United States: The Law And Business Of Social Media - Status Updates - 5 March 2018

Last Updated: March 7 2018
Article by J. Alexander Lawrence and John F. Delaney

All Eyes on Fair Use: The Second Circuit Delivers a Victory for Copyright Owners

In U.S. copyright law circles, one of the hottest topics of debate is the degree to which the fair use doctrine—which allows for certain unauthorized uses of copyrighted works—should protect companies building commercial products and services based on content created by others, especially where such products or services are making transformative uses of such content.

This debate is likely to become even more heated in the wake of the Second Circuit Court of Appeals' issuance last week of its long-awaited decision in the copyright dispute between Fox News and TVEyes, in which the court sided with the copyright owner over the creator of a digital "search engine" for identifying and viewing television content. But regardless of which side of the debate you are on (or if you are just standing on the sidelines), the court's decision provides important guidance on the scope of the fair use doctrine as applied to commercial products and services.

The Dispute

Using the closed-captioning data that accompanies most television programming, TVEyes provides a searchable database of video clips. TVEyes' subscribers—who pay $500 a month—can search the database for keywords in order to identify and view video clips from the service; such video clips may be as long as ten minutes in duration.

In July 2013, Fox sued TVEyes for copyright infringement and, in August 2015, Judge Hellerstein of the U.S. District Court for the Southern District of New York held that the key features of the TVEyes service are protected under the fair use doctrine.

In support of their respective positions at the district court level and on appeal, both parties pointed to the Second Circuit's decision in the Google Books case, in which the Second Circuit held that Google's creation of a searchable database of millions of published books enabling users to view short snippets of the books constitutes a fair use. District court Judge Hellerstein found that the Google Books decision supported a fair use finding for TVEyes.

Now, more than two years later, the Second Circuit, in consideration of the same precedent, reached the opposite conclusion, finding the four-factor fair use test weighed against TVEyes. Although the court acknowledged its Google Books decision as a key precedent, it cautioned that the decision "tested the boundaries of fair use," and that the TVEyes service at issue had "exceeded those bounds."

The First Fair Use Factor: The Purpose and Character of the Secondary Use

Regarding the first factor—the "purpose and character" of the defendant's use of the plaintiff's work—courts have increasingly focused primarily on whether the defendant's use is "transformative," that is, whether the defendant's use "communicates something new and different from the original or [otherwise] expands its utility." Here, the Second Circuit found that TVEyes's copying of Fox News content in order to enable "nearly instant access" for viewing purposes to portions of such content "is at least somewhat transformative."

The Second Circuit's first-factor analysis, however, did not end with this observation; the court also considered the commercial nature of TVEyes's use of Fox News content:

The commercial nature of a secondary use weighs against a finding of fair use. And it does so especially when, as here, the transformative character of the secondary use is modest. The [TVEyes service at issue] has only a modest transformative character because, notwithstanding the transformative manner in which it delivers content, it essentially republishes that content unaltered from its original form, with no "new expression, meaning or message."

The court rejected TVEyes's argument that its customers' use of service-generated video clips for their research needs strengthened the transformative nature of the service. The court noted that "[t]he clients of TVEyes use Fox's news broadcasts for the same purpose that authorized Fox viewers use those broadcasts—the purpose of learning the information reported."

Bottom line: The court concluded that "[t]he first statutory factor . . . favors TVEyes, albeit slightly."

The Second Fair Use Factor: The Nature of the Copyrighted Work

The Second Circuit, quoting its Google Books decision, stated that the second fair use factor—which looks at the nature of the plaintiff's copyrighted work—"has rarely played a significant role in the determination of a fair use dispute" and added that "it plays no significant role here."

Bottom line: The second factor "is neutral in this case," favoring neither party.

The Third Fair Use Factor: The Amount and Substantiality of the Portion of the Work Used

The third factor focuses on the amount and substantiality of the portion used in relation to the copyrighted work as a whole. The court held that "[t]his factor clearly favors Fox because TVEyes makes available virtually the entirety of the Fox programming that TVEyes users want to see and hear." The court noted that, in this regard, the TVEyes service at issue is "radically dissimilar" to the service at issue in Google Books, which was designed "to ensure that users could see only a very small piece of a book's content."

Bottom line: The third factor "strongly favors" Fox News because TVEyes's use of Fox's content is "both 'extensive' and inclusive of all that is 'important' from the copyrighted work."

The Fourth Fair Use Factor: Effect on Potential Market for or Value of the Work

Quoting the U.S. Supreme Court's 1985 Harper & Row decision, the Second Circuit noted that the fourth factor—which concerns the effect of the defendant's use upon the potential market for or value of the copyrighted work—is "undoubtedly the single most important element of fair use." The court summarized and weighed the parties' respective fourth-factor positions as follows:

TVEyes argues that its service poses little risk of being a "competing substitute" for Fox's offering . . . . Fox argues that TVEyes undercuts Fox's ability to profit from licensing searchable access to its copyrighted content to third parties. Fox has much the stronger point.

The court further observed, "By providing Fox's content to TVEyes clients without payment to Fox, TVEyes is in effect depriving Fox of licensing revenues from TVEyes or from similar entities."

Bottom line: "[T]he fourth factor favors Fox . . . because TVEyes has usurped a function for which Fox is entitled to demand compensation under a licensing agreement."

The Outcome

Tallying up the four factors—one slightly favoring TVEyes, two favoring Fox and one favoring neither party—the Second Circuit concluded that "the balance strongly favors Fox and defeats the defense of fair use." The case was remanded to the district court to revise and broaden an earlier-issued injunction to cover the TVEyes' video watch service, in accordance with the Second Circuit's opinion.

Concluding Thoughts

The fair use doctrine has been on quite a run. In recent years, rights holders have complained that courts have been expanding the doctrine beyond its traditional boundaries to protect intensely commercial activity. Proponents of the fair use doctrine note that it is essential to foster innovative and popular services, especially in the digital age.

The Second Circuit decision shows that fair use still has its limits, especially in the commercial context. It also highlights that judges looking at the same facts and applying the same multifactor fair use test often reach differing conclusions. That means, going forward, we will likely continue to see high-stakes litigation between copyright owners and digital content platforms and distributors.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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