Second Circuit Suggests that the Value of an Accused Secondary Use Dictates What Constitutes Fair Use

In a recent decision, the Second Circuit further clarified the confines of permissible fair use, reversing the district court’s ruling that functionality that enabled customers to search for videos by term, and to view and archive such videos, was protected fair use. In doing so, the court relied on its “Google Books” fair use decision but here concluded that TVEyes had “exceeded those bounds.”

Background

Defendant TVEyes is a for-profit media company that, for $500 per month, provides a service that allows subscribers to search through vast amounts of television content to find clips that are of interest. The service works as follows:

TVEyes records essentially all television broadcasts as they happen, drawing from more than 1,400 channels, recording 24 hours a day, every day. By copying the closed‐captioned text that accompanies the content it records (and utilizing speech‐to‐text software when necessary), TVEyes creates a text‐searchable transcript of the words spoken in each video. The videos and transcripts are consolidated into a database. A client inputs a search term and gets a list of video clips that mention the term. A click on a thumbnail image of a clip plays the video, beginning fourteen seconds before the search term was spoken, and displays a segment of the transcript with the search term highlighted. . . . The clips can be played for no more than ten minutes, but a user can play an unlimited number of clips. To prevent clients from watching entire programs, TVEyes . . . implemented a device that is claimed to prevent clients from viewing consecutive segments. . . .

TVEyes would delete captured content after 32 days.

TVEyes’s service comprises two core offerings, namely, a “Search function” and a “Watch function.”  “The Search function allows clients to identify videos that contain keywords of interest.”  “The Watch function allows TVEyes clients to view up to ten‐minute, unaltered video clips of copyrighted content.”

TVEyes’s service also has other functions. Subscribers can archive videos to TVEyes servers and can download videos to their computer.  Subscribers can email the clips to others to view and can “search for videos by date, time, and channel (rather than by keyword).” However, TVEyes’s service is “available for business and professional use, and is not offered to private consumers for personal use.”

TVEyes asserted that it restricts subscribers’ use of recorded content in various ways, including requiring them to sign contracts restricting such use to “internal purposes only” and by warning that downloading clips should be limited to “internal review, analysis or research.”

Fox News Network sued TVEyes in the United States District Court for the Southern District of New York for, among other things, copyright infringement. The district court held that the functions “enabling clients of TVEyes to search for videos by term, to watch the resulting videos, and to archive the videos” were fair use. However, the district court held that other features were not fair use, “such as those enabling TVEyes’s clients to download videos to their computers, to freely e‐mail videos to others, or to watch videos after searching for them by date, time, and channel (rather than by keyword).”

On appeal, Fox did not challenge the Search function but did challenge the Watch function. The issue on appeal was whether TVEyes’s Watch function was protected fair use. The Second Circuit held that the inclusion of the Watch function rendered the fair use doctrine inapplicable to TVEyes’s package of services. The court stated “[t]hat conclusion subsumes and obviates consideration of certain functions that are subsidiary to the Watch function, such as archiving, downloading, and emailing the video clips.”

In reaching its’s conclusion, the Second Circuit considered four factors set out in 17 U.S.C. §107, which states in relevant part:

[I]n determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (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.

Factor 1  – Purpose and Character of the Use

The court found that factor one slightly favored fair use.  The court noted that the primary inquiry under factor one was whether the secondary use was transformative, and considered its decision in Authors Guild v. Google, Inc., 804 F.3d 202 (2d Cir. 2015) (the “Google Books” case), which held that Google’s pooling of digital copies of copyrighted books into a text-searchable database served a transformative purpose because it “communicate[d] something new and different from the original.” 804 F.3d at 214. In Google Books the court also held that the snippet view of unaltered, copyrighted text “add[ed] important value to the basic transformative search function” because users could verify that the list of books returned was responsive to the user’s search. Id. at 217. On that basis, here, the court concluded that “TVEyes’s copying of Fox’s content for use in the Watch function is similarly transformative insofar as it enable 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.” (emphasis added).

