also in July of 1997, which was later combined with another bill and, as combined, denominated S. 2037. Both H.R. 2281 and S. 1121 were introduced with the support of the Clinton administration.

Title I of the DMCA, entitled the “WIPO Copyright and Performances and Phonograms Treaties Implementation Act of 1998” and comprised of Sections 101 through 105, implements the WIPO treaties. Title I takes a minimalist approach to implementing the requirements of the WIPO treaties. The Clinton administration took the view that most of the enhanced copyright protections set forth in the treaties were already available under United States law, so that no major changes to U.S. law were believed necessary to implement the treaties.

Specifically, the DMCA addresses only the requirements of Arts. 11 and 12 of the WIPO Copyright Treaty, and of Arts. 18 and 19 of the WIPO Performances and Phonograms Treaty, to provide adequate legal protection and effective legal remedies against (i) the circumvention of effective technological measures that are used by rights holders to restrict unauthorized acts with respect to their protected works, and (ii) the removal or alteration of any electronic rights management information (information which identifies the work, the author of the work, the owner of any right in the work, or information about the terms and conditions of use of the work), or the distribution or communication to the public of copies of works knowing that the electronic rights management information has been removed or altered. The specific provisions of these bills are discussed in further detail below. These bills contain nothing addressing the reproduction right or how that right relates to the digital environment.

(2) Legislation Not Adopted

An alternative bill to implement the WIPO treaties, S. 1146, entitled the “Digital Copyright Clarification and Technology Education Act of 1997,” was introduced on Sept. 3, 1997 by Sen. John Ashcroft. Like the DMCA, S. 1146 contained language to implement prohibitions against the circumvention of technologies to prevent unauthorized access to copyrighted works and to provide electronic rights management information about a work, although it adopted a different approach to doing so than the DMCA, as discussed further below.

S. 1146 also contained, however, a much broader package of copyright-related measures. With respect to the reproduction right, S. 1146 would have clarified that ephemeral copies of a work in digital form that are incidental to the operation of a device in the ordinary course of lawful use of the work do not infringe the reproduction right. Specifically, S. 1146 would have added a new subsection (b) to Section 117 of the copyright statute to read as follows:

- 84 -

(b) Notwithstanding the provisions of section 106, it is not an infringement to make a copy of a work in a digital format if such copying –

(1) is incidental to the operation of a device in the course of the use of a work otherwise lawful under this title; and

(2) does not conflict with the normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author.

The proposed new clause (b)(1) was similar to the right granted in the existing Section 117 of the copyright statute with respect to computer programs, which permits the making of copies of the program “as an essential step in the utilization of the computer program in conjunction with a machine.”285F285 Clause (b)(1) would have extended this right to the otherwise lawful use of other types of works in a digital format, to the extent that copying is necessary for such use. It would seem to have covered activities such as the loading of a musical work into memory in conjunction with playing the work, the incidental copies of a movie or other work ordered on demand that are made in memory in the course of the downloading and viewing of the movie, and the various interim copies of a work that are made in node computers in the routine course of an authorized transmission of the work through the Internet.

The limiting language contained in new clause (b)(2) was drawn directly from the WIPO treaties themselves. Specifically, Article 10 of the WIPO Copyright Treaty permits treaty signatories to provide for limitations of or exceptions to the rights granted under the treaty “in certain special cases that do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the author.” The scope of reach of this language is obviously not self evident, and the boundaries of this exception to the reproduction right are therefore not entirely clear. However, the exception should apply to at least the most common instances in which incidental copies must be made in the course of an authorized use of a digital work, including in the course of an authorized transmission of that work through a network.

Another bill introduced into Congress to implement the WIPO copyright treaties was H.R. 3048, entitled the “Digital Era Copyright Enhancement Act,” which was introduced on Nov. 14, 1997 by Rep. Rick Boucher. With respect to the reproduction right, H.R. 3048 contained an identical amendment to Section 117 as S. 1146 that would have permitted the making of incidental copies of a work in digital form in conjunction with the operation of a device in the ordinary course of lawful use of the work.

The clarifying amendment to Section 117 concerning the reproduction right that these alternative bills would have set up was not ultimately adopted by Congress in the DMCA.

285 17 U.S.C. § 117.

- 85 -

(b) The European Copyright Directive

The European Copyright Directive contains strong statements of copyright owners’ rights to control the reproduction, distribution and presentation of their works online. The European Copyright Directive requires legislative action by EC member states with respect to four rights: the reproduction right,286F286 the communication to the public right,287F287 the distribution right,288F288 and protection against the circumvention or abuse of electronic management and protection systems.289F289

With respect to the reproduction right, the European Copyright Directive adopts essentially the same broad language of proposed Article 7(1) of the WIPO Copyright Treaty that provoked so much controversy and was ultimately deleted from the WIPO Copyright Treaty. Specifically, Article 2 of the European Copyright Directive provides that member states must “provide the exclusive right to authorize or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form” of copyrighted works. The extension of the reproduction right to “direct or indirect” and “temporary or permanent” reproductions would seem to cover even ephemeral copies of a work made during the course of transmission or use of a copyrighted work in an online context. Indeed, the official commentary to Article 2 notes that the definition of the reproduction right covers “all relevant acts of reproduction, whether on-line or off-line, in material or immaterial form.”290F290 The commentary also appears to adopt the approach of the MAI case in recognizing copies of a work in RAM as falling within the reproduction right: “The result of a reproduction may be a tangible permanent copy, like a book, but it may just as well be a non-visible temporary copy of the work in the working memory of a computer.”291F291

To provide counterbalance, however, Article 5(1) of the European Copyright Directive provides an automatic exemption from the reproduction right for “[t]emporary acts of reproduction … which are transient or incidental, which are an integral and essential part of a technological process whose sole purpose is to enable: (a) a transmission in a network between third parties by an intermediary or (b) a lawful use of a work or other subject-matter to be made, and which have no independent economic significance.” This provision is very similar to the new clause (b) that would have been added to Section 117 of the U.S. copyright statute under S. 1146 and H.R. 3048 (discussed in Section II.A.5(a)(2) above). The Article 5(1) exception would appear to cover the store and forward procedure adopted by routers and the RAM copy produced as a result of browsing at least by a private user (whether browsing for a commercial purpose

286 European Copyright Directive, art. 2.

287 Id. art. 3.

288 Id. art. 4.

289 Id. arts. 6-7.

290 Commentary to Art. 2, ¶ 2.

291 Id. ¶ 3.

- 86 -

would have “independent economic significance” is unclear).292F292 The exception does not apply to computer programs or databases because they are separately regulated in other Directives.293F293

Thus, the European Copyright Directive adopts an approach that affords the reproduction right a very broad inherent scope, but provides an explicit and automatic exemption for copies that are made incidental to the use294F294 of a work through a technological process, such as transmission through a network or loading into memory for viewing or playing of the work. Indeed, Recital (33) of the European Copyright Directive notes that the exception of Article 5(1) “should include acts which enable browsing as well as acts of caching to take place, including those which enable transmission systems to function efficiently, provided that the intermediary does not modify the information and does not interfere with the lawful use of technology, widely recognized and used by industry, to obtain data on the use of the information.”

According to Recital (32) of the European Copyright Directive, the final Directive, unlike its predecessor drafts, opted for an approach of listing “an exhaustive enumeration of exceptions and limitations to the reproduction right and the right of communication to the public.” These exceptions and limitations are enumerated in Articles 5(2) and 5(3). The exceptions and limitations in Article 5(2) apply only to the reproduction right, whereas the exceptions and limitations in Article 5(3) apply to both the reproduction right and the right of communication to the public.

Under Article 5(2), member states may provide for exceptions or limitations to the reproduction right in the following cases:

(a) in respect of reproductions on paper or any similar medium, effected by the use of any kind of photographic techniques or by some other process having similar effects, with the exception of sheet music, provided that the rightholders receive fair compensation;

(b) in respect of reproductions on any medium made by a natural person for private use and for ends that are neither directly or indirectly commercial, on condition that the rightholders receive fair compensation which takes account of the application or non-application of technological measures referred to in Article 6 to the work or subject-matter concerned;

292 Justin Harrington & Tina Berking, “Some Controversial Aspects of the EU Copyright Directive (Directive 2001/29/EC),” Cyberspace Lawyer, Jan. 2003, at 2, 3-4. The Electronic Commerce Directive contains exemptions in respect of hosting, caching and acting as a mere conduit. Id. at 4.

293 David Schollenberger, “Entertainment Without Borders” (Mar. 2003), at 9 (seminar paper on file with the author).

294 An earlier version of Art. 5(1) provided that the use of the work must be “authorized or otherwise permitted by law.” A copy of an earlier version of the European Copyright Directive and comments may be found at www.bna.com/e-law/docs/ecdraft.html (last modified Dec. 2, 1997).

- 87 -

(c) in respect of specific acts of reproduction made by publicly accessible libraries, educational establishments or museums, or by archives, which are not for direct or indirect economic or commercial advantage;

(d) in respect of ephemeral recordings of works made by broadcasting organizations by means of their own facilities and for their own broadcasts; the preservation of these recordings in official archives may, on the ground of their exceptional documentary character, be permitted;

(e) in respect of reproductions of broadcasts made by social institutions pursuing non-commercial purposes, such as hospitals or prisons, on condition that the rightholders receive fair compensation.

It is interesting to note that the majority of these exceptions are conditioned upon the rightholders receiving fair compensation, and they cover only copying that is for non-commercial purposes. Exception (b) is of particular interest, for it provides a right for natural persons to make copies for private use and for purposes that are neither directly or indirectly commercial, provided the rightholders receive fair compensation. Presumably the exception would apply where a natural person has purchased a copy of a copyrighted work, thereby providing fair compensation to the rightholders, and thereafter makes additional copies for personal, noncommercial uses – e.g., by making a copy of one’s purchased music CD onto a cassette for use in one’s car. The drafters of the European Copyright Directive deemed this right of private use to be of such significance that under Article 6(4), member states are permitted to take measures to ensure that beneficiaries of this right are able to take advantage of it, “unless reproduction for private use has already been made possible by rightholders to the extent necessary to benefit from the exception or limitation concerned and in accordance with the provisions of Article 5(2)(b) and (5), without preventing rightholders from adopting adequate measures regarding the number of reproductions in accordance with these provisions.”295F295

The right of private use contained in Article 5(2)(b) is similar to a right afforded in the United States under the Audio Home Recording Act (AHRA), 17 U.S.C. § 1008, which provides, “No action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.” This statute is discussed in detail in Section II.A.7 below, and in Section III.C.2.(c)(1) below in connection with the Napster litigations. Napster, Inc., the operator of a service that enabled subscribers to share music files in MP3 audio format with one another, asserted the AHRA as a defense to an allegation by copyright owners that it

295 Under the last paragraph of Article 6(4), this right of member states to take measures to ensure that beneficiaries of the right of private use are able to take advantage of it does not apply “to works or other subject-matter made available to the public on agreed contractual terms in such a way that members of the public may access them from a place and at a time individually chosen by them.”

- 88 -

was contributorily and vicariously liable for the unauthorized sharing of copyrighted sound recordings through its service. Napster argued that the AHRA permitted its subscribers to share such sound recordings because they were shared for personal use by its subscribers. As discussed in detail below, the courts rejected this argument.

Perhaps in response to online systems like Napster, the drafters of the European Copyright Directive seem to have been concerned that the exception for personal use in Article 5(2)(b) not be construed to permit the unauthorized sharing of copyrighted works in digital form through online systems, at least without compensation to the rightholders affected. Specifically, Recital (38) of the European Copyright Directive states:

Member States should be allowed to provide for an exception or limitation to the reproduction right for certain types of reproduction of audio, visual and audio-visual material for private use, accompanied by fair compensation. This may include the introduction or continuation of remuneration schemes to compensate for the prejudice to rightholders. … Digital private copying is likely to be more widespread and have a greater economic impact. Due account should therefore be taken of the differences between digital and analogue private copying and a distinction should be make in certain respects between them.

In addition, the drafters of the European Copyright Directive seemed to contemplate that “intermediaries” providing services through which infringing activities take place online should be subject to injunctive relief to stop unauthorized transmissions of copyrighted works through its service. Recital (58) of the European Copyright Directive provides:

In the digital environment, in particular, the services of intermediaries may increasingly be used by third parties for infringing activities. In many cases such intermediaries are best placed to bring such infringing activities to an end. Therefore, without prejudice to any other sanctions and remedies available, rightholders should have the possibility of applying for an injunction against an intermediary who carries a third party’s infringement of a protected work or other subject-matter in a network. This possibility should be available even where the acts carried out by the intermediary are exempted under Article 5. The conditions and modalities relating to such injunctions should be left to the national law of the Member States.

Under Article 5(3), member states may provide for further exceptions or limitations to the reproduction right and the right of communication to the public in the following cases:

(a) use for the sole purpose of illustration for teaching or scientific research, as long as the source, including the author’s name, is indicated, unless this proves impossible, and to the extent justified by the non-commercial purpose to be achieved;

- 89 -

(b) uses, for the benefit of people with a disability, which are directly related to the disability and of a non-commercial nature, to the extent required by the specific disability;

(c) reproduction by the press, communication to the public or making available of published articles on current economic, political or religious topics or of broadcast works or other subject-matter of the same character, in cases where such use is not expressly reserved, and as long the source, including the author’s name, is indicated, or use of works or other subject-matter in connection with the reporting of current events, to the extent justified by the informatory purpose and as long as the source, including the author’s name, is indicated, unless this proves impossible;

(d) quotations for purposes such as criticism or review, provided that they relate to a work or other subject-matter which has already been lawfully made available to the public, and that, unless this proves impossible, the source, including the author's name, is indicated, and that their use is in accordance with fair practice, and to the extent required by the specific purpose;

(e) use for the purposes of public security or to ensure the proper performance or reporting of administrative, parliamentary or judicial proceedings;

(f) use of political speeches as well as extracts of public lectures or similar works or subject-matter to the extent justified by the informatory purpose and provided that the source, including the author's name, is indicated, except where this proves impossible;

(g) use during religious celebrations or official celebrations organized by a public authority;

(h) use of works, such as works of architecture or sculpture, made to be located permanently in public places;

(i) incidental inclusion of a work or other subject-matter in other material;

(j) use for the purpose of advertising public exhibition or sale of artistic works, to the extent necessary to promote the event, excluding any other commercial use;

(k) use for the purpose of caricature, parody or pastiche;

(l) use in connection with the demonstration or repair of equipment;

(m) use of an artistic work in the form of a building or a drawing or plan of a building for the purposes of reconstructing the building;

- 90 -

(n) use by communication or making available, for the purpose of research or private study, to individual members of the public by dedicated terminals on the premises of establishments referred to in paragraph 2(c) of [Article 5(2)] of works and other subject-matter not subject to purchase or licensing terms which are contained in their collections;

(o) use in certain other cases of minor importance where exceptions or limitations already exist under national law, provided that they only concern analogue uses and do not affect the free circulation of goods and services within the Community, without prejudice to the other exceptions and limitations contained in this Article.

Note that, unlike many of the exceptions of Article 5(2), the exceptions of Article 5(3) are not conditioned upon fair compensation to the rightholders.

6. Peer-to-Peer File Sharing

(a) BMG Music v. Gonzalez

In BMG Music v. Gonzalez,296F296 defendant Cecilia Gonzalez sought to defend her downloading of more than 1370 copyrighted songs through the Kazaa file-sharing network by arguing that her actions should fall under the fair use doctrine on the theory that she was just sampling the music to determine what she liked sufficiently to buy at retail.297F297 The Seventh Circuit rejected this argument out of hand. Focusing principally on the fourth fair use factor – the effect of the use upon the potential market for or value of the copyrighted work – Judge Easterbrook noted that as file sharing had increased over the last four years, sales of recorded music had dropped by approximately 30%. Although other economic factors may have contributed, he noted that the events were likely related.298F298

He further noted that rights holders had economic interests beyond selling compact discs containing collections of works – specifically, there was also a market in ways to introduce potential consumers to music. Noting that many radio stations stream their content over the Internet, paying a fee for the right to do so, he noted that Gonzalez could have listened to streaming music to sample songs for purchase, and had she done so, the rights holders would have received royalties from the broadcasters.299F299 Rejecting the proffered fair use defense, Judge Easterbrook stated, “Copyright law lets authors make their own decisions about how best to promote their works; copiers such as Gonzalez cannot ask courts (and juries) to second-guess the market and call wholesale copying ‘fair use’ if they think that authors err in understanding their

296 430 F.3d 999 (7th Cir. 2005).

297 Id. at 889-90.

298 Id. at 890.

299 Id. at 891.

- 91 -

own economic interests or that Congress erred in granting authors the rights in the copyright statute.”300F300

The plaintiffs sought statutory damages for Gonzalez’ unauthorized copying, seeking the minimum amount of $750 per work infringed. Gonzalez sought to reduce the award below the $750 minimum by arguing under Section 504(c)(2) that she was not aware and had no reason to believe that her acts constituted infringement of copyright. The district court rejected the request under the provisions of Section 402(d), which provides that if a valid notice of copyright appears on the phonorecords to which a defendant had access, then no weight shall be given to the defendant’s interposition of a defense based on innocent infringement in mitigation of actual or statutory damages.301F301 Gonzalez sought to avoid Section 402(d) by arguing that there were no copyright notices on the data she downloaded. The court rejected this argument: “She downloaded data rather than discs, and the data lacked copyright notices, but the statutory question is whether ‘access’ to legitimate works was available rather than whether infringers earlier in the chain attached copyright notices to the pirated works. Gonzalez readily could have learned, had she inquired, that the music was under copyright.”302F302

(b) Columbia Pictures v. Bunnell

In Columbia Pictures Industries, Inc. v. Bunnell,303F303 the court entered judgment against defendant Valence Media LLC, operator of the web site at www.torrentspy.com, for willful inducement of copyright infringement, contributory copyright infringement, and vicarious copyright infringement. The court awarded the plaintiffs statutory damages of $30,000 per infringement for each of 3,699 infringements shown, for a total judgment of $110,970,000. The court also issued a permanent injunction enjoining the defendants from encouraging, inducing, or knowingly contributing to the reproduction, download, distribution, upload, or public performance or display of any copyrighted work at issue, and from making available for reproduction, download, distribution, upload, or public performance or display any such work.304F304

300 Id.

301 Id. at 891-92.

302 Id. at 892. Gonzalez also challenged the district court’s award of the $750 amount on summary judgment, arguing that the choice of amount is a question for the jury. The Seventh Circuit noted that, although a suit for statutory damages under Section 504(c) is a suit at law to which the seventh amendment applies, this does not mean that a jury must resolve every dispute. When there are no disputes of material fact, a court may enter summary judgment without transgressing the Constitution. The court noted that Gonzalez had argued for the minimum amount of $750 per song and the plaintiffs had been content with that amount, which the district court then awarded on summary judgment. Id.

303 2008 U.S. Dist. LEXIS 63227 (C.D. Cal. July 10, 2008).

304 Id. at *1-3.

- 92 -

In Sony BMG Music Entertainment v. Tenenbaum,305F305 the court rejected a broadside fair use defense for the file-sharing by a college sophomore, Joel Tenenbaum, of 30 copyrighted songs belonging to the plaintiffs. Describing the defense raised by the defendant’s counsel as “truly chaotic,”306F306 the court noted that it represented a version of fair use so broad that it would excuse all file sharing for private enjoyment. As the court described counsel’s defense, “a defendant just needs to show that he did not make money from the files he downloaded or distributed – i.e., that his use was ‘non-commercial’ – in order to put his fair use defense before a jury. Beyond that threshold, the matter belongs entirely to the jury, which is entitled to consider any and all factors touching on its innate sense of fairness – nothing more and nothing less.”307F307

The court first turned to the threshold issue of whether fair use is an equitable defense. Noting that a number of courts had suggested that it is, the court nevertheless opined that even if fair use is an entirely equitable defense, it is not clear that its determination requires a jury trial, because judges, not juries, traditionally resolve equitable defenses. However, given that two leading copyright historians had suggested that the equitable label may be a misnomer, and because neither party pressed the point, the court assumed that fair use is a jury question, without resolving the question of the equitable origins of the defense. But because fair use is ultimately a legal question, the court noted that, in the face of the plaintiff’s motion for summary judgment on the fair use issue, the defendant could put the defense to a jury only if he showed through specific, credible evidence that the facts relevant to that legal analysis were in dispute. The defendant had failed to do so.308F308

Turning to an application of the four fair use factors, the court found that the first factor – purpose and character of the use – favored the plaintiffs. The court rejected the defendant’s binary distinction between “commercial” and “non-commercial” uses under the first factor, noting that the purpose and character of a use must be classified along a spectrum that ranges from pure, large-scale profit-seeking to uses that advance important public goals, like those recognized in the statute. The defendant’s file sharing fell somewhere in between. Although the court was not willing to label it “commercial,” as the plaintiffs urged, the court ruled that because the use was not accompanied by any public benefit or transformative purpose, the first factor cut against fair use.309F309 The second factor – nature of the copyrighted work – also cut against fair use because musical works command robust copyright protection.310F310

305 672 F. Supp. 2d 217 (D. Mass. 2009), rev’d, 660 F.3d 487 (1st Cir. 2011), cert. denied, 132 S. Ct. 2431 (2012).

306 Id. at 220.

307 Id. at 221.

308 Id. at 223-24.

309 Id. at 227-29.

310 Id. at 229.

- 93 -

The defendant argued that the third factor – portion of the work used – cut against the plaintiffs because he was alleged to have downloaded only individual songs, but not full albums, and it was the albums in which the plaintiffs registered their copyrights, while the individual songs were works made for hire. The court rejected this argument, noting that under existing file sharing case law, individual songs were regularly treated as the relevant unit for evaluating infringement and fair use of musical works.311F311

With respect to the fourth factor – effect on the potential market for the work – the defendant argued that his file sharing made little economic difference to the plaintiffs because the songs at issue were immensely popular and therefore widely available on file sharing networks. The court rejected this as an improper framework for the analysis. Rather, one must consider the effect on the market of the sum of activity if thousands of others were engaged in the same conduct. The plaintiffs had provided evidence that the widespread availability of free copies of copyrighted works on the Internet had decreased their sales revenue, and the defendant had offered no affidavits or expert report to disprove or dispute that evidence.312F312

The court’s opinion contains a few other interesting observations with respect to the doctrine of fair use as applied to file sharing. First, citing the case of American Geophysical Union v. Texaco Inc.,313F313 the court noted that a fair use determination may be affected by the availability or absence of authorized ways to obtain the work in question. The defendant asserted that the emergence of easy-to-use, paid outlets for digital music, such as the iTunes music store, had lagged well behind the advent of file sharing, and this fact should affect the fair use analysis. The court responded that, whatever the availability of authorized digital alternatives was when peer-to-peer networks first because widespread in 1999, it was clear that by August 2004 – when the defendant’s file sharing was detected – a commercial market for digital music had fully materialized. In light of that chronology, the unavailability of paid digital music was simply not relevant to the court’s application of the fair use doctrine.314F314

Although granting the plaintiffs’ motion for summary judgment on the defendant’s fair use defense, the court concluded with the following two interesting dicta:

– “[T]he Court does not believe the law is so monolithic, or the principles of fair use so narrow that they could not encompass some instances of file sharing copyrighted works. This Court, unlike others that have spoken on the subject, can envision a scenario in which a defendant sued for file sharing could assert a plausible fair use defense – for example, the defendant who ‘deleted the mp3 files after sampling them, or created mp3 files exclusively for space-shifting purposes from audio CDs they had previously purchased.’ (Berkman Center Br. at 36-37, document # 177-3.) The Court can also envision a fair use defense for a defendant who

311 Id. at 229-30.

312 Id. at 230-31.

313 60 F.3d 913, 931 (2d Cir. 1994).

314 Tenenbaum, 672 F. Supp. 2d at 235-36.

- 94 -

shared files during a period before the law concerning file sharing was clear and paid outlets were readily available. … A defendant who shared files online during this interregnum, sampling the new technology and its possibilities, but later shifted to paid outlets once the law because clear and authorized sources available, would present a strong case for fair use.”315F315

– “As this Court has previously noted, it is very, very concerned that there is a deep potential for injustice in the Copyright Act as it is currently written. It urges – no implores – Congress to amend the statute to reflect the realities of file sharing. There is something wrong with a law that routinely threatens teenagers and students with astronomical penalties for an activity whose implications they may not have fully understood. The injury to the copyright holder may be real, and even substantial, but, under the statute, the record companies do not even have to prove actual damage.”316F316

Following a trial, the jury found that Tenenbaum had willfully infringed the plaintiffs’ copyrights and imposed statutory damages of $22,500 per song, yielding a total award of $675,000.317F317 In response to the defendant’s motion for a new trial or remitter, the trial court held that an award of that size, given that Tenenbaum reaped no pecuniary reward from the infringement and the infringing acts caused the plaintiffs minimal harm, violated the due process clause of the Constitution as excessive. The court found the award to be far greater than necessary to serve the government’s legitimate interests in compensating copyright owners and deterring infringement and that, in fact, it bore no meaningful relationship to those objectives. Accordingly, the court reduced the jury’s award to one-tenth the amount, or $2,250 per infringed work (three times the statutory minimum), for a total award of $67,500. The court noted that such amount was still more than the court itself might have awarded in its independent judgment, but the amount was the greatest amount that the Constitution would permit given the facts of the case.318F318 The court also reaffirmed its previous ruling rejecting Tenenbaum’s fair use defense.319F319

On appeal, the First Circuit reversed, finding that the district court erred when it bypassed Tenenbaum’s remittitur arguments based on the excessiveness of statutory damages and reached the constitutional due process issue. The court noted that, under established precedent, a trial court’s reduction of compensatory damages must, to avoid Seventh Amendment error, allow the plaintiff a new trial. Punitive damage awards, by contrast, may be reduced on due process grounds without offering the plaintiff a new trial without running afoul of the Seventh Amendment. In bypassing remittitur and the offer of a new trial, the district court had assumed that statutory damage awards should be treated largely as punitive, not compensatory, awards for

315 Id. at 237-38.

316 Id. at 237.

317 Sony BMG Music Entertainment v. Tenenbaum, 721 F. Supp. 2d 85, 87 (D. Mass. 2010), rev’d, 660 F.3d 487, 514 (1st Cir. Sept. 16, 2011), cert. denied, 132 S. Ct. 2431 (2012).

318 Id. at 89-90.

319 Id. at 98-99.

- 95 -

Seventh Amendment purposes.320F320 But the First Circuit found that statutory damages have both a compensatory and punitive element, and further noted that the Supreme Court had ruled in the Feltner case321F321 that the Seventh Amendment provides a right to a jury trial on all issues pertinent to an award of copyright statutory damages. Given these important Seventh Amendment issues, the First Circuit held that the district court had erred in not ordering remittitur, which would have afforded a number of possible outcomes that could have eliminated the constitutional due process issue altogether, or at the very least materially reshaped it – e.g., by altering the amount of the award at issue or even the evidence on which to evaluate whether a particular award was excessive.322F322

The court also rejected the defendant’s argument that no statutory damages can be awarded where harm caused by the defendant has not been proved, and that statutory damages cannot be awarded unless reasonably related to actual damages.323F323 The court further rejected a number of challenges to the district court’s jury instructions, including a challenge to the instruction that willful infringement means that a defendant had knowledge that his actions constituted copyright infringement or acted with reckless disregard for the copyright holder’s rights. The First Circuit joined precedent from sister circuits that had unanimously and routinely found that an infringement is willful under Section 504 if it is knowing or in reckless disregard of the copyright holder’s rights.324F324

Accordingly, the court affirmed the finding of liability against Tenenbaum and the injunctive relief, but vacated the district court’s due process damages ruling and reversed the reduction of the jury’s statutory damages award. The court reinstated the jury’s award of damages and remanded for consideration of the defendant’s motion for common law remittitur based on excessiveness. If on remand, the district court allowed any reduction through remittitur, the First Circuit ruled that the plaintiffs must be given the choice of a new trial or acceptance of remittitur.325F325

On remand, the district court ruled there was no basis for common law remittitur of the award because it was not grossly excessive, inordinate, shocking to the conscience of the court, or so high that it would be a denial of justice to permit it to stand. Tenenbaum had personally received multiple warnings from various sources across several years about downloading and distributing copyrighted materials, including the fact that his activities could subject him to liability of up to $150,000 per infringement. There was thus ample evidence of willfulness on

320 Sony BMG Music Entertainment v. Tenenbaum, 660 F.3d 487, 514 (1st Cir. 2011), cert. denied, 132 S. Ct. 2431 (2012).

321 Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998).

322 Tenenbaum, 660 F.3d at 511, 514-15.

323 Id. at 502, 506.

324 Id. at 507.

325 Id. at 515.

- 96 -

his part and the need for deterrence based on his blatant contempt of warnings and apparent disregard for the consequences of his actions.326F326 Turning next to the legal principles set forth by the First Circuit for evaluating a due process challenge to the award, the court ruled that under the applicable standard – a statutory damages award comports with due process as long as it cannot be said to be so severe and oppressive as to be wholly disproportioned to the offense of obviously unreasonable – the award must withstand a due process challenge. The court concluded that, given the deference afforded Congress’ statutory award determination and the public harms it was designed to address, the particular behavior of Tenenbaum in the case, and the fact that the award was not only within the range for willful infringement but also below the limit for non-willful infringement, it could not be said that its amount was either wholly disproportioned to the offense or obviously unreasonable.327F327

On appeal, the First Circuit affirmed that the $675,000 statutory damages award did not violate due process, finding that the district court had applied the correct standard to judge the constitutionality of the award and reached the correct result for the reasons the district court had given.328F328

(d) Capitol Records v. Thomas-Rasset

The case of Capitol Records, Inc. v. Thomas-Rasset329F329 presented a factual situation very similar to that of the Tenenbaum case. Jammie Thomas-Rasset, an individual, was accused by several record companies of copyright infringement for downloading and distributing their copyrighted sound recordings through the Kazaa peer-to-peer filing sharing application. Three jury trials were conducted, each of which resulted in a finding of willful infringement. The first jury returned a statutory damages award of $9,250 per song for a total award of $222,000 based on the defendant’s distribution of 24 songs. The court vacated the verdict, however, and granted a new trial based on its conclusion that it had erred in giving a jury instruction which addressed the existence of a “making available” right. The second jury returned a statutory damages award of $80,000 per song for a total award of $1,920,000. Upon motion to set aside the award, the court ruled the award was shocking and unjust and remitted the award to $2,250 per song, or three times the statutory minimum – the same amount as the district judge used in the Tenenbaum case. The plaintiffs then exercised their right to reject remittitur and requested a new trial. The third jury returned a verdict awarding statutory damages in the amount of $62,500 for each song, for a total award of $1,500,000.330F330

326 Sony BMG Music Entertainment v. Tenenbaum, 2012 U.S. Dist. LEXIS 119243 at *6-10 (D. Mass. Aug. 23, 2012), aff’d, 719 F.3d 67 (1st Cir. 2013).

327 Id. at *14-18.

328 Sony BMG Music Entertainment v. Tenenbaum, 719 F.3d 67, 70-72 (1st Cir. 2013).

329 799 F. Supp. 2d 999 (D. Minn. 2011), rev’d, 692 F.3d 899 (8th Cir. 2012), cert. denied, 133 S. Ct. 1584 (2013).

330 Id. at 1002-03.

- 97 -

The defendant filed a motion to reduce the damages award on the ground that it violated the due process clause of the Constitution because it bore no reasonable relationship to the actual damages caused by the defendant. The court noted that, although in the past it had endeavored to avoid unnecessary adjudication of a constitution issue by relying upon remittitur, based on the plaintiffs’ demonstrated refusal to accept a remittitur and the fact that the defendant had not requested remittitur, the court felt it was required to address the constitutionality of the award. Reviewing the relevant legal authority governing the constitutionality of damage awards, the court concluded that, although the due process clause does not require that a statutory damages award be confined or proportioned to the plaintiff’s actual loss or damages, the award should bear some relation to the actual damages suffered. That was not the case here.331F331 “In the case of an individual, like Thomas-Rasset, who infringes by using peer-to-peer networks, the potential gain from infringement is access to free music to build a personal library, which could be purchased, at most, for thousands of dollars, not the possibility of hundreds of thousands – or even millions – of dollars in profits.”332F332

Finding a broad legal practice of establishing a treble award as the upper limit permitted in both statutory and common law contexts to address willful or particularly damaging behavior, the court concluded, with citation to the Tenenbaum case, that “in this particular case, involving a first-time willful, consumer infringer who committed illegal song file-sharing for her own personal use, $2,250 per song [three times the minimum statutory amount], for a total award of $54,000, is the maximum award consistent with due process.”333F333

After the court issued this ruling in the Thomas-Rasset case, the First Circuit reversed the Tenenbaum case, finding that the district court should not have reached the constitutional issues, but instead should have relied upon the mechanism of remittitur/new trial to address the size of the award. However, it should be noted that the procedural posture in which the district court issued its constitutional ruling in the Thomas-Rasset case, in which a previous rejection of remittitur and election of a new trial had taken place and the defendant had not requested remittitur again, was very different from the procedural posture in which the Tenenbaum court issued its ruling, where the court simply went directly to the constitutional issues in response to the defendant’s motion for remittitur or a new trial.

The court in the Thomas-Rasset case issued a permanent injunction prohibiting the defendant from infringing the plaintiffs’ copyrights, present or future, in any sound recording. The court rejected, however, the plaintiffs request that the court include language in the injunction barring the defendant from “making available” any of the plaintiffs’ sound recordings for distribution:334F334

331 Id. at 1003, *1007-08.

332 Id. at 1010.

333 Id. at 1013.

334 Id. at 1016.

- 98 -

Plaintiffs argue that, if Thomas-Rasset makes Plaintiffs’ copyrighted works available on a peer-to-peer network, she will have completed all of the steps necessary for her to engage in the same illegal distribution of Plaintiffs’ works for which she has already been found liable. Because the Court has held that the Copyright Act does not provide a making-available right, it will not enjoin Thomas-Rasset from making the copyrighted sound recordings available to the public.335F335

On appeal, the plaintiffs argued that the Eighth Circuit should reverse the district court’s order granting a new trial and reinstate the first jury’s award of $222,000. The plaintiffs also sought a broadened injunction that would forbid Thomas-Rasset from making their copyrighted sound recordings available for distribution. In summary, the Eighth Circuit held that the plaintiffs were entitled to the remedies they sought: damages of $222,000 and a broadened injunction that prohibited Thomas-Rasset to make available the plaintiffs’ sound recordings for distribution. However, because the verdicts returned by the second and third juries were sufficient to justify those remedies, the court found it unnecessary to consider the merits of the district court’s order granting a new trial after the first verdict. And although the court acknowledged the importance of the “making available” legal issue to the plaintiff recording companies, the court ruled that they were not entitled to an opinion on an issue of law that was unnecessary for the remedies sought or to a freestanding decision on whether Thomas-Rasset violated the law by making recordings available.336F336

On appeal, Thomas-Rasset lodged no objection to reinstatement of the first verdict, subject to arguments about the constitutionality of the size of the damages. She also offered to acquiesce in the entry of an injunction that would forbid her from making available copyrighted works for distribution, which would render moot the issue whether making works available is part of the distribution right of the copyright holder. In response, the Eighth Circuit observed that it reviews judgments, not decisions on issues. The entitlement of the plaintiffs to the remedies sought – damages of $222,000 and an injunction against making copyrighted works available to the public – were the matters in controversy. That the plaintiffs sought these remedies with the objective of securing a ruling on a particular legal issue did not make that legal issue itself the matter in controversy.337F337 “Once the requested remedies are ordered, the desire of the companies for an opinion on the meaning of the Copyright Act, or for a statement that Thomas-Rasset violated the law by making works available, is not sufficient to maintain an Article III case or controversy.”338F338

335 Id.

336 Capitol Records, Inc. v. Thomas-Rasset, 692 F.3d 899, 901-02 (8th Cir. 2012), cert. denied, 133 S. Ct. 1584 (2013).

337 Id. at 905.

338 Id. at 906.

- 99 -

With respect to the scope of the injunction that should have been issued, the Eighth Circuit noted that the district court’s refusal to enjoin the making available of the recordings was an error of law, even assuming that the district court was correct in concluding that the distribution right does not include a right of making available, because a district court has authority to issue a broad injunction in cases where a proclivity for unlawful conduct has been shown. Here, Thomas-Rasset’s willful infringement and subsequent efforts to conceal her actions showed such a proclivity. Accordingly, the district court erred after the third trial by concluding that the broader injunction requested by the plaintiffs was impermissible as a matter of law. An injunction against making recordings available was lawful and appropriate under the circumstances, even accepting the district court’s interpretation of the Copyright Act. Because Thomas-Rasset was not resisting expanding the injunction to include that relief, the Eighth Circuit directed the district court to modify the judgment to include the requested injunction.339F339

With respect to the question of damages, the Eighth Circuit ruled that the district court erred in reducing the third jury’s verdict to $2,250 per work, for a total of $54,000, on the ground that this amount was the maximum permitted by the Constitution. Under relevant Supreme Court authority, damages awarded pursuant to a statute violate due process only if they are so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable, and that was not the case here. The court noted that Congress set a statutory damages range for willful copyright infringement of $750 to $150,000 per infringed work, and the $222,000 sought was toward the lower end of that broad range. And it noted that the Supreme Court has rejected the notion that the constitutional inquiry calls for a comparison of an award of statutory damages to actual damages caused by the violation – because statutory damages are imposed as a punishment for the violation of a public law, Congress may adjust their amount to the public wrong rather than the private injury, just as if the award were going to the state. Accordingly, the Eighth Circuit concluded that the plaintiffs were entitled to the $222,000 award they sought, and the question whether the district court correctly granted a new trial after the first verdict was moot.340F340

7. The Immunity of the Audio Home Recording Act (AHRA)

The Audio Home Recording Act of 1992 (AHRA)341F341 made two major substantive changes to copyright law. First, Subchapter D of the AHRA (Section 1008) immunizes certain noncommercial recording and use of musical recordings in digital or analog form.342F342 Section 1008 provides:

339 Id. at 906-07.

340 Id. at 906, 907-10.

341 Pub. L. No. 102-563, 106 Stat. 4244 (1992), codified at 17 U.S.C. §§ 1001-1010.

342 Nimmer § 8B.01 (2000).

- 100 -

No action may be brought under this title alleging infringement of copyright343F343 based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.

Second, Subchapters B and C (Sections 1002-1007) of the AHRA require (i) that any “digital audio recording device” (DARD) conform to the “Serial Copyright Management System” (SCMS), which allows unlimited first generation copies of an original source, but prohibits second generation copies (i.e., copies of a copy), and (ii) that manufacturers and distributors of digital audio recording devices and digital audio recording media (such as DAT tape and recordable CDs) pay royalties and file various notices and statements to indicate payment of those royalties.344F344

(a) The Diamond Multimedia Case

The Ninth Circuit’s rulings with respect to the AHRA in Recording Indus. Ass’n of Am. v. Diamond Multimedia Sys.345F345 are discussed in Section III.C.2(c)(1) below in conjunction with the analysis of the Napster cases.

(b) The Napster Cases

For a discussion of the rulings with respect to the AHRA in the Napster cases, see Section III.C.2(c)(1) below.

In In re Aimster Copyright Litigation,346F346 the plaintiffs brought copyright infringement claims against the Aimster peer-to-peer file sharing site and its operators for secondary liability for the infringing distribution of the plaintiffs’ copyrighted sound recordings. On a motion for a preliminary injunction, the defendants asserted that the plaintiffs had failed to establish that Aimster’s users were engaged in direct copyright infringement because the AHRA provided an affirmative defense. The defendants argued that the AHRA shielded them from liability because it was intended to immunize from liability personal use of copyrighted material by protecting all

343 The immunity applies with respect to copyrights in both the sound recordings and any musical compositions embodied therein. Id. § 8B.07[C][2], at 8B-90.

344 Id. §§ 8B.02 & 8B.03 (2000).

345 180 F.3d 1072 (9th Cir. 1999).

346 252 F. Supp. 2d 634 (N.D. Ill. 2002), aff’d on other grounds, 334 F.3d 643 (7th Cir. 2003), cert. denied, 124 S. Ct. 1069 (2004).

- 101 -

noncommercial copying by consumers of digital and analog musical recordings, relying on the Ninth Circuit’s Diamond Multimedia case, discussed in Section III.C.2(c)(1) below.347F347

The court rejected the defendants’ reliance on the AHRA, distinguishing the Diamond Multimedia case as follows:

The facts of the instant case and Diamond Multimedia are markedly different. The activity at issue in the present case is the copying of MP3 files from one user’s hard drive onto the hard drive of another user. The Rio in Diamond Multimedia, by contrast, “merely [made] copies in order to render portable, or ‘space shift,’ those files that already reside on a user’s hard drive.” 180 F.3d at 1079. The difference is akin to a[n] owner of a compact disc making a copy of the music onto a tape for that owner’s sole use while away from home versus the owner making thousands of copies of the compact disk onto a tape for distribution to all of his friends. Furthermore, Diamond Multimedia had nothing whatsoever to do with whether the MP3 files on the owner’s computers themselves infringed copyrights. Rather, the decision was limited solely to the infringement issue regarding the act of shifting files from a computer to a personal device and whether that copying was subject to the particular requirements of the AHRA. In short, Defendant’s reliance on Diamond Multimedia is entirely misplaced.348F348

(d) Atlantic Recording Corp. v. XM Satellite Radio

In Atlantic Recording Corp. v. XM Satellite Radio, Inc.,349F349 numerous record companies sued XM Satellite Radio for contributory, vicarious and inducement copyright liability based on XM’s offering of digital radio broadcast services together with special receivers marketed as “XM + MP3” players that allowed subscribers to record, retain and library individually disaggregated and indexed audio files from XM broadcast performances. The record companies challenged these capabilities as an infringing “digital download delivery service.”350F350

XM offered several services specifically to XM + MP3 player users that were the subject of the plaintiff’s challenge. First, while listening to XM programming, an XM + MP3 user could instantly record any song at the touch of a button. To facilitate such recording, the XM + MP3 player maintained a short-term buffered copy of every broadcast song a user listened to. As a result, a user could record and store in its entirety any broadcast song he or she heard, even if the user started listening to the song after it began to play.351F351

347 Id. at 648-49.

348 Id. at 649.

349 2007 U.S. Dist. LEXIS 4290 (S.D.N.Y. Jan. 19, 2007).

350 Id. at *6.

351 Id. at *9.

- 102 -

Second, XM provided XM + MP3 users with playlists from blocks of broadcast programming which had been disaggregated into individual tracks. XM sent users such digital playlists with title and artist information included. The playlists identified all songs broadcast over a particular channel and during a particular period of time. Users could then scroll through a playlist and select which songs to store for future replay, and which to delete. Using this utility, users could hear and store individual songs without actually listening to XM broadcast programming.352F352

Third, XM provided to users a search function together with “ArtistSelect” and “TuneSelect” utilities that made it easy for a user to find out when a requested song was being broadcast. XM would send the listener immediate notice when his or her chosen artists or songs were played on any XM channel. The user could then immediately switch channels and store the requested track onto his or her XM + MP3 player.353F353

Fourth, the XM + MP3 players enabled users to store the approximate equivalent of 1,000 songs recorded from XM broadcasts for as long as the user maintained an XM subscription. Accordingly, the court found that these songs were effectively leased to the XM subscriber for as long as he or she maintained status as a subscriber.354F354

XM brought a motion to dismiss the copyright claims on the ground that it was shielded from infringement actions by Section 1008 of the AHRA because it was acting as a distributor of a digital audio recording device (DARD) immunized by the AHRA. The court first turned to whether the XM + MP3 players constituted a DARD. The plaintiffs argued that they did not, citing the Ninth Circuit’s decision in Recording Industry Ass’n of Am. v. Diamond Multimedia Sys.,355F355 which held that the Diamond Rio device at issue was not a DARD because it could not make copies from a transmission but instead could make copies only from a computer hard drive, which is exempted under Section 1001(5)(B) of the AHRA. The court distinguished the facts of the Diamond case, noting that the XM + MP3 players could receive from transmissions and were capable of copying without an external computer or computer hard drive.356F356 “Accordingly, at this stage of the proceeding, relying on plain meaning statutory interpretation and the definition of a DARD contained in Diamond, until proven otherwise by means of discovery, the Court treats the [XM + MP3 players] as DARDs.”357F357

The court next turned to whether the AHRA offered XM complete immunity from the plaintiffs’ copyright claims. XM argued that, because it was a distributor of DARDs, it did have

352 Id.

353 Id. at *9-10.

354 Id. at *10-11.

355 180 F.3d 1072 (9th Cir. 1999).

356 XM Satellite, 200 U.S. Dist. LEXIS 4290 at *14 n.4.

357 Id.

- 103 -

such immunity. The court rejected this argument, noting that, while Section 1008 would protect XM from suit for actions based on the distribution of DARDs, such protection would not act as a wholesale, blanket protection for other conduct that XM might be engaged in beyond such distribution. In particular, XM’s acts as a satellite radio broadcaster could form a separate basis for copyright liability. Indeed, the plaintiffs’ complaint made clear that their claims of copyright infringement were based on XM’s acting without authorization as a commercial content delivery provider that delivered permanent digital copies of sound recordings to those devices without permission from the copyright owner.358F358

More specifically, the plaintiffs alleged that, in providing services specific to users of XM + MP3 players, XM was acting outside the scope of its statutory license for broadcast service under Section 114 of the copyright statute – XM’s only source of permission to use the plaintiffs’ recordings. Such unauthorized acts, according to the plaintiffs, were encroaching directly on their digital download business.359F359 The court agreed, finding that by broadcasting and storing copyrighted music on DARDs for later recording by the consumer, XM was acting as a both a broadcaster and a distributor, but was paying license fees only to be a broadcaster.360F360

XM argued that its XM + MP3 player was much like a traditional radio/cassette player and should therefore not be viewed as an improper adjunct to broadcasts. The court rejected this analogy, noting that, in the case of traditional radio/cassette players, the only contact between manufacturers of the devices and users occurred at the point of sale. The court found it quite apparent that the use of a radio/cassette player to record songs played over free radio did not threaten the market for copyrighted works as would the use of a recorder which stores songs from private radio broadcasts on a subscription fee basis. The court further noted that, although XM subscribers might put XM + MP3 players to private use, several court decisions had rejected attempts by for profit users to stand in the shoes of their customers making non-profit or noncommercial uses.361F361

The court therefore denied XM’s motion to dismiss: “The Court finds that because of the unique circumstances of XM being both a broadcaster and a DARD distributor and its access to the copyrighted music results from its license to broadcast only, that the alleged conduct of XM in making that music available for consumers to record well beyond the time when broadcast, in violation of its broadcast license, is the basis of the Complaint, and being a distributor of a DARD is not. Thus the AHRA, on these facts, provides no protection to XM merely because they are distributors of a DARD.”362F362

358 Id. at *16-18.

359 Id. at *19.

360 Id. at *20.

361 Id. at *21-22.

362 Id. at *23-24.

- 104 -

8. Fair Use Cases

(a) Fox News v. TVEyes

In Fox News Network, LLC v. TVEyes, Inc.,363F363 the defendant TVEyes operated a media-monitoring service that enabled its subscribers to track when keywords or phrases of interest were uttered on the television or radio. To do this, TVEyes recorded the content of more than 1,400 television and radio stations, twenty-four hours a day, seven days a week. Using closed captions and speech-to-text technology, TVEyes recorded the entire content of television and radio broadcasts and created a searchable database of that content. The database allowed its subscribers, who included the United States Army, the White House, numerous members of the U.S. Congress, and local and state police departments, to track the news coverage of particular events. For example, police departments used TVEyes to track television coverage of public safety messages across different stations and locations, and to adjust outreach efforts accordingly.364F364

Upon logging into its TVEyes account, a subscriber would be taken to the Watch List Page, which monitored all of the subscriber’s desired keywords and terms, and organized search results by day, tabulating the total number of times the keyword was mentioned by all 1,400 television and radio stations each day over a 32-day period. While on the Watch List Page, a user could also run a “Google News” search, comparing the mentions of the keyword or term on the Internet with the mentions of the keyword or term on the TVEyes database. A subscriber could also create a custom time range to tabulate the number of times a term had been used in a certain time period, and the relative frequency of such use compared to other terms. Subscribers could set up email alerts for specific keywords or terms, and receive responses one to five minutes after the keyword or term was mentioned on any of the 1,400 television and radio stations TVEyes monitored. TVEyes’ responses to subscribers provided a thumbnail image of the show, a snippet of transcript, and a short video clip beginning 14 seconds before the word was used.365F365

When a subscriber on the Watch List Page clicked on the hyperlink showing the number of times the term was mentioned on a particular day, the subscriber was brought to the Results List Page, which displayed each mention of the keyword or term in reverse chronological order. Each individual result included a portion of transcript highlighting the keyword and a thumbnail image of the particular show that used the term. When the user clicked the thumbnail image of the show, the video clip began to play automatically alongside the transcript on the Transcript Page, beginning 14 seconds before the keyword was mentioned. TVEyes also features a Power Search tool that allowed users to run ad-hoc keyword search queries,; clicking the thumbnail image would bring the user to the clip’s corresponding Transcript Page. Subscribers could save,

363 2014 U.S. Dist. LEXIS 126138 (S.D.N.Y. Sept. 9, 2014).

364 Id.at *2-3.

365 Id. at *4.

- 105 -

archive, edit, and download to their personal computers an unlimited number of clips generated by their searches. The clips were limited to ten minutes, and a majority of the clips were shorter than two minutes. All subscribers were required to sign a contractual limitation in a User Agreement, limiting use of downloaded clips to internal purposes. TVEyes had recently added a feature that would block a user from trying to play more than 25 minutes of sequential content from a single station. TVEyes enabled subscribes to email a clip from its web site to anyone, whether or not a TVEyes subscriber. When a recipient clicked on the hyperlink, the viewer was directed to TVEyes’ web site, not to the content owner’s web site, and could watch the video content in high definition.366F366

Fox News brought an action for copyright infringement to enjoin TVEyes from copying and distributing clips of Fox News programs and for damages. TVEyes asserted that its use of Fox News material constituted fair use, and both parties moved for summary judgment. The court ruled that TVEyes’ use of Fox News’ content was fair use, with exceptions noted with respect to certain questions of fact, and denied Fox News’ request for an injunction.367F367

The court found that the first fair use factor (purpose and character of the use) favored TVEyes because its service was transformative. The indexing and collecting of visual and audio images provided by the service allowed subscriber to categorize, not only content in response to key search words, but also information that might be just as valuable to subscribers as the content, since a speaker’s demeanor, tone, and cadence could often elucidate his or her true beliefs far beyond what a stale transcript or summary could show. Unlike the indexing and excerpting of news articles, where the printed word conveys the same meaning no matter the forum or medium in which it is viewed, the TVEyes service was transformative because it enabled its subscribers to gain access not only to the news that was presented, but to the presentations themselves, as colored, processed, and criticized by commentators, and as abridged, modified, and enlarged by news broadcasts. TVEyes had created a database of otherwise unavailable content – it was the only service that created a database of everything that television channels broadcast, twenty-four hours a day, seven days a week – and made that content searchable.368F368

The court found the second factor (nature of the copyrighted work) weighed neither for nor against fair use because, where (as here) the creative aspect of the works copied is transformed, the second factor has limited value. The third factor (amount and substantiality of the portion used in relation to the whole) also weighed neither for nor against fair use. The court noted that, where copying the entire work is necessary to accomplish the transformative function or purpose, as was the case here, the third factor must bow to the importance and priority of the first factor’s finding of transformative use. Finally, the court found that the fourth factor (economic harm to the value of the work) did not weigh against a finding of fair use in view of

366 Id. at *5-9.

367 Id. at *1-2.

368 Id. at *27-28.

- 106 -

the de minimis nature of any possible competition to Fox News when compared to the substantial public service that TVEyes provided. The court found that the facts did not support Fox News’ speculation that TVEyes’ users actually used TVEyes as a substitute for Fox News’ channels in view of the fact that TVEyes erased content every 32 days and in a typical month, fewer than 1% of TVEyes’ users played a video clip that resulted from a keyword search of its watch terms and the average play time for a video clip was 41 seconds. The court also rejected Fox News’ argument that TVEyes impaired the derivative market for video clips of copyrighted content with syndication partners like YouTube and with Fox News’ exclusive licensing agents. Fox News was unable to provide the identity of any customers lost by its partners or licensing agents. The court also noted that Fox News’ entire revenue from the derivative sources, between July 1, 2012 and June 30, 2012, was $459,290, a very small fraction of its overall revenue. Thus, any small market harm to Fox News that might occur was outweighed by the public benefit arising from the TVEyes service.369F369

Accordingly, the court found that TVEyes’ copying of Fox News’ broadcast content for indexing and clipping services to its subscribers constituted fair use. However, the court noted that it was not deciding the issue of fair use for the full extent of TVEyes’ service. In particular, the parties had not provided sufficient evidence showing that the service’s capability to allow subscribers to save, archive, download, email and share clips of Fox News’ television programs was integral to the transformative purpose of indexing and providing clips and snippets of transcript to subscribers. Similarly, neither party was entitled to summary judgment on the issue of whether the date and time search function, allowing subscribes to search for television clips by date and time instead of by keyword or term, was integral to the transformative purpose of TVEyes and its defense of fair use. The factual record therefore needed to be developed further before the court could decide whether those uses constituted fair use.370F370

In November, 2015, DirecTV and TVEyes reached a settlement of their dispute, including an agreement in which DirecTV agreed to drop a new lawsuit accusing TVEyes of violating federal communications laws – a case that TVEyes claimed was merely an end run around the ruling that it was protected by the fair use defense. Under the settlement, TVEyes agreed to an injunction barring it from using DirecTV as a source of content. No financial details of the settlement were disclosed in public filings.371F371

B. The Right of Public Performance

Section 106 (4) of the copyright statute grants the owner of copyright in a work the exclusive right to perform the work publicly. The right applies to literary, musical, dramatic, and choreographic works, pantomimes, motion pictures and other audiovisual works. It does not

369 Id. at *31-40.

370 Id. at *42-43.

371 Bill Donahue, “DirecTV Settles Fight Against TVEyes,” Law360 (Nov. 25, 2015), available as of Dec. 1, 2015 at http://www.law360.com/articles/731529.

- 107 -

apply to pictorial, graphic, sculptural, and architectural works. It also does not apply to sound recordings, other than with respect to public performances by digital transmission,372F372 although a public performance of a sound recording may infringe the right of public performance of the underlying musical work that is recorded in the sound recording.

Section 101 provides that to perform a work “publicly” means:

(1) to perform ... it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance ... of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

Because this definition encompasses transmissions of works, it clearly implicates online activity. However, to fall within the public performance right, there must be a transmission of a performance of the work, not merely of the work itself. Thus, for example, transmission of the digitally encoded sounds of a musical work to the hard disk of a recipient computer may infringe the right of distribution of the work (as well as the reproduction right), but not the public performance right, because the work is not being performed373F373 at the recipient’s end.

1. Isochronous Versus Asynchronous Transmissions

One of the most hotly debated issues concerning the scope of the public performance right in online contexts is whether, to fall within the copyright owner’s right of public performance, the “performance” must be accomplished by a transmitted signal that is capable of immediate conversion to a performance moment-by-moment in time (referred to as an “isochronous transmission”), or whether it is sufficient that the transmitted signal is sent either

372 The Digital Performance Right in Sound Recordings Act of 1995 created a limited public digital performance right in sound recordings as of February 1, 1996. Pub. L. No. 104-39, 109 Stat. 336 (codified at 17 U.S.C. §§ 106, 114, 115). Certain transmissions of performances are exempt. The exemptions do not apply, however, to an “interactive” service, which the copyright statute defines as a service “one that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording, whether or not as part of a program, which is selected by or on behalf of the recipient.” 17 U.S.C. §§ 114(d)(1), 114(j)(7).

373 The copyright statute provides that “[t]o ‘perform’ a work means to recite, render, play, dance, or act it, either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequence or to make the sounds accompanying it audible.” 17 U.S.C. § 101.

- 108 -

faster or slower (overall or moment-by-moment) than the embodied performance (referred to as an “asynchronous transmission”).374F374

The definition of performing a work publicly in Section 101 of the copyright statute was drafted at a time when “transmissions” were generally isochronous transmissions, as in broadcasting. If this definition is read to require an isochronous transmission – and to date all of the types of transmissions that courts have held to be public performances have been isochronous transmissions375F375 – then many acts of downloading of works on the Internet (being asynchronous transmissions), even if followed by in-home playback, may not fall within the public performance right. The issue is far from settled, however, and performing rights societies have argued to the contrary.376F376 The issue is particularly significant for musical works because different organizations are often responsible for licensing and collecting royalties for public distribution and public performance of musical works.

Even if an isochronous transmission is required for a public performance, the distinction between isochronous and asynchronous transmissions becomes highly blurred on the Internet. Because the Internet is based on packet switching technology, all transmissions through the Internet are in some sense “asynchronous.” Moreover, through use of buffering in memory or storage of information on magnetic or optical storage, either at the transmitting or the receiving end or both, of all or parts of transmitted data, even an asynchronous transmission can effect a smooth, moment-by-moment performance at the receiving end.

One can argue that the determinative factor of whether a public performance has been accomplished should be judged from the perspective of what the recipient perceives, not the transmission technology used (whether isochronous or asynchronous), especially if the transmitting party controls when and what the recipient sees. For example, the Senate Report accompanying the Digital Performance Right in Sound Recordings Act of 1995 suggests that burst transmissions for prompt playback may constitute public performances:

[I]f a transmission system was designed to allow transmission recipients to hear sound recordings substantially at the time of transmission, but the sound recording was transmitted in a high-speed burst of data and stored in a computer memory for prompt playback (such storage being technically the making of a phonorecord), and the transmission recipient could not retain the phonorecord for playback on subsequent occasions (or for any other purpose), delivering the phonorecord to the transmission recipient would be incidental to the transmission.377F377

374 K. Stuckey, Internet and Online Law § 6.08[4][b], at 6-59 – 6-60 (2013).

375 Id. at 6-64.

376 Id.

377 S. Rep. No. 104-128, at 39 (1995), reprinted in 1995 U.S.C.C.A.N. 356, 386.

- 109 -

2. The Meaning of “Publicly”

Section 106 (4) grants the exclusive right to perform a work “publicly.” Section 101 defines performing a work “publicly” to include performance by transmission to an audience that may receive the transmission at different times, at different places, or both. Thus, the mere fact that recipients may download performances of a work at dispersed times on demand through the Internet does not diminish the “public” nature of such performances. For example, in On Command Video Corp. v. Columbia Pictures Industries, Inc.,378F378 the court held that the public performance right was implicated by a system of video cassette players wired to hotel rooms which was capable of transmitting guest-selected movies to the occupants of one room at a time.

In sum, the breadth of definition of “public” performances makes a variety of online transmissions of “on demand” information potentially within the public performance right. How contemporaneously the playback of that information must be with the transmission in order for there to be deemed a “performance” under current United States law remains to be seen. The WIPO treaties could render many of these issues largely academic in view of the fact that the current public performance right could become subsumed in the potentially broader right of “communication to the public” or “making available to the public” contained in the WIPO treaties discussed below. However, as discussed further below, the implementation of the WIPO treaties in the DMCA takes a minimalist approach and does not adopt separate rights of “communication to the public” or “making available to the public.” Accordingly, the noted uncertainties with respect to the right of public performance are likely to await further clarification through judicial development.

3. Live Nation Motor Sports v. Davis

In Live Nation Motor Sports, Inc. v. Davis,379F379 the plaintiff promoted and produced motorcycle racing events and streamed webcasts of the events on its web site. Although the facts are unclear from the court’s opinion, the defendant provided links to the plaintiff’s web site that enabled users of the defendant’s web site to view the webcasts from the defendant’s web site. The plaintiff sought a preliminary injunction against the defendant, arguing that the defendant’s links to the plaintiff’s web site constituted an unauthorized display and performance of the plaintiff’s copyrighted broadcasts.380F380

The court granted a preliminary injunction enjoining the defendant from providing Internet links to the plaintiff’s webcasts of its racing events or otherwise displaying or performing the plaintiff’s webcasts.381F381 With almost no analysis, the court ruled that the plaintiff had a likelihood of success on its copyright claim because “the unauthorized ‘link’ to the live

378 777 F. Supp. 787 (N.D. Cal. 1991).

379 2006 U.S. Dist. LEXIS 89552 (N.D. Tex. Dec. 11, 2006).

380 Id. at *3-4.

381 Id. at *18.

- 110 -

webcasts that [the defendant] provides on his website would likely qualify as a copied display or performance of [the plaintiff’s] copyrightable material.”382F382 The court found a threat of irreparable harm to the plaintiff because the defendant’s links would cause the plaintiff to lose its ability to sell sponsorships or advertisements on the basis that its website was the exclusive source of the webcasts.383F383

Although the unclear facts of this case make its reach uncertain, it could potentially imply that any unauthorized link that causes material available on another site to be streamed through an unauthorized site could constitute an infringing public display or performance.

4. United States v. ASCAP

In United States v. ASCAP,384F384 the district court ruled that the downloading of a digital music file embodying a particular song does not constitute a public performance of that song. The case arose out of an application that Yahoo, RealNetworks and AOL made to ASCAP for a license to publicly perform the musical works of the ASCAP repertoire by means of their respective Internet services. After the parties were unable to agree on a licensing fee, ASCAP applied to the court for a determination of a reasonable fee. The parties cross-moved for partial summary judgment on the issue of whether downloading a digital music file embodying a song constitutes a public performance of the song.385F385

The court noted that the copyright statute provides that, to “perform” a work means to “recite,” “render,” or “play” it, and the plain meanings of each of those terms require contemporaneous perceptibility. Accordingly, the court concluded that for a song to be “performed,” it must be transmitted in a manner designed for contemporaneous perception. The downloading of a music file is more accurately characterized as a method of reproducing that file, rather than performing it.386F386 The court also noted that its interpretation was consistent with the Copyright Office’s position in its 2001 DMCA Section 104 Report to Congress, in which the

382 Id. at *12.

383 Id. at *15.

384 485 F. Supp. 2d 438 (S.D.N.Y. 2007), aff’d, 627 F.3d 64 (2d Cir. 2010), cert. denied, 181 L.Ed.2d 232 (Oct. 3, 2011).

385 Id. at 440-41. The applicants conceded that the streaming of a musical work does constitute a public performance. Id. at 442.

386 Id. at 443-44. The court also found this interpretation consistent with the holdings of those courts that have addressed downloading of music over the Internet using peer-to-peer file transfer programs. For example, the court cited the holding in Maverick Recording Co. v. Goldshteyn, 2006 U.S. Dist. LEXIS 52422 at *8 (E.D.N.Y. July 31, 2006) (“Downloading and uploading copyrighted files from a peer-to-peer network constitutes, respectively, reproducing and distributing copyrighted material in violation of 17 U.S.C. § 106.”) (emphasis added). ASCAP, 2007 U.S. Dist. LEXIS 31910 at *14.

- 111 -

Copyright Office stated that “we do not endorse the proposition that a digital download constitutes a public performance even when no contemporaneous performance takes place.”387F387

On appeal, the Second Circuit affirmed this ruling.388F388 The Second Circuit agreed with the district court that the ordinary sense of the words “recite,” “render,” and “play” refer to actions that can be perceived contemporaneously. Downloaded songs are not performed in any perceptible manner during the transfers – the user must take some further action to play the songs after download. Because the electronic download itself involves no recitation, rendering, or playing of the musical work encoded in the digital transmission, the court held that such a download is not a performance of that work.389F389

The Second Circuit rejected ASCAP’s argument that all downloads fall under clause (2) of the definition of “perform or display a work ‘publicly’” in Section 101390F390 because downloads “transmit or otherwise communicate a performance,” namely the initial or underlying performance of the copyrighted work, to the public. The Second Circuit cited its 2008 ruling in Cartoon Network (discussed in the next subsection) that, when the statute speaks of transmitting a performance to the public, it refers to the performance created by the act of transmission, not simply to transmitting a recording of a performance. ASCAP’s alternative interpretation was flawed because, in disaggregating the “transmission” from the simultaneous “performance” and treating the transmission itself as a performance, ASCAP rendered superfluous the subsequent “a performance … of the work” as the object of the transmittal. Cartoon Network recognized that a “transmittal of a work” is distinct from a transmittal of “a performance” – the former being a transmittal of the underlying work and the latter being a transmittal that is itself a performance of the underlying work. Accordingly, the court ruled that transmittal without a performance does not constitute a “public performance.”391F391

5. The Cablevision Case

In The Cartoon Network LP v. CSC Holdings, Inc.392F392 the Second Circuit ruled on whether the playback through Cablevision’s network of copies of cable programs stored on its servers at the instance of its customers as part of its “Remote Storage” Digital Video Recorder (RS-DVR) system constituted unauthorized public performances of the stored works. The

387 Id. at 444 (quoting U.S. Copyright Office, Digital Millennium Copyright Act Section 104 Report to the United States Congress at xxvii-xxviii (Aug. 29, 2001)).

388 United States v. ASCAP, 627 F.3d 64 (2d Cir. 2010), cert. denied, 181 L.Ed.2d 232 (Oct. 3, 2011).

389 Id. at 73.

390 That clause provides that to “perform or display a work “publicly” means “(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.” 17 U.S.C. § 101.

391 ASCAP, 627 F.3d at 73-74.

392 536 F.3d 121(2d Cir. 2008), cert. denied sub nom. CNN, Inc. v. CSC Holdings, Inc., 557 U.S. 946 (2009).

- 112 -

detailed facts of how the RS-DVR system worked are set forth in Section II.A.4(n) above. Cablevision argued that the transmissions generated in response to customer requests for playback of programs stored on its network servers by customers did not constitute public performances because the RS-DVR customer, not Cablevision, invoked the transmitting and thus the performing, and the transmissions were not “to the public.”393F393

The court ruled that it need not address Cablevision’s first argument because, even if the court were to assume that Cablevision made the transmissions when RS-DVR playbacks occurred, the RS-DVR playbacks did not involve the transmission of a performance “to the public.” The court began its analysis by noting that the second, or “transmit,” clause of the definition of public performance applies “whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.”394F394 The court observed, “The fact that the statute says ‘capable of receiving the performance,’ instead of ‘capable of receiving the transmission,’ underscores the fact that a transmission of a performance is itself a performance.”395F395

The Second Circuit therefore focused on who was “capable of receiving” performances through playbacks via the RS-DVR system. Cablevision argued that, because each RS-DVR transmission was made using a single unique copy of a work, made by an individual subscriber, one that could be decoded exclusively by that subscriber’s cable box, only one subscriber was capable of receiving any given RS-DVR transmission. By contrast, the district court had suggested that, in considering whether a transmission was “to the public,” one should consider not the potential audience of a particular transmission, but the potential audience of the underlying work whose content was being transmitted. The Second Circuit ruled that the district court’s approach was inconsistent with the language of the transmit clause, which speaks of persons capable of receiving a particular “transmission” or “performance,” and not of the potential audience of a particular “work.”396F396

On appeal, the plaintiffs presented a slightly different argument, insisting that the same original performance of a work was being transmitted to Cablevision’s various subscribers at different times upon request. The court noted that the implication of the plaintiffs’ argument was that, to determine whether a given transmission of a performance was to the public, one should consider not only the potential audience of that transmission, but also the potential audience of any transmission of the same underlying “original” performance. The court rejected this argument, noting that it would obviate any possibility of a purely private transmission.397F397

393 Id. at 134.

394 Id.

395 Id.

396 Id. at 135.

397 Id. at 135-36.

- 113 -

We do not believe Congress intended such odd results. Although the transmit clause is not a model of clarity, we believe that when Congress speaks of transmitting a performance to the public, it refers to the performance created by the act of transmission. Thus, HBO transmits its own performance of a work when it transmits to Cablevision, and Cablevision transmits its own performance of the same work when it retransmits the feed from HBO.398F398

Accordingly, the Second Circuit concluded that a court must look downstream, rather than upstream or laterally, to determine whether any link in a chain of transmissions made by a party constitutes a public performance, and should not examine the potential recipients of the content provider’s initial transmission to determine who was capable of receiving the RS-DVR playback transmission. Because the RS-DVR system, as designed, made transmissions only to one subscriber using a copy made by that particular subscriber, the court concluded that the universe of people capable of receiving an RS-DVR transmission was the single subscriber whose self-made copy was used to the create the transmission, and the transmissions through the RS-DVR system were therefore not public performances.399F399 The court cautioned, however, that its holding “does not generally permit content delivery networks to avoid all copyright liability by making copies of each item of content and associating one unique copy with each subscriber to the network, or by giving their subscribers the capacity to make their own individual copies. We do not address whether such a network operator would be able to escape any other form of copyright liability, such as liability for unauthorized reproductions or liability for contributory infringement.”400F400

6. Ringtones – In re Application of Cellco Partnership

In In re Application of Cellco Partnership d/b/a Verizon Wireless,401F401 the court ruled that the sale of ringtones by Verizon to its cell phone customers did not require payment to ASCAP for a public performance license for the musical works embodied in the ringtones. ASCAP argued that Verizon engaged in public performances of the musical works when it downloaded ringtones to its customers. It also argued that Verizon was both directly and secondarily liable for public performances of musical works when its customers played ringtones on their telephones upon incoming calls.402F402

398 Id. at 136.

399 Id. at 137, 139. “If the owner of a copyright believes he is injured by a particular transmission of a performance of his work, he may be able to seek redress not only for the infringing transmission, but also for the underlying copying that facilitated the transmission. Given this interplay between the various rights in this context, it seems quite consistent with the Act to treat a transmission made using Copy A as distinct from one made using Copy B, just as we would treat a transmission made by Cablevision as distinct from an otherwise identical transmission made by Comcast.” Id. at 138.

400 Id. at 139.

401 663 F. Supp. 2d 363 (S.D.N.Y. 2009).

402 Id. at 368.

- 114 -

The court rejected both these arguments. As to the first, citing the Cablevision case discussed in the previous subsection, the court ruled that, because only one subscriber was capable of receiving a particular transmission of a ringtone during download, such transmission was not itself made to the “public,” regardless of whether a download could be considered a transmission of a “performance” of the musical works in the ringtone.403F403 The court did note that, “[w]here a transmission is of a digital file rather than a performance that can be contemporaneously observed or heard, and where that transmission is but a link in a chain to a downstream public performance, it may be that the transmission is not an act of infringement for which the transmitter is directly liable under § 106(4), but rather an act that may subject the transmitter to contributory liability under § 106(4) for the infringement created by any ultimate public performance.”404F404 That could not be the case here, however, because the court concluded that there was no qualifying public performance under § 106(4) when the customer used the ringtone upon an incoming call.

Specifically, the court ruled that, when a ringtone plays on a cellular telephone, even when that occurs in public, the user is exempt from copyright liability under Section 110(4) of the copyright statute, which exempts any “performance of a nondramatic literary or musical work otherwise than in a transmission to the public, without any purpose of direct or indirect commercial advantage and without payment of any fee or other compensation for the performance to any of its performers, promoters, or organizers, if [] there is no direct or indirect admission charge.”405F405 The court held that on occasions when Verizon customers had activated their ringtones and the telephones rang in the presence of members of the public at a level where it could be heard by others, such playing of the musical works embodied in the ringtones satisfied all of the requirements of the §110(4) exemption: Verizon customers were not playing the ringtones for any commercial advantage, they did not get paid any fee or compensation for those performances, and they did not charge admission. Accordingly, there was no non-exempt public performance by the users of the ringtones to which Verizon could be secondarily liable.406F406

The court also rejected ASCAP’s argument that Verizon was directly liable for itself engaging in a public performance of copyrighted musical works when ringtones played in public on customers’ cell phones because it controlled the entire series of steps that allowed and triggered the cellular telephone to perform the musical works in public. The court noted that Verizon’s only role in the playing of a ringtone was the sending of a signal to alert a customer’s telephone to an incoming call, and that signal was the same whether the customer had

403 Id. at 371.

404 Id. at 374 n.14.

405 Id. at 374 (quoting 17 U.S.C. § 110(4)).

406 Id. at 375. Nor, in order to avoid secondary liability, was Verizon obligated to show that each and every customer would be able to meet its burden of proof that its performance of ringtones in public satisfied the § 110(4) exemption. “The law does not impose an insurmountable burden on Verizon to show precisely how each of its customers has actually used her telephone, but only requires it to demonstrate that customers as a group do not exhibit any expectation of profit when they permit the telephones to ring in public.” Id. at 376.

- 115 -

downloaded a ringtone or not, whether she had set the phone to play a ringtone upon receiving a call or not, whether she was in a public setting or not, and whether she had the ringtone volume turned high or low. And it was the caller, not Verizon, who initiated the entire process that led to the playing of the ringtone. Accordingly, Verizon did not engage in activity constituting direct liability, even if the ringing of its customers’ phones in public constituted public performances.407F407

7. Arista Records v. Myxer

In Arista Records LLC v. Myxer Inc.,408F408 the defendant Myxer operated a website that enabled registered users to upload recorded music to the site and then, through the use of Myxer’s software, to transcode the music into a format to create and download ringtones. Users could make ringtones they had created available for download to other users. In addition to uploading and downloading ringtones, Myxer users could play portions of any of the sound recordings on Myxer’s site. Users could also select a sound recording on Myxer’s site and share it on certain third party websites such as Facebook. Finally, users could select a sound recording on Myxer’s site, often a full-length recording, and “Customize It” (using editing tools provided by Myxer) by selecting a desired start and stop point for a ringtone. UMG Records, a competitor in the ringtone market, contended that, by storing copies of UMG’s sound recordings on its servers, allowing users to download copies of its sound recordings to users’ cell phones, and allowing users to preview its sound recordings on either the Myxer site or on users’ cell phones, Myxer was a direct infringer of UMG’s reproduction, distribution and digital public performance rights.409F409

In a footnote, the court noted that Myxer correctly argued that downloading ringtones to one’s personal cell phone is not a public performance. Agreeing with the reasoning of the In re Application of Cellco case, the court ruled that the act of downloading and then playing ringtones so as to alert the individual of an incoming call does not violate the exclusive right of public performance because it is not a “public” performance.410F410

8. Warner Bros. v. WTV Systems

In Warner Bros. Entertainment Inc. v. WTV Systems,411F411 the defendants offered a DVD “rental” service called “Zediva” that allowed customers to view streams from DVDs in DVD players hosted on the defendants’ premises. To operate the service, the defendants purchased hundreds of DVD players and installed them in cabinets at a data center they leased in Santa Clara, California. The defendants also purchased copies of the plaintiffs’ copyrighted works on

407 Id. at 376-79.

408 2011 U.S. Dist. LEXIS 109668 (C.D. Cal. Apr. 1, 2011).

409 Id. at *2, 15-18.

410 Id. at *37 n.16.

411 824 F. Supp. 2d 1003 (C.D. Cal. 2011).

- 116 -

DVD and placed those DVDs in their DVD players for selection by their customers. Each DVD remained in its respective DVD player while it was transmitted to the defendants’ customers on multiple occasions.412F412

When a customer requested a particular work, the defendants, through their Zediva service, started the play process on a particular DVD player holding the requested work, converted the analog video signal from the DVD player into a digital signal using a video adapter, fed the digital signal into a DVD control server that converted the digital signal to a form suitable for streaming across the Internet, converted the digital signal to a format that could be viewed in the player created by the defendants and used on their web site, transmitted the performance via the Internet to the customer, and provided the customer with a custom viewer necessary to view the video stream. To begin the process, the customer clicked on a virtual button on the defendants’ web site. Customers were unable to access all the other features available on a particular DVD, such as deleted and extra scenes, or other special DVD features. The defendants maintained exclusive control of their servers, and the customers had no control whatsoever over the various servers that the defendants used to direct traffic among their stacks of DVD players.413F413

The defendants described the Zediva service as allowing customers to “rent” a particular DVD and DVD player for 14 days. However, customers did not have access to or control over a specific DVD or DVD player. Instead, the defendants streamed the content of the DVD to a customer for a maximum period of four hours, provided that the customer did not pause it for more than one hour during that time. After four hours of total “rental” time or an hour-long pause, whichever occurred first, the defendants used the DVD player containing the same DVD to transmit the work to a different customer. When the first customer made a request to resume viewing, the transmission might be sent from a different DVD or a different DVD player than the one originally used to transmit in the earlier “rental” period. According to the defendants’ web site, if all of the copies of a particular work were “rented out” when a customer wanted to view the work, the customer could request to be notified, via email, when it became available.414F414

The plaintiffs claimed that the Zediva service infringed their rights of public performance and sought a preliminary injunction, which the court determined the plaintiffs were entitled to. Turning to whether the streams constituted public performances, the court noted that the definition of “public performance” in Section 106(4) is comprised of two clauses: (1) the “public place” clause, which states that a performance is public if it occurs at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; and (2) the “transmit” clause, which states that a performance is public if someone transmits or otherwise communicates the performance to a place specified by the public place clause, or to “the public,” whether the members of the public

412 Id. at 1006-07.

413 Id. at 1007 & n.2.

414 Id. at 1007.

- 117 -

capable of receiving the performance receive it in the same place or in separate places and at the same time or at different times.415F415

The defendants argued that their service offered “DVD rentals” rather than transmissions of performances. The court rejected this argument, analogizing to On Command Video Corp. v. Columbia Pictures Industries,416F416 which held that transmissions of movies from a central console of VCRs (each VCR containing a copy of a particular movie) in a hotel to private guest rooms did not constitute “electronic rentals” similar to guests’ physical borrowing of videotapes, but rather constituted transmissions of performances under the transmit clause of Section 106(4). In On Command, the fact that hotel guests initiated the transmission by turning on the television and choosing a video was immaterial. The court ruled that, as in On Command, the Zediva service fell under the transmit clause because it transmitted performances by communicating the images and sounds of the movies through the use of a device or process (the defendants’ equipment, servers and the Internet) from its central bank of DVD players to individual customer’s computers, where the images and sounds were received beyond the place from which they were sent. And as in On Command, the fact that Zediva’s customers initiated the transmission by turning on their computers and choosing which of the works they wished to view was immaterial to the legal analysis.417F417

The court further ruled that the transmissions of the Zediva service were “to the public” for purposes of the transmit clause “because the relationship between Defendants, as the transmitter of the performance, and the audience, which in this case consists of their customers, is a commercial, ‘public’ relationship regardless of where the viewing takes place. The non-public nature of the place of the performance has no bearing on whether or not those who enjoy the performance constitute ‘the public’ under the transmit clause.”418F418

The court rejected the defendants’ argument that their performances were not “to the public” in view of the Cartoon Network (Cablevision) case discussed in Section II.B.5 above. Under Cartoon Network, the Second Circuit found that the transmissions were not “to the public” because each RS-DVR playback transmission was made to a single subscriber using a single unique copy produced by that subscriber. By contrast, in this case, the defendants’ customers did not produce their own unique copy of the plaintiffs’ copyrighted works. Instead, like On Command, the same DVD was used over and over again to transmit performance of the works, which destroyed the one-to-one relationship on which the Cartoon Network decision depended for its finding that the transmissions were not to the public.419F419

415 Id. at 1008-09.

416 777 F. Supp. 787, 789-90 (N.D. Cal. 1991).

417 WTV Systems, 824 F. Supp. 2d at 1009-10.

418 Id. at 1010.

419 Id. at 1011 n.7.

- 118 -

The court also rejected the defendants’ argument that it should adopt the Second Circuit’s volitional requirement for direct copyright infringement liability. The court found that no Ninth Circuit case had adopted the volitional conduct requirement and that, in view of the fact that copyright infringement is a strict liability offense, the court was not inclined to adopt the volitional conduct requirement without clear instruction from the Ninth Circuit.420F420 Finally, the court rejected the defendants’ reliance on Professional Real Estate Investors, Inc.,421F421 which involved a service provided by a hotel that rented videodiscs to its guests, who carried the discs to their rooms to watch them on in-room videodisc players. The Ninth Circuit found that because the performances at issue took place in a guest’s private hotel room, the performances were not “in public,” and the performances were not transmissions under the transmit clause because the guests carried the discs to their rooms, rather than the hotel transmitting a performance to the room from a central bank of players. The Ninth Circuit stated, however, that a closed circuit system similar to the one described in On Command would fall squarely within the transmit clause. Accordingly, the district court found that the Professional Real Estate case supported the court’s finding of infringement.422F422

In concluding that the plaintiffs were entitled to a preliminary injunction, the court noted the following forms of irreparable harm: because the defendants were exploiting the plaintiffs copyrighted works without paying the normal licensing fees, they were depriving the plaintiffs of revenue and jeopardizing the continued existence of the plaintiffs’ licensees’ businesses; the Zediva service threatened the development of a successful and lawful video-on-demand market and, in particular, the growing Internet-based video-on-demand market; the presence of the Zediva service in the market threatened to confuse consumers about video-on-demand products, and to create incorrect but lasting impressions with consumers about what constitutes lawful video-on-demand exploitation of copyrighted works; and the Zediva service threatened the development of a successful and lawful video-on-demand market by offering a sub-optimal customer experience (the defendants admitted they had received complaints about the quality of their service and that a lot of times customers would receive a notice that a particular copyrighted work was temporarily “out of stock” because all DVD players containing that particular work were in use).423F423

The case settled in October 2011, with Zediva agreeing to pay $1.8 million to six major movie studios and to cease showing their movies without permission.424F424

420 Id.

421 866 F.2d 278 (9th Cir. 1989).

422 WTV Systems, 824 F. Supp. 2d at 1011.

423 Id. at 1013-14. The court required the defendants to post a bond of $50,000 as a condition to issuance of the preliminary injunction. Id. at 1015.

424 Melissa Lipman, “DVD Streaming Co. Settles Movie Studios’ IP Suit For $2M,” Law360 (Oct. 28, 2011), available as of Aug. 3, 2012 at http://www.law360.com/articles/281603.

- 119 -

9. Capitol Records v. MP3tunes

For analysis of this case’s rulings with respect to infringement of public performance rights against the operator of a music “locker” service, see Section III.C.6(b)(1)(iii).s below.

10. American Broadcasting v. Aereo

The District Court Decision

The widely followed case of American Broadcasting Cos. v. Aereo, Inc.425F425 applied the logic of the Cablevision case, discussed in detail in Section II.B.5 above, to adjudicate important issues of the scope of the public performance right. The plaintiffs sought a preliminary injunction to stop Aereo from offering a private streaming service that allowed its users to access live copyrighted content over the Internet through various mobile devices such as PCs, laptops, smartphones, and tablet computers. The plaintiffs’ motion for a preliminary injunction was limited in scope, challenging only the aspects of Aereo’s service that allowed subscribers to view the plaintiffs’ copyrighted television programs contemporaneously with the over-the-air broadcast of those programs.426F426

Aereo’s service worked as follows. A user of Aereo’s system, after logging into his account on Aereo’s web site, could navigate through a programming guide to select television programs currently being aired or that would be aired at a later time. If the user selected a program that was currently being aired, the user was given two options, “Watch” and “Record.” Selecting “Watch” caused Aereo’s system to transmit a web page to the user in which the program started after a short delay, allowing the user to view the program “live,” i.e., roughly contemporaneous with its over-the-air broadcast. If the user pressed the “Record” button after having begun watching a program using the “Watch” feature, the Aereo system retained the copy that the user had been watching. If “Record” was not selected, the copy was not retained and could not be viewed again later.427F427

Instead of selecting the “Watch” function at the outset, the user could press the “Record” button to schedule a recording of a program that would be broadcast at a later time or that was currently being aired. However, the “Record” feature could also be used, like the “Watch” feature, to view programs live – users could direct Aereo’s system to begin a recording and then immediately begin playback of the recording as it was being made.428F428

The technology that implemented the service, which was designed specifically to take advantage of the reasoning of the Cablevision case, consisted of a large bank of individual

425 874 F. Supp. 2d 373 (S.D.N.Y. 2012), aff’d sub nom. WNET v. Aereo, Inc., 712 F.3d 676 (2d Cir. 2013), rev’d sub nom. American Broadcasting Co. v. Aereo, Inc., 134 S. Ct. 2498, 2504 (2014).

426 Id. at 375.

427 Id. at 377.

428 Id.

- 120 -

antennas that could be “assigned” individually to specific users who wanted to watch or record a program. Specifically, when a user clicked on the “Watch” button, the user’s web browser sent a request to Aereo’s Application Server, which in turn sent a request and certain information about the user and the requested television program to Aereo’s Antenna Server. The Antenna Server allocated resources to the user, including an antenna and transcoder, depending on whether the user was a “static” or “dynamic” user, a distinction based on the user’s subscription plan with Aereo. Static users had a set of previously selected antennas that had been assigned to them, whereas dynamic users, who were the vast majority of Aereo’s subscribers, were randomly assigned an antenna each time they used Aereo’s system. No two users were assigned a single antenna at the same time. The data obtained by a particular antenna while allocated to a particular user was not shared with or accessible by any other Aereo use. 429F429

Once these resources were allocated, the Antenna Server sent a “tune” request that directed the user’s antenna to tune into a particular broadcast frequency band to obtain the desired program. The Antenna Server also sent a request to the Streaming Server that created a unique directory, assigned to the user, for storing the output data received by the antennas and processed by the transcoder. Once that directory was created, an electrical signal was sent from the antenna, processed and converted into data packets, and then sent to the transcoder, which encoded it in a form to be transmitted over the Internet. The encoded data was sent to the Streaming Server, where it was saved on a hard disk to a file in the previously created directory and, once saved, was read from that file into a RAM memory buffer that sent the data to the user over the Internet once a sufficient amount of data (at least six or seven seconds of programming) had accumulated. Essentially the same process occurred when the user engaged the “Record” function, the only substantial difference between the “Watch” and “Record” functions being that when a user engaged the “Record” function, the file saved to the hard disk was tagged as permanent and automatically retained, whereas the file saved using the “Watch” function was not automatically retained unless the user clicked “Record” while the show was still open on the user’s web browser.430F430

The plaintiffs moved for a preliminary injunction. The district court noted that the only significant factual dispute for purposes of that motion concerned the operation of Aereo’s antennas. Aereo contended that each of its antennas functioned separately to receive the incoming broadcast signals. The plaintiffs asserted that Aereo’s antennas functioned collectively as a single antenna, because the individual antennas were packed so closely together on a board that they in effect had a shared metallic substructure which appeared to the incoming signals as one continuous piece of metal. After extensive review of the conflicting testimony of the parties’ experts, the court determined that, based on the evidence at that stage of the proceedings, Aereo’s antennas did indeed function independently – a crucial fact for applicability of the Cablevision case to the facts at hand.431F431

429 Id. at 377-78.

430 Id. at 378-79.

431 Id. at 379-81.

- 121 -

The district court then turned to the first element of establishing entitlement to a preliminary injunction – likelihood of success on the merits. Aereo argued that Cablevision applied to its system because, like the RS-DVR system in Cablevision, its system created unique, user-requested copies that were transmitted only to the particular user that created them, and the performances were thus not public. The plaintiffs distinguished Cablevision on its facts, arguing that because Aereo’s subscribers were watching the programs as they were still being broadcast, they were not using the copies Aereo created for time shifting purposes, and those copies therefore did not “break the chain” of the over-the air transmission received by Aereo. Thus, the plaintiffs contended, Aereo was engaged in a public performance that emanated from the original broadcast signal itself, much like a community antenna which simply passes along a broadcast signal the public. Stated differently, the plaintiffs argued that the stored copies of the signals made by Aereo should be viewed as merely facilitating the transmission of a single master copy – in this case, the broadcast signal – rather than as copies from which a distinct transmission was made.432F432

The court agreed with Aereo’s characterization of its system and rejected the plaintiffs’ attempts to distinguish Cablevision. With respect to the copies created by Aereo’s system, the court found that they were not mere facilitating copies, but rather were no less materially significant to how the system functioned than the copies created in Cablevision’s system. First, Aereo’s system created a unique copy of each television program for each subscriber who requested to watch that program, saved to a unique directory on Aereo’s hard disks assigned to that user. Second, each transmission that Aereo’s system ultimately made to a subscriber was from that unique copy. Third, the transmission of the unique copy was made solely to the subscriber who requested it and no other subscriber was capable of accessing that copy. The court held that these factual similarities of Aereo’s service to the Cablevision system suggested that Aereo’s service fell within the core of what Cablevision held lawful. The court also ruled the fact that Aereo’s users could “share” resource like antennas by using them at different times did not affect the analysis, as it remained clear that the copies Aereo’s system made were unique for each user and not shared.433F433

The court found other similarities to Cablevision as well. An undercurrent in the Second Circuit’s reasoning in Cablevision was that the Cablevision system merely allowed subscribers to enjoy a service that could also be accomplished using any standard DVR or VCR. Similarly, Aereo’s functionality substantially mirrored that available using devices such as a DVR or a Slingbox,434F434 which allow users to access free, over-the-air broadcast television on mobile

432 Id. at 385.

433 Id. at 385-86 & n.7.

434 A Slingbox, when connected to a user’s television in the home, digitized the received signals, including live broadcast television, and allowed them to be streamed over the Internet to the user’s personal mobile devices. Id. at 377. The district court noted, “Plaintiffs do not appear to contend in this litigation that services such as Slingbox are unlawful, instead claiming that they are ‘irrelevant’ and that Aereo’s service is distinguishable because Slingbox consumers themselves set up the Slingbox in their homes.” Id.

- 122 -

Internet devices of their choosing.435F435 Moreover, the court found that the analysis the Second Circuit undertook in finding that the performance to the user was made from the copies stored in the Cablevision system rather than from, for example, the incoming stream of data, was equally applicable here. Specifically, Cablevision held that a public performance does not occur merely because a number of people are transmitted the same television program. Nor was the Second Circuit willing to accept the argument that, notwithstanding its creation of unique copies, Cablevision was actually transmitting to its users the performance of that work that occurred when the programming service supplying Cablevision’s content transmitted that content to Cablevision. In fact, the Second Circuit expressly refused to look back to the received signal to judge whether Cablevision was engaged in a public performance. The district court therefore observed that, given that each antenna in Aereo’s system functioned independently, in at least one respect the Aereo system presented a stronger case than Cablevision for attaching significance to the copies made because, unlike Cablevision in which multiple copies were all created from a single stream of data, each copy made by Aereo’s system was created from a separate stream of data.436F436

The district court also rejected the plaintiffs’ attempt to distinguish Cablevision on the ground that Cablevision addressed only copies used for time shifting. The court noted that nowhere in Cablevision did the Second Circuit articulate a requirement that the copies be used for time shifting in order to “break the chain” of transmission from the original broadcaster to the end user. Rather, the Second Circuit’s analysis of the public performance claim was entirely directed toward explaining why the copies created by the system in Cablevision were significant and resulted in performances to a limited, non-public audience. Nor did anything in Cablevision turn on the times at which individuals received their transmissions.437F437

Finally, the court rejected the plaintiffs’ suggestion that Cablevision addressed only transmissions using the same medium as the initial broadcast that were made to the same device and to the same place as the initial transmission. Although points of distinction from Cablevision, the court found no reason to believe that they had any material bearing on who was

435 Id. at 386.

436 Id. at 386-87.

437 Id. at 387-90. The court found the plaintiffs’ argument that “complete” time shifting should be required to fit within the contours of Cablevision even less persuasive, as the argument was no longer tied to the rationale that time shifting is required to “break the chain” of the original transmission. For example, an Aereo user who began watching a recording of the Academy Awards, initially broadcast at 6:00 p.m., one minute before the program ended at 11:00 p.m. would not have engaged in complete time shifting, although the chain of transmission would certainly have been “broken” across the nearly five hours of recording before viewing commenced. The court found that the plaintiffs had not provided an argument as to why a user who began watching a recording of a program one minute (or five minutes, or ten minutes) before the broadcast ended was part of a public performance but a user who began watching a minute after the program ended was not. Id. at 393-94.

- 123 -

“capable of receiving” a particular transmission or whether Aereo “breaks the chain” of transmission.438F438

Accordingly, the court concluded that the plaintiffs were unlikely to succeed on the merits of their public performance claim.439F439 The court, however, issued some words of caution about the scope of its decision. First, the court made clear that it did not accept Aereo’s position that the creation of any fixed copy from which a transmission is made always defeats a claim for a violation of the public performance right, because such position would eviscerate the transmit clause given the ease of making reproductions before transmitting digital data. Nor did the court need to resolve Aereo’s argument that its antennas, standing alone, defeated the plaintiffs’ claims that it was engaged in a public performance. Instead, the court merely pointed out that it had found Aereo’s use of single antennas to reinforce its conclusion that the copies created by Aereo’s system were unique and accessible only to a particular user, as they indicated that the copies were created using wholly distinct signal paths. Because the copies were created from a signal received independently by each antenna, in order to find a “master” copy that was arguably being transmitted, the court would have been required, contrary to Cablevision, to look back to the incoming over-the-air signal rather than simply an earlier step in Aereo’s process. Aereo’s antennas thus reinforced the significance of the copies its system created and aided the court in finding that Aereo did not create mere facilitating copies.440F440

As such, the Court’s holding that Plaintiffs have not demonstrated a likelihood of success is limited. There may be cases in which copies are purely facilitory, such as true buffer copies or copies that serve no function whatsoever other than to pass along a clearly identifiable “master” copy from which the transmission is made. These facts, however, are not before the Court today.441F441

Turning to the other elements for a preliminary injunction, the district court found that the plaintiffs had demonstrated they would suffer irreparable harm because Aereo would damage their ability to negotiate with advertisers by siphoning viewers from traditional distribution channels, in which viewership is measured by Nielsen ratings, into Aereo’s service which is not measured by Nielsen, artificially lowering those ratings. Similarly, by poaching viewers from cable or other companies that license the plaintiffs’ content, Aereo’s activities would damage the plaintiffs’ ability to negotiate retransmission agreements, as those companies would demand

438 Id. at 394.

439 In view of its conclusion that the plaintiffs had failed to demonstrate they were likely to succeed in establishing that Aereo’s system resulted in a public performance, the court found it need not reach the issue of whether Aereo also could escape liability because it was the consumer, not Aereo, who made the transmissions that the plaintiffs complained of. Id. at 396.

440 Id. at 396.

441 Id.

- 124 -

concessions from the plaintiffs to make up for the decrease in viewership. Aereo’s service would also harm the plaintiffs’ streaming of their content on their own web sites.442F442

With respect to the balance of hardships, the court found that the balance did not tip decidedly in favor of the plaintiffs. The harm to Aereo of a preliminary injunction would be substantial, as it had sufficient capital to continue operations for just six to seven months, after which it would likely shut down absent investment of further capital. An injunction was also likely to cause Aereo to lose employees and damage its ability to attract investors to obtain new capital, and to diminish its competitive advantage in launching a unique and innovative product. Having concluded that Aereo’s service was likely lawful, the court ruled that it could not disregard the harms to Aereo that an injunction would cause by assuming its business was founded on infringement.443F443

In sum, the district court concluded that because it could not accept the plaintiffs’ attempts to distinguish Cablevision, the plaintiffs had not shown a likelihood of success on the merits. And although they had demonstrated they faced irreparable harm, they had not demonstrated that the balance of hardships decidedly tipped in their favor. Accordingly, the court denied the motion for a preliminary injunction.444F444

The Second Circuit Decision

On appeal, the Second Circuit affirmed.445F445 The majority opinion began by reviewing the Second Circuit’s interpretation of the transmit clause in Cablevision and noted several key aspects of that interpretation. First, the phrase “capable of receiving the performance” in the transmit clause refers not to the performance of the underlying work being transmitted but rather to the transmission itself, since the transmission of a performance is itself a performance. Second, the transmit clause directs courts to consider the potential audience of only the performance created by the act of transmission. Third, following an interpretation of the transmit clause first advanced by Professor Nimmer, whether a transmission originates from a distinct or shared copy is relevant to the transmit clause because the use of a unique copy may limit the potential audience of a transmission and thus whether that transmission is made to the public.446F446

The court noted that the preceding summary of Cablevision’s interpretation of the transmit clause established “four guideposts that determine the outcome of this appeal”:

442 Id. at 397-99.

443 Id. at 402-03.

444 Id. at 404.

445 WNET v. Aereo, Inc., 712 F.3d 676 (2d Cir. 2013), rev’d sub nom. American Broadcasting Co. v. Aereo, Inc., 134 S. Ct. 2498, 2504 (2014). Judge Chin filed a lengthy dissent. The plaintiffs did not appeal the district court’s factual finding that Aereo’s antennas operated independently, which was the only relevant fact on which the parties disagreed. Id. at 680.

446 Id. at 687-88.

- 125 -

First and most important, the Transmit Clause directs courts to consider the potential audience of the individual transmission. … Second and following from the first, private transmissions – that is those not capable of being received by the public – should not be aggregated. … Third, there is an exception to this no-aggregation rule when private transmissions are generated from the same copy of the work. In such cases, these private transmissions should be aggregated, and if these aggregated transmissions from a single copy enable the public to view that copy, the transmissions are public performances. … Fourth and finally, “any factor that limits the potential audience of a transmission is relevant” to the Transmit Clause analysis.447F447

Applying these guideposts to the present case, the court found the key facts pertaining to application of the transmit clause to be the same as in Cablevision. Specifically, when an Aereo user elected to invoke the Watch or Record features, Aereo’s system created a unique copy of that program on a portion of a hard drive assigned only to that Aereo user. And when an Aereo user chose to watch the recorded program, the transmission sent by Aereo and received by that user was generated from that unique copy. Thus, just as in Cablevision, the potential audience of each Aereo transmission was the single user who requested that a program be recorded.448F448

The court rejected a number of arguments put forth by the plaintiffs to distinguish Cablevision. First, the plaintiffs noted that in Cablevision the defendant had a license to transmit programming in the first instance when it first aired the programs, and no such license existed here. The court rejected this, noting that Cablevision did not hold that Cablevision’s RS-DVR transmissions were licensed public performances, but rather they were not public performances at all, so no license was needed to make them, whether or not a license was required to first air the programs to the public.449F449

Second, the plaintiffs argued that discrete transmissions should be aggregated to determine whether they are public performances. Because Aereo’s discrete transmissions enabled members of the public to receive the same performance (i.e., Aereo’s retransmission of a program), they were transmissions made to the public. The court noted that this was nothing more than the Cablevision plaintiffs’ interpretation of the transmit clause, as it equated Aereo’s transmissions with the original broadcast made by the over-the-air network rather than treating Aereo’s transmissions as independent performances. That approach had been explicitly rejected by the Cablevision court. The plaintiffs also argued that the Copyright Act requires all of Aereo’s discrete transmissions be aggregated and viewed collectively as constituting a public performance. The plaintiffs argued this was not contrary to Cablevision, because Cablevision held only that transmissions of the same performance or work made by different entities should not be aggregated, but discrete transmissions of the same performance or work made by the same

447 Id. at 689 (citations omitted).

448 Id. at 690.

449 Id.

- 126 -

entity should be aggregated to determine whether a public performance has occurred. The court rejected this argument because it required a reading of the transmit clause contrary to that adopted by Cablevision by focusing on the potential audience of the performance or work being transmitted, not the potential audience of the particular transmission.450F450

Third, the plaintiffs argued that Cablevision was based on an analogy to a typical VCR, with the RS-DVR simply an upstream version, but Aereo’s system was more analogous to a cable television provider. The court responded that, while it was true that the Cablevision court did compare the RS-DVR system to the stand-alone VCR, those comparisons occurred in the section of the opinion discussing Cablevision’s potential liability for infringing the plaintiffs’ reproduction right. No part of Cablevision’s analysis of the public performance right, however, seemed to have been influenced by any analogy to the stand-alone VCR.451F451

Fourth, the plaintiffs argued that Cablevision’s RS-DVR copies broke the continuous chain of retransmission to the public in a way that Aereo’s copies did not. Specifically, Aereo’s copies were merely a device by which Aereo enabled its users to watch nearly live TV, while Cablevision’s copies, by contrast, could serve only as the source for a transmission of a program after the original transmission, i.e. the live broadcast of the program, had finished. The court rejected this argument for two reasons. First, Aereo’s copies did have the legal significance ascribed to the RS-DVR copies in Cablevision because the user exercised the same control over their playback. Such volitional control over how the copy was played made Aereo’s hard disk copies unlike the temporary buffer copies generated incident to Internet streaming only after the user had selected the program to watch. Second, the plaintiffs’ argument failed to account for Aereo’s user-specific antennas. Each user-associated copy of a program created by Aereo’s system was generated from a unique antenna assigned only to the user who requested that the copy be made. The feed from that antenna was not used to generate multiple copies of each program for different Aereo users but rather only one copy – the copy that could be watched by the user to whom that antenna was assigned, and only that user.452F452

Finally, the plaintiffs argued that holding that Aereo’s transmissions are not public performances would exalt form over substance, because the Aereo system was functionally equivalent to a cable television provider. The court noted that the same was likely true of Cablevision, which created separate user-associated copies of each recorded program for its RS-DVR system instead of using more efficient shared copies because transmissions generated from the latter would likely be found to infringe copyright holders’ public performance right. The court acknowledged that perhaps the application of the transmit clause should focus less on the

450 Id. at 690-91.

451 Id. at 691.

452 Id. at 692-93.

- 127 -

technical details of a particular system and more on its functionality, but the Second Circuit’s decision in Cablevision held that technical architecture matters.453F453

The majority opinion made one final point with respect to stare decisis, observing that, though presented as efforts to distinguish Cablevision, the plaintiffs’ arguments were really ones to overrule Cablevision. After noting that one panel could not overrule a prior decision of another panel, the court went on to observe that stare decisis was particularly warranted here in view of the substantial reliance on Cablevision, pointing to many media and technology companies that had relied on Cablevision as an authoritative interpretation of the transmit clause. One interesting example the court pointed to was cloud media services that allow their users to store music on remote hard drives and stream it to Internet-connected devices, which apparently had been designed to comply with Cablevision.454F454

Accordingly, the court ruled that Aereo’s transmission of unique copies of broadcast television programs created at its users’ requests and transmitted while the programs were still airing on broadcast television were not public performances under Cablevision, and affirmed the district court’s denial of a preliminary injunction.455F455

The Supreme Court Decision

The Supreme Court granted a petition for certiorari and reversed. Writing for a 6-3 majority, Justice Breyer noted that the case required the Court to answer two questions – whether Aereo “performs” the petitioners’ works at all, and if so, whether it does so “publicly.” 456F456

Turning to the first question, the Court first reviewed the history that led Congress to amend the copyright statute to bring the activities of community antenna television (CATV) systems (precursors of cable systems) within the scope of the copyright holder’s public performance right. The Court had held in its 1968 decision in Fortnightly that a service provider did not “perform” copyrighted works by placing antennas on hills above cities and using coaxial cables to carry the signals to the home television sets of subscribers because, unlike broadcasters, the service provider did not select the programs to be viewed, but rather simply delivered the programs received to additional viewers.457F457 And it had extended the logic of Fortnightly in its 1974 decision in Teleprompter to conclude that a CATV provider that carried broadcast television programming into subscribers’ homes from hundreds of miles away was still acting more like a viewer than a broadcaster and therefore did not “perform.” The choice of which

453 Id. at 693-94.

454 Id. at 695 & n.19.

455 Id. at 696.

456 American Broadcasting Co. v. Aereo, Inc., 134 S. Ct. 2498, 2504 (2014).

457 Id. at 2504-05 (citing Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390, 498-400 (1968)).

- 128 -

broadcast stations to retransmit by the CATV provider was not sufficient to make the provider a broadcaster.458F458

In response to these two decisions, Congress amended the copyright statute in 1976 in large part to reject the Court’s holdings in Fortnightly and Teleprompter. The amendments clarified that to “perform” an audiovisual work means to show its images in any sequence or to make the sounds accompanying it audible, and under this definition, the Court noted, both the broadcaster and the viewer of a television program “perform,” because they both show the program’s images and make audible the program’s sounds. Congress also added the transmit clause to broaden the definition of public performances to include transmissions of a performance to the public. Accordingly, the transmit clause made clear that an entity that acts like a CATV system itself performs, even if when doing so it simply enhances viewers’ ability to receive broadcast television signals.459F459

The Court found this history to make it clear that Aereo was not simply an equipment provider. Rather, because Aereo’s activities were substantially similar to those of the CATV companies that Congress amended the copyright statute to reach, Aereo, and not just its subscribers, “performed” the works transmitted through its system. The Court recognized that a particular difference between Aereo’s system and the CATV systems at issue in Fortnightly and Teleprompter was that the latter systems sent continuous programming to each subscriber’s television set. In contrast, Aereo’s system remained inert until a subscriber indicated a desire to watch a program, and only at that moment, in automatic response to the subscriber’s request, did Aereo’s system active an antenna and begin to transmit the requested program. However, the Court nevertheless concluded that, given Aereo’s “overwhelming likeness” to the cable companies targeted by the 1976 amendments, this sole technological difference between Aereo and traditional cable companies should not make a critical difference.460F460

Drawing an analogy, the Court noted that subscribers in Fortnightly and Teleprompter could select what programs they wished to view by simply turning the knob on their television sets.

[In Aereo’s system], the signals pursue their ordinary course of travel through the universe until today’s “turn of the knob” – a click on a website – activates machinery that intercepts and reroutes them to Aereo’s subscribers over the Internet. But this difference means nothing to the subscriber. It means nothing to the broadcaster. We do not see how this single difference, invisible to subscriber and broadcaster alike, could transform a system that is for all practical purposes a

458 Aereo, 134 S. Ct. at 2505 (citing Teleprompter Corp. v. Columbia Broadcasting Sys., 415 U.S. 394, 408-10 (1974)).

459 Aereo, 134 S. Ct. at 2505-06.

460 Id. at 2506-07.

- 129 -

traditional cable system into “a copy shop that provides its patrons with a library card.”461F461

A dissenting opinion, filed by Justice Scalia and joined by Justices Thomas and Alito, strongly objected to the holding that Aereo itself “performed” the petitioners’ works. The dissent argued that the petitioners’ claim for direct infringement was governed by a simple but profoundly important rule – a defendant may be held directly liable only if it has engaged in volitional conduct that violates the copyright statute. The dissent noted that every Court of Appeals to have considered an automated service provider’s direct liability for copyright infringement had adopted the volitional conduct rule, and further noted that, although the Court itself had not opined on the issue, its cases were fully consistent with a volitional conduct requirement. Under the volitional conduct rule, in the dissent’s view, Aereo could not have direct liability. Unlike video-on-demand services, Aereo did not provide a prearranged assortment of movies and television shows. Rather, subscribers were entirely in control of what particular content was transmitted to them.462F462 “In sum, Aereo does not ‘perform’ for the sole and simple reason that it does not make the choice of content. And because Aereo does not perform, it cannot be held directly liable for infringing the [petitioners’] public-performance right.”463F463

The dissent expressed concern that the majority’s “looks like cable TV” rule would greatly disrupt settled jurisprudence that previously applied a straightforward, bright-line test of volitional conduct directed at the copyrighted work. If that test was not outcome determinative in this case, presumably it would not be outcome determinative in other cases involving technological systems acting in automated responses to subscribers’ directives. The dissent also found it unclear what the majority was proposing to replace the bright-line test.464F464 “Perhaps the Court means to adopt (invent, really) a two-tier version of the Copyright Act, one part of which applies to ‘cable companies and their equivalents’ while the other governs everyone else.”465F465 Nor, in the dissent’s view, had the majority provided any criteria for determining when its cable-TV-lookalike rule would apply.466F466 The dissent therefore concluded, “It will take years, perhaps decades, to determine which automated systems now in existence are governed by the traditional volitional-conduct test and which get the Aereo treatment.”467F467

461 Id. at 2507 (quoting the dissent’s opinion analogizing Aereo to a copy shop that provides its patrons with a library card).

462 Id. at 2512-14 (Justice Scalia, dissenting).

463 Id. at 2514.

464 Id. at 2516.

465 Id.

466 Id.

467 Id. at 2517.

- 130 -

It is unclear from the majority opinion whether the dissent’s reading of it to reject the volitional conduct rule is correct. The majority opinion does not mention the volitional conduct rule by name at all, nor cite any of the Court of Appeals decisions cited by the dissent that have adopted the rule. Certainly the majority did not apply that rule to dispose of the case, as the dissent would have. However, the majority opinion made the following statement, which seems in substance to leave open the possibility that the volitional conduct rule might apply in other cases of automated systems or functions that do not bear an “overwhelming likeness” to a cable television system: “In other cases involving different kinds of service or technology providers, a user’s involvement in the operation of the provider’s equipment and selection of the content transmitted may well bear on whether the provider performs within the meaning of the Act.”468F468

Turning to the second question to be decided – whether Aereo was performing the petitioners’ copyrighted works “publicly” – the majority concluded that it was. The parties disagreed concerning what performance Aereo transmitted. Petitioners argued that Aereo transmitted a prior performance of their works (the original broadcast performance), whereas Aereo argued that the performance it transmitted was the new performance created by its act of transmitting. The Court did not resolve this question, assuming arguendo that Aereo was correct. Under this assumption, Aereo transmitted a performance whenever its subscribers watched a program. Aereo argued that, because each transmission was to only one subscriber, those transmissions were not to the public. The court rejected this argument, first on policy grounds, again finding Aereo’s system indistinguishable from cable systems, which do perform publicly. Viewed in terms of Congress’ regulatory objectives in the 1976 amendments, the Court found that the technological differences in Aereo’s system should not matter. Such differences did not render Aereo’s commercial objective any different from that of cable companies. Nor did they alter the viewing experience of Aereo’s subscribers. And if Aereo were correct, modern cable systems would be able simply to substitute new technologies similar to Aereo and continue their same commercial and consumer-oriented activities free of copyright restrictions.469F469

In addition, focusing on the text of the transmit clause, the Court noted that Aereo’s argument relied on the premise that “to transmit … a performance” means to make a single transmission. But the Court found that the transmit clause suggests that an entity may transmit a performance through multiple, discrete transmissions.470F470 “That is because one can ‘transmit’ or ‘communicate’ something through a set of actions.”471F471 The Court observed that the fact that a singular noun (“a performance”) follows the words “to transmit” does not suggest the contrary, because one can sing a song to his family, whether he sings the same song one-on-one or in front

468 Id. at 2507 (majority opinion).

469 Id. at 2508-09.

470 Id. at 2509.

471 Id. (emphasis in the original).

- 131 -

of all together. By the same principle, an entity may transmit a performance through one or several transmissions, where the performance is of the same work.472F472 Said the Court:

The Transmit Clause must permit this interpretation, for it provides that one may transmit a performance to the public “whether the members of the public capable of receiving the performance … receive it … at the same time or at different times.” §101. Were the words “to transmit … a performance” limited to a single act of communication, members of the public could not receive the performance “at different times.” Therefore, in light of the purpose and text of the Clause, we conclude that when an entity communicates the same contemporaneously perceptible images and sounds to multiple people, it transmits a performance to them regardless of the number of discrete communications it makes.473F473

The Court found it not relevant that Aereo transmitted via personal copies of programs, because the statute applies to transmissions “by means of any device or process.” The Court observed that whether Aereo transmitted from the same or separate copies, it performed the same work, it showed the same images and made audible the same sounds. The Court therefore concluded that when Aereo streamed the same television program to multiple subscribers, it transmitted a performance to all of them, and those subscribers constituted members of the “public” because they consisted of a large group of people outside of a family and friends.474F474

Aereo and many of its amici express concern that applying the transmit clause to Aereo’s conduct would impose copyright liability on other existing or new technologies, such as storage lockers and cloud computing, that Congress could not possibly have wanted to reach. In response, the majority went somewhat out of its way to reassure that its holding was intended to be specific to Aereo’s system and would not necessarily reach other technologies, by making the following statements:

-- “[A]n entity that transmits a performance to individuals in their capacities as owners or possessors does not perform to ‘the public,’ whereas an entity like Aereo that transmits to large numbers of paying subscribers who lack any prior relationship to the works does so perform.”475F475 -- “[T]he history of cable broadcast transmissions that led to the enactment of the Transmit Clause informs our conclusion that Aereo ‘perform[s],’ but it does not determine whether different kinds of providers in different contexts also ‘perform.’”476F476

472 Id.

473 Id.

474 Id. at 2509-10.

475 Id. at 2510.

476 Id.

- 132 -

-- “We have said that [‘the public’] does not extend to those who act as owners or possessors of the relevant product. And we have not considered whether the public performance right is infringed when the user of a service pays primarily for something other than the transmission of copyrighted works, such as the remote storage of content. See Brief for United States as Amicus Curiae 31 (distinguishing cloud-based storage services because they ‘offer consumers more numerous and convenient means of playing back copies that the consumers have already lawfully acquired’ (emphasis in original)).”477F477 -- “Finally, the doctrine of ‘fair use’ can help to prevent inappropriate or inequitable applications of the Clause.”478F478

The District Court’s Decision on Remand

On remand, the district court ruled that the plaintiffs were entitled to a nationwide preliminary injunction prohibiting Aereo from retransmitting the plaintiffs’ copyrighted works at any time while the works were still being broadcast. This was the scope of injunction that the plaintiffs had originally sought and the district court denied. On remand, the plaintiffs sought to broaden the scope of the preliminary injunction to preclude any streaming or retransmission of the plaintiffs’ works over the Internet, regardless of when those retransmissions occur. The district court rejected this broadened scope, noting that the narrower scope of injunction was the one sought at the time of the original evidentiary hearing held by the court, and both the Second Circuit and the Supreme Court understood the plaintiffs’ motion to be limited to that scope when they rendered their respective decisions.479F479

The plaintiffs contended that the Supreme Court’s reasoning in its decision made clear that Aereo’s retransmission of the plaintiffs’ programs to Aereo’s subscribers are public performances, regardless of whether the retransmissions are made at the same time or at different times, and a broader scope of injunction was therefore warranted. The court noted that the plaintiffs might have a valid argument that the Supreme Court’s reasoning cast doubt on any distinction between near-simultaneous and fully time-shifted retransmission of copyrighted works for the purposes of determining whether Aereo performed publicly. But the Supreme Court had been careful to limit its holding to the case that the plaintiffs decided to put before the courts at the preliminary injunction stage. And the Supreme Court had explicitly noted that, although Aereo’s subscribers could instead direct Aereo to stream the program at a later time, that aspect of Aereo’s service was not before the Court. Accordingly, the district court held the plaintiffs to their earlier decision, strategic or otherwise, to seek a preliminary injunction limited

477 Id. at 2510-11.

478 Id. at 2511.

479 American Broadcasting Cos. v. Aereo, Inc., 2014 U.S. Dist. LEXIS 150555 at *33-39 (S.D.N.Y. Oct. 23, 2014).

- 133 -

in scope to retransmission of their copyrighted works while the works were still being broadcast.480F480

The court also rejected Aereo’s attempt to narrow the scope of the injunction to a modest delay, such as ten minutes, after the complete airing of the broadcast. Aereo argued, based on some colloquy at the Supreme Court oral argument, that the Supreme Court intended its ruling to be limited to “near-live retransmission,” and specifically something less than a ten-minute delay. The district court rejected this argument, ruling that any question of whether time-delayed retransmissions should be enjoined would be addressed upon consideration of a permanent injunction following the close of discovery.481F481

The court also refused Aereo’s request to revisit its earlier findings regarding Aereo’s harm to the plaintiffs’ retransmission consent negotiations and harm caused by the inability of Nielsen to measure Aereo’s viewership on the ground that there was no present basis for a finding that the plaintiffs would be irreparably harmed on those two grounds. The court noted that Aereo did not lodge an interlocutory cross-appeal of the court’s preliminary irreparable harm findings and so the court concluded that it need not revisit its earlier factual conclusions regarding Aereo’s likely damage to the plaintiffs for purposes of entry of the preliminary injunction. In addition, Aereo had not challenged any of the court’s other findings of irreparable harm to the plaintiffs based on loss of subscribers due to cord cutting, loss of control over copyrighted content, and damage to relationships with content providers, advertisers, or licensees. Thus, even putting aside the two factual findings that Aereo sought to relitigate, there was still substantial evidence of irreparable harm to the plaintiffs that Aereo did not challenge. Finally, the court noted that its earlier conclusion that the balance of hardships did not tip decidedly in the plaintiffs’ favor was driven largely by its conclusion that the plaintiffs were unlikely to succeed on the merits. Given the Supreme Court’s ruling, the plaintiffs were now likely to succeed on the merits, and therefore the plaintiffs no longer needed to show that the balance of hardships tipped decidedly in their favor. Nor could Aereo claim harm from its inability to continue infringing the plaintiffs’ copyrights.482F482

The district court also rejected two additional defenses interposed by Aereo to the preliminary injunction:

The Section 111 Defense. Aereo argued that, in view of the Supreme Court’s rationale for its decision that Aereo performs in ways similar to cable television systems and therefore Congress would have intended the transmit clause to cover Aereo’s activity, Aereo’s system should be considered a “cable system” that is entitled to a compulsory license under Section 111 of the copyright statute. The court rejected Aereo’s argument for a number of reasons. First, the court found that the argument suffered from the fallacy that simply because an entity performs

480 Id. at *36-37.

481 Id. at *13, 37-38.

482 Id. at *30-33.

- 134 -

copyrighted works in a way similar to cable systems it must then be deemed a cable system for all other purposes of the Copyright Act. The Supreme Court’s opinion in Aereo had not made any such express holding. The district court noted that the Supreme Court had consistently stated throughout its opinion that Aereo’s similarity to a cable system informed its conclusion that Aereo performs, not that Aereo is a cable system. But the Supreme Court did not imply, much less hold, that simply because an entity performs publicly in much the same way as a cable system, it is necessarily a cable system entitled to a Section 111 compulsory license.483F483 “Stated simply, while all cable systems may perform publicly, not all entities that perform publicly are necessarily cable systems, and nothing in the Supreme Court’s opinion indicates otherwise.”484F484

Aereo argued that such a holding could be inferred from the questions and statements of the Justices at oral argument. The district court rejected this argument, noting that the commentary of individual Justices at oral argument has no legal effect, only the Justices’ written opinions have the force of law.485F485 And the district court observed that any void left by the Supreme Court’s decision on Section 111 was filled by on-point, binding Second Circuit precedent – WPIX, Inc. v. ivi, Inc.486F486 – which concluded that Congress did not intend for Section 111’s compulsory license to extend to Internet transmissions. In reaching its conclusion, the Second Circuit in WPIX had given deference to the Copyright Office’s interpretation that Internet retransmission services do not constitute cable systems under Section 111, and the district court noted that the Copyright Office had not changed its interpretation of Section 111 since WPIX.487F487

Aereo contended that the Supreme Court implicitly overruled WPIX when it compared Aereo to a cable system. The district court rejected this, noting that the Supreme Court did not mention WPIX or its holding, and nothing in the Supreme Court’s opinion could be read as abrogating WPIX, because the Supreme Court limited its holding to a finding that Aereo performed like a cable system for purposes of the transmit clause, not that it was a cable system entitled to a Section 111 license. The district court therefore concluded that WPIX remained good law and binding precedent. The court also rejected Aereo’s argument that even if WPIX remained good law, the case was distinguishable from the facts here based on the limited geographic reach of Aereo’s services – namely, Aereo’s technology did not give its subscribers access to broadcasts outside of their home designated market area (DMA). The court noted that the geographic reach of Internet retransmission services was but one of many factors the Second Circuit considered in reaching its holding that Section 111 does not cover Internet retransmission services, and the Second Circuit had referenced the possible geographic reach of ivi’s system only as an additional point of distinction between Internet retransmission and traditional cable

483 Id. at *15-19.

484 Id. at *19.

485 Id. at *19.

486 691 F.3d 275 (2d Cir. 2012), cert. denied, 133 S. Ct. 1585 (2013). The Second Circuit’s decision is discussed in Section III.E.5(a) below.

487 American Broadcasting Cos. v. Aereo, Inc., 2014 U.S. Dist. LEXIS 150555 at *20-21 & 25 n.3.

- 135 -

systems, but it was not the determinative fact for the Second Circuit. Accordingly, the district court ruled that Aereo was not entitled to the Section 111 compulsory license.488F488

The Section 512(a) Safe Harbor. Aereo further argued that its “Watch Now” feature fell within the Section 512(a) safe harbor because Aereo was a service provider offering the transmission, routing, or providing of connections for digital online communications. However, Aereo’s brief declared only that it qualified as a service provider, but did not explain how it satisfied the statutory definition of that term.489F489 The district court noted that the Second Circuit had ruled that to qualify as a service provider for purposes of Section 512(a), an entity must be a mere “conduit.”490F490 Aereo was acting as more than a mere conduit by storing and providing links to copyrighted material. Moreover, Aereo had failed to satisfy the provision of Section 512(a)(1) stating that the safe harbor is available only if the transmission of the material was initiated by or at the direction of a person other than the service provider. Here, the Supreme Court had held that Aereo was itself performing the plaintiffs’ works, so the transmission of those works was not being initiated solely at the direction of its users. Finally, Aereo had not even alleged that it satisfied the predicate condition of Section 512(i) that it have in place a policy for terminating repeat infringers, and such failure constituted an absolute bar to Aereo being able to assert any defense under Section 512.491F491

On May 7, 2015, a bankruptcy court in Manhattan approved a settlement granting the plaintiffs a permanent injunction and $950,000 cash on account of their $100 million in copyright infringement claims. There was no opposition to the settlement. As part of the bankruptcy proceedings, Aereo engaged in a sale of its assets for a disappointing $1.65 million.492F492

11. The BarryDriller Case

The district court in this case reached the opposite result from the district court in the Aereo case on very similar facts involving the defendants’ “Aereokiller” streaming service that allowed users to use an individual mini digital antenna and DVR to watch or record a free television broadcast. Indeed, the defendants opposed the plaintiff’s motion for a preliminary injunction in this case largely on the argument that their streaming service was legal because it was “technologically analogous” to the service found legal in the Aereo case.493F493 The

488 Id. at *21-27.

489 Id. at *27.

490 Id. at *28 (citing Viacom Int’l, Inc. v. YouTube, Inc., 676 F.3d 19, 39 (2d Cir. 2012)).

491 Aereo, 2014 U.S. Dist. LEXIS 150555 at *28-29.

492 Bill Rochelle, “Broadcasters Get Permanent Injunction Against Aereo Barring Streaming Service,” BNA’s Electronic Commerce & Law Report (May 8, 2015) (ISSN 1523-5661).

493 Fox Television Stations, Inc. v. BarryDriller Content Systems, PLC, 2012 U.S. Dist. LEXIS 184209 at * 3-4 (C.D. Cal. Dec. 27, 2012). Before turning to its main analysis, the court rejected in a footnote the plaintiffs’ apparent argument that creation of a buffer copy in the course of streaming is itself a public performance: “Plaintiffs seems to be relying on the fact that courts have found ‘streaming’ to be infringement of the - 136 -

BarryDriller court, however, rejected the reasoning of the Second Circuit’s decision in Cablevision, upon which the Aereo court had relied in reaching its decision. In particular, the court disagreed with the Second Circuit’s analysis in Cablevision that the statutory definition of “public performance” requires that a transmission of a performance itself be public in order for the transmitter to infringe the public performance right:

That is not the only possible reading of the statute. The definition section sets forth what constitutes a public performance of a copyrighted work, and says that transmitting a performance to the public is a public performance. It does not require a “performance” of a performance. The Second Circuit buttressed its definition with a “cf.” to Buck v. Jewell-La Salle Realty Co., 283 U.S. 191, 196, S. Ct. 410, 75 L.Ed. 971 (1931), which interpreted the 1909 Copyright Act’s provision of an exclusive right to publicly perform a musical composition and held that “the reception of a radio broadcast and its translation into audible sound” is a performance. But Buck, like Cablevision and this case, was concerned with a copyright in the work that was broadcast. Id. at 195. The Supreme Court was not concerned about the “performance of the performance” – instead, it held that using a radio to perform the copyrighted song infringed the exclusive right to perform the song (not to perform the performance of the song). Id. at 196.494F494

The district court noted that the Second Circuit had supported its decision via citation to the House Report on the 1976 Copyright Act, which stated that a performance made available by transmission to the public at large is “public” even though the recipients are not gathered in a single place, and that the same principles apply whenever the potential recipients of the transmission represent a limited segment of the public, such as the occupants of hotel rooms or the subscribers of a cable television service. From this, the Second Circuit reasons that the transmission had to itself be public, and one must therefore look at the persons who are capable of receiving a particular transmission of a performance to determine whether such transmission constitutes a public performance.495F495 The district court rejected the Second Circuit’s interpretation of the import of the House Report:

But the House Report did not discuss which copy of a work a transmission was made from. The statute provides an exclusive right to transmit a performance publicly, but does not by its express terms require that two members of the public receive the performance from the same transmission. The statute provides that the right to transmit is exclusive “whether the members of the public capable of receiving the performance or display receive it in the same place or in separate

transmission right, and are arguing that streaming’s use of buffer copies means that the buffer copy is itself a public performance. But Plaintiffs have cited to no authority that holds that the act of creating the transient buffer copy – expressly considered in Cablevision and held not to be an act of infringement – is an infringement of the public performance right. Cablevision, 536 F.3d at 127.” Id. at *12 n.9.

494 Id. at *14-15.

495 Id. at *15.

- 137 -

places and at the same time or at different times. 17 U.S.C. § 101. Again, the concern is with the performance of the copyrighted work, irrespective of which copy of the work the transmission is made from. … Thus, Cablevision’s focus on the uniqueness of the individual copy from which a transmission is made is not commanded by the statute.496F496

The district court noted that the Second Circuit’s focus on which copy of the work the transmission is made from put it in tension with the 1991 decision in the On Command Video Corp. case,497F497 in which a court in the Northern District of California held that a hotel system that transmitted to individual hotel rooms movies being played from individual videotapes by remote control from a central bank in a hotel equipment room violated the copyright holder’s public performance right. The district court believed that the On Command Video Corp. case properly focused on the public performance of the copyrighted work. Accordingly, the court concluded that the defendants’ unique-copy transmission argument based on Cablevision and Aereo was not binding in the Ninth Circuit.498F498

Having found that the plaintiffs had established a likelihood of success on the merits, and finding the other three factors for a preliminary injunction weighed in the plaintiffs’ favor, the court issued a preliminary injunction against the operation of the Aereokiller service. However, given the court’s finding that the application of Ninth Circuit law differed from Second Circuit law, the court believed that principles of comity prevented the entry of an injunction that would apply to the Second Circuit, and that it should not assume that the other Circuits would agree with its decision rather than Cablevision. Accordingly, the court issued an injunction prohibiting the defendants from offering their service only within the states covered by the Ninth Circuit.499F499

After the district court’s decision, the Supreme Court issued its decision in the case of American Broadcasting v. Aereo, discussed in Section II.B.10 above, ruling that Aereo violated the public performance right by transmitting the plaintiffs’ works through its system collectively to public subscribers. Given the close factual similarity between the “Aereokiller” service and the Aereo service, the Supreme Court’s holding in the Aereo decision would seem to confirm the district court’s outcome in this case.

496 Id. at *16. The court elaborated further in a footnote: “The Second Circuit appears to implicitly bracket the text of the House Report like this: [a performance made available by] [transmission to the public]. It seems like the House Report could just as easily be read like this: [a performance made available by transmission] [to the public]. Defendants make Plaintiffs’ copyrighted works available to the public by transmission. The Second Circuit’s reading effectively converts ‘available by transmission’ to ‘available by a single transmission.’ In any event, the statute uses the verb ‘transmit,’ rather than the noun used in the House Report.” Id. at *16-17.

497 777 F. Supp. 787 (N.D. Cal. 1991).

498 BarryDriller, 2012 U.S. Dist. LEXIS at *17-18, 20.

499 Id. at 23-29.

- 138 -

12. Fox v. FilmOn

This was the third case to adjudicate claims of infringement of the public performance right based on a streaming and recording system that operated in a very similar way to those at issue in the Aereo and BarryDriller cases by allowing users to use an individual mini digital antenna and DVR to watch or record a free television broadcast.500F500 Indeed, FilmOn, the operator of the system, readily admitted that its technology was “similar … in every relevant way” to the technology at issue in Aereo and BarryDriller.501F501 The court issued a preliminary injunction enjoining FilmOn from offering its service through the U.S. except within the Second Circuit (where Aereo was the binding precedent), and required the plaintiffs to post a bond of $250,000.502F502

To judge the plaintiffs’ likelihood of success on the merits of their claim that FilmOn’s system infringed their right of public performance, the court pointed to the legislative history of the transmit clause in the House Report for the 1976 Act, which stated, “Under the definitions of ‘perform,’ ‘display,’ ‘publicly,’ and ‘transmit’ in section 101, the concepts of public performance and public display cover not only the initial rendition or showing, but also any further act by which that rendition or showing is transmitted or communicated to the public.”503F503 The court noted that the House Report further elaborated on the transmit clause, stating, “Each and every method by which the images or sounds comprising a performance or display are picked up and conveyed is a ‘transmission,’ and if the transmission reaches the public in [an]y form, the case comes within the scope of clauses (4) or (5) of section 106.”504F504

In view of the legislative history, the court found that FilmOn’s service violated the plaintiffs’ right of public performance:

By making available Plaintiffs’ copyrighted performances to any member of the public who accesses the FilmOn X service, FilmOn X performs the copyrighted work publicly as defined by the Transmit Clause: FilmOn X “transmit[s] … a performance … of the work … to the public, by means of any device or process.” See 17 U.S.C. § 101. “A ‘device,’ ‘machine,’ or ‘process’ is one now known [i.e. in 1976] or later developed;” “[t]o ‘transmit’ a performance or display is to communicate it by any device or process.” Id. (emphasis added). These two definitions are facially broad and encompass FilmOn X’s convoluted process for relaying television signals. The Transmit Clause, which applies whether “members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times,”

500 Fox Television Stations, Inc. v. FilmOn X LLC, 966 F. Supp. 2d 30 (D.D.C. 2013).

501 Id. at 34.

502 Id. at 51-52.

503 Id. at 45 (quoting H.R. Rep. No. 94-1476 (1976), reprinted in 1976 U.S.C.C.S.A.N. 5659, 5676-77).

504 Id. at 45-46 (quoting 1976 U.S.C.C.S.A.N. at 5678).

- 139 -

also plainly captures FilmOn X’s DVR-like capabilities. Id. FilmOn X transmits (i.e., communicates from mini-antenna through servers over the Internet to a user) the performance (i.e., an original over-the-air broadcast of a work copyrighted by one of the Plaintiffs) to members of the public (i.e., any person who accesses the FilmOn X service through its website or application) who receive the performance in separate places and at different times (i.e. at home at their computers or on their mobile devices).505F505

The court rejected FilmOn’s argument that it did not perform publicly because its system facilitated a one-to-one relationship between a single mini antenna and a viewer of the plaintiffs’ programs. The court observed that, while each user might have an assigned antenna and hard-drive directory temporarily, the mini antennas were networked together so that a single tuner server and router, video encoder, and distribution endpoint could communicate with them all. In the court’s view, FilmOn’s system, through which any member of the public could click on the link for the video feed, was hardly akin to an individual user stringing up a television antenna on the roof. The court also expressed the belief that every broadcast of a television program (whether cable, satellite, over-the-air, over the Internet, or otherwise) could be described as generated from the same copy – the original source. The court therefore found FilmOn, a commercial service retransmitting the plaintiffs’ television performances, to be in no meaningful way different from cable television companies, whose relationship with broadcasters was the primary motivation for the 1976 Act’s enactment of the transmit clause.506F506

Accordingly, the court concluded that the plaintiffs had established a likelihood of success on the merits of their copyright infringement claim. Finding that the plaintiffs would suffer irreparable harm if FilmOn were allowed to continue operation of its system, that the balance of harm tipped in the plaintiffs’ favor, and that the public interest would be served by upholding copyright protection, the court issued a preliminary injunction against FilmOn.507F507

After the district court’s decision, the Supreme Court issued its decision in the case of American Broadcasting v. Aereo, discussed in Section II.B.10 above, ruling that Aereo violated the public performance right by transmitting the plaintiffs’ works through its system collectively to public subscribers. Given the close factual similarity between the FilmOn system and the Aereo system, the Supreme Court’s holding in the Aereo decision would seem to confirm the district court’s outcome in this case, and in a subsequent ruling the district court concluded that it did.

Specifically, in later proceedings, the defendants argued that under the rationale of the Supreme Court’s Aereo decision, they should be entitled to a compulsory license under Section

505 Id. at 46-47. The court noted that it respectfully disagreed with the Second Circuit’s interpretation of the transmit clause in Aereo for the reasons set forth in BarryDriller and in Judge Chin’s dissent in Aereo. Id. at 47 n.11.

506 Id. at 47-48.

507 Id. at 48-52.

- 140 -

111 of the copyright statute. The plaintiffs moved for summary judgment that the defendants did not qualify for the Section 111 license and that their nearly-simultaneous and time-delayed retransmission services violated the plaintiffs’ public performance rights.508F508 For the reasons set forth in Section III.E.5(e) below, the court concluded that FilmOn X was not entitled to the Section 111 license.

The court also ruled that FilmOn X’s service violated the plaintiffs’ public performance rights. The defendants did not dispute that under the Supreme Court’s Aereo decision FilmOn X’s nearly-simultaneous retransmissions of over-the-air content were public performances for purposes of the Transmit Clause and therefore directly infringed the plaintiffs’ rights of public performance. The court therefore turned to whether FilmOn’s time-delayed service allowing individual subscribers to record over-the-air television programming and watch the selected content at a later time was also infringing.509F509

The defendants compared the service’s storage and time-shifting function to that of cloud-based storage providers in which the user dictates what material will be stored on the network, when copies will be made, and when the network will transmit that data. The defendants argued that, since the individual user was the one who accessed the stored content and then directed the provider to transmit it, the process was nothing more than private transmission outside the scope of the Copyright Act. The court disagreed, finding that the Supreme Court’s reasoning in Aereo confirmed the court’s conclusion that the Transmit Clause encompassed FilmOn X’s DVR-like functionality.510F510

The court found that the defendants’ arguments concerning private transmissions were essentially a rehash of Aereo’s unsuccessful arguments before the Supreme Court in Aereo. The fact that the transmissions originated from individual copies and were streamed to individual users did not render the transmissions “private.” Like its nearly-simultaneous transmission service, FilmOn X’s DVR function rendered multiple subscribers capable of receiving the same perceptible images and sounds of over-the-air programs.511F511 Under Aereo, FilmOn X’s transmissions were made to the public regardless of the time delay, because the Supreme Court had held that a transmission is performed publicly, regardless of whether the public is not situated together “spatially or temporally.”512F512

The court also rejected the defendants’ argument that FilmOn X could not be liable because they were not volitional actors with respect to their subscribers’ retransmissions. The court found that in Aereo, the Supreme Court rejected the proposition that an entity such as

508 Fox Televisions Stations, Inc. v. FilmOn X LLC, 2015 U.S. Dist. LEXIS 161304 at *18-19 (D.D.C. Dec. 2, 2015).

509 Id. at *84.

510 Id. at *84-87.

511 Id. at *87.

512 Id. (quoting Aereo, 134 S. Ct. at 2510).

- 141 -

FilmOn X is merely an equipment supplier that operates based on the subscriber’s instruction and direction. An unauthorized secondary transmission constitutes a performance regardless of the time delay. In other words, just because the subscriber had to click a button to institute the streaming did not mean that FilmOn X did not perform within the meaning of the Transmit Clause. Finally, the court noted that the Supreme Court did not find it necessary to address the volitional conduct requirement to hold that both Aereo and its subscribers performed within the meaning of the Transmit Clause.513F513

The district court further observed that for purposes of what constitutes a public performance, FilmOn X’s service was much more similar to its nearly-simultaneous counterpart than to a cloud storage service. Unlike a cloud storage service, FilmOn X did not allow servers to store lawfully acquired content and play it back on command. Rather it captured broadcast signals and saved individual copies of the over-the-air content so that it could later stream the saved copy of the show to the subscriber over the Internet.514F514 That difference was important because under the Supreme Court’s Aereo decision “an entity that transmits a performance to individuals in their capacities as owners or possessors does not perform to ‘the public,’ whereas an entity like [FilmOn X] that transmits to large numbers of paying subscribers who lack any prior relationship to the works does so perform.”515F515 Consequently, the district court rejected the defendants’ repackaging of Aereo’s unsuccessful arguments and ruled that Aereo’s reasoning should be extended to FilmOn X’s time-delayed retransmissions as direct violations of the plaintiffs’ public performance rights.516F516

13. Hearst Stations v. Aereo

The case of Hearst Stations Inc. v. Aereo, Inc.517F517 was the fourth case (and the second against Aereo) to adjudicate claims of infringement of the public performance right based on a streaming and recording system utilizing individual mini digital antennas and DVRs to enable users to watch or record a free television broadcast. The plaintiff Hearst sought a preliminary injunction, arguing that Aereo’s services fell within the definition of transmitting to the public – and therefore infringed its public performance rights – because Aereo was transmitting a performance of the original program to members of the public, and contended that the fact that each user viewed a unique copy of the program was irrelevant to the analysis. Aereo argued that it was transmitting private rather public performances per Cablevision. It also argued that Hearst’s suggestion that the relevant performance was the copyrighted work read the terms “a

513 FilmOn X, 2015 U.S. Dist. LEXIS at *87-88.

514 Id. at *88-89.

515 Id. at *89 (quoting Aereo, 134 S. Ct. at 2510).

516 FilmOn X, 2015 U.S. Dist. LEXIS at *89.

517 977 F. Supp. 2e 32 (D. Mass. 2013).

- 142 -

performance or display” out of the statutory phrase “a performance or display of the work” in the transmit clause.518F518

The court ruled the following:

Aereo’s interpretation is a better reading of the statute because the “canon against surplusage” requires this Court to give meaning to every statutory term if possible. See Cablevision, 536 F.3d at 135-36. The House Report accompanying the 1976 amendments, which explains that the process of communicating a copyrighted work from its original creator to the ultimate consumer may involve several “performances,” provides further support. See H.R. Rep. No. 94-1476, at 63. In short, while the Transmit Clause is not a model of clarity, the Court finds at this juncture that Aereo presents the more plausible interpretation. As such, Hearst has not persuaded the Court that it is likely to succeed on the merits of its public performance claim.519F519

Hearst also argued that Aereo infringed its right of reproduction by creating and saving three copies of its copyrighted programming every time a consumer chose to watch or record a program. Aereo contended that it could not be liable for infringing the plaintiff’s reproduction right because its users provided the volitional conduct that created the copy of the program they selected. The district court noted that the First Circuit had not yet decided whether a plaintiff claiming infringement of the reproduction right must show volitional conduct on the part of the defendant, but noted that courts in the Second, Third, and Fourth Circuit had imposed such a requirement. The court observed that requiring a showing of volitional conduct comports with the general principle that, even with a strict liability statute such as the Copyright Act, the challenged conduct must cause the harm. The court concluded that in this case it was likely that the user supplied the necessary volitional conduct to make the copy. The fact that Aereo users had the option to watch programs live did not command a different result because those users were informed that the system would create a copy of the program so they could pause and rewind. The court noted, however, that the reproduction issue was a closer question than the issue of public performance, and discovery could reveal that Aereo’s service infringed the plaintiff’s reproduction right.520F520

Hearst further contended that Aereo infringed its distribution right. The court noted that the Copyright Act does not define what it means to “distribute” but a number of courts had interpreted it to entail an actual dissemination of either copies or phonorecords. Here, because Aereo’s technology allowed users only to stream but not download programming, Aereo was more aptly described as “performing” rather than “distributing” copyrighted works.521F521

518 Id. at 38.

519 Id. at 38-39.

520 Id. at 39.

521 Id. at 39-40.

- 143 -

Finally, Hearst contended that Aereo’s act of reformatting intercepted programming violated its right to prepare derivative works. The court quickly dismissed this contention, noting that Hearst had presented no legal authority, nor was the court aware of any, for the proposition that Aereo’s technology created a derivative work merely by converting programs from their original digital format to a different digital format compatible with Internet streaming. The court therefore denied the plaintiff’s motion for a preliminary injunction.522F522

After the district court’s decision, the Supreme Court issued its decision in the Aereo case, discussed in Section II.B.10 above, ruling that Aereo violated the public performance right by transmitting the plaintiffs’ works through its system collectively to public subscribers. The Aereo decision undermines the district court’s rulings in this case with respect to the public performance right.

14. Community Television of Utah v. Aereo

The case of Community Television of Utah, LLC v. Aereo, Inc.523F523 was the fifth case (and the third against Aereo) to adjudicate claims of infringement of the public performance right based on a streaming and recording system utilizing individual mini digital antennas and DVRs to enable users to watch or record a free television broadcast. The plaintiffs sought a preliminary injunction, arguing that Aereo was violating their exclusive rights of public performance in their copyrighted broadcast programs. The court found that the plaintiffs were likely to succeed on the merits of their claim under the transmit clause, noting that the definitions pertinent to the transmit clause contained sweepingly broad language that easily encompassed Aereo’s process of transmitting copyright-protected material to its paying customers. Specifically, the court found that Aereo used “any device or process” to transmit a performance or display of the plaintiffs’ copyrighted programs to Aereo’s paid subscribers, all of whom were members of the public who received it at the same time or separate times.524F524

To bolster its interpretation, the court reviewed the history of the adoption of the transmit clause, noting that Congress adopted it in response to two decisions of the Supreme Court under the 1909 Copyright Act525F525 holding that cable companies’ erection of community antennas to receive broadcast signals and transmission of such signals to their subscribers’ homes via coaxial cable did not violate the public performance right. In those cases the Supreme Court concluded that a cable company was free to do whatever a private citizen could do for itself without infringing a copyright. Congress then passed the transmit clause in part to abrogate the two Supreme Court decisions and bring a cable television system’s transmission of broadcast television programming within the scope of the public performance right. The district court

522 Id. at 40-41.

523 997 F. Supp. 2d 1191 (D. Utah 2014).

524 Id. at 1197-99.

525 Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390 (1968); Teleprompter Corp. v. Columbia Broadcasting Sys., 415 U.S. 394 (1974).

- 144 -

found that Aereo’s retransmission of the plaintiffs’ copyrighted programs was indistinguishable from a cable company and therefore fell squarely within the language of the transmit clause.526F526

The district court found the Second Circuit’s interpretation of the transmit clause in the Cablevision case to be unpersuasive. The Second Circuit had focused on who was capable of receiving the performance in determining whether a performance was transmitted to the public. The district court found such a focus was not supported by the language of the statute, which states that it applies to any performance made available to the public. Aereo’s paying subscribers to whom the performances were made available fell within the ambit of “a substantial number of persons outside of a normal circle of a family and its social acquaintances” and within a general understanding of the term “public.”527F527 The court further criticized the reasoning of Cablevision as follows:

[T]he Cablevision court appears to discount the simple use of the phrase “to the public” because it concludes that the final clause within the Transmit Clause – “whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times” – was intended by Congress to distinguish between public and private transmissions. This court disagrees. The entire clause “whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times” appears to actually be Congress’ attempt to broaden [the] scope of the clause, not an effort to distinguish public and private transmissions or otherwise limit the clause’s reach. The term “whether” does not imply that the ensuing clause encompasses a limitation. Rather, the introduction of the clause with the word “whether” implies an intent to explain the broad sweep of the clause and the many different ways it could apply to members of the public. Reading this final clause expansively is consistent with Congress’ intent to have the entire Transmit Clause apply to all technologies developed in the future.528F528

Finally, the district court noted that the Second Circuit’s analysis in Cablevision appeared to have erroneously changed the wording of the transmit clause from reading “member of the public capable of receiving the performance” to “members of the public capable of receiving the transmission.” The court found that the language of the clause did not support a focus on who is capable of receiving a particular transmission. The court therefore found itself persuaded by Judge Chin’s dissent in the Second Circuit’s application of Cablevision to Aereo’s system in WNET v. Aereo, discussed in Section II.B.10 above, when he concluded that, by any reasonable construction of the transmit clause, nothing Aereo was doing was in any sense “private” and

526 Community Television of Utah, 997 F. Supp. 2d at 1198-99.

527 Id. at 1200.

528 Id..

- 145 -

Aereo was engaging in public performances when it intercepted and retransmitted copyrighted programs to paying strangers.529F529

The district court found the plaintiffs would suffer irreparable harm from Aereo’s infringement by interfering with the plaintiffs’ relationships and negotiations with legitimate licensees, impeding and affecting negotiations with advertisers, unfairly siphoning viewers from the plaintiffs’ own web sites, threatening the plaintiffs’ goodwill and contractual relationships with their licensed distributors, losing their position in the competitive marketplace for Internet content, and causing them to lose control of quality and potential piracy of their programming. The court also found the balance of harms to favor the plaintiffs and that a preliminary injunction would be in the public interest. Accordingly, the court granted the plaintiffs’ motion for a preliminary injunction, but limited its scope to the region of the Tenth Circuit. The court ordered the plaintiffs to post a bond of $150,000, and then stayed further proceedings in the case pending the Supreme Court’s decision in American Broadcasting Corp. v. Aereo.530F530

Shortly after the district court’s decision, the Supreme Court issued its decision in the case of American Broadcasting v. Aereo, discussed in Section II.B.10 above, ruling that Aereo violated the public performance right by transmitting the plaintiffs’ works through its system collectively to public subscribers. That ruling substantively confirms the district court’s outcome in this case.

