A Setback for Cable Streaming Start-Ups in the Fight Against FOX

Ryan Van Olst

In Fox Television Stations, Inc. v. FilmOn X LLC,[1] the D.C. District Court granted Fox Television Stations and several other television network providers a preliminary injunction against FilmOn X for possibly infringing their public performance right under the Copyright Act.  Fox alleged that FilmOn X unlawfully streamed television shows over the Internet without a license, and that it would be irreparably harmed if FilmOn X continued its operations. The injunction created the basis for a split between the Second, D.C. and Ninth Circuits by prohibiting companies structured like FilmOn X from streaming copyrighted material in all but the Second Circuit. At stake are profits stemming from the broadcast of many of the country’s most popular television shows, such as Elementary and New Girl.

FilmOn X provided consumers live over-the-air transmissions of television shows on Internet enabled devices and the ability to pause live programming or record shows for later viewing through its Digital Video Recorder (DVR). It structured its service to assign individual users content streaming from one of thousands of small antennas that it operates in major cities, including Washington, D.C. Fox and several other copyright holders argued that FilmOn X violated their exclusive right to the public performance of their copyrighted works under section 106 of the Copyright Act.[2] In response, FilmOn X argued that it modeled its services according to the 2008 Second Circuit case, Cartoon Network, LP v. CSC Holdings, Inc. (Cablevision).[3] Under Cablevision, if there is a one-to-one relationship between a copy of the copyrighted work and the recipient, then there is no violation of the Copyright Act. FilmOn X urged the D.C. court to follow the reasoning of Cablevision, which held that because each FilmOn X user requested content through a small assigned antenna, and each antenna had one user at a time, it had not violated the Copyright Act.[4] The crux of whether to grant the preliminary injunction rested on Fox’s ability to show probable success on the merits.

Based on the merits, the district court found in favor of Fox. The issue focused on whether FilmOn X violated the exclusive right of public performance under the Copyright Act.[5] Under the Act, the public performance right is defined to include the right “to transmit or otherwise communicate a performance or display of the work . . . to the public by any device or process.”[6] The court determined through this “Transmit Clause” that Congress intended the public performance right to restrict services like those provided by FilmOn X. It reasoned that FilmOn X’s complex system of antennas and one-to-one user-antenna ratio did not exempt it from the license requirement of the statute,[7] because the intent of the statute clearly sought to restrict the audience to which the content is transmitted, not the method of transmission.[8] The court additionally looked to the legislative history of the Act and found that the public performance right held by Fox applied broadly, and the merits inquiry should not be focused on the technological method of transmission.[9]  Therefore, Fox was able to show a substantial likelihood of success on the merits.[10] The court also found that Fox satisfied the remaining requirements to grant a preliminary injunction, because Fox would suffer irreparable harm in lost profits, the balance of harm favored Fox, and the public interest was better served by protecting copyright holders’ “creative energies, and resources which are invested in the protected work.”[11]

Fox’s preliminary injunction against FilmOn X applies in all Circuits except for the Second Circuit, where Aereo II established a conflicting binding precedent.[12] In Aereo II, the Court of Appeals for the Second Circuit denied Fox’s motion for a preliminary injunction against an Internet streaming service that was architecturally identical to FilmOn X. In reaching its decision, the court interpreted the legislative intent behind the Copyright Act differently. Relying on Cablevision, it found that the Internet streaming transmissions were not made “to the public” as prohibited by the Transmit Clause of the Copyright Act because each DVR playback transmission was made for a single subscriber that used a single unique copy, which was technically produced by that subscriber (through a request from an internet-enabled device). The court concluded that Aereo did not infringe on any exclusive right of public performance, since each online stream was only capable of being received by one subscriber at a time. Thus, according to the Second Circuit, the “technical architecture matters.”[13]

