As noted earlier in this blog, two weeks ago the Supreme Court denied cert in the case of Cable News Network, Inc. v. CSC Holdings, Inc. (“Cablevision”).  That order leaves in place Cablevision’s appellate victory, allowing it (for now) to continue offering its “remote DVR” service to cable customers, without payment of additional royalties for the storage and delivery of that programming.  The result was somewhat surprising to experts, and many had expected the Supreme Court to hear the case.  But more than anything else, the result signals a looming battle over secondary liability principles – principles that the plaintiffs chose not to put into play in the Cablevision case – and how the landmark Universal Pictures v. Sony (“Betamax”) case will be applied to similar digital services.

The Cablevision case arose from Cablevision’s announcement that it intended to offer an “RS-DVR” to its customers.  Unlike existing DVRs, which reside in individual customers’ homes just like a cable box, a VCR, or a home computer, the RS-DVR equipment stays at Cablevision’s facilities.  It is alleged to work the same as a regular DVR, except that when the customer requests a recording to be made, the request is sent to Cablevision, a copy is made on the RS-DVR equipment, and it is stored there until the customer requests to play it.  Upon the customer’s request to play, the RS-DVR equipment streams the content back to the customer for viewing on his television.  If multiple customers request copies of the same program, one copy is made for each customer, and Cablevision alleged that each customer was assigned his own unique memory space in the RS-DVR equipment.

The studio copyright owners, including named plaintiff CNN, alleged that the RS-DVR was simply Cablevision’s effort to avoid paying license fees for on-demand programming.  Copies were made and maintained at Cablevision’s facilities, and then delivered to consumers on demand.  The copyright owners even presented evidence that the RS-DVR originally was designed as (and basically called) a video-on-demand (VOD) system, but when Cablevision balked at the fees, minor changes were made so that Cablevision could assert it did not need a license.  Cablevision, on the other hand, maintained that the RS-DVR is little different than a regular, home DVR, and all copying was done “by the customer” – Cablevision’s storage was simply incident to the customer’s command, and an automated, technical process.

At the outset of the case, an important strategic choice was made.  The studios decided to pursue only claims of direct infringement.  Had they pursued claims of secondary liability (contributory infringement and inducement), Cablevision likely would have asserted the Sony Betamax defense, that the device was capable of substantial non-infringing use and therefore they were not liable for the copying of customers using the device.  The plaintiffs apparently believed they had a strong enough case based upon Cablevision’s “direct” copying of programs to its own equipment, the RS-DVRs, and did not want to raise the possibility that the court could extend the Sony secondary liability defense to these facts.  By the same token, since the case would now be focused on Cablevision’s own copying (or lack thereof) for obvious business purposes, Cablevision agreed not to assert the fair use defense – which presumably would have been a significant issue (in the context of Cablevision’s customers’ actions within their homes and for their personal use) if secondary liability were asserted.

The district court found in favor of the copyright owners on all points.  It stated, “[e]xamining all that Cablevision does to design and operate the service,
maintain exclusive physical control of and access to the equipment, and select and supply the content available, the court ruled that the copying and public
performances are “done . . . by Cablevision, albeit at the customer’s request.”  

But a 3-judge panel on the second circuit overturned the decision.  The appellate court held, first, that the copying at issue was “done” by the customer, not Cablevision.  Thus Cablevision was not a direct infringer.  The court focused on the automated nature of each act of copying itself (the user presses a button, and the rest happens automatically), rather than Cablevision’s choice in designing the system as such, or its maintenance and housing of the system.  The only “volitional act,” according to the Court, was the user pushing the “copy” button…much like the VCR at issue in the Sony case.  Curiously, the Court seemed to be influenced by a belief that secondary liability claims would have been the more proper approach in this case.  But the Court may not have understood (since it was not briefed) the additional difficulties in proving claims of secondary liability, including the possibility that a home user’s copying could be deemed a time-shifting fair use (thus defeating a claim of secondary liability for that copying).

The appellate court also held that buffer copies created by the Cablevision system did not constitute infringement.  The system was designed to hold a copy of all programming for 1.5 seconds, to enable recording if the user requests it.  But the court held that 1.5 seconds was not “fixed” for a sufficient “duration” to constitute an infringing copy.  This conclusion is based on a curious reading of the copyright statute, which states that a work must be “sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.”  Arguably, this imposes three alternative conditions: (1) “perceived,” (2) “reproduced,” or (3) “otherwise communicated for a period of more than transitory duration.”  I.e., the “transitory duration” clause would not seem to apply to the “reproduced” condition – if a work was reproduced (as here), it obviously is “capable” of reproduction.  Here, reproduction was the whole point of the buffer copies.  Moreover, the reproduction of the buffer copy (i.e., the permanent copy) was itself maintained for a period of transitory duration.  Thus, the buffer copy arguably satisfies the definition of “fixed.”  The court’s analysis of this question also seems to be at odds with prior software cases dealing with RAM copies.  And it calls into question how computer RAM copies will be dealt with in future cases.

Finally, the studios had argued that when a customer requested a stored program to be played, Cablevision’s streaming of the program constituted an infringing “public performance.  The appellate court, however, ruled that there was no public performance because different customers each received their “own” transmission, starting at their own particular time of request and emanating from their own particular copy stored on the RS-DVR.  There is longstanding law, however, that a transmission need not be received at the same place or same time by all recipients, or that the audience need not be together upon reception, to constitute a “public performance.”  Businesses that offered private movie showings to customers, for example, have been held liable for an infringing public performance.  One difference in some of those cases is that the defendant only maintained a single copy, and used that single copy to show to all customers.  So, ironically, by utilizing more copying instead of less, Cablevision successfully insulated itself.

The second circuit’s opinion was, not surprisingly, widely criticized by the major copyright industries, and applauded by consumer groups and some of the technology industries.  One overarching criticism was that the opinion seemed internally inconsistent – drawing upon general analogies between the analog and digital world where it supported the court’s holding (e.g., repeatedly referencing the VCR), but on other points, reaching conclusions that seemed to flow from hyper-technical points about the way the RS-DVR operated.  Several amicus briefs urged the Supreme Court to grant cert, arguing that the second circuit’s opinion provided a roadmap for copyists to avoid infringement liability (or businesses to reduce copyright license fees) – simply automate everything and let the user push a button.  With the Supreme Court’s denial of cert, this question about direct liability will be left for the next case(s).

Perhaps more interestingly, the denial of cert may mean that the copyright industries are forced to directly confront the meaning of Sony as applied to digital technologies like the DVR …The perfect, permanent, and unlimited nature of digital copies – and the ease and speed of their transmission over the Internet – arguably make the landscape much different than in the Sony case.  But new technologies usually are in some sense analogous to the VCR, even if incorporating principles such as “space shifting” instead of time shifting.  How the courts resolve these questions likely will play a significant role in how copyright owners and technology companies conduct their businesses in the future.