15. CBS v. FilmOn

In 2010, CBS, NBC, Fox, and ABC brought an action for copyright infringement against FilmOn for streaming their broadcasting programming without their authorization. After completion of discovery, the parties settled the action and the court entered a consent order of judgment and permanent injunction dated Aug. 8, 2012, which prohibited FilmOn from further infringing plaintiffs’ copyrights, including, but not limited to, through the streaming over mobile telephone systems and/or the Internet of any of the broadcast television programming in which any plaintiff owned a copyright. In July of 2014 the plaintiffs moved the court for an order holding FilmOn and its CEO in civil contempt for violating the injunction by using mini-antenna technology (1) to broadcast the plaintiffs’ copyrighted content within the Second Circuit in violation of the Supreme Court’s decision in the Aereo case (discussed in Section II.B.10 above) and (2) to transmit such content to regions outside the Second Circuit through the use of FilmOn’s “Teleporter” system, which allowed users to virtually view broadcast content from a distant location that was not necessarily within the local broadcast geographic region.531F531

529 Id. at 1200-01.

530 Id. at 1203-04.

531 CBS Broadcasting Inc. v. FilmOn.com, Inc., 2014 U.S. Dist. LEXIS 101894 at *1-3, 7 (S.D.N.Y. July 24, 2014). On Sept. 13, 2013, the court found FilmOn in contempt of the injunction by offering a video-on-demand service that provided subscribers with access to an archive of previously televised programs for streaming on - 146 -

FilmOn resisted the motion for contempt on the ground that, because the injunction did not expressly mention or prohibit the mini-antenna/DVR technology and the related Teleporter service, it could not be said to clearly and unambiguously prohibit its use. The court rejected this argument, noting that the injunction need not list every potential transmission mechanism that it barred in order to be clear and unambiguous. Recognizing the speed of technological advance, the injunction prohibited FilmOn from infringing by any means, and that was sufficiently clear to encompass FilmOn’s antenna/DVR and Teleporter technology.532F532

FilmOn further argued that in light of the Supreme Court’s findings in Aereo, it qualified as a cable system and was entitled to the benefits and responsibility of the compulsory license scheme under Section 111 of the Copyright Act. The court rejected this, noting that the Supreme Court’s statements that Aereo (and, by extension, FilmOn, which used technology identical to Aereo) was very similar to a cable system were not the same as a judicial finding that Aereo and its technological peers are, in fact, cable companies entitled to retransmission licenses under Section 111. The district court further noted that the Supreme Court’s Aereo decision did not mention, let alone abrogate, WPIX, Inc. v. ivi, Inc.,533F533 which established the law in the Second Circuit that Internet retransmission services do not constitute cable systems under Section 111.534F534

The district court then turned to the factual support for finding FilmOn in contempt of the injunction. FilmOn had not stopped broadcasting the plaintiffs’ content until it learned of the court’s order to show cause in this case, twelve days after the Aereo decision, which the court found, at least as to the retransmissions within the Second Circuit, to constitute a clear violation of the injunction. Even assuming that FilmOn believed in good faith that the Aereo decision rendered it qualified to become a cable company under Section 111, it would nevertheless have needed to obtain a license from the Copyright Office in order to have been eligible to retransmit the plaintiff’s content. FilmOn admitted that it had not even applied to the Copyright Office for such license until after the plaintiffs submitted their order to show cause, and the Copyright Office had subsequently issued a letter to FilmOn that, as an Internet retransmission service, it fell outside the scope of the Section 111 license, a conclusion that the Copyright Office believed Aereo did not alter.535F535

demand. CBS Broadcasting Inc. v. FilmOn.com, Inc., 2013 U.S. Dist. LEXIS 130612 (S.D.N.Y. Sept. 10, 2013).

532 FilmOn, 2014 U.S. Dist. LEXIS 101894 at *9-10.

533 691 F.3d 275 (2d Cir. 2012), cert. denied, 133 S. Ct. 1585 (2013).

534 FilmOn, 2014 U.S. Dist. LEXIS 101894 at *6, 11-12.

535 Id. at *14-17.

- 147 -

Accordingly, the court found both FilmOn and its CEO in violation of the injunction. FilmOn was ordered to pay $10,000 for each of the nine days of its noncompliance pursuant to paragraph 3 of the 2012 consent order of judgment, plus a sanction of $90,000.536F536

16. Capitol Records v. Escape Media

(For a discussion of public performance issues in this case, see Section III.C.1(c) below.)

17. Fox Broadcasting v. Dish Network

The facts of this case are discussed extensively in Section II.A.4(u) above. Pursuant to an agreement between Fox and Dish, Dish had the right to retransmit Fox programming to its subscribers via satellite as a pay television provider. In January of 2013 Dish introduced its second generation “Hopper” DVR set-top box called “Hopper with Sling” that had Sling technology (which transcoded video content from its source at the DVR set-top box and transmitted it to remote devices over the Internet) built into the box itself. In conjunction with the Hopper with Sling device, Dish rolled out a new service called Dish Anywhere, a mobile access application utilizing the Sling technology that allowed subscribers to watch live television or television programs recorded on the Hopper from any location on remote devices connected to the Internet. No copies were made to facilitate the remote viewing via Dish Anywhere. The content was transferred via Internet directly from the Hopper with Sling to the remote device and was not stored in and did not pass through any central server.537F537

Fox contended that Dish had publicly performed Fox’s copyrighted works by streaming them over the Internet to Dish subscribers using Dish Anywhere with Sling. Fox asserted that the Supreme Court’s decision in Aereo (discussed in Section II.A.4(aa) above) was a game-changer that governed the outcome of its copyright claims in this case. The district court disagreed. The district court noted that the Supreme Court did not expressly address the general volitional conduct requirement for direct liability in Aereo. Because the volitional conduct doctrine was a significant and long-standing rule, adopted by all Courts of Appeal to have considered it, the district court found that it would be folly to presume that Aereo categorically jettisoned it by implication.538F538

Instead, the district court found that the majority analysis in Aereo could be reconciled with the volitional conduct requirement. The Aereo court had distinguished between an entity that engages in activities like Aereo’s and one that merely supplies equipment that allows others

536 Id. at *19-20. The court found it unfair to hold FilmOn in contempt during the three-day period in which Aereo continued to stream content after the Supreme Court issued its Aereo decision. The court therefore found FilmOn’s noncompliance to begin on the day after Aereo stopped retransmitting content in the wake of Aereo and ended on the day FilmOn deactivated its mini-antenna service. Id. at *20 n.3.

537 Fox Broadcasting Co. v. Dish Network LLC, 2015 U.S. Dist. LEXIS 23496 at *9-10, 14-16 & 18-19 (C.D. Cal. Jan. 21, 2015).

538 Id. at *28-29, 30-33

- 148 -

to do so. Aereo held that a sufficient likeness to a cable company amounts to a presumption of direct performance, but the district court opined that the distinction between active and passive participation remains a central part of the analysis of an alleged infringement.539F539 Noting that the Aereo majority had relied on the fact that Aereo’s system received programs that had been released to the public and carried them by private channels to additional viewers, the district court distinguished the instant case as follows:

DISH does not, however, receive programs that have been released to the public and then carry them by private channels to additional viewers in the same sense that Aereo did. DISH has a license for the analogous initial retransmission of the programming to users via satellite. Aereo streamed a subscriber-specific copy of its programming from Aereo’s hard drive to the subscriber’s screen via individual satellite when the subscriber requested it, whereas DISH Anywhere can only be used by a subscriber to gain access to her own home STB/DVR and the authorized recorded content on that box. Any subsequent transfer of the programming by DISH Anywhere takes place after the subscriber has validly received it, whereas Aereo transmitted it programming to subscribers directly, without a license to do so.540F540

The court summarized that the ultimate function of Dish Anywhere was to transmit programming that was already legitimately on a user’s in-home hardware to a user’s Internet-connected mobile device. Relying on external servers and equipment to ensure that content travelled between those devices properly did not transform that service into a traditional cable company. Aereo’s holding that entities bearing an overwhelming likeness to cable companies publicly perform within the meaning of the transmit clause of the definition or “publicly perform” therefore did not extend to Dish Anywhere.541F541

The court then turned to the question whether, if any public performance occurred when subscribers used Dish Anywhere, Dish could be directly liable by virtue of engaging in sufficient volitional conduct enabling that performance. The court noted that, to use Dish Anywhere, a subscriber was required to log in or open the Dish Anywhere app, select the television program she wanted to watch, and request that the live or recorded television programming be sent from the set-top box in her home to her computer or mobile device. Although this process depended to some extent on external equipment and services provided by Dish, it was the user who initiated the process, selected the content, and received the transmission. The court therefore concluded that Dish subscribers, not Dish, engaged in the volitional conduct necessary for any direct infringement.542F542

539 Id. at *34.

540 Id. at *34-36 (citations omitted).

541 Id. at *36.

542 Id. at *37-38.

- 149 -

Finally, the court considered whether Dish might still be liable for secondary infringement if its subscribers were engaging in direct infringement by using Dish Anywhere to transmit public performances. The court concluded that the subscribers were not. Turning again to the Supreme Court’s Aereo decision, the district court noted that, in rejecting Aereo’s argument that it did not transmit a performance “to the public,” the Aereo opinion noted that nothing in the record before it suggested that the subscribers received the performances in their capacities as owners or possessors of the underlying works, and that this factor could affect whether or not the subscribers constituted “the public.” The district court noted that, in this case, Dish subscribers were valid possessors of the copyrighted works that were stored in the set-top boxes in their homes. Thus, when an individual Dish subscriber transmitted programming rightfully in her possession to another device, that transmission did not travel to a large number of people who are unknown to each other. Rather, the transmission travelled either to the subscriber herself or to someone in her household using an authenticated device. The court concluded that was simply not a “public” performance within the meaning of the transmit clause. Because Dish Anywhere subscribers did not directly infringe the public performance right, Dish could not be liable for secondary infringement, and the court therefore granted Dish’s motion for summary judgment as to the claim for copyright infringement by Dish Anywhere with Sling.543F543

C. The Right of Public Display

Section 106 (5) of the copyright statute grants the owner of copyright in a literary, musical, dramatic, and choreographic work, a pantomime, and a pictorial, graphic or sculptural work, including the individual images of a motion picture or other audiovisual work,544F544 the exclusive right to display the work publicly.545F545 Section 101 defines the meaning of “to display a work publicly” in virtually identical terms as the definition of “to perform a work publicly.” Thus, a public display can be accomplished by a transmission of a display of the work to members of the public capable of receiving the display in the same place or separate places and at the same time or at different times.

The WIPO Copyright Treaty does not contain a right of public display per se. However, the right of public display is arguably subsumed under the right of communication to the public in the WIPO Copyright Treaty.

1. The Frena, Marobie-FL, Hardenburgh and Webbworld Cases

In Playboy Enterprises, Inc. v. Frena,546F546 the court held that the making of photographs available on a BBS was a “public” display, even though the display was limited to subscribers,

543 Id. at *38-41.

544 To display a motion picture, one must display individual images “nonsequentially.” 17 U.S.C. § 101 (definition of “display”).

545 The right of public display does not apply to sound recordings, architectural works, and audiovisual works (except for display of individual images of an audiovisual work).

546 839 F. Supp. 1552 (M.D. Fla. 1993).

- 150 -

and subscribers viewed the photographs only upon downloading the photographs from the BBS on demand. Thus, making material available through the Internet even to only a small and select audience may still constitute a “public” display. The point at which a selected audience becomes so small that a display to such audience can no longer be considered a “public” display is unclear. The Playboy court seemed to define an audience as “public” if it contains “a substantial number of persons outside of a normal circle of family and its social acquaintances.”547F547

Similarly, in Marobie-FL, Inc. v. National Association of Fire Equipment Distributors,548F548 the administrator of the Web page of the defendant, National Association of Fire Equipment Distributors (NAFED), placed certain files on NAFED’s Web page containing three volumes of copyrighted clip art of the plaintiff. The court ruled that the placement of the files containing the clip art on the Web page constituted a direct violation of both the plaintiff’s distribution right and public display right. The court concluded that the mere making available of the files for downloading was sufficient for liability, because “once the files were uploaded [onto the Web server], they were available for downloading by Internet users and … the [OSP] server transmitted the files to some Internet users when requested.”549F549 The court, citing the Netcom case, refused to hold the OSP supplying Internet service to NAFED directly or vicariously liable, although the court noted that the OSP might be liable for contributory infringement, depending upon whether the OSP knew that any material on NAFED’s Web page was copyrighted, when it learned of that fact, and the degree to which the OSP monitored, controlled, or had the ability to monitor or control the contents of NAFED’s Web page.550F550

And in Playboy Enterprises, Inc. v. Hardenburgh,551F551 the defendants operated a BBS which made available graphic image files to subscribers for a fee, many of which contained adult material. To increase its stockpile of available information, and thereby its attractiveness to new customers, defendants provided an incentive to encourage subscribers to upload information onto the BBS. Subscribers were given “credit” for each megabyte of electronic data that they uploaded onto the system, which entitled them to download defined amounts of data from the system in return. Information uploaded onto the BBS went directly to an “upload file” where an employee of the BBS briefly checked the new files to ascertain whether they were “acceptable,” meaning not pornographic and not blatantly protected by copyright.552F552 Many of the plaintiff’s copyrighted photographs appeared on the BBS and the plaintiff brought suit for infringement.

With respect to the issue of direct liability for the infringing postings of its subscribers, the court agreed with the Netcom decision’s requirement of some direct volitional act or

547 Id. at 1557.

548 45 U.S.P.Q.2d 1236 (N.D. Ill. 1997).

549 Id. at 1241.

550 Id. at 1245.

551 982 F. Supp. 503 (N.D. Ohio 1997).

552 Id. at 506.

- 151 -

participation in the infringement. However, the court found that the facts of the case, unlike those of Frena, MAPHIA, and Netcom, were sufficient to establish direct liability for infringement of both the public display and distribution rights. The court based its conclusion on “two crucial facts: (1) Defendants’ policy of encouraging subscribers to upload files, including adult photographs, onto the system, and (2) Defendants’ policy of using a screening procedure in which [its] employees viewed all files in the upload file and moved them into the generally available files for subscribers. These two facts transform Defendants from passive providers of a space in which infringing activities happened to occur to active participants in the process of copyright infringement.”553F553

Finally, in Playboy Enterprises, Inc. v. Webbworld, Inc.,554F554 the court held the defendants directly liable for infringing public displays of copyrighted images for making such images available through a website for downloading by subscribers.

2. Kelly v. Arriba Soft

An important case construing the scope of the public display right on the Internet is that of Kelly v. Arriba Soft Corp.555F555 In that case, the defendant Arriba was the operator of a “visual search engine” on the Internet that allowed users to search for and retrieve images. In response to a search query, the search engine produced a list of reduced, “thumbnail” images. To provide this functionality, Arriba developed a program called a “crawler” that would search the Web looking for images to index, download full-sized copies of the images onto Arriba’s server, then use those images to generate lower resolution thumbnails. Once the thumbnails were created, the program deleted the full-sized originals from the server.556F556

When the user double-clicked on the thumbnail, a full-sized version of the image was displayed. During one period of time, the full-sized images were produced by “inline linking” – i.e., by retrieving the image from the original web site and displaying it on the Arriba web page with text describing the size of the image and a link to the originating site – such that the user would typically not realize the image actually resided on another web site. During a subsequent period of time, the thumbnails were accompanied by two links, a “source” and a “details” link. The “details” link produced a separate screen containing the thumbnail image with text describing the size of the image and a link to the originating site. Alternatively, by clicking on the “source” link or the thumbnail itself, the Arriba site produced two framed windows on top of the Arriba page: the window in the forefront contained the full-sized image, imported directly

553 Id. at 513.

554 45 U.S.P.Q.2d 1641 (N.D. Tex. 1997).

555 336 F.3d 811 (9th Cir. 2003).

556 Id. at 815.

- 152 -

from the originating site; underneath that was a second window displaying the home page containing the image from the original site.557F557

Arriba’s crawler copied 35 photographs on which the plaintiff, Kelly, held the copyrights into the Arriba database. When he complained, Arriba deleted the thumbnails of images that came from Kelly’s own web sites and placed those sites on a list of sites that it would not crawl in the future. Several months later, Kelly sued Arriba, identifying in the complaint other images of his that came from third party web sites.558F558 The district court ruled that Arriba’s use of both the thumbnails and the full sized images was a fair use, and Kelly appealed.559F559

The Ninth Circuit, in an opinion issued in July of 2003,560F560 affirmed the ruling that the use of the thumbnails was a fair use. Applying the first of the four statutory fair use factors, the court held that the thumbnails were a transformative use of Kelly’s works because they were much smaller, lower resolution images that served an entirely different function than Kelly’s original images. Users would be unlikely to enlarge the thumbnails and use them for artistic purposes because the thumbnails were of much lower resolution than the originals. Thus, the first fair use factor weighted in favor of Arriba.561F561

The court held that the second factor, the nature of the copyrighted work, weighed slightly in favor of Kelly because the photographs were creative in nature. The third factor, the amount and substantiality of the portion used, was deemed not to weigh in either party’s favor. Although the entire images had been copied, it was necessary for Arriba to copy the entire images to allow users to recognize the image and decide whether to pursue more information about it or the originating web site.562F562

Finally, the court held that the fourth factor, the effect of the use upon the potential market for or value of the copyrighted work, weighed in favor of Arriba. The court found that Arriba’s use of the thumbnail images would not harm the market for Kelly’s use of his images or the value of his images. By displaying the thumbnails, the search engine would guide users to Kelly’s web site rather than away from it. Nor would Arriba’s use of the images harm Kelly’s ability to sell or license the full-sized images. Anyone downloading the thumbnails would not be successful selling full sized-images from them because of the low resolution of the thumbnails,

557 Id. at 815-16.

558 Id. at 816.

559 Id. at 816-17.

560 The 2003 opinion withdrew an earlier and highly controversial opinion issued by the court in 2002, discussed further below.

561 Id. at 818-19.

562 Id. at 820-21.

- 153 -

and there would be no way to view, create, or sell clear, full-sized images without going to Kelly’s web sites. Accordingly, on balance, the court found fair use.563F563

The court reversed, however, the district court’s ruling that Arriba’s use of the full-sized images through inline linking or framing was a fair use and remanded for further proceedings. The Ninth Circuit’s ruling on this issue was contrary to a result the Ninth Circuit had reached in an earlier opinion in the case issued in 2002,564F564 which it withdrew when issuing its 2003 opinion. In the 2002 ruling, the Ninth Circuit had held, in a highly controversial ruling, that Arriba’s inline linking to and framing of the full-sized images violated the plaintiff’s public display rights.565F565 Interestingly, the court ruled that Kelly’s reproduction rights had not been infringed: “This use of Kelly’s images does not entail copying them but, rather, importing them directly from Kelly’s web site. Therefore, it cannot be copyright infringement based on the reproduction of copyrighted works …. Instead, this use of Kelly’s images infringes upon Kelly’s exclusive right to ‘display the copyrighted work publicly.’”566F566 Apparently the court’s observation that the offering of the full-sized images through linking “does not entail copying” was meant to refer to direct copying by Arriba, because a copy of the images is certainly made in the user’s computer RAM, as well as on the screen, when the user clicks on the thumbnail to display the full sized image.

With respect to infringement of the display right, the court ruled in its 2002 opinion that the mere act of linking to the images constituted infringement. First, the court ruled that there was an unauthorized “display”: “By inline linking and framing Kelly’s images, Arriba is showing Kelly’s original works without his permission.”567F567 Second, the court held that such “showing” was a “public” one: “A display is public even if there is no proof that any of the potential recipients was operating his receiving apparatus at the time of the transmission. By making Kelly’s images available on its web site, Arriba is allowing public access to those images. The ability to view those images is unrestricted to anyone with a computer and internet access.”568F568 The court thus concluded that Arriba had directly infringed Kelly’s public display rights: “By allowing the public to view Kelly’s copyrighted works while visiting Arriba’s web site, Arriba created a public display of Kelly’s works. … Allowing this capability is enough to establish an infringement; the fact that no one saw the images goes to the issue of damages, not liability.”569F569

563 Id. at 821-22.

564 Kelly v. Arriba Soft Corp., 280 F.3d 934 (9th Cir. 2002).

565 Kelly had never argued, either in the proceedings below or on appeal, that his public display rights had been infringed. The Ninth Circuit raised this issue on its own.

566 Id. at 944.

567 Id. at 945.

568 Id.

569 Id. at 946.

- 154 -

The court went on in its 2002 opinion to hold that Arriba’s display of Kelly’s full-sized images was not a fair use. Unlike the case of the thumbnails, the court held that the use of the full-sized images was not transformative. “Because the full-sized images on Arriba’s site act primarily as illustrations or artistic expression and the search engine would function the same without them, they do not have a purpose different from Kelly’s use of them.”570F570 Accordingly, the first factor weighed against fair use. For the same reasons as before, the second factor weighed slightly in favor of Kelly.571F571 The third factor weighed in favor of Kelly because, although it was necessary to provide whole images “to suit Arriba’s purpose of giving users access to the full-sized images without having to go to another site, such a purpose is not legitimate.”572F572 Finally, the fourth factor weighed in Kelly’s favor, because “[b]y giving users access to Kelly’s full-sized images on its own web site, Arriba harms all of Kelly’s markets.”573F573

The Ninth Circuit’s ruling in its 2002 decision on the public display issue generated a lot of controversy, since the reach of that ruling was potentially so broad. In particular, the logic the Ninth Circuit adopted in its 2002 decision – that the mere act of inline linking to or framing of a work, whether or not users actually view the linked work – constitutes a public display of the linked work, could call into question the legality of many types of linking or framing that has not been expressly authorized by the owner of the linked material. Apparently in response to the controversy, on Oct. 10, 2002, the Ninth Circuit ordered additional briefing on issues of public display and derivative use rights raised by the case.574F574

In its 2003 decision, the Ninth Circuit omitted entirely the discussion of the public display right that had appeared in its 2002 decision. Instead, the court held that the district court should not have decided whether the display of the full-sized images violated Kelly’s public display rights because the parties never moved for summary judgment on that issue.575F575 In the proceedings below, Kelly had moved only for summary judgment that Arriba’s use of the thumbnail images violated his display, reproduction and distribution rights. Arriba cross-moved for summary judgment and, for purposes of the motion, conceded that Kelly had established a prima facie case of infringement as to the thumbnail images, but argued that its use of the thumbnail images was a fair use. The Ninth Circuit concluded that, by ruling that use of both the thumbnail images and the full-sized images was fair, the district court had improperly broadened the scope of both Kelly’s original motion to include a claim for infringement of the full-sized images and the scope of Arriba’s concession to cover the prima facie case for both the thumbnail

570 Id. at 947.

571 Id. at 947-48.

572 Id. at 948.

573 Id.

574 “Ninth Circuit Orders Added Briefs on Hyperlinking Issues in Arriba Soft Appeal,” BNA’s Electronic Commerce & Law Report (Oct. 30, 2002) at 1082.

575 Kelly v. Arriba Soft Corp., 336 F.3d 811, 822 (9th Cir. 2003).

- 155 -

images and the full-sized images.576F576 Accordingly, the court remanded for further proceedings with respect to the full-sized images to give the parties an opportunity to fully litigate those issues.577F577

3. Ticketmaster v. Tickets.com

See Section III.D.7 below for a discussion of this case, which distinguished the Kelly v. Arriba Soft case and held that Tickets.com’s deep linking to pages on Ticketmaster’s web site where tickets could be purchased for events listed on Tickets.com’s site did not constitute an infringing public display.

4. Perfect 10 v. Google (aka Perfect 10 v. Amazon)

Perfect 10 v. Google set forth a detailed adjudication of the boundaries of the display right on the Internet, and in particular, which entity should be deemed to perform the display for purposes of copyright liability when the display results through links from a web site to another web site storing copies of the copyrighted material at issue. Because both the district court and the Ninth Circuit issued very thorough, thoughtful opinions, the holdings of both courts will be explained in detail.

The plaintiff Perfect 10 sought to preliminarily enjoin Google from displaying thumbnails and full size versions of its copyrighted photographs through the “Google Image Search” function in response to user search queries. Google Image Search allowed a user to input a text search string and returned thumbnail images organized into a grid potentially responsive to the search query.578F578

To operate Google Image Search, Google created and stored in its cache thumbnail versions of images appearing on web sites crawled by Google’s web crawler. The thumbnails chosen for display in response to search queries depended solely upon the text surrounding the image at the original site from which the image was drawn. When a user clicked on a thumbnail image, Google displayed a page comprised of two distinct frames divided by a gray horizontal line, one frame hosted by Google and the second one hosted by the underlying web site that originally hosted the full size image.579F579 In the upper frame, Google displayed the thumbnail, retrieved from its cache, and information about the full size image, including the original resolution of the image and the specific URL associated with that image. The upper frame made clear that the image might be subject to copyright and that the upper frame was not the original context in which the full size image was found. The lower frame contained the original web

576 Id. at 817.

577 Id. at 822.

578 Perfect 10 v. Google, 416 F. Supp. 2d 828, 832-33 (C.D. Cal. 2006), aff’d sub nom. Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1169 (9th Cir. 2007).

579 Id. at 833.

- 156 -

page on which the original image was found. Google neither stored nor served any of the content displayed in the lower frame, which was stored and served by the underlying third party web site containing the original image.580F580 Perfect 10 brought claims against Google for direct, vicarious and contributory copyright infringement.

Direct Infringement Claims. Perfect 10 alleged that Google directly infringed its copyrights by displaying and distributing the full size images hosted by third party web sites, and by creating, displaying and distributing thumbnails of its copyrighted full size images. Google conceded that it created and displayed thumbnails, but denied that it displayed, created, or distributed what was depicted in the lower frame of search results displays, which were generated via in-line links to third party sites storing the original images of interest.581F581

The district court began with a consideration of how “display” should be defined in the context of in-line linking, noting that two approaches were possible: (1) a “sever” test, in which display is defined as the act of serving content over the web, i.e., physically sending bits over the Internet to the user’s browser, and (2) an “incorporation” test, in which display is defined as the mere act of incorporating content into a web page that is then pulled up by the browser through an in-line link. Under the server test, advocated in the case by Google, the entity that should be deemed liable for the display of infringing content is the entity whose server served up the infringing material. Under the incorporation test, advocated by Perfect 10, the entity that should be deemed liable for the display of infringing content is the entity that uses an in-line link in its web page to direct the user’s browser to retrieve the infringing content.582F582

The district court reviewed the existing decisions dealing with the question of whether linking constitutes infringing “displaying” of copyrighted material. The court noted that in the Webbworld and Hardenburg cases,583F583 the material was stored on the defendant’s servers, and in the Perfect 10 v. Cybernet Ventures case,584F584 it was unclear whether the defendant stored or served any of the infringing content. The court further noted that the Ninth Circuit had withdrawn its opinion in Kelly v. Arriba Soft585F585 adopting the incorporation test in the face of widespread criticism of that decision. The court therefore found that none of these cases, or any other existing precedent, resolved the question before it.586F586

The district court concluded that the server test was the most appropriate one for determining whether Google’s lower frames were a “display” of infringing material. The court

580 Id. at 833-34.

581 Id. at 838.

582 Id. at 838-40.

583 These cases are discussed in Section II.C.1 above.

584 This case is discussed in Section II.A.4(k) above.

585 This case is discussed in Section II.C.2 above.

586 416 F. Supp. 2d at 840-43.

- 157 -

articulated several reasons for adopting the server test. First, it is based on what happens at the technological level as users browse the web, and thus reflects the reality of how content actually travels over the Internet before it is shown on users’ computers. Second, it precludes search engines from being held directly liable for in-line linking and/or framing infringing content stored on third party web sites, but allows copyright owners still to seek to impose contributory or vicarious liability on web sites for including such content. Third, web site operators can readily understand the server test and courts can apply it relatively easily. Fourth, in the instant case, it imposes direct liability on the web sites that took Perfect 10’s full size images and posted them on the Internet for all to see. Finally, the server test promotes the balance of copyright law to encourage the creation of works by protecting them while at the same time encouraging the dissemination of information. The server test would avoid imposing direct liability for merely indexing the web so that users can more readily find the information they seek, while imposing direct liability for the hosting and serving of infringing content.587F587

Applying the server test, the district court ruled that for purposes of direct infringement, Google’s use of frames and in-line links did not constitute a “display” of the full size images stored on and served by infringing third party web sites, but Google did “display” the thumbnails of Perfect 10’s copyrighted images because it created, stored, and served those thumbnails on its own servers.588F588

On appeal, the Ninth Circuit agreed with the district court that the “server” test should be used to determine which entity displays an image on the web, concluding that the test was consistent with the statutory language of the copyright statute. Under that test, Perfect 10 had made a prima facie case that Google’s communication of its stored thumbnail images directly infringed Perfect 10’s display rights. However, Google had not publicly displayed a copy of the full size infringing images when it framed in-line linked images that appeared on a user’s computer screen.589F589 The Ninth Circuit found that Google’s activities with respect to the full size images did not meet the statutory definition of public display “because Google transmits or communicates only an address which directs a user’s browser to the location where a copy of the full-size image is displayed. Google does not communicate a display of the work itself.”590F590 The court also ruled that, because Google’s cache merely stored the text of web pages, and not the images themselves, Google was not infringing the display right by virtue of its cache.591F591

Fair Use. The district court evaluated Google’s assertion of the fair use defense to the display of the thumbnails. With respect to the first fair use factor, the purpose and character of the use, the court found that Google’s display of the thumbnails was a commercial use, since Google derived significant commercial benefit from Google Image Search in the form of

587 Id. at 843-44.

588 Id. at 844.

589 Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1159-60 (9th Cir. 2007).

590 Id. at 1161 n.7.

591 Id. at 1162.

- 158 -

increased user traffic and, in turn, increased advertising revenue. The court distinguished the Ninth Circuit’s decision in the Kelly v. Arriba Soft case by noting that, unlike Arriba Soft, Google derived direct commercial benefit from the display of thumbnails through its “AdSense” program, under which third party web sites could place code on their sites to request Google’s server to algorithmically select relevant advertisements for display based on the content of the site, and then share revenue flowing from the advertising displays and click-throughs. If third party web sites participating in the AdSense program contained infringing copies of Perfect 10 photographs, Google would serve ads on those sites and split the revenue generated from users who clicked on the Google-served ads.592F592 Accordingly, the court concluded that “AdSense unquestionably makes Google’s use of thumbnails on its image search far more commercial than Arriba’s use in Kelly II. Google’ thumbnails lead users to sites that directly benefit Google’s bottom line.”593F593

Relying on the Kelly v. Arriba Soft decision, the court concluded that the use of the thumbnails was transformative because their creation and display enabled the display of visual search results quickly and efficiently, and did not supersede Perfect 10’s us of the full size images. But the court noted that the transformative nature of the thumbnail use did not end the analysis, because the use was also “consumptive.” In particular, the court noted that after it filed suit against Google, Perfect 10 entered into a licensing agreement with a third party for the sale and distribution of Perfect 10 reduced-size images for download to and use on cell phones.594F594 “Google’s use of thumbnails does supersede this use of P10’s images, because mobile users can download and save the thumbnails displayed by Google Image Search onto their phones.”595F595 On balance, then, the court concluded that, because Google’s use of thumbnails was more commercial than Arriba Soft’s and because it was consumptive with respect to Perfect 10’s reduced-size images, the first factor weighed “slightly in favor” of Perfect 10.596F596

The district court ruled that the second fair use factor, the nature of the copyrighted work, weighed “only slightly in favor” of Perfect 10 because, although its photographs were creative, as in the case of the Kelly v. Arriba Soft case, they had appeared on the Internet before use in Google’s search engine.597F597 The court found that the third factor, the amount and substantiality

592 Perfect 10 v. Google, 416 F. Supp. 2d 828, 834, 846-47 (C.D. Cal. 2006), aff’d sub nom. Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1169 (9th Cir. 2007).

593 Id. at 846. Google counterargued that its AdSense program policies prohibited a web site from registering as an AdSense partner if the site’s web pages contained images that appeared in Google Image Search results. The court noted, however, that Google had not presented any information regarding the extent to which the purported policy was enforced nor had it provided examples of AdSense partners who were terminated because of violations of the policy. In contrast, Perfect 10 submitted numerous screenshots of third party web sites that served infringing content and also appeared to be receiving and displaying AdSense ads from Google. Id. at 846-47.

594 Id. at 847-49.

595 Id. at 849.

596 Id.

597 Id. at 849-50.

- 159 -

of the portion used, favored neither party because Google’s use of the copies of Perfect 10’s images was no greater than necessary to achieve the objective of providing effective image search capabilities.598F598 Finally, the court found that the fourth factor, the effect of the use upon the potential market for and value of the copyrighted work, weighed slightly in Perfect 10’s favor because of the court’s finding that Google’s use of thumbnails likely would harm the potential market for the downloading of Perfect 10’s reduced-size images onto cell phones. On balance, then, the court found that the fair use doctrine likely would not cover Google’s use of the thumbnails.599F599

On appeal, the Ninth Circuit reached the opposite conclusion under the fair use doctrine. Before beginning its specific analysis of the four fair use factors, the Ninth Circuit made some important preliminary rulings concerning the burden of proof with respect to the fair use doctrine. The district court had ruled that, because Perfect 10 had the burden of showing a likelihood of success on the merits, it also had the burden of demonstrating a likelihood of overcoming Google’s fair use defense. The Ninth Circuit held the district court’s ruling on this point to be erroneous. Citing cases from the Supreme Court and the Federal Circuit holding that the burdens at the preliminary injunction stage track the burdens at trial, the Ninth Circuit ruled that, once Perfect 10 had shown a likelihood of success on the merits, the burden shifted to Google to show a likelihood that its affirmative defenses – including that of fair use – would succeed.600F600

The Ninth Circuit’s analysis of the fair use factors is significant in its recognition of the need, when judging the transformative nature of the use, to balance the public benefit from the use against the potential harm to the rights holder from superseding commercial uses, as well as in its requirement of a showing that alleged potential superseding commercial uses are both real and significant in their impact. Specifically, with respect to the first factor, the Ninth Circuit,

598 Id. at 850.

599 Id. at 850-51.

600 Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1158 (9th Cir. 2007). This holding was the opposite of one the Ninth Circuit had reached in an earlier issued opinion in the appeal, which the instant opinion replaced. In the earlier opinion, the Ninth Circuit had concluded that, because a plaintiff has the burden of showing a likelihood of success on the merits in order to obtain a preliminary injunction, the plaintiff should also have the burden of demonstrating a likelihood of overcoming the defendant’s fair use defense. However, because the defendant in an infringement action has the burden of proving fair use, the Ninth Circuit had ruled in its earlier opinion that the defendant is responsible for introducing evidence of fair use in the first instance in responding to a motion for preliminary relief, whereupon the burden would then shift to the plaintiff to demonstrate that it will overcome the fair use defense. Perfect 10 v. Amazon.com, Inc., 487 F.3d 701, 714 (9th Cir. 2007) (superseded by 508 F.3d 1146 (9th Cir. 2007)). The court further elaborated its rationale in the earlier opinion as follows: “In order to demonstrate its likely success on the merits, the moving party must necessarily demonstrate it will overcome defenses raised by the non-moving party. This burden is correctly placed on the party seeking to demonstrate entitlement to the extraordinary remedy of a preliminary injunction at an early stage of the litigation, before the defendant has had the opportunity to undertake extensive discovery or develop its defenses.” 487 F.3d at 714. The Ninth Circuit apparently concluded that this earlier holding was inconsistent with established precedent that the burdens at the preliminary injunction stage track the burdens at trial, leading the court to issue a revised opinion.

- 160 -

citing the Kelly v. Arriba Soft case, noted that Google’s use of the thumbnails was highly transformative because its search engine transformed each image into a pointer directing a user to a source of information.601F601 In addition, “a search engine provides social benefit by incorporating an original work into a new work, namely, an electronic reference tool.”602F602

In a significant ruling, the Ninth Circuit disagreed, on two grounds, with the district court’s conclusion that Google’s use of thumbnail images was less transformative than the video search engine at issue in Kelly v. Arriba Soft because Google’s use of thumbnails superseded Perfect 10’s right to sell its reduced-size images for use on cell phones. First, the Ninth Circuit noted that the alleged superseding use was not significant at the present time, because the district court had not found that any downloads of Perfect 10’s photos for mobile phone use had actually taken place.603F603 Second, the court concluded “that the significantly transformative nature of Google’s search engine, particularly in light of its public benefit, outweighs Google’s superseding and commercial uses of the thumbnails in this case.”604F604 Accordingly, the first fair use factor weighed in favor of Google.

The Ninth Circuit found that the district court had correctly analyzed the second and third factors.605F605 With respect to the fourth factor, Perfect 10 challenged the district court’s finding of no harm to the market for the full sized images on the ground that likelihood of market harm may be presumed if the intended use of an image is for commercial gain. The court noted, however, that this presumption does not arise when a work is transformative because market substitution is less certain. Because Google’s use of thumbnails for search engine purposes was highly transformative and market harm could therefore not be presumed, and because Perfect 10 had not introduced evidence that Google’s thumbnails would harm its existing or potential market for full size images, the Ninth Circuit rejected Perfect 10’s argument.606F606

With respect to harm to Perfect 10’s alleged market for reduced size images, the Ninth Circuit noted that the district court did not make a finding that Google users had actually downloaded thumbnail images for cell phone use, so any potential harm to that alleged market remained hypothetical. Accordingly, the court concluded that the fourth factor favored neither

601 508 F.3d at 1165.

602 Id. The Ninth Circuit rejected Perfect 10’s argument that providing access to infringing web sites cannot be deemed transformative and is inherently not fair use. The court noted that Google was operating a comprehensive search engine that only incidentally indexed infringing web sites. “This incidental impact does not amount to an abuse of the good faith and fair dealing underpinnings of the fair use doctrine. Accordingly, we conclude that Google’s inclusion of thumbnail images derived from infringing websites in its Internet-wide search engine activities does not preclude Google from raising a fair use defense.” Id. at 1164 n.8.

603 Id. at 1166.

604 Id.

605 Id. at 1167-68.

606 Id. at 1168.

- 161 -

party.607F607 Balancing the four factors, and particularly weighing Google’s highly transformative use and its public benefit against the unproven use of thumbnails for cell phone downloads, the court concluded that Google’s use of Perfect 10’s thumbnails was a fair use. Accordingly, the court vacated the preliminary injunction regarding Google’s use of thumbnail images.608F608

Contributory Infringement. Perfect 10 argued to the district court that Google was contributing to the infringement of two direct infringers – third party web sites hosting and serving infringing copies of Perfect 10 photographs, and Google Image Search users downloading such images. The district court ruled as a preliminary matter that Perfect 10 could not base its contributory infringement claim on users’ actions, because Perfect 10 had demonstrated only that users of Google search were capable of directly infringing by downloading the images, but had not submitted sufficient evidence showing the extent to which users were in fact downloading Perfect 10’s images through Google Image Search. Thus, the contributory infringement claim had to be based on knowledge and material contribution by Google to the infringing activities of third party web sites hosting Perfect 10’s images.609F609

With respect to the knowledge prong, the district court, citing the Supreme Court’s Grokster case, noted that either actual or constructive knowledge is sufficient for contributory liability. The court rejected Perfect 10’s argument that Google had actual knowledge from the presence of copyright notices on Perfect 10’s images or from the fact that Google’s AdSense policy stated that it monitored the content of allegedly infringing sites. The court noted that Google would not necessarily know that any given image on the Internet was infringing someone’s copyright merely because the image contained a copyright notice. With respect to the alleged monitoring by Google, Google had changed its AdSense policy to remove the language reserving to Google the right to monitor its AdSense partners. The court further noted that, in any event, merely because Google may have reserved the right to monitor its AdSense partners did not mean that it could thereby discern whether the images served by those web sites were subject to copyright.610F610

The district court then turned to an analysis of whether numerous notices of infringement sent by Perfect 10 to Google were sufficient to give Google actual knowledge of infringing activity. Google challenged the adequacy of those notices on the grounds that they frequently did not describe in sufficient detail the specific URL of an infringing image and frequently did not identify the underlying copyrighted work. Some notices listed entire web sites as infringing,

607 Id.

608 Id. In a side, but significant, issue, Google argued that the Ninth Circuit lacked jurisdiction over the preliminary injunction to the extent it enforced unregistered copyrights. The court rejected this argument: “Once a court has jurisdiction over an action for copyright infringement under section 411 [of the copyright statute], the court may grant injunctive relief to restrain infringement of any copyright, whether registered or unregistered.” Id. at 1154 n.1.

609 Perfect 10 v. Google, 416 F. Supp. 2d 828, 851-52 (C.D. Cal. 2006), aff’d sub nom. Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1169 (9th Cir. 2007).

610 Id. at 853-54.

- 162 -

or entire directories within a web site. Google claimed that despite these shortcomings, it promptly processed all of the notices it received, suppressing links to specific web pages that it could confirm displayed infringing Perfect 10 copies. The court concluded, however, that it need not resolve the question of whether Google had adequate actual knowledge of infringement, in view of the court’s conclusion that Google had not materially contributed to the infringing activity of third party web sites.611F611

The district court articulated the following grounds for its finding that Perfect 10 had not adequately met its burden to show that Google sufficiently contributed to the infringing activity for contributory liability. First, the court set forth numerous differences between Google’s activity and the activity that had been found to materially contribute to infringement in the Napster cases. For example, unlike in the case of the Napster system, in the instant case the infringing third party web sites existed, were publicly accessible, and engaged in the infringing activity irrespective of their inclusion or exclusion from Google’s index. Unlike Napster, Google did not provide the means of establishing connections between users’ computers to facilitate the downloading of the infringing material. Even absent Google, third party web sites would continue to exist and would continue to display infringing content (an observation which would seem true of all search engines). And unlike Napster, Google did not boast about how users could easily download infringing content, nor did it facilitate the transfer of files stored on users’ otherwise private computers.612F612

In sum, the district court found that Perfect 10 had overstated Google’s actual conduct and confused the mere provision of search technology with active encouragement and promotion of infringing activity. The court also rejected Perfect 10’s argument based on the Supreme Court’s Grokster case that Google had materially contributed to the infringing activity by providing through AdSense a revenue stream to the infringing web sites. The court held that, although the AdSense program might provide some level of additional revenue to the infringing web sites, Perfect 10 had not presented any evidence establishing what that revenue was, much less that it was material, either in its own right or relative to those web sites’ total income. Accordingly, the court ruled that Perfect 10 was not likely to prevail on its claim for contributory liability.613F613

In an important ruling on appeal,614F614 the Ninth Circuit reversed and remanded for factual findings under a specialized test for contributory infringement for computer system operators. The Ninth Circuit began its analysis by examining the issue of whether Perfect 10 had adequately proved direct infringements to which Google could potentially contribute. Perfect 10 alleged that three parties directly infringed its images – third party web sites that copied, displayed and distributed unauthorized Perfect 10 images, individual users of Google’s search

611 Id. at 854.

612 Id.

613 Id. at 855-56.

614 Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146 (9th Cir. 2007).

- 163 -

engine who stored full size Perfect 10 images on their computers, and users who linked to infringing web sites, thereby automatically making cache copies of full size images in their computers. Google did not dispute that third party web sites directly infringed Perfect 10’s copyrights by copying, displaying and distributing unauthorized copies of Perfect 10 images.615F615

The Ninth Circuit agreed, however, with the district court that Perfect 10 failed to provide any evidence directly establishing that users of Google’s search engine had stored infringing images on their computers. Finally, the Ninth Circuit agreed with the district court that any cache copies of full size images made by users who linked to infringing web sites were a fair use. The copying performed automatically by a user’s computer to assist in accessing the Internet was a transformative use and did not supersede the copyright holder’s exploitation of the work.616F616 “Such automatic background copying has no more than a minimal effect on Perfect 10’s rights, but a considerable public benefit.”617F617 Accordingly, the Ninth Circuit assessed Google’s secondary liability based solely with respect to activities of third party web sites that reproduced, displayed, and distributed unauthorized copies of Perfect 10’s images on the Internet.618F618

Turning to whether Google could be secondarily liable for the infringing acts of those third party web sites, the Ninth Circuit first noted that under the Sony doctrine, Google could not be held liable for contributory infringement based solely on the fact that the design of its search engine facilitated such infringement. Nor, under footnote 12 of the Supreme Court’s Grokster decision, could Google be held liable solely because it did not develop technology that would enable its search engine to automatically avoid infringing images.619F619

The Ninth Circuit next held that Google could not be liable under the Supreme Court’s inducement test in Grokster, because Google had not promoted the use of its search engine specifically to infringe copyrights.620F620 In reaching this result, however, the Ninth Circuit appears to have put a gloss on the Supreme Court’s test for inducement liability, for in addition to noting that inducement liability could result from intentionally encouraging infringement through specific acts, the Ninth Circuit stated that intent could be imputed “if the actor knowingly takes steps that are substantially certain to result in … direct infringement.”621F621

Finally, turning to whether Google could have secondary liability under the traditional common law doctrine of contributory liability, the Ninth Circuit, citing its Napster decisions, noted that it had “further refined this test in the context of cyberspace to determine when

615 Id. at 1169.

616 Id.

617 Id.

618 Id. at 1170.

619 Id.

620 Id. at 1171 n.11.

621 Id. at 1171.

- 164 -

contributory liability can be imposed on a provider of Internet access or services.”622F622 The Ninth Circuit noted that under both Napster and Netcom, a service provider’s knowing failure to prevent infringing actions could be the basis for imposing contributory liability, because under such circumstances, the intent required under the Supreme Court’s Grokster decision may be imputed. Accordingly, the Ninth Circuit articulated the following test for contributory liability in the context of cyberspace:

[W]e hold that a computer system operator can be held contributorily liable if it “has actual knowledge that specific infringing material is available using its system,” Napster, 239 F.3d at 1002, and can “take simple measures to prevent further damage” to copyrighted works, Netcom, 907 F. Supp. At 1375, yet continues to provide access to infringing works.623F623

This articulated test leaves open at least the following questions, with respect to which the Ninth Circuit’s decision gives little guidance:

-- Is this the exclusive test for contributory infringement in “the context of cyberspace”?

-- What are the boundaries of “the context of cyberspace” within which this test will apply?

-- Does the reference to “actual” knowledge preclude secondary liability on the alternative traditional common law formulation of “reason to know” in the context of cyberspace?

-- Do “simple measures” extend only to taking down specific infringing material, or to preventing its recurrence also?

Applying this specialized test, the Ninth Circuit ruled that the district court had erred in concluding that, even if Google had actual knowledge of infringing material available on its system, it did not materially contribute to infringing conduct because it did not undertake any substantial promotional or advertising efforts to encourage visits to infringing web sites, nor provide a significant revenue stream to the infringing web sites.624F624 The Ninth Circuit stated:

There is no dispute that Google substantially assists websites to distribute their infringing copies to a worldwide market and assists a worldwide audience of users to access infringing materials. We cannot discount the effect of such a service on copyright owners, even though Google’s assistance is available to all websites, not just infringing ones. Applying our test, Google could be held contributorily liable if it had knowledge that infringing Perfect 10 images were available using

622 Id.

623 Id. at 1172 (emphasis in original).

624 Id.

- 165 -

its search engine, could take simple measures to prevent further damage to Perfect 10’s copyrighted works, and failed to take such steps.625F625

Noting that there were factual disputes over whether there are “reasonable and feasible means” for Google to refrain from providing access to infringing images, the Ninth Circuit remanded the contributory infringement claim for further consideration of whether Perfect 10 would likely succeed in establishing that Google was contributorily liable for in-line linking to full size infringing images under the test the court had enunciated.626F626

Similarly, the Ninth Circuit remanded for further proceedings on whether Amazon.com, which Perfect 10 had also sued based on its offering of the A9.com search engine, should be held contributorily liable. “It is disputed whether the notices gave Amazon.com actual knowledge of specific infringing activities available using its system, and whether Amazon.com could have taken reasonable and feasible steps to refrain from providing access to such images, but failed to do so.”627F627

Vicarious Liability. Perfect 10 also asserted claims against Google for vicarious liability. With respect to the financial benefit prong, the district court found that Google obtained a direct financial benefit from the infringing activity through its AdSense revenues under the standard articulated in the Ninth Circuit’s Fonovisa decision,628F628 in which it held that the financial benefit prong can be satisfied where the availability of infringing material acts as a “draw” for customers to the site. Under that standard, the district court found it likely that at least some users were drawn to Google Image Search because they knew that copies of Perfect 10’s photos could be viewed for free, and Google derived a direct financial benefit when users visited AdSense partners’ web sites that contained such infringing photos.629F629

Notwithstanding the financial benefit to Google, however, the district court found that Google had insufficient control over the infringing activity to impose vicarious liability because the Web is an open system. “Google does not exercise control over the environment in which it operates – i.e., the web. Google’s ability to remove a link from its search index does not render the linked-to site inaccessible. The site remains accessible both directly and indirectly (i.e., via other search engines, as well as via the mesh of websites that link to it). If the phrase ‘right and ability to control’ means having substantial input into or authority over the decision to serve or continue serving infringing content, Google lacks such right or ability.”630F630 Moreover, Google’s software lacked the ability to analyze every image on the Internet, compare each image to all

625 Id.

626 Id. at 1172-73

627 Id. at 1176.

628 Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996).

629 Perfect 10 v. Google, 416 F. Supp. 2d at 856-57.

630 Id. at 857-58.

- 166 -

other copyrighted images that existed in the world, or even to that much smaller subset of images that had been submitted to Google by copyright owners such as Perfect 10, and determine whether a certain image on the web infringed someone’s copyright.631F631 Finally, the court ruled that the “right and ability to control” prong required more than Google’s reservation in its AdSense policy of the right to monitor and terminate partnerships with entities that violated others’ copyrights. Accordingly, the district court held that Perfect 10 had not established a likelihood of proving the second prong necessary for vicarious liability.632F632

Based on its various rulings, the district court concluded that it would issue a preliminary injunction against Google prohibiting the display of thumbnails of Perfect 10’s images, and ordered the parties to propose jointly the language of such an injunction.633F633

On appeal, the Ninth Circuit affirmed the district court’s ruling that Perfect 10 had not shown a likelihood of establishing Google’s right and ability to stop or limit the directly infringing conduct of third party web sites. The Ninth Circuit began its analysis by noting that, under Grokster, “a defendant exercises control over a direct infringer when he has both a legal right to stop or limit the directly infringing conduct, as well as the practical ability to do so.”634F634 With respect to the first part of this test, the court noted that, unlike in Fonovisa where the swap meet operator had contracts with its vendors giving it the right to stop the vendors from selling counterfeit recordings on its premises, Perfect 10 had not shown that Google had contracts with third party web sites that empowered Google to stop or limit them from reproducing, displaying and distributing infringing copies of Perfect 10’s images. Although Google had AdSense agreements with various web sites, an infringing third party web site could continue to reproduce, display, and distribute its infringing copies after its participation in the AdSense program was ended.635F635 And unlike the Napster system, in which Napster’s control over its closed system that required user registration and enabled Napster to terminate its users’ accounts and block their access to the Napster system, Google could not terminate third party web sites distributing infringing photographs or block their ability to host and serve infringing full size images on the Internet.636F636

The Ninth Circuit also affirmed the district court’s findings that Google lacked the practical ability to police the third party web sites’ infringing conduct. “Without image-recognition technology, Google lacks the practical ability to police the infringing activities of third-party websites.”637F637 Google’s inability to police distinguished it from the defendants held

631 Id. at 858.

632 Id.

633 Id. at 859.

634 Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1173 (9th Cir. 2007).

635 Id.

636 Id. at 1174.

637 Id.

- 167 -

liable in the Napster and Fonovisa cases. Accordingly, Perfect 10 had failed to establish the right and ability to control prong of vicarious liability.638F638 Having so concluded, the Ninth Circuit determined that it need not reach Perfect 10’s argument that Google received a direct financial benefit.639F639

Based on its rulings, the Ninth Circuit reversed the district court’s determination that Google’s thumbnail versions of Perfect 10’s images likely constituted a direct infringement. It also reversed the district court’s conclusion that Perfect 10 was unlikely to succeed on the merits of its secondary liability claims because the district court failed to consider whether Google and Amazon.com knew of infringing activities yet failed to take reasonable and feasible steps to refrain from providing access to infringing images. Accordingly, the Ninth Circuit remanded the case to the district court for further proceedings on this point, as well as to consider whether Google and Amazon.com would qualify for any of the safe harbors of the DMCA, an issue which the district court did not consider because of its rulings. Because the district court would need to reconsider the appropriate scope of injunctive relief after addressing the secondary liability issues, the Ninth Circuit decided that it need not address the parties’ dispute over whether the district court abused its discretion in determining that Perfect 10 satisfied the irreparable harm element of a preliminary injunction.640F640

On remand, Google asserted various safe harbors under the DMCA. Analysis of the rulings with respect to whether Google was entitled to any of the safe harbors may be found in Section III.C.6(b)(1)(ii).c.

5. Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey

In Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey,641F641 the court ruled that display of copyrighted images on computer monitors within a law office constituted a public display, but was permitted under the fair use doctrine. Healthcare Advocates had filed a lawsuit alleging that a competitor infringed trademarks and copyrights and misappropriated trade secrets belonging to Healthcare Advocates. The defendants in that case were represented by the boutique IP law firm of Harding, Earley, Follmer & Frailey. To aid in preparing a defense, on two occasions employees of the Harding firm accessed screenshots of old versions of Healthcare Advocates’ web sites that had been archived by the Internet Archive’s web site (www.archive.org). The old versions of the web site were accessed through the “Wayback Machine,” an information retrieval system offered to the public by the Internet Archive that

638 Id. The Ninth Circuit also stated, without analysis, that it agreed with the district court’s conclusion that Amazon.com did not have the right and ability to supervise the infringing activity of Google or third parties, and that the district court did not clearly err in concluding that Amazon.com lacked a direct financial interest in such activities. Id. at 1176.

639 Id. at 1175 n.15.

640 Id. at 1176-77.

641 2007 U.S. Dist. LEXIS 52544 (E.D. Pa. July 20, 2007).

- 168 -

allowed users to request archived screenshots contained in its archival database. Viewing the content that Healthcare Advocates had included on its public web site in the past was very useful to the Harding firm in assessing the merits of the trademark and trade secret allegations brought against the firm’s clients. The Harding firm printed copies of the archived screenshots of interest and used the images in the litigation against their clients. Healthcare Advocates then sued the Harding firm, alleging that viewing the screenshots of the old versions of their web site on computers within the firm constituted an infringing public display, and that printing of copies of those screenshots and storing them on hard drives at the firm also infringed the company’s copyrights.642F642

The court ruled that, “[u]nder the expansive definition of a public display, the display of copyrighted images on computers in an office constitutes a public display.”643F643 The court concluded, however, that the Harding firm’s display and copying of those images for purposes of defending its clients in the litigation brought by Healthcare Associates constituted a fair use. With respect to the purpose of the use, the court noted that the images were used to better understand what Healthcare Associates’ complaint, which did not specify what had been infringed nor have any documents attached to it depicting the infringement, was based on.644F644 Only a small group of employees were able to see the images within the law firm’s office, which the court found was “similar to a family circle and its acquaintances.”645F645 The purpose of the printing was only to make a record of what had been viewed and for use as supporting documentation for the defense the firm planned to make for its clients.646F646 “It would be an absurd result if an attorney defending a client against charges of trademark and copyright infringement was not allowed to view and copy publicly available material, especially material that his client was alleged to have infringed.”647F647

The second fair use factor weighed in favor of the firm because the nature of Healthcare Associates’ web sites was predominantly informational. The third factor weighed in favor of the firm because, although entire images were copied, employees at the firm needed to copy everything they viewed because they were using the screenshots to defend their clients against copyright and trademark infringement claims. The firm also had a duty to preserve relevant evidence. Finally, the court found that the fourth fair use factor also favored the firm, because the value of Healthcare Associates’ web sites was not affected by the Harding’s firm’s use, and the images viewed and copied were archived versions of the web site that Healthcare Associates no longer utilized, suggesting their worth was negligible. Accordingly, the court held that the

642 Id. at *2-10.

643 Id. at *19.

644 Id. at *22-23.

645 Id. at *24. The copyright statute defines a “public” display as one made in a place “where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.” 17 U.S.C. § 101.

646 Id. at *24.

647 Id. at *24-25.

- 169 -

Harding firm’s use of the images obtained through the Wayback Machine constituted a fair use.648F648

6. ICG-Internet Commerce Group, Inc. v. Wolf

In ICG-Internet Commerce Group, Inc. v. Wolf,649F649 the court held that the defendant had infringed the plaintiff’s copy and public display rights in an adult video by posting the video to the defendant’s web site. The court also ruled that the insertion into the plaintiff’s video of a URL link to the defendant’s web site constituted the creation of an infringing derivative work.650F650

7. Perfect 10 v. Yandex

In Perfect 10, Inc. v. Yandex, N.V.,651F651 Yandex operated image search engines at Yandex.ru, whose servers were located in Russia, and Yandex.com, whose servers were located in the U.S. Yandex.ru was Russia’s most popular search engine and the fourth largest search engine worldwide. The search engines did not store any full-sized images that its crawlers located, but rather stored only lower-resolution thumbnails of the images. Yandex reproduced its thumbnail copies on search results pages so that a user making a search query could determine which, if any, thumbnails were of interest and then click through to the third party web site that hosted the full-sized image. When the user clicked on a link, the full-size source image was displayed via in-line linking in the same browser window without including other parts of the surrounding third-party web page on which the full-sized image appeared. Thumbnails of several thousand unauthorized Perfect 10 images were stored on Yandex’s search engine servers and Perfect 10 sued for direct, contributory and vicarious copyright infringement. Yandex moved for summary judgment on several issues.652F652

Turning first to the issue of direct liability, the court noted that of the 63,756 alleged infringements to which Yandex.ru and Yandex.com linked in search results, 51,959 of them were hosted on servers located outside the U.S. The court noted that under the Ninth Circuit’s “server test” adopted in the Perfect 10 v. Amazon case, the hosting web site’s computer, rather than the search engine’s computer, is the situs of direct infringement, and Yandex could therefore have no liability for direct infringement under U.S. copyright law with respect to those images hosted outside the U.S. The court rejected Perfect 10’s argument that Yandex committed direct infringement by display in the U.S. of images hosted outside the U.S. because users in the U.S.

648 Id. at *26-29. The court also ruled that the firm’s failure to preserve temporary cache files of the screenshots that were automatically created by the computers used by the firm’s employees to view the images through the Internet, and were also automatically deleted by the computers’ operating system, did not constitute spoliation of evidence. Id. at *30-38.

649 519 F. Supp. 2d 1014 (E.D. Pa. 2007).

650 Id. at 1018.

651 962 F. Supp. 2d 1146 (N.D. Cal. 2013).

652 Id. at 1150-51, 1155.

- 170 -

could download them. Nowhere in the Amazon decision did the Ninth Circuit endorse the idea that display of a copyrighted image anywhere in the world creates direct copyright liability in the U.S. merely because images could be downloaded from a server abroad by someone in the U.S. The court observed that such a principle would destroy the concept of territoriality inhering in the Copyright Act for works on the Internet. The court found more plausible Perfect 10’s argument that, when Yandex’s servers were located in the U.S. for a nine-month period, a Yandex.com image search performed by a server in the U.S. could have linked to a Perfect 10 imaged hosted on a Yandex server in Russia. The court, however, found it unnecessary to address the validity of the argument because Perfect 10 had not demonstrated that Yandex in fact stored or displayed full-sized copies of the Perfect 10 images on Yandex’s U.S. servers. Accordingly, the court granted Yandex summary judgment on direct infringement with respect to hosting or display of Perfect 10 images through servers outside the U.S.653F653

The court then turned to storage of thumbnail versions of Perfect 10 images on Yandex.com servers in the U.S. during the nine-month period from June 2012 to March 2013. Yandex did not dispute that its use of the thumbnails in the U.S. constituted a prima facie violation of Perfect 10’s display and distribution rights, but argued that its thumbnail copies were a fair use. The court agreed. With respect to the first fair use factor, citing the Amazon and Kelly v. Arriba cases, the court found that use of a thumbnail image as a pointer to a source of information is highly transformative, and noted that Yandex’s in-linking to a full-size image, which caused it to be transmitted from the third party web site hosting it, did not constitute direct infringement on the part of Yandex.654F654

The court noted that the second fair use factor slightly favored the plaintiff Perfect 10, as in Amazon. With respect to the third factor, the amount and substantiality of the use, the court rejected Perfect 10’s argument that the third factor should favor it because Yandex allegedly used 40,000 Perfect 10 thumbnails. The court noted that the substantiality analysis must be made on a copyright-by-copyright basis, and the number of allegedly infringed images is therefore not relevant. As in Amazon and Kelly, the court concluded that the third factor favored neither party because Yandex’s transformative use required use of the entire image, although in reduced size. With respect to the fourth factor, the court rejected Perfect 10’s argument that Yandex’s search engines caused it market harm because they led to billions of unauthorized views and downloads of its images from web sites to which Yandex linked Perfect 10 thumbnails. The court found that Perfect 10 had not substantiated the argument by competent evidence. Perfect 10’s evidence consisted of screen shots from third party web sites showing that links on those sites leading to Perfect 10 images had been viewed approximately 3.8 million times, but Perfect 10 failed to provide evidence that any of those views were the result of Yandex.com users clicking on thumbnails stored on Yandex.com servers in the U.S. during the nine-month period. The court also rejected Perfect 10’s argument that its market for reduced-size images for cell phone use had dried up since 2007 and Yandex had begun providing a

653 Id. at 1153-54.

654 Id. at 1154-55.

- 171 -

thumbnail search service since 2007; ergo, Perfect 10 had been harmed by Yandex. The court noted that this simple correlation, without more, did not constitute sufficient evidence that Yandex’s use of 40,000 thumbnail images during the nine-month period affected Perfect 10’s market for reduced-size images. The court therefore concluded that the fourth factor favored neither party. Balancing the four factors, the court ruled that Yandex.com’s thumbnails stored on its servers in the U.S. for the nine-month period were fair use.655F655

Finally, the court ruled that Yandex could have potential contributory and vicarious liability only with respect to direct infringements taking place in the U.S., which eliminated contributory or vicarious liability for links connecting to full-size images hosted outside the U.S. The court therefore granted summary judgment to Yandex to that extent. The court then ruled that the case would proceed to trial with respect to liability pertaining to evidence submitted by Perfect 10 of 23 links that connected to U.S. web sites.656F656

D. The Right of Public Distribution

Section 106 (3) of the copyright statute grants the copyright owner the exclusive right to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending. Thus, to implicate the right of public distribution, three conditions must obtain: (a) a “copy” must be distributed; (b) the distribution must be to the “public”; and (c) the distribution must be by sale, rental, lease, lending or “other transfer of ownership.”

1. The Requirement of a “Copy”

Whether transmissions of a work on the Internet implicate the public distribution right turns in the first instance on whether there has been a distribution of a “copy” of the work. The broadcasting and cable industries have traditionally treated broadcasts and cable transmissions as not constituting distributions of copies of a work. With respect to Internet transmissions, however, if a complete copy of a work ends up on the recipient’s computer, it may be easy to conclude that a “copy” has been distributed. Indeed, to remove any doubt from this issue, the NII White Paper proposed to include “transmission” within the copyright owner’s right of distribution,657F657 where transmission is defined essentially as the creation of an electronic copy in a recipient system.658F658

655 Id. at 1156-57.

656 Id. at 1157-58 & n.3.

657 The copyright statute currently defines “transmission” or “transmit” solely in reference to performances or displays of a work. The NII White Paper does not, however, argue for removal of the requirement that an offending distribution be one to the “public.” NII White Paper at 213-15.

658 NII White Paper at 213. Appendix 1 of the NII White Paper proposes the following definition: “To ‘transmit’ a reproduction is to distribute it by any device or process whereby a copy or phonorecord of the work is fixed beyond the place from which it was sent.” Id. App. 1, at 2.

- 172 -

It is less clear whether other types of transmissions constitute distributions of “copies.” For example, what about an artistic work that is transmitted and simultaneously performed live at the recipient’s end? Although the public performance right may be implicated, has there been a distribution of a “copy” that would implicate the right of distribution? Should it matter whether significant portions of the work are buffered in memory at the recipient’s computer? Many of these distinctions could be rendered moot by the potentially broader right of “communication to the public” contained in the WIPO treaties discussed below, were that right ever to be expressly adopted in implementing legislation in the United States (the DMCA does not contain such a right).

Even if a “copy” is deemed to have been distributed in the course of an Internet transmission of an infringing work, difficult questions will arise as to who should be treated as having made the distribution – the original poster of the unauthorized work, the OSP or BBS through which the work passes, the recipient, or some combination of the foregoing? Thus, the same issue of volition arises with respect to the distribution right as was discussed above in connection with the reproduction right.

(a) Cases Addressing Whether Mere “Making Available” Is a Distribution

Many decisions have addressed the question of whether the mere posting – i.e., the “making available” – of a work on a BBS or other Internet site, or in a “shared file” folder within peer-to-peer client software, from which it can be downloaded by members of the public constitutes a public distribution of the work, and have reached quite contrary results, as detailed in the next two subsections. In addition to those decisions, as detailed in the third subsection below, several other decisions have declined to reach the issue and/or left the question open, often acknowledging the existence of conflicting authority.

(1) Cases Holding That Mere “Making Available” Is a Distribution

(i) Playboy Enterprises v. Frena

In Playboy Enterprises, Inc. v. Frena,659F659 the court, with very little analysis of the issue, held a BBS operator liable for infringement of the public distribution right for the making of photographs available through the BBS that were downloaded by subscribers, even though the defendant claimed he did not make copies of the photographs himself. But because the BBS was apparently one devoted to photographs, much of it of adult subject matter, and subscribers routinely uploaded and downloaded images therefrom, the court seems to have viewed the defendant as a direct participant in the distributions to the public that took place through the BBS.

659 839 F. Supp. 1552 (M.D. Fla. 1993).

- 173 -

(ii) Playboy Enterprises v. Chuckleberry Publishing

Similarly, in Playboy Enterprises, Inc. v. Chuckleberry Publishing Inc.,660F660 the court ruled that uploading copyrighted pictorial images onto a computer in Italy which could be accessed by users in the United States constituted a public distribution in the United States. In contrast to the Netcom case, the court noted that the defendant did more than simply provide access to the Internet. Instead, the defendant provided services and supplied the content for those services, which gave users the option to either view or download the images. By actively soliciting United States customers to the services, the court concluded that the defendant had distributed its product within the United States.

(iii) Playboy Enterprises v. Webbworld

In Playboy Enterprises, Inc. v. Webbworld, Inc.,661F661 the court held the defendants directly liable for infringing the distribution right by making copyrighted images available through a website for downloading by subscribers. The court found that, in contrast to the Netcom case, the defendants took “affirmative steps to cause the copies to be made.”662F662

(iv) Marobie-FL v. National Association of Fire Equipment Distributors

The court in Marobie-FL, Inc. v. National Association of Fire Equipment Distributors663F663 ruled that the placement of three files containing copyrighted clip art on the Web page of the defendant constituted a direct violation of the plaintiff’s distribution right because the files were available for downloading by Internet users and were transmitted to Internet users upon request.

In all of the preceding four cases in subsections (i) through (iv) above, it was apparent that actual downloads of complete copies of the copyrighted material had taken place, and this fact, coupled with affirmative steps taken by the defendants to promote the acts of downloading, seem to have led those courts to find a violation of the distribution right. The more difficult cases of line drawing have arisen in the peer-to-peer file sharing cases, many of which are discussed in the remainder of this subsection and the next subsection, in which the defendant often merely makes available copyrighted files for sharing (through a “shared file” folder used by the peer-to-peer client software), but does not take additional affirmative steps to promote the downloading of copies of those files. In addition, there often is not clear proof in those cases whether actual downloads have taken place from the defendant’s particular shared file folder, and if so, to what extent – including whether complete copies have been downloaded from the

660 939 F. Supp. 1032, 1039 (S.D.N.Y. 1996).

661 45 U.S.P.Q.2d 1641 (N.D. Tex. 1997).

662 Id. at 1647.

663 45 U.S.P.Q.2d 1236 (N.D. Ill. 1997).

- 174 -

defendant’s shared file folder or only bits and pieces of files, as is the inherent nature of the peer-to-peer protocol mechanisms.

(v) A&M Records v. Napster

In its decision in Napster I, the Ninth Circuit held, without any discussion, that “Napster users who upload files names to the search index for others to copy violate plaintiff’s distribution rights.”664F664 Although the Ninth Circuit’s opinion addressed whether Napster could be secondarily liable for the infringing acts of its users through the system, it did not address the question of whether Napster itself directly violated the plaintiff’s distribution rights by maintaining its search index. That question was subsequently adjudicated by the district court in the Napster litigation, which answered the question in the negative, as discussed in the next subsection.

(vi) Interscope Records v. Duty

In Interscope Records v. Duty,665F665 the court held that the mere placement of copyrighted works in a share folder connected to the Kazaa peer-to-peer service constituted a public distribution of those works. The court noted that, although “distribute” is not defined in the copyright statute, the right of distribution is synonymous with the right of publication, which is defined to include the “offering to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display.”666F666 The court also cited the Ninth Circuit’s decision in Napster I, which held that “Napster users who upload files names to the search index for others to copy violate plaintiff’s distribution rights.”667F667

(vii) Warner Bros. Records v. Payne

In Warner Bros. Records, Inc. v. Payne,668F668 the court ruled, on a motion to dismiss the plaintiff’s complaint against a defendant who was making the plaintiff’s recordings available through the Kazaa network, that “[l]isting unauthorized copies of sound recordings using an online file-sharing system constitutes an offer to distribute those works, thereby violating a copyright owner’s exclusive right of distribution.”669F669 The court relied on the Supreme Court’s equating of the term “distribute” with “publication” in Harper & Row Publishers, Inc. v. Nation Enterprises,670F670 noting that publication is defined to include the “offering to distribute copies.”

664 A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1014 (9th Cir. 2001) (emphasis added).

665 2006 U.S. Dist. LEXIS 20214 (D. Ariz. Apr. 14, 2006).

666 Id. at *7 (citing 17 U.S.C. § 101) (emphasis by the court).

667 Id. at *8 (quoting A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1014 (9th Cir. 2001)).

668 2006 U.S. Dist. LEXIS 65765 (W.D. Tex. July 17, 2006).

669 Id. at *8.

670 471 U.S. 539 (1985).

- 175 -

The court also relied on the logic of Hotaling v. Church of Jesus Christ of Latter-Day Saints,671F671 which held a library engages in the distribution of a copyrighted work when it adds the work to its collections, lists the work in its index or catalog and makes the work available for borrowing or browsing.672F672 Accordingly, the court denied the defendant’s motion to dismiss: “Making an unauthorized copy of a sound recording available to countless users of a peer-to-peer system for free certainly contemplates and encourages further distribution, both on the Internet and elsewhere. Therefore, the Court is not prepared at this stage of the proceedings to rule out the Plaintiffs’ ‘making available’ theory as a possible ground for imposing liability. A more detailed understanding of the Kazaa technology is necessary and Plaintiffs may yet bring forth evidence of actual uploading and downloading of files, rendering use of the ‘making available’ theory unnecessary.”673F673

(viii) Universal City Studios v. Bigwood

In Universal City Studios Productions v. Bigwood,674F674 the court granted summary judgment of infringement against the defendant, a user of Kazaa who had made two of the plaintiffs’ copyrighted motion pictures available in his shared folder. Citing Hotaling and Napster I and no contrary authority, and without any further analysis of its own, the court ruled that “by using KaZaA to make copies of the Motion Pictures available to thousands of people over the internet, Defendant violated Plaintiffs’ exclusive right to distribute the Motion Pictures.”675F675

(ix) Motown Record Co. v. DePietro

In Motown Record Co. v. DePietro,676F676 the court, citing the Ninth Circuit’s Napster I case, held that a “plaintiff claiming infringement of the exclusive-distribution right can establish infringement by proof of actual distribution or by proof of offers to distribute, that is, proof that the defendant ‘made available’ the copyrighted work [in this case, via a peer-to-peer system].”677F677

671 118 F.3d 199 (4th Cir. 1997).

672 2006 U.S. Dist. LEXIS at *9-10.

673 Id. at *11.

674 441 F. Supp. 2d 185 (D. Me. 2006).

675 Id. at 190.

676 2007 U.S. Dist. LEXIS 11626 (E.D. Pa. Feb. 16, 2007).

677 Id. at *12.

- 176 -

(x) United States v. Carani

In United States v. Carani,678F678 the court ruled that storing child pornography in a shared folder on the Kazaa peer-to-peer network where it could be downloaded by others qualified as an illegal “distribution” of child pornography, thus justifying an enhanced punishment.679F679

(xi) ICG-Internet Commerce Group v. Wolf

In ICG-Internet Commerce Group, Inc. v. Wolf,680F680 the court denied a motion for summary judgment that the defendant had infringed the plaintiff’s distribution right in an adult video by posting the video to the defendant’s web site, because it was unclear from a screenshot of the defendant’s web site showing a hyperlink to “[s]ex tape download souces [sic]” whether the hyperlink linked to a streaming or downloadable source file containing the plaintiff’s video. The court did, however, find that the plaintiff’s copy and public display rights had been violated by the posting of the video on the defendant’s site from which it could be viewed publicly.681F681

(xii) Maverick Recording Co. v. Harper

In Maverick Recording Co. v. Harper,682F682 in considering a copyright infringement claim against the defendant for having copies of the plaintiffs’ copyrighted sound recordings in a shared folder on a peer-to-peer network, the court held that a complete download of a given work over the network is not required for copyright infringement to occur. Citing the Warner Bros. v. Payne and Interscope decisions, the court stated, “The fact that the Recordings were available for download is sufficient to violate Plaintiffs’ exclusive rights of reproduction and distribution. It is not necessary to prove that all of the Recordings were actually downloaded; Plaintiffs need only prove that the Recordings were available for download due to Defendant’s actions.”683F683

On appeal, the Fifth Circuit ruled that it need not address whether merely making available files for download violates the distribution right because the defendant did not appeal the district court’s finding that she had infringed the plaintiffs’ copyrights by downloading and therefore reproducing the audio files. Thus, the distribution issue was moot since the defendant’s liability would remain even if the Fifth Circuit were to agree with the district court on the distribution issue.684F684 The Fifth Circuit also ruled that the defendant was not entitled to an innocent infringer defense as a matter of law because Section 402(d) makes that defense

678 492 F.3d 867 (7th Cir. 2007).

679 Id. at *21-23; accord United States v. Shaffer, 472 F.3d 1219, 1123-24 (10th Cir. 2007).

680 519 F. Supp. 2d 1014 (E.D. Pa. 2007).

681 Id. at 1018-19.

682 Order, Maverick Recording Co. v. Harper, No. 5:07-CV-026-XR (W.D. Tex. Aug. 7, 2008).

683 Id., slip op. at 10.

684 Maverick Recording Co. v. Harper, 598 F.3d 193, 197 (5th Cir. 2010).

- 177 -

unavailable when a proper copyright notice appears on the published phonorecords to which a defendant had access. There was no dispute that each of the published phonorecords from which the shared audio files were taken had proper copyright notices on them, and lack of legal sophistication as to what the notices meant was irrelevant.685F685 (The court does not mention whether the audio files themselves that the defendant shared had copyright notices on them.) Accordingly, the court concluded that the plaintiffs must be awarded statutory damages of $750 per infringed work.686F686

(xiii) Columbia Pictures v. Fung

In Columbia Pictures Industries, Inc. v. Fung,687F687 the district court ruled, in the context of a BitTorrent site, that “uploading a copyrighted content file to other users (regardless of where those users are located) violates the copyright holder’s § 106(3) distribution right.”688F688 Because of the nature of the BitTorrent protocol, users were not uploading the infringing content itself to the defendants’ site, but rather were uploading dot-torrent files that contained only information about hosts from which the infringing content could be downloaded using the BitTorrent protocol. The dot-torrent files were indexed on the defendants’ site for searching. Thus, the quoted language seems to implicitly hold that an actual distribution of infringing content is not required to infringe the distribution right, since the mere upload of the dot-torrent file through which the infringing content could be located was sufficient to infringe. In its opinion affirming on appeal, the Ninth Circuit stated, “Both uploading and downloading copyrighted material are infringing acts. The former violates the copyright holder’s right to distribution, the latter the right to reproduction.”689F689 The court immediately thereafter indicated awareness that the dot-torrent files that were uploaded to Fung’s web sites did not contain the infringing content itself, for the Ninth Circuit noted the plaintiff’s expert had averred that 90 to 96% of the content “associated with” the torrent files available on Fung’s web sites was for confirmed or highly likely copyright infringing material.690F690

(2) Cases Holding That Mere “Making Available” Is Not a Distribution

(i) Religious Technology Center v. Netcom

In Religious Technology Center v. Netcom On-Line Communication Services,691F691 the court refused to hold either an OSP or a BBS operator liable for violation of the public

685 Id. at 198-99.

686 Id. at 199.

687 2009 U.S. Dist. LEXIS 122661 (C.D. Cal. Dec. 21, 2009), aff’d, 710 F.3d 1020 (9th Cir. 2013).

688 Id. at *29.

689 Columbia Pictures Industries, Inc. v. Fung, 710 F.3d 1020, 1034 (9th Cir. 2013).

690 Id.

691 907 F. Supp. 1361, 1372 (N.D. Cal. 1995).

- 178 -

distribution right based on the posting by an individual of infringing materials on the BBS. With respect to the BBS, the court stated: “Only the subscriber should be liable for causing the distribution of plaintiffs’ work, as the contributing actions of the BBS provider are automatic and indiscriminate.”692F692 With respect to the OSP, the court noted: “It would be especially inappropriate to hold liable a service that acts more like a conduit, in other words, one that does not itself keep an archive of files for more than a short duration.”693F693

(ii) In re Napster Copyright Litigation

In In re Napster, Inc. Copyright Litigation,694F694 the district court rejected the plaintiffs’ argument that Napster’s indexing of MP3 files that its users posted on the Napster network made Napster a direct infringer of the plaintiffs’ exclusive distribution rights. The plaintiffs relied on Hotaling v. Church of Jesus Christ of Latter-Day Saints,695F695 which held a library engages in the distribution of a copyrighted work when it adds the work to its collections, lists the work in its index or catalog and makes the work available for borrowing or browsing. The Napster court distinguished the Hotaling case, arguing that the library had itself made actual, unauthorized copies of copyrighted materials made available to its borrowers. By contrast, Napster did not itself have a “collection” of recordings on its servers, but rather merely an index of recordings.696F696 “This might constitute evidence that the listed works were available to Napster users, but it is certainly not conclusive proof that the songs identified in the index were actually uploaded onto the network in a manner that would be equivalent to the way in which the genealogical materials at issue in Hotaling were copied and distributed to the church’s branch libraries.”697F697

The court further noted that the definition of “publication” in the copyright statute, which the Supreme Court observed in a 1985 case that the legislative history equated with the right of distribution,698F698 requires the distribution of copies or phonorecords of a work to the public or the offering to distribute copies of that work for purposes of further distribution, public performance, or public display. The court held that merely by indexing works available through its system, Napster was not offering to itself distribute copies of the works for further distribution by its users.699F699

692 Id. at 1372.

693 Id.

694 377 F. Supp. 2d 796 (N.D. Cal. 2005).

695 118 F.3d 199 (4th Cir. 1997).

696 In re Napster, Inc. Copyright Litigation, 377 F. Supp. 2d at 802-03.

697 Id. at 803.

698 Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539 (1985).

699 In re Napster, Inc. Copyright Litigation, 377 F. Supp. 2d at 803-05.

- 179 -

The plaintiffs argued that the requirement of a transmission of a material object in order to find a violation of the distribution right was no longer viable in view of the recently enacted Artists’ Rights and Theft Prevention Act of 2005 (the ART Act).700F700 The plaintiffs cited Section 103(a)(1)(C) of the ART Act, codified at 17 U.S.C. § 506(a), which provides criminal sanctions for any person who willfully infringes a copyright by the distribution of a work being prepared for commercial distribution, by making it available on a computer network accessible to members of the public. The plaintiffs interpreted this provision as imposing criminal liability on any person who willfully makes an unauthorized copy of a copyrighted work available on a publicly accessible computer network while that work is being prepared for commercial distribution, and argued that Congress must have understood civil liability for copyright infringement to be equally broad.701F701

The court rejected this argument, noting that the ART Act did not amend Section 106(3) of the copyright statute, and in any event Section 103(a)(1)(C) of the ART Act makes clear that willful copyright infringement and making the work available on a computer network are separate elements of the criminal offense. Hence, the mere making available of an unauthorized work on a computer network should not be viewed as sufficient to establish a copyright infringement.702F702 Accordingly, the court ruled that the defendants were entitled to summary judgment on the issue of direct liability on Napster’s part by virtue of its index.703F703 However, note that the Ninth Circuit’s earlier decision in Napster I held that “Napster users [as opposed to Napster itself] who upload files names to the search index for others to copy violate plaintiff’s distribution rights.”704F704

(iii) Perfect 10 v. Google

In Perfect 10 v. Google,705F705 discussed in detail in Section II.C.4 above, the district court ruled that Google did not publicly distribute infringing copies of Perfect 10’s copyrighted images that could be located through the Google Image Search function. “A distribution of a copyrighted work requires an ‘actual dissemination’ of copies. … In the internet context, an

700 Pub. L. No. 109-9, 119 Stat. 218 (2005).

701 In re Napster, Inc. Copyright Litigation, 377 F. Supp. 2d at 804.

702 Id. at 804-05.

703 Id. at 805. The court held, however, that the plaintiffs had submitted sufficient evidence of direct infringement by Napster’s users in the form of a showing of massive uploading and downloading of unauthorized copies of works, together with statistical evidence strongly suggesting that at least some of the plaintiffs’ copyrighted works were among them. Id. at 806. “It may be true that the link between such statistical evidence of copyright infringement and the uploading or downloading of specific copyrighted works is at the moment a weak one. However, to avoid summary judgment, plaintiffs need only establish that triable issue of material fact preclude entry of judgment as a matter of law. … Here in particular, the court is mindful of the fact that the parties have not even completed discovery relating to issues of copyright ownership and infringement.” Id. at 806-07.

704 A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1014 (9th Cir. 2001).

705 416 F. Supp. 2d 828 (C.D. Cal. 2006), aff’d sub nom. Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1169 (9th Cir. 2007).

- 180 -

actual dissemination means the transfer of a file from one computer to another. Although Google frames and in-line links to third-party infringing websites, it is those websites, not Google, that transfer the full-size images to users’ computers [upon clicking on a thumbnail version of the image displayed in the Google search results]. Because Google is not involved in the transfer, Google has not actually disseminated – and hence, [] has not distributed – the infringing content.”706F706

On appeal, the Ninth Circuit affirmed this ruling. Because Google’s search engine communicated only HTML instructions telling a user’s browser where to find full size images on web site, and Google did not itself distribute copies of the infringing photographs, Google did not have liability for infringement of the right of distribution with respect to full size images that could be located and displayed through the Image Search function.707F707 Perfect 10 argued that, under the Napster I and Hotaling cases discussed above, the mere making available of images violates the copyright owner’s distribution right. The Ninth Circuit held that this “deemed distribution” rule did not apply to Google, because, unlike the users of the Napster system or the library in Hotaling, Google did not own a collection of stored full size images that it made available to the public.708F708

(iv) Latin American Music Co. v. Archdiocese of San Juan

In Latin American Music Co. v. Archdiocese of San Juan,709F709 although not a case involving online activity, the First Circuit held that the defendant’s mere listing in its licensing catalog of songs that it did not own the copyright for did not constitute infringement. The court ruled that mere authorization of an infringing act is insufficient basis for copyright infringement, as infringement depends upon whether an actual infringing act, such as copying or performing, has taken place.710F710

(v) London-Sire Records v. Doe

In London-Sire Records, Inc. v. Doe 1,711F711 the court ruled that merely listing recordings as available for downloading on a peer-to-peer service did not infringe the distribution right. The court held that authorizing a distribution is sufficient to give rise to liability, but only if an infringing act occurs after the authorization.712F712 The court rejected the plaintiff’s argument to the

706 Id. at 844 (citing In re Napster, Inc. Copyright Litigation, 377 F. Supp. 2d 796, 802-04 (N.D. Cal. 2005)).

707 Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1162 (9th Cir. 2007).

708 Id. at 1162-63. Cf. National Car Rental Sys. v. Computer Assocs. Int’l, Inc., 991 F.2d 426, 434 (8th Cir. 1993) (stating that infringement of the distribution right requires the actual dissemination of copies or phonorecords).

709 499 F.3d 32 (1st Cir. 2007).

710 Id. at 46-47.

711 542 F. Supp. 2d 153 (D. Mass. 2008).

712 Id. at 166.

- 181 -

contrary based on the Supreme Court’s equating of the term “distribute” with “publication” in Harper & Row Publishers, Inc. v. Nation Enterprises.713F713 The court noted that the Supreme Court stated only that Section 106(3) recognized for the first time a distinct statutory right of first publication, and quoted the legislative history as establishing that Section 106(3) gives a copyright holder the right to control the first public distribution of an authorized copy of his work.714F714 The court went on to state, however, “That is a far cry from squarely holding that publication and distribution are congruent.”715F715

The court noted that the statutory language itself suggests the terms are not synonymous. Noting that “publication” incorporates “distribution” as part of its definition (“publication” is “the distribution of copies or phonorecords of a work to the public”), the court reasoned:

By the plain meaning of the statute, all “distributions … to the public” are publications. But not all publications are distributions to the public – the statute explicitly creates an additional category of publications that are not themselves distributions. For example, suppose an author has a copy of her (as yet unpublished) novel. If she sells that copy to a member of the public, it constitutes both distribution and publication. If she merely offers to sell it to the same member of the public, that is neither a distribution nor a publication. And if the author offers to sell the manuscript to a publishing house “for purposes of further distribution,” but does not actually do so, that is a publication but not a distribution.716F716

Accordingly, the court concluded that the defendants could not be liable for violating the plaintiffs’ distribution right unless a “distribution” actually occurred.717F717 But that conclusion, did not, however, mean that the plaintiffs’ pleadings and evidence were insufficient: “The Court can draw from the Complaint and the current record a reasonable inference in the plaintiffs’ favor – that where the defendant has completed all the necessary steps for a public distribution, a reasonable fact-finder may infer that the distribution actually took place.”718F718

The court also made the following additional rulings:

-- That the Section 106(3) distribution right is not limited to physical, tangible objects, but also confers on copyright owners the right to control purely electronic distributions of their work. The court reasoned that electronic files are “material objects” in which a sound recording

713 471 U.S. 539 (1985).

714 London-Sire, 542 F. Supp. 2d at 168.

715 Id.

716 Id. at 169.

717 Id.

718 Id.

- 182 -

can be fixed, and electronic distributions entail the movement of such electronic files, thereby implicating the distribution right.719F719

-- That actual downloads of the plaintiffs’ works made by the plaintiffs’ investigator were “sufficient to allow a statistically reasonable inference that at least one copyrighted work was downloaded at least once [by persons other than the investigator]. That is sufficient to make out a prima facie case for present purposes.”720F720

(vi) Elektra Entertainment Group v. Barker

In Elektra Entertainment Group, Inc. v. Barker,721F721 contrary to the London-Sire Records decision (which incidentally was decided on the same day), the court ruled that, based on the legislative history of the copyright statute and the Supreme Court’s Harper & Row decision, the words “distribution” and “publication” should be construed as synonymous, and therefore the right of distribution should be equated to the right of publication.722F722 Accordingly, the court ruled that the same acts that would constitute a publication as defined in Section 101 of the copyright statute – namely, the “offer[] to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display” – would also violate the distribution right, and that proof of an actual transfer need not be shown.723F723

However, the court rejected the plaintiff’s argument that a violation of the distribution right could be established by a mere showing of the “making available” of copyrighted works by the defendant, as the plaintiffs had pled in their complaint. The court rejected the plaintiffs’ argument that Congress’ adoption of the WIPO Copyright Treaty, which contains an express right of “making available” a copyrighted work to the public, should control the interpretation of Section 106(3)’s distribution right. The court noted that, because the WIPO treaties were not self-executing, they created no private right of action on their own. The court was also unwilling to infer the intent of an earlier Congress when enacting amendments to the definition of the distribution right from the acts of a later Congress in ratifying the WIPO Copyright Treaty.724F724 Accordingly, the court was unwilling to equate Congress’ words, that the distribution right may be infringed by “[t]he offer[] to distribute copies or phonorecords to a group of person for

719 Id. at 169-71 & 172-74.

720 Id. at 176. “As noted above, merely exposing music files to the internet is not copyright infringement. The defendants may still argue that they did not know that logging onto the peer-to-peer network would allow others to access these particular files, or contest the nature of the files, or present affirmative evidence rebutting the statistical inference that downloads occurred.” Id.

721 551 F. Supp. 2d 234 (S.D.N.Y. 2008).

722 Id. at 239-41.

723 Id. at 242 (quoting 17 U.S.C. § 101’s definition of “publication”).

724 Id. at 242 n.7.

- 183 -

purposes of further distribution, public performance, or public display,” to what the court described as “the contourless ‘make available’ right proposed by Plaintiff.”725F725

The court also rejected the argument in an amicus brief submitted by the MPAA that the plaintiffs’ “make available” claim was supported by the introductory clause of Section 106, which gives the owner of a copyright the exclusive right “to authorize” the enumerated rights. The court cited and followed authority noting that Congress had added the “authorize” language to Section 106 in order to avoid any confusion that the statute was meant to reach contributory infringers, not to create a separate basis for direct infringement.726F726

The court did, however, give the plaintiffs the opportunity to amend their complaint to be faithful to the language of the copyright statute by alleging that the defendant had made an offer to distribute, and that the offer to distribute was for the purpose of further distribution, public performance, or public display.727F727 In addition, the court denied the defendant’s motion to dismiss the complaint entirely because the plaintiffs had adequately alleged that, in addition to making their works available, the defendant had actually distributed the plaintiffs’ copyrighted works in direct violation of the distribution right.728F728 In August of 2008 the case settled.729F729

(vii) Atlantic Recording Corp. v. Howell

In Atlantic Recording Corp. v. Howell,730F730 seven major recording companies brought suit against the defendants, who had allegedly made over 4,000 files available for download in a shared folder on Kazaa. The private investigation company MediaSentry took screen shots showing the files that were available for download. The plaintiffs owned registered copyrights in 54 of the sound recordings in the folder. MediaSentry downloaded 12 of the copyrighted recordings from the defendants’ computer, and the plaintiffs traced the computer to the defendants and filed an action for copyright infringement. The plaintiffs filed a motion for summary judgment of infringement.731F731

The court denied the motion. Citing numerous decisions and two copyright treatises, the court noted the general rule that infringement of the distribution right requires an actual dissemination of either copies or phonorecords. The court rejected the plaintiffs’ reliance on the Hotaling case and the Ninth Circuit’s Napster I decision. With respect to Hotaling, the court

725 Id. at 243.

726 Id. at 245-46.

727 Id. at 244-45.

728 Id. at 245.

729 “RIAA Settles Pending ‘Making Available’ Claim,” BNA’s Electronic Commerce & Law Report (Aug. 27, 2008) at 1160.

730 554 F. Supp. 2d 976 (D. Ariz. 2008).

731 Id. at 978.

- 184 -

noted that in that case the plaintiff had already proved that the library made unlawful copies and placed them in its branch libraries, so there had been actual distributions of copies in addition to listing of the unlawful copies in the library’s catalog. With respect to the Napster I decision, the court noted that the Ninth Circuit in the later Perfect 10 v. Amazon case had grouped the holdings of Hotaling and Napster I together based upon the factual similarity that in both cases the owner of a collection of works made them available to the public. Only in such a situation could the holding of Hotaling potentially apply to relieve the plaintiff of the burden to prove actual dissemination of an unlawful copy of a work. The defendant in the Perfect 10 case did not own a collection of copyrighted works or communicate them to the public, so the Ninth Circuit found Hotaling inapplicable.732F732 The Howell court went on to note the following:

However, the court did hold that “the district court’s conclusion [that distribution requires an ‘actual dissemination’] is consistent with the language of the Copyright Act.” That holding contradicts Hotaling and casts doubt on the single unsupported line from Napster upon which the recording companies rely.733F733

After surveying the many decisions addressing the issue, the court concluded that it agreed “with the great weight of authority that § 106(3) is not violated unless the defendant has actually distributed an unauthorized copy of the work to a member of the public. … Merely making an unauthorized copy of a copyrighted work available to the public does not violate a copyright holder’s exclusive right of distribution.”734F734 In reaching its conclusion, the court rejected the plaintiffs’ argument that “distribution” and “publication” are synonymous terms in the statute for all purposes. Rather, the court noted it was not clear that “publication” and “distribution” are synonymous outside the context of first publication, which was the subject of discussion in the Supreme Court’s Harper & Row decision. Citing London-Sire, the court noted that while all distributions to the public are publications, not all publications are distributions.735F735 The court concluded: “A plain reading of the statute indicates that a publication can be either a distribution or an offer to distribute for the purposes of further distribution, but that a distribution must involve a ‘sale or other transfer of ownership’ or a ‘rental, lease, or lending’ of a copy of the work.”736F736

Finally, the court noted that the plaintiffs’ motion for summary judgment must also fail because they had not proved that a Kazaa user who places a copyrighted work into the shared folder distributes a copy of that work when a third party downloads it. The court noted that in the Kazaa system the owner of the shared folder does not necessarily ever make or distribute an unauthorized copy of the work. And if the owner of the shared folder simply provides a member

732 Id. at 981-82.

733 Id. at 982 (quoting Perfect 10 v. Amazon.com, Inc., 487 F.3d 701, 718 (9th Cir. 2007) (superseded by 508 F.3d 1146 (9th Cir. 2007)).

734 554 F. Supp. 2d at 983.

735 Id. at 984.

736 Id. at 985.

- 185 -

of the public with access to the work and the means to make an unauthorized copy, the owner would not be liable as a primary infringer of the distribution right, but rather would be potentially liable only as a secondary infringer of the reproduction right.737F737 The court therefore concluded that the plaintiffs’ motion for summary judgment must fail because “they have not explained the architecture of the KaZaA file-sharing system in enough detail to determine conclusively whether the owner of the shared folder distributes an unauthorized copy (direct violation of the distribution right), or simply provides a third-party with access and resources to make a copy on their own (contributory violation of the reproduction right).”738F738

(viii) Capitol Records v. Thomas

In Capitol Records Inc. v. Thomas,739F739 the court sua sponte raised the issue of whether it had erred in instructing the jury that making sound recordings available for distribution on a peer-to-peer network, regardless of whether actual distribution was shown, qualified as distribution under the copyright act. The court concluded that it had erred and ordered a new trial for the defendant.740F740 The parties agreed that the only evidence of actual dissemination of copyrighted works was that plaintiffs’ infringement policing agent, MediaSentry, had downloaded songs. The defendant argued that dissemination to an investigator acting as an agent for the copyright owner cannot constitute infringement. The court rejected this argument, noting that Eighth Circuit precedent clearly approved of the use of investigators by copyright owners, and distribution to an investigator can constitute infringement.741F741

The court then turned to the issue of whether merely making available recordings for download constitutes unauthorized distribution. The court first noted that the plain language of Section 106(3) does not state that making a work available for sale, transfer, rental, lease or lending constitutes distribution, and two leading copyright treatises (Nimmer and Patry) agree that making a work available is insufficient to establish distribution. Congress’ choice not to include offers to do the acts enumerated in Section 106(3) further indicated its intent that an actual distribution or dissemination is required by Section 106(3).742F742

The court rejected the holding of other courts that the definition of “distribution” should be taken to be the same as that of “publication,” noting that the legislative history does not expressly state that distribution should be given the same broad meaning as publication, and in

737 Id. at 986.

738 Id.

739 579 F. Supp. 2d 1210 (D. Minn. 2008).

740 Id. at 1212 & 1227. The instruction to the jury read: “The act of making copyrighted sound recordings available for electronic distribution on a peer-to-peer network, without license from the copyright owners, violates the copyright owners’ exclusive right of distribution, regardless of whether actual distribution has been shown.” Id. at 1212.

741 Id. at 1214-15.

742 Id. at 1217-18.

- 186 -

any case, even if the legislative history indicated that some members of Congress equated publication with distribution under Section 106(3), that fact could not override the plain meaning of the statute. The court concluded that the statutory definition of publication is broader than the term “distribution” as used in Section 106(3). Specifically, under the definition in Section 101, a publication can occur by means of the distribution of copies of a work to the public, but it can also occur by offering to distribute copies to a group of persons for purposes of further distribution, public performance, or public display. Thus, while a publication effected by distributing copies of the work is a distribution, a publication effected by merely offering to distribute copies to the public is merely an offer of distribution, an actual distribution.743F743

The court rejected the plaintiffs’ argument that Section 106 affords an exclusive right to authorize distribution (based on Section 106’s language that “the owner of copyright under this title has the exclusive rights to do and to authorize any of the following …”) and that making sound recordings available on a peer-to-peer network would violate such an authorization right. The court concluded that the authorization clause merely provides a statutory foundation for secondary liability, not a means of expanding the scope of direct infringement liability. The court reasoned that if simply making a copyrighted work available to the public constituted a distribution, even if no member of the public ever accessed that work, copyright owners would be able to make an end run around the standards for assessing contributory copyright infringement.744F744

Finally, the court rejected the arguments of the plaintiffs and various amici that the WIPO treaties require the U.S. to provide a making-available right and that right should therefore be read into Section 106(3). The court noted that the WIPO treaties are not self-executing and lack any binding legal authority separate from their implementation through the copyright act. The contents of the WIPO treaties would be relevant only insofar as Section 106(3) was ambiguous, and there was no reasonable interpretation of Section 106(3) that would align with the United States’ treaty obligations. Concern for compliance with the WIPO treaties could not override the clear congressional intent in the language of Section 106(3).745F745

The defendant in this case, Jammie Thomas-Rasset, ultimately became the first peer-to-peer file sharer to defend infringement litigation all the way to a jury verdict. In July 2007, a jury concluded that she should pay $220,000 in statutory damages, but she was granted a motion for a new trial based on the erroneous jury instruction discussed above. In the second trial, the jury returned a verdict for $1.92 million. The court later reduced the award to $54,000 but granted the plaintiffs’ request for a new trial on damages. After a third trial, the jury again

743 Id. at 1219-20.

744 Id. at 1220-21.

745 Id. at 1225-26.

- 187 -

returned a special verdict that included a statutory damages award of $1.5 million ($62,500 for each shared song, multiplied by 24 songs).746F746

(ix) Fox Broadcasting v. Dish Network

In Fox Broadcasting Co. v. Dish Network LLC,747F747 the court rejected Fox’s argument that the mere “making available” of Fox’s programming to subscribers was sufficient to constitute a distribution. The district court observed that, while neither the Ninth Circuit nor any other circuit court had addressed the “make available” theory of distribution under the copyright statute, it had been considered by a number of courts, and the great majority of courts that had considered the question had stopped short of fully endorsing the “make available” right. The district court found those cases persuasive and concluded that Dish’s act of merely “making available” copyrighted programming to its subscribers through its Prime Time Anytime (PTAT) service did not amount to distribution without actual dissemination.748F748 (For a detailed discussion of this case, see Section II.A.4(u) above.)

(x) BMG v. Cox Communications

For the reasons discussed in Section III.C.2(w) below, the district court in this case ruled that the distribution right does not include the mere “making available” of a copyrighted work for sale or other transfer of ownership, rental, lease or lending.

(xi) Alticor v. UMG Recordings

In Alticor Inc. v. UMG Recordings, Inc.749F749 several defendant recording companies sought in a counterclaim to hold the plaintiffs in this declaratory judgment action liable for direct, vicarious and contributory infringement based on alleged unauthorized digital audio transmissions of the defendants’ sound recordings contained in videos uploaded to the Internet by several independent business owners who were supervised and regulated by the plaintiffs as part of an international multi-level marketing company. The plaintiffs argued that the court should dismiss any of the defendants’ claims to the extent based on allegations that the defendants’ recordings were made available to the public by uploading the videos to the Internet. The court noted that, although it agreed the copyright statute does not confer a “making available” right under Section 106, the act of making a copyrighted work available for the use of a direct infringer was relevant to the defendants’ claims of indirect infringement as it could provide circumstantial evidence of actual disseminations by the direct infringers. Accordingly,

746 “On Third Shot, Jury Returns $1.5 Million Statutory Damages Verdict Against P2P User,” BNA’s Electronic Commerce & Law Report (Nov. 10, 2010) at 1692.

747 2015 U.S. Dist. LEXIS 23496 (C.D. Cal. Jan. 21, 2015).

748 Id. at *59-61.

749 2015 U.S. Dist. LEXIS 166317 (M.D. Fla. Dec. 11, 2015).

- 188 -

the court denied the plaintiffs’ motion to dismiss with respect to the defendants’ “making available” argument.750F750

(3) Cases Refusing To Decide the Issue

– In Arista Records LLC v. Greubel, 453 F. Supp. 2d 961 (N.D. Tex. 2006), the court, although not deciding on a motion to dismiss whether the electronic transmission over a computer network (here, transmission of copyrighted recordings through a file sharing network) or the mere listing of such copyrighted recordings in a directory as available for download, is sufficient to violate a copyright owner’s distribution right, the court cited numerous decisions so holding or suggesting that either of such acts is sufficient for infringement of the distribution right, and concluded that such decisions were sufficient to deny the defendant’s motion to dismiss the complaint on the pleadings.751F751 The court stated, “[M]aking copyrighted works available to others may constitute infringement by distribution in certain circumstances.”752F752

– Maverick Recording Co. v. Goldshteyn, 2006 U.S. Dist. LEXIS 52422 at *3 (E.D.N.Y. July 31, 2006) (“[T]he ‘making available’ argument need not be decided here.”).

– Fonovisa, Inc. v. Alvarez, 2006 U.S. Dist. LEXIS 95559 at *8 (N.D. Tex. July 24, 2006) (“This Court is not making a determination as to whether ‘making works available’ violates the right of distribution.”).

– Warner Bros. Records, Inc. v. Payne, 2006 U.S. Dist. LEXIS 65765 at *4 (W.D. Tex. July 17, 2006) (declining to “rule out the Plaintiffs’ ‘making available’ theory as a possible ground for imposing liability”).

– Atlantic Recording Corp. v. Brennan, 2008 U.S. Dist. LEXIS 23801 at *3 (D. Conn. Feb. 13, 2008) (denying plaintiffs’ entry of default against defendant, in part, by finding that defendant may have a meritorious defense against plaintiffs’ “problematic” make available argument).

750 Id. at *4, 16 & 20. The court also rejected the plaintiffs’ arguments that the defendants could not bring a claim for infringement of the digital audio transmission right because the infringed sound recordings were contained within videos, which the plaintiffs argued were “audiovisual works” to which Section 106(6) does not apply because Section 114(j)(5) supposedly excludes “audiovisual work” from the definition of “digital audio transmission.” The court rejected the plaintiffs’ arguments on two grounds. First, the court was not persuaded that the definition of “digital audio transmission” in Section 114(j)(5) is applicable to an infringement analysis under Section 106(6) because Section 114(j) states that the definitions in that section are for use in that section only. Second, the sound recordings constituted preexisting material upon which the videos, as derivative works, were based, and Section 106(3) provides that copyright protection in preexisting material is not affected by use of such material in a derivative work. Id. at *16-19.

751 Id. at 967-71.

752 Id. at 969 (emphasis added).

- 189 -

– Electra Entertainment Group, Inc. v. Doe, 2008 U.S. Dist. LEXIS 98145 at *8-9 (E.D.N.C. Dec. 4, 2008) (court need not decide whether “making available” a sound recording over the Internet constitutes a distribution because the plaintiffs’ complaint sufficiently alleged an actual dissemination of copies of the recordings had occurred).

– Warner Bros. Records, Inc. v. Doe, 2008 U.S. Dist. LEXIS 98143 at *8-9 (E.D.N.C. Dec. 4, 2008) (same).

– In Arista Records LLC v. Does 1-16,2009 U.S. Dist. LEXIS 12159 (N.D.N.Y. Feb. 18, 2009), several record labels brought a copyright infringement claim against 16 unidentified defendants for illegally downloading and distributing the plaintiffs’ copyrighted music through a peer-to-peer network and issued a subpoena seeking information from the State University of New York at Albany sufficient to identify each defendant. The defendants sought to quash the subpoena, in part on the basis that the plaintiffs’ complaint was defective in that, in essence, according to the defendants, it alleged that the defendants were infringers because they were making available copyrighted song files, but without any evidence of actual distribution of those files to the public. The court refused to decide whether the mere “making available” of song files would be sufficient to violate the distribution right because the complaint did not use that language, but rather alleged that each defendant downloaded and/or distributed to the public copies of sound recordings.753F753 “We are persuaded by the majority of cases and the school of thought that Plaintiffs have adequately pled that Defendants distributed Plaintiffs’ copyrighted work, by merely stating, within the four corners of the Complaint, the distribution allegation alone. The tasks of pleading and proving that each Defendant actually distributed the copyright work do not necessarily collide at this juncture of the case, and dismissal of the Complaint would not be appropriate at this stage.”754F754

(b) Other Cases Adjudicating the Scope of the Distribution Right

(1) Hearst Stations v. Aereo

In Hearst Stations Inc. v. Aereo, Inc.,755F755 Aereo used antenna and DVR technology to transmit over-the-air television broadcasts over the Internet to its subscribers. The technology allowed users to watch programming live (with a few second delay) or to record it for viewing at a later time. In either case, when a user elected to watch a program, a small antenna (out of a large array of antennas) was assigned exclusively to that user for that time period to intercept the signal as the program was broadcast over-the-air and transmit it to the user’s designated space on Aereo’s hard drive. Aereo’s system then converted the signal from its original format to a different digital format that allowed the user to access the program over the Internet. A user could access his or her individual copy of a program by streaming it over the Internet from

753 Id. at *15-16.

754 Id. at *16-17.

755 2013 U.S. Dist. LEXIS (D. Mass. Oct. 8, 2013).

- 190 -

Aereo’s hard drive to his or her personal computer, smart phone, or other Internet-enabled device. The system did not permit users to download permanent physical copies of programs to their personal hard drives. The plaintiff contended, among other claims, that Aereo infringed its distribution right. The court rejected this claim, noting that although the Copyright Act does not define what it means to “distribute,” a number of courts had interpreted it to entail an actual dissemination of either copies or phonorecords. Here, because Aereo’s technology allowed users only to stream but not download programming, Aereo was more aptly described as “performing” rather than “distributing” copyrighted works.756F756

(2) Fox Broadcasting v. Dish Network

The facts of Fox Broadcasting Co. v. Dish Network, L.C.C.757F757 are discussed in Section II.A.4(u) above. Among many other issues, the district court considered whether Dish was liable for violation of Fox’s distribution right and found that it was not. Citing the Perfect 10 v. Amazon case,758F758 the court noted that infringement of the distribution right requires actual dissemination of a copy by sale or other transfer of ownership, or by rental, lease, or lending. Here, a PTAT-enabled Hopper recorded primetime programming locally and, at most that local copy was disseminated within a single household. PTAT and AutoHop therefore did not involve any actual distribution of unauthorized copies, so the court concluded that Fox had not established a likelihood of success on the merits of its distribution claim.759F759 The distribution issue was not addressed in the Ninth Circuit’s affirming opinion on appeal.

In a subsequent opinion after discovery, the district court again ruled that PTAT did not “distribute” Fox’s programming because, as the court had previously held in its ruling on the first motion for a preliminary injunction, distribution under the copyright statute requires actual dissemination of a copy that changes hands. PTAT was a system for automatically recording programming as it was being received by a subscriber’s set-top box, inside the subscriber’s home. Those recordings were therefore not distributed, delivered, or transmitted to any other location or person using PTAT alone.760F760

2. The Requirement of a “Public” Distribution

Unlike the case of the public performance and public display rights, the copyright statute does not define what constitutes a “public” distribution. However, one might expect courts to afford a similarly broad interpretation of “public” with respect to the right of public distribution. Some distributions will clearly be “public,” such as the posting of material on a Usenet

756 Id. at *3-4, 17-18.

757 905 F. Supp. 2d 1088 (C.D. Cal. 2012), aff’d (as amended), 747 F.3d 1060 (9th Cir. 2014).

758 Perfect 10 v. Amazon.com, Inc., 508 F.3d 1146, 1162 (9th Cir. 2007).

759 Fox Broadcasting, 905 F. Supp. 2d at 1106.

760 Fox Broadcasting Co. v. Dish Network LLC, 2015 U.S. Dist. LEXIS 23496 at * 59-60 (C.D. Cal. Jan. 21, 2015).

- 191 -

newsgroup, and some will clearly not, such as sending e-mail to a single individual. Many other Internet distributions will fall in between. However, one might expect courts to treat distribution to members of the public by Internet access at different times and places as nevertheless “public,” by analogy to the public performance and public display rights.

As previously discussed with respect to the public display right, the court in Playboy Enterprises, Inc. v. Hardenburgh,761F761 held the defendant operators of a BBS directly liable for infringement of the public distribution right by virtue of making available photographs to subscribers of the BBS for a fee, many of which were copyrighted photographs of the plaintiff Playboy Enterprises. The court’s basis for finding liability was derived principally from the fact that the defendants had a policy of encouraging subscribers to contribute files, including adult photographs, to an “upload file” on the BBS and the defendants’ practice of using a screening procedure in which its employees screened all files in the upload file to remove pornographic material and moved them into the generally available files for subscribers. These facts led the court to conclude that the defendants were active participants in the process of copyright infringement.

With respect to the requirement that the distributions be “to the public” in order to infringe the distribution right, the court ruled that “Defendants disseminated unlawful copies of [the plaintiff’s] photographs to the public by adopting a policy in which [the defendants’] employees moved those copies to the generally available files instead of discarding them.”762F762 The court also concluded that the defendants were liable for contributory infringement by virtue of their encouraging of subscribers to upload information to the BBS with at least constructive knowledge that infringing activity was likely to be occurring on their BBS.763F763

3. The Requirement of a Rental or Transfer of Ownership

The public distribution right requires that there have been either a rental or a transfer of ownership of a copy. If material is distributed free, as much of it is on the Internet, there is no sale, rental, or lease, and it is therefore unclear whether a sale or a “transfer of ownership” has taken place. With respect to distributions in which the recipient receives a complete copy of the work on the recipient’s computer, perhaps a “transfer of ownership” should be deemed to have taken place, since the recipient has control over the received copy.

It is unclear precisely what a “rental” means on the Internet. For example, is a download of an on-demand movie a “rental”? In a sense, the user pays a “rental” fee to watch the movie only once. However, the downloaded bits of information comprising the movie are never “returned” to the owner, as in the case of the usual rental of a copy of a work. These unanswered questions lend uncertainty to the scope of the distribution right on the Internet.

761 982 F. Supp. 503 (N.D. Ohio 1997).

762 Id. at 513.

763 Id. at 514.

- 192 -

4. The Right of Distribution Under the WIPO Treaties

Article 6 of the WIPO Copyright Treaty provides that authors of literary and artistic works shall enjoy “the exclusive right of authorizing the making available to the public of the original and copies of their works through sale or other transfer of ownership.” This right seems potentially broader than the public distribution right under current U.S. law, because it includes the mere “making available” of copies of works to the public, whereas U.S. law currently reaches only the actual distribution of copies.

It is unclear whether this “making available” right reaches the mere posting of copies on the Internet. The Agreed Statement for Article 6 provides: “As used in these Articles, the expressions ‘copies’ and ‘original and copies,’ being subject to the right of distribution and the right of rental under the said Articles, refer exclusively to fixed copies that can be put into circulation as tangible objects.” One interpretation of the Agreed Statement is that a copy posted on the Internet, being electronic in format, is not capable of being “put into circulation as tangible objects.”

On the other hand, one might argue that at least complete copies downloaded to permanent storage at recipient computers should be treated as the equivalent of circulation of copies “as tangible objects.” If, for example, copies of a book were sold on floppy disks rather than on paper, such floppy disks might well be treated as the placement of copies into circulation as tangible objects. Yet a network download can result in a copy on a floppy disk (or a hard disk) at the recipient’s computer. One could therefore argue that the transmission of electronic copies to “physical” storage media at the receiving end should be treated as within the distribution right of the WIPO treaty.

In any event, this “making available” right might more easily reach BBS operators and OSPs through which works are “made available” on the Internet. It is unclear whether a requirement of volition will be read into Article 6 for liability, as some U.S. courts have required for liability under the current rights of public distribution, display and performance. Moreover, because the WIPO Copyright Treaty does not define the “public,” the same ambiguities will arise as under current U.S. law concerning what type of availability will be sufficient to be “public,” particularly with respect to the “making available” of works to limited audiences.

Articles 8 and 12 of the WIPO Performances and Phonograms Treaty contain rights of distribution very similar to that of Article 6 of the WIPO Copyright Treaty,764F764 so the same ambiguities noted above will arise.

764 Article 8(1) provides, “Performers shall enjoy the exclusive right of authorizing the making available to the public of the original and copies of their performances fixed in phonograms through sale or other transfer of ownership.” Article 12(1) provides, “Producers of phonograms shall enjoy the exclusive right of authorizing the making available to the public of the original and copies of their phonograms through sale or other transfer of ownership.”

- 193 -

5. The Right of Distribution Under WIPO Implementing Legislation

(a) United States Legislation

The DMCA does not contain any provisions that would modify the right of distribution as it exists under current United States law. Thus, the DMCA implicitly deems the current right of public distribution to be equivalent to the Article 6 right.

(b) The European Copyright Directive

Article 4(1) of the European Copyright Directive requires member states to “provide for authors, in respect of the original of their works or of copies thereof, the exclusive right to authorize or prohibit any form of distribution to the public by sale or otherwise.” Use of the phrase “any form” of distribution suggests that a broad right is intended, although, as in the United States, the right applies only with respect to the distribution of “copies.”765F765 Consistent with the Agreed Statement of the WIPO Copyright Treaty, the comments to Article 4(1) of the European Copyright Directive recite that “the expressions ‘copies’ and ‘originals and copies,’ being subject to the distribution right, refer exclusively to fixed copies that can be put into circulation as tangible objects.”766F766

Thus, although use of the phrase “any form” of distribution might suggest that all online transmissions of copyrighted works would fall within the distribution right of the European Copyright Directive, the comments limit the distribution right “to fixed copies that can be put into circulation as tangible objects.” It seems that the drafters of the European Copyright Directive intended the right of communication to the public, rather than the right of distribution, to cover online transmissions of copyrighted works, for Recital (23) states that the right of communication to the public “should be understood in a broad sense covering all communication to the public not present at the place where the communication originates. This right should cover any such transmission or retransmission of a work to the public by wire or wireless means, including broadcasting. This right should not cover any other acts.”

E. The Right of Importation

Section 602(a) of the copyright statute provides that “importation into the United States ... of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies ....” One purpose of Section 602(a) was

Like the Agreed Statement for the WIPO Copyright Treaty quoted in the text, the Agreed Statement for Articles 8 and 12 of the WIPO Performances and Phonograms Treaty provides: “As used in these Articles, the expressions ‘copies’ and ‘original and copies,’ being subject to the right of distribution and the right of rental under the said Articles, refer exclusively to fixed copies that can be put into circulation as tangible objects.”

765 Art. 4(2) deals with exhaustion of the distribution right under the first sale doctrine, and will be discussed in Section III.F below.

766 Commentary to Art. 4, ¶ 1.

- 194 -

to allow a copyright owner to prevent distribution into the United States of copies of works that, if made in the United States, would have been infringing, but were made abroad outside the reach of United States copyright law.

Section 602(a) was obviously drafted with a model of physical copies in mind. “Importation” is not defined in the copyright statute, but the requirement that copies of a work be “acquired outside the United States” might suggest that “importation” means the movement of physical copies into the United States.767F767 It is unclear how this right will be applied to Internet transmissions into the United States, with respect to which no physical copies in a traditional sense are moved across national borders. Because the NII White Paper takes the position that the stream of data sent during a transmission does not constitute a “copy” of a copyrighted work, the NII White Paper concludes that the Section 602(a) importation right does not apply to network transmissions into the United States,768F768 and recommends that Section 602 be amended to include importation by transmission of copies, as well as by carriage or shipping of them.769F769

However, because physical copies often end up on a computer in the United States as a result of network transmissions into the United States, it is possible that the importation right will be construed analogously to the distribution right with respect to transmissions, especially since the importation right is defined in Section 602(a) in terms of the distribution right. Thus, if a transmission is deemed to be within the distribution right, then it is possible that the importation right will be construed to apply when transmissions of copies are made into the United States from abroad.

In any event, the new right of communication to the public afforded under the WIPO treaties, discussed in the next section, could help plug any hole that may exist in the traditional importation right, at least with respect to transmissions into the United States that qualify as “communications to the public,” if the such right is adopted in implementing legislation (as noted in the next section, however, the DMCA does not contain an explicit right of communication to the public).

F. The New Right of Transmission and Access Under the WIPO Treaties

The WIPO treaties each afford a broad new right of transmission and access to a copyrighted work. The right is denominated a “right of communication to the public” in the WIPO Copyright Treaty, and is denominated a “right of making available to the public” in the WIPO Performances and Phonograms Treaty. Despite the difference in denomination, the rights appear to be very similar.

767 Lemley, supra note 6, at 564.

768 NII White Paper at 68.

769 Id. at 135.

- 195 -

1. The Right of Communication to the Public in the WIPO Copyright Treaty

Article 8 of the WIPO Copyright Treaty provides a new right of “communication to the public” as follows:

Without prejudice to the provisions of Articles 11(1)(ii), 11bis(1)(i) and (ii), 11ter(1)(ii), 14(1)(ii) and 14bis(1) of the Berne Convention, authors of literary and artistic works shall enjoy the exclusive right of authorizing any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them.

This new extended right of communication to the public is clearly meant to cover online dissemination of works, and in that sense is broader than the existing rights of communication to the public in the Berne Convention, which are confined to performances, broadcasts, and recitations of works. Specifically, Article 11(1)(ii) of the Berne Convention provides that authors of dramatic, dramatico-musical and musical works shall enjoy the exclusive right of authorizing “any communication to the public of the performance of their works.” Article 11bis(1)(ii) provides that authors of literary and artistic works shall enjoy the exclusive right of authorizing “any communication to the public by wire or by rebroadcasting of the broadcast of the work, when this communication is made by an organization other than the original one.” Finally, Article 11ter(1)(ii) provides that authors of literary works shall enjoy the exclusive right of authorizing “any communication to the public of the recitation of their works.”

The new right of communication to the public in the WIPO Copyright Treaty appears to be broader than the existing rights of reproduction, display, performance, distribution, and importation under current United States law in the following ways:

• No Requirement of a Copy. The right does not require the making or distribution of “copies” of a work. It therefore removes the potential limitations on the rights of reproduction and distribution under United States law stemming from the requirement of a “copy.”

• Right of Transmission. It affords the exclusive right to control any “communication to the public” of a work “by wire or wireless means.” Although “communication” is not defined in the WIPO Copyright Treaty, the reference to a communication “by wire or wireless means” seems clearly applicable to electronic transmissions of works (a right of transmission). This conclusion is bolstered by the fact that Article 2(g) of the WIPO Performances and Phonograms Treaty does contain a definition of “communication to the public,” which is defined in terms of “transmission to the - 196 -

public by any medium, other than broadcasting.”770F770 This transmission right will potentially site the infringement at the place of transmission, in addition to the point of receipt of a transmitted work (under the reproduction right).

• Right of Authorization. It also affords the exclusive right of “authorizing” any communication to the public. No actual communications to the public are apparently necessary to infringe the right.

• Right of Access. The right of authorizing communications to the public explicitly includes “making available to the public” a work “in such a way that members of the public may access” the work “from a place and a time individually chosen by them” (a right of access).771F771 This access right would seem to allow the copyright holder to remove an infringing posting of a work prior to any downloading of that work. This right may also expand potential liability beyond just posters or recipients of infringing material on the Internet to include OSPs and BBS operators, who could be said to make a work available to the public in such a way that members of the public may access it.

The Agreed Statement for Article 8, however, appears aimed at limiting the breadth of the net of potential liability that Article 8 might establish. The Agreed Statement provides: “It is understood that the mere provision of physical facilities for enabling or making a communication does not in itself amount to communication within the meaning of this Treaty or the Berne Convention. It is further understood that nothing in Article 8 precludes a Contracting Party from applying Article 11bis(2).” It is unclear who the “mere” provider of “physical facilities” was meant to reference – only the provider of telecommunications lines (such as phone companies) through which a work is transmitted, or other service providers such as OSPs or BBS operators, who may provide “services” in addition to “facilities.”

Another unclear point with respect to the scope of the right of communication to the public is who the “public” is. Neither the WIPO Copyright Treaty nor the European Copyright Directive provide any explanation of “to the public,” although the Commission in its 1997 commentary to one of the earlier drafts of the Directive stated that “public” included “individual members of the public,” but went on to state that “the provision does not cover mere private communications.”772F772

770 Article 2(f) of the WIPO Performances and Phonograms Treaty defines “broadcasting” to mean “the transmission by wireless means for public reception of sounds or of images and sounds or of the representations thereof ....” This definition seems to contemplate isochronous transmission.

771 Although “public” is not defined in the WIPO Copyright Treaty, the reference in Article 10 to access by members of the public “from a place and at a time individually chosen by them” is very similar to the definition of display or performance of a work “publicly” in Section 101 of the U.S. copyright statute, which applies “whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.”

772 Harrington & Berking, supra note 292, at 4.

- 197 -

The right of transmission and access under Article 8 of the WIPO Copyright Treaty is similar to (and potentially broader than) the amendment to U.S. copyright law proposed in the NII White Paper “to expressly recognize that copies or phonorecords of works can be distributed to the public by transmission, and that such transmissions fall within the exclusive distribution right of the copyright owner.”773F773 The NII White Paper’s proposal would expand the distribution right, as opposed to creating a wholly new right, as the WIPO Copyright Treaty does. The amendment proposed by the NII White Paper proved to be very controversial, and implementing legislation introduced in Congress in 1996 ultimately did not win passage.

The European Court of Justice ruled on Mar. 7, 2013 that the right of communication to the public in the EU Copyright Directive covers any transmission or retransmission of a work to the public not present at the place where the communication originates, whether it be by wire or wireless means, including broadcasting. Thus, television broadcasters may prohibit the retransmission of their programs on the Internet by another company. The decision arose out of a case brought by U.K.-based commercial broadcaster ITV against TVCatchup Ltd., an Internet television service that offered many programs via live streaming. TVCatchup argued that it was not in violation of EU copyright law because its subscribers, all based in the U.K., had paid the annual TV license fee, the funds of which were used to finance public broadcasters such as the BBC and ITV. ITV sued in a U.K. court, which referred the case to the European Court of Justice to get an interpretation of what constitutes a “communication to the public.” The ECJ also ruled that authorizing the inclusion of protected works in a communication to the public does not exhaust the right to authorize or prohibit other communications to those works to the public. Accordingly, when a given work is put to multiple use, each transmission or retransmission of that work using a specific technical means must, as a rule, be individually authorized by the copyright owner. The ECJ concluded that because the production of a program made available through retransmission over the Internet uses a technology different from that of the original communication, the retransmission must be considered to be a “communication” within the meaning of the EU Copyright Directive.774F774

2. The Right of Making Available to the Public in the WIPO Performances and Phonograms Treaty

Articles 10 and 14 of the WIPO Performances and Phonograms Treaty grant analogous rights for performers and producers of phonograms to the right of “communication to the public” contained in Article 8 of the WIPO Copyright Treaty. The WIPO Performances and Phonograms Treaty, however, casts these rights as ones of “making available to the public.” Specifically, Article 10 of the WIPO Performances and Phonograms Treaty provides:

Performers shall enjoy the exclusive right of authorizing the making available to the public of their performances fixed in phonograms, by wire or wireless means,

773 NII White Paper at 130.

774 Joe Kirwin, “Broadcaster Can Block Retransmission of Programs on Internet, EU High Court Says,” BNA’s Patent, Trademark & Copyright Journal (Mar. 12, 2013).

- 198 -

in such a way that members of the public may access them from a place and at a time individually chosen by them.

Thus, Article 10 provides an exclusive right with respect to analog and digital on-demand transmission of fixed performances.775F775

Similarly, Article 14 provides:

Producers of phonograms shall enjoy the exclusive right of authorizing the making available to the public of their phonograms, by wire or wireless means, in such a way that members of the public may access them from a place and at a time individually chosen by them.

No Agreed Statements pertaining to Articles 10 and 14 were issued.

Article 2(b) of the WIPO Performances and Phonograms Treaty defines a “phonogram” to mean “the fixation of the sounds of a performance or of other sounds, or of a representation of sounds other than in the form of a fixation incorporated in a cinematographic or other audiovisual work.” Article 2(c) defines “fixation” broadly as “the embodiment of sounds, or of the representations thereof, from which they can be perceived, reproduced or communicated through a device.” Under this definition, storage of sounds on a computer would constitute a “fixation,” and the fixed copy of such sounds would therefore constitute a “phonogram.” Accordingly, the making available to the public of sounds stored on a computer would seem to fall within the access rights of Articles 10 and 14.

Because there were no Agreed Statements generated in conjunction with Sections 10 and 14 of the WIPO Performances and Phonograms Treaty, there is no Agreed Statement similar to that accompanying Article 8 in the WIPO Copyright Treaty for limiting liability for the mere provision of physical facilities for enabling or making transmissions. Accordingly, one will have to await the implementing legislation in the various countries to know how broadly the rights set up in Articles 10 and 14 will be codified into copyright laws throughout the world.

775 Rebecca F. Martin, “The WIPO Performances and Phonograms Treaty: Will the U.S. Whistle a New Tune?”, J. Copyright Soc’y U.S.A., Spring 1997, at 157, 178. Art. 8 provides a correlative distribution right with respect to more traditional forms of distribution: “Performers shall enjoy the exclusive right of authorizing the making available to the public of the original and copies of their performances fixed in phonograms through sale or other transfer of ownership.” The WIPO Performances and Phonograms Treaty also grants to authors in Art. 6 the exclusive right of authorizing “the broadcasting and communication to the public of their unfixed performances except where the performance is already a broadcast performance” as well as “the fixation of their unfixed performances.”

- 199 -

3. The Right of Transmission and Access Under WIPO Implementing Legislation

(a) United States Legislation

The DMCA does not contain any express implementation of a right of “communication to the public” or of “making available to the public.” In view of this, the uncertainties discussed previously concerning whether the mere transmission or access of a copyrighted work through an online medium falls within existing United States rights of reproduction, distribution, public display, or public performance remain under the DMCA.

With respect to the Article 10 right of making available to the public of fixed performances, the recently enacted Digital Performance Rights in Sound Recordings Act grants these rights for digital transmissions, although not for analog transmissions.776F776 However, because the WIPO Performances and Phonograms Treaty grants these rights with respect to both digital and analog transmissions, as well as with respect to spoken or other sounds in addition to musical works, it would seem that the United States might have to amend its copyright laws to comply with the requirements of Article 10.777F777

Although the DMCA does not contain any express rights of transmission or access, recent case law suggests that courts may interpret existing copyright rights to afford the equivalent of a right of transmission and access. For example, in the recent case of Marobie-FL, Inc. v. National Association of Fire Equipment Distributors,778F778 discussed previously, the court concluded that the mere making available of the files for downloading was sufficient for liability, because “once the files were uploaded [onto the Web server], they were available for downloading by Internet users and … the [OSP] server transmitted the files to some Internet users when requested.”779F779 From this statement, it appears that the court construed the distribution and public display rights to cover both the making available of the clip art to the public on the Web page (a right of access), as well as subsequent downloads by users (a right of transmission).

(b) The European Copyright Directive

The European Copyright Directive explicitly adopts both the right of communication to the public of copyrighted works and the right of making available to the public of fixed performances, by wire or wireless means, in language that parallels that of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. Specifically, Article 3(1) of the European Copyright Directive provides the following with respect to copyrighted works:

776 17 U.S.C. § 106 (6).

777 Martin, supra note 775, at 178-79.

778 45 U.S.P.Q.2d 1236 (N.D. Ill. 1997).

779 Id. at *12.

- 200 -

Member States shall provide authors with the exclusive right to authorize or prohibit any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them.

The comments to Article 3 define “communication to the public” to cover “any means or process other than the distribution of physical copies. This includes communication by wire or by wireless means,”780F780 which clearly encompasses a right of transmission. Indeed, the comments explicitly note: “One of the main objectives of the provision is to make it clear that interactive ‘on-demand’ acts of transmissions are covered by this right.”781F781 This theme is picked up in Recital (25) of the European Copyright Directive, which states, “It should be made clear that all rightholders recognized by this Directive should have an exclusive right to make available to the public copyright works or any other subject-matter by way of interactive on-demand transmissions. Such interactive on-demand transmissions are characterized by the fact that members of the public may access them from a place and at a time individually chosen by them.” Recital (27), however, echoes similar statements in the WIPO Copyright Treaty when it states that the “mere provision of physical facilities for enabling or making a communication does not in itself amount to communication within the meaning of this Directive.” The Recitals do not clear up the ambiguity previously noted in the WIPO Treaty as to who the “mere” provider of “physical facilities” was meant to reference – only the provider of telecommunications lines (such as phone companies) through which a work is transmitted, or other service providers such as OSPs or BBS operators.

The comments to the European Copyright Directive also make clear that Article 3(1) affords a right to control online access to a work, apart from actual transmissions of the work:

As was stressed during the WIPO Diplomatic Conference, the critical act is the “making available of the work to the public,” thus the offering a work on a publicly accessible site, which precedes the stage of its actual “on-demand transmission.” It is not relevant whether it actually has been retrieved by any person or not. The “public” consists of individual “members of the public.”782F782

Similarly, Article 3(2) of the European Copyright Directive affords a right of making available to the public of fixed performances by wire or wireless means:

Member States shall provide for the exclusive right to authorize or prohibit the making available to the public, by wire or wireless means, in such a way that

780 Commentary to Art. 3, ¶ 1.

781 Id. ¶ 2.

782 Id.

- 201 -

members of the public may access them from a place and at a time individually chosen by them:

(a) for performers, of fixations of their performances;

(b) for phonogram producers, of their phonograms;

(d) for broadcasting organizations, of fixations of their broadcasts, whether these broadcasts are transmitted by wire or over the air, including by cable or satellite.

The right of Article 3(2) of the European Copyright Directive is actually broader than the right required under Article 10 of the WIPO Performances and Phonograms Treaty. The Article 10 right of making available to the public applies only to performances fixed in “phonograms,” which Article 2 defines to mean the fixation of the “sounds of a performance or of other sounds other than in the form of a fixation incorporated in a cinematographic or other audiovisual work.” The Article 3(2) right of the European Copyright Directive goes further, covering fixed performances of audiovisual material as well. The comments to Article 3(2) of the European Copyright Directive justify this extension of the right on the ground that audiovisual productions or multimedia products are as likely to be available online as are sound recordings.783F783

In sum, the European Copyright Directive explicitly grants a right of transmission and access to copyrighted works and fixed performances, whereas the DMCA does not. It remains to be seen how broadly these rights mandated under the European Copyright Directive will be adopted in implementing legislation in EC member countries. However, this disparity between the express rights afforded under United States law and the European Copyright Directive raises considerable potential uncertainty. First, at a minimum, use of different language to denominate the various rights among countries may breed confusion. Second, differences of scope of the rights of transmission and access are likely to arise between the United States and the EC by virtue of the fact that these rights are spelled out as separate rights in the EC, whereas, if they exist at all, they are subsumed under a collection of various other rights in the United States. Adding further to the potential confusion is the possibility that some EC member countries may adopt these rights expressly, as mandated by the European Copyright Directive, whereas other countries may, like the United States, deem them to be subsumed in other rights already afforded under that country’s laws.

Because online transmissions through the Internet are inherently global, these disparities raise the possibility that rights of varying scope will apply to an online transmission as it travels through computers in various countries on the way to its ultimate destination. Similarly, legal

783 Id. ¶ 3.

- 202 -

rights of varying scope may apply depending upon in which country a work is actually first accessed. Given the ubiquitous nature of caching on the Internet, the site of the access may be arbitrary from a technical point of view, but significant from a legal point of view. Such a situation would not afford the international uniformity that the WIPO treaties seek to establish.

G. New Rights and Provisions Under The Digital Millennium Copyright Act, the European Copyright Directive & Legislation That Did Not Pass

This Section discusses a number of new rights and provisions related to various areas of copyright law that are contained in the DMCA and the European Copyright Directive. In addition, this Section discusses a number of interesting rights and provisions concerning copyright in the online context that were contained in proposed legislation that did not pass Congress. These provisions are indicators of areas where future legislation and/or debate may arise.

1. Circumvention of Technological Measures and Rights Management Information Under the DMCA

Both the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty require signatories to establish certain obligations with respect to circumvention of technological measures to protect copyrighted works and the preservation and use of certain “rights management information.”

With respect to the circumvention of technological measures, Article 11 of the WIPO Copyright Treaty and Article 18 of the WIPO Performances and Phonograms Treaty require treaty signatories to “provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures” that are used by authors, performers and producers of phonograms to restrict acts with respect to their copyrighted works that are not authorized by the rights holders or permitted by law.784F784

With respect to the preservation and use of rights management information, Article 12 of the WIPO Copyright Treaty and Article 19 of the WIPO Performances and Phonograms Treaty require treaty signatories to provide adequate and effective legal remedies against any person performing any of the following acts knowing (or, with respect to civil remedies, having reasonable grounds to know) “that it will induce, enable, facilitate or conceal an infringement of any right covered by this Treaty or the Berne Convention”: (i) removing or altering any electronic rights management information without authority or (ii) distributing, importing for distribution, broadcasting or communicating to the public, without authority, copies of works

784 Shortly after the WIPO treaties were adopted, Assistant Secretary of Commerce and Commissioner of Patents and Trademarks Bruce Lehman, who headed the U.S. delegation at the WIPO Conference, noted that this provision is somewhat broader than the statutory language proposed on the subject in Congress before adoption of the treaties. He noted that implementation of this treaty provision would therefore require new legislation. “WIPO Delegates Agree on Two Treaties,” BNA’s Electronic Information Policy & Law Report (Jan. 3, 1997) at 23.

- 203 -

knowing that electronic rights management information has been removed or altered without authority. The treaties define “rights management information” as “information which identifies the work, the author of the work, the owner of any right in the work, or information about the terms and conditions of use of the work, and any numbers or codes that represent such information, when any of these items of information is attached to a copy of a work or appears in connection with the communication of a work to the public.”

This subsection 1 discusses the implementation of these rights in the DMCA. The following subsection 2 discusses the implementation of these rights under the European Copyright Directive.

The four bills that were introduced in Congress to implement the WIPO treaties adopted one of two approaches to the circumvention of technological measures and rights management information. The first approach, contained in H.R. 2281 and S. 2037 and ultimately adopted in the DMCA, outlawed both conduct and devices directed toward or used for circumventing technological copyright protection mechanisms. The second approach, contained in S. 1146 and H.R. 3048 but not passed by Congress, outlawed only conduct involving the removal or deactivation of technological protection measures. Although Bruce Lehman conceded that the WIPO treaties do not mandate adoption of a device-based approach, he and other supporters of this approach argued that a conduct-only approach would be difficult to enforce and that meaningful legislation should control the devices used for circumvention.785F785

The DMCA adds several new provisions to the Copyright Act, which are contained in a new Chapter 12.

(a) Circumvention of Technological Protection Measures

(1) Prohibition on Conduct

Section 1201(a)(1) of the DMCA outlaws conduct to circumvent protection mechanisms that control access to a copyrighted work: “No person shall circumvent a technological measure that effectively controls access to a work protected under this title.” Note that this provision does not expressly require either knowledge or intent, and is therefore potentially very broad in its reach – the language states that the mere act of circumvention is a violation, and does not expressly require that an infringement follow the circumvention act (although some courts have grafted such a requirement as discussed below). Section 1201(a)(3) defines “circumvent a technological measure” as “to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner.” That section further provides that a technological protection measure “effectively controls access to a work” if “the measure, in the ordinary course of its

785 Cunard & Coplan, “WIPO Treaty Implementation: Debate Over OSP Liability,” Computer Law Strategist (Oct. 1997) 1, 3.

- 204 -

operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work.”

Section 1201(a)(1) provides that the prohibition on circumventing a technological measure to gain unauthorized access to a work does not take effect until the end of a two-year period beginning on the date of enactment of the bill – the two year waiting period expired on October 28, 2000, and the prohibition is now in effect.

(i) Exemptions Adopted by the Librarian of Congress

Section 1201(a)(1) requires the Librarian of Congress, upon recommendation of the Register of Copyrights and in consultation with the Assistant Secretary of Commerce for Communications and Information, to conduct a rulemaking786F786 during the initial two-year period, and during each succeeding three-year period, to determine whether certain types of users of copyrighted works are, or are likely to be, adversely affected by the prohibition in Section 1201(a)(1).787F787 The Librarian must publish a list of particular classes of copyrighted works for which the rulemaking determines that noninfringing uses have been, or are likely to be, adversely affected, and the prohibitions of Section 1201(a) shall not apply to such users with respect to such class of works for the ensuing three-year period.

The Exemptions of 2000. On Oct. 27, 2000, the Copyright Office published the first set of classes of copyrighted works that the Librarian of Congress determined would be exempt from the anti-circumvention provisions of Section 1201(a)(1), with the exemption to be in effect until Oct. 28, 2003.788F788 Those classes, which were only two in number and very narrowly defined, were as follows:

1. Compilations consisting of lists of websites blocked by filtering software and applications. The Librarian determined that an exemption was necessary to avoid an adverse effect on persons who wish to criticize and comment on such lists, because they would not be able to ascertain which sites are on the lists unless they circumvented encryption protecting the contents of the lists.789F789

786 As originally passed by Congress, section 1201(a)(1) required that the rulemaking be on the record. However, the Intellectual Property and Communications Omnibus Reform Act of 1999, P.L. 106-113, passed by Congress on Nov. 19, 1999 and signed by the President in late 1999, removed the requirement that the rulemaking be “on the record.”

787 Section 1201(a)(C) provides that in conducting the rulemaking, the Librarian shall examine the availability for use of copyrighted works; the availability for use of works for nonprofit archival, preservation, and educational purposes; the impact that the prohibition on the circumvention of technological measures applied to copyrighted works has on criticism, comment, news reporting, teaching, scholarship, or research; and the effect of circumvention of technological measures on the market for or value of copyrighted works.

788 65 Fed. Reg. 64556 (Oct. 27, 2000).

789 Id. at 64564.

- 205 -

2. Literary works, including computer programs and databases, protected by access control mechanisms that fail to permit access because of malfunction, damage or obsoleteness. The Librarian determined that an exemption was necessary to gain access to literary works protected by access control mechanisms, such as dongles or other mechanisms, that malfunction or become obsolete.790F790

The Exemptions of 2003. On Oct. 27, 2003, the Copyright Office issued the second determination of the classes of copyrighted works that the Librarian decided should have an exemption, with the exemption to be in effect until Oct. 27, 2006.791F791 The classes, which were only four in number and even more specifically defined than the first set of classes,792F792 were as follows:

1. Compilations consisting of lists of Internet locations blocked by commercially marketed filtering software applications that are intended to prevent access to domains, websites or portions of websites, but not including lists of Internet locations blocked by software applications that operate exclusively to protect against damage to a computer or computer network or lists of Internet locations blocked by software applications that operate exclusively to prevent receipt of email.793F793 The Librarian defined “Internet locations” to “include domains, uniform resource locators (URLs), numeric IP addresses or any combination thereof.794F794 This class is similar to the first class of exemptions in the Librarian’s first determination, but was narrowed so as to exclude the ability to circumvent blocked lists associated with firewalls, anti-virus software and anti-spam software.795F795

2. Computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete. This class is similar to the second class of exemptions in the

790 Id. at 64564-66. For the Copyright Office’s rationale for rejecting an exemption for a host of other proposed classes of works, see id. at 64566-74.

791 68 Fed. Reg. 62011 (Oct. 31, 2003).

792 A statement accompanying the Librarian’s decision with respect to the exempted classes partially explained the narrowness of the classes: “It is important to understand the purposes of this rulemaking, as stated in the law, and the role I have in it. The rulemaking is not a broad evaluation of the successes or failures of the DMCA. The purpose of the proceeding is to determine whether current technologies that control access to copyrighted works are diminishing the ability of individuals to use works in lawful, noninfringing ways. The DMCA does not forbid the act of circumventing copy controls, and therefore this rulemaking proceeding is not about technologies that control copying. Some of the people who participated in the rulemaking did not understand that and made proposals based on their dissatisfaction with copy controls. Other participants sought exemptions that would permit them to circumvent access controls on all works when they are engaging in particular noninfringing uses of those works. The law does not give me that power.” Statement of the Librarian of Congress Relating to Section 1201 Rulemaking, available as of Oct. 30, 2003 at www.copyright.gov/1201/docs/librarian_statement_01.html.

793 68 Fed. Reg. at 62013.

794 Id.

795 Id.

- 206 -

Librarian’s first determination, but was narrowed to cover only the case of obsolete dongles because the Librarian found that this was the only class for which adequate factual support of potential harm had been submitted in the second rulemaking proceeding.796F796 The Librarian defined “obsolete” as “no longer manufactured or reasonably available in the commercial marketplace.”797F797

3. Computer programs and video games distributed in formats that have become obsolete and which require the original media or hardware as a condition of access. A format shall be considered obsolete if the machine or system necessary to render perceptible a work stored in that format is no longer manufactured or is no longer reasonably available in the commercial marketplace. The Librarian determined that this exemption is necessary to allow archiving or continued use of computer programs and video games that are subject to “original media only” restrictions, are stored on media no longer in use, such as 5.25” floppy disks, or require use of an obsolete operating system.798F798

4. Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling of the ebook’s read-aloud function and that prevent the enabling of screen readers to render the text into a specialized format. The Librarian defined “specialized format,” “digital text” and “authorized entities” to have the same meaning as in 17 U.S.C. § 121.799F799 The Librarian determined that this exemption is necessary in response to problems experienced by the blind and visually impaired in gaining meaningful access to literary works distributed as ebooks.800F800

For the Copyright Office’s rationale for rejecting an exemption for a host of other proposed classes of works, see 68 Fed. Reg. at 62014-18. One of the more interesting proposed exemptions that the Copyright Office rejected was one submitted by Static Control Components, Inc. in response to the district court’s ruling in the case of Lexmark International, Inc. v. Static Control Components, Inc.,801F801 discussed in Section II.G.1(o)(1) below. In that case, the district court ruled on a motion for a preliminary injunction that Static Control violated Section 1201(a)(2) by distributing microchips that were used to replace the microchip found in plaintiff Lexmark’s toner cartridges so as to circumvent Lexmark’s authentication sequence that prevented the printer engine software on the Lexmark printer from allowing the printer to operate with a refilled toner cartridge. In view of this ruling, Static Control submitted a proposed

796 Id. at 62013-14.

797 Id. at 62018.

798 Id. at 62014.

799 Id.

800 Id.

801 253 F. Supp. 2d 943, 948-49 (E.D. Ky. 2003), rev’d, 387 F.3d 522 (6th Cir. 2004), reh’g denied, 2004 U.S. App. LEXIS 27422 (Dec. 29, 2004), reh’g en banc denied, 2005 U.S. App. LEXIS 3330 (6rh Cir. Feb. 15, 2005).

- 207 -

exemption to the Copyright Office to permit circumvention of access controls on computer programs embedded in computer printers and toner cartridges and that control the interoperation and functions of the printer and toner cartridge. The Copyright Office concluded that the statutory exemption set forth in Section 1201(f), discussed in Section II.G.1(g) below, already adequately addressed the concerns of toner cartridge re-manufacturers.802F802 The rationale for the Copyright Office’s conclusion is discussed further in Section II.G.1(g) below.

The Exemptions of 2006. On Nov. 27, 2006, the Copyright Office issued the third determination of the classes of copyrighted works that the Librarian decided should have an exemption, with the exemption to be in effect until Oct. 27, 2009.803F803 In previous rulemakings, the Copyright Office had determined that an exempted class must be based primarily on attributes of the work itself and not the nature of the use or the user. In its 2006 ruling, the Copyright Office determined for the first time that in certain circumstances it would be permissible to refine the description of a class of works by reference to the type of user who may take advantage of the exemption or by reference to the type of use of the work that may be made pursuant to the exemption, and the Copyright Office applied this refinement to some of the classes of works exempted.804F804

The exempted classes of works in the 2006 ruling were the following:

1. “Audiovisual works included in the educational library of a college or university’s film or media studies department, when circumvention is accomplished for the purpose of making compilations of portions of those works for educational use in the classroom by media studies or film professors.”805F805 This exemption was the first one to define the class by reference to particular types of uses and users.

2. “Computer programs and video games distributed in formats that have become obsolete and that require the original media or hardware as a condition of access, when circumvention is accomplished for the purpose of preservation or archival reproduction of published digital works by a library or archive. A format shall be considered obsolete if the machine or system necessary to render perceptible a work stored in that format is no longer manufactured or is no longer reasonably available in the commercial marketplace.”806F806 This exemption is the same as the third class in the 2003 ruling, except that a definition of what renders constitutes an obsolete format was added.

802 68 Fed. Reg. at 62017.

803 71 Fed. Reg. 68472 (Nov. 27, 2006). On Oct. 27, 2009, the Librarian of Congress extended the 2006 exemptions on an interim basis until the Copyright Office and Librarian of Congress could complete their decision with respect to the next classes of exemptions to be granted. See 74 Fed. Reg. 55139 (Oct. 27, 2009). The extension period turned out to be 9 months, ending on July 26, 2010.

804 Id. at 68473-74.

805 Id.

806 Id. at 68474.

- 208 -

3. “Computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete. A dongle shall be considered obsolete if it is no longer manufactured or if a replacement or repair is no longer reasonably available in the commercial marketplace.”807F807 This exemption is the same as the second class in the 2003 ruling.

4. “Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling either of the book’s read-aloud function or of screen readers that render the text into a specialized format.”808F808 This exemption is similar to the fourth class in the 2003 ruling, except that the two requirements in the description of the access controls is phrased in the disjunctive, whereas in the 2003 ruling it was phrased in the conjunctive.

5. “Computer programs in the form of firmware that enable wireless telephone handsets to connect to a wireless telephone communication network, when circumvention is accomplished for the sole purpose of lawfully connecting to a wireless telephone communication network.”809F809 This is a new exemption, and is another one defined by reference to a particular type of use. The purpose of this exemption is to address the use of software locks that prevent customers from using their handsets on a competitor’s network, even after all contractual obligations to the original wireless carrier have been satisfied, by controlling access to the firmware that operates the mobile phone. The Copyright Office justified the exemption by noting that “in this case, the access controls do not appear to actually be deployed in order to protect the interests of the copyright owner or the value or integrity of the copyrighted work; rather, they are used by wireless carriers to limit the ability of subscribers to switch to other carriers, a business decision that has nothing whatsoever to do with the interests protected by copyright. … When application of the prohibition on circumvention of access controls would offer no apparent benefit to the author or copyright owner in relation to the work to which access is controlled, but simply offers a benefit to a third party who may use § 1201 to control the use of hardware which, as is increasingly the case, may be operated in part through the use of computer software or firmware, an exemption may well be warranted.”810F810 The rationale underlying this class is an important one, and may be applied to justify more exempted classes in future rulemakings by the Copyright Office.

6. “Sound recordings, and audiovisual works associated with those sound recordings, distributed in compact disc format and protected by technological protection measures that control access to lawfully purchased works and create or exploit security flaws or vulnerabilities that compromise the security of personal computers, when circumvention is accomplished solely for the purpose of good faith testing, investigating, or correcting such security flaws or

807 Id. at 68475.

808 Id.

809 Id. at 68476.

810 Id.

- 209 -

vulnerabilities.”811F811 This exemption was prompted by the notorious case of the DRM technology that Sony BMG Music added to some music CDs distributed in 2005 and that went awry, causing damage to users’ computers.

Among the proposed classes that the Copyright Office rejected was the interesting one of an exemption for “space-shifting” to permit circumvention of access controls applied to audiovisual and musical works in order to copy these works to other media or devices and to access these works on those alternative media or devices. The Copyright Office rejected the proposal on the ground that those proposing the exemption “uniformly failed to cite legal precedent that establishes that such space-shifting is, in fact, a noninfringing use. The Register concludes that the reproduction of those works onto new devices is an infringement of the exclusive reproduction right unless some exemption or defense is applicable. In the absence of any persuasive legal authority for the proposition that making copies of a work onto any device of the user’s choosing is a noninfringing use, there is no basis for recommending an exemption to the prohibition on circumvention.”812F812 The Copyright Office also rejected a proposed exemption for all works protected by access controls that prevent the creation of backup copies, reasoning that “the proponents offered no legal arguments in support of the proposition that the making of backup copies is noninfringing.”813F813

The Exemptions of 2010. On July 27, 2010, the Librarian of Congress issued the fourth determination of the classes of copyrighted works that should have an exemption, with the exemption to be in effect until Oct. 27, 2012.814F814 The 2010 ruling continued the approach of the 2006 ruling in refining the description of a class of works by reference to the type of user who may take advantage of the exemption or by reference to the type of use of the work that may be made pursuant to the exemption. Indeed, in announcing the exemption, the Copyright Office stated that the prohibitions against circumvention “shall not apply to persons who are users of a copyrighted work which is in a particular class of works” granted an exemption.815F815

The six exempted classes of works in the 2010 ruling are the following:

1. “Motion pictures on DVDs that are lawfully made and acquired and that are protected by the Content Scrambling System when circumvention is accomplished solely in order to accomplish the incorporation of short portions of motion pictures into new works for the purpose of criticism or comment, and where the person engaging in circumvention believes and has reasonable grounds for believing that circumvention is necessary to fulfill the purpose of the use in the following instances:

811 71 Fed. Reg. 68477.

812 Id. at 68478.

813 Id. at 68479.

814 75 Fed. Reg. 43825 (July 27, 2010).

815 Id. at 43826.

- 210 -

(i) Educational uses by college and university professors and by college and university film and media studies students;

(ii) Documentary filmmaking;

(iii) Noncommercial videos.”

2. “Computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset.”

3. “Computer programs, in the form of firmware or software, that enable used816F816 wireless telephone handsets to connect to a wireless telecommunications network, when circumvention is initiated by the owner of the copy of the computer program solely in order to connect to a wireless telecommunications network and access to the network is authorized by the operator of the network.”

4. “Video games accessible on personal computers and protected by technological protection measures that control access to lawfully obtained works, when circumvention is accomplished solely for the purpose of good faith testing for, investigating, or correcting security flaws or vulnerabilities, if:

(i) The information derived from the security testing is used primarily to promote the security of the owner or operator of a computer, computer system, or computer network; and

816 The limitation of this exemption to “used” wireless telephone handsets was a narrowing of the network connection exemption granted in the 2006 rulemaking.

- 211 -

(ii) The information derived from the security testing is used or maintained in a manner that does not facilitate copyright infringement or a violation of applicable law.”

5. “Computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete. A dongle shall be considered obsolete if it is no longer manufactured or if a replacement or repair is no longer reasonably available in the commercial marketplace.”

6. “Literary works distributed in ebook format when all existing ebook editions of the work (including digital text editions made available by authorized entities) contain access controls that prevent the enabling either of the book’s read-aloud function or of screen readers that render the text into a specialized format.”817F817

The Exemptions of 2012. On Oct 26, 2012, the Librarian of Congress issued the fifth determination of the classes of copyrighted works that should have an exemption, effective as of Oct. 28, 2012.818F818 The 2012 ruling broadened somewhat the approach of the 2010 ruling’s focus on refining the description of a class of works by reference to the type of user who may take advantage of the exemption or by reference to the type of use of the work that may be made pursuant to the exemption. For example, the Copyright Office noted in its recommendation to the Librarian of Congress the following: “While beginning with a category of works identified in Section 102, or a subcategory thereof, the description of the ‘particular class’ ordinarily will be refined with reference to other factors so that the scope of the class is proportionate to the scope of harm to noninfringing uses. For example, a class might be refined in part by reference to the medium on which the works are distributed, or to the access control measures applied to the works. The description of a class of works may also be refined, in appropriate cases, by reference to the type of user who may take advantage of the exemption or the type of use that may be made pursuant to the designation.”819F819

Notably, the Librarian omitted from the exempted classes one of the broad classes that had been granted an exemption in 2010 pertaining to computer programs for “unlocking” wireless handsets to function with alternative wireless networks. Instead, the Librarian granted a much more limited exemption that applied only to handsets acquired within 90 days after the effective date of the exemption. The principle rationale for the much more limited exemption was the following:

The Register further concluded that the record before her supported a finding that, with respect to new wireless handsets, there are ample alternatives to circumvention. That is, the marketplace has evolved such that there is now a wide array of unlocked phone options available to consumers. While it is true that not

817 75 Fed. Reg. at 43849.

818 77 Fed. Reg. 65260 (Oct. 26, 2012).

819 Id. at 65261.

- 212 -

every wireless device is available unlocked, and wireless carriers’ unlocking policies are not free from all restrictions, the record clearly demonstrates that there is a wide range of alternatives from which consumers may choose in order to obtain an unlocked wireless phone. Thus, the Register determined that with respect to newly purchased phones, proponents had not satisfied their burden of showing adverse effects related to a technological protection measure.820F820

This decision on the part of the Register proved to be the source of significant subsequent controversy. In Aug. 2014 the President signed The Unlocking Consumer Choice and Wireless Competition Act, Public Law 113-144, 128 Stat. 1751 (2014), restoring and making permanent the 2010 exemption, as well as allowing the circumvention permitted under the reinstated 2010 exemption, as well as any future exemptions to permit wireless telephone handsets or other wireless devices to connect to wireless telecommunications networks, to be performed by the owner of the handset or device, by another person at the direction of the owner, or by a provider of commercial mobile radio or data services to enable such owners or a family member to connect to a wireless network when authorized by the network operator.821F821

The six exempted classes of works in the 2012 ruling are the following:

1. “Literary works, distributed electronically, that are protected by technological measures which either prevent the enabling of read-aloud functionality or interfere with screen readers or other applications or assistive technologies in the following instances:

(i) When a copy of such a work is lawfully obtained by a blind or other person with a disability, as such a person is defined in 17 U.S.C. 121; provided, however, the rights owner is remunerated, as appropriate, for the price of the mainstream copy of the work as made available to the general public through customary channels; or

(ii) When such work is a nondramatic literary work, lawfully obtained and used by an authorized entity pursuant to 17 U.S.C. 121.”

2. “Computer programs that enable wireless telephone handsets to execute lawfully obtained software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications with computer programs on the telephone handset.”

820 Id. at 65265.

821 “President Signs Bill Restoring Consumer Right to Unlock Mobile Handsets,” BNA’s Patent, Trademark & Copyright Journal (Aug. 4, 2014), available as of Aug. 5, 2014 at http://iplaw.bna.com/iprc/display/simple_doc_display.adp?fedfid=50888556&vname=ptdbulallissuesdib&jd=a0f4c7w8w2&split=0#a0f4c7w8w2. The bill does not create a statutory right for consumers to unlock phones, but merely reverses the Copyright Office’s prior regulatory decision and directs the Copyright Office to initiate a rulemaking proceeding to determine whether any wireless devices in addition to cellphones should be included in the unlocking exemption. Id.

- 213 -

3. “Computer programs, in the form of firmware or software, that enable a wireless telephone handset originally acquired from the operator of a wireless telecommunications network or retailer no later than ninety days after the effective date of this exemption to connect to a different wireless telecommunications network, if the operator of the wireless communications networks to which the handset is locked has failed to unlock it within a reasonable period of time following a request by the owner of the wireless telephone handset, and when circumvention is initiated by the owner, an individual consumer, who is also the owner of the copy of the computer program in such wireless telephone handset, solely in order to connect to a different wireless telecommunications network, and such access to the network is authorized by the operator of the network.” 4. “Motion pictures, as defined in 17 U.S.C. 101, on DVDs that are lawfully made and acquired and that are protected by the Content Scrambling System, where the person engaging in the circumvention believes and has reasonable grounds for believing that circumvention is necessary because reasonably available alternatives, such as noncircumventing methods or using screen capture software as provided for in alternative exemptions, are not able to produce the level of high-quality content required to achieve the desired criticism or comment on such motion pictures, and where circumvention is undertaken solely in order to make use of short portions of the motion pictures for the purpose of criticism or comment in the following instances:

(i) In noncommercial videos;

(ii) In documentary films;

(iii) In nonfiction multimedia ebooks offering film analysis; and

(iv) For educational purposes in film studies or other courses requiring close analysis of film and media excerpts, by college and university faculty, college and university students, and kindergarten through twelfth grade educators. For purposes of this exemption, ‘noncommercial videos’ includes videos created pursuant to a paid commission, provided that the commissioning entity’s use is noncommercial.”

5. “Motion pictures, as defined in 17 U.S.C. 101, that are lawfully made and acquired via online distribution services and that are protected by various technological protection measures, where the person engaging in circumvention believes and has reason able grounds for believing that circumvention is necessary because reasonably available alternatives, such as noncircumventing methods or using screen capture software as provided for in alternative exemptions, are not able to produce the level of high-quality content required to achieve the desired criticism or comment on such motion pictures, and where circumvention is undertaken solely in order to make use of short portions of the motion pictures for the purpose of criticism or comment in the following instances:

(i) In noncommercial videos;

- 214 -

(ii) In documentary films;

(iii) In nonfiction multimedia ebooks offering film analysis; and

(iv) For educational purposes in film studies or other courses requiring close analysis of film and media excerpts, by college and university faculty, college and university students, and kindergarten through twelfth grade educators. For purposes of this exemption, “noncommercial videos” includes videos created pursuant to a paid commission, provided that the commissioning entity’s use is noncommercial.”

6. “(i) Motion pictures, as defined in 17 U.S.C. 101, on DVDs that are lawfully made and acquired and that are protected by the Content Scrambling System, where the circumvention, if any, is undertaken using screen capture technology that is reasonably represented and offered to the public as enabling the reproduction of motion picture content after such content has been lawfully decrypted, when such representations have been reasonably relied upon by the user of such technology, when the person engaging in the circumvention believes and has reasonable grounds for believing that the circumvention is necessary to achieve the desired criticism or comment, and where the circumvention is undertaken solely in order to make use of short portions of the motion pictures for the purpose of criticism or comment in the following instances:

(A) In noncommercial videos;

(B) In documentary films;

(D) For educational purposes by college and university faculty, college and university students, and kindergarten through twelfth grade educators.

(ii) For purposes of this exemption, ‘noncommercial videos’ includes videos created pursuant to a paid commission, provided that the commissioning entity’s use is noncommercial.”

7. “(i) Motion pictures, as defined in 17 U.S.C. 101, that are lawfully made and acquired via online distribution services and that are protected by various technological protection measures, where the circumvention, if any, is undertaken using screen capture technology that is reasonably represented and offered to the public as enabling the reproduction of motion picture content after such content has been lawfully decrypted, when such representations have been reasonably relied upon by the user of such technology, when the person engaging in the circumvention believes and has reasonable grounds for believing that the circumvention is necessary to achieve the desired criticism or comment, and where the circumvention is undertaken solely in order to make use of short portions of the motion pictures for the purpose of criticism or comment in the following instances:

(A) In noncommercial videos;

- 215 -

(B) In documentary films;

(D) For educational purposes by college and university faculty, college and university students, and kindergarten through twelfth grade educators.

(ii) For purposes of this exemption, ‘noncommercial videos’ includes videos created pursuant to a paid commission, provided that the commissioning entity’s use is noncommercial.”

8. “Motion pictures and other audiovisual works on DVDs that are protected by the Content Scrambling System, or that are distributed by an online service and protected by technological measures that control access to such works, when circumvention is accomplished solely to access the playhead and/or related time code information embedded in copies of such works and solely for the purpose of conducting research and development for the purpose of creating players capable of rendering visual representations of the audible portions of such works and/or audible representations or descriptions of the visual portions of such works to enable an individual who is blind, visually impaired, deaf, or hard of hearing, and who has lawfully obtained a copy of such a work, to perceive the work; provided, however, that the resulting player does not require circumvention of technological measures to operation.”822F822

The Exemptions of 2015. On Oct 20, 2015, the Librarian of Congress issued the sixth determination of the classes of copyrighted works that should have an exemption, effective as of Oct. 28, 2015.823F823 The Unlocking Consumer Choice and Wireless Competition Act, Public Law 113-144, 128 Stat. 1751 (2014), directed the Librarian to consider as part of this triennial proceeding whether to extend the cellphone unlocking exemption in the statute to include any other category of wireless devices based upon the recommendation of the Register, who in turn was to consult with the Assistant Secretary. The Register recommended, and the Librarian agreed, that such exemption should be extended to other wireless devices, as noted below. The sixth triennial rulemaking continued the procedure adopted in the fifth triennial rulemaking of refining a class of exempted works by reference to the use or user in order to remedy the adverse effect of the prohibition and to limit the adverse consequences of an exemption. The Copyright received nearly 40,000 comments in response to its Notice of Proposed Rulemaking and held seven days of public hearings in two cities.824F824

The ten exempted classes of works in the 2015 ruling are the following:

822 Id. at 65278-79.

823 80 Fed. Reg. 65944 (Oct. 28, 2015).

824 Id. at 65946.

- 216 -

1. “Motion pictures (including television shows and videos), as defined in 17 U.S.C. 101, where circumvention is undertaken solely in order to make use of short portions of the motion pictures for the purpose of criticism or comment in the following instances:

(i) For use in documentary filmmaking,

(A) Where the circumvention is undertaken using screen-capture technology that appears to be offered to the public as enabling the reproduction of motion pictures after content has been lawfully acquired and decrypted, or

(B) Where the motion picture is lawfully made and acquired on a DVD protected by the Content Scramble System, on a Blu-ray disc protected by the Advanced Access Control System, or via a digital transmission protected by a technological measure, and where the person engaging in circumvention reasonably believes that screen-capture software or other non-circumventing alternatives are unable to produce the required level of high-quality content;

(ii) For use in noncommercial videos (including videos produced for a paid commission if the commissioning entity’s use is noncommercial),

(iii) For use in nonfiction multimedia e-books offering film analysis,

(iv) By college and university faculty and students, for educational purposes,

(B) In film studies or other courses requiring close analysis of film and media excerpts where the motion picture is lawfully made and acquired on a DVD protected by the Content Scramble System, on a Blu-ray disc protected by the Advanced Access Control System, or via a digital transmission protected by a technological measure, and where the person engaging in circumvention reasonably believes that screen-capture software or other non-circumventing alternatives are unable to produce the required level of high-quality content;

(v) By faculty of massive open online courses (MOOCs) offered by accredited nonprofit educational institutions to officially enrolled students through online platforms (which platforms themselves may be operated for profit), for educational purposes, where the MOOC provider - 217 -

through the online platform limits transmissions to the extent technologically feasible to such officially enrolled students, institutes copyright policies and provides copyright informational materials to faculty, students and relevant staff members, and applies technological measures that reasonably prevent unauthorized further dissemination of a work in accessible form to others or retention of the work for longer than the course session by recipients of a transmission through the platform, as contemplated by 17 U.S.C. 110(2),

(vi) By kindergarten through twelfth-grade educators, including of accredited general educational development (GED) programs, for educational purposes,

(B) In film studies or other courses requiring close analysis of film and media excerpts where the motion picture is lawfully made and acquired on a DVD protected by the Content Scramble System, or via a digital transmission protected by a technological measure, and where the person engaging in circumvention reasonably believes that screen-capture software or other non-circumventing alternatives are unable to produce the required level of high-quality content;

(vii) By kindergarten through twelfth-grade students, including those in accredited general educational development (GED) programs, for educational purposes, where the circumvention is undertaken using screen-capture technology that appears to be offered to the public as enabling the reproduction of motion pictures after content has been lawfully acquired

and decrypted; and

(viii) By educators and participants in nonprofit digital and media literacy programs offered by libraries, museums and other nonprofit entities with an educational mission, in the course of face-to-face instructional activities for educational purposes, where the circumvention is undertaken using screen-capture technology that appears to be offered to the public as enabling the reproduction of motion pictures after content has been lawfully acquired and decrypted.”

2. “Literary works, distributed electronically, that are protected by technological measures that either prevent the enabling of read-aloud functionality or interfere with screen readers or other applications or assistive technologies,

(i) When a copy of such a work is lawfully obtained by a blind or other person with a disability, as such a person is defined in 17 U.S.C. 121; provided, however, that the rights owner is remunerated, as appropriate, for the price of the mainstream copy of the work as made available to the general public through customary channels, or

- 218 -

(ii) When such work is a nondramatic literary work, lawfully obtained and used by an authorized entity pursuant to 17 U.S.C. 121.”

3. “(i) Computer programs that enable the following types of wireless devices to connect to a wireless telecommunications network, when circumvention is undertaken solely in order to connect to a wireless telecommunications network and such connection is authorized by the operator of such network, and the device is a used device:

(A) Wireless telephone handsets (i.e., cellphones);

(B) All-purpose tablet computers;

(C) Portable mobile connectivity devices, such as mobile hotspots, removable wireless broadband modems, and similar devices; and

(D) Wearable wireless devices designed to be worn on the body, such as smartwatches or fitness devices.

(ii) A device is considered ‘‘used’’ for purposes of this exemption when it has previously been lawfully acquired and activated on the wireless telecommunications network of a wireless carrier.”

4. “Computer programs that enable smartphones and portable all-purpose mobile computing devices to execute lawfully obtained software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications with computer programs on the smartphone or device, or to permit removal of software from the smartphone or device. For purposes of this exemption, a ‘‘portable all-purpose mobile computing device’’ is a device that is primarily designed to run a wide variety of programs rather than for consumption of a particular type of media content, is equipped with an operating system primarily designed for mobile use, and is intended to be carried or worn by an individual.”

5. “Computer programs that enable smart televisions to execute lawfully obtained software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications with computer programs on the smart television.”

6. “Computer programs that are contained in and control the functioning of a motorized land vehicle such as a personal automobile, commercial motor vehicle or mechanized agricultural vehicle, except for computer programs primarily designed for the control of telematics or entertainment systems for such vehicle, when circumvention is a necessary step undertaken by the authorized owner of the vehicle to allow the diagnosis, repair or lawful modification of a vehicle function; and where such circumvention does not constitute a violation of applicable law, including without limitation regulations promulgated by the Department of Transportation or the Environmental Protection Agency; and provided, however, that such circumvention is initiated no earlier than 12 months after the effective date of this regulation.”

7. “(i) Computer programs, where the circumvention is undertaken on a lawfully acquired device or machine on which the computer program operates solely for the purpose of good-faith security research and does not violate any applicable law, including without limitation the Computer Fraud and Abuse Act of 1986, as amended and codified in title 18, United States - 219 -

Code; and provided, however, that, except as to voting machines, such circumvention is initiated no earlier than 12 months after the effective date of this regulation, and the device or machine is one of the following:

(A) A device or machine primarily designed for use by individual consumers (including voting machines);

(B) A motorized land vehicle; or

(C) A medical device designed for whole or partial implantation in patients or a corresponding personal monitoring system, that is not and will not be used by patients or for patient care.

(ii) For purposes of this exemption, ‘‘good-faith security research’’ means accessing a computer program solely for purposes of good-faith testing, investigation and/or correction of a security flaw or vulnerability, where such activity is carried out in a controlled environment designed to avoid any harm to individuals or the public, and where the information derived from the activity is used primarily to promote the security or safety of the class of devices or machines on which the computer program operates, or those who use such devices or machines, and is not used or maintained in a manner that facilitates copyright infringement.”

8. “(i) Video games in the form of computer programs embodied in physical or downloaded formats that have been lawfully acquired as complete games, when the copyright owner or its authorized representative has ceased to provide access to an external computer server necessary to facilitate an authentication process to enable local gameplay, solely for the purpose of:

(A) Permitting access to the video game to allow copying and modification of the computer program to restore access to the game for personal gameplay on a personal computer or video game console; or

(B) Permitting access to the video game to allow copying and modification of the computer program to restore access to the game on a personal computer or video game console when necessary to allow preservation of the game in a playable form by an eligible library, archives or museum, where such activities are carried out without any purpose of direct or indirect commercial advantage and the video game is not distributed or made available outside of the physical premises of the eligible library, archives or museum.

(ii) Computer programs used to operate video game consoles solely to the extent necessary for an eligible library, archives or museum to engage in the preservation activities described in paragraph (i)(B).

(iii) For purposes of the exemptions in paragraphs (i) and (ii), the following definitions shall apply:

(A) ‘‘Complete games’’ means video games that can be played by users without accessing or reproducing copyrightable content stored or previously stored on an external computer server.

(B) ‘‘Ceased to provide access’’ means that the copyright owner or its authorized representative has either issued an affirmative statement indicating that external server support for the video game has ended and such support is in fact no longer available or, alternatively, server support has been discontinued for a period of at least six months; provided, however, that server support has not since been restored.

- 220 -

(C) ‘‘Local gameplay’’ means gameplay conducted on a personal computer or video game console, or locally connected personal computers or consoles, and not through an online service or facility.

(D) A library, archives or museum is considered ‘‘eligible’’ when the collections of the library, archives or museum are open to the public and/or are routinely made available to researchers who are not affiliated with the library, archives or museum.”

9. “Computer programs that operate 3D printers that employ microchip-reliant technological measures to limit the use of feedstock, when circumvention is accomplished solely for the purpose of using alternative feedstock and not for the purpose of accessing design software, design files or proprietary data; provided, however, that the exemption shall not extend to any computer program on a 3D printer that produces goods or materials for use in commerce the physical production of which is subject to legal or regulatory oversight or a related certification process, or where the circumvention is otherwise unlawful.”

10. “Literary works consisting of compilations of data generated by medical devices that are wholly or partially implanted in the body or by their corresponding personal monitoring systems, where such circumvention is undertaken by a patient for the sole purpose of lawfully accessing the data generated by his or her own device or monitoring system and does not constitute a violation of applicable law, including without limitation the Health Insurance Portability and Accountability Act of 1996, the Computer Fraud and Abuse Act of 1986 or regulations of the Food and Drug Administration, and is accomplished through the passive monitoring of wireless transmissions that are already being produced by such device or monitoring system.”825F825

a. Scope of the Network Connection Exemption – The TracFone Cases

In TracFone Wireless, Inc. v. Dixon,826F826 the court ruled that this exemption did not apply to the defendants’ resale of unlocked TracFone phones that would work on wireless services other than TracFone’s, because the defendants’ unlocking activity “was for the purpose of reselling those handsets for a profit, and not ‘for the sole purpose of lawfully connecting to a wireless telephone communication network.’”827F827 Thus, under this court’s view, the exemption appears to be targeted to acts by individual owners of handsets who circumvent the phone’s lock to enable their personal use of their own handset on another wireless network. It is unclear from the court’s brief analysis whether the exemption would cover those who sell the “computer firmware” referenced in the exemption (and not the unlocked phone itself) that enables an individual to accomplish unlocking of his or her phone. It also unclear whether the reference in

825 Id. at 65961-64.

826 475 F. Supp. 2d 1236 (M.D. Fla. 2007).

827 Id. at 1238.

- 221 -

the exemption only to “computer firmware” means that it would not apply to services rendered by a third party in assisting an individual to unlock a phone for a fee.

In TracFone Wireless, Inc. v. Riedeman,828F828 TracFone brought claims under Section 1201 of the DMCA based on the defendant’s resale of TracFone phones for which the prepaid software had been disabled. The defendant failed to file a response to the complaint and the clerk entered a default against the defendant. The court entered a judgment finding that the defendant had violated Section 1201 by circumventing technological measures that controlled access to proprietary software in the phones and by trafficking in services that circumvented technological measures protecting the software. The court also ruled that the Copyright Office exemption did not apply to the defendant’s activities because the defendant’s “purchase and resale of the TracFone handsets was for the purpose of reselling those handsets for a profit, and not ‘for the sole purpose of lawfully connecting to a wireless telephone communication network.’”829F829 The court entered a judgment against the defendant for statutory damages in the amount of $1,020,800.830F830 Interestingly, the court entered an injunction against the defendant that prohibited the defendant from even “purchasing … any wireless mobile phone that they know or should know bears any TracFone Trademark ….”831F831

In TracFone Wireless, Inc. v. GSM Group, Inc.,832F832 the defendant was engaged in bulk purchase, reflashing, and redistributing TracFone phones. The plaintiff brought claims under Section 1201 for circumvention and trafficking in circumvention technology, and the defendant moved to dismiss for failure to state a claim, relying on the Copyright Office exemption. The court denied the motion, ruling that the exemption did not apply because, citing the Dixon case, the purpose of the defendant’s circumvention was to resell wireless telephone handsets for profit and not for the sole purpose of lawfully connecting to a wireless telephone communications network.833F833 The court subsequently entered final judgment and a permanent injunction against the defendants based on the DMCA claims on the same rationale. The permanent injunction prohibited the defendants from purchasing or selling any wireless mobile phone that the defendants knew or should have known bore any TracFone trademark and from reflashing or unlocking any such phone. The court retained jurisdiction over the matter to punish any violation of the permanent injunction in an amount of not less than $5,000 for each TracFone handset that a defendant was found to have purchased, sold, or unlocked in violation of the injunction, or $250,000, whichever was greater.834F834

828 2007 Copyr. L. Dec. ¶ 29,500 (M.D. Fla. 2007).

829 Id. at p. 40,531.

830 Id.

831 Id.

832 555 F. Supp. 2d 1331 (S.D. Fla. 2008).

833 Id. at 1336-37.

834 TracFone Wireless, Inc. v. GSM Groups, Inc., No. 07-23166-C1V Martinez-Brown, slip op. at 4-6 (S.D. Fla. Aug. 15, 2008).

- 222 -

Similarly, in TracFone Wireless, Inc. v. Bitcell Corp.,835F835 the court found the defendant’s unlocking and resale of TracFone phones to constitute a violation of Section 1201. The court noted that TracFone phones were sold subject to terms and conditions restricting use and sale of the phones that were set forth in printed inserts included in the packaging with the phones, were available to the public on TracFone’s web site, and were referenced in printed warnings placed on the outside of the retail packaging of the phones.836F836 With no legal analysis, the court simply stated that the “Terms and Conditions and language on the packaging constitute a valid binding contract.”837F837 The court ruled that the Copyright Office exemption did not apply because the defendant’s conduct “was for the purpose of reselling those Phones for a profit, and not ‘for the sole purpose of lawfully connecting to a wireless telephone communication network.’”838F838 As in the Riedeman case, the court entered an injunction against the defendant that prohibited the defendant from even “purchasing … any wireless mobile phone that they know or should know bears any Registered TracFone Trademark ….”839F839 The court ruled that any violation of the injunction would be subject to a finding of contempt and a payment of liquated damages to TracFone of the greater of $250,000 or $5,000 for each TracFone handset purchased, sold, unlocked, altered in any way, or shipped.840F840

In a virtually identical opinion under similar facts, in TracFone Wireless, Inc. v. Anadisk LLC,841F841 the same court found a violation of Section 1201, imposed the maximum statutory damages award of $2,500 per phone on 4,990 phones for a total award of $12,375,000, and entered a similar injunction. The court ruled that any violation of the injunction would be subject to a finding of contempt and a payment of liquated damages to TracFone of the greater of $1,000,000 or $5,000 for each TracFone handset purchased, sold, unlocked, altered in any way, or shipped.842F842

And again in TracFone Wireless, Inc. v. SND Cellular, Inc., the same court imposed the maximum statutory damages award of $11,370,000 based on trafficking in a minimum of 4,548 phones and entered a similar injunction. Again the court ruled that any violation of the injunction would be subject to a finding of contempt and a payment of liquated damages to TracFone of the greater of $1,000,000 or $5,000 for each TracFone handset purchased, sold, unlocked, re-flashed, altered in any way, or shipped.843F843

835 2008 U.S. Dist. LEXIS 41955 (S.D. Fla. May 28, 2008).

836 Id. at *3.

837 Id.

838 Id. at *8.

839 Id. at *9.

840 Id. at *12.

841 685 F. Supp. 2d 1304 (S.D. Fla. 2010).

842 Id. at 1317-18 & 1319-20.

843 TracFone Wireless, Inc. v. SND Cellular, Inc., 715 F. Supp. 2d 1246, 1263-64 (S.D. Fla. 2010).

- 223 -

In TracFone Wireless, Inc. v. Zip Wireless Products, Inc.,844F844 the court denied a motion to dismiss TracFone’s claims of copyright infringement on the ground that the Copyright Office exemption applied. TracFone had adequately alleged in its complaint that lawful connection to a wireless telephone network was not the sole purpose of the defendants’ circumvention efforts, and that factual allegation was sufficient to overcome the defendants’ argument that TracFone’s DMCA claims fell within the scope of the exemption.845F845

In TracFone Wireless, Inc. v. Bequator Corp., the court rejected the applicability of the Copyright Office’s July 2010 exemption to the defendant’s bulk resale of unlocked or reflashed TracFone phones. The court noted that the July 2010 exemption applied only to used wireless telephone handsets and therefore did not cover the defendant’s activities. The court granted a maximum statutory damages award of $46,540,000 ($2500 per phone sold) and entered a permanent injunction against the defendants. Any violation of the injunction would incur liquidated damages in the amount of the greater of $1,000,000 or $5,000 for each TracFone handset purchased, sold, unlocked, reflashed, altered, rekitted, advertised, solicited and/or shipped in violation of the injunction.846F846

(ii) Epic Games v. Altmeyer

In this case, the court issued a TRO enjoining the defendant from offering services to modify Microsoft’s Xbox 360 to play pirated copies of the plaintiff’s video game Gears of War 2. The Xbox contained the capability to allow users to play the game live online, and to do so, players were required to connect through an official web site. The software involved in playing live was programmed to detect modifications to the Xbox and to recognize pirated games. If modification or piracy was detected, the user would be banned from playing live. The defendant offered a service to modify the Xbox to that neither the system itself nor the live software could recognize pirated games or any modification. The court found a likelihood of establishing that the offered services violated Section 1201(a)(2), and issued a TRO enjoining the defendant from performing, advertising, marketing, distributing, or selling game console modification services.847F847

(iii) Facebook v. Power Ventures

In this case, the defendants operated an Internet service called Power.com that collected user information from Facebook’s web site outside of the “Facebook Connect” application programmer’s interface (API). After a user provided his or her user names and passwords, the Power.com service used the access information to scrape user data from those accounts.

844 716 F. Supp. 2d 1275 (N.D. Ga. 2010).

845 Id. at 1285.

846 TracFone Wireless, Inc. v. Bequator Corp., 2011 U.S. Dist. LEXIS 42314 at *32-35, *41-44 (S.D. Fla. Apr. 13, 2011).

847 Epic Games, Inc. v. Altmeyer, 2008 U.S. Dist. LEXIS 89758 at * 3-4, 9-10 & 19 (S.D. Ill. Nov. 5, 2008).

- 224 -

Facebook’s Terms of Use broadly prohibited the downloading, scraping, or distributing of any content on the web site, except that a user was permitted to download his or her own user content. Facebook alleged that it had implemented specific technical measures to block access by Power.com after the defendants informed Facebook that they intended to continue their service without using Facebook Connect, and that the defendants then attempted to circumvent those technological measures in violation of the anti-circumvention provisions of the DMCA. The defendants brought a motion to dismiss the DMCA claims, arguing that the unauthorized use requirement of a Section 1201(a)(1) claim was not met because it was the users who were controlling access (via Power.com) to their own content on the Facebook web site. The court denied the motion, in view of the fact that the defendants’ argument relied on an assumption that Facebook users were authorized to use Power.com or similar services to access their user accounts, and the Terms of Use barred users from using automated programs to access the Facebook web site.848F848

(iv) Bose v. Zavala

In this case, the defendant sold Bose Lifestyle Media Centers in auctions on eBay. In his auctions, he offered to unlock the region coding within the Media Center’s DVD player by altering Bose’s firmware in the device or to give the purchaser directions on how to do so. Unlocking the region code would permit the Media Centers to play DVDs distributed anywhere in the world. Bose brought claims against the defendant under Section 1201 of the DMCA and the defendant moved to dismiss them under Fed. R. Civ. Pro. 12(b)(6) on the ground that Bose lacked standing to assert the claims because it was not the type of party protected by the DMCA, since it did not sell digital media or region code-changing services. The court rejected this argument, ruling that a party who controls the technological measures that protect copyrighted works is a “person injured” by the circumvention of the measures within the meaning of Section 1203(c).849F849 The court concluded, “Bose controls region coding, a technological measure that protects copyrighted DVDs. This is sufficient to allege that it is a ‘person injured’ within the meaning of the DMCA.”

(v) MGE UPS Systems v. GE

In MGE UPS Systems Inc. v. GE Consumer & Industrial Inc.,850F850 the Fifth Circuit ruled that mere use of a copyrighted work subsequent to an illegal circumvention does not violate Section 1201(a). The plaintiff distributed uninterruptible power supplies (UPS’s), some of which required the use of MGE’s copyrighted software programs during servicing. The software required connection of a security dongle to a laptop serial port during servicing. Software hackers had published information on the Internet disclosing general instructions on how to

848 Facebook, Inc. v. Power Ventures, Inc., 2009 U.S. Dist. LEXIS 42367 at *1-2, 9-10 & 13-14 (N.D. Cal. May 11, 2009).

849 Bose BV v. Zavala, 2010 U.S. Dist. LEXIS 2719 at *1-5 (D. Mass. Jan. 14, 2010).

850 622 F.3d 361 (5th Cir. 2010).

- 225 -

defeat the external security features of the dongle, thereby rendering the hacked software accessible for use without limitation. The defendant’s employees obtained a hacked copy of MGE’s software and used it to service the plaintiff’s UPS’s. The Fifth dismissed the plaintiff’s claim that such use violated Section 1201(a). The court ruled that because Section 1201(a)(1) is targeted at circumvention, it does not apply to the use of copyrighted works after the technological measure has been circumvented. There was no evidence showing that a representative or employee of the defendant had altered the software such that a dongle was not required to use it, and hence the defendant had not itself engaged in any circumvention.851F851

(vi) Granger v. One Call Lender Services

In this case, the plaintiff was the owner of a computer program that estimated the rate or cost of real estate title insurance sold by title insurance agents. The defendants placed an infringing version of the rate calculator program on their website, though later took it down upon receipt of a demand letter from the plaintiff. The plaintiffs had embedded within the computer program copyright tag lines and a watermark that, if not removed carefully, could leave a tell-tale sign as to the origin of the work. The plaintiff argued that removal of the watermark constituted circumvention in violation of Section 1201 and sought statutory damages. The court rejected this argument, citing authority that in the Third Circuit, the legal theory of circumvention had been applied solely to circumstances where the conduct complained of entailed circumventing protective measures such as passwords, server software, or other technological barriers, as opposed to the embedded copyright tag lines and watermark at issue in the present case. Accordingly, the plaintiff could not recover damages for circumvention, although it could recover damages for removal of CMI.852F852

(vii) Eyepartner v. Kor Media Group

In Eyepartner, Inc. v. Kor Media Group LLC,853F853 the plaintiff licensed the defendant its software under a limited license to use the software but not to modify or access the encrypted source code. The license agreement expressly prohibited any acts to modify, translate, reverse engineer, decompile, disassemble or create derivative works of the software. The defendants were unhappy with the quality of the software and, rather than pay for the additional application programming interface service that might have addressed the defendants’ concerns, they chose to make their own modifications to the plaintiff’s code by decrypting and disassembling the source code. The defendants argued that it was a fair use to disassemble the source code so that it could be modified to make the program function as they wished. The court ruled, however, that such a defense could absolve liability only as to willful copyright infringement but not as to the plaintiff’s claims for violation of the anti-circumvention provisions. The court further concluded

851 Id. at 364-66.

852 Granger v. One Call Lender Services, LLC, 2012 U.S. Dist. LEXIS 104885 at *2-4, 14-15 (E.D. Pa. July 26, 2012).

853 2013 U.S. Dist. LEXIS 98370 (S.D. Fla. July 15, 2013).

- 226 -

that, in any event, fair use was inappropriate because the defendants had contractually waived their rights to modify the code. The plaintiffs had used an encrypting technology called IonCube to prevent the defendants from accessing the source code of the software, which the defendants had circumvented using a “deZender” program. The court found that such acts violated Section 1201(a)(3)(A) of the DMCA and issued a preliminary injunction against the defendants.854F854

(viii) Granger v. Dethlefs

The plaintiff in this case created a computer program, the Pennsylvania Title Insurance Rate Calculator, designed to calculate or estimate the cost of real estate title insurance in the State of Pennsylvania. The defendants placed an allegedly infringing version of the Rate Calculator on a web page. The plaintiff asserted violations of both the anti-circumvention provisions and the integrity of copyright management information provisions of the DMCA. The court granted the defendants’ motion to dismiss both claims on the predicate ground that, to establish a claim under Sections 1201 and 2102, a plaintiff must show that the material he claims is circumvented is copyrighted. Here, the plaintiff had not done so. In a previous litigation, the plaintiff had been unable to establish that he had independently created the JavaScript source code for the Rate Calculator and therefore owned a copyright in the Rate Calculator. The court in the present case found that the plaintiff was bound by that earlier ruling under the doctrine of issue preclusion. Accordingly, the plaintiff could not prove that the defendants violated the DMCA because where there is not enough evidence to show copyright ownership, it cannot be proved that any copyrighted material was altered or removed. The plaintiff’s circumvention of copyright protection and integrity of copyright management information claims were therefore barred.855F855

(ix) D&J Optical v. Wallace

The plaintiff in this case, operator of optical centers in Arkansas, alleged that the defendants formed a competitor, Enterprise Optical, to the plaintiff’s business and, without authorization, accessed the plaintiff’s computer systems and downloaded patient contact information. Among other things, the plaintiff asserted claims under Section 1201. The defendants argued that the plaintiff lacked standing to bring a lawsuit under the DMCA because it was not the owner of the copyright in the misappropriated information. The court noted that, although the Eleventh Circuit had not addressed standing under the DMCA, courts outside the Eleventh Circuit had generally held that ownership of a copyright is not necessarily a requirement to bring suit under Sections 1201 and 1203. However, the key question in the present case was whether the plaintiff’s allegations indicated that the defendants circumvented a technological measure that controlled access to a protected work under the Copyright Act.856F856

854 Id. at *1-23.

855 Granger v. Dethlefs, 2014 U.S. Dist. LEXIS 76055 at *1-3, 10-18 & 21-22 (E.D. Penn. June 2, 2014).

856 D&J Optical, Inc. v. Wallace, 2015 U.S. Dist. LEXIS 41387 at *5-7,15-16 (M.D. Ala. Mar. 31, 2015).

- 227 -

The plaintiff asserted that the defendants wrongly circumvented the plaintiff’s technological measures by installing new hardware and software on the plaintiff’s “Panacea” computer system and by creating new user credentials to allow access to the plaintiff’s computer system. The plaintiff argued that it had sufficiently alleged a violation of the DMCA because Panacea owned the copyright to its software program. The Panacea software stored basic demographic and contact information for each patient, as well as brief descriptions of the diagnosis, treatment history, and billing information for each patient. In the complaint, the plaintiff alleged that the defendants accessed its computer system to gain access to patient information, including the names and addresses of patients. There was no indication, however, that this type of information was a protected work under the Copyright Act. The court therefore concluded that the plaintiff had failed to allege a plausible claim for relief under Section 1201, and therefore granted the defendants’ motion to dismiss that claim.857F857

(x) NNG v. AVA Enterprises

The plaintiff NNG in this case owned copyrighted navigation software used in entertainment hardware for automobiles. NNG employed certain procedures to protect the software from unauthorized use. An approved licensee would be authorized to download the software and a customized “license pool,” which the licensee then unlocked with a unique authentication code provided by NNG. One specific section of code in the software was specifically designed to read the authentication code and verify the authenticity of the installed software. The defendant AVA manufactured and distributed aftermarket hardware for vehicle dashboards, often including navigation software, which NNG alleged contained pirated versions of NNG’s navigation software. The pirated version allegedly lacked the authentication code, thus allowing an unlimited number of devices to utilize NNG’s software. NNG alleged that AVA or its agent developed code that overrode or circumvented NNG’s authentication code.858F858

AVA moved to dismiss NNG’s claims under Sections 1201(a)(1), 1201(a)(2), and 1201(b). The court ruled that NNG had properly pled claims under Section 1201(a)(1) because it alleged that AVA or its agent had illegally circumvented NNG’s technological protection measures that controlled access to its copyrighted software by developing code that allowed the software to run on non-approved devices. AVA argued that the authentication code merely confirmed whether the software was being run on an authorized device and did not control access to the underlying software files or code. AVA contended that NNG asserted copyright protection only in its software code, which was not protected by the license-checking procedure, and did not assert copyright protection over the experience of running the software. Stated differently, the court observed, AVA was arguing that NNG’s authentication code controlled only access to the navigation software’s dynamic non-literal elements (i.e., the real time experience and operation of the software), and since NNG brought only copyright infringement claims for the literal elements (the code) and individual non-literal elements (such as discrete

857 Id. at *16-18.

858 NNG, Kft. v. AVA Enterprises, Inc., 2015 U.S. Dist. LEXIS 88742 at *2-3 (C.D. Cal. July 8, 2015).

- 228 -

visual and audible components), the authentication code did not effectively control access. In short, AVA argued that the technological measure must control access to the elements of the work underlying the copyright infringement cause of action in order to state a claim under Section 1201(a)(1).859F859

The court rejected these arguments, noting that AVA’s position would be correct in other Circuits, but not in the Ninth Circuit in view of MDY Industries,860F860 in which the Ninth Circuit explained that a DMCA circumvention claim under Section 1201(a) creates a new anti-circumvention right distinct from the traditional exclusive rights of a copyright owner. There is thus no requirement that the circumvention lead to infringement because Section 1201(a) merely prohibits circumvention itself. MDY Industries explicitly rejected the rule from the Federal Circuit which required a plaintiff bringing a claim under Section 1201(a) to demonstrate a nexus to infringement. The court ruled that AVA’s arguments were therefore foreclosed by MDY Industries. It was undisputed that the technological measure in this case, the authentication code, effectively controlled access to one element of NNG’s copyrighted computer software – the dynamic non-literal elements. The fact that AVA did not allegedly infringe on copyrighted dynamic non-literal elements was therefore of no consequence, because Section 1201(a) prohibits circumvention itself. Here, the authentication code prohibited an unauthorized user from accessing the dynamic non-literal elements of NNG’s navigation software, and NNG alleged that AVA bypassed that measure by removing the authentication code from the pirated software installed in the infringing units. While the dynamic non-literal elements might be irrelevant in every other claim in the case, that did not mean that NNG failed to state a claim under Section 1201(a)(1)(A). Therefore, NNG had properly stated a claim under that section.861F861

AVA challenged NNG’s Section 1201(a)(2) trafficking claim on the ground that Section 1201(a)(2) applies only to devices that actually perform the circumvention, and the complaint failed to allege that the infringing units themselves did so. The court agreed with AVA. Here, AVA’s infringing units were not primarily designed to circumvent any technological measure and did not conduct the actual circumvention. Rather, the infringing units merely housed the alleged pirated software to which access had already been obtained. NNG argued in response that AVA had developed a piece of code that was embedded in NNG’s navigation software and would override NNG’s technological measures. AVA’s piece of code was then allegedly trafficked when AVA sold the infringing units. The court rejected this argument, ruling that the purpose of Section 1201(a)(2) is to prevent the trafficking of devices that allow consumers to conduct the circumvention themselves. Consumers did not purchase the infringing units so that they could then circumvent NNG’s navigation software , but instead purchased the infringing

859 Id. at *7-10.

860 MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928 (9th Cir. 2010), opinion amended and superseded on denial of reh’g, 2011 U.S. App. LEXIS 3427 (9th Cir. Feb. 17, 2011).

861 NNG, 2015 U.S. Dist. LEXIS. at *11.

- 229 -

units to utilize the pirated software already installed. Accordingly, NNG had failed to state a claim under Section 1201(a)(2).862F862

Finally, with respect to NNG’s Section 1201(b) claim, the court ruled that both Sections 1201(a)(2) and 1201(b) require the device in question to actually perform the circumvention, whether that be the circumvention of an access control measure or a copyright infringement protection measure. Because the infringing units were not primarily designed to circumvent – the alleged circumvention was already complete when the infringing units were shipped to the customers – NNG had also failed to state a claim under Section 1201(b).863F863

(xi) VBConversions v. Gulf Coast Ventures

The plaintiff in this case was the owner of software that it made available for free during a trial period. The plaintiff prevented unauthorized access to its software after expiration of the trial period by requiring users to log into the software with a registration key. Users could obtain a registration key by paying a fee and returning a license agreement. The plaintiff observed several uses of a fraudulent registration key to unlock its software from a particular computer. Tracking data collected from the unauthorized uses identified the unauthorized user as an employee of the defendant. Through the unauthorized access, the employee converted a total of 187,787 lines of Visual Basic code from the plaintiff’s software into 270,625 lines of C# code. The plaintiff brought claims under Section 1201(a)(1)(A) and filed a motion for default judgment. The court proceeded to determine whether the allegations in the complaint were sufficient to entitle the plaintiff to the relief requested.864F864

The end user license agreement accompanying the software stated that users of the software could use only registration keys generated online from the plaintiff’s website emailed to the licensee by the plaintiff or its third party order processing company. The license further stated that, by using the software, licensees agreed that using an illegal or fraudulent registration key to register or unlock the software made that software copy illegal and unauthorized. The court interpreted these provisions as limiting the scope of the license to use the software to only those users who obtained a valid registration key. Compliance with those contractual terms was therefore a condition precedent to the use of the software, rather than a covenant.865F865

The court ruled that the plaintiff had sufficiently alleged a violation of Section 1201(a)(A). The plaintiff had protected access to the copyrighted software by means of a technological measure in the form of a 25-digit alphanumeric registration key that restricted access to the software. The plaintiff had adequately alleged that the defendant’s employees, who

862 Id. at *12-14.

863 Id. at * 15-16.

864 VBConversions LLC v. Gulf Coast Ventures, Inc., 2016 U.S. Dist. LEXIS 105760 at *4-7 (C.D. Cal. Aug. 10, 2016).

865 Id. at *12-13.

- 230 -

were acting within the course and scope of their employment with the defendant, directly circumvented the technological measure with the use of a fraudulent registration key. Therefore, the plaintiff had sufficiently alleged that the defendants’ employees unlawfully circumvented the plaintiff’s technological measure, and that they were doing so as agents of their employer. Noting that the defendant profited from the circumventions, the court awarded statutory damages under Section 1203(c)(3) in the amount of $1,200 per act of circumvention, for a total of $40,800.866F866

(2) Prohibition on Devices

The DMCA also outlaws devices and technology directed to circumvention of technological copyright protection measures. Specifically, Sections 1201(a)(2) and 1201(b) prohibit the manufacture, import, offer to the public, or trafficking in any technology, product, service, device, component, or part thereof that is primarily designed or produced for the purpose of circumventing a technological measure that effectively “controls access to” a copyrighted work or “protects a right of a copyright owner,” or has only limited commercially significant purpose or use other than to circumvent such technological measure, or is marketed for use in circumventing such technological protection measure. Section 1201(b)(2) provides that a technological measure “effectively protects a right of a copyright owner” if the measure “in the ordinary course of its operation, prevents, restricts, or otherwise limits the exercise of a right of a copyright owner.” Although trafficking in these types of prohibited devices might well constitute contributory infringement, Sections 1201(a)(2) and 1201(b) make it a direct statutory violation subject to criminal and civil penalties.

It should be noted that, although Sections 1201(a)(2) and 1201(b) in combination prohibit devices designed to circumvent both technological measures that control access to a copyrighted work and that protect a right of a copyright owner, Section 1201(a)(1) prohibits conduct that is directed only to the former, but not the latter. The rationale for this distinction was apparently a belief that anyone should be free to circumvent a measure protecting rights of a copyright owner in order to make fair use of a work,867F867 whereas gaining access in the first instance to a copyrighted work without the owner’s permission cannot be a fair use.868F868

866 Id. at * 15-17, 24.

867 See The Digital Millennium Copyright Act of 1998, U.S. Copyright Office Summary (Dec. 1998) at 4 (explaining that the distinction between Section 1201(a) and (b) as to the act of circumvention in itself was “to assure that the public will have the continued ability to make fair use of copyrighted works. Since copying may be a fair use under appropriate circumstances, section 1201 does not prohibit the act of circumventing a technological measure that prevents copying.”). Similarly, the Copyright Office noted in its rationale for the first set of exemptions it established from the prohibition against circumvention of technological measures controlling access to a work: “The decision not to prohibit the conduct of circumventing copy controls was made, in part, because it would penalize some noninfringing conduct such as fair use.” 65 Fed. Reg. 64556, 64557 (Oct. 27, 2000).

868 Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d 913, 942 (N.D. Cal. 2009) (“The prohibition on individual circumvention conduct only applies with respect to access protection technologies (because fair - 231 -

Unlike the case of the prohibition of circumvention to gain unauthorized access to a work under Section 1201(a)(1), the prohibitions of Sections 1201(a)(2) and 1201(b) were not suspended for a two year period and went into effect immediately under the DMCA. Thus, the DMCA set up the curious situation in which, for the initial two year period, it did not directly prohibit circumvention of a technological measure to gain access to a work, but did prohibit the manufacture, sale or importation of devices that would enable or assist one to gain such access.

Another curious aspect of the DMCA is that it authorizes the Librarian to create additional exceptions via rulemaking only to Section 1201(a)(1), but not to Sections 1201(a)(2) and 1201(b). Thus, the DMCA appears to allow the Librarian to permit acts of circumvention in additional situations, but not the devices necessary to enable or assist such acts.

(i) Sony Computer Entertainment America v. Gamemasters

In this lawsuit, Sony Computer Entertainment America (SCEA) obtained a preliminary injunction against the defendants, who were distributing a device called the “Game Enhancer” that enabled players to play Sony PlayStation games sold in Japan or Europe, and intended by SCEA for use exclusively on Japanese or European PlayStation consoles, on U.S. PlayStation consoles.869F869 The Sony PlayStation console was designed to operate only when encrypted data was read from a game CD-ROM verifying that the CD was an authorized, legitimate product licensed for distribution in the same geographical territory of the console’s sale.870F870

The Game Enhancer enabled a player to trick a U.S. PlayStation console into playing a Japanese or European authorized game CD by the following method. After inserting an authorized CD game, the user was instructed to hold down the disk cover switch of the console while keeping the lid or disk cover open. The Game Enhancer was then turned on and its internal operating system selected for execution, thereby replacing the PlayStation console’s internal operating system. The validity and territorial codes were read from the authorized CD, thereby instructing the console that the inserted CD was valid and authorized. The user was then instructed to hit the “select” button on the game controller to signal the console to stop the CD motor, enabling the player to remove the U.S. authorized game CD and replace it with a CD that was authorized for play only on a Japanese or European console. Once the game was loaded, the Game Enhancer then returned control to the PlayStation’s operating system, and the unauthorized game could be played.

The court ruled that, because the Game Enhancer was a device whose primary function was to circumvent the mechanism on the PlayStation console that ensured the console operated

use can never be an affirmative defense to the act of gaining unauthorized access), not to technologies that prevent copying.”); Inna Fayenson, “Anti-Circumvention Provisions of The Digital Millennium Copyright Act,” Journal of Internet Law, Apr. 1999, at 9, 10.

869 Sony Computer Entertainment America v. Gamemasters, 87 F. Supp. 2d 976, 981 (N.D. Cal. 1999).

870 Id.

- 232 -

only when encrypted data was read from an authorized CD-ROM, the Game Enhancer had a primary function to circumvent a technological measure that effectively controls access to a copyrighted work and was therefore a violation of Section 1201(a)(2)(A). The court ruled that SCEA was therefore entitled to a preliminary injunction against sale of the device under Section 1203.871F871

(ii) The DirecTV Cases

a. DirecTV, Inc. v. Borow

This straightforward case found defendant Randy Borow in violation of Section 1201(a)(1) for using an emulator to circumvent DirecTV’s encryption on its signals and to simulate certain functions of the DirecTV access card in order to watch DirecTV’s programming without paying subscription fees.872F872

b. DirecTV, Inc. v. Carrillo

In this case, the court found the defendant liable under Section 1201 based on his possession and transfer of equipment used to pirate satellite TV signals. The court found that the devices were primarily designed to intercept encrypted signals.873F873

(iii) Sony Computer Entertainment America v. Divineo

In Sony Computer Entertainment America, Inc. v. Divineo,874F874 the court granted summary judgment to the plaintiff that several devices sold by the defendant violated the anti-circumvention provisions of the DMCA. The devices all could be used to circumvent an authentication process designed by Sony into the Playstation system to verify that an inserted disc was authentic before the Playstation would play it. If a user burned a copy of a copyrighted Playstation game, a unique code that was part of every authentic disc would not be copied, thus preventing the user from playing the copy on the Playstation. The defendant sold the following devices that could be used to circumvent this process: (i) HDLoader, software that permitted a user to make an unauthorized copy of Playstation-compatible video games onto a separate hard drive connected to the Playstation system; (ii) mod chips that, when wired to a Playstation console, circumvented the authentication system and allowed the system to play the unauthorized software; and (iii) devices that allowed a user to boot up a Playstation console and perform a disc

871 Id. at 987-88. A similar case finding a violation of the DMCA as a result of sales of a cable descrambler and decoder is CSC Holdings, Inc. v. Greenleaf Electronics, Inc., 2000 U.S. Dist. LEXIS 7675 (N.D. Ill. 2000).

872 DirecTV, Inc. v. Borow, 2005 U.S. Dist. LEXIS 1328 at *3, 12-13 (N.D. Ill. Jan. 6, 2005).

873 DirecTV, Inc. v. Carrillo, 227 Fed. Appx. 588, 589-90 (9th Cir. 2007).

874 457 F. Supp. 2d 957 (N.D. Cal. 2006).

- 233 -

swap without triggering the software and hardware mechanisms within the Playstation that initiated the authentication system.875F875

The defendant argued against liability on the ground that there were several ways in which the devices could be used that did not result in infringement of the plaintiff’s copyrighted video games. First, the devices could be used to allow more than 150 items of “homemade” software to execute on the Playstation. Second, software developers could use the devices to test their own games as a less expensive alternative to purchasing a specialized Sony console that would run any game. Third, HDLoader made playing games more convenient by allowing users to avoid having to swap out discs to change games and because the Playstation could read hard drive data more quickly than data stored on CDs or DVDs. The defendant also gave a legal notice on its web site warning users that they were responsible for the legality of their own use of materials obtained through the web site.876F876 The defendant also invoked the reverse engineering defense of Section 1201(f) of the DMCA, arguing that users of mod chips could use them to ensure the interoperability of an independently created computer program with the Playstation.877F877

The court rejected all of these arguments, holding that the challenged devices were primarily designed for the purpose of circumventing the Playstation authentication system which otherwise controlled access to software played on the system, and that “downstream customers’ lawful or fair use of circumvention devices does not relieve [defendant] from liability for trafficking in such devices under the DMCA.”878F878 The court also ruled that the defendant’s legal notice to users of its devices was not relevant to its own liability under the DMCA.879F879 The application of the court’s ruling to the Section 1201(f) interoperability rights is interesting. It means that, even though it may be permissible to circumvent a technological measure to obtain information necessary for interoperability of an independently developed computer program, or for the user of an independently developed computer program to circumvent an access control measure in order to interoperate with a program controlled by the measure, it is nevertheless illegal for a third party to sell such user a device that would enable the circumvention, if the device is designed primarily for circumvention. Another implication of the ruling is that legal uses that may result after use of a device to accomplish circumvention are not to be factored into whether the device is primarily designed for circumvention. Under this decision, the DMCA focuses only on the capability of the device to accomplish circumvention in the first instance, and if that is its primary technical function, it is illegal.

875 Id. at 958-59.

876 Id. at 961.

877 Id. at 965.

878 Id.

879 Id.

- 234 -

(iv) Ticketmaster L.L.C. v. RMG Technologies, Inc.

In this case, the plaintiff Ticketmaster alleged the defendant had violated Sections 1201(a)(2) and 1201(b)(1) by distributing an automated tool that enabled users (such as ticket brokers) to access and navigate rapidly through the Ticketmaster site and purchase large quantities of tickets. The tool enabled users to bypass Ticketmaster’s “CAPTCHA” system, a security system designed to distinguish between human users and automated programs by requiring the user to read a distorted sequence of letters and numbers on the screen and enter those letters and numbers correctly into the system in order to gain access to the ticket purchase page.880F880

On a motion for a preliminary injunction, the court found the plaintiff likely to prevail on these claims. The court rejected the defendant’s argument that CAPTCHA was not a system or a program that qualified as a technological measure under the DMCA because it was simply an image, and it was designed to regulate ticket sales, not to regulate access to a copyrighted work. The court ruled that the DMCA does not equate its use of the term “technological measure” with the defendant’s terms “system” or “program,” and that in any case the CAPTCHA system was a technological measure within the DMCA because most automated devices could not decipher and type the stylized random characters the system generated in order to proceed to the copyrighted ticket purchase pages.881F881 Thus, CAPTCHA qualified as a technological measure that restricted access to copyrighted works within the purview of Section 1201(a)(2). Similarly, it also fell within the purview of Section 1201(b)(1) because it protected rights of the copyright owner by preventing automated access to the Ticketmaster ticket purchase web pages, thereby preventing users from copying those pages. Accordingly, the court issued a preliminary injunction prohibiting the defendant from trafficking in any computer program or other automatic devices to circumvent copy protection systems in Ticketmaster’s web site and from using any information gained from access to Ticketmaster’s web site to create computer programs to circumvent Ticketmaster’s copy protection and web site regulation systems.882F882

(v) The Tracfone Cases

In TracFone Wireless, Inc. v. Pak China Group Co., Ltd.,883F883 the defendants were engaged in bulk purchase, reflashing, and redistributing TracFone phones. The plaintiff brought claims under Section 1201 for circumvention and trafficking in circumvention technology. The defendants failed to answer and were in default. The court found the defendants guilty of the

880 Ticketmaster L.L.C. v. RMG Technologies, Inc., 507 F. Supp. 2d 1096, 1102, 1111-12 (C.D. Cal. 2007).

881 Id. at 1112.

882 Id. at 1112, 1116.

883 843 F. Supp. 2d 1284 (S.D. Fla. 2012).

- 235 -

alleged violations of Section 1201 and imposed the maximum statutory damages of $37,707,500 based on the sale of at minimum 15,083 reflashed TracFone prepaid phones.884F884

In TracFone Wireless, Inc. v. Technopark Co., Ltd.,885F885 the court found the defendants liable under Section 1201 for the unauthorized unlocking or reflashing of TracFone phones and for trafficking in certain unlocking devices known as “Octopus Boxes” in furtherance of its unlocking scheme. The court also found the defendants liable for facilitating co-conspirators who were trafficking in the service of circumventing TracFone’s technological measures. The court imposed a maximum statutory damages award of $10,000 for the four unlocking or reflashing devices manufactured by the defendants and sold by distributors that TracFone was aware of.886F886

In addition, see the numerous TracFone cases discussed in Section II.G.1(a)(1) above.

(vi) Movida Communications, Inc. v. Haifa

In this case, the court ruled that the defendant’s actions of tampering with or altering pre-paid control software resident on Movida pre-paid wireless handsets, entering unauthorized PIN numbers into the phones for purposes of unlocking or re-flashing the phones, and reselling the phones for use on networks other than Movida’s, violated Section 1201 of the DMCA. The court issued a permanent injunction against the defendant, prohibiting him even from purchasing any model of Movida handsets, in addition to re-flashing or unlocking any Movida handset, and accessing, altering, erasing, tampering with, deleting or otherwise disabling Movida’s proprietary prepaid cellular software contained within any model of Movida handset. The order also provided that any violation would be punished in an amount of not less than $5,000 per Movida handset.887F887

(vii) Microsoft Corp. v. EEE Business Inc.

In this case, the defendant engaged in the unauthorized distribution of Microsoft software that was available only under a Volume License Agreement. The agreement permitted only authorized volume licensees to install software to unlock the media programming to enable the user to enter a 25-character alphanumeric code, called the Volume License Key (VLK), which was unique to the licensee and required to be kept confidential under the terms of the Volume License Agreement. The court ruled that, by distributing a VLK without authorization, the defendant had effectively circumvented Microsoft’s technological measure to control access to a copyrighted work in violation of Section 1201(a)(2) of the DMCA.888F888

884 Id. at 1301.

885 2012 U.S. Dist. LEXIS 58449 (S.D. Fla. Apr. 9, 2012).

886 Id. at *4, 13-14 & 15-16.

887 Movida Communications, Inc. v. Haifa, 2008 Copyr. L. Dec. ¶ 29,528 (C.D. Cal. 2008).

888 Microsoft Corp. v. EEE Business Inc., 555 F. Supp. 2d 1051, 1059 (N.D. Cal. 2008).

- 236 -

(viii) MDY Industries v. Blizzard Entertainment

In this case, the defendant distributed bot software called “Glider” that was able to play Blizzard Entertainment’s multiplayer online role-playing game known as World of Warcraft (WoW) for its owner while the owner was away from his or her computer, thereby enabling the owner to advance more quickly within WoW than would otherwise be possible.889F889 Blizzard Entertainment brought claims under the DMCA, alleging that Glider evaded Blizzard technologies known as “Warden” to detect and prevent the use of bots by WoW players. Warden included two different software components. The first component, known as “scan.dll,” scanned the user’s computer for unauthorized programs such as Glider before the user logged onto the WoW servers to play the game, and if it detected such programs, scan.dll would deny the user access to the game servers. The second component, known as the “resident” component of Warden, ran periodically while a user played WoW and if it detected the use of a bot program, Blizzard would revoke access to the game.890F890

Blizzard argued that scan.dll and the resident software controlled access to copyrighted software, as required by Section 1201(a)(2) of the DMCA, in two ways. First, when scan.dll prevented a user from playing WoW, or when the resident software terminated a user’s playing of WoW, they prevented additional code in the game client software from being written to RAM. Second, scan.dll and the resident software barred access to WoW’s non-literal elements (the multi-media presentation of the WoW universe and character interactions) generated by the code’s interaction with the computer hardware and operating systems.891F891

The court rejected Blizzard’s claim under Section 1201(a)(2). With respect to access to the code of WoW, the court, citing the Lexmark case, ruled that a holder of Blizzard’s game client software had full and complete access to that code on both the CD that contained it and on the user’s hard drive once the software had been loaded onto the user’s computer. The user thereafter could view a copy of the game client software code, regardless of whether the user actually played WoW or encountered Warden. The user did not need to pass through Blizzard’s security devices to gain access to the code. Accordingly, the court granted summary judgment to the defendant on this issue. The court ruled that it could not similarly grant summary judgment with respect to the non-literal elements of WoW because the parties’ statement of facts filed in conjunction with their motions for summary judgment said virtually nothing about this aspect of the game. Finally, the court noted that neither scan.dll nor the resident software appeared to require the application of information by the game user, or the application of a process or a treatment by the game user, before granting access to copyrighted information, as required by Section 1201(a)(2). Instead, they merely scanned for unauthorized programs. However, because

889 MDY Industries, LLC v. Blizzard Entertainment, Inc., 2008 U.S. Dist. LEXIS 53988 at *2 (D. Ariz. 2008 July 14, 2008).

890 Id. at *34.

891 Id. at *34-35.

- 237 -

neither party had addressed this issue in their briefs, the court noted that it would be a factual issue for trial.892F892

The court also rejected a claim by Blizzard under Section 1201(b)(1) of the DMCA. Blizzard asserted that scan.dll and the resident software prevented users from copying software code to RAM and accessing the non-literal elements of the game once they were caught using Glider. MDY disputed this factual assertion, contending that code from the game client software was not written to RAM after a user passed by scan.dll or the resident software. The court concluded that, because there was a factual dispute with respect to the extent to which Blizzard’s Warden software protected against the copying of software code to RAM, and because the parties did not submit sufficient facts from which the court could decide whether the protective measures protected Blizzard’s rights in the non-literal elements of the game, summary judgment on the Section 1201(b)(1) claim was denied.893F893

In a subsequent opinion issued after a bench trial, the court held that Blizzard’s circumvention claims against Glider under Sections 1201(a)(2) and 1201(b)(1) failed with respect to the discrete nonliteral components of the games stored on the game player’s hard drive, because they could be accessed and viewed without signing onto the server (and therefore involving the Warden software) by independently purchased computer programs that could call up the individual visual images or recorded sounds within the game client software. However, the circumvention claims were valid with respect to the “dynamic” nonliteral elements of WoW – i.e., the real-time experience of traveling through different worlds, hearing their sounds, viewing their structures, encountering their inhabitants and monsters, and encountering other players – because those dynamic elements could be accessed and copied only when the user was connected to a Blizzard server that controlled their dynamic display, which in turn required the user successfully to pass scan.dll when logging on and to survive the periodic scrutiny of the resident component.894F894

Six weeks later, the court entered two permanent injunctions against the marketing, sale and distribution of Glider for use in connection with WoW – one on the basis of the copyright infringement and DMCA claims, and another on the basis of a tortious interference with contract claim for which the court had ruled in favor of Blizzard. The court stayed the injunction on the copyright and DMCA claims pending their appeal, but refused to stay the injunction on the

892 Id. at 18*35-40.

893 Id. at *41-43.

894 MDY Industries, LLC v. Blizzard Entertainment, Inc., 616 F. Supp. 2d 958, 964-68 (D. Ariz. 2009). The court noted that Warden did not prevent all WoW users from copying the dynamic nonliteral elements of the game because players who did not use Glider could copy that content while connected to Blizzard servers. The court noted, however, that Section 1201(b)(1)(A) requires only that the technological measure restrict or otherwise limit unauthorized copying. Id. at 968 n.3.

- 238 -

tortious interference claims.895F895 In a subsequent opinion, the court awarded Blizzard statutory damages of $6.5 million.896F896

On appeal, the Ninth Circuit reversed, except as to MDY’s liability for violation of Section 1201(a)(2).897F897 The Ninth Circuit cast one of the key issues on appeal to be whether the DMCA’s anti-circumvention provisions prohibit circumvention of access controls only when unauthorized access leads to copyright liability, as the Federal Circuit had held in the Chamberlain and Storage Tech cases.898F898 The Ninth Circuit reached a conclusion contrary to the Federal Circuit on that issue.899F899

First, the Ninth Circuit noted textual differences between the prohibitions of Section 1201(a) and 1201(b). Section 1201(a) is directed to protecting a “work protected under this title,” whereas Section 1201(b) is directed to protecting “a right of a copyright owner.”900F900 Noting that neither Section 1201(a)(1) nor 1201(a)(2) explicitly refer to traditional copyright infringement under Section 106, the court read Section 1201(a) “as extending a new form of protection, i.e., the right to prevent circumvention of access controls, broadly to works protected under Title 17, i.e., copyrighted works.”901F901 The court also noted that the two specific examples of unlawful circumvention recited under Section 1201(a) – descrambling a scrambled work and decrypting an encrypted work – are acts that do not necessarily infringe or facilitate infringement of a copyright. Descrambling or decrypting do not necessarily result in someone’s reproducing, distributing, publicly performing, or publicly displaying the copyrighted work, or creating derivative works based on the copyrighted work.902F902

In addition, the court noted another significant difference between Section 1201(a) and Section 1201(b) in that Section 1201(a)(1)(A) prohibits circumventing an effective access control measure, whereas Section 1201(b) prohibits trafficking in circumvention devices, but

895 MDY Industries, LLC v. Blizzard Entertainment, Inc., 2009 U.S. Dist. LEXIS 24151 (Mar. 10, 2009). The court denied a motion for reconsideration of the denial of the stay of the tortious interference injunction. MDY Industries, LLC v. Blizzard Entertainment, Inc., 2009 U.S. Dist. LEXIS 25650 (Mar. 25, 2009).

896 MDY Industries, LLD v. Blizzard Entertainment, Inc., 2009 U.S. Dist. LEXIS 38260 (D. Ariz. Apr. 1, 2009).

897 MDY Industries, LLC v. Blizzard Entertainment, Inc., 2011 U.S. App. LEXIS 3428 (9th Cir. Feb. 17, 2011).

898 Chamberlain Group, Inc. v. Skylink Technologies, Inc., 381 F.3d 1178, 1203 (Fed. Cir. 2004); Storage Technology Corp. v. Custom Hardware Eng’g Consulting, Inc., 421 F.3d 1307 (Fed. Cir. 2005).

899 The court also rejected MDY’s contention that Warden’s scan.dll and resident components were separate, and only scan.dll should be considered as a potential access control measure under Section 1201 (a)(2). The court held that “an access control measure can both (1) attempt to block initial access and (2) revoke access if a secondary check determines that access was unauthorized. Our analysis considers Warden’s scan.dll and resident components together because the two components have the same purpose: to prevent players using detectable bots from continuing to access WoW software” MDY Industries, 2011 U.S. App. LEXIS at *27.

900 Id. at *29-30.

901 Id. at *31.

902 Id.

- 239 -

does not prohibit circumvention itself because, as the Senate Judiciary Committee report noted, such conduct was already outlawed as copyright infringement, so no new prohibition was necessary.903F903 Accordingly, the court concluded, “This difference reinforces our reading of § 1201(b) as strengthening copyright owners’ traditional rights against copyright infringement and of § 1201(a) as granting copyright owners a new anti-circumvention right.”904F904 The court found the legislative history of the anti-circumvention provisions of the DMCA to reinforce its reading that Section 1201(a) creates a new anti-circumvention right distinct from copyright infringement, while Section 1201(b) strengthens the traditional prohibition against copyright infringement.905F905

The Ninth Circuit noted that its reading of the anti-circumvention provisions put it in conflict with the Federal Circuit’s decisions in the Chamberlain and Storage Tech cases, in which the Federal Circuit required Section 1201(a) plaintiffs to demonstrate that the circumventing technology infringes or facilitates infringement of the plaintiff’s copyright – what the Ninth Circuit referred to as an “infringement nexus requirement.”906F906 Although the Ninth Circuit stated that it appreciated the policy considerations expressed by the Federal Circuit in Chamberlain, the Ninth Circuit found itself unable to follow the Federal Circuit’s infringement nexus requirement because it is contrary to the plain language of the statute and would lead to statutory inconsistencies in the DMCA. For example, under the Federal Circuit’s construction, Congress’s creation of a mechanism in Section 1201(a)(1)(B)-(D) for the Librarian of Congress to grant exemptions to certain non-infringing behavior from Section 1201(a)(1) liability would be unnecessary if an infringement nexus requirement existed.907F907

Turning to application of its construction of the anti-circumvention provisions to the facts of the case, the Ninth Circuit agreed with the district court that Glider did not violate Section 1201(a)(2) with respect to WoW’s literal elements and individual non-literal elements, because Warden did not effectively control access to those WoW elements. The literal elements (the game client’s software code) were available on a player’s hard drive once the game client software was installed, and the non-literal components could be accessed by a user without signing on to the server by using independently purchased computer programs to call up the visual images or the recorded sounds within the game client software stored in files on the hard disk. Because a player needed not encounter Warden to access WoW’s individual non-literal

903 Id. at *32.

904 Id. The court also noted that, if a copyright owner puts in place an effective measure that both (1) controls access and (2) protects against copyright infringement, a defendant who traffics in a device that circumvents that measure could be liable under both Sections 1201(a) and 1201(b). Id. at *35.

905 Id. at *35-40.

906 Id. at *40.

907 Id. at *45-46. The Ninth Circuit noted, that like the Chamberlain court, it need not reach the question of the relationship between fair use and violations of Section 1201. MDY had not claimed that Glider use was a fair use of WoW’s dynamic non-literal elements. Accordingly, the court left open the question whether fair use might serve as an affirmative defense to a prima facie violation of Section 1201. Id. at *48 n.12.

- 240 -

elements, Warden did not effectively control access to those elements.908F908 On this point, the Ninth Circuit founds its conclusion in accord with the Sixth Circuit’s decision in the Lexmark case,909F909 in which mere purchase of one of the plaintiff’s printers allowed “access” to the copyrighted program, because it could be read directly from the printer memory without encountering the printer’s authentication sequence.910F910

The court next found Blizzard to be liable for trafficking in violation of Section 1201(a)(2) with respect to WoW’s dynamic non-literal elements, which constituted a copyrighted work available only through the WoW server. The Ninth Circuit noted a split between other circuits with respect to the meaning of the phrase “circumvent a technological measure … without the authority of the copyright owner.” The Federal Circuit concluded in Chamberlain that the definition of “circumvent a technological measure” imposes an additional requirement on a Section 1201(a)(2) plaintiff: to show that the defendant’s circumventing device enables third parties to access the copyrighted work without the copyright owner’s authorization (citing Chamberlain, 381 F.3d at 1193).911F911 The Second Circuit adopted a different view, “that § 1201(a)(3)(A) plainly exempts from § 1201(a) liability those whom a copyright owner authorizes to circumvent an access control measure, not those whom a copyright owner authorizes to access the work” (citing Corley, 273 F.3d at 333 & n.15).912F912 The Ninth Circuit found “the Second Circuit’s view to be the sounder construction of the statute’s language, and [we] conclude that § 1201(a)(2) does not require a plaintiff to show that the accused device enables third parties to access the work without the copyright owner’s authorization. Thus, Blizzard has satisfied the ‘circumvention’ element of a § 1201(a)2) claim, because Blizzard has demonstrated that it did not authorize MDY to circumvent Warden.”913F913

The Ninth Circuit found, however, that MDY was not liable under Section 1201(b)(1) because Warden did not protect MDY’s reproduction right against unauthorized copying. Although WoW players copied the software code into RAM while playing the game, Blizzard’s end user license agreement and Terms of Use authorized all licensed WoW players to do so. Because the court had found that the prohibition in the Terms of Use on use of bots was a contractual covenant rather than a condition to the license,914F914 violation of the covenant by a Glider user did not make the user a copyright infringer by continuing to copy code into RAM. Second, although WoW players could theoretically record game play by taking screen shots, there was no evidence that Warden detected or prevented such allegedly infringing copying. Warden had been designed to reduce the presence of cheats and bots, not to protect WoW’s

908 Id. at *52-53.

909 See Section II.G.1(a)(15)(i) below.

910 Id. at *53-54.

911 Id. at *56 n.16.

912 Id.

913 Id.

914 See Section III.C.2(i) below.

- 241 -

dynamic non-literal elements against copying. Accordingly, the court ruled that Warden did not effectively protect any of Blizzard’s rights under the copyright act, and MDY was therefore not liable under Section 1201(b)(1) for Glider’s circumvention of Warden.915F915

(ix) Coupons, Inc. v. Stottlemire

The plaintiff offered coupon printing software that enabled online, printable coupons to be delivered to consumers. The software placed a registry key file on the user’s personal computer that acted as a counter, limiting the number of times each coupon could be printed on that computer (typically, two prints per coupon). The defendant discovered how to remove the counter, created a computer program that automated its removal, and distributed the program. The plaintiff alleged that, because each coupon had its own unique bar code and date stamp, the coupons were subject to copyright protection, and the defendant’s distribution of its computer program violated the DMCA by allowing users to access more than the limit for each coupon. The plaintiff also claimed that the act of printing constituted unauthorized copying. The defendant brought a motion to dismiss.916F916 The court found fault with the plaintiff’s DMCA claims:

These concepts seem to be logically inconsistent and, when asserted together, do appear to blur the carefully constructed distinction between “access controls” and “rights controls.” If the court accepts Coupons’ argument that each coupon is “unique,” then can there be a claim of improper copying ….? On the other hand, if the coupons are not unique, then the allegations against Stottlemire appear to fall within the “rights controls” (i.e., permitting users to print more copies of coupons than were authorized by Plaintiff).917F917

The court was also not convinced that the addition of a bar code or other functional device on the coupon qualified it as a unique copyrighted work. But in any event, if Coupons wanted to make the argument, then the court noted that it needed to actually allege it in the complaint, and the plaintiff’s reference to “unique coupons” in the complaint was not sufficient to put the defendant on notice of the claims against him. The court ruled that the plaintiff needed to clarify which theory it was pursuing (a “unique” coupon theory or a “general” coupon theory). Accordingly, the court dismissed the DMCA cause of action with leave to amend the complaint to clarify whether the plaintiff was asserting a claim under a Section 1201(b) “rights controls” theory (i.e., allowing users to print more than the authorized number of copies) or a claim under a Section 1201(a) “access controls” theory (i.e., “unique” coupons).918F918

915 2011 U.S. App. LEXIS 3428 at *60-61.

916 Coupons, Inc. v. Stottlemire, No. CV 07-03457 HRL (N.D. Cal. July 2, 2008), slip op. at 1, 4.

917 Id. at 4-5.

918 Id. at 5.

- 242 -

After the plaintiff amended its complaint, the defendant again brought a motion to dismiss, which the court denied.919F919 In the amended complaint, the plaintiff claimed that each printed coupon’s identification number marked it as an authorized copy of a copyrighted work, and did not create a derivative work. The plaintiff asserted claims under both Sections 1201(a) and 1201(b). The court ruled that the plaintiff had sufficiently alleged facts that its software controlled access to the printing of the copyrighted coupon to state a claim under Section 1201(a). With respect to Section 1201(b), the court ruled that the plaintiff had adequately alleged that its software controlled copying and distribution in two ways: the registry key limited the number of coupons distributed to a single computer (simultaneously limiting the number of authentic copies that the computer could print), and the software’s counter limited the number of authentic coupons distributed as a whole. The court held that, although the plaintiff would have to prove that its software actually worked as both an access and use control, it had sufficiently alleged facts that supported its theory that the defendant had violated Section 1201(b), and the motion to dismiss was denied.920F920

(x) CoxCom, Inc. v. Chafee

CoxCom leased cable boxes to its subscribers that enabled them to descramble incoming signals for viewing and that transmitted certain information from subscribers back to CoxCom, including billing information association with purchase of pay-per-view programming. The defendant sold a digital cable filter that filtered out low-frequency signals, including the return transmissions from the cable box containing purchase information. The court noted that the filters were not illegal, and had innocuous uses, such as allowing cable television subscribers to enhance viewing quality by filtering out interference from FM radio broadcast towers, shortwave radios, and home appliances. However, the defendants marketed the filters to their customers as capable of filtering out pay-per-view charges.921F921 The plaintiffs brought claims under the DMCA anti-circumvention provisions and the district court granted summary judgment to the plaintiffs on those claims.922F922

On appeal, the First Circuit affirmed, rejecting the defendants’ argument that their filters did not “circumvent” technological measures. The court found the technological measure at issue to be CoxCom’s pay-per-view delivery and billing system that scrambled pay-per-view programming to make it not viewable unless subscribers chose to purchase it.923F923 Without further analysis, the First Circuit simply concluded: “A digital cable filter allows subscribers to ‘avoid’ or ‘bypass’ that technological measure. Given the factual record, we have little trouble

919 Coupons, Inc. v. Stottlemire, 588 F. Supp. 2d 1069, 1072 (N.D. Cal. 2008).

920 Id. at 1073-75.

921 CoxCom, Inc. v. Chafee, 536 F.3d 101, 104-05 (1st Cir. 2008).

922 Id. at 106.

923 Id. at 110.

- 243 -

concluding that the district court properly granted summary judgment to CoxCom as to appellants’ liability under the DMCA.”924F924

(xi) The DISH Network Cases

a. Dish Network v. Sonicview

DISH Network transmitted encrypted programming signals that were then received by an EchoStar receiver, which processed and decrypted the signals using data and encryption technology stored in a DISH Network access card loaded into the receiver. The access card communicated with the receiver to assure that only signals the subscriber was authorized to received would be decrypted. DISH Network brought anti-circumvention claims against the defendants, whom DISH Network alleged were involved in the manufacture of receivers, software and other devices used to intercept and steal DISH Network’s encrypted signals. Upon a motion for a TRO, the court ruled that DISH Network’s security access cards functioned as both access controls and copyright controls, and that the defendants’ distribution of software files through a website that allowed individuals to decrypt and view DISH Network content likely violated both Section 1201(a)(2) and 1201(b)(1).925F925

b. Dish Network v. SatFTA

In Dish Network v. SatFTA,926F926 the court found the defendant liable under Section 1201(a)(2) for trafficking in circumvention devices that aided in circumvention of Dish Network’s signal and content security measures in its receivers, including software that facilitated the unauthorized re-programming of Dish Network smartcards, circuit diagrams that could be used to build a connector to interface with the EEPROM in a Dish Network receiver to erase the data created by Dish Network’s electronic countermeasures and continue receiving unauthorized programming, and diagrams depicting the storage locations of data that secured communication between receivers and smartcards.927F927 The court also found the defendant liable under Section 1201(b)(1) for trafficking in a program that allowed users to copy the programming of a Dish Network satellite receiver to a computer hard drive. Dish Network protected against unauthorized copying and distribution of recorded programming by saving the copyrighted content in an unrecognizable format, and the court found that to be a sufficient technological measure to invoke the protection of Section 1201(b)(1). The defendant contended that his program served a legitimate function by allowing individuals to create backup copies of

924 Id.

925 Dish Network L.L.C. v. Sonicview USA, Inc., 2009 U.S. Dist. LEXIS 63429 at *2-3,*7-8 (S.D. Cal. July 23, 2009).

926 2011 U.S. Dist. LEXIS 25038 (N.D. Cal. Mar. 9, 2011).

927 Id. at *3-6, *12-13. The court also found the defendant liable for personal violations of Section 1201(a)(1) for his admitted modification of Dish Network smartcards. The court rejected the defendant’s defense that he had modified the smartcards only for the purpose of testing the operation of various receivers, not to receive an unauthorized satellite signal. Id. at *10-11.

- 244 -

their Dish Network recordings. The court rejected this defense, citing the case of Realnetworks, Inc. v. DVD Copy Control Ass’n928F928 for the rule that, although the DMCA provides for a limited fair use exception for certain end users of copyrighted works, the exception does not apply to manufacturers or traffickers. Because the defendant’s program allowed a computer to overcome Dish Network’s copy-control measures, it violated Section 1201(b)(1).929F929

c. Dish Network v. Dimarco

The case of Dish Network LLC v. Dimarco930F930 involved the impoundment of technology that could be used to gain unauthorized access to Dish Network signals. When an authorized EchoStar receiver received a Dish Network signal, it forwarded part of the signal called the “entitlement control message” to a NagraStar smart card in the receiver. If the subscriber was tuned to a channel he was authorized to receive, the smart card retrieved a decryption key from its read-only memory and used the key to unlock the “control word” from the entitlement control message. The smart card then transmitted the control word back to the receiver, and the receiver used it to decode the incoming signal so the subscriber could watch the programming. Content providers like Dish Network routinely changed their decryption keys to help thwart piracy. A new form of piracy was developed called “Internet key sharing” or “IKS” whereby a pirate kept his unauthorized receiver connected to the Internet for automatic re-flashing with the newest keys, which were retrieved from an IKS server connected to multiple legitimate NagraStar smart cards. Control words obtained from the authorized smart cards were sent from the IKS server over the Internet to unauthorized receivers.931F931

The defendants sold unauthorized receivers with decryption software and hardware, cables to connect the unauthorized receivers to the Internet for use with an IKS server, and passwords to access the IKS server which were euphemistically referred to as “extended warranty codes.” The defendants admitted that the receivers they sold were capable of being used for piracy, but argued that because they did not themselves traffic in illegal encryption keys, their products amounted to “modern day rabbit ears” for their customers to receive free satellite programming. The receivers had no built-in means of connecting to the Internet, but the defendants sold an adapter called a “WizHub” that enabled connection to the Internet.932F932

The defendants argued that the court should not impound its WizHubs or extended warranty codes because the WizHub was simply an adapter and one could not engage in piracy without the piracy software and IKS servers. The court rejected this argument, noting that a device such as the WizHub permitting the connection of an otherwise legitimate receiver to the Internet along with a password permitting access to a server with illegally trafficked decryption

928 641 F. Supp. 2d 913 (N.D. Cal. 2009).

929 Dish Network, 2011 U.S. Dist. LEXIS 25038 at *13-14.

930 2012 U.S. Dist. LEXIS 33889 (D. Nev. Mar. 14, 2012).

931 Id. at *3-4.

932 Id. at *4, 11-12.

- 245 -

keys could be said to constitute a product designed to circumvent a technological measure that effectively controlled access to a protected work. The court could not see any possible need for a person using a free-to-air satellite receiver in a legitimate way to connect that receiver to the Internet and enter a password to connect to a server whose sole purpose was the trafficking of decryption keys. The court therefore ordered the impoundment of the WizHub connectors and the extended warranty codes under Section 1203(b)(2), although not of the receivers themselves (for which the plaintiffs had not sought impoundment). The court refused, however, to seize the defendants’ web sites, which appeared to be used for the legitimate sale of free-to-air receivers.933F933

d. Dish Network v. Sonicview

This case, a follow-on decision of the case described in subsection a. above, involved the same kind of “Internet Key Sharing” (or “IKS”) piracy of Dish Network signals described in the Dimarco case in the previous subsection. To enable IKS piracy, the defendants sold their Sonicview receivers, each model of which contained firmware having more than one exact match of the proprietary code and data that resided on the plaintiffs’ smart card, a particular algorithm important for encrypting and decrypting Dish Network satellite signals, and a graphical user interface. There were also strong similarities between the Sonicview receivers’ firmware and that of existing piracy firmware. The defendants also sold a serial Ethernet adapter called the iHub, which came with a 16-digit code that enabled the Sonicview receiver to access the IKS server through a dongle and an add-on module that worked in conjunction with the receiver, when loaded with piracy software, to receive Dish Network’s high-definition programming. Sonicview also operated a web site that contained piracy software available for download which was intended for use with Sonicview receivers to decrypt Dish Network’s satellite television programming.934F934

The court found the defendants in violation of Section 1201(a)(2) by trafficking in the receivers, iHubs, add-on modules, and piracy software. The combination of a Sonicview receiver, iHub, and add-on module, when loaded with the piracy software, permitted unauthorized access to Dish Network’s satellite programming. The court, citing two other district court decisions to the same effect, noted that potential lawful or fair use is not a defense to Section 1201(a) when its requirements are established. The court awarded statutory damages of $200 per violation for 324,901 violations (at least 307,401 receivers and 17,500 iHubs sold), for a total award of $64,980,200.935F935

e. Dish Network v. Alejandri

933 Id. at *12-15, 17.

934 Dish Network, LLC v. Sonicview USA, Inc., 2012 U.S. Dist. LEXIS 75663 at *10-11, 13 (S.D. Cal. May 31, 2012).

935 Id. at *22, 24-25 & 40-41.

- 246 -

In Dish Network v. Alejandri,936F936 the court granted summary judgment to the plaintiffs that the defendants’ sale of free-to-air receivers together with referral to service providers who could program them using the IKS piracy technology to receive Dish Network signals without payment of subscriber fees violated Section 1201(a)(1)(A) of the DMCA. The court noted that the defendants’ equipment used for unlawful circumvention, which had been impounded, would be disposed of by the U.S. Marshals’ Service upon order of the court at the conclusion of the proceedings.937F937 The court also found a violation of Section 605(a) of the Communication Act (47 U.S.C. § 605(a)) and awarded statutory damages under that Act. The court did not award statutory damages under the DMCA – although the court’s opinion does not make clear, it appears that the plaintiffs did not seek statutory damages under the DMCA.938F938

(xii) Realnetworks v. DVD Copy Control Association.

In Realnetworks, Inc. v. DVD Copy Control Association, Inc.,939F939 the DVD Copy Control Association (DVDCCA) brought claims alleging that distribution of Realnetworks’ RealDVD product violated the anti-trafficking provisions of the DMCA. DVDCCA licenses the Content Control System (CSS) technology, which combines multiple layers of encryption with an authentication process to protect the content on DVDs. CSS requires that a DVD drive lock upon insertion of a CSS-protected DVD and prevent access to its contents until a CSS-authorized player engages in an authentication procedure, akin to a secret handshake, to establish mutual trust. It also requires that players authenticate themselves to DVD drives to establish mutual trust, both to unlock the DVD and gain access to its protected video contents and also separately to gain access to keys stored in secure areas of the DVD, which then decrypt and descramble the DVD content. The process of authentication with the DVD drive, and subsequent content decryption, will fail if a DVD is not in the DVD drive. Finally, the CSS technology creates a system whereby content on a DVD may be played back only in decrypted and unscrambled form from the physical DVD and not any other source, such as a computer hard drive.940F940

The RealDVD product provided a variety of functions, including playing back DVDs placed in a computer’s DVD drive, looking up information about the DVD from Internet databases, providing links to various information web sites relevant to the chosen DVD, and – the function at issue in the lawsuit – saving an image of the copy-protected content on the device’s hard drive for later playback without the physical DVD being present.941F941

936 2012 U.S. Dist. LEXIS 106839 (D. Puerto Rico July 30, 2012).

937 Id. at *10-14, 21-25 & 28-29.

938 Id. at *16-21, 25-28.

939 641 F. Supp. 2d 913 (N.D. Cal. 2009).

940 Id. at 919-20.

941 Id. at 924. The RealDVD und user license agreement provided, “You may use the saving functionality of the Software only with DVDs that you own. You may not use the Software to save DVDs that you do not own, such as rental or borrowed DVDs.” Id. at 926.

- 247 -

The court ruled that the CSS technology was both an access control and a copy control (the authentication process functioned as an access control and the encryption functioned as a copy control),942F942 and that distribution of RealDVD therefore violated the anti-trafficking provisions of both Sections 1201(a)(2) and 1201(b). RealDVD circumvented the access controls of CSS in violation of Section 1201(a)(2) by allowing access of CSS content on the hard drive without going through most of the CSS protection steps, such as DVD drive-locking, CSS authentication, and CSS bus encryption. Once RealDVD had copied a DVD, it did not authenticate the DVD drive or receive encrypted keys for playback from the hard drive. Accordingly, the process of authentication with the DVD drive, and subsequent content decryption, were thereby circumvented by RealDVD.943F943 RealDVD circumvented the copy controls of CSS in violation of Section 1201(b) by using the CSS authentication codes and algorithms to make an unauthorized copy of the DVD content.944F944

The court rejected a number of defenses asserted by Realnetworks. First, Realnetworks argued that CSS was not an “effective” technological measure because it had been widely cracked. The court found this fact of no moment, because the DMCA is predicated on the authority of the copyright owner, not whether or not the technological measure is a strong means of protection. The court held that it is sufficient under the statutory language if an access control prevents the easy creation at the consumer level of widely available and usable copies of copyrighted works.945F945

The court rejected Realnetworks’ argument that the copyright holder plaintiffs (the movie studios) could not bring a DMCA claim against a co-licensee to CSS technology. Realnetworks cited cases holding that copyright licenses are governed by contract law and copyright owners who enter into such licenses waive their rights to sue the licensee for copyright infringement and are limited to breach of contract claims. The court distinguished those cases, noting that the studios were not bringing copyright infringement claims, nor were they the direct licensors of CSS technology. Because Realnetworks had acted outside the scope of its license with the DVDCCA, the studios were permitted to bring circumvention claims under the DMCA.946F946

The court also rejected Realnetworks defenses that distribution of RealDVD was protected by the Sony doctrine because it was capable of substantial noninfringing uses and by virtue of the fact that the copying it permitted fell within the fair use rights of users who made copies for personal, noncommercial use. First, the court held that the DMCA supersedes Sony to the extent that the DMCA broadened copyright owners’ rights beyond the Sony holding. Second, the court ruled that whether consumer copying of a DVD for personal use is a fair use was not at issue, because while the DMCA provides for a limited fair use exception for certain

942 Id. at 935.

943 Id. at 933.

944 Id. at 935.

945 Id. at 932.

946 Id. at 933.

- 248 -

end users of copyrighted works, the exception does not apply to manufacturers or traffickers of the devices prohibited by Section 1201(a)(2).947F947 “So while it may well be fair use for an individual consumer to store a backup copy of a personally-owned DVD on that individual’s computer, a federal law has nonetheless made it illegal to manufacture or traffic in a device or tool that permits a consumer to make such copies.”948F948

Accordingly, the court granted a preliminary injunction against the distribution of RealDVD.949F949

(xiii) Apple v. Psystar

In Apple, Inc. v. Psystar Corp.950F950 Apple contended that Psystar’s distribution of modified copies of its Mac OS X operating system on non-Apple computers constituted copyright infringement and illegal trafficking in circumvention devices. Apple distributed Mac OS X subject to a license agreement that prohibited its use on any non-Apple-labeled computer. Apple used lock-and-key technological measures to prevent Mac OS X from operating on non-Apple computers. Specifically, it encrypted the files of Mac OS X and used a kernel extension that communicated with other kernel extensions to locate a decryption key in the hardware and use that key to decrypt the encrypted files of Mac OS X. Psystar distributed a line of computers called Open Computers that contained copies of Mac OS X, modified to run on Psystar’s own hardware, which was not authorized by Apple.951F951

Psystar’s had engaged in the following conduct at issue. It bought a copy of Mac OS X and installed it on an Apple Mac Mini computer. It then copied Mac OS X from the Mac Mini onto a non-Apple computer for use as an “imaging station.” Once on the imaging station, Mac OS X was modified. Psystar then replaced the Mac OS X bootloader (a program that runs when a computer first powers up and locates and loads portions of the operating system into random access memory) and disabled and/or removed Mac OS X kernel extension files and replaced them with its own kernel extension files. Psystar’s modifications enabled Mac OS X to run on non-Apple computers. The modified copy of Mac OS X became a master copy that was used for mass reproduction and installation onto Psystar’s Open Computers.952F952

The court first ruled that Psystar had violated Apple’s exclusive right to copy Mac OS X by making copies of the modified version of OS X and installing them on non-Apple computers, and by making copies of such software in random access memory when turning on its computers running Mac OS X. The court refused to allow Psystar to assert a defense to such copying under

947 Id. at 941-43.

948 Id. at 942.

949 Id. at 952.

950 673 F. Supp. 2d 931 (N.D. Cal. 2009), aff’d, 658 F.3d 1150 (9th Cir. 2011), cert. denied, 132 S. Ct. 2374 (2012).

951 Id. at 933-34.

952 Id. at 934.

- 249 -

Section 117 of the copyright statute, ruling that Psystar had waived such a defense by failing to plead it.953F953 The court also held that distribution of Psystar’s computers infringed Apple’s exclusive distribution rights with respect to Mac OS X. The court rejected Psystar’s defense under the first sale doctrine, based on the fact that it allegedly included a legitimately purchased Mac OS X DVD with every Psystar computer. The court held that the first sale defense under Section 109 provides immunity only when copies are lawfully made, and the master copy of the modified Mac OS X residing on Psystar’s imaging station was unauthorized, as were all the many unauthorized copies that were made from such master copy.954F954 The court also concluded that Psystar had violated Apple’s exclusive right to create derivative works by replacing the Mac OS X bootloader with a different bootloader to enable an unauthorized copy of Mac OS X to run on Psystar’s computers, by disabling and removing Apple kernel extension files, and by adding non-Apple kernel extension files. The court rejected Psystar’s contention that these modifications did not amount to creation of a derivative work because Apple’s source code, object code and kernel extensions had not been modified. The court held that the replacement of entire files within the software while copying other portions resulted in a substantial variation from the underlying copyrighted work and therefore an infringing derivative work.955F955

Turning to Apple’s trafficking claim, the court noted that Apple’s encryption of the Mac OS X operating system files, although aimed primarily at controlling access, also effectively protected its right to copy, at least for copies made in RAM. Accordingly, the encryption scheme constituted both an access control measure and a copy control measure. Psystar’s distribution of “decryption software” (apparently referring to Psystar’s substituted kernel extension files that obtained Apple’s decryption key from the hardware and then used that key to decrypt the Mac OS X modules) violated both Section 1201(a)(1)(A) and Section 1201(b)(1) because it enabled obtaining unauthorized access to Mac OS X and resulted in an unauthorized copy of Mac OS X being loaded into RAM.956F956

The court rejected Psystar’s argument that Apple’s technological protection measure was not effective because the decryption key for circumvention was publicly available on the Internet. “The fact that circumvention devices may be widely available does not mean that a technological measure is not, as the DMCA provides, effectively protecting the rights of

953 Id. at 935. Without giving any reasons why, the court also observed that “the assertion of Section 117 is so frivolous in the true context of how Psystar has used Mac OS X that a belated attempt to amend the pleadings would not be excused.” Id. at 936.

954 Id. at 937.

955 Id. at 938.

956 Id. at 941.

- 250 -

copyright owners in the ordinary course of its operations.”957F957 Accordingly, the court granted Apple’s motion for summary judgment.958F958

The court also rejected Psystar’s argument that Apple’s alleged attempt to use copyright to tie Mac OS X to Apple hardware constituted copyright misuse. Because Apple had not prohibited others from independently developing and using their own operating system, it had not violated the public policy underlying copyright law or engaged in copyright misuse. The court noted that Apple had not prohibited purchasers of Mac OS X from using competitor’s products. Rather, it had simply prohibited purchasers from using OS X on competitor’s products. Thus, Apple’s license agreement was simply an attempt to control the use of its own software.959F959 On appeal, the defendant did not challenge the district court’s rulings of infringement, but rather challenged the district court’s rejection of Psystar’s misuse defense. The Ninth Circuit affirmed the district court’s copyright misuse rulings.960F960 After a review of relevant misuse decisions by courts in the Ninth Circuit, the court concluded, “A software licensing agreement may reasonably restrict use of the software as long as it does not prevent the development of competing products.”961F961 The court found that Apple’s license agreement did not impermissibly do so: “Apple’s [license agreement] does not restrict competitor’s ability to develop their own software, nor does it preclude customers from using non-Apple components with Apple computers. Instead, Apple’s [license agreement] merely restricts the use of Apple’s own software to its own hardware. … Psystar produces its own computer hardware and it is free to develop its own computer software.”962F962 The court also rejected Psystar’s reliance on the first sale doctrine, arguing that Apple was attempting to control the use of the Mac OS X software after it had been sold, because Psystar purchased retail-packaged copies of the OS. The court found that the argument falsely assumed that Apple transferred ownership of the Mac OS X when it sold a retail-packaged DVD containing software designed to enable Apple’s existing customers to upgrade to the latest version of the OS. The court found that, although buyers of the DVD purchased the disc, they knew they were not buying the software, as Apple’s license agreement clearly explained as much. Accordingly, the DVD purchasers were licensees, not owners, of the copies of the software.963F963 The Ninth Circuit therefore affirmed the district court’s

957 Id. at 942 (quoting Sony Computer Entm’t Am., Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965 (N.D. Cal. 2006)).

958 Psystar, 673 F. Supp. 2d at 942.

959 Id. at 939-40.

960 Apple, Inc. v. Psystar Corp., 658 F.3d 1150, 1152 (9th Cir. 2011), cert. denied, 132 S. Ct. 2374 (2012).

961 Id. at 1159.

962 Id. at 1160.

963 Id. at 1159-60.

- 251 -

grant of summary judgment in favor of Apple and its entry of a permanent injunction against Psystar’s infringement of the Mac OS X.964F964

(xiv) Blizzard Entertainment v. Reeves

In this case, the defendant ran a website that enabled its users to bypass the checks and restrictions for access to the plaintiff’s World of Warcraft online gaming environment. After granting a default judgment, the court turned to what the appropriate award of statutory damages should be. The court estimated the number of circumvention violations by looking to the total number of community members on the defendant’s website (427,393), each of whom was assumed to have downloaded, access or otherwise used anti-circumvention software, services, or products offered by the defendant. The court then awarded the $200 minimum amount per violation, for a total award of $200 x 427,393 = $85,478,600.965F965

(xv) The Craigslist Cases

a. Craigslist v. Naturemarket

In Craigslist, Inc. v. Naturemarket,966F966 the defendants distributed software that bypassed the CAPTCHA system of the Craigslist site and enabled users to post ads automatically in whatever quantity, frequency, and location the user wished, in violation of the Craigslist site Terms of Use.967F967 Upon a motion for a default judgment, a magistrate judge issued an opinion recommending that the defendants’ distribution of the software be found in violation of Sections 1201(a)(2) and 1201(b)(1) because the software “enabled unauthorized access to and copies of copyright-protected portions of Plaintiff’s website controlled by [the CAPTCHA system] – particularly the ad posting and account creation portions of the website.”968F968 The magistrate judge also recommended an award of statutory damages in the amount of $1,000 per copy of software distributed, estimated at 470 copies (obtained by dividing the defendants’ estimated revenue of $40,000 by the list price of $84.95 for the software), for a total statutory damages award of $470,000.969F969 The district court adopted the magistrate judge’s recommendations and opinion in every respect, and entered a permanent injunction against the defendants enjoining them from distributing software that enabled postings on Craigslist without each posting being entered manually or that used automated means to download or otherwise obtain data from

964 Id. at 1162.

965 Blizzard Entertainment, Inc. v. Reeves, 2010 U.S. Dist. LEXIS 85560 at *7-8 (C.D. Cal. Aug. 10, 2010).

966 694 F. Supp. 2d 1039 (N.D. Cal. 2010) (report and recommendation of magistrate judge re plaintiff’s motion for default judgment).

967 Id. at 1048-49.

968 Id. at 1056.

969 Id. at 1063-64. The magistrate judge also recommended that an award of actual damages be made against the defendants based on the liquidated damages clause of the Terms of Use, which provided for $200 for every ad the defendants posted as posting agents on behalf of users, for a total of $840,000. Id. at 1064.

- 252 -

Craigslist, from circumventing the CAPTCHA system or other technological measures controlling access to the site, from repeatedly posting the same or similar content on the site or in more than one category, and from accessing or using the site for any commercial purpose whatsoever.970F970

b. Craigslist v. Mesiab

In Craigslist, Inc. v. Mesiab,971F971 a magistrate judge recommended that the plaintiff’s motion for default judgment and award of statutory damages be granted based on violations of the DMCA anti-circumvention provisions in the following ways:

– Distribution of “EasyAd Suite” software that bypassed the CAPTCHA system of the Craigslist site and enabled users to post ads automatically and in unlimited quantity. The magistrate recommended that an award of $800 per copy sold be increased to $1,500 per copy because the defendants had shown disregard for the injunction entered by the court. Based on 2,983 copies of the software distributed, the magistrate recommended an award of $4,474,500.972F972

– Sale or offer for sale of “CAPTCHA credits,” which was a service to circumvent CAPTCHAs through instantaneous outsourcing for occasions when the EasyAd Suite program was unable to decode the CAPTCHA. The defendants also offered CAPTCHA circumventions in bulk for prices ranging from $12.50 for 500 credits to $157.50 for 10,000 credits. The magistrate ruled that damages under the DMCA could properly be calculated based on offers to sell and not actual sales of CAPTCHA credits, as well as credits sold through a third party. Because it was uncontested that defendants’ web site offered to sell CAPTCHA credits and those offers were made to at least the number of people who purchased the EasyAd Poster Deluxe software, the magistrate found the defendants liable for damages for 2,983 offers. The magistrate recommended an award of $400 per violation for offers to sell CAPTCHA credits, for an award of $1,193,200.973F973

– Offers of Craigslist telephone-verified accounts. The “Adult” and “Therapeutic Services” categories on Craigslist required telephone verification in order to post ads and the telephone-verified accounts offered by the defendants allowed purchasers to pay to have their accounts fraudulently verified by contracted employees or devices. Again applying the rule that offers for sale were sufficient for damages, the magistrate found that at least 1,000 offers for

970 Craigslist, Inc. v. Naturemarket, Inc., 694 F. Supp. 2d 1039 (N.D. Cal. 2010) at 1046-47.

971 2010 U.S. Dist. LEXIS 134411 (N.D. Cal. Nov. 15, 2010).

972 Id. at *30-32.

973 Id. at *6, 33-35.

- 253 -

telephone-verified accounts were made, and that an award of $400 per offer was reasonable ($400,000 in total).974F974

The district court adopted the magistrate’s recommendation in full and entered judgment against the defendants for a total statutory damages award of $6,067,700.975F975

c. Craigslist v. Hubert

In Craigslist, Inc. v. Hubert,976F976 the court ruled, on an entry of default judgment after the defendant failed to appear, that the sale of software allowing users to automatically post ads to Craigslist and the provision of a service that automated and circumvented the entry of CAPTCHA passwords violated the ant-circumvention provisions of the DMCA. The court awarded statutory damages of $400 for each of the 3,000 users of the defendant’s web site, on the theory that each user received an “offer” to circumvent in the form of an offer to purchase the defendant’s software or CAPTCHA credits, for a total award of $1,200,000. The court rejected the plaintiff’s request for the statutory maximum of $2,500 per offer, finding that such an award would be vastly disproportional to the actual costs the plaintiff alleged it had incurred as a result of auto-posting, $5,000 per year.977F977

d. Craigslist v. Branley

In this case, the court denied Craigslist’s request for a default permanent injunction against a defendant who failed to appear because Craigslist had not alleged facts sufficient to support the allegation that the defendant would continue to act as an agent posting ads for third parties by circumventing Craigslist’s CAPTCHA system using software known as “CLAD Genius,” in violation of Section 1201 and Craigslist’s Terms of Use.978F978

e. Craigslist v. Kerbel

In this case, the court granted the plaintiff’s motion for a default judgment, finding that the plaintiff had adequately pled claims for violation of the anti-circumvention provisions based on the defendants’ alleged bypassing of Craiglist’s CAPTCHA software and its phone verification measures in order to automatically create accounts and post ads to Craigslist. The court awarded statutory damages of $200,000, calculated on the defendants’ offer to sell a bundle of 10,000 “credits” used to purchase phone-verified accounts on Craigslist at 10 credits each,

974 Id. at *35-37.

975 Craigslist, Inc. v. Mesiab, 2010 U.S. Dist. LEXIS 134381 (N.D. Cal. Dec. 20, 2010).

976 2010 U.S. Dist. LEXIS 143037 (N.D. Cal. Apr. 15, 2010).

977 Id. at *4, 10-13.

978 Craigslist, Inc. v. Branley, 2012 U.S. Dist. LEXIS 36731 at *4-5, 12 (N.D. Cal. Mar. 19, 2012).

- 254 -

representing 1,000 offers to sell the accounts, multiplied by the minimum statutory damages award of $200 per violation.979F979

(xvi) Echostar v. Viewtech

In Echostar Satellite LLC v. Viewtech, Inc.,980F980 the court granted the plaintiff summary judgment on its claim under Section 1201(a)(2) against the defendants for the distribution of receivers structurally altered so as to be capable of unauthorized decryption of Echostar satellite TV programming and of software that would enable the piracy of Echostar’s programming. The court also found that the defendants’ provision of free receiver to moderators on popular piracy web sites and encouragement of the moderators to provide favorable reviews of the receiver’s ability to obtain the plaintiff’s protected programming violated the third prong of Section 1201(a)(2), which prohibits marketing a technology used in circumventing an access measure. The court awarded statutory damages of $214,898,600, representing $200 for each of at least 1,074,493 receivers intended for piracy sold by the defendants.981F981

(xvii)Adobe Systems v. Feather

In this case, the defendant offered for sale and distributed pirated copies of the plaintiffs’ software via the Internet, including on eBay and through his own website. He also trafficked in and sold product keys or serial numbers designed to circumvent the plaintiffs’ copyright protection measures to enable the pirated copies to function. Upon a motion for default judgment, the court found that the defendant’s actions, as alleged in the complaint, established violations of Section 1201(a)(2) and of willful copyright infringement. The court awarded statutory damages for willful infringement under Section 504(c)(2) in the amount of $90,000 for each of 28 copyrighted works infringed, for a total award of $2,520,000 in damages. The plaintiffs did not seek separate damages for their DMCA claim, and the court noted in a footnote that they could not do so in any event, citing other authority for the proposition that a plaintiff cannot seek duplicative statutory damages under the Copyright Act and the DMCA.982F982 Note that the ruling with respect to “duplicative” statutory damages seems contrary to other cases, such as the Pacific Stock v. MacArthur & Co. case discussed in Section G.1(c)(1)(xi) below, which awarded statutory damages for CMI violations in addition to statutory damages for copyright infringement arising out of the same acts.

(xviii) NNG v. AVA Enterprises

The facts and the court’s rulings with respect the plaintiff’s trafficking claims in this case are discussed in Section II.G.1(a)(1)(x) above.

979 Craigslist, Inc. v. Kerbel, 2012 U.S. Dist. LEXIS 108573 at *26-27, 49-50 (N.D. Cal. Aug. 2, 2012).

980 2011 U.S. Dist. LEXIS 42709 (S.D. Cal. Apr. 20, 2011).

981 Id. at *4-5, *8-11.

982 Adobe Sys v. Feather, 895 F. Supp. 2d 297, 301-02 & 303 n.5 (D. Conn. 2012).

- 255 -

(xix) Beco Dairy Automation v. Global Tech Systems

Global Tech Systems (GTS) was the owner of copyrights in software for the dairy industry. In a counterclaim in this lawsuit, GTS alleged that Beco provided third parties with tools to circumvent encryption technology that protected its software in violation of Section 1201. Beco moved to dismiss the DMCA claims or for a more definite statement of the claims. Beco argued that GTS’s claims were not viable because GTS did not identify how Beco’s activities affected GTS’s copyrights, citing support from Federal Circuit case law.983F983 The court rejected this, noting that under the Ninth Circuit’s decision in MDY Industries,984F984 Section 1201(a) creates a new anti-circumvention right distinct from copyright infringement. Accordingly, Section 1201(a) claims do not require a plaintiff to show that the circumvention is tied to activities that actually infringe on a copyright holder’s protected rights. Moreover, GTS had alleged that Beco’s circumvention infringed on its copyrights when Beco engineered pirated software keys to GTS’s technology and sold those keys to third parties. The court therefore denied Beco’s motions.985F985

(3) What Constitutes an Effective Technological Measure

(i) Auto Inspection Services v. Flint Auto Auction

In Auto Inspection Services v. Flint Auto Auction,986F986 the plaintiff was the owner of an automotive inspection program that provided a uniform method of inspecting vehicles after the term of a lease or use had expired. The plaintiff included a quality control feature as part of the program that allowed it to monitor all information collected using the program. For example, when a vehicle inspector collected data for a vehicle and entered it into the program, the data had to be sent to the plaintiff for quality control inspection before the information could be forwarded to the owner of the vehicle. In this way, the plaintiff could monitor who was using the program to protect against unauthorized use.987F987

The defendant, a former licensee of the plaintiff’s program, wrote its own automotive inspection program to replace the plaintiff’s program. The plaintiff claimed that the defendant’s program was a copyright infringement. The plaintiff also claimed that its quality control feature constituted a technical protection measure to restrict access and use of its software, and that the

983 Beco Dairy Automation, Inc. v. Global Tech Sys., Inc., 2015 U.S. Dist. LEXIS 130503 at *2-3, 26 (E.D. Cal. Sept. 28, 2015).

984 MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928 (9th Cir. 2010), opinion amended and superseded on denial of reh’g, 2011 U.S. App. LEXIS 3427 (9th Cir. Feb. 17, 2011).

985 Beco, 2015 U.S. Dist. LEXIS at *25-27.

986 2006 U.S. Dist. LEXIS 87366 (E.D. Mich. Dec. 4, 2006).

987 Id. at *1-2.

- 256 -

defendant had violated the anti-circumvention provisions of the DMCA by circumventing the quality control feature to gain access to the plaintiff’s source code to copy it.988F988

The court found it questionable that the quality control feature was a technical measure that effectively controlled access to a protected work within the purview of the DMCA. The court noted that the protected work at issue was the source code of the program, and the user detection feature was a part of the program itself that in no way controlled access to the source code. Rather, it merely alerted the plaintiff as to who was using the program. Consequently, the user detection feature would not prevent anyone from gaining access to the source code and copying it verbatim. Moreover, the feature came into play only after a user had conducted an inspection, and did not prevent unauthorized users from accessing the program in the first instance.989F989

(ii) Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey

In Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey,990F990 the court addressed the issue of whether a robots.txt file applied to a web site to indicate no archival copying by robots should take place constitutes an effective technological measure. Healthcare Advocates had filed a lawsuit alleging that a competitor infringed trademarks and copyrights and misappropriated trade secrets belonging to Healthcare Advocates. The defendants in that case were represented by the boutique IP law firm of Harding, Earley, Follmer & Frailey. To aid in preparing a defense, on two occasions employees of the Harding firm accessed screenshots of old versions of Healthcare Advocates’ web sites that had been archived by the Internet Archive’s web site (www.archive.org). The old versions of the web site were accessed through the “Wayback Machine,” an information retrieval system offered to the public by the Internet Archive that allowed users to request archived screenshots contained in its archival database. Viewing the content that Healthcare Advocates had included on its public web site in the past was very useful to the Harding firm in assessing the merits of the trademark and trade secret allegations brought against the firm’s clients.991F991

The Internet Archive had a policy to respect robots.txt files and not to archive sites containing a robots.txt file that indicated the site should not be archived. In addition, for those web sites that did not have a robots.txt file present at the web site’s inception, but included it later, the Internet Archive would remove the public’s ability to access any previously archived screenshots stored in its database. The archived images were not deleted, but were instead

988 Id. at *4-5, 22.

989 Id. at *23.

990 2007 U.S. Dist. LEXIS 52544 (E.D. Pa. July 20, 2007).

991 Id. at *1-3.

- 257 -

rendered inaccessible to the general public, and the Internet Archive’s web crawler was instructed not to gather screenshots of that web site in the future.992F992

Healthcare Advocates had not included a robots.txt file on its web site prior to July 7, 2003. Consequently, Internet Archive’s database included screenshots from Healthcare Advocates’ web site when the Harding firm’s employees accessed that database through the Wayback Machine on July 9, 2003 and July 14, 2003. On those two dates of access, however, the Internet Archive’s servers, which checked for robots.txt files and blocked the images from being displayed from the corresponding web site, were malfunctioning due to a cache exhaustion condition. Because of this malfunction, employees of the Harding firm were able to view and print copies of the archived screenshots of Healthcare Advocates’ web site stored in Internet Archive’s database, contrary to Internet Archives’ normal policy. Healthcare Advocates sued the Harding firm, alleging that it has manipulated the Wayback Machine on the two dates in question in a way that rendered useless the protective measure of the robots.txt file that Healthcare Advocates had placed on its web site, in violation of the anti-circumvention provisions of the DMCA.993F993

The court turned first to the question of whether the robots.txt file used by Healthcare Advocates qualified as a technological measure effectively controlling access to its web site as defined in the Section 1201(a)(3)(B) of the DMCA. The court concluded on the particular facts of the case that it did, although the court refused to hold that a robots.txt file universally constitutes a technological protection measure:

The measure at issue in this case is the robots.txt protocol. No court has found that a robots.txt file universally constitutes a “technological measure effectively controll[ing] access” under the DMCA. The protocol by itself is not analogous to digital password protection or encryption. However, in this case, when all systems involved in processing requests via the Wayback Machine are operating properly, the placement of a correct robots.txt file on Healthcare Advocates’ current website does work to block users from accessing archived screenshots on its website. The only way to gain access would be for Healthcare Advocates to remove the robots.txt file from its website, and only the website owner can remove the robots.txt file. Thus, in this situation, the robots.txt file qualifies as a technological measure effectively controlling access to the archived copyrighted images of Healthcare Advocates. This finding should not be interpreted as a finding that a robots.txt file universally qualifies as a technological measure that controls access to copyrighted works under the DMCA.994F994

992 Id. at *7-8.

993 Id. at *4, 8-10, 43.

994 Id. at *41-42 (citation omitted).

- 258 -

However, the court found no violation of the DMCA by the actions of the Harding firm employees because those employees had not acted to “avoid” or “bypass” the technological measure. The court noted that those choice of words in the DMCA “imply that a person circumvents a technological measure only when he affirmatively performs an action that disables or voids the measure that was installed to prevent them from accessing the copyrighted material.”995F995 The employees of the Harding firm had not taken such affirmative action. As far as they knew, no protective measures were in place with respect to the archived screenshots they were able to view, and they could in fact not avoid or bypass any protective measure because on the dates in question nothing stood in the way of them viewing the screenshots.996F996

Healthcare Advocates argued that liability under the DMCA should be judged on what the Harding firm knew, not what actions it took. Healthcare Advocates argued that the Harding firm knew it was not permitted to view certain archived images, because some of the images were blocked. Healthcare Advocates therefore claimed that the firm knew or should have known that it was not supposed to be able to view any of the screenshots at issue, and that any request made for archived images after the first request resulted in a denial constitute circumvention of its robots.txt file. The court rejected this argument, ruling that simply making further requests is not circumvention under the DMCA. The requests did not alter any computer code to render the robots.txt file void. Internet Archive’s servers indicated that no lock existed when the requests were made. Accordingly, the Harding firm could not avoid or bypass a digital wall that was not there.997F997

The court also ruled that Healthcare Advocates’ inference that the Harding firm should have known it was not allowed to view any archived images via the Wayback Machine was both unreasonable and irrelevant. When a screenshot was blocked, the Wayback Machine returned a message stating that the page was blocked by the web site owner, but the message also included links, one of which said, “Try another request or click here to search for all pages on healthcareadvocates.com.” When this page appeared, the firm’s employee clicked on the link and received a list of all available screenshots.998F998 The court held that, even if the firm knew that Healthcare Advocates did not give it permission to see its archived screenshots, “lack of permission is not circumvention under the DMCA.”999F999 Accordingly, the court granted the Harding firm summary judgment on Healthcare Advocates’ claim of a violation of the DMCA.1000F1000

995 Id. at *46.

996 Id. at *47.

997 Id. at *47-50.

998 Id. at *50-51.

999 Id. at *51.

1000 Id.

- 259 -

(iii) Apple v. Psystar

The facts of this case are set forth in Section II.G.1(b)(14) above. The court rejected the defendant’s argument that Apple’s encryption of its Mac OS X operating system files, which were decrypted by a decryption key stored within Apple’s hardware, was not an effective technological protection measure because the decryption key was publicly available on the Internet. “The fact that circumvention devices may be widely available does not mean that a technological measure is not, as the DMCA provides, effectively protecting the rights of copyright owners in the ordinary course of its operations.”1001F1001

(4) No Requirements With Respect to Design of a Product

Section 1201(c)(3) provides that nothing in the bills “shall require that the design of, or design and selection of parts and components for, a consumer electronics, telecommunications, or computing product provide for a response to any particular technological measure ….”

(5) Other Rights Not Affected

Sections 1201(c)(1), (2), and (4) provide that Section 1201 is not intended to affect rights, remedies, limitations, or defenses (including fair use) to copyright infringement; or to enlarge or diminish vicarious or contributory liability in connection with any technology or product; or to enlarge or diminish any rights of free speech of the press for activities using consumer electronics, telecommunications, or computing products.

Notwithstanding these provisions, groups such as the Digital Future Coalition (DFC) have criticized the approach of the DMCA. In a position paper dated August 1997,1002F1002 the DFC argued that Section 1201 would effectively negate fair use rights, because it imposes liability for “circumvention” even when the purpose of the activity is permitted by the copyright act (such as reverse engineering or other activities that otherwise constitute fair use). The DFC also argued that Section 1201 would outlaw legitimate devices with substantial noninfringing uses, effectively overruling the Supreme Court’s decision in Sony Corp. v Universal City Studios.1003F1003

The DFC argued that the savings clauses of Section 1201(c) are inadequate because “while Section 1201 will not as a formal matter restrict existing limitations and exceptions to copyright, it will as a practical matter preclude the exercise of these limitations and exceptions by preventing the manufacture and use of the technologies necessary for their existence. Nor

1001 Apple, Inc. v. Psystar Corp., 673 F. Supp. 2d 931, 942 (quoting Sony Computer Entm’t Am., Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965 (N.D. Cal. 2006)).

1002 The position paper may be found at www.ari.net/dfc/docs/stwip.htm.

1003 464 U.S. 417 (1984).

- 260 -

would the savings clause protect individuals who gain ‘access’ to works in violation of 1201(a)(1), even if they do so for entirely lawful purposes.”1004F1004

Another position paper filed on behalf of the Information Technology Industry Council raised concern that Section 1201 will impose liability too broadly in view of the broad definition of “circumvention”:

Thus, if a device does not respond to a technological protection measure that is intended to control copying, which in some cases may be a simple 1 or 0 in header information included with the digital content, the device may be construed as avoiding, bypassing, deactivating or impairing that measure.… Companies that make devices that do not respond to copy flags – because they don’t know about the flags or because of technological difficulties associated with complying – could be liable under Section 1201 even though they had no intent to circumvent.1005F1005

The paper also raised concern about broadening the standard for liability for third party use of devices that infringe copyright owner’s rights from that of the Sony case, which imposes liability only for sale of devices having no substantial noninfringing uses, to the prohibition under the bill of devices that are “primarily designed or produced” for circumvention, or have “only limited commercially significant purpose” other than circumvention, or are marketed for use in circumvention.

(6) Exemption for Nonprofit Organizations and Law Enforcement

Section 1201(d) sets up an exemption from the circumvention prohibitions of Section 1201(a)(1) for nonprofit libraries, archives, or educational institutions that gain access to a commercially exploited copyrighted work solely in order to make a good faith determination of whether to acquire a copy of that work, provided that a copy of the work is not retained longer than necessary to make the good faith determination, is used for no other purpose, and there is not otherwise reasonably available an identical copy of the work in another form. Section 1201(e) provides that the prohibitions of Section 1201 do not apply to lawfully authorized investigative, protective, information security,1006F1006 or intelligence activity of law enforcement officers.

1004 Position paper at 3.

1005 Prepared Statement of Chris Byrne of Silicon Graphics, Inc. on Behalf of the Information Technology Industry Council Before the House Judiciary Committee Courts and Intellectual Property Subcommittee (Wed., Sept. 17, 1997) (available from Federal News Service, 620 National Press Building, Washington, D.C. 20045, and on file with the author). Section 1201(c)(3), discussed above, appears to be directed at least in part to addressing this issue.

1006 Section 1201(e) defines “information security” to mean activities carried out to identify and address the vulnerabilities of a government computer, computer system, or computer network.

- 261 -

(7) Reverse Engineering for Interoperability

Section 1201(f) provides three exemptions to the anti-circumvention provisions relating to reverse engineering and interoperability:

Reverse Engineering for Interoperability of an Independently Created Computer Program. Section 1201(f)(1) provides that, notwithstanding the prohibitions in Section 1201(a)(1)(A), “a person who has lawfully obtained the right to use a copy of a computer program may circumvent a technological measure that effectively controls access to a particular portion of that program for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs, and that have not previously been readily available to the person engaging in the circumvention, to the extent any such acts of identification and analysis do not constitute infringement under this title.” The language in Section 1201(f) requiring that the reverse engineering be for the sole purpose of “identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs” comes directly from Article 6 of the European Union Software Directive, and appears to be the first time that language from an EU Directive has been incorporated verbatim into the United States Code.1007F1007

Development and Employment of a Technological Means for Enabling Interoperability. Section 1201(f)(2) provides that, notwithstanding the prohibitions in Sections 1201(a)(2) and 1201(b), “a person may develop and employ technological means to circumvent a technological measure, or to circumvent protection afforded by a technological measure, in order to enable the identification and analysis under paragraph (1), or for the purpose of enabling interoperability of an independently created computer program with other programs, if such means are necessary to achieve such interoperability, to the extent that doing so does not constitute infringement under this title.”

The scope of this exemption is uncertain from its language in several respects. First, it is unclear what kinds of “technological means” Congress had in mind for falling within this exemption. The reference to allowing a person to “develop and employ” such technological means may suggest that the exemption is limited to only those means developed by the person desiring to circumvent, as opposed to commercially available circumvention means. The legislative history suggests otherwise, however, for it contemplates that the rights under Section 1201(f)(2) may be exercised through either generally available tools or specially developed tools:

[Section 1201(f)(2)] recognizes that to accomplish the acts permitted under [Section 1201(f)(1)] a person may, in some instances, have to make and use certain tools. In most instances these will be generally available tools that

1007 Jonathan Band & Taro Issihiki, “The New Anti-Circumvention Provisions in the Copyright Act: A Flawed First Step,” Cyberspace Lawyer, Feb. 1999, at 2, 4. Section 1201(f) may also represent the first Congressional recognition of the legitimacy of software reverse engineering. Id.

- 262 -

programmers use in developing computer programs, such as compilers, trace analyzers and disassemblers, which are not prohibited by this section. In certain instances, it is possible that a person may have to develop special tools to achieve the permitted purpose of interoperability. Thus this provision creates an exception to the prohibition on making circumvention tools contained in subsections 1201(a)(2) and (b). These tools can be either software or hardware.1008F1008

From this legislative history, it is apparent that the phrase “develop and employ” in Section 1201(f)(2) was probably intended to mean “develop and/or employ.”

A second ambiguity is whether the “technological means” of Section 1201(f)(2) were intended to be limited to the kinds of reverse engineering “tools” cited in the legislative history (compilers, trace analyzers, disassemblers and the like), or whether they could be read more broadly to encompass computer programs, such as application programs, that in their ordinary operation are designed to circumvent technological measures protecting another computer program so as to interoperate with it. For example, consider the fact pattern at issue in the case of Lexmark International, Inc. v. Static Control Components, Inc.,1009F1009 discussed in Section II.G.1(o)(1) below. In that case, the district court ruled on a motion for a preliminary injunction that Static Control violated Section 1201(a)(2) by distributing microchips that were used to replace the microchip found in the plaintiff Lexmark’s toner cartridges. Static Control’s microchip contained a computer program that circumvented Lexmark’s authentication sequence that prevented the printer engine software on the Lexmark printer from allowing the printer to operate with a refilled toner cartridge.

The district court in that case ruled that the exemptions of Section 1201(f) did not apply because Static Control’s microchips could not be considered to contain independently created computer programs, since the toner loading program on those microchips was an exact copy of the toner loading program contained on Lexmark’s microchips.1010F1010 However, suppose Static Control had independently developed the computer program contained on its microchips.1011F1011

1008 S. Rep. No. 105-190, at 33 (1998).

1009 253 F. Supp. 2d 943, 948-49 (E.D. Ky. 2003), rev’d, 387 F.3d 522 (6th Cir. 2004), reh’g denied, 2004 U.S. App. LEXIS 27422 (Dec. 29, 2004), reh’g en banc denied, 2005 U.S. App. LEXIS 3330 (6th Cir. Feb. 15, 2005).

1010 As discussed further in Section II.G.1(a)(13)(i) below, the Sixth Circuit on appeal reversed the district court’s grant of a preliminary injunction and remanded. Among other things, the Sixth Circuit questioned whether Lexmark’s toner loading program was even copyrightable, ruling that on the preliminary injunction record Lexmark had made inadequate showings with respect to originality of its toner loading program and whether that program functioned as a “lock-out code” that had to be copied for functional purposes. Lexmark Int’l v. Static Control Components, 387 F.3d 522, 536-41 (6th Cir. 2004), reh’g denied, 2004 U.S. App. LEXIS 27422 (Dec. 29, 2004), reh’g en banc denied, 2005 U.S. App. LEXIS 3330 (6th Cir. Feb. 15, 2005).

1011 The Sixth Circuit also ruled that, whether or not the toner loading program on Static Control’s microchips was independently created, the record established that there were other programs on Static Control’s microchips that were independently created, and those computer programs also interoperated with Lexmark’s printer engine program on Lexmark’s microchips. Id. at 550.

- 263 -

Would the exemption of Section 1201(f)(2) apply? Static Control could argue yes, on the ground that Section 1201(f)(2) permits it to “employ technological means [the computer program on its microchip] to circumvent a technological measure [the authentication sequence implemented by the Lexmark printer engine software] … for the purpose of enabling interoperability of an independently created computer program [again, the computer program on Static Control’s microchip] with other programs [the Lexmark printer engine program].”

On the other hand, Lexmark could argue no, on the ground that the legislative history indicates that the “technological means” referenced in Section 1201(f)(2) were meant to be limited to reverse engineering “tools,” and the program on the Static Control microchip is not a reverse engineering tool, but rather an application program. In sum, the issue is whether the “independently created computer program” referenced in Section 1201(f)(2) can also constitute the “technological means” of circumvention, or whether the “technological means” is limited to the reverse engineering tool used to develop the independently created computer program in the first place. Stated differently, the issue is whether Section 1201(f)(2) was meant to be narrow to cover only the development and employment of special tools used to aid the reverse engineering permitted by Section 1201(f)(1), or whether it was intended to permit more generalized circumvention of technological measures by one computer program in order to interoperate with another computer program whose technological protection measures are being circumvented by the first program. A similar ambiguity is embedded in Section 1201(f)(2)’s reference to “other” programs – can a program whose technological measure is circumvented by an independently created computer program, both in the ordinary operation of the independently created computer program and in the reverse engineering that was done to create such program, qualify as an “other” program? The legislative history contains no guidance on the interpretation of “other” in the exemption.

It appears that the Copyright Office agrees with an expansive reading of the Section 1201(f) exemption. After the district court’s decision in the Lexmark case came down, Static Control submitted a proposed exemption to the Copyright Office in its 2003 rulemaking proceeding under Section 1201(a)(1) to determine classes of works exempt from the anti-circumvention prohibitions. In particular, Static Control asked for an exemption for the following classes of works:

1. Computer programs embedded in computer printers and toner cartridges and that control the interoperation and functions of the printer and toner cartridge.

2. Computer programs embedded in a machine or product and which cannot be copied during the ordinary operation or use of the machine or product.

3. Computer programs embedded in a machine or product and that control the operation of a machine or product connected thereto, but that do not otherwise control the performance,

- 264 -

display or reproduction of copyrighted works that have an independent economic significance.1012F1012

The Copyright Office set forth its analysis of Static Control’s requested exemptions, among many other requested exemptions, in a lengthy memorandum issued on Oct. 27, 2003 by the Register of Copyrights to the Librarian of Congress. Although it is not clear from the memorandum whether the Copyright Office took a position with request to Static Control’s second and third proposed exemptions, the Copyright Office determined that no exemption was warranted for the first proposed exemption because “Static Control’s purpose of achieving interoperability of remanufactured printer cartridges with Lexmark’s … printers could have been lawfully achieved by taking advantage of the defense found in §1201(f), the reverse engineering exemption.”1013F1013

The Copyright Office read the purpose behind Section 1201(f) broadly: “Not only did Congress intend that ‘interoperability’ include the exchange of information between computer programs; it also intended ‘for such programs mutually to use the information which has been exchanged.’ Interoperability necessarily includes, therefore, concerns for functionality and use, and not only of individual use, but for enabling competitive choices in the marketplace.”1014F1014 The Copyright Office elaborated that the statutory exemptions of Section 1201(f) afford broader exemptions than even the Copyright Office itself could grant by virtue of rulemaking. In particular, the Copyright Office’s exemptions are limited to individual acts of exemption prohibited by Section 1201(a)(1), whereas the statutory exemptions of Section 1201(f) include the distribution of the means of circumvention into the marketplace:

[T]he statutory exemption found in §1201(f) not only permits circumvention of technological measures to analyze and identify interoperable elements of a protected computer program, but also provides exemptions to the trafficking provisions in §1201(a)(2) and 1201(b). Even if the Register had found a factual basis for an exemption, it would only exempt the act of circumvention. It would not exempt the creation and distribution of the means to circumvent or the distribution of interoperable computer programs embedded in devices. Since it is clear that Static Control’s goal was not merely to privately circumvent, but rather to facilitate the distribution of competitive toner cartridges to others, a recommendation for an exemption in this rulemaking would have little effect on the intended use.1015F1015

1012 Memorandum from Marybeth Peters, Register of Copyrights, to James H. Billington, Librarian of Congress, “Recommendation of the Register of Copyrights in RM 2002-4; Rulemaking on Exemptions from Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies,” Oct. 27, 2003, p. 172, available as of Jan. 10, 2004 at www.copyright.gov/1201/docs/registers-recommendation.pdf.

1013 Id. at 176.

1014 Id. at 178 (quoting the House Manager’s Report at 14).

1015 Id. at 180-81 (emphasis in original).

- 265 -

Accordingly, the Copyright Office concluded that “Congress has comprehensively addressed the important concern of interoperability for competition and functionality within its own statutory exemption” and that an exemption through rulemaking was not necessary.1016F1016

Providing Information or Means for Interoperability to Others. Section 1201(f)(3) provides that the “information acquired through the acts permitted under paragraph (1), and the means permitted under paragraph (2), may be made available to others if the person referred to in paragraph (1) or (2), as the case may be, provides such information or means solely for the purpose of enabling interoperability of an independently created computer program with other programs, and to the extent that doing so does not constitute infringement under this title or violate applicable law other than this section.”

Section 1201(f)(3) contains ambiguities with respect to its scope that are similar to those noted with respect to Section 1201(f)(2). The legislative history for Section 1201(f)(3) states the following:

[Section 1201(f)(3)] recognizes that developing complex computer programs often involves the efforts of many persons. For example, some of these persons may be hired to develop a specific portion of the final product. For that person to perform these tasks, some of the information acquired through the permitted analysis, and the tools to accomplish it, may have to be made available to that person. This subsection allows developers of independently created software to rely on third parties either to develop the necessary circumvention tools or to identify the necessary information to achieve interoperability. The ability to rely on third parties is particularly important for small software developers who do not have the capability of performing these functions in-house. This provision permits such sharing of information and tools.1017F1017

Although Section 1201(f)(3) clearly contemplates an exemption for distribution to third parties of the “technological means” referenced in Section 1201(f)(2), as well as the “information” gleaned from reverse engineering under Section 1201(f)(1), the same issues of the scope of “technological means” intended to be within the exemption arise as in Section 1201(f)(2). As noted, the Copyright Office seems to read Section 1201(f)(3) broadly to permit the distribution of independently developed computer programs that circumvent the technological protection measures of other programs in order to interoperate with such other programs. The legislative history quoted above, however, seems to read Section 1201(f)(3) more narrowly as directed to distribution of reverse engineering “tools” or information to third party developers who may be hired to assist in the development of an independent computer program, as opposed to a distribution of a competitive product into the marketplace.

1016 Id. at 183.

1017 S. Rep. No. 105-190, at 33 (1998).

- 266 -

These ambiguities in the scope of the Section 1201(f) exemptions will need to be resolved over time through litigation. In addition, it is worth observing that, although Section 1201(f) provides useful exemptions, it leaves open the issue of whether circumvention of access restrictions in order to perform reverse engineering for purposes other than interoperability, such as error correction, is prohibited. The Copyright Office’s exemption rulemaking procedures may afford a mechanism to further flesh out or clarify the Section 1201(f) exemptions.

Several cases have adjudicated the scope of the Section 1201(f) exemption:

(i) Universal City Studios Inc. v. Reimerdes

In Universal City Studios, Inc. v. Reimerdes,1018F1018 discussed in further detail in Section II.G.1(m)(4) below, the court rejected the applicability of Section 1201(f) to the defendants’ posting on their Web site of, and posting links to, a descrambling computer program known as “DeCSS,” which circumvented the encryption of movies stored in digital form on a digital versatile disk (“DVD”) encoded with the industry standard Content Scramble System (“CSS”). The defendants argued that DeCSS had been created to further the development of a DVD player that would run under the Linux operating system, as there allegedly were no Linux-compatible players on the market at the time.1019F1019 They further contended that DeCSS was necessary to achieve interoperability between computers running the Linux operating system and DVDs, and that the exception of Section 1201(f) therefore applied.1020F1020

The court rejected this argument for several reasons. First, Section 1201(f)(3) permits information acquired through reverse engineering to be made available to others only by the person who acquired the information, and the defendants did not themselves do any reverse engineering (DeCSS had been created by a third party). Even if the defendants had authored DeCSS, the court ruled that Section 1201(f)(3) would allow the dissemination only of information gleaned from the reverse engineering and solely for the purpose of achieving interoperability as defined in the statute (which was not the reason the defendants posted DeCSS), and not dissemination of the means of circumvention itself.1021F1021 Second, the defendants could not claim that the sole purpose of DeCSS was to create a Linux DVD player, because DeCSS was developed on and ran under the Windows operating system, and could therefore decrypt and play DVD movies on Windows as well as Linux machines.1022F1022 In addition, in an earlier opinion, the court ruled that Section 1201(f) was inapplicable because the legislative history of the DMCA makes clear that Section 1201(f) permits reverse engineering of

1018 111 F. Supp. 2d 294 (S.D.N.Y. 2000).

1019 Id. at 319.

1020 Id. at 320.

1021 Id.

1022 Id.

- 267 -

copyrighted computer programs only and does not authorize circumvention of technological systems that control access to other copyrighted works, such as movies.1023F1023

(ii) Storage Technology Corporation v. Custom Hardware Engineering & Consulting

This case rejected an assertion of a Section 1201(f) defense because the defendant’s circumvention resulted in an infringing copy of the plaintiff’s copyrighted program being made in RAM, and the Section 1201(f) defense exempts circumvention only if it does not result in copyright infringement. For a discussion of the details of the case, see Section II.G.1(o)(4) below.

(iii) Chamberlain Group, Inc. v. Skylink Technologies, Inc.