Conversely, a recent decision by a California district court emphasized that it was not bound by the rulings in Cablevision and Aereo II, and reached a different conclusion in BarryDriller,[14] creating strong potential for a circuit split on appeal. Several of the parties in that case were identical to the parties in the present case. In BarryDriller, the California District Court rejected the reasoning of Cablevisionand Aereo I (Aereo II had not yet been decided), and granted the television station’s motion for a preliminary injunction. The court held that these prior two cases had rested on a misinterpretation of the Copyright Act by erroneously focusing on whether an individual copy was made for each individual user (technically making the transmission nonpublic), instead of whether the copyrighted work itself was being transmitted to the public. BarryDriller marked the first departure from the precedent established by Aereo I and Cablevision, and ruled that they were not binding on the Ninth Circuit. In granting the injunction, the court in BarryDriller declined to enter a nationwide injunction, instead concluding that an injunction in the Ninth Circuit was appropriate. Both parties to that case have filed appeals to the Ninth Circuit, but the circuit has not yet issued its ruling. If on appeal the Ninth Circuit affirms the district court’s ruling, a circuit split will be created between the Second, Ninth and D.C. Circuits on whether companies structured like FilmOn X can continue to profit from streaming shows without permission over the Internet.

Although these cases deal only with a preliminary injunction, meaning they can be overturned after the court has fully heard the case, FilmOn X argued that a preliminary injunction “cripple[s]” its business.[15] The trial itself could continue for years and financially devastate the profitability of the company. The Ninth Circuit decision also has the potential to deter other start-up streaming companies from being formed, since a preliminary injunction could effectively remove their revenue during a “crucial stage of [their] growth.”[16] Furthermore, a preliminary injunction may deter companies like FilmOn X from continuing on to a full trial, since trial costs are substantial for smaller companies and they have already lost on the probability of the merits, making a favorable trial outcome appear less likely.

The legal implications of the potential circuit split are also far-reaching. Confusion over the proper interpretation of the Transmit Clause of the Act has the potential to create problems for both new and existing companies seeking to lawfully comply with it. How other circuits would rule on the issue is a matter of whether that circuit follows the reasoning of the Second Circuit, or that of the Ninth Circuit District Court. This may leave the outcome of adjudication unpredictable and regionally inconsistent, as well as potentially deter businesses from continuing lawful practices.

The logic of Fox v. FilmOn X is already prompting suits in the film industry against streaming companies challenging the current licensing regime.[17] Until Congress or the courts clarify the Transmit Clause of the Act, it remains difficult for streaming companies to structure their services to comply with the Act. Although Fox’s nearly nationwide injunction against FilmOn X represents a huge victory for traditional cable TV against smaller internet streaming companies, the fight is far from over. In the meantime, the head-on inconsistent rulings between Fox v. FilmOn X, BarryDriller, and Aereo II pose challenges for courts, and remain bad for business.

 



[1] Fox Television Stations, Inc. v. FilmOn X LLC, No. 13-758, 2013 WL 4763414 (D.D.C. Sept. 5, 2013) reconsideration denied, No. 13-758, 2013 WL 4852300 (D.D.C. Sept. 12, 2013).

[2] 17 U.S.C. § 106(4) (1976) (providing copyright holders with the exclusive right to publically perform audiovisual works).

[3] Cartoon Network, LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008).

[4] FilmOn X, 2013 WL 4763414, at 14.

[5] Id. at 1; 17 U.S.C. § 106(4) (1976) (providing that a plaintiff need only show that he is the copyright owner of the allegedly infringing copyright, and that the defendant violated the public performance right to make a prima facie case of direct copyright infringement).

[6] 17 U.S.C. § 101 (2012).

[7] Id. at § 111(c) (codifying the licensing regime for copyrighted works).

[8]  FilmOn X, 2013 WL 4763414, at 14.

[9] Id.

[10] Id. at 16.

[11] Id. at 17; Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1255 (3d Cir. 1983).

[12] WNET, Thirteen v. Aereo, Inc., 712 F.3d 676, 681 (2d Cir. 2013) (“Aereo II”).

[13] Id. at 694; Nat’l Football League v. PrimeTime 24 Joint Venture, 211 F.3d 10 (2d Cir. 2000).

 

[14] Fox Television Stations, Inc. v. BarryDriller Content Sys., PLC, 915 F. Supp. 2d 1138, 1140 (C.D. Cal. 2012).

[15] FilmOn X, 2013 WL 4763414 at 17.

[16] Id. at 18.

[17] Warner Bