Copyhype

Currently, the four major US broadcasters are involved in litigation with satellite service provider Dish Networks. Judging by some of the stories online, you might think that the broadcasters are claiming that the Dish features in question infringe copyright solely because they allow viewers to skip commercials. ¹See, for example, Fox sues Dish over commercial skipping, claims copyright infringement, where Cory Doctorow, as is typical, makes one erroneous claim after the other; TV Networks Say You’re Breaking The Law When You Skip Commercials; Why Fox thinks that skipping commercials is like robbing a bank.

But that’s not what’s happening here. Though these lawsuits are still in their early stages, I thought it would be worth taking a closer look at them.

The Broadcaster Business Model

TV broadcasters generally earn revenues from a number of ways. First, broadcasters sell advertising on over-the-air broadcasts of programs, which are viewed for free by viewers. They also receive fees from cable systems, satellite services, and other multichannel video programming distributors, each of whom retransmit broadcast programming to their own customers.

Additional revenues are made in secondary markets. For example, broadcasters may license programming to cable and satellite systems to be provided for video-on-demand (VOD) services, they may distribute programming to websites like Hulu, and they may rent or sell “ultra-premium” (commercial-free) programs through sites like iTunes, Amazon, and Netflix.

Dish Network’s Service

In March 2012, Dish Networks began offering its new “Hopper” DVR to subscribers for a monthly fee. Like traditional DVR’s, the set top device allows subscribers to record television programs for later viewing. But Dish added two new features.

The first, PrimeTime Anytime (“PTAT”), according to Dish, “automatically records all the shows on the four major networks in HD (ABC, CBS, NBC and FOX) Monday through Saturday from 8-11 p.m. and Sundays from 7-11:00 p.m. EST when enabled.” These recordings are available for eight days after broadcast and don’t take up any space on the viewer’s personal DVR.

The second, Auto Hop, automatically removes commercials from the PTAT recorded shows. As Dish explains, “When you are ready to watch your recorded PrimeTime Anytime content, simply open the PrimeTime Anytime or DVR menu screen. You will see a small Hopper (red kangaroo) icon beside each show that you may watch commercial-free. When you select a show with the Hopper icon, a pop-up message will appear on screen that asks whether you want to enable Auto Hop. Choose ‘yes,’ and simply sit back and watch your show commercial-free. Choose ‘no,’ and watch your show with the commercials intact.”

The Litigation

On May 24, 2012, Fox sued Dish Network in the Central District of California (Los Angeles) for breach of contract and copyright infringement. NBC and CBS filed similar copyright claims later that day in the same court. ²The Fox plaintiffs include Fox Broadcasting Company, Fox Television Holdings Inc and Twentieth Century Fox Film Corporation. The NBC plaintiffs include NBC Studios LLC, NBCUniversal Media LLC, Open 4 Business Productions LLC and Universal Network Television LLC. The CBS plaintiffs include CBS Broadcasting Inc, CBS Studios Inc and Survivor Productions LLC. The ABC defendants/counterclaimants include ABC, Inc, American Broadcasting Companies, Inc, and Disney Enterprises, Inc. For simplicity’s sake, I’ll refer to the plaintiffs by their marquee names. Only twenty-nine minutes before Fox filed its lawsuit against Dish in Los Angeles, Dish Network filed a declaratory relief action against Fox, CBS, NBC, and ABC in the Southern District of New York seeking a declaration that Dish was not infringing the networks’ copyrights.

What followed was a bit of judicial juggling. On July 9, the New York court ruled that the lawsuit filed by Dish in New York was an improper anticipatory filing and dismissed all the claims that were already pending in Los Angeles against Dish — that would be Fox’s copyright and contract claims as well as CBS’s and NBC’s copyright claims.

In September, the Los Angeles court transferred CBS’s copyright claim to New York where Dish’s declaratory relief contract claim against CBS is still pending. ³The CBS-Dish contract had a forum selection clause designating New York.

After the July 9 order, NBC amended its Los Angeles complaint to include contract claims. NBC and Dish currently have cross-motions pending in Los Angeles and New York as they continue to fight over the venue of NBC’s copyright and contract claims.

ABC has answered Dish’s complaint in New York and counterclaimed alleging copyright and contractual claims similar to the ones alleged by the other broadcasters in Los Angeles.

Fox’s Preliminary Injunction

While there are similar issues involved in each case, the first substantive ruling in these various lawsuits is likely to come from the litigation involving Fox. In late August, Fox moved for a preliminary injunction against Dish. The court heard arguments from both sides on September 21st, and a decision is likely to come soon.

Fox and Dish entered into a Retransmission Consent Agreement (“RTC”) in 2002. The Agreement allows Dish to retransmit Fox programming to its subscribers, subject to certain limitations. Fox alleges that Dish’s PTAT service and Autohop feature violates these limitations. These violations give rise to its breach of contract claim against Dish, but they also give rise to its copyright infringement claim, since a licensee who acts outside the scope of his license can be liable for copyright infringement. ⁴Sun Microsystems v Microsoft, 188 F.3d 1115, 1121 (9th Cir. 1998).

In addition, Fox argues that Dish violates its exclusive right to reproduction by making unauthorized copies, through both PTAT and Autohop, and its exclusive right to distribution by distributing these works to its subscribers. ⁵Fox also argues that, in the alternative, Dish is liable as a secondary infringer under the doctrines of inducement, vicarious liability, and contributory infringement.

In other words, Fox is not arguing that “skipping commercials is copyright infringement”; it is alleging that Dish made and distributed copies of its works without permission — the heart of copyright infringement — and also that its services exceeded the scope of the existing agreement between the two companies.

Dish’s Response: We’re Just Like Cablevision

In response, Dish raises a host of arguments to rebut Fox’s claims. Primarily, it seeks to characterize PTAT and Autohop as indistinguishable from a DVR system; it is the customer, and not Dish, making any copies, thus freeing Dish from any liability for breaching its contract or infringing copyright. Dish characterizes Fox’s arguments as variations on the theme that the “sky is falling.” ⁶This phrase is mentioned no less than three times in Dish’s Opposition to the Motion for Preliminary Injunction, perhaps not surprisingly, since one of Dish’s attorneys is Mark Lemley, who wrote an entire paper built around the phrase.

Perhaps part of the reason Dish was so keen in having these cases adjudicated in New York was to take advantage of the Second Circuit’s precedent in Cartoon Networks v CSC Holdings (the “Cablevision” case).

I’ve written about Cablevision before, but to recap the salient points — Cablevision was sued after rolling out a remote DVR feature (“RS-DVR”) for its subscribers. The Second Circuit rejected the broadcasters’ claim of direct infringement for the reproductions of their works made through the RS-DVR system, holding that the copies are “made” by Cablevision’s customers, not Cablevision itself. The court did so by reasoning that “volitional conduct” is “an important element of direct liability.”

Note, however, that in Cablevision, the court did not create a blanket rule; it explicitly noted that it “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.” The court also did not consider whether Cablevision could face secondary liability for its RS-DVR system, as that theory of liability was “expressly disavowed by plaintiffs.”

Nevertheless, Dish is banking on a favorable comparison between its PTAT service and Cablevision’s RS-DVR. In its opposition to Fox’s motion for a preliminary injunction, Dish argues that, as in Cablevision, Dish’s customers are making copies, not Dish. This argument is obviously bolstered if it is made in a court where Cablevision is binding precedent. In response, Fox notes that Dish determines what programs are recorded, when they are recorded, and how they are accessed; the only act of “volition” by the customer is a “trivial ‘flip of the switch'” to activate the service.

Dish’s Response: We’re Just Like Sony

Moving past the direct infringement and contract claims, Dish relies on the Supreme Court’s decision in Sony v Universal City Studios to rebut secondary liability claims.

Dish argues that, “In short, home video recording equipment is legal” under Sony. This is not a new argument, as many have argued since Sony that the decision created a broad “safe harbor” against secondary liability. ⁷See, for example, Brett M. Frischmann, Peer-to-Peer Technology as Infrastructure: an Economic Argument for Retaining Sony’s Safe Harbor for Technologies Capable of Substantial Noninfringing Uses, 2005 Journal of the Copyright Society of the USA 329 (2005), characterizing Sony as creating a rule “which precludes secondary liability in situations where a technology is “capable of substantial noninfringing uses”; Pamela Samuelson, Three Reactions to MGM v. Grokster, 13 Mich. Telecomm. & Tech. L.Rev. 177 (2006), referring to “Sony safe harbor”; Randal Picker, Rewinding Sony: The Evolving Product, Phoning Home, and the Duty of Ongoing Design, U Chicago Law & Economics, Olin Working Paper No. 241 (2005), “The great virtue of Sony’s substantial noninfringing use test is that it creates an innovation safe harbor”; A&M Records v Napster, 114 F.Supp.2d 896, 915-16 (ND Cali. 2000), affirmed 239 F.3d 1004, 1019 (9th Cir. 2001), court rejects Napster’s argument that it is protected under Sony precedent;

But I would argue that Sony’s holding is far narrower. The doctrine of contributory infringement places liability on a third party who materially contributes to infringement and has knowledge of the infringing activity. ⁸Gershwin Publishing v Columbia Artists Management, 443 F.2d 1159, 1162 (2nd Cir. 1971). Sony held that impute the necessary knowledge to a device manufacturer based solely on the design of the device, so long as the device is capable of substantial noninfringing uses.

This is precisely how the Supreme Court later interpreted Sony in its 2005 decision in MGM v Grokster:

Sony‘s rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law.

Indeed, the Court there went on to hold that evidence that Grokster induced infringement satisfied the knowledge prong of contributory infringement. And Sony itself noted that in cases where there is an ongoing relationship between a device’s manufacturer or distributor, as opposed to a relationship that ends at the point of sale, the rule does not apply. ⁹Sony at 437-38.

Sony also does not apply to vicarious liability, where a third party can be held liable for infringement if he receives a direct financial benefit attributed to infringement and has the right and ability to supervise the direct infringers. ¹⁰MGM v Grokster, 380 F.3d 1154, 1164 (9th Cir. 2004).

These last two points are relevant here since the broadcasters have each alleged claims of inducement and vicarious liability against Dish. But setting these aside, is Dish even protected from liability for contributory infringement under Sony?

The Sony court, after all, held that the Betamax at issue was capable of substantial noninfringing uses for two reasons: first, it held that some broadcasters — ones who had not sued Sony — tacitly allow time-shifting of their programming, and, second, the plaintiffs “failed to demonstrate that time-shifting would cause any likelihood of nonminimal harm to the potential market for, or the value of, their copyrighted works” — leading to the Court’s conclusion that, on these facts, such time-shifting would be fair use.

Dish certainly cannot show the first — its PTAT service only copies programming from the four broadcasters who have sued here. And I’m not persuaded that Dish can show that any time-shifting enabled by its service, if the court accepts Dish’s characterization of its service as enabling time-shifting, doesn’t cause nonminimal harm to the potential market for Fox’s works. Its service directly competes with Fox’s licensed VOD options and guts its ad-based broadcasting model.

What’s next

Both Fox and Dish supply other arguments, and the other broadcasters have yet to weigh in on pretrial motions; it remains to be seen what issues will emerge as predominant.

But the bottom line is that none of the broadcasters are asserting that skipping commercials by itself amounts to direct copyright infringement. Fox notes repeatedly in its reply brief that it is not arguing that skipping commercials is infringement, nor is it seeking to overturn Sony’s decision on personal time-shifting or restrict the use of DVR’s. It is Dish’s alleged copying, in conjunction with automated removal of advertising, that gives rise to the contract and copyright claims. I’ll have more on these cases as they continue to develop.