The facts of this case are set forth in Section II.G.1(o)(2) below. Although this case did not directly adjudicate the scope of the Section 1201(f) exemptions, the court made a few statements in dicta suggesting that Section 1201(f) acts to immunize interoperability from anti-circumvention liability. In that case, the Federal Circuit ruled that the anti-circumvention provisions of Section 1201 do not apply to all forms of circumvention to gain access to a work, but rather only to circumventions that facilitate some form of copyright infringement.1024F1024 The court reached this conclusion in part on the rationale that a broad interpretation of the anti-circumvention provisions to prohibit all forms of unauthorized access, whether or not protected copyright rights were thereby implicated, would be tantamount to “ignoring the explicit immunization of interoperability from anticircumvention liability under § 1201(f).”1025F1025 This language, although dicta, characterizes the Section 1201(f) exemption very broadly.1026F1026

1023 Universal City Studios Inc. v. Reimerdes, 82 F. Supp. 2d 211, 218 (S.D.N.Y. 2000) (citing S. Rep. No. 105-190 (1998) and H.R. Rep. 105-551 (II) (1998)). Section 1201(f) would seem applicable to the original reverse engineering that the developers of DeCSS engaged in, but the trickier issue dealt with by the court is whether it should apply to subsequent use of the DeCSS to gain access to copyrighted works stored on a DVD in order to play such works under the Linux operating system. Such access is for use of the work stored on the DVD (albeit in an interoperable way), whereas the exception speaks in terms of “identifying and analyzing” the copyrighted work to achieve interoperability. In addition, Section 1201(f) appears to be a defense only to the conduct of circumvention prohibited by Section 1201(a)(1), and not to the distribution of devices prohibited under Sections 1201(a)(2) and 1201(b). Because the court found that DeCSS is a device within the prohibition of Section 1201(a)(2), it was not subject to the exception of Section 1201(f).

1024 Chamberlain Group, Inc. v. Skylink Technologies, Inc., 381 F.3d 1178, 1195, 1203 (Fed. Cir. 2004), cert. denied, 161 L. Ed. 2d 481 (2005).

1025 Id. at 1200.

1026 The court noted that it had no occasion to reach the argument, raised by an amicus, that Section 1201(f) should cover the defendant’s actions in distributing a product that circumvented technological measures restricting access to the plaintiff’s computer program so as to interoperate with it. Because Section 1201(f) is an affirmative defense, the court noted that it would become relevant only if the plaintiff could prove a prima facie

- 268 -

Another dictum by the court in connection with articulating its rationale for rejecting such a broad interpretation of anti-circumvention liability makes clear the court’s belief that the anti-circumvention provisions should not be construed to prevent interoperability of computer programs:

Chamberlain’s proposed construction would allow any manufacturer of any product to add a single copyrighted sentence or software fragment to its product, wrap the copyrighted material in a trivial “encryption” scheme, and thereby gain the right to restrict consumers’ rights to use its products in conjunction with competing products. In other words, Chamberlain’s construction of the DMCA would allow virtually any company to attempt to leverage its sales into aftermarket monopolies – a practice that both the antitrust laws and the doctrine of copyright misuse normally prohibit.1027F1027

(iv) Lexmark International, Inc. v. Static Control Components, Inc.

For a discussion of the applicability of the reverse engineering exception of Section 1201(f) in this case, see Section II.G.1(o)(1) below.

(v) Davidson Assocs. v. Internet Gateway

In this case, the plaintiff Davidson & Assocs., doing business as Blizzard Entertainment, owned the copyrights in several computer games. The games could be played in either a single-player mode or in an online multi-player mode called “Battle.net mode.”1028F1028 Blizzard operated a 24-hour online gaming service known as the Battle.net service that allowed owners of certain Blizzard games to play those games against each other in Battle.net mode by linking together over the Internet through Battle.net servers. In addition to multi-player game play, Battle.net mode allowed users to chat with other potential players, to record wins and losses and save advancements in a password protected individual game account, and to set up private games on the Battle.net service to allow players to determine whom they wished to interact with on the Battle.net service.1029F1029 The court noted that these Battle.net mode features were “accessed from within the games themselves,” which seems to mean that there was particular code within the Blizzard games that allowed them to operate in Battle.net mode and communicate with the Battle.net servers.1030F1030

case of anti-circumvention liability to shift the burden to the defendant, which the court ruled the plaintiff had ultimately failed to do. Id. at 1200 n.15.

1027 Id. at 1201 (citations omitted).

1028 Davidson & Assocs. v. Internet Gateway, 334 F. Supp. 2d 1164, 1168 (E.D. Mo. 2004).

1029 Id.

1030 Id.

- 269 -

The Battle.net service was designed to prohibit access and use of Battle.net mode by unauthorized or pirated copies of Blizzard games. In particular, in order to log on to the Battle.net service and access Battle.net mode, the Blizzard games were designed to initiate an authentication sequence or “secret handshake” between the game and the Battle.net server based on the “CD Key” of the game, a unique sequence of alphanumeric characters that was printed on a sticker attached to the case in which each game was packaged. The game would pass the CD Key to the Battle.net server, which would verify its validity and determine whether the same CD Key was already being used by another game that was currently logged on to the server. If the CD Key was determined to be valid by the server and not already in use, the server would send a signal to the game allowing it to enter the Battle.net mode and to use the Battle.net gaming services.1031F1031

In order to install a copy of a Blizzard game, the user was required to click acceptance of a clickwrap license agreement that prohibited reverse engineering of the software and that required the user to agree to the Terms of Use of the Battle.net service, which prohibited emulation or redirection of the communication protocols used by Blizzard as part of Battle.net service for any purpose.1032F1032

The defendants developed a server, known as the bnetd server, that was designed to emulate the Battle.net service so as to allow players to play their Blizzard games in an online multi-player mode through the bnetd server.1033F1033 In order to develop the bnetd server, the defendants had to reverse engineer the Blizzard games to learn the Battle.net protocol. In addition, because Blizzard games were designed to connect only to Battle.net servers, the defendants had to modify a computer file in the Blizzard games containing the Internet address of the Battle.net servers so as to cause the games to connect to a bnetd server instead. The defendants distributed a utility known as “BNS” that modified such file and caused Blizzard games to connect to the bnetd server rather than the Battle.net server. Once connected to the bnetd server through the modified Internet address file, a Blizzard game would send its CD Key to the bnetd server. When the bnetd server received the CD Key, unlike Battle.net, it did not determine whether the CD Key was valid or currently in use by another player. Instead, the bnetd server would always send the game an “okay” reply. Thus, both authorized as well as unauthorized or pirated copies of Blizzard games could be played in online mode through the bnetd server.1034F1034

The plaintiffs alleged two violations of the anti-circumvention provisions of the DMCA. First, they alleged that the defendants had violated Section 1201(a)(1)(A) in the course of development of the bnetd emulator by circumventing Blizzard’s technological measures (the

1031 Id. at 1169.

1032 Id. at 1169-71.

1033 Id. at 1172.

1034 Id. at *1172-73.

- 270 -

secret handshake) to gain access to Battle.net mode in the course of their reverse engineering.1035F1035 Although not clear from the court’s opinion, the copyrighted work that the defendant’s gained access to via their circumvention was apparently the code in the Blizzard games that allowed them to operate in Battle.net mode and to communicate with the Battle.net service.

The defendants argued that their circumvention in the course of reverse engineering was permitted by Section 1201(f)(1) because it was done for the sole purpose of creating and distributing interoperable computer programs such as the bnetd server. They also argued that they had authority to access the Battle.net mode because they lawfully purchased the Blizzard software they reverse engineered.

The district court rejected these defenses. First, it ruled that it was “undisputed that defendants circumvented Blizzard’s technological measure, the ‘secret handshake,’ between Blizzard games and Battle.net, that effectively control access to Battle.net mode.”1036F1036 By its reference to “Battle.net mode,” the court was again presumably referring to the code in the Blizzard games that allowed them to operate in Battle.net mode. The court rejected the defendants’ reliance on Section 1201(f)(1), because the defendants had not developed an independently created computer program. The court noted that the defendants’ actions in developing the bnetd server “extended into the realm of copyright infringement” because once game play started, “there are no differences between Battle.net and the bnetd emulator from the standpoint of a user who is actually playing the game.”1037F1037 It is unclear from this language precisely what the basis was on which the court found copyright infringement. Perhaps the court believed that the defendants had copied code from the Battle.net server into the bnetd server, for earlier in the opinion the court noted that the plaintiffs contended “that the defendants not only copied code that would achieve interoperability, but also copied elements that would preserve player account information, display of icons, and presentation of ad banners.”1038F1038 However, the opinion on appeal suggests that there was no copying of battle.net server code into the bnetd server.1039F1039

The court also rejected the Section 1201(f)(1) defense because it found that the defendants’ actions constituted more than enabling interoperability, since the emulator did not

1035 Id. at 1183.

1036 Id. at 1184-85.

1037 Id. at 1185.

1038 Id. at 1184.

1039 Davidson & Assocs. v. Jung, 422 F.3d 630, 636 (8th Cir. 2005) (“By necessity, Appellants used reverse engineering to learn Blizzard’s protocol language and to ensure that bnetd.org worked with Blizzard games. Combs used reverse engineering to develop the bnetd.org server, including a program called ‘tcpdump’ to log communications between Blizzard games and the Battle.net server.”).

- 271 -

check the validity of the CD Key code passed from the game to the emulator, thereby allowing unauthorized copies of the Blizzard games to play on bnetd servers.1040F1040

The plaintiffs also asserted that by distributing the bnetd software, the defendants had violated Section 1201(a)(2) by trafficking in devices whose only purpose was to circumvent their secret handshake and allow access to Battle.net mode. The defendants did not dispute the plaintiffs’ factual assertions, but instead asserted the defense of Sections 1201(f)(2)-(3) on the ground that those sections entitled them to distribute software to others for the purpose of enabling interoperability with the Blizzard games.1041F1041 The court rejected the defenses on two grounds. First, the court ruled that the defendants’ purpose in distributing their software was not solely to enable interoperability, but rather to “avoid the restricted access to Battle.net.”1042F1042 In addition, the court reiterated its conclusion that the development and distribution of the bnetd software was infringing, and “persons who commit copyright infringement cannot benefit from the exemptions of § 1201(f).”1043F1043 Accordingly, the court granted the plaintiffs’ motion for summary judgment on their anti-circumvention and trafficking in anti-circumvention technology claims.1044F1044

On appeal, the Eight Circuit affirmed in an opinion that is even more terse and difficult to understand than the district court’s opinion. The court found a violation of Section 1201(a)(1) merely because unauthorized copies of Blizzard games were allowed to play through the bnetd server, even though the circumvention of the secret handshake did not cause the illegal copy of the Blizzard games to be made in the first place:

Blizzard games, through Battle.net, employed a technological measure, a software “secret handshake” (CD key), to control access to its copyrighted games. The bnetd.org emulator developed by Appellants allowed the Blizzard game to access Battle.net mode features without a valid or unique CD key. As a result, unauthorized copies of the Blizzard games were played on bnetd.org servers.1045F1045

1040 334 F. Supp. 2d at 1185.

1041 Id. at 1185-86.

1042 Id. at 1186.

1043 Id. at 1187.

1044 Id.

1045 Davidson & Assocs. v. Jung, 422 F.3d 630, 640 (8th Cir. 2005). The Eighth Circuit distinguished the Lexmark decision by noting that in Lexmark, the Sixth Circuit had found Lexmark’s authentication sequence did not effectively control access to the Toner Loading Program and Printer Engine Program at issue, because it was not Lexmark’s authentication sequence that controlled access to such programs, but rather the purchase of a Lexmark printer that allowed access to the programs. “Here, Battle.net’s control measure was not freely available. Appellants could not have obtained a copy of Battle.net or made use of the literal elements of Battle.net mode without acts of reverse engineering, which allowed for a circumvention of Battle.net and Battle.net mode. Unlike in Lexmark Int’l, Inc., Battle.net mode codes were not accessible by simply purchasing a Blizzard game or logging onto Battle.net, nor could data from the program be translated into readable source

- 272 -

The court also ruled that the anti-trafficking provisions of Section 1201(a)(2) had been violated because the bnetd.org emulator had as its sole purpose “to avoid the limitations of Battle.net.”1046F1046

With respect to the Section 1201(f) defense asserted by the defendants, the Eighth Circuit generalized all subsections of Section 1201(f) into one set of requirements as follows:

To successfully provide the interoperability defense under § 1201(f), Appellants must show: (1) they lawfully obtained the right to use a copy of a computer program; (2) the information gathered as a result of the reverse engineering was not previously readily available to the person engaging in the circumvention; (3) the sole purpose of the reverse engineering was to identify and analyze those elements of the program that were necessary to achieve interoperability of an independently created computer program with other programs; and (4) the alleged circumvention did not constitute infringement.1047F1047

In a very confusing portion of its opinion, the court then ruled that the exemption of Section 1201(f) was not available to the defendants because their circumvention constituted infringement. Precisely what that “infringement” was is unclear, although the court seems to base its holding on the fact that infringement by third parties was encouraged because pirated copies of Blizzard games could be played in multi-player mode through the bnetd server (even though the circumvention at issue did not cause or allow the pirated copies of the Blizzard games to be made in the first instance):

As detailed earlier, Blizzard’s secret handshake between Blizzard games and Battle.net effectively controlled access to Battle.net mode within its games. The purpose of the bnetd.org project was to provide matchmaking services for users of Blizzard games who wanted to play in a multi-player environment without using Battle.net. The bnetd.org emulator enabled users of Blizzard games to access Battle.net mode features without a valid or unique CD key to enter Battle.net. The bnetd.org emulator did not determine whether the CD key was valid or currently in use by another player. As a result, unauthorized copies of the Blizzard games were freely played on bnetd.org servers. Appellants failed to establish a genuine issue of material fact as to the applicability of the interoperability exception.1048F1048

code after which copies were freely available without some type of circumvention.” Id. at 641. Although the preceding passage is confusing, it seems to imply (by the reference to “literal elements of Battle.net mode”) that the secret handshake controlled access to some Battle.net code within the Blizzard game itself. The Court’s reference to “Battle.net” seems to be referring to the Battle.net server software.

1046 Id.

1047 Id. at 641-42.

1048 Id. at 642.

- 273 -

Based on these terse and confusing rulings, the court affirmed summary judgment in favor of the plaintiffs.1049F1049

(vi) Sony Computer Entertainment America v. Divineo

In Sony Computer Entertainment America, Inc. v. Divineo,1050F1050 the court ruled that downstream lawful or fair uses of a circumvention device, including use to exercise Section 1201(f) rights, did not relieve the defendant from liability for trafficking in such devices under the DMCA. For a discussion of the details of the facts and rulings of the court, see Section II.G.1(b)(3) above.

(8) Encryption Research

Section 1201(g) provides that it is not a violation of the regulations prohibiting circumventing a technological measure if such circumvention is done as an act of good faith “encryption research.” “Encryption research” is defined as “activities necessary to identify and analyze flaws and vulnerabilities of encryption technologies applied to copyrighted works, if these activities are conducted to advance the state of knowledge in the field of encryption technology or to assist in the development of encryption products.” “Encryption technology” is defined as “the scrambling and descrambling of information using mathematical formulas or algorithms.” Sections 1201(g)(2)(C) and (D) require, however, that the person have made a good faith effort to obtain authorization before the circumvention, and that such acts not otherwise constitute a copyright infringement or violate other applicable law. Section 1201(g)(5) required that a report be generated to Congress on encryption technologies, with legislative recommendations (if any), not later than one year after enactment of the bill.

(9) Protection of Minors

Section 1201(h) provides that a court, in applying the prohibitions of Section 1201(a) against the manufacture or trafficking in a component or part designed to circumvent technological measures, may consider the necessity of such component or part for its intended and actual incorporation into a product whose sole purpose is to prevent the access of minors to material on the Internet.1051F1051

1049 Id.

1050 547 F. Supp. 2d 957 (N.D. Cal. 2006).

1051 An earlier version of H.R. 2281 would have expanded this exception to also allow a parent to circumvent a technological measure controlling access to a test or evaluation of that parent’s minor child’s abilities by a nonprofit educational institution if the parent attempted to obtain authorization before the circumvention and the circumvention was necessary to obtain a copy of the test or evaluation.

- 274 -

(10) Protection of Personally Identifying Information

Section 1201(i) provides that it is not a violation of the Section 1201(a)(1)(A) prohibition on circumventing a technological measure if such measure, or the work it protects, is capable of collecting or disseminating personally identifying information reflecting the online activities of a natural person who seeks to gain access to the work protected, or if the measure in the normal course of its operation or the work it protects, collects or disseminates personally identifying information about the person who seeks to gain access to the work, without providing conspicuous notice of such collection or dissemination to such person and the capability to prevent or restrict the same, and the circumvention is carried out solely to prevent such collection or dissemination. If a technological measure is disclosed to a user as not being capable of collecting or disseminating personally identifying information, then the exception of Section 1201(i) does not apply.

(11) Security Testing

Section 1201(j) provides that it is not a violation of the prohibitions of Sections 1201(a)(1)(A) and 1201(a)(2) if a person is engaged in “security testing,” which is defined to mean accessing a computer, computer system, or computer network solely for the purpose of good faith testing, investigating or correcting a security flaw or vulnerability with the authorization of the owner or operator, provided that such act does not otherwise constitute a violation of applicable law (including the Computer Fraud and Abuse Act of 1986).

(12) Copy Restrictions To Be Built Into VCRs and Camcorders

Section 1201(k) dictates that certain technological capabilities be built into consumer analog video cassette recorders (VCRs) and camcorders (professional analog video cassette recorders are exempted) to protect certain analog television programming and prerecorded movies. Specifically, effective 18 months after enactment of the DMCA, most formats of consumer analog1052F1052 VCRs and camcorders must contain one of two forms of copy control technology in wide use in the market today – either the “automatic gain control technology” (which causes distortion in the images upon playback) or the “colorstripe copy control technology” (which causes distracting visible color stripes to appear through portions of the viewable picture in normal viewing mode). Effective immediately, Section 1201(k) also prohibits tampering with these analog copy control technologies to render them ineffective. The Conference Report accompanying H.R. 22811053F1053 states that Congress intended this Section to prohibit the manufacture and sale of “black box” devices and software “hacking” that defeat these copy control technologies.

1052 Page 68 of the Conference Report states, “The conferees also acknowledge that numerous other activities are underway in the private sector to develop, test, and apply copy control technologies, particularly in the digital environment. Subject to the other requirements of this section, circumvention of these technologies may be prohibited under this Act.”

1053 H.R. Rep. No. 105-796, at 78 (1998).

- 275 -

Section 1201(k) defines certain specific encoding rules that such devices must implement in order to preserve the capability to perform long-standing consumer home taping practices. Specifically, such devices cannot limit the copying of traditional broadcasts of programming through basic or extended basic tiers of programming services, although they may limit the copying of pay-per-view, near video-on-demand or video-on-demand transmission, or content stored on prerecorded media, as well the making of second generation copies where the original transmission was through a pay television service (such as HBO, Showtime or the like).

(13) Other Cases Filed Under the Anti-Circumvention Provisions

Several other anti-circumvention cases have been filed under the DMCA:

(i) Sony Computer Entertainment, Inc. v. Connectix, Inc.

On Jan. 27, 1999, Sony Computer Entertainment, Inc. and its U.S. subsidiary Sony Computer Entertainment America, manufacturers and distributors of the Sony PlayStation, filed suit against Connectix, Inc., a company that had developed a software emulator called the “Virtual Game Station” that would enable video games written for the PlayStation to run on Apple computers. In order to create the emulator, Connectix disassembled and reverse engineered the PlayStation’s operating system. The plaintiff’s complaint included claims for copyright infringement, trademark dilution, and circumvention of technological protection measures.1054F1054

The circumvention claim was based on the fact that the PlayStation and its video games each contain embedded technological measures to prevent counterfeit games from running on the PlayStation, and the alleged fact that Connectix’s emulator software did not contain such technological measures, thus enabling counterfeit games to run on it. The plaintiffs contended that omission of the PlayStation’s technological measures constituted an unlawful circumvention of those measures. In its opposition to the plaintiffs’ motion for a temporary restraining order, Connectix asserted that its emulator did in fact implement the PlayStation’s technological measures and could not run counterfeit games. Thus, the alleged factual predicate on which the plaintiffs based their circumvention claim was apparently missing. On Feb. 4, 1999, the district court judge denied the plaintiffs’ motion for a temporary restraining order.1055F1055

Even if Connectix’s emulator software did not contain the technological measures of the PlayStation, the plaintiffs’ circumvention claim appears to be flawed for several reasons. First, the DMCA’s prohibition under Section 1201(a)(1) on circumvention of technological measures

1054 See Band & Issihiki, supra note 1007, at 8.

1055 Id. at 8-9. On appeal, the Ninth Circuit ultimately held that Connectix’s reverse engineering of the Sony Playstation fell within the fair use doctrine. See Sony Computer Entertainment, Inc. v. Connectix Corp., 203 F.3d 596 (9th Cir. 2000). The Ninth Circuit’s opinion did not address the DMCA issues.

- 276 -

controlling access was not yet in effect at the time the complaint was filed, and the DMCA contains no prohibition on the act of circumventing copy controls. Second, Connectix’s emulator did not actively “circumvent” anything in the games it could run. At most, it simply allegedly operated regardless of whether the video games contained the authentication signals required by the PlayStation (i.e., it allegedly ignored the authentication signal of the PlayStation). But Section 1201(c)(3) provides that Section 1201 does not require a computing product to “provide for a response to any particular technological measure,” so long as the product is not primarily designed or produced for the purpose of circumventing a technological measure or has only limited commercially significant purposes or uses other than the same. Because the Connectix emulator was not primarily designed to circumvent technological measures, but rather to run legitimate PlayStation games, it should probably fall within the savings clause of Section 1201(c)(3).1056F1056

(ii) RealNetworks, Inc. v. Streambox Inc.

On Dec. 20, 1999, RealNetworks, Inc., the developer and distributor of various versions of the “RealPlayer,” which embodied “streaming” technology that allowed Internet users to obtain real-time delivery and instant playback of audio and video content over the Internet, brought suit against Streambox, Inc.1057F1057 RealNetworks’ products embodied anti-piracy technology. Specifically, RealNetworks supplied copyright holders with a product known as “RealProducer,” which converted ordinary audio and video files into digitized “RealAudio” and “RealVideo” files. RealNetworks also offered a “RealServer” product to copyright holders that allowed them to distribute their copyrighted material in a secure format designed to interact only with RealPlayers to further prevent unauthorized access to copyrighted content.1058F1058

RealNetworks based its complaint on the following three products developed and distributed by Streambox:

“Streambox Ripper,” which converted any RealAudio file to a file in the format of Windows Media Audio (WMA), MPEG-Layer 3 (MP3), or Microsoft Windows Wave Format (WAV). Once in any of these three formats, an audio file could be copied, stored, or freely distributed, thereby circumventing RealNetworks’ security measures.1059F1059

1056 Band & Issihiki, supra note 1007, at 8-9.

1057 Complaint for Violation of The Digital Millennium Copyright Act, Contributory, Vicarious and Direct Copyright Infringement, Tortious Interference with Contract, and Lanham Act Violations, RealNetworks, Inc. v. Streambox Inc., No. C99-2070Z (W.D. Wa. Dec. 20, 1999), available as of Dec. 30, 1999 at www.realnetworks.com/company/pressroom/pr/99/rnwk_complaint.html.

1058 Id. ¶ 6.

1059 Id. ¶¶ 12-13.

- 277 -

“Streambox VCR,” which mimicked a RealPlayer, tricking RealServers into interacting with it and distributing both RealAudio and RealMedia files to it, thereby also circumventing the RealNetworks’ security measures.1060F1060

“Streambox Ferret,” which was supposedly designed to work with and enhance the functionality of RealPlayers. RealNetworks alleged, however, that Streambox Ferret replaced the “snap.com” search engine on the RealPlayer’s search bar with a “Streambox” logo that diverted those using the RealPlayer’s search function from Snap’s search services (with whom RealNetworks had an exclusive arrangement) to a competing service operated by Streambox. In addition, RealNetworks alleged that Streambox Ferret corrupted completely the search functionality of the more recent versions of the RealPlayer.1061F1061

RealNetworks alleged, among other things, that (i) by circumventing RealNetworks’ technological measures that protect the rights of copyright owners to control whether an end-user can copy and distribute copyright owners’ works, both Streambox Ripper and Streambox VCR violated Section 1201(b) of the DMCA,1062F1062 and (ii) because the installation of Streambox Ferret modified the graphical user interface and computer code of RealPlayer, thereby creating an unauthorized derivative work, Streambox’s distribution of Streambox Ferret made it contributorily liable for copyright infringement, as well as vicariously liable, since Streambox allegedly controlled and profited from the infringement.1063F1063

In a decision issued Jan. 18, 2000, the court entered a preliminary injunction against Streambox, enjoining the manufacturing and distribution of Streambox VCR and Streambox Ferret, but not of Streambox Ripper.1064F1064 This case raised three important procedural issues with respect to the DMCA. First, the case raised the interesting issue of who has standing to invoke the remedies of the DMCA – specifically, whether RealNetworks should be considered a proper party to bring the lawsuit, since the material that Streambox Ripper and Streambox VCR placed into a different file format (i.e., allegedly circumvented a protection measure for) was copyrighted, not by RealNetworks, but by its customers. As discussed further below, Section 1203 of the DMCA provides: “Any person injured by a violation of section 1201 or 1202 may bring a civil action in an appropriate United States district court for such violation.” Significantly, the reference to “any person” suggests that Section 1203 does not limit its scope to the copyright owner of the material with respect to which a technological protection measure has been circumvented, and the court so held. Specifically, the court ruled that RealNetworks had

1060 Id. ¶¶ 17-19.

1061 Id. ¶¶ 22-24.

1062 Id. ¶¶ 33-35 & 41-43.

1063 Id. ¶¶ 48-49.

1064 RealNetworks, Inc. v. Streambox Inc., 2000 U.S. Dist. LEXIS 1889 (W.D. Wa. 2000).

- 278 -

standing to pursue DMCA claims under Section 1203 based on the fact that it affords standing to “any person” allegedly injured by a violation of Section 1201 and 1202 of the DMCA.1065F1065

Second, the case raised the issue of what type of “injury” a plaintiff must show under Section 1203. Neither Section 1203 itself nor the legislative history illuminate this issue. In the instant case, RealNetworks was apparently relying on the argument that, because its customers were potentially injured by Streambox’s violation of Section 1201(b), RealNetworks itself was also injured. Although the court did not explicitly address this issue, by issuing a preliminary injunction, it implicitly accepted that RealNetworks was exposed to injury cognizable by the DMCA.

Third, the case raised the issue of whether a plaintiff who demonstrates a likelihood of success on the merits of claims under Section 1201 of the DMCA is entitled to a presumption of irreparable harm for purposes of a preliminary injunction, as would be the case in a showing of likely success on a claim for copyright infringement. The court noted that this must be considered an open issue: “Because the DMCA is a recently-enacted statute, there appears to be no authority holding that a plaintiff seeking a preliminary injunction who shows a reasonable likelihood of success on a claim arising under section 1201 of the DMCA is entitled to a presumption of irreparable harm.”1066F1066 Accordingly, the court considered in each instance whether Streambox’s violations of the DMCA were likely to cause irreparable harm.

Turning to the plaintiff’s claims under the anti-circumvention provisions of the DMCA, the court noted that RealNetworks’ products embodied two technological measures to control against unauthorized access or copying of content. First, a “Secret Handshake” – an authentication sequence that only RealServers and RealPlayers knew – ensured that files hosted on a RealServer could be sent only to a RealPlayer. Second, a “Copy Switch” was used, which was a piece of data in all RealMedia files that contained the content owner’s preference regarding whether or not the stream could be copied by end users.1067F1067 RealPlayers were designed to read the Copy Switch and obey the content owner’s wishes.

The court ruled that the Secret Handshake constituted a technological measure that effectively controlled access to copyrighted works within the meaning of Section 1201(a)(3)(B), and that the Copy Switch constituted a technological measure that effectively protected the right of a copyright owner to control the unauthorized copying of its work within the meaning of Section 1201(b)(2)(B). The court concluded that, because Streambox VCR was primarily designed to bypass the Secret Handshake and circumvent the Copy Switch (and had only limited

1065 Id. at *15-16. This holding is consistent with CSC Holdings, Inc. v. Greenleaf Electronics, Inc., 2000 U.S. Dist. LEXIS 7675 (N.D. Ill. 2000). In that case the plaintiff was a cable provider bringing suit against defendants under the DMCA for selling and distributing pirate cable descrambling equipment. The court held that the plaintiff was authorized to bring suit under Section 1203(a), as it was a person injured by a violation of the DMCA.

1066 RealNetworks, 2000 U.S. Dist. LEXIS 1889 at *17.

1067 Id. at *6.

- 279 -

commercially significant purposes beyond the same), Streambox VCR violated Sections 1201(a)(2) and 1201(b) of the DMCA.1068F1068

The court rejected Streambox’s defense that Streambox VCR allowed consumers to make “fair use” copies of RealMedia files under the Supreme Court’s decision in Sony Corp. v. Universal City Studios, Inc.1069F1069 The court distinguished the Sony case on the ground that, in Sony, the Supreme Court based its holding on the fact that video cassette recorders were mostly used by consumers for “time shift” viewing of programs, rather than the redistribution of perfect digital copies of audio and video files, and that substantial numbers of copyright holders who broadcast their works either had authorized or would not object to having their works time-shifted by private viewers. In the instant case, the court noted, copyright owners had specifically chosen to prevent the copying enabled by the Streambox VCR by putting their content on RealServers and leaving the Copy Switch off.1070F1070

In addition, the court, citing Nimmer’s copyright treatise, ruled that, by passage of the DMCA, Congress had decided that “those who manufacture equipment and products generally can no longer gauge their conduct as permitted or forbidden by reference to the Sony doctrine. For a given piece of machinery might qualify as a stable item of commerce, with a substantial noninfringing use, and hence be immune from attack under Sony’s construction of the Copyright Act – but nonetheless still be subject to suppression under Section 1201.”1071F1071 The court also rejected Streambox’s asserted defense under Section 1201(c)(3) of the DMCA, which it cited for the proposition that the Streambox VCR was not required to respond to the Copy Switch. The court noted that this argument failed to address Streambox VCR’s circumvention of the Secret Handshake, which was enough by itself to create liability under Section 1201(a)(2).1072F1072

Turning to the Streambox Ripper product, the court ruled that the plaintiff had not established a reasonable likelihood of success on its DMCA claim. RealNetworks maintained that the primary purpose and only commercially significant use for the Ripper was to enable consumers to prepare unauthorized derivative works of copyrighted audio or video content. The court rejected this argument, noting that the Ripper has legitimate and commercially significant uses to enable content owners, including copyright holders and those acquiring content with the content owner’s permission, to convert their content from the RealMedia format to other formats. Moreover, there was little evidence that content owners use the RealMedia format as a “technological measure” to prevent end users from making derivative works. In any case, the court found that RealNetworks had not introduced evidence that a substantial number of content

1068 Id. at *19-21.

1069 464 U.S. 417 (1984).

1070 RealNetworks, 2000 U.S. Dist. LEXIS at *21-22.

1071 Id. at *23 (quoting 1 M. Nimmer & D. Nimmer, Nimmer on Copyright (1999 Supp.) § 12A.18[B]).

1072 RealNetworks, 2000 U.S. Dist. LEXIS at *23.

- 280 -

owners would object to having end users convert RealMedia files that they legitimately obtained into other formats, or that Ripper would cause injury to RealNetworks.1073F1073

Finally, the court ruled that the plaintiff was entitled to a preliminary injunction with respect to Streambox Ferret. RealNetworks claimed that Streambox committed contributory or vicarious copyright infringement by distributing the Ferret to the public, because consumers who used the Ferret as a plug-in were making an unauthorized derivative work of the RealPlayer by changing the RealPlayer user interface to add a clickable button that permitted the user to access the Streambox search engine, rather than the Snap search engine. Although the court stated that it was not persuaded that RealNetworks had demonstrated that it was likely to succeed on its contributory/vicarious infringement claims on this basis, the court concluded that RealNetworks had raised serious questions going to the merits of its claims, and the balance of hardships clearly favored RealNetworks, because the addition of the alternative search engine afforded by the Ferret jeopardized RealNetworks’ exclusive relationship with Snap.1074F1074

In September of 2000, the parties settled the lawsuit pursuant to an agreement in which Streambox agreed to modify Streambox Ripper so that it no longer transformed RealMedia streams into other formats, to modify Streambox VCR so that it respected RealNetworks’ copy protection features, to license RealNetworks’ software development kit (which would allow Streambox to create versions of its products that worked with RealNetworks’ copy protection technology), to stop distributing Streambox Ferret, and to pay an undisclosed sum of money.1075F1075

(iii) Universal City Studios, Inc. v. Reimerdes

In this case, the plaintiffs were copyright holders who distributed motion pictures encoded in a proprietary system for the encryption and decryption of data contained on digital versatile disks (DVDs) known as the Content Scramble System (CSS). The CSS technology was licensed to manufacturers of DVDs, who used it to encrypt the content of copyrighted motion pictures distributed in the DVD format. The plaintiffs filed suit under the DMCA against various defendants whom the plaintiffs alleged violated the anti-circumvention provisions of the DMCA by posting on their websites the source code of a program named “DeCSS,” which was able to defeat DVD encryption using the CSS technology and enable viewing of DVD movies on unlicensed players and the making of digital copies of DVD movies.1076F1076 The plaintiffs sought a preliminary and permanent injunction to prevent the defendants from posting DeCSS on their Web site and from linking their site to others that posted DeCSS.1077F1077

1073 Id. at *27-28.

1074 Id. at *30-33.

1075 “Early DMCA Lawsuit Settled, Streambox Will Modify Products to Prevent Digital Copying,” BNA’s Electronic Commerce & Law Report (Oct. 11, 2000) at 1019.

1076 Universal City Studios Inc. v. Reimerdes, 111 F. Supp. 2d 294 (S.D.N.Y. 2000).

1077 Id. at 303.

- 281 -

On Jan. 20, 2000, the court entered a preliminary injunction against the defendants, restraining them from posting on any website or otherwise making available DeCSS or any other technology, product or service primary designed or produced for the purpose of, or having only limited commercially significant purposes or use other than, circumventing CSS, or marketed by defendants or others acting in concert with them for use in circumventing CSS.1078F1078 In an opinion issued Feb. 2, 2000, the court set forth its findings of fact and conclusions of law supporting the preliminary injunction.1079F1079

On Aug. 17, 2000, after a bench trial, the court issued a permanent injunction against the defendants.1080F1080 The court ruled that DeCSS was clearly a means of circumventing CSS, a technological access control measure, that it was undisputed that DeCSS was designed primarily to circumvent CSS, and therefore that DeCSS constituted a prima facie violation of Section 1201(a)(2).1081F1081 The court rejected the defendants’ argument that CSS did not “effectively control” access to the plaintiffs’ copyrighted works because it was based on a 40-bit encryption key, which the defendants argued was a weak cipher. The court noted that Section 1201(a)(3)(B) provides that a technological measure “effectively controls access to a work” if it requires the application of information or a process with the authority of the copyright owner to gain access to a work. Because one cannot gain access to a CSS-protected work on a DVD without the application of three keys that are required by the player software and are made available only under license, CSS satisfied this definition. The court refused to import into the statute any requirement for a technologically “strong means” of protection.1082F1082

The court also rejected the defendants’ argument that DeCSS was written to further the development of a DVD player that would run under the Linux operating system, as there allegedly were no Linux-compatible players on the market at the time. The court ruled that, even if there were so, it would be immaterial to whether the defendants had violated Section 1201(a)(2) by trafficking in DeCSS.1083F1083 “The offering or provision of the program is the prohibited conduct – and it is prohibited irrespective of why the program was written, except to

1078 Preliminary Injunction, Universal City Studios, Inc. v. Reimerdes, No. 00 Civ. 0277 (LAK) (S.D.N.Y. Jan. 20, 2000) ¶ 2.

1079 Universal City Studios, Inc. v. Reimerdes, 82 F. Supp. 2d 211 (S.D.N.Y. 2000).

1080 Universal City Studios Inc. v. Reimerdes, 111 F. Supp. 2d 294 (S.D.N.Y. 2000). An amended final judgment was entered by the court on Aug. 23, 2001, enjoining the defendants from posting DeCSS on their web site and from knowingly linking their web site to any other web site on which DeCSS was posted. Universal City Studios Inc. v. Reimerdes, 111 F. Supp. 2d 346 (S.D.N.Y. 2000).

1081 111 F. Supp. 2d at 317-19.

1082 Id. at 318. The court cited legislative history to the effect that a technological measure “effectively controls access” to a copyrighted work merely if its function is to control access. Id. at 317-18.

1083 Id. at 319.

- 282 -

whatever extent motive may be germane to determining whether [the defendants’] conduct falls within one of the statutory exceptions.”1084F1084

The court rejected a number of other defenses under the DMCA asserted by the defendants. First, for the reasons set forth in Section II.G.1(g) above in the discussion of Section 1201(f), the court rejected the defendants’ argument that the reverse engineering exception of Section 1201(f) was applicable.

Second, the defendants asserted the encryption research defense under Section 1201(g), which requires a showing that the person asserting the defense lawfully obtained the encrypted copy of the work being studied, the circumvention act at issue is necessary to conduct encryption research, the person made a good faith effort to obtain authorization before the circumvention, and the act does not constitute copyright infringement. The court held that the defendants had failed to prove that any of them were engaged in good faith encryption research, nor was there any evidence that the defendants made any effort to provide the results of the DeCSS effort to the copyright owners (which Section 1201(g)(3) instructs the court to take into account in assessing whether one is engaged in good faith encryption research), nor any evidence that any of them made a good faith effort to obtain authorization from the copyright owners.1085F1085

Third, the defendants asserted the security testing defense under Section 1201(j). The court rejected this defense, which is limited to “assessing a computer, computer system, or computer network, solely for the purpose of good faith testing, investigating, or correcting [of a] security flaw or vulnerability, with the authorization of the owner or operator,” because the record did not establish that DeCSS has anything to do with testing computers, computer systems, or computer networks, and the defendants had not sought authorization for their activities.1086F1086

Fourth, the defendants claimed that they were engaged in a fair use under Section 107 of the copyright statute. The court categorically rejected this defense, noting that the defendants were not being sued for copyright infringement, but rather for offering to the public technology primarily designed to circumvent technological measures that control access to copyrighted works.1087F1087 The court held that fair use is not a defense to Section 1201(a)(2) of the DMCA: “If Congress had meant the fair use defense to apply to such actions, it would have said so. Indeed, as the legislative history demonstrates, the decision not to make fair use a defense to a claim under Section 1201(a) was quite deliberate.”1088F1088 The court noted that Congress had provided a vehicle, in the form of rulemaking by the Register of Copyrights, by which particular classes of copyrighted works could be exempted from the prohibitions if noninfringing uses of those

1084 Id.

1085 Id. at 320-21.

1086 Id. at 321.

1087 Id. at 322.

1088 Id.

- 283 -

classes of works would be affected adversely by Section 1201(a)(1).1089F1089 The court also rejected the defendants’ assertion that, because DeCSS could be used for noninfringing purposes, its distribution should be permitted under Sony Corp. v. Universal City Studios, Inc.1090F1090 The court elected to follow the holding in the RealNetworks case that a piece of technology might have a substantial noninfringing use, and therefore be immune from attack under Sony, yet nonetheless be subject to suppression under Section 1201.1091F1091

Finally, in one of the most novel aspects of the opinion, the court addressed the issue whether the mere linking by the defendants to other Web sites on which DeCSS could be obtained should be deemed to be offering to the public or providing or otherwise trafficking in DeCSS within the prohibitions of Section 1201(a)(2). The court, noting that the dictionary definitions of the words “offer,” “provide,” and “traffic” are broad, ruled that “the anti-trafficking provision of the DMCA is implicated where one presents, holds out or makes a circumvention technology or device available, knowing its nature, for the purpose of allowing others to acquire it.”1092F1092 Accordingly, the court enjoined the defendants from providing three types of links:

Links “to sites that automatically commence the process of downloading DeCSS upon a user being transferred by defendants’ hyperlinks.” The court ruled that this was the functional equivalent of the defendants transferring the DeCSS code themselves.1093F1093

Links “to web pages that display nothing more than the DeCSS code or present the user only with the choice of commencing a download of DeCSS and no other content. The only distinction is that the entity extending to the user the option of downloading the program is the transferee site rather than defendants, a distinction without a difference.”1094F1094

Links “to pages that offer a good deal of content other than DeCSS but that offer a hyperlink for downloading, or transferring to a page for downloading, DeCSS,” based on the given facts, in which the defendants had intentionally used and touted the links to

1089 Id. at 323 The court, in a very lengthy analysis, also rejected various First Amendment challenges to the constitutionality of the anti-circumvention provisions of the DMCA. See id. at 325-341.

1090 464 U.S. 417 (1984).

1091 Reimerdes, 111 F. Supp. 2d at 323. In the preliminary injunction proceeding, one of the defendants asserted a defense under Section 512(c) of the DMCA, discussed below, which limits liability of “service providers” for certain acts of infringement committed through systems or networks operated by them. The court rejected this defense on the ground that Section 512(c) provides protection only from liability for copyright infringement, and not for violations of the anti-circumvention provisions of Section 1201(a)(2). The court also ruled that the defendant had offered no proof that he was a “service provider” within the meaning of Section 512(c). 82 F. Supp. 2d at 217.

1092 Reimerdes, 111 F. Supp. 2d at 325.

1093 Id.

1094 Id.

- 284 -

“mirror” sites to help others find copies of DeCSS, after encouraging sites to post DeCSS and checking to ensure that the mirror sites in fact were posting DeCSS or something that looked like it, and proclaimed on their own site that DeCSS could be had by clicking on the links.1095F1095

On appeal, the defendants renewed their attack on the constitutionality of the DMCA. In Universal City Studios Inc. v. Corley,1096F1096 the Second Circuit rejected such challenges and upheld the constitutionality of the DMCA anti-circumvention provisions. The court first rejected the defendants’ argument that Section 1201(c)(1) should be read narrowly to avoid ambiguity that could give rise to constitutional infirmities. The defendants contended that Section 1201(c)(1) could and should be read to allow the circumvention of encryption technology when the protected material would be put to fair uses. The court disagreed that Section 1201(c)(1) permitted such a reading. “Instead, it clearly and simply clarifies that the DMCA targets the circumvention of digital walls guarding copyrighted material (and trafficking in circumvention tools), but does not concern itself with the use of those materials after circumvention has occurred.”1097F1097 The court held that, in any event, the defendants did not claim to be making fair use of any copyrighted materials, and nothing in the injunction prohibited them from making such fair use.1098F1098 “Fair use has never been held to be a guarantee of access to copyrighted material in order to copy it by the fair user’s preferred technique of in the format of the original.”1099F1099

The court ruled that computer programs are not exempted from the category of First Amendment speech merely because their instructions require use of a computer. Rather, the ability to convey information renders the instructions of a computer program in source code form “speech” for purposes of the First Amendment.1100F1100 However, the court held that the “realities of what code is and what its normal functions are require a First Amendment analysis that treats code as combining nonspeech and speech elements, i.e., functional and expressive elements.”1101F1101 Accordingly, the scope of First Amendment protection for the DeCSS code at issue was limited.1102F1102

With this background, the court turned to a First Amendment analysis of the specific prohibitions of the injunction. With respect to the prohibition against posting of the DeCSS code, the court held that the prohibition was content neutral and was directed only toward the

1095 Id.

1096 273 F.3d 429 (2d Cir. 2001).

1097 Id. at 443 (emphasis in original).

1098 Id. at 459.

1099 Id.

1100 Id. at 447.

1101 Id. at 451.

1102 Id. at 453.

- 285 -

nonspeech component of DeCSS – “[t]he DMCA and the posting prohibition are applied to DeCSS solely because of its capacity to instruct a computer to decrypt CSS. That functional capability is not speech within the meaning of the First Amendment.”1103F1103 Therefore, the content-neutral posting prohibition, which had only an incidental effect on a speech component, would pass muster if it served a substantial governmental interest unrelated to the suppression of free expression, which the court found that it did.1104F1104

With respect to the prohibition against linking to other web sites posting DeCSS, the court again noted that a link has both a speech and a nonspeech component. “It conveys information, the Internet address of the linked web page, and has the functional capacity to bring the content of the linked web page to the user’s computer screen.”1105F1105 And again, the court ruled that the prohibition on linking was content neutral. “The linking prohibition applies whether or not the hyperlink contains any information, comprehensible to a human being, as to the Internet address of the web page being accessed. The linking prohibition is justified solely by the functional capability of the hyperlink.”1106F1106 The court rejected the defendants’ argument that the prohibition burdened substantially more speech than necessary to further the government’s legitimate interest because it did not require an intent to cause harm by the linking, and that linking could be enjoined only under circumstances applicable to a print medium. The court found that the defendants’ arguments ignored the reality of the functional capacity of decryption computer code and hyperlinks to facilitate instantaneous unauthorized access to copyrighted materials by anyone anywhere in the world. Accordingly, “the fundamental choice between impairing some communication and tolerating decryption cannot be entirely avoided.”1107F1107

Having rejected all constitutional challenges to the district court’s injunction, the Second Circuit affirmed the district court’s final judgment.1108F1108 The defendants decided not to appeal the case further to the Supreme Court.1109F1109

1103 Id. at 454.

1104 Id. at 454-55. The court noted that it had considered the opinion of the California Court of Appeal in the Bunner case, discussed in subsection e. below and that to “the extent that DVD Copy Control disagrees with our First Amendment analysis, we decline to follow it.” Id. at 455 n.29. As noted in subsection e. below, the Supreme Court of California subsequently reversed the California Court of Appeal decision.

1105 Id. at 456.

1106 Id.

1107 Id. at 458.

1108 Id.

1109 Lisa Bowman, “Copyright Fight Comes to an End” (July 3, 2002), available as of July 8, 2002 at http://news.com.com/2102-1023-941685.html.

- 286 -

(iv) A Related DVD Case Involving Trade Secret Claims – DVD Copy Control Association, Inc. v. McLaughlin (the Bunner case)

This case,1110F1110 although initially filed in state court alleging only misappropriation of trade secrets, presented another fact pattern amenable to a claim under the anti-circumvention provisions of the DMCA. The plaintiff in that case, DVD Copy Control Association, Inc. (DVD CCA), was the sole licensor of CSS.1111F1111 The plaintiff alleged that various defendants had misappropriated trade secrets in CSS by posting on their websites proprietary information relating to how the CSS technology functions, the source code of DeCSS, and/or providing links to other websites containing CSS proprietary information and/or the DeCSS program.1112F1112

On Dec. 29, 1999, the court denied an application by the plaintiff for a temporary restraining order that would have required the defendants to remove the DeCSS program and proprietary information from their websites, as well as links to other sites containing the same.1113F1113 However, on Jan. 21, 2000 (the day after the court in Reimerdes issued its preliminary injunction under the DMCA), the judge reversed course and issued a preliminary injunction prohibiting the defendants from “[p]osting or otherwise disclosing or distributing, on their websites or elsewhere, the DeCSS program, the master keys or algorithms of the Content Scrambling System (‘CSS’), or any other information derived from this proprietary information.”1114F1114

In its order, the court stated that the evidence was fairly clear that the trade secret was obtained through reverse engineering, and acknowledged that reverse engineering is not considered “improper means” of obtaining a trade secret under the Uniform Trade Secrets Act. “The only way in which the reverse engineering could be considered ‘improper means’ herein would be if whoever did the reverse engineering was subject to the click license agreement which preconditioned installation of DVD software or hardware, and prohibited reverse engineering. Plaintiff’s case is problematic at this pre-discovery state. Clearly they have no direct evidence at this point that [defendant] Jon Johansen did the reverse engineering, and that he did so after clicking on any licence [sic] agreement.”1115F1115 Nevertheless, without elaboration, the court found that the “circumstantial evidence, mostly due to the various defendants’ inclination to boast about their disrespect for the law, is quite compelling on both the issue of Mr. Johansen’s improper means [and] th[e] Defendants’ knowledge of impropriety.”1116F1116 The

1110 No. CV786804 (Santa Clara Superior Court, Dec. 27, 1999).

1111 Id. ¶ 4.

1112 Id. ¶¶ 1, 27-29, 45-50, 60-61.

1113 Deborah Kong, “DVD Movie Fight Loses,” San Jose Mercury News (Dec. 30, 1999) at 1C.

1114 Order Granting Preliminary Injunction, DVD Copy Control Assoc. v. McLaughlin (Sup. Ct., County of Santa Clara, Jan. 21, 2000), available as of Jan. 19, 2002 at www.eff.org/pub/Intellectual_property/Video/DVDCCA_case/20000120-pi-order.html.

1115 Id. at 2.

1116 Id. at 2-3.

- 287 -

court found that the harm to the defendants of the injunction would be minimal, while without the injunction, “the Plaintiff’s right to protect this information as secret will surely be lost, given the current power of the Internet to disseminate information and the Defendants’ stated determination to do so.”1117F1117

The court rejected the defendants’ argument “that trade secret status should be deemed destroyed at this stage merely by the posting of the trade secret to the Internet. To hold otherwise would do nothing less than encourage misappropriators of trade secrets to post the fruits of their wrongdoing on the Internet as quickly as possible and as widely as possible, thereby destroying a trade secret forever. Such a holding would not be prudent in this age of the Internet.”1118F1118 The court refused, however, to extend the injunction to links to other websites where DeCSS was posted. The court warned that a ban on Internet links would be “overbroad and burdensome,” calling links “the mainstay of the Internet and indispensable to its convenient access to the vast world of information. A website owner cannot be held responsible for all of the content of the sites to which it provides links.”1119F1119

In November 2001, a California Court of Appeal reversed the injunction on First Amendment grounds. In DVD Copy Control Assoc. v. Bunner,1120F1120 the court acknowledged that, if the trial court correctly concluded that the plaintiffs had established a reasonable probability of success, a preliminary injunction would be justified in the absence of any free speech concerns. Nevertheless, the court found that the preliminary injunction could not withstand First Amendment scrutiny. The court ruled that DeCSS was “speech” within the scope of the First Amendment because “[r]egardless of who authored the program, DeCSS is a written expression of the author’s ideas and information about decryption of DVDs without CSS.”1121F1121 The court then held that republication of DeCSS by defendant Bunner1122F1122 was “pure speech within the ambit of the First Amendment” and that the preliminary injunction therefore constituted an unlawful prior restraint.1123F1123 “[A] person who exposes the trade secret may be liable for damages if he or she was bound by a contractual obligation to safeguard the secret. And anyone who infringes a copyright held by [the plaintiff] of by an DVD content provider may be subject to an

1117 Id. at 3.

1118 Id.

1119 Id. at 4.

1120 60 U.S.P.Q.2d 1803 (Cal. Ct. App. 2001).

1121 Id. at 1809.

1122 According to Bunner, defendant Jon Johansen actually reverse engineered the CSS software and Bunner merely republished it. He argued that he had no reason to know that DeCSS had been created by improper use of any proprietary information since the reverse engineering of CSS performed by Johansen was not illegal under Norwegian law. Id. at 1805-06.

1123 Id. at 1811.

- 288 -

action under the Copyright Act. We hold only that a preliminary injunction cannot be used to restrict Bunner from disclosing DeCSS.”1124F1124

On appeal, the California Supreme Court reversed the California Court of Appeal’s decision, ruling that the trial court’s preliminary injunction did not violate the First Amendment.1125F1125 Although the Court held that restrictions on the dissemination of computer code were subject to scrutiny under the First Amendment because the code was a means of expressing ideas,1126F1126 it found that the preliminary injunction passed scrutiny, assuming the trial court properly issued the injunction under California’s trade secret law, because it was content neutral (and therefore not subject to strict scrutiny) and achieved the requisite balance of interests by burdening no more speech than necessary to serve the government interests at stake.1127F1127 The Court emphasized that its holding was “quite limited,” and that its ruling that the preliminary injunction did not violate the free speech clauses of the United States and California Constitutions was based on the assumption that the trial court properly issued the injunction under California’s trade secret law. “On remand, the Court of Appeal should determine the validity of this assumption.”1128F1128

On remand, the California Court of Appeal held that the preliminary injunction was not warranted under California trade secret law because DeCSS had been so widely distributed on the Internet that it was no longer a trade secret.1129F1129 At the time of the hearing in the trial court for a preliminary injunction, the evidence showed that DeCSS had been displayed on or linked to at least 118 Web pages in 11 states and 11 countries throughout the world and that approximately 93 Web pages continued to publish information about DeCSS. Subsequent to the filing of the law suit, a campaign of civil disobedience began among the programming community to spread the DeCSS code as widely as possible. Persons distributed the code at the courthouse, portions of it appeared on tee shirts, and contests were held encouraging people to submit ideas about how to disseminate the information as widely as possible.1130F1130

The court stated, “Publication on the Internet does not necessarily destroy the secret if the publication is sufficiently obscure or transient or otherwise limited so that it does not become generally known to the relevant people, i.e., potential competitors or other persons to whom the information would have some economic value.”1131F1131 However, in the instant case, the court held that the evidence in the case demonstrated that DeCSS had been published to “a worldwide

1124 Id. at 1812.

1125 DVD Copy Control Ass’n v. Bunner, 31 Cal.4th 864 (2003).

1126 Id. at 876.

1127 Id. at 877-85.

1128 Id. at 889.

1129 DVD Copy Control Ass’n Inc. v. Bunner, 116 Cal. App. 4th 241 (6th Dist. 2004).

1130 Id. at 248-49.

1131 Id. at 251.

- 289 -

audience of millions” and “the initial publication was quickly and widely republished to an eager audience so that DeCSS and the trade secrets it contained rapidly became available to anyone interested in obtaining them.”1132F1132 Accordingly, the plaintiff had not established a likelihood of success on its trade secret claim because DeCSS had been so widely published that the CSS technology “may have lost its trade secret status.”1133F1133

In a related DeCSS case involving jurisdictional issues, defendant Matthew Pavlovich, a Texas resident who posted DeCSS on the web, was sued by the movie industry in California. A state judge granted an injunction against his posting of DeCSS on trade secret grounds. The California Supreme Court ruled that Pavlovich could not be sued in California because he did not have substantial ties to the state. In January of 2004, the U.S. Supreme Court reversed an emergency stay of the California Supreme Court’s decision and lifted the injunction. Justice O’Connor noted in the order that there was no need to keep DeCSS a secret.1134F1134

(v) A Related DVD Case – Norwegian Prosecution of Jon Johansen

In January 2002, Norwegian prosecutors brought criminal charges against Jon Johansen, one of the original three authors of the DeCSS program, for violating Norwegian hacking laws.1135F1135 On Jan. 11, 2002, the civil rights organization Electronic Frontier Norway (EFN) issued a press release calling for Johansen’s acquittal and full redress.1136F1136 After a trial, a three-judge court in Oslo acquitted Johansen, ruling that consumers have rights to view legally obtained DVD films “even if the films are played in a different way than the makers had foreseen.” On appeal, Johansen was again acquitted.1137F1137

(vi) Another Challenge to the DMCA – The Felten Case.

During 2000, the Secure Digital Music Initiative (SDMI) offered a cash prize to anyone who could break its watermark encryption scheme for the protection of digital content. A team of scientists, led by Prof. Edward Felten of Princeton University, was able to crack the scheme and desired to publish a paper on how they were able to do it. The RIAA threatened Prof. Felten, contending that publication of the paper would violate the anti-circumvention provisions of the DMCA. As a result of the threats, Prof. Felten withdrew publication of his paper from an April

1132 Id. at 252-53.

1133 Id. at 255.

1134 Samantha Chang, “Supreme Court Unscrambles DVD Decision” (Jan. 17, 2004), available as of Jan. 19, 2004 at www.reuters.com/newsArticle.jhtml?type=musicNews&storyID=4152687.

1135 Declan McCullagh, “Norway Cracks Down on DVD Hacker” (Jan. 10, 2002), available as of Jan. 19, 2002 at www.wired.com/news/politics/0,1283,49638,00.html.

1136 The press release was available as of Jan. 19, 2002 at www.efn.no/freejon01-2002.html.

1137 “Court Surprised DVD-Jon’s Lawyer” (Dec. 22, 2003), available as of Dec. 22, 2003 at www.aftenposten.no/english/local/article.jhtml?articleID=696470.

- 290 -

2001 conference. In June 2001, he and seven other researchers, together with the Usenix Association (a professional organization that had accepted Felten’s paper for a security symposium to be held during August 2001), filed a lawsuit against the RIAA, seeking a declaration that publication of their work would not violate the DMCA, and against the Justice Department to block it from prosecuting the symposium organizers for allowing the paper to be presented.1138F1138 On Nov. 28, 2001, a district judge in New Jersey dismissed the lawsuit, apparently concluding that neither the RIAA nor the Justice Department had imminent plans to seek to stop Prof. Felten from publishing his findings.1139F1139 Citing assurances from the government, the RIAA, and the findings of the district judge, in Feb. of 2002, Prof. Felten and his research team decided not to appeal the dismissal of their case.1140F1140

(vii) Pearl Investments, LLC v. Standard I/O, Inc.

In this case, Pearl hired Standard to perform software programming services to develop an automated stock-trading system (ATS). After completion of ATS, an employee of Standard named Chunn who had helped develop ATS, working on his own time, created software for his own experimental automated trading system, which he maintained on a server separate from the server that Pearl’s ATS system was operating on, although Chunn’s server was hosted by the same service provider as Pearl’s ATS system.1141F1141 Pearl’s ATS system operated on a virtual private network (VPN) that contained access restrictions implemented through a special router to the VPN.1142F1142 At one point, Pearl requested the service provider to install Linux on its ATS server. The service provider mistakenly installed Linux on Chunn’s server, which was plugged into Pearl’s router. Pearl alleged that a “tunnel” (a secure connection) was configured in the router that provided a connection between Chunn’s server and Pearl’s server, thereby allowing Chunn to circumvent Pearl’s password-protected VPN and gain unauthorized access to its ATS system running on the VPN, which included Pearl’s copyrighted software.1143F1143

Pearl brought claims against Standard and Chunn for, among other things, violation of Section 1201(a)(1)(A) of the DMCA based on the alleged creation of the tunnel. Both the plaintiff and the defendants sought summary judgment on the claim. The court ruled that Standard was entitled to summary judgment because the evidence was undisputed that Chunn, in

1138 Declan McCullagh, “Code-Breakers Go to Court” (June 6, 2001), available as of Jan. 19, 2002 at www.wired.com/news/mp3/0,1285,44344,00.html.

1139 Robert Lemos, “Court Dismisses Free-Speech Lawsuit” (Nov. 28, 2001), available as of Jan. 19, 2002 at http://news.cnet.com/news/0-1005-200-8010671.html.

1140 Electronic Frontier Foundation press release, “Security Researchers Drop Scientific Censorship Case” (Feb. 6, 2002), available as of Feb. 10, 2002 at www.eff.org/IP/DMCA/Felten_v_RIAA/20020206_eff_felten_pr.html. The government stated in documents filed with the court in Nov. 2001 that “scientists attempting to study access control technologies” are not subject to the DMCA. Id.

1141 Pearl Investments, LLC v. Standard I/O, Inc., 257 F. Supp. 2d 326, 339-40 (D. Me. 2003).

1142 Id. at 342, 349.

1143 Id. at 341-42 & n.36, 349.

- 291 -

developing and operating his automated trading system, was acting solely on his own and not as an employee of Standard. Standard could therefore not be held liable for his actions.1144F1144

The court, however, denied summary judgment to Chunn. First, the court ruled that Pearl’s VPN was the “electronic equivalent” of a locked door that fit the definition of a technological protection measure put in place by the copyright owner to control access to Pearl’s copyrighted ATS software.1145F1145 The court rejected the argument that the VPN did not effectively control Chunn’s access to the ATS system in view of the fact that he had written the ATS system himself and maintained a backup file of it for Pearl. “The question of whether a technological measure ‘effectively controls access’ is analyzed solely with reference to how that measure works ‘in the ordinary course of its operation.’ 17 U.S.C. § 1201(a)(3)(B). The fact that Chunn had alternative means of access to the works is irrelevant to whether the VPN effectively controlled access to them.”1146F1146 Finally, the court ruled that because there was a factual dispute about whether only employees of the service provider, rather than Chunn, had configured the tunnel from Chunn’s server to the Pearl VPN, or whether Chunn had configured his server and router to tunnel into Pearl’s network, Chunn was not entitled to summary judgment on the DMCA claim.1147F1147

In a subsequent jury trial, the jury found for Chunn on Pearl’s DMCA claim.1148F1148

(viii) 321 Studios v. Metro Goldwyn Mayer Studios, Inc.

In this case, 321 Studios marketed and sold software called DVD Copy Plus, which was capable of copying the video contents of a DVD, both encrypted and unencrypted with the DeCSS encryption scheme, onto a recordable CD. 321 Studios sought a ruling that its software did not violate the anti-circumvention provisions of the DMCA.1149F1149 The court ruled that the software’s capability to decrypt DVDs encoded with CSS did violate the anti-circumvention provisions. The court first rejected 321 Studios’ argument that CSS was not an effective technological measure because the CSS access keys were widely available on the Internet. The court held that “this is equivalent to a claim that, since it is easy to find skeleton keys on the black market, a deadbolt is not an effective lock to a door.”1150F1150

1144 Id. at 346-47, 349-50.

1145 Id. at 350.

1146 Id.

1147 Id.

1148 See Pearl Investments v. Standard I/O, Inc., 324 F. Supp. 2d 43 (2004) (rejecting Pearl’s claim that the jury’s verdict in favor of Chunn on the DMCA claim was inconsistent with its conclusion that Chunn’s physical hookup to the Pearl system caused damage to Pearl).

1149 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085, 1089-90 (N.D. Cal. 2004).

1150 Id. at 1095.

- 292 -

With respect to the specific prohibition of Section 1201(a)(2), 321 Studios argued that it had the authority of the copyright holder to decrypt DVDs protected by CSS because its product worked only on original DVDs, and the purchaser of a DVD has the authority of the copyright holder to bypass CSS to play the DVD. The court rejected this argument, citing Universal City Studios, Inc. v. Corley1151F1151 for the proposition that purchase of a DVD does not authorize the purchaser to decrypt CSS, but rather only to view the content on the DVD. Only a licensed DVD player has the authority of the copyright holder to decrypt CSS and 321 Studios did not hold a CSS license.1152F1152

With respect to the specific prohibition of Section 1201(b)(1), 321 Studios argued that CSS was not a copy control measure because it controlled only access to content and did not control or prevent copying of DVDs. The court rejected this argument, noting that while it was technically correct that CSS controlled access to DVDs, “the purpose of this access control is to control copying of those DVDs, since encrypted DVDs cannot be copied unless they are accessed.”1153F1153 The court also rejected 321 Studios’ argument that the primary purpose of DVD Copy Plus was not to violate rights of a copyright holder since the software could be used for many purposes that did not involve accessing CSS or that involved making copies of material in the public domain or under fair use principles. In a potentially very broad holding, the court held that the downstream uses of DVD Copy Plus, whether legal or illegal, were irrelevant to determining whether 321 Studios itself was violating the DMCA.1154F1154 “It is the technology itself at issue, not the uses to which the copyrighted material may be put. This Court finds, as did both the Corley and Elcom courts, that legal downstream use of the copyrighted material by customers is not a defense to the software manufacturer’s violation of the provisions of § 1201(b)(1).”1155F1155

321 Studios also argued that its software did not violate Section 1201(b)(2) because it used authorized keys to decrypt CSS. The court ruled that, “while 321’s software does use the authorized key to access the DVD, it does not have authority to use this key, as licensed DVD players do, and it therefore avoids and bypasses CSS.”1156F1156

Finally, 321 Studios argued that, under the common requirement of both Sections 1201(a)(2) and 1201(b)(1), its DVD Copy Plus software was not primarily designed and produced to circumvent CSS, but rather was designed and produced to allow users to make copies of all or part of a DVD, and that the ability to unlock CSS was just one of the features of

1151 273 F.3d 429 (2d Cir. 2001).

1152 321 Studios, 307 F. Supp. 2d at 1096.

1153 Id. at 1097.

1154 Id.

1155 Id. at 1097-98.

1156 Id. at 1098. This holding is contrary to that reached by the court in I.M.S. Inquiry Management Systems, Ltd. v. Berkshire Information Systems, Inc., 307 F. Supp. 2d 521 (S.D.N.Y. 2004), discussed in the next subsection.

- 293 -

its software. The court rejected this argument, noting that Sections 1201(a)(2) and 1201(b)(1) both prohibit any technology or product “or part thereof” that is primarily designed or produced for circumvention. Because it was undisputed that a portion of 321 Studios’ software was solely for the purpose of circumventing CSS, that portion of the software violated the DMCA.1157F1157 Accordingly, the court enjoined 321 Studios from manufacturing, distributing, or otherwise trafficking in any type of DVD circumvention software.1158F1158

(ix) I.M.S. Inquiry Management Systems, Ltd. v. Berkshire Information Systems, Inc.

This case reached the opposite result from the 321 Studios v. Metro Goldwyn Mayer case, and held that the unauthorized use of an otherwise legitimate, owner-issued password does not constitute a “circumvention” of a technological measure under the DMCA.1159F1159 The plaintiff owned a web-based service that provided information on tracking magazine advertising exclusively to its clients through proprietary passwords. The defendant obtained a user identification and password issued to a third party and made unauthorized use of the same to gain access to the plaintiff’s web site, from which the defendant downloaded approximately 85% of the report formats and copied those formats into its competing service.1160F1160 The court ruled there was no DMCA violation because “what defendant avoided and bypassed was permission to engage and move through the technological measure from the measure’s author. … Defendant did not surmount or puncture or evade any technological measure to do so; instead, it used a password intentionally issued by plaintiff to another entity.”1161F1161

(x) Paramount Pictures Corp. v. 321 Studios.

The court in this case, in a very short opinion citing the Corley and Reimerdes cases and for the reasons stated therein, held that 321 Studios violated the anti-circumvention provisions of the DMCA by manufacturing and selling its software product that permitted the possessor of a DVD encoded with CSS to decode CSS and thereby make identical copies of the DVD. The

1157 321 Studios, 307 F. Supp. 2d at 1098. The court ruled that it could not determine on summary judgment whether the software had only limited commercially significant purposes other than circumvention, and that would be an issue a jury would have to decide. Id. The court also rejected 321 Studios’ challenge to the constitutionality of the anti-circumvention provisions on the ground that is unconstitutionally restricted 321 Studios’ right to tell others how to make fair use of a copyrighted work, impermissibly burdened the fair use rights of others, and exceeded the scope of Congressional powers. Id. at 1098-1105.

1158 Id. at 1105.

1159 I.M.S. Inquiry Management Systems, Ltd. v. Berkshire Information Systems, Inc., 307 F. Supp. 2d 521 (S.D.N.Y. 2004).

1160 Id. at 523.

1161 Id. at 532-33.

- 294 -

court enjoined 321 Studios from manufacturing, distributing, linking to, or otherwise trafficking in any of its software products that were capable of decrypting CSS.1162F1162

(xi) Macrovision Corp. v. 321 Studios

In this case, the same judge as in the Paramount Pictures case, in a one paragraph opinion that simply cited his earlier decision in the Paramount Pictures case, issued a preliminary injunction against 321 Studios barring it from selling the various versions of its DVD copying software.1163F1163 In August of 2004, 321 Studios reached a settlement with the motion picture industry, which included a financial payment and an agreement to stop distributing its DVD copying software worldwide, and ceased operations.1164F1164

(xii) Comcast of Illinois X v. Hightech Electronics, Inc.

In this case, the defendant Hightech set up a website named 1-satellite-dish.com that contained links to over thirty other websites selling illegal cable pirating devices. Comcast brought claims under Sections 1201(a)(2) and (b)(1) against the website as well as against Net Results, the named domain server for the 1-satellite-dish.com website.1165F1165 The defendants argued that only copyright holders can bring suit under the anti-circumvention provisions and that Comcast, in regard to the cable signals at issue, was not the copyright owner. The court rejected this argument, citing CSC Holdings, Inc. v. Greenleaf Electronics, Inc., 2000 U.S. Dist. LEXIS 7675 (N.D. Ill. 2000), which held that the plaintiff cable provider had standing to bring suit under Section 1203(a) against the defendants for selling and distributing pirate cable descrambling equipment, as it was a person injured by a violation of the DMCA Accordingly, the Comcast court concluded that Comcast could bring its claim under the DMCA.1166F1166

With respect to the merits of the DMCA claims, the court ruled that Comcast controlled through technological measures access to copyrighted programs it provided to its subscribers by scrambling those programs, and that such measures also protected the rights of the copyright owners in those programs, as required by Sections 1201(a)(2) and (b)(1). Citing the Reimerdes case, the court noted that there can be a violation of the DMCA for maintaining links to other websites that contain access to or information regarding circumvention technology. The court noted that the Intellectual Reserve case had refused to find contributory liability for posting links to infringing websites because there was no direct relationship between the defendant and the

1162 Paramount Pictures Corp. v. 321 Studios, 69 U.S.P.Q.2d 2023, 2023-24 (S.D.N.Y. 2004).

1163 Macrovision Corp. v. 321 Studios, 2004 U.S. Dist. LEXIS 8345 (S.D.N.Y. May 12, 2004).

1164 “Maker of DVD-Copying Products Reaches Settlement Over Suits” (Aug. 10, 2004), available as of Aug. 11, 2004 at www.siliconvalley.com/mld/siliconvalley/news/editorial/9364923.htm.

1165 Comcast of Illinois X v. Hightech Electronics, Inc., 2004 Copyr. L. Dec. ¶ 28,840 at pp. 37,299 & 37,232-33 (N.D. Ill. 2004).

1166 Id. at 37,233.

- 295 -

people who operated the websites containing the infringing material, and the defendants did not receive any kind of compensation from the linked websites.1167F1167

By contrast, in the instant case, the court noted that Comcast had alleged that Hightech received compensation from the website operators that linked to 1-satellite-dish.com. In addition, the court found that Net Results, as the domain server of websites selling illegal cable equipment, could possibly be engaging in trafficking under the DMCA because it was allegedly assisting sellers of illegal cable equipment in distributing such equipment. The court therefore concluded that Comcast had sufficiently stated a claim against the defendants under the DMCA in trafficking or acting in concert with a person who had manufactured or distributed illicit circumvention equipment, and denied the defendants’ motion to dismiss the DMCA claims.1168F1168

(xiii) Davidson & Assocs. v. Internet Gateway

For a discussion of this case, which found violations of both the anti-circumvention and trafficking prohibitions of Section 1201, see Section II.G.1(g)(5) above.

(xiv) Agfa Monotype Corp. v. Adobe Sys.

