In Fox News Network, LLC v. TVEyes, Inc., Case No. 15-3886 (2nd Cir. 2018), the Second Circuit reversed a district court decision finding that a television broadcast search and watch service made fair use of Fox’s copyrighted content. The Court’s analysis, both preserved and distinguished its prior ruling in Google Books, focusing on the market harm TVEyes’ service caused Fox, which outweighed the “modest” transformativeness of TVEyes’s service.

The TVEyes service made around-the-clock recordings of television broadcasts from more than 1,400 channels available to users. Specifically, the service captured content as well as the accompanying closed‐captioned text (utilizing speech‐to‐text software) to create a text‐searchable database, which, for $500 per month, a user could search by keyword and view 10-minute clips (beginning 14 seconds before the segment responsive to the searched appeared). Users could also search by date, time, and channel, and could download and archive clips, which TVEyes warned were to be used only for “internal review, analysis or research.” While the clips were only viewable in non-consecutive segments, the parties disputed whether that limiting measure was effective, as well as whether content could be watched live, and whether the quality of TV Eyes’ clips was equivalent to Fox’s.

In analyzing whether TVEyes’ service fairly used Fox’s content, the Court distinguished between the service’s search function and watch function. Fox had only challenged the District Court’s ruling on the watch function, leading the Circuit Court to find that the watch service’s “inclusion renders TVEyes’s package of services unprotected by the fair use doctrine.” In so finding, the Court began by noting that the fourth fair use factor—market impact—was the “the single most important element,” relying on Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 566 (1985), and demoting the transformativeness of TVEyes’s service. Thus, the Court concluded that while its decision in the Google Books case “test[ed] the boundaries of fair use… defendant TVEyes has exceeded those bounds.”

Analyzing the first factor, the Court drew from its Google Books decision, conceding that TVEyes’s Watch function “is similarly transformative” because it “enables users to isolate, from an ocean of programming, material that is responsive to their interests and needs, and to access that material with targeted precision” as well as “nearly instant access to a subset of material—and to information about the material —that would otherwise be irretrievable, or else retrievable only through prohibitively inconvenient or inefficient means.” The Court also analogized the TVEyes service to time-shifting technology in the Sony Betamax case, but rejected TVEyes’s argument that the watch service was transformative for facilitating research, citing its decision in American Geophysical Union v. Texaco, Inc., 60 F.3d 913 (2d Cir. 1994). Ultimately, the Court found the first factor weighed only slightly in TVEyes’s favor, explaining that “the commercial nature of a secondary use weighs against a finding of fair use… especially when, as here, the transformative character of the secondary use is modest,” and finding that TVEyes essentially republished unaltered content without “new expression, meaning or message.”

While the Court essentially ignored the second fair use factor, it found the third factor—“the amount and substantiality of the portion used in relation to the copyrighted work as a whole”—weighed heavily against TVEyes, holding that “[i]n this respect, the TVEyes Watch function is radically dissimilar to the service at issue in Google Books.” The Court relied on “heart of the work” analysis in Harper & Row Publishers, Inc., noting that Google’s “snippet function” took very significant measures to prevent users from misappropriating the “heart” of any given work. The Court found that TVEyes’s service did the opposite by “redistribute[ing] Fox’s news programming in ten-minute clips, which -- given the brevity of the average news segment on a particular topic -- likely provide TVEyes’s users with all of the Fox programming that they seek and the entirety of the message conveyed by Fox to authorized viewers of the original.”

Turning to the market impact of the service, the Court cautioned that only a work’s impact on licensing in “traditional, reasonable, or likely to be developed markets” should be considered, but that TVEyes’ business model evidenced a “plausibly exploitable market for such access to televised content” that “displaces potential Fox revenues when TVEyes allows its clients to watch Fox’s copyrighted content without Fox’s permission.” Thus, the Court concluded that TVEyes had usurped a market opportunity that belonged to Fox, and despite the fact that TVEyes had approached Fox for a license and was rebuffed, the Court found that “the failure to strike a deal satisfactory to both parties does not give TVEyes the right to copy Fox’s copyrighted material without payment.”

Having found that TVEyes’s service was not protected by fair use, the Court summarily rejected its argument against direct copyright infringement based on a lack of volitional conduct, noting that TVEyes chose what content to record for its users. The Court also instructed the lower court to modify its injunction to align with the Second Circuit’s decision, namely by enjoining TVEyes service while permitting a new service that offered a search function “without making impermissible use of any protected audiovisual content.” The Court did not opine on how such a service function, or whether it would serve as a practical alternative.

Concurring in the judgment, Judge Kaplan opined that the Court should not have espoused any view on the transformative nature of TVEyes’s service, noting that current technology would allow someone to DVR all of the broadcasts that TVEyes provides, which, together with the search function (the legality of which was not challenged), would do exactly what TVEyes’s service does. Judge Kaplan also noted that the majority’s analysis collapsed the search function (to which many of the supposedly transformative aspects of the service noted by the majority were attributable) and the watch function (which simply permitted clips to be watched), concluding that “means that delivers copies of copyrighted material to a secondary user more quickly, efficiently or conveniently does not render the distribution of those copies transformative, at least standing alone.” Rejecting the majority’s analogies to Google Books and Sony Betamax, the concurrence rejects the idea that purely efficiency-enhancing technologies can be transformative under prevailing law.

Beyond the implications of the decision for the TVEyes’s service itself, this decision follows the reasoning of other recent cases, like Aereo, that have dampened technology-based efforts to repackage and monetize broadcast television.