The court also found the Watch function “at least somewhat transformative” in view of the U.S. Supreme Court’s decision in Sony Corporation of America vs. Universal City Studios, Inc., 464 U.S. 417 (1984).  In Sony, the Supreme Court held that a television customer’s recording of a television broadcast to watch it at a later time was fair use because—as stated by the Second Circuit—“a secondary use may be a fair use if it utilizes technology to achieve the transformative purpose of improving the efficiency of delivering content without unreasonably encroaching on the commercial entitlements of the rights holder.” Here, “[t]he Watch function certainly qualifies as technology that achieves the transformative purpose of enhancing efficiency.”

The court then considered the “character” of TVEyes’s Watch function and concluded that the commercial nature of the use weighed against a finding of fair use because the transformative character of the Watch function was “modest.” “The Watch function has only a modest transformative character because . . . it essentially republishes that content unaltered from its original form, with no new expression, meaning or message.”  (internal quotes and quoting references omitted).

The court weighed the transformative and commercial nature of TVEyes’s use and concluded that factor one “favors TVEyes, albeit slightly.”

Factor 2 – Nature of the Copyrighted Work

The court quickly addressed factor two and held that it was neutral, noting that the factor “’rarely played a significant role in the determination of a fair use dispute,’ and it plays no significant role here.” (quoting Google Books, 804 F.3d at 220). TVEyes had argued that, because facts are not copyrightable, the factual nature of Fox’s videos favored fair use. In rejecting the argument, the court stated “We have rejected this argument: ‘Those who report the news undoubtedly create factual works. It cannot seriously be argued that, for that reason, others may freely copy and re‐disseminate news reports.’”  (Quoting id.).

Factor 3 – Amount Used

The third factor “strongly favor[ed] Fox” and did not support fair use “because TVEyes makes available virtually the entirety of the Fox programming that TVEyes users want to see and hear.” The court distinguished the Watch function from its Google Books decision, noting that the snippet function in Google Books was designed so viewers could only see a very small piece of a book’s contents and, for certain types of books such as cookbooks, snippets were not available where the snippet would convey the information a viewer would likely need. By contrast, TVEyes redistributed Fox’s news programs in 10 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.” Accordingly, the court concluded that TVEyes’s use was extensive and inclusive of all that was important to Fox’s work.

Factor 4 – Effect of Use & Market Harm

The fourth factor did not support fair use and, seemingly, drove the court’s decision. TVEyes argued that its service posed little risk of being a “competing substitute” for Fox’s programming. Fox argued that “TVEyes undercuts Fox’s ability to profit from licensing searchable access to its copyrighted content to third parties.” The court concluded that  “Fox has much the stronger point.”

In assessing market harm, the court considered the value of the Watch function to TVEyes and whether Fox may have wanted to exploit that market:  “Since the ability to re‐distribute Fox’s content in the manner that TVEyes does is clearly of value to TVEyes, it (or a similar service) should be willing to pay Fox for the right to offer the content. 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. And Fox itself might wish to exploit the market for such a service rather than license it to others. TVEyes has thus ‘usurp[ed] a market that properly belongs to the copyright‐holder.’”  (quoting Infinity Broad. Corp. v. Kirkwood, 150 F.3d 104, 110 (2d Cir. 1998)).

The court weighed the factors and held that TVEyes’s Watch function was not protected fair use.  Factor one only slightly favored fair use, factor two was neutral, and factors three and four favored Fox, and the court held that the “[b]alance strongly favors Fox and defeats the defense of fair use.”  The court nonetheless noted that the trial court should not enjoin TVEyes from providing a text-searchable database of Fox’s content, which Fox had not challenged on appeal.

Conclusion

The court’s decision was clearly swayed by the extent of TVEyes’s use of Fox’s content and its belief that TVEyes’s use caused Fox to suffer market harm. But between those two, the decision really appears to be driven by the court’s perceived risk of market harm to Fox and its belief that the secondary use would undercut Fox’s ability to provide the same service TVEyes was providing—even though there was no evidence that TVEyes’s service would, in fact, undercut Fox, or that Fox had any interest in providing such a service. This suggests that an accused secondary use that has commercial value will be very hard-pressed to constitute fair use even where, as here, the copyright owner is not exploiting its rights in the same manner as the accused infringer.