This case addressed the issue of whether a passive bit or flag indicating the copyright owner’s preference with respect to copying or distribution constitutes an effective technological access control measure or measure protecting copyright rights, and held that it does not. The plaintiffs were the copyright owners in about 3,300 copyrighted TrueType fonts. The plaintiffs alleged that Version 5 of Adobe’s Acrobat product violated the anti-circumvention provisions of the DMCA because it ignored the “embedding bits” in certain of the plaintiffs’ fonts that indicated whether the fonts were licensed for editing.1169F1169

Adobe Acrobat 5.0 was capable of embedding fonts into portable electronic documents stored in Adobe’s Portable Document Format (PDF). The court described the technology of font embedding as follows:

A font is copied when it is embedded. Fonts are embedded through embedding bits. Embedding bits indicate to other programs capable of reading them, such as Adobe Acrobat, the font embedding licensing rights that the font vendor granted with respect to the particular font. The software application decides whether or not to embed the font based upon the embedding bit. An embedding bit cannot be read by a computer program until that program has already accessed the font data file. TrueType Fonts are not encrypted, scrambled, or authenticated. A TrueType Font data file can be accessed regardless of the font’s embedding permissions. A

1167 Id.

1168 Id. at 37,233-34.

1169 Agfa Monotype Corp. v. Adobe Sys., 404 F. Supp. 2d 1030, 1031-32 (N.D. Ill. 2005).

- 296 -

program seeking to access a TrueType font need not submit a password or complete an authorization sequence to access, use or copy TrueType Fonts.1170F1170

The Microsoft TrueType Font specification defined four levels of embedding bit restrictions: Restricted (font cannot be embedded); Print & Preview (font can be embedded but the document must be opened as read-only and no edits may be applied to the document), Editable (font can be embedded and the document may be opened for reading and editing), and Installable.1171F1171 Acrobat 5.0 made it possible for the first time to embed in the “form field” or “free text annotation” of a PDF document1172F1172 any TrueType Font whose embedding bit was not set to “Restricted,” including fonts whose embedding bit was set to “Print and Preview.” This capability of Acrobat 5.0 was referred to as the “Any Font Feature.”1173F1173

The plaintiffs contended that the Any Font Feature resulted in “editable embedding,” because a recipient of a PDF file with embedded fonts could use the fonts to change the contents of a form field or free text annotation. The plaintiffs further contended that such editable embedding was possible only because Acrobat 5.0 allowed the embedding bits set by the plaintiffs to be “circumvented” in violation of the DMCA.1174F1174

The court rejected the plaintiffs’ claims under both Sections 1201(a)(2) and 1201(b)(1) of the DMCA. With respect to Section 1201(a)(2), the court ruled that the plaintiffs’ embedding bits did not effectively control access to the TrueType fonts. The court found that an embedding bit was a passive entity that did nothing by itself. Embedding bits were not encrypted, scrambled or authenticated, and software applications such as Acrobat 5.0 did not need to enter a password or authorization sequence to obtain access to the embedding bits or the specification for the TrueType font (which was publicly available for free download from the Internet). The embedding bits therefore did not, in their ordinary course of operation, require the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the plaintiffs’ TrueType fonts, as required by Section 1201(a)(3)(B) in order for a technological measure to effectively protect access to a copyrighted work.1175F1175

In addition, the court ruled that Acrobat 5.0 did not contain technology, components or parts that were primarily designed to circumvent TrueType embedding bits. The court found that Acrobat 5.0 had many commercially significant purposes other than to circumvent

1170 Id. at 1031.

1171 Id. at 1031-32.

1172 A PDF form field was designed to allow a recipient to complete an electronic form and electronically return the information inputted on the form to the creator. A PDF free text annotation was designed to allow recipient to insert comments into the PDF document that could be viewed by the creator when electronically returned. Id. at 1033.

1173 Id. at 1032.

1174 Id. at 1034.

1175 Id. at 1036-37.

- 297 -

embedding bits, even if it did circumvent them. The purpose of the embedded font capability in Acrobat 5.0 was so that electronic documents could look exactly the same when printed and viewed by a recipient as sent by the creator. The primary purpose of the forms feature was to allow recipients to complete electronic forms they receive and electronically return the information inputted on the form to the creator. Similarly, the commercial purpose of the free text annotation feature was to allow recipients to insert comments into the PDF that could be viewed by the creator when electronically returned. Nor was Acrobat 5.0 marketed for the primary purpose of circumventing the embedding bits – Adobe had made no mention of embedding bits, circumvention of embedding bits, or the Any Font Feature in any of its marketing materials for Acrobat 5.0.1176F1176

With respect to the plaintiffs’ Section 1201(b)(1) claim, Adobe argued, and the court agreed, that the embedding bits did not constitute a technological measure that prevented, restricted, or otherwise limited the exercise of a right of copyright. The plaintiffs had already authorized the copy and distribution of their TrueType fonts for embedding in PDF documents for “Print and Preview” purposes. Acrobat 5.0 did not make an additional copy or distribution of a font to embed the font in free text annotations or form fields, and the plaintiffs’ copyright did not give them the right to control subsequent use of lawfully made copies of the fonts.1177F1177

In addition, for the same reasons noted in connection with the plaintiffs’ Section 1201(a)(2) claim, the court ruled that Acrobat 5.0 as a whole and the parts thereof were not primarily designed or promoted for font embedding purposes and had many other commercially significant purposes other than circumventing the embedding bits associates with the plaintiffs’ TrueType fonts. Accordingly, the court granted Adobe’s motion for summary judgment with respect to the plaintiffs’ anti-circumvention claims.1178F1178

(xv) Egilman v. Keller & Heckman

This case agreed with the I.M.S. case and held that access to a computer through the unauthorized use of a valid password does not constitute an unlawful circumvention.1179F1179 The plaintiff Egilman was a medical doctor and testifying expert witness in a case in which the court had issued an order prohibiting anyone involved in the litigation from publishing any statements on Internet websites over which they had control concerning the litigation. Egilman was sanctioned for violating the order by publishing certain inflammatory statements on his website. Egilman claimed that one of the defendant’s law firms had obtained the user name and password to his website without authorization and disclosed that information to another defendant’s law firm, which then used the user name and password to gain access to his website, from which the

1176 Id. at 1032-33.

1177 Id. at 1038-40.

1178 Id. at 1040.

1179 Egilman v. Keller & Heckman, LLP, 401 F. Supp. 2d 105 (D.D.C. 2005).

- 298 -

firm obtained information showing that Egilman had violated the court order. Egilman asserted a claim under the anti-circumvention provisions against the law firm.1180F1180

The court rejected the claim. It reviewed the facts and holding of the I.M.S. case discussed in subsection j. above, and found that the case was correctly decided.1181F1181 The court therefore ruled that “using a username/password combination as intended – by entering a valid username and password, albeit without authorization – does not constitute circumvention under the DMCA.” The “technological measure” employed by Egilman had not been “circumvented,” but rather merely utilized.1182F1182

(xvi) Macrovision v. Sima Products Corp.

In Macrovision v. Sima Products Corp.,1183F1183 the court held that the defendant’s products, which eliminated Macrovision’s Analog Copy Protection (ACP) signals imprinted on DVDs containing copyrighted works to prevent the copying of the DVDs, violated the anti-circumvention provisions. The ACP system inserted additional information in the non-visible portion of the analog signal, the practical effect of which was to render videotaped copies of the analog signal so visually degraded as to be unwatchable. The defendant’s devices eliminated Macrovision’s ACP from an analog signal. The removal function was effectuated by a single chip, usually the SA7114 chip from Philips. Macrovision contended, and Sima did not dispute, that Sima’s devices could be fitted with an alternate chip manufactured by Philips that, under license from Macrovision, would recognize the ACP and not allow for its circumvention.1184F1184

Sima contended that its devices were intended primarily to allow the consumer to make “fair use” backup copies of a DVD collection. The court noted, however, that although the DMCA provides for a limited “fair use” exception for certain users of copyrighted works under Section 1201 (a)(2)(B), the exception does not apply to manufacturers or traffickers of the devices prohibited by Section 1201(a)(2).1185F1185

Sima argued that the “primary purpose” of its devices was not circumvention. The court rejected this argument, noting that, although some of the devices had some auxiliary functions, Sima did not argue that it was necessary for the device to be able to circumvent ACP in order to perform those functions. Nor did Sima argue that using the Macrovision-licensed Philips chips would prevent the devices from performing the auxiliary functions or facilitating the copying of non-protected works, such as home videos. Accordingly, the devices had only limited

1180 Id. at 107-09.

1181 Id. at 112-14.

1182 Id. at 114.

1183 2006 U.S. Dist. LEXIS 22106 (S.D.N.Y. Apr. 20, 2006).

1184 Id. at *2-3.

1185 Id. at *2-3, 6.

- 299 -

commercially significant purposes or uses other than circumvention.1186F1186 The court also noted that Sima had touted on its web site the devices’ capability of circumventing copy protection on copyrighted works. And the DMCA does not provide an exception to the anti-circumvention provisions for manufacturers of devices designed to enable the exercise of fair use rights. Finally, the court noted that in any event Sima had cited no authority, and the court was aware of none, for the proposition that fair use includes the making of a backup copy.1187F1187 Accordingly, the court preliminarily enjoined Sima from selling its devices and any other products that circumvented Macrovision’s copyright protection technologies in violation of the DMCA.1188F1188

(xvii)Nordstrom Consulting, Inc. v. M&S Technologies, Inc.

In Nordstrom Consulting, Inc. v. M&S Technologies, Inc.,1189F1189 Nordstrom, acting as a consultant, developed software for a visual eye chart to be distributed as part of M&S’s visual acuity systems. Nordstrom retained ownership of the copyrights in the software and, after a falling out with M&S, assigned the copyrights to a separate corporation. After leaving M&S, the plaintiffs alleged that M&S violated the DMCA by circumventing the password protection on a computer used by Nordstrom in order to gain access to the software.1190F1190 The court rejected this claim. Citing the Chamberlin v. Skylink case, the court noted that there must be a showing that the access resulting from the circumvention led to infringement, or the facilitation of infringement, of a copyrighted work, and the plaintiffs had failed to make such a showing. The court noted it was undisputed that the defendant had accessed the software in order to repair or replace the software of a client of M&S and a valid licensee of the software, so the circumvention of the password did not result in an infringement or the facilitation of infringement.1191F1191

M&S, in turn, alleged that Nordstrom had violated the DMCA by circumventing the digital security of M&S’s computer network. M&S’s network was divided into two parts, one dealing with visual acuity systems and one with hotel/hospitality businesses. M&S asserted that, while Nordstrom had a password to access the acuity side of the system, he did not have a password to access the hotel side, yet Nordstrom claimed to have accessed the hotel side. The court denied summary judgment on M&S’s claim because of factual disputes. Nordstrom asserted that he did not access the hotel side of the system and that any materials on the hotel side were not registered copyrights. By contrast, M&S had offered evidence that Nordstrom

1186 Id. at *6-7.

1187 Id. at *7-8.

1188 Id. at *11-12.

1189 2008 U.S. Dist. LEXIS 17259 (N.D. Ill. Mar. 4, 2008).

1190 Id. at *3-8.

1191 Id. at *23-24/

- 300 -

accessed the hotel side of the system, and alleged that the hotel side contained copyrighted works.1192F1192

(xviii) R.C. Olmstead v. CU Interface

This case agreed with the I.M.S. case and held that access to a computer through the unauthorized use of a valid username and password does not constitute an unlawful circumvention.1193F1193 The plaintiff was the owner of data processing software for credit unions called RCO-1 that it licensed to the defendant. The defendant CUI hired some developers to develop a replacement program for RCO-1 and, to aid development, allowed the developers to gain access to RCO-1 using valid usernames and passwords issued to CUI. The plaintiff claimed that such unauthorized access violated the DMCA. The court rejected this claim, finding the case indistinguishable from I.M.S. and the reasoning of I.M.S. persuasive. The court also noted that the license agreement between the plaintiff and CUI did not set any restrictions regarding issuance of usernames and passwords, so that the plaintiff could not even show that CUI’s use of its usernames and passwords was unauthorized.1194F1194 “Simply put, CUI did not circumvent or bypass any technological measures of the RCO software – it merely used a username and password – the approved methodology – to access the software.”1195F1195

(xix) Avaya v. Telecom Labs

In this case, the court refused to decide on a motion for summary judgment the issue addressed in the I.M.S. case of whether unauthorized use of a valid password to gain access to software constitutes a violation of the DMCA.1196F1196 The plaintiff Avaya sold PBX systems with maintenance software embedded in them. When selling a new system, Avaya supplied the customer with a set of default passwords that the customer used to first log in to the system. Avaya alleged that the passwords were used without authorization by the defendants to log in and gain access to Avaya’s maintenance software. Defendants moved for summary judgment that use of valid logins to gain access to software does not violate the DMCA. The court ruled that summary judgment was not appropriate because granting the motion would not result in dismissal of any portion of Avaya’s DMCA claims from the case. All that would be resolved would be the abstract issue of whether use of valid logins does not violate the DMCA. Because Avaya had not identified a single, specific PBX to which the alleged illegal conduct was applied, ruling on the motion would have no effect until such time as the defendants could prove which of the PBXs at issue were accessed with the known, valid logins that they alleged were immune from DMCA liability.1197F1197 “Avaya’s DMCA claims may or may not have merit, but a summary

1192 Id. at *30-31.

1193 R.C. Olmstead, Inc. v. CU Interface, LLC, 2009 U.S. Dist. LEXIS 87705 (N.D. Ohio Mar. 27, 2009).

1194 Id. at *21-24.

1195 Id. at *24.

1196 Avaya, Inc. v. Telecom Labs, Inc., 2009 U.S. Dist. LEXIS 82609 (D.N.J. Sept. 9, 2009).

1197 Id. at *2 & *10-13.

- 301 -

judgment rendered on a discrete set of facts that have yet to be proven is not the proper vehicle for that determination.”1198F1198

(xx) Actuate v. IBM

In Actuate Corp. v. International Business Machines Corp.,1199F1199 Actuate alleged that IBM’s unauthorized posting on an IBM web site of Actuate’s copyrighted software for downloading, together with the license keys that allowed for unlimited use of such software by downloaders, whether they were authorized to use the software or not, constituted circumvention of technological measures on the software that restricted access to it and trafficking in circumvention devices. IBM filed a motion to dismiss the claim, relying on the I.M.S., Egilman, and R.C. Olmstead cases for the proposition that improper use of a legitimate password issued by the copyright holder does not constitute circumvention.1200F1200

The court denied the motion. It found the I.M.S., Egilman, and R.C. Olmstead cases in conflict with the 321 Studios and the Microsoft v. EEE Business cases from the Northern District of California with respect to the issue of whether the unauthorized use of an otherwise legitimate password can constitute circumvention. The court rejected IBM’s argument that the two lines of cases were not inconsistent on the ground that, in the 321 Studios and Microsoft v. EEE Business cases, there was no allegation that the parties whose passwords were being used had issued those passwords to a third party. The court found no basis in 321 Studios for such a distinction, and noted that Egilman expressly rejected the distinction. Accordingly, the court concluded that the two lines of cases simply reached contradictory results, and declined to follow the reasoning of the I.M.S. line of cases. It instead followed the 321 Studios and the Microsoft v. EEE Business cases, and held that unauthorized distribution of passwords and user-names avoids and bypasses a technological measure in violation of Sections 1201(a)(2) and 1201(b)(1).1201F1201

The reasoning of the I.M.S. court – that a password somehow does not fall within [the analogy to the combination of a locked door used in the DeCSS cases], is not well-founded. Rather, a combination to a lock appears to be essentially the same as a password. Nor does the Court find support in the statute itself for drawing a distinction between passwords and other types of code that might be used for decryption. Therefore, the Court rejects Defendants’ position. Unauthorized use of a password may constitute circumvention under the DMCA.1202F1202

1198 Id. at *13.

1199 2010 U.S. Dist. LEXIS 33095 (N.D. Cal. Apr. 5, 2010).

1200 Id. at *9-10.

1201 Id. at *24-25.

1202 Id. at *26.

- 302 -

(xxi) Navistar v. New Baltimore Garage

In this case, the plaintiff restricted access to its dealer communication network and copyrighted material stored therein through use of passwords. The license agreement for use of the network prohibited sharing with or otherwise distributing passwords to third parties and using a third party’s password to gain access to the network. The defendant, a licensee of the plaintiff’s network, violated these prohibitions and shared its passwords with a third party who used them to log in and gain unauthorized access to information on the plaintiff’s network. The plaintiff claimed that the defendant’s provision to the third party with access to the plaintiff’s network through the unauthorized use of its passwords constituted circumvention of a technological measure or trafficking in technology designed to circumvent access or copy controls. The court, noting a split in authority on the issue, ruled that unauthorized use of a valid password does not violate the anti-circumvention provisions of the DMCA, and the unauthorized sharing of a valid password does not constitute prohibited trafficking. Accordingly, the court granted the defendant’s motion to dismiss the plaintiff’s DMCA claim with leave to amend.1203F1203

(xxii)Dice Corp. v. Bold Technologies

Both the plaintiff and the defendant provided software for companies in the alarm industry. The defendant wrote an extraction program to extract customer data from the plaintiff’s software (written in Thoroughbred basic) and convert it into a format that could be read by the defendant’s software (written in C++ and Visual Basic). The database files where the customer data was stored by the plaintiff’s software were not subject to any access or security features and could be accessed by anyone who had a copy of Thoroughbred basic. No administrative password was required to run queries on the database.1204F1204

The plaintiff’s complaint alleged that encryption of its software constituted a technological measure that effectively controlled access to its products and that the defendant’s use of former employees of the plaintiff with knowledge of methods to circumvent such encryption permitted the defendant to access the plaintiff’s software without permission, in violation of the anti-circumvention provisions of the DMCA. The court granted the defendant summary judgment on this claim, finding that the plaintiff had produced no evidence that the defendant accessed any source code (which one of the plaintiff’s employees admitted during discovery was not in fact encrypted) or other copyrighted material of the plaintiff. Rather, the defendant had accessed through its extraction program only customer data that was owned by the user of the plaintiff’s

1203 Navistar, Inc. v. New Baltimore Garage, Inc., 2012 U.S. Dist. LEXIS 134369 at *2-5, 13-15 & 29 (N.D. Ill. Sept. 20, 2012).

1204 Dice Corp. v. Bold Technologies, 913 F. Supp. 2d 389, 392, 395-96 & 400 (E.D. Mich. 2012).

- 303 -

software, which data was neither encrypted nor protected against access by any password or other technological measure.1205F1205

(xxiii) Ford Motor Co. v. Autel Intelligent Technology

Ford Motor Co. was the owner of the Integrated Diagnostic System (IDS) that diagnosed potential problems with Ford vehicles and guided their service and repair. The IDS contained a software component that received information from certain hardware diagnostic tools and produced diagnoses and recommended repairs based on the information it received. The IDS software contained a data compilation file that Ford protected as a trade secret through encryption and obfuscation technology. Ford alleged that the defendant created a program to circumvent Ford’s security measures and access the data file without authorization, and then inserted the data file into its own vehicle diagnosis and repair product that competed with Ford’s IDS. Ford asserted that it had conclusively established that the defendant copied the entire data file onto the defendant’s product because that product contained identical test or dummy codes as Ford’s IDS. Ford asserted circumvention claims under Sections 1201(a)(1) and 1201(a)(2), and the defendant moved to dismiss under Rule 12(b)(6).1206F1206

The court granted the defendant’s motion to dismiss on several grounds. First, the complaint did not allege that Ford owned a copyright on its data compilation at the time when the alleged circumvention of its technological security measures took place. The complaint simply alleged that the defendant circumvented the technological security measures that protected the data compilation file. The record showed that Ford obtained a copyright registration on its data compilation on May 20, 2014, only a few months before the lawsuit was filed. The complaint was silent as to the date when the act of circumvention allegedly occurred, although the allegations appeared to suggest it happened long before May 20, 2014. The court ruled that to state a claim under Section 1201(a)(1), Ford would need to allege that the defendant circumvented Ford’s technological security measures on its data compilation at a time when that data compilation was a work protected under the copyright laws.1207F1207

Second, the court noted that the Sixth Circuit had held in the Reichert case (discussed in Section II.G.1(a)(14)(iii) below) that Section 1201 requires that a plaintiff must, as part of its burden of pleading and persuasion, show that the circumvention was done for the purpose of engaging in piracy, that is, the widespread unauthorized distribution of copyrighted works. Here, Ford’s complaint did not allege that the defendant circumvented its technological security measures for the purpose of engaging in piracy. Ford had therefore failed to meet its pleading

1205 Id. at 409-11.

1206 Ford Motor Co. v. Autel Intelligent Technology Co., 2015 U.S. Dist. LEXIS 133201 at *2-5 (E.D. Mich. Sept. 30, 2015).

1207 Id. at *17-18.

- 304 -

burdens and its copyright circumvention claims must be dismissed. The court, however, granted Ford leave to file an amended complaint.1208F1208

Ford then amended its complaint and the defendant again filed a motion to dismiss Ford’s circumvention claims. The court ruled that Ford’s amended complaint still did not adequately plead a circumvention claim under Sections 1201(a)(1) and (2). Ford claimed that the IDS contained a number of data compilations, including an FFData file that contained Ford trade secrets, and that the defendant developed or used a computer program to circumvent Ford’s technological security measures and access the FFData file as well as other data from the IDS. The court ruled these allegations were insufficient to state a claim because Ford did not allege that the FFData file was copyrighted. Nor did Ford allege that its copyrights on other files were contain1ed within the FFData file. Therefore, while Ford had alleged that the defendant circumvented its technological security measures to improperly access its trade secrets in the form of the FFData file, it had not alleged that the defendant circumvented its security measures to access a copyrighted work. Accordingly, the court granted the defendant’s motion to dismiss the Section 1201 claims.1209F1209

(14) Criminal Prosecutions Under the DMCA

(i) The Sklyarov/Elcomsoft Case

Dmitry Sklyarov, a 27-year-old Russian programmer who worked for a Russian company called Elcomsoft, helped create the Advanced eBook Processor (AEBPR) software, which enabled eBook owners to translate from Adobe’s secure eBook format into the more common Portable Document Format (PDF). The software worked only on legitimately purchased eBooks. Sklyarov was arrested at the behest of Adobe Systems, Inc. on July 17, 2001 in Las Vegas after he delivered a lecture at a technical convention, and charged by the Dept. of Justice with criminal violations of the DMCA for distributing a product designed to circumvent copyright protection measures. He was subsequently released on $50,000 bail and restricted to California.1210F1210

On Dec. 13, 2001, the U.S. government permitted Sklyarov to return home to Russia with his family, essentially dropping prosecution of him in return for his agreement to testify against his employer Elcomsoft in criminal proceedings the government brought against Elcomsoft. In early Feb. 2002, the Electronic Frontier Foundation, joined by The Computing Law and Technology and U.S. Public Policy Committees of the Association for Computing Machinery, the American Association of Law Libraries, the Electronic Privacy Information Center, the Consumer Project on Technology, Computer Professionals for Social Responsibility, and the Music Library Association, filed an amicus brief, along with a brief from 35 law professors, supporting a motion by Elcomsoft to dismiss the case. Elcomsoft’s motion and the Electronic

1208 Id. at *18-20.

1209 Ford Motor Co. v. Autel US Inc., 2016 U.S. Dist. LEXIS 85875 at *1, 9-10 (E.D. Mich. July 1, 2016).

1210 This information is taken from the Free Dmitry Sklyarov! web site at www.freesklyarov.org.

- 305 -

Frontier Foundation’s brief argued that the DMCA should be found unconstitutional because it impinges on protected speech and stifles technological innovation.

Elcomsoft’s motion to dismiss and its challenge on constitutional grounds were rejected by the court in an opinion issued on May 8, 2002.1211F1211 The court concluded that Congress intended to ban all circumvention tools and rejected Elcomsoft’s argument that Congress intended to ban only those circumvention devices that would facilitate copyright infringement.1212F1212 The court also specifically concluded that “[n]othing within the express language [of the anti-circumvention provisions] would permit trafficking in devices designed to bypass use restrictions in order to enable a fair use, as opposed to an infringing use. Instead, all tools that enable circumvention of use restrictions are banned, not merely those use restrictions that prohibit infringement.”1213F1213 The court rejected the constitutional challenges on a rationale very similar to that of the Second Circuit’s opinion in the Corley case,1214F1214 discussed in Section II.G.1(m)(4) above. On Dec. 17, 2002, after a two week trial, a jury acquitted Elcomsoft of criminal charges under the DMCA. The jury foreman told the press that some jurors were concerned about the scope of the DMCA and whether it curtailed the fair use of material simply because it was in electronic format. “Under the eBook formats, you have no rights at all, and the jury had trouble with that concept,” the foreman reported.1215F1215

(ii) Other Criminal Prosecutions Under the DMCA

In Feb. of 2003, the operator of a web site, iSoNews.com, pleaded guilty to criminal DMCA violations for sale of “mod” chips that allowed Microsoft Xbox and Sony Playstation owners to modify their devices so they could use them to play illegally copied games. As part of a plea bargain, the defendant turned over the site’s domain name to the control of the U.S. Department of Justice, which then put a notice on the site stating that it had been surrendered to U.S. law enforcement.1216F1216 In Sept. of 2003, a federal jury found a Florida hacker known as “JungleMike” guilty under the DMCA of selling hardware used to illegally receive DirecTV satellite broadcasts. This case marked the first-ever jury conviction under the DMCA. Several other defendants pleaded guilty to DMCA charges in the same operation.1217F1217

1211 United States v. Elcom Ltd., 62 U.S.P.Q.2d 1736 (N.D. Cal. 2002).

1212 Id. at 1743.

1213 Id.

1214 Id. at 1744-57.

1215 Howard Mintz, “Russian Company is Acquitted by S.J. Jury” (Dec. 17, 2002), available as of Dec. 18, 2002 at www.bayarea.com/mld/mercurynews/4763575.htm.

1216 Declan McCullagh, “Feds Confiscate ‘Illegal’ Domain Names” (Feb. 26, 2003), available as of Feb. 27, 2003 at www.news.com.com/2102-1023-986225.html.

1217 “DirecTV Hacker Convicted Under DMCA,” BNA’s Patent, Trademark & Copyright Journal (Sept. 26, 2003) at 595.

- 306 -

In July of 2005, a Maryland man, one of a group of employees and managers from the three-store Pandora’s Cube chain in Maryland, pled guilty and was sentenced to four months in prison for conspiracy to commit felony copyright infringement and for violating the DMCA based on sales by Pandora’s Cube of modified Xboxes that let players use pirated console games. Pandora’s Cube was also selling modified Xboxes preloaded with pirated games.1218F1218

In United States v. Whitehead,1219F1219 the Ninth Circuit affirmed the sentence for a man who was convicted of selling over $1 million worth of counterfeit access cards that allowed his customers to access DirecTV’s digital satellite feed without paying for it. The court found no abuse of discretion in the district court’s conclusion that a substantial amount of community service (1000 hours), a hefty restitution order ($50,000) and five years of supervised release were more appropriate than prison, even though the punishment was below that of the federal sentencing guidelines, which called for a range of 41 to 51 months in prison.1220F1220

(iii) The Requirement of Willfulness – Deliberate Ignorance

In United States v. Reichert,1221F1221 Reichert appealed his criminal conviction and sentence to jail for twelve months and one day for willful violation of Section 1201(a) for trafficking in circumvention technology by installing a modification chip in a Nintendo Wii so that it could run software for which it was not originally designed and then selling the modified Wii to a federal agent for a $50 profit. Agents subsequently obtained a search warrant and seized additional modification chips and other items from Reichert’s home. Among other things, Reichert challenged the jury instructions on willfulness.1222F1222

The court issued two germane instructions. The first pertained to the issue of willfulness generally:

As used in these instructions, an act is done willfully if it is done voluntarily and intentionally with the intent to do something unlawful, that is, with the intent either to disobey or disregard the law.

While a person must have acted with the intent to do something the law forbids, the person need not be aware of the specific law or the rule his conduct is violating. Willfulness requires the Government to prove that the law imposed a

1218 Daniel Terdiman, “Video Game Pirate Headed to Slammer” (July 27, 2005), available as of July 28, 2005 at http://news.com.com/2100-1043_3-5807547.html.

1219 532 F.3d 991 (9th Cir. 2008).

1220 Id. at 992.

1221 747 F.3d 445 (6th Cir. 2014).

1222 Id. at 447-48, 450.

- 307 -

duty on the Defendant, that the Defendant knew of this duty, and that he voluntarily and intentionally violated that duty.1223F1223

The court then gave the following instruction on “deliberate ignorance”:

No one can avoid responsibility for a crime by deliberately ignoring the obvious. If you are convinced that the Defendant deliberately ignored a high probability that he was trafficking in technology primarily designed to circumvent technological measures designed to effectively control access to a work copyrighted under copyright law, then you may find that he knew he was violating the Digital Millennium Copyright Act.

But to find this, you must be convinced beyond a reasonable doubt that the Defendant was aware of a high probability that he was violating the Digital Millennium Copyright Act, and that the Defendant deliberately closed his eyes to what was obvious.

Carelessness or negligence or foolishness on his part is not the same as knowledge and is not enough to convict.1224F1224

Reichert challenged the deliberate ignorance instruction on two bases. First, he argued that the instruction failed to properly reflect that a defendant is willfully blind only if he took “deliberate action” to avoid actual knowledge. The court rejected this argument, noting that the deliberate ignorance instruction in this case tracked the language of Sixth Circuit Pattern Criminal Jury Instruction § 2.09. The pattern instruction explicitly incorporated the requirement that a defendant act “deliberately” to avoid full knowledge, and the Sixth Circuit noted that it had repeatedly held the instruction to be an accurate statement of the law.1225F1225

Second, Reichert asserted that the deliberate ignorance instruction eviscerated the DMCA’s willfulness requirement by allowing the jury to convict him upon finding only that he knew that he was trafficking in circumvention technology, rather than after finding that he knew that he was violating the law by trafficking in such technology. Reichert’s argument rested primarily on the first portion of the deliberate ignorance instruction, which stated, “If you are convinced that the Defendant deliberately ignored a high probability that he was trafficking in technology primarily designed to circumvent technological measures designed to effectively control access to a work copyrighted under federal law, then you may find that he knew he was violating the Digital Millennium Copyright Act.” The Sixth Circuit noted that because this part of the instruction seemed to inform the jury that if Reichert deliberately ignored a high probability that he merely engaged in the conduct at issue, then the jury could find that he knew

1223 Id. at 450.

1224 Id.

1225 Id. at 450-51.

- 308 -

that his conduct violated the DMCA. The Sixth Circuit noted that this part of the instruction could have been more precise.1226F1226

However, the court noted that, to the extent the challenged portion of the instruction was imprecise, it was not given in a vacuum. Instead, it was sandwiched between two instructions that stated the stricter requirement of willfulness and clarified the challenged language. Immediately before the challenged sentence, the district court had given its instruction on willfulness generally, explaining that an act is willful if done with the intent either to disobey or disregard the law and that the defendant must have acted with the intent to do something the law forbids. And immediately after giving the challenged portion of the deliberate ignorance instruction, the district court had cautioned the jury that, to find Reichert knew he was violating the DMCA, the jury must be convinced beyond a reasonable doubt that Reichert was aware of a high probability that he was violating the DMCA and that he deliberately closed his eyes to what was obvious. Accordingly, the Sixth Circuit found that, when viewed as a whole, the instructions properly instructed the jury on the issue of willfulness. The Sixth Circuit noted that, having been properly instructed, the jury had found that Reichert constructively knew that his conduct was against the law, given his admissions that he was operating in a “gray” area of the law and was “technically” not supposed to be engaging in his conduct. Because Reichert had not directly challenged the jury’s factual finding in that regard, the court rejected his challenge to his conviction on the basis of the allegedly erroneous jury instructions.1227F1227

(15) Other Uses of the Anti-Circumvention Provisions as a Sword

The RealNetworks and Reimerdes cases suggest how the anti-circumvention provisions of the DMCA might be used as a “sword” in other ways. For example, the manufacturer of a database product that enables users to password protect data files might bring an action under the DMCA against the manufacturer of “cracking” software that enables third parties to bypass or deactivate the password protection on such data files. The manufacturer of the database product might, for example, allege “injury” from the “cracking” software in the form of damage to its reputation as the manufacturer of a “secure” product. Alternatively, if a claim were made against the database product manufacturer by a user alleging injury resulting from the user’s data file being “cracked” by a third party, such claim would provide another basis for the database product manufacturer to allege its own injury from the “cracking” software.

1226 Id. at 451-52.

1227 Id. at 452-53.

- 309 -

Other examples of attempts at creative use of the anti-circumvention provisions as a sword are the following:

(i) Lexmark International, Inc. v. Static Control Components, Inc.

Lexmark sold toner cartridges for use with its laser printers. The cartridges were of two types: “regular” cartridges that could be refilled and remanufactured freely by third parties, and “prebate” cartridges that could be used only once, and for which the consumer agreed, in the form of a shrinkwrap agreement placed across the top of every prebate cartridge box, to return the used cartridge to Lexmark for remanufacturing and recycling. Lexmark’s printers contained two computer programs – a Printer Engine Program that controlled various printer operations such as paper feed, paper movement, and motor control, and a Toner Loading Program of 37 to 55 bytes, which resided within microchips attached to the toner cartridges and enabled Lexmark printers to approximate the amount of toner remaining in the cartridge.1228F1228

To protect the Printer Engine Programs and Toner Loading Programs, and to prevent unauthorized toner cartridges from being used with Lexmark’s printers, Lexmark’s printers used an authentication sequence that ran each time a toner cartridge was inserted into a Lexmark printer, the printer was powered on, or whenever the printer was opened and closed. The authentication sequence required the printer and the microchip on the cartridge to calculate a Message Authentication Code (MAC) using a hashing algorithm, to communicate the MAC from the microchip to the printer, and the printer to compare the MAC it calculated with the MAC it received from the microchip. If the MAC calculated by the microchip matched that calculated by the printer, the cartridge was authenticated and authorized for use by the printer, which in turn enabled the Printer Engine Program to allow the printer to print and the Toner Loading Program to monitor the toner status of the authenticated cartridge.1229F1229

The defendant Static Control Components (SCC) manufactured and sold a “SMARTEK” microchip that was used to replace the microchip found in Lexmark’s toner cartridges. SCC admitted that it copied verbatim Lexmark’s Toner Loading Program into its SMARTEK microchips and that its SMARTEK microchips were designed to circumvent Lexmark’s authentication sequence by mimicking the sequence performed by an original microchip on Lexmark’s cartridges and the printer.1230F1230 Lexmark sued SCC for violation of the anti-circumvention provisions of the DMCA as well as copyright infringement.

The District Court’s Ruling. On a motion for a preliminary injunction, the district court ruled that SCC had violated the anti-circumvention provisions of the DMCA and committed copyright infringement. With respect to the issue of infringement, although SCC admitted

1228 Lexmark International, Inc. v. Static Control Components, Inc., 253 F. Supp. 2d 943, 948-49 (E.D. Ky. 2003).

1229 Id. at 952-53.

1230 Id. at 955-56.

- 310 -

copying the Toner Loading Program, SCC argued that the program was not copyrightable because it was a functional “lock-out code” whose exact content was required as part of the authentication sequence. The court rejected this argument, because the binary content of the Toner Loading Program was not used as an input to the hashing algorithm of the authentication sequence, and copying of the Toner Loading Program was therefore not necessary for a valid authentication sequence to occur.1231F1231 The court also rejected SCC’s arguments that its copying was a fair use, noting that “[w]here the accused infringer’s copying is part of the ordinary operation of the accused product, fair use does not apply,”1232F1232 and that the Toner Loading Program was an uncopyrightable formula or constant, noting that there were a number of ways the Toner Loading Program could have been written to approximate toner level.1233F1233 Because SCC had engaged in verbatim copying of the Toner Loading Program, it had committed copyright infringement. The court also rejected a copyright misuse defense, ruling that “Lexmark’s efforts to enforce the rights conferred to it under the DMCA cannot be considered an unlawful act undertaken to stifle competition.”1234F1234

Turning to the DMCA claim, the court found that the SMARTEK microchips violated the anti-circumvention provision of Section 1201(a)(2) in that its primary purpose was to circumvent a technological measure that effectively controlled access to a copyrighted work. The court adopted a plain dictionary meaning of “access” as the “ability to enter, to obtain, or to make use of.”1235F1235 The court held that the authentication sequence was an effective technological measure restricting access under this definition, because it required application of information and the application of a process to gain access to Lexmark’s copyrighted Toner Loading Programs and Printer Engine Programs for use.1236F1236 Accordingly, SCC’s manufacture, distribution and sale of its SMARTEK microchips violated the DMCA.1237F1237 The court held that the exemption under Section 1201(f) for circumvention for reverse engineering “solely for the purpose of enabling interoperability of an independently created computer program with other programs” was inapplicable. The court ruled that SCC’s SMARTEK microchips could not be considered to contain independently created computer programs, since they were exact copies of Lexmark’s Toner Loading Programs and the “SMARTEK microchips serve no legitimate purpose other than to circumvent Lexmark’s authentication sequence.”1238F1238

1231 Id. at 950, 958-59.

1232 Id. at 960.

1233 Id. at 962.

1234 Id. at 966. The court further noted that an “antitrust claim cannot succeed under an after-market antitrust theory when the accused party has not changed its policy and has been otherwise forthcoming about its policies.” Id. at 966 n.3.

1235 Id. at 967.

1236 Id. at 967-68.

1237 Id. at 969-70.

1238 Id. at 971

- 311 -

Finally, the court ruled, consistent with the Reimerdes case, that a plaintiff that demonstrates a likelihood of success on the merits of a claim for violation of the anti-circumvention provisions of the DMCA is entitled to a presumption of irreparable injury for purposes of a preliminary injunction. Accordingly, the court entered a preliminary injunction against the distribution of the SMARTEK microchips.1239F1239

The Sixth Circuit’s Ruling. On appeal, the Sixth Circuit reversed and remanded.1240F1240 Turning first to the issue of copyright infringement, the Sixth Circuit found the district court’s ruling erroneous with respect to whether the Toner Loading Program constituted a “lock-out code.” The court noted generally that “[t]o the extent compatibility requires that a particular code sequence be included in [a] component device to permit its use, the merger and scenes a faire doctrines generally preclude the code sequence from obtaining copyright protection.”1241F1241 The court noted that the Toner Loading Program served as input to a checksum operation performed each time the printer was powered on or the printer door was opened and closed for toner cartridge replacement. Specifically, after downloading a copy of the Toner Loading Program to calculate toner levels, the Printer Engine Program ran the checksum calculation using every data byte of the Toner Loading Program as input. The program then compared the result of the calculation with a checksum value located elsewhere on Lexmark’s toner cartridge chip. If any single byte of the Toner Loading Program was altered, the checksum value would not match the checksum calculation result.1242F1242

In addition, the Sixth Circuit noted that, at least for purposes of a preliminary injunction, the expert testimony established that it would be “computationally impossible” to modify the checksum value without contextual information that the defendant did not have access to. Accordingly, the checksum operation imposed a compatibility constraint that “justified SCC’s copying of the Toner Loading Program.”1243F1243 Accordingly, the court concluded that, on the preliminary injunction record, the Toner Loading Program was not copyrightable.1244F1244

1239 Id. at 971, 974.

1240 Lexmark Int’l v. Static Control Components, Inc., 387 F.3d 522 (6th Cir. 2004), reh’g denied, 2004 U.S. App. LEXIS 27422 (Dec. 29, 2004), reh’g en banc denied, 2005 U.S. App. LEXIS 3330 (6th Cir. Feb. 15, 2005).

1241 Id. at 536.

1242 Id. at 541.

1243 Id. at 542.

1244 Id. at 544. Because the court found the Toner Loading Program not to be copyrightable, it noted that it need not decide whether copying of the same was a fair use. Nevertheless, the court noted its disagreement with the district court’s fair use analysis, among other reasons because the copying was done for functional reasons. “In copying the Toner Loading Program into each of its SMARTEK chips, SCC was not seeking to exploit or unjustly benefit from any creative energy that Lexmark devoted to writing the program code. As in Kelly, SCC’s chip uses the Toner Loading Program for a different purpose, one unrelated to copyright protection. Rather than using the Toner Loading Program to calculate toner levels, the SMARTEK chip uses the content of the Toner Loading Program’s data bytes as input to the checksum operation and to permit printer functionality. - 312 -

With respect to the DMCA claims, the Sixth Circuit began its analysis by agreeing with the district court and the Reimerdes case that there should be a presumption of irreparable harm arising from demonstration of a likelihood of success on a DMCA claim.1245F1245 The court then turned to separate analyses of Lexmark’s anti-circumvention claims with respect to the Printer Engine Program and the Toner Loading Program.

Concerning the Printer Engine Program, the court held that Lexmark’s authentication sequences did not “control access” to the Printer Engine program sufficiently to trigger the applicability of the anti-circumvention provisions because anyone could read the literal code of the Printer Engine Program directly from the printer memory, with or without the benefit of the authentication sequence.1246F1246 “The authentication sequence, it is true, may well block one form of ‘access’ – the ability to … make use of’ the Printer Engine Program by preventing the printer from functioning. But it does not block another relevant form of ‘access’ – the ‘ability to [] obtain’ a copy of the work or to ‘make use of’ the literal elements of the program (its code).”1247F1247

The court rejected Lexmark’s argument that several cases had embraced a “to make use of” definition of “access” in applying the DMCA. The court noted that “[i]n the essential setting where the DMCA applies, the copyright protection operates on two planes: in the literal code governing the work and in the visual or audio manifestation generated by the code’s execution.”1248F1248 Those cases finding liability based on a technological measure that restricted “use” of the work were ones in which consumers were restricted from making use of copyrightable expression in the work, such as a video game.1249F1249

“The copyrightable expression in the Printer Engine Program, by contrast, operates on only one plane: in the literal elements of the program, its source and object code. Unlike the code underlying video games or DVDs, ‘using’ or executing the Printer Engine Program does not in turn create any protected expression. Instead, the program’s output is purely functional. … Presumably, it is precisely because the Printer Engine Program is not a conduit to protectable expression that explains why Lexmark (or any other printer company) would not block access to the computer software that makes the printer work. Because Lexmark’s authentication sequence does not restrict access to this literal code, the DMCA does not apply.”1250F1250

Under these circumstances, it is far from clear that SCC copied the Toner Loading Program for its commercial value as a copyrighted work – at least on the preliminary-injunction record we have before us.”Id.

1245 Id. at 533.

1246 Id. at 546.

1247 Id. at 547 (quoting from Merriam-Webster’s Collegiate Dictionary’s definitions of “access”).

1248 Id. at 548.

1249 Id.

1250 Id.

- 313 -

The Sixth Circuit’s holding that, to qualify for DMCA anti-circumvention protection, a technological measure for a computer program must block either the ability to copy the code or to read the literal code, at least where that code does not create any separately protectable expression such as a video game, is potentially very significant. Many computer programs perform only “invisible” functions and do not generate copyrightable expression as output to the user. The Sixth Circuit’s ruling that technological measures which merely restrict use of such programs, and do not prohibit copying or reading of the code (such as passwords and handshaking or other authentication sequences), do not qualify for anti-circumvention protection under the DMCA, if adopted by other courts and applied widely, may significantly narrow the scope of protection the DMCA affords to computer programs. Under the Sixth Circuit’s definition of “access control,” it may be that only those measures that encrypt or otherwise protect a program against copying or the ability to read it will be sufficient to qualify purely “functional” programs for anti-circumvention protection under the DMCA.

Concerning the Toner Loading Program, the court ruled that the defendant’s chip did not provide “access” to the Toner Loading Program, but rather replaced the program, and therefore did not circumvent any access control. In addition, to the extent the Toner Loading Program was not copyrightable, it would not constitute a “work protected under [the copyright statute]” to which the DMCA protections would apply.1251F1251

Finally, the court turned to the interoperability defenses asserted by the defendant. The Sixth Circuit rejected the district court’s ruling against the defendant’s argument that its microchip constituted a “technological means” that it could make available to others under § 1201(f)(3) solely for the purpose of enabling interoperability of an independently created computer program with other programs. The district court rejected the defense on the ground that the defendant had copied the Toner Loading Program and thus had not created an independently created computer program.1252F1252

The Sixth Circuit noted that, even if the Toner Loading Program had been copied, the defendant’s microchips contained other independently developed computer programs that interoperated with the Printer Engine Program, and those other programs were sufficient to allow the defendant to benefit from the interoperability defense.1253F1253 The implication of this ruling is that every computer program on a device need not qualify for the interoperability defense in order for the device itself to be able to benefit from the defense.

The court also rejected Lexmark’s argument that the independently created program must have existed prior to the reverse engineering – holding that they can be created simultaneously – and its argument that the circumvention means must be necessary or absolutely needed for interoperability – ruling that the statute is silent as to whether there is any necessity requirement

1251 Id. at 549-50.

1252 Id. at 550.

1253 Id.

- 314 -

at all, but there was necessity in this case because the Toner Loading Program was used in a checksum calculation. Finally, the defendant’s copying of the Toner Loading Program did not destroy the interoperability defense (§ 1201(f)(3) conditions its defense on a requirement that the circumvention not violate other “applicable law”) because the Sixth Circuit had concluded that the Toner Loading Program was not copyrightable on the preliminary injunction record.1254F1254 Accordingly, the Sixth Circuit vacated the district court’s grant of a preliminary injunction and remanded the case.1255F1255

The depth of the court’s concern about the policy implications of Lexmark’s proposed broad reading for the scope of the anti-circumvention provisions is further illustrated by comments made by two members of the panel in separate opinions. One judge, in a concurring opinion, noted that the main point of the DMCA is “to prohibit the pirating of copyright-protected works such as movies, music and computer programs. If we were to adopt Lexmark’s reading of the statute, manufacturers could potentially create monopolies for replacement parts simply by using similar, but more creative, lock-out codes.”1256F1256 He further stated that “Congress did not intend to allow the DMCA to be used offensively in this manner, but rather only sought to reach those who circumvented protective measures ‘for the purpose’ of pirating works protected by the copyright statute.”1257F1257

Another judge, in an opinion concurring in part and dissenting in part, stated, “We agree that the DMCA was not intended by Congress to be used to create a monopoly in the secondary markets for parts or components of products that consumers have already purchased.”1258F1258 This judge also argued that fair use should be a defense to an anti-circumvention violation, because where fair use applies there would be no “right of a copyright owner” to be infringed by the circumvention.1259F1259

By order entered Feb. 23, 2006, the parties stipulated to entry of summary judgment on all DMCA claims and counterclaims in favor of Static Control Components. The order

1254 Id. at 550-51.

1255 Id. at 551.

1256 Id. at 552.

1257 Id.

1258 Id. at 553. The judge also noted a link in the legislative history between the anti-circumvention prohibitions and the facilitation of copyright infringement. He quoted a House Report to the DMCA stating that Section 1201(b)(1) sought to prohibit “making or selling the technological means to overcome these protections and thereby facilitate copyright infringement.” Id. at 564 (emphasis by the court) (quoting H.R. Rep. 105-796 (Oct. 8, 1998)).

1259 387 F.3d at 562.

- 315 -

preserved Lexmark’s right to appeal the order, as well as the Sixth Circuit’s interpretation of the DMCA, after entry of final judgment on all issues in the cases.1260F1260

On remand from the Sixth Circuit, the district court found that neither party had submitted new evidence that would undermine the Sixth Circuit’s applicability of facts to the law with respect to the issue of the copyrightability of the Toner Loader Program. Accordingly, the Sixth Circuit’s decision controlled, and the court ruled that the Toner Loader Program was insufficiently original to be copyrightable.1261F1261 The court also held that, even if the Toner Loader Program were copyrightable, the defendant’s use of it on its chip was a fair use, principally on the ground that the first fair use factor heavily weighed in the defendant’s favor “because Lexmark does not even rebut that [the defendant’s] purpose for copying the [Toner Loader Program] was solely for the purpose of enabling interoperability between remanufactured Lexmark cartridges and Lexmark printers, not for the allegedly-expressive, hypothetically-copyrightable content contained therein.”1262F1262

(ii) Chamberlain Group, Inc. v. Skylink Technologies, Inc.

In this case, the plaintiff Chamberlain was the manufacturer of a garage door opener (GDO) system which contained a feature known as “rolling code” designed to protect against burglars equipped with “code grabber” devices. A code grabber allows a burglar to capture and record the coded radio frequency (RF) signal sent by the transmitter device to the GDO, which can then be used to open the GDO at a later time to enter the house.1263F1263 Chamberlain’s rolling code feature was designed to defeat code grabbers by changing the expected transmitted RF code each time the GDO was activated. The feature was implemented by two copyrighted computer programs owned by Chamberlain – one in the transmitter of the GDO and the other in the receiver of the GDO that activated the motor to open the door. Each time the transmitter was activated to open the door, the computer program in the transmitter would cause the next rolling code in sequence to be sent to the receiver where it was stored, which code the receiver would require the next time the transmitter was activated, or the door would not open.1264F1264

The defendant sold a universal transmitter device that was capable of opening Chamberlain’s GDO, although the opener code transmitted by the defendant’s door opener was not a rolling code. The defendant’s door opener was able to bypass Chamberlain’s rolling code feature by mimicking a certain “resynchronization” process of Chamberlain’s rolling code

1260 See “Lexmark Stipulates to Judgment on DMCA Claims,” BNA’s Patent, Trademark & Copyright Journal (Mar. 10, 2006) at 506.

1261 Static Control Components, Inc. v. Lexmark Int’l, Inc., 2007 U.S. Dist. LEXIS 36017 at *36 (E.D. Ky. Apr. 18, 2007).

1262 Id. at *38.

1263 Chamberlain Group Inc. v. Skylink Technologies Inc., 292 F. Supp. 2d 1023, 1026-27 (N.D. Ill. 2003).

1264 Id. at 1027-28.

- 316 -

software.1265F1265 Chamberlain characterized that portion of the computer program in the receiver that verified the rolling code as a protective measure that controlled access to Chamberlain’s copyrighted computer program in the receiver, and argued that by circumventing the rolling code feature and gaining access to the receiver computer program to open the garage door, the defendant was in violation of the anti-circumvention provisions of Section 1201(a)(2).1266F1266

Rulings by the District Court. The district court denied a motion by Chamberlain for summary judgment on the anti-circumvention claim, analyzing a number of defenses raised by the defendant. The first defense was that because the defendant’s universal transmitter was capable of operating a number of different GDOs, it was not “primarily” designed to circumvent the access control measure of Chamberlain’s GDO. The court rejected this argument, noting that the defendant’s transmitter had one particular setting that served only one function – to operate the Chamberlain rolling code GDO. The fact that the transmitter was able to serve more than one purpose was insufficient to deny summary judgment to Chamberlain.1267F1267

Next, the defendant argued that Chamberlain’s computer programs were not in fact subject to copyright protection. The court ruled that this argument raised a disputed issue of material fact sufficient to deny summary judgment, particularly since Chamberlain had not supplied to the defendant the most recent version of the rolling code software until filing its reply brief (which differed from the version of the software that Chamberlain had registered), and the defendant had therefore not had a sufficient opportunity to review it.1268F1268

Finally, the defendant argued that the consumers’ use of the defendant’s transmitter with Chamberlain’s rolling code GDOs was authorized. In particular, Chamberlain argued that a consumer who purchases a Chamberlain GDO owns it and has a right to use it to access his or her own garage. Before the defendant’s transmitter was capable of operating the rolling code GDO, the consumer was required to program the transmitter into the GDO. The defendant argued that this fact demonstrated that the consumer had thereby authorized the use of the defendant’s transmitter with the GDO software. The defendant further noted that the packaging for Chamberlain’s GDO did not include any restrictions on the consumer’s ability to buy a replacement transmitter or additional transmitter.1269F1269 Thus, according to the defendant, “those Chamberlain GDO consumers who purchase a Skylink transmitter are not accessing the GDO without the authority of Chamberlain, but instead, have the tacit permission of Chamberlain to purchase any brand of transmitter that will open their GDO.”1270F1270 The court ruled that these facts, together with the fact that there was a history in the GDO industry of universal transmitters

1265 Id. at 1029-32.

1266 Id. at 1028, 1033.

1267 Id. at 1037-38.

1268 Id. at 1038.

1269 Id. at 1039.

1270 Id.

- 317 -

being marketed and sold to allow homeowners an alternative means to access any brand of GDO, raised sufficient disputes of material fact about whether the owner of a Chamberlain rolling code GDO was authorized to use the defendant’s universal transmitter to deny summary judgment to Chamberlain.1271F1271

Following this opinion, and at the invitation of the court, the defendant moved for summary judgment on Chamberlain’s DMCA claim, which the court granted.1272F1272 Although both parties had agreed for purposes of Chamberlain’s original motion for summary judgment that Chamberlain did not place any restrictions on consumers regarding the type of transmitter they had to buy to operate a Chamberlain rolling code GDO, in opposing the defendant’s motion for summary judgment, Chamberlain submitted an affidavit of its Vice President asserting that Chamberlain did not authorize the circumvention of its rolling code GDOs, and argued that it had not warned consumers against using unauthorized transmitters because it had no idea that other transmitters could be made to operate its rolling code GDOs.1273F1273 The court rejected these arguments, finding that the affidavit was conclusory and entitled to little weight, and that Chamberlain’s failure to anticipate the defendant’s technology did not “refute the fact that homeowners have a reasonable expectation of using the technology now that it is available.”1274F1274

Finally, Chamberlain argued that even if its customers were authorized to circumvent its security measures, that had no bearing on whether sellers had similar authorization. The court found this argument ignored the fact that (1) there was a history in the GDO industry of marketing and selling universal transmitters; (2) Chamberlain had not placed any restrictions on the use of competing transmitters to access its rolling code GDOs; and (3) in order for the defendant’s transmitter to activate the Chamberlain garage door, the homeowner herself had to choose to store the defendant’s transmitter signal into the Chamberlain GDO’s memory, thereby demonstrating the homeowner’s willingness to bypass Chamberlain’s system and its protections.1275F1275

1271 Id. at 1040. An amicus brief submitted by the Computer and Communications Industry Association (CCIA) argued that the court should deny summary judgment because the defendant’s activities fell within Section 1201(f) of the DMCA, which CCIA argued permits circumvention of a protective measure for the purpose of achieving interoperability. The court noted that, although it was not reaching this issue, the defendant might perhaps be entitled to summary judgment on that basis. Id.

1272 Chamberlain Group, Inc. v. Skylink Technologies, Inc., 292 F. Supp. 2d 1040 (N.D. Ill. 2003). As a preliminary matter, Chamberlain asserted that the defendant bore the burden of proof to show that it was authorized to circumvent – not access – Chamberlain’s software as an affirmative defense. The court disagreed, ruling that it was clearly Chamberlain’s burden to demonstrate that the defendant circumvented a technological measure without the authority of the copyright owner. Id. at 1044.

1273Id.

1274Id.

1275 Id. at 1946.

- 318 -

Accordingly, the court granted the defendant’s motion for partial summary judgment with respect to Chamberlain’s DMCA claim.1276F1276 Since so much of the district court’s opinion emphasized the fact that Chamberlain had not placed restrictions on the type of transmitters customers could use to operate Chamberlain’s GDOs, one must wonder whether the court would have ruled differently had Chamberlain made clear to customers of its GDO products at the time of purchase that they were not authorized to use any transmitters to access the software in their GDOs other than Chamberlain’s transmitters. If so, then under the district court’s rationale, it seems that DMCA claims of the type Chamberlain made in this case could easily be strengthened by copyright holders in the future by making express statements of authorization with respect to use of their products. The Federal Circuit, in its decision on appeal, expressly declined to reach this issue.1277F1277

The Federal Circuit’s Decision. On appeal, the Federal Circuit affirmed in a detailed opinion that examined the legislative history and purpose of the anti-circumvention provisions of the DMCA, and placed some significant boundaries around the scope of those provisions.1278F1278 The Federal Circuit began its analysis by ruling that the plaintiff has the burden under an anti-circumvention claim to prove that the defendant’s access to its copyrighted work was not authorized. The court derived this holding from the distinction between a copyright – which is a property right – and the anti-circumvention provisions – which do not establish a new property right, but rather only a new cause of action for liability. Under a copyright (a property right), the plaintiff need only establish copying, and the burden then shifts to the defendant to prove a defense. By contrast, under the anti-circumvention provisions, the language of the statute defines the cause of action in terms of a circumvention or trafficking without authority of the copyright owner. The plaintiff therefore has the burden to prove that the defendant’s access was unauthorized.1279F1279

In a very significant ruling, the Federal Circuit held that the anti-circumvention provisions of Section 1201 do not apply to all forms of circumvention to gain access to a work, but rather only to circumventions that accomplish “forms of access that bear a reasonable relationship to the protections that the Copyright Act otherwise affords copyright owners”1280F1280 – in other words, circumventions that facilitate some form of copyright infringement.1281F1281

1276 Id.

1277 The Federal Circuit did, however, make some statements suggesting that such restrictions might constitute copyright misuse, as discussed below.

1278 The Chamberlain Group, Inc. v. Skylink Technologies, Inc., 381 F.3d 1178 (Fed. Cir. 2004) ), cert. denied, 161 L. Ed. 2d 481 (2005).

1279 Id. at 1193.

1280 Id. at 1202.

1281 Id. at 1195, 1203.

- 319 -

Conversely, “defendants whose circumvention devices do not facilitate infringement are not subject to § 1201 liability.”1282F1282

The court reached this conclusion based on three rationales. First, the court noted that in the statutory language itself, “virtually every clause of § 1201 that mentions ‘access’ links ‘access’ to ‘protection.’”1283F1283 Second, the court found that every decision cited by the plaintiff finding anti-circumvention liability involved a circumvention that facilitated or was coupled with copyright infringement. In the Reimerdes case, the DeCSS program allowed the user to circumvent the CSS protective system and to view or to copy a motion picture from a DVD, whether or not the user had a DVD player with the licensed technology. In the Lexmark case, the court ruled that the defendant’s conduct in copying the Toner Loading Program constituted copyright infringement. In the Gamemasters case, the defendant conceded that its product made temporary modifications to the plaintiff’s copyrighted computer program. In the Real Networks case, the defendant’s product allegedly disabled Real Networks’ copy switch, which defeated the copyright owner’s ability to control copying upon streaming of the work.1284F1284 “In short, the access alleged in all [these] cases was intertwined with a protected right.”1285F1285

Third, the court believed that a broad reading of the anti-circumvention provisions to prohibit all forms of unauthorized access, whether or not protected copyright rights were thereby implicated, as urged by Chamberlain, would risk too much potential harm to competition. “Chamberlain’s proposed construction would allow any manufacturer of any product to add a single copyrighted sentence or software fragment to its product, wrap the copyrighted material in a trivial ‘encryption’ scheme, and thereby gain the right to restrict consumers’ rights to use its products in conjunction with competing products. In other words, Chamberlain’s construction of the DMCA would allow virtually any company to attempt to leverage its sales into aftermarket monopolies – a practice that both the antitrust laws and the doctrine of copyright misuse normally prohibit.”1286F1286

The court noted that such a broad reading would also contradict other statutory provisions of the DMCA. In particular, Section 1201(c)(1) provides that nothing in Section 1201 shall affect rights, remedies, limitations, or defenses to copyright infringement, including fair use. The court noted that a reading of Section 1201 that prohibited access without regard to the rest of the copyright statute would clearly affect rights and limitations, if not remedies and defenses,1287F1287

1282 Id. at 1195.

1283 Id. at 1197.

1284 Id. at 1198-99 (citations omitted).

1285 Id. at 1199.

1286 Id. at 1201 (citations omitted).

1287 Id. at 1200.

- 320 -

and might also be tantamount to “ignoring the explicit immunization of interoperability from anticircumvention liability under § 1201(f).”1288F1288

The court’s statements might imply that circumvention for fair uses is privileged. Indeed, the court stated, “Chamberlain’s proposed construction would allow copyright owners to prohibit exclusively fair uses even in the absence of any feared foul use. It would therefore allow any copyright owner, through a combination of contractual terms and technological measures, to repeal the fair use doctrine with respect to an individual copyrighted work – or even selected copies of that copyrighted work. Again, this implication contradicts § 1201(c)(1) directly.”1289F1289 Despite these pregnant statements, however, the court stated in a footnote, “We leave open the question as to when § 107 might serve as an affirmative defense to a prima facie violation of § 1201. For the moment we note only that though the traditional fair use doctrine of § 107 remains unchanged as a defense to copyright infringement under § 1201(c)(1), circumvention is not infringement.”1290F1290

Turning to Chamberlain’s specific claims under Section 1201(a)(2), the court summarized the requirements for liability as follows:

A plaintiff alleging a violation of § 1201(a)(2) must prove: (1) ownership of a valid copyright on a work, (2) effectively controlled by a technological measure, which has been circumvented, (3) that third parties can now access (4) without authorization, in a manner that (5) infringes or facilitates infringing a right protected by the Copyright Act, because of a product that (6) the defendant either (i) designed or produced primarily for circumvention; (ii) made available despite only limited commercial significance other than circumvention; or (iii) marketed for use in circumvention of the controlling technological measure.1291F1291

The court ruled that Chamberlain had failed to satisfy both the fourth and fifth elements of the test. With respect to the fifth element, Chamberlain had neither alleged copyright infringement nor explained how the access provided by the defendant’s transmitter facilitated third party infringement of any of its copyright rights. Instead, the defendant’s transmitter merely enabled the end user to make legitimate use of the computer program in the GDO.1292F1292

1288 Id. Although amicus Computer and Communications Industry Association urged the court to consider the import of Section 1201(f) on the case, the court did not reach the issue since it held there had been no anti-circumvention violation by the defendant in the first place under its reading of the scope of the DMCA. Id. at 1191 n.8.

1289 Id. at 1202.

1290 Id. at 1200 n.14.

1291 Id. at 1203.

1292 Id. at 1198, 1204.

- 321 -

Nor had Chamberlain established the fourth element. The record established that Chamberlain had placed no explicit restrictions on the types of transmitter that the homeowner could use with its system at the time of purchase.1293F1293 “Copyright law itself authorizes the public to make certain uses of copyrighted materials. Consumers who purchase a product containing a copy of embedded software have the inherent legal right to use that copy of the software. What the law authorizes, Chamberlain cannot revoke.”1294F1294 Although this statement suggests that a plaintiff could not even use contractual prohibitions to eliminate authorization to circumvent controls to gain access to the software in a way that did not facilitate infringement, the court backed away from any such absolute principle in a footnote: “It is not clear whether a consumer who circumvents a technological measure controlling access to a technological measure controlling access to a copyrighted work in a manner that enables uses permitted under the Copyright Act but prohibited by contract can be subject to liability under the DMCA. Because Chamberlain did not attempt to limit its customers’ use of its product by contract, however, we do not reach that issue.”1295F1295

In conclusion, then, the court held, “The Copyright Act authorized Chamberlain’s customers to use the copy of Chamberlain’s copyrighted software embedded in the GDOs that they purchased. Chamberlain’s customers are therefore immune from § 1201(a)(1) circumvention liability. In the absence of allegations of either copyright infringement or § 1201(a)(1) circumvention, Skylink cannot be liable for § 1201(a)(2) trafficking.”1296F1296 The court therefore affirmed the district court’s grant of summary judgment in favor of Skylink.1297F1297

(iii) In re Certain Universal Transmitters for Garage Door Openers

In addition to its lawsuit against Skylink, Chamberlain also filed an action in the International Trade Commission to bar the importation of Skylink’s GDOs. That investigation established a second ground beyond that of the district court’s ruling as to why Skylink had not committed a violation of the DMCA. Specifically, in an Initial Determination concerning temporary relief in the investigation that preceded the district court’s ruling, an administrative law judge denied temporary relief on the ground that Skylink’s transmitters did not violate the DMCA because they “do not circumvent Chamberlain’s copyrighted rolling code software program, but instead send fixed identification code signals to Chamberlain’s GDOs that fall outside of the copyrighted software. … The fact that [Skylink’s] transmitters send a fixed identification code that does not circumvent Chamberlain’s copyrighted software program removes those products entirely from the purview of the DMCA, regardless of whether

1293 Id. at 1183.

1294 Id. at 1202.

1295 Id. at 1202 n.17.

1296 Id. at 1204.

1297 Id.

- 322 -

Chamberlain warns its customers and Skylink that non-rolling code transmitters are unauthorized.”1298F1298

After the district court’s ruling, Skylink moved to dismiss the ITC investigation on the ground that Chamberlain’s claim was barred under res judicata by that ruling. Chamberlain opposed the dismissal on the ground that there were new facts not before the district court – namely, that Chamberlain had since changed its GDO users’ manuals to expressly warn customers that use of non-rolling code transmitters would circumvent Chamberlain’s rolling code security measure, and to make clear that customers were not authorized to access Chamberlain’s operating software using non-rolling code transmitters.1299F1299 The administrative law judge ruled that this fact was insufficient to avoid res judicata, because the fact could have been asserted before the district court, since the administrative ruling on the request for temporary relief issued before the district court acted.1300F1300 In addition, the administrative law judge ruled that Chamberlain’s new owners’ manuals “impose no enforceable restrictions on consumers even if they do ‘warn’ them that non-rolling code transmitters are ‘unauthorized.’ There are no negative consequences for a consumer who ignores the statement in Chamberlain’s new manuals.”1301F1301 Accordingly, the administrative law judge determined that the investigation should be terminated in its entirety and certified that determination to the Commission.1302F1302

(iv) Storage Technology Corporation v. Custom Hardware Engineering & Consulting

In this case, the plaintiff Storage Technology Corporation (“StorageTek”) sold systems for storing and retrieving very large amounts of computer data. StorageTek also serviced its customers’ installations by means of diagnostic software, called the “Maintenance Code,” that it used to identify malfunctions and problems in its customers’ storage systems. In order to protect its service market, StorageTek restricted access to the Maintenance Code with a proprietary algorithm called GetKey.1303F1303

When activated, the Maintenance Code ran a series of diagnostic tests and provided information concerning the nature of existing or potential problems. It was programmed to be set at different levels between 0 and 9. At the 0 level (the usual setting), the Maintenance Code was disabled. Above 0 the Maintenance Code activated specific diagnostic functions at different levels. To enable the Maintenance Code for a particular system, a technician was required to contact StorageTek’s technical support staff, provide the serial number of the equipment being

1298 In re Certain Universal Transmitters for Garage Door Openers, 70 U.S.P.Q.2d 1906, 1909 (I.T.C. 2004).

1299 Id. at 1907-08.

1300 Id. at 1909-10.

1301 Id. at 1910.

1302 Id.

1303 Storage Technology Corp. v. Custom Hardware Engineering & Consulting, 2004 U.S. Dist. LEXIS 12391 (D. Mass. July 2, 2004) at *3-4.

- 323 -

serviced and identify the desired level of the Maintenance Code. The technician would then be given a GetKey password specific to the request that the technician was required to enter in order to reset the maintenance level. During the process of accessing the Maintenance Code and changing the level, a complete copy of the code was made in the RAM memory of the system.1304F1304

The defendants competed with StorageTek for servicing StorageTek systems. They figured out how to circumvent the GetKey algorithm to gain access to the Maintenance Code and to reset its maintenance level in order to run diagnostics that would generate information needed to service a particular system. StorageTek sued for both copyright infringement and violation of the anti-circumvention provisions.1305F1305

The district court held that the defendants had infringed StorageTek’s copyright in the Maintenance Code by virtue of the copy thereof made in RAM each time the GetKey process was circumvented and the maintenance level reset.1306F1306 The court held that such copying was not permitted under Section 117(c) of the copyright statute, which provides that it is not an infringement for the owner or lessee of a machine to authorize the making of a copy of a computer program if the program is copied solely by turning on the machine for the purpose only of maintenance and repair and the copy is used in no other manner and is destroyed immediately after the maintenance and repair is completed. The court ruled that Section 117(c) was not available because, although the defendants copied the Maintenance Code by turning on the machine, they did not do so just for repair, but also for the express purpose of circumventing StorageTek’s security measures, modifying the maintenance level, and intercepting the diagnostic messages, and they did not destroy the copies they made immediately after completion of repairs.1307F1307

The court also found a violation of the anti-circumvention provisions of the DMCA, ruling that GetKey was unquestionably a qualifying access control measure and there was no question that the defendants bypassed GetKey. The court also rejected the defendants’ reliance on Section 1201(f), because that defense exempts circumvention only if it does not constitute infringement, and the defendants’ bypassing of GetKey resulted in an infringing copy of the program being made in RAM.1308F1308 Accordingly, the court issued a preliminary injunction against the defendants.

On appeal, the Federal Circuit reversed, principally on the ground that the district court’s analysis of Section 117(c) was incorrect. The court found that the district court had erred by focusing on the term “repair” in Section 117(c), while ignoring the term “maintenance,” which

1304 Id. at *7-8.

1305 Id. at *9-11.

1306 Id. at *11-12.

1307 Id. at *12-13.

1308 Id. at 14-15.

- 324 -

the court noted from the legislative history was meant to encompass monitoring systems for problems, not simply fixing a single, isolated malfunction.1309F1309 The defendant had created software, known as the Library Event Manager (LEM) and the Enhanced Library Event Manager (ELEM) to intercept and interpret fault symptom codes produced by the plaintiff’s Maintenance Code.1310F1310 The plaintiff’s expert testified that a copy of the Maintenance Code remained in RAM on an ongoing basis as the system operated with the LEM and ELEM attached. Because that description did not comport with the notion of “repair,” the district court had ruled Section 117(c) inapplicable. However, in describing the defendants’ process, the expert noted that the LEM and ELEM stayed in place so that when problems occurred, the defendants could detect and fix the malfunction. The Federal Circuit ruled that this ongoing presence to detect and repair malfunctions fell within the definition of “maintenance” in Section 117(c). Moreover, when the defendants’ maintenance contract was over, the storage library was rebooted, which destroyed the Maintenance Code. The court noted that the protection of Section 117 does not cease simply by virtue of the passage of time, but rather ceases only when maintenance ends.1311F1311

With respect to whether the Maintenance Code was necessary for the machine to be activated, the Federal Circuit relied heavily on the fact that both parties agreed the Maintenance Code was “so entangled with the functional code that the entire code must be loaded into RAM for the machine to function at all.”1312F1312 The fact that the Maintenance Code had other functions, such as diagnosing malfunctions in the equipment, was irrelevant. Accordingly, the defendants were likely to prevail on their argument that Section 117(c) protected their act of copying of the plaintiff’s Maintenance Code into RAM.1313F1313

Turning to the anti-circumvention claim based on the defendants’ circumvention of the GetKey protocol, the court cited its earlier opinion in the Chamberlain case for the proposition that a “copyright owner alleging a violation of section 1201(a) … must prove that the circumvention of the technological measure either ‘infringes or facilitates infringing a right protected by the Copyright Act.’”1314F1314 Thus, to the extent that the defendants’ activities did not constitute copyright infringement or facilitate copyright infringement, the plaintiff was

1309 Storage Technology Corp. v. Custom Hardware Eng’g & Consulting, Inc., 421 F.3d 1307, 1312 (Fed. Cir. 2005), reh’g denied, 431 F.3d 1374 (Fed. Cir. 2005).

1310 Id. at 1310.

1311 Id. at 1313.

1312 Id. at 1314.

1313 Id. In the alternative, the court ruled that the defendants’ copying of the software into RAM was within the software license rights of their customers because the defendants were acting as their customers’ agents in turning on the machines. Id. at 1315. “Because the whole purpose of the license is to allow the tape library owners to activate their machines without being liable for copyright infringement, such activity by the licensee and its agents is implicitly authorized by the license agreement unless the agreement explicitly prohibits third parties from powering up the machines.” Id. at 1317.

1314 Id. at 1318 (quoting Chamberlain Group, Inc. v. Skylink Technologies, Inc., 381 F.3d 1178, 1203 (Fed. Cir. 2004)).

- 325 -

foreclosed from maintaining an action under the DMCA.1315F1315 Citing the Lexmark and RealNetworks v. Streambox cases, the court observed that “courts generally have found a violation of the DMCA only when the alleged access was intertwined with a right protected by the Copyright Act. … To the extent that StorageTek’s rights under copyright law are not at risk, the DMCA does not create a new source of liability.”1316F1316

Even if the plaintiff were able to prove that the automatic copying of the Maintenance Code into RAM constituted copyright infringement, it would still have to show that the LEM or ELEM (which bypassed GetKey) facilitated that infringement. With respect to that issue, the court noted the problem that the copying of the Maintenance Code into RAM took place regardless of whether the LEM or ELEM was used. Thus, there was no nexus between any possible infringement and the use of the LEM and ELEM circumvention devices. Rather, the circumvention of GetKey only allowed the defendants to use portions of the copyrighted software that the plaintiff wished to restrict technologically, but that had already been loaded into RAM. “The activation of the maintenance code may violate StorageTek’s contractual rights vis-à-vis its customers, but those rights are not the rights protected by copyright law. There is simply not a sufficient nexus between the rights protected by copyright law and the circumvention of the GetKey system.”1317F1317 Accordingly, it was unlikely that the plaintiff would prevail on its anti-circumvention claim.1318F1318 The court therefore vacated the preliminary injunction and remanded for further proceedings.1319F1319

Two significant aspects of the Storage Tech case are worth noting:

– First, the court read the Section 117(c) rights very broadly. Section 117(c) was clearly designed to absolve maintenance providers from copyright liability based merely on the making of a copy of a computer program by virtue of its getting loaded into RAM upon starting a computer for maintenance. However, the Federal Circuit went further, and ruled that the defendants were entitled to use, in aid of rendering maintenance,

Register now for your free, tailored, daily legal newsfeed service.

Advanced Copyright Issues on the Internet