By Thomas Long, J.D.
The U.S. Court of Appeals in San Francisco has affirmed a district court’s grant of a preliminary injunction to film and television production studios Disney, Lucasfilm, Twentieth Century Fox, and Warner Bros. Entertainment, barring VidAngel, Inc., from using its online video-on-demand streaming service to offer the studios’ copyrighted movies to paying customers without the studios’ authorization. VidAngel made copies of movies—including films from the "Star Wars" series—and streamed "filtered" versions of the films to its customers, with audio and video content that the customers found objectionable removed from them. The district court did not abuse its discretion in concluding that VidAngel’s service infringed the studios’ exclusive reproduction right. VidAngel was not likely to succeed in showing that it was exempt from liability under the Family Movie Act of 2005 because it did not filter authorized copies. In addition, VidAngel was unlikely to prevail on its fair use defense. The appellate court also affirmed the district court’s determination that VidAngel’s service likely violated the Digital Millennium Copyright Act’s prohibition against circumvention of technological protection measures (Disney Enterprises, Inc. v. VidAngel, Inc., August 24, 2017, Hurwitz, A.).
VidAngel purchased physical discs containing copyrighted movies and television shows, decrypted the discs to "rip" a digital copy to a computer, and then streamed to its customers a filtered version of the work. The studios asserted that VidAngel engaged in copyright infringement and circumvention of technological measures controlling access to copyrighted works in violation of the DMCA. VidAngel denied the allegations, raising affirmative defenses of fair use and authorization by the Family Movie Act of 2005 (FMA). The studios moved for a preliminary injunction, which the district court granted. VidAngel appealed, and the Ninth Circuit affirmed the grant of preliminary injunction.
Copyright infringement—reproduction. VidAngel conceded that it copied the studios’ works from discs onto a computer. The district court did not abuse its discretion in concluding that VidAngel’s copying infringed the studios’ exclusive reproduction right, the Ninth Circuit said. Although VidAngel had lawfully purchased copies of the discs, doing so only gave it the right to sell those physical copies, not to reproduce the underlying works. VidAngel’s contention that the district court erred with respect to the studios’ likelihood of success on their infringement claims depended on its two affirmative defenses: authorization by the FMA and fair use.
Family Movie Act. The FMA was designed to consumers to skip "objectionable" content in movies without incurring copyright infringement liability. The statute authorized filtering, by or at the direction of a member of a private household, of limited portions of a movie, during performances or transmissions to private households, from an "authorized copy" of the movie. The statute also authorized the creation or distribution of technology to enable this filtering. The district court found, and the appellate court agreed, that VidAngel was not entitled to an FMA defense because it did not filter authorized copies of the movies at issue. VidAngel argued that the defense should apply because it began its filtering process with an authorized copy—a lawfully purchased disc—but the Ninth Circuit held that the most natural reading of the statute was that the filtered performance or transmission itself must be "from" an authorized copy of the motion picture. The provision of the FMA regarding the technological means of filtering was subject to the same restriction as the portion authorizing the act of filtering—the "authorized copy" restriction.
The court opined that VidAngel’s proposed interpretation of the statute "would create a giant loophole in copyright law, sanctioning infringement so long as it filters some content and a copy of the work was lawfully purchased at some point." Virtually all piracy originated in some way from a legitimate copy, the court noted. If merely purchasing an authorized copy precluded infringement liability under the FMA, the statute "would severely erode the commercial value of the public performance right in the digital context," the court said.
VidAngel did not stream from an authorized copy of the studios’ motion pictures, the court said. Rather, it streamed from the "master file" copy it created by "ripping" the movies from discs. The district court therefore did not abuse its discretion in concluding that VidAngel was unlikely to succeed on the merits of its FMA defense, the appellate court concluded.
Fair use. The fair use analysis under 17 U.S.C. §107 involved consideration of four factors: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. VidAngel conceded that the district court correctly found that the second and third factors—"the nature of the copyrighted work" and "the amount and substantiality of the portion used in relation to the copyrighted work as a whole"—weighed against finding fair use. VidAngel argued, however, that the district court erred with respect to the first and fourth factors. The Ninth Circuit affirmed the district court’s determinations on fair use.
With respect to the purpose and character of the use, the court disagreed with VidAngel’s contention that its use of the movies was "transformative." The district court did not err in finding that VidAngel’s service did not add anything to the movies, and that it simply omitted portions that viewers considered objectionable and transmitted them for the "same intrinsic entertainment value" as the originals. According to the Ninth Circuit, "Star Wars is still Star Wars, even without Princess Leia’s bikini scene."
As for market effects, the district court concluded that because VidAngel’s service was commercial and not transformative, it could presume likely harm to the market for the studios’ films. VidAngel argued that its service actually benefited the studios because it expanded the audience for their movies. However, the district court’s finding that the service was an effective substitute for the unfiltered works because surveys indicated that 49 percent of its customers would watch the movies without filtering was not clearly erroneous, in the appellate court’s view. The Ninth Circuit also noted that the market factor was less important when none of the other fair use factors favored VidAngel.
VidAngel contended that its service was "a paradigmatic example of fair use: space-shifting." However, the only case cited by VidAngel in support of this argument involved a portable music player that made copies in order to render portable, or "space-shift," files that already resided on a user’s hard drive, and which was held to be consistent with the Audio Home Recording Act’s main purpose—the facilitation of personal use. Reported decisions uniformly rejected the notion that space-shifting was a fair use under Section 107. Even if space-shifting could be fair use, VidAngel’s service was not personal and noncommercial; it made illegal copies of movies and then sold streams with altered content and in a different format from that in which the movies were bought.
DMCA. The district court also did not abuse its discretion in finding that the studios were likely to succeed on the merits of their DMCA circumvention claim. The DMCA prohibited circumvention of a technological measure that effectively controlled access to a copyrighted work. The studios employed technological protection measures (TPMs) to protect against unauthorized access to and copying of their works. These TPMs consisted of the Content Scramble System (CSS) and Advanced Access Content System (AACS), with optional "BD+," to control access to their copyrighted content on DVDs and Blu-ray discs. VidAngel conceded that CSS, AACS, and BD+ are encryption access controls and that it used software to decrypt them. However, VidAngel argued that as a lawful purchaser of copies of the movies it was authorized to decrypt the TMPs to view the discs’ content. The court rejected this argument because the DMCA exempted from liability only those who had authorization to circumvent an access control measure, not those who were authorized to access a work.
Irreparable harm, balancing the equities, public interest. The Ninth Circuit held that there was sufficient evidence to support the district court’s finding that the studios were likely to sustain irreparable harm without injunctive relief. There was evidence that VidAngel’s service undermined the studios’ bargaining position and damaged goodwill with licensees. The appellate court noted that VidAngel offered "Star Wars: The Force Awakens" before it was available for legal streaming and offered other films during HBO’s exclusive streaming license period. The district court did not abuse its discretion in concluding that the loss of goodwill and negotiating leverage could not be remedied with damages. The district court also gave proper consideration to the harm to VidAngel from an injunction and did not abuse its discretion in finding that a preliminary injunction was in the public interest.
The case is No. 16-56843.
Attorneys: Rose Leda Ehler (Munger, Tolles & Olson LLP) for Disney Enterprises, Inc. Ryan Geoffrey Baker (Baker Marquart LLP), Dana Erin Berkowitz (Stris & Maher LLP) and Maxwell Michael Bleche (Blecher Collins Pepperman & Joye, PC) for Vidangel, Inc.
Companies: Disney Enterprises, Inc.; Vidangel, Inc.
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