Second Circuit reverses district court’s finding of fair use, holding that while TVEyes’ “Watch” function is transformative, it is not fair use in that it provides virtually all of Fox’s content to subscribers and deprives Fox of revenue rightfully belonging to it as copyright holder.

Internet media company TVEyes Inc. records all of the content on approximately 1,400 television and radio stations, including the Fox News Channel and the Fox Business Channel, and imports the content into a database, which subscribers can access for $500 per month. The service, which is available for business and professional use only, allows clients to locate and view content that is directly responsive to their interests by continuously recording television programming, compiling the data and making the broadcasts text-searchable. Plaintiff Fox News Network LLC sued TVEyes for copyright infringement. TVEyes asserted that its use of the copyrighted content constituted fair use. While the district court held that some of the TVEyes functions were infringing (e.g., downloading and emailing Fox content), the district court determined that TVEyes’ “Watch” function, which allowed searching for, viewing and archiving of 10-minute segments of Fox News, constituted a fair use. On appeal, the Second Circuit reversed in part, finding that TVEyes’ “Watch” function, while modestly transformative, was not fair use.

As an initial matter, Second Circuit noted the similarity between this case and the decision in Authors Guild v. Google, Inc., in which the court held that Google’s creation “of a text‐searchable database of millions of books (including books under copyright) was a fair use because Google’s service was ‘transformative’ and because features integrated into the Google system protected the rights of copyright holders.” After weighing the factors set forth in Section 107 of the Copyright Act, however, the court reversed the district court in this case, finding that despite the fact that TVEyes’ redistribution of Fox’s content through its “Watch function” served a modestly transformative purpose, “because that re-distribution makes available to TVEyes’s clients virtually all of Fox’s copyrighted content that the clients wish to see and hear, and because it deprives Fox of revenue that properly belongs to the copyright holder, TVEyes has failed to show that the product it offers to its clients can be justified as a fair use.”

As to the first factor — the purpose and character of the secondary use — the court held that TVEyes’ copying of Fox’s content for use in the Watch function is transformative because it enables users to isolate material responsive to their needs with precision. The court also said, however, that this transformation was “modest,” since TVEyes’ distribution “essentially republishes that content unaltered from its original form, with no ‘new expression, meaning or message.’” Moreover, TVEyes’ copying for a commercial nature weighs against a finding of fair use. Therefore, the court held the transformative nature of the Watch function is modest and the first statutory factor only slightly favors TVEyes.

As to the second factor, the nature of the copyrighted work, the court rejected TVEyes’ argument that the factual nature of Fox’s content militates in favor of a finding of fair use, but found that this factor is rarely significant in the fair use analysis. As to the third factor, “the amount and substantiality of the portion used in relation to the copyrighted work as a whole,” the court found that TVEyes makes available to users virtually all of Fox’s programming. Moreover, TVEyes’ 10-minute clips provide users with all of the programming they seek and the entirety of the message conveyed by Fox to authorized viewers of the original, which means the use of the content is “extensive” and inclusive of “important” aspects of the copyrighted work. Therefore, the court held that this factor weighs in favor of Fox.

As to the fourth factor, “the effect of the [secondary] use upon the potential market for or value of the copyrighted work,” the court found that TVEyes’ service undercuts Fox’s ability to profit from licensing searchable access to its copyrighted content to third parties. TVEyes’ success is evidence that consumers are willing to pay for a service that allows them to search for and view selected television clips, which is worth millions of dollars. Therefore, TVEyes has deprived Fox of licensing revenues and from the opportunity to exploit the market for such service itself. Therefore, the court held that this factor weighs in favor of Fox. Consequently, after weighing all four factors together, along with any other relevant considerations, the court held that TVEyes’ service is not justifiable as a fair use.

Moreover, the court affirmed the district court’s conclusion that TVEyes is liable to Fox under a theory of direct copyright infringement because TVEyes’ conduct of deciding what audiovisual content to record, and copying and retainment of the content to enable to the Watch function, are an infringement, i.e., constitute volitional conduct that infringes. The court remanded to the district court to reverse its injunction, which was issued under the mistaken assumption that “the Watch function (and some features subsidiary to it) had fair‐use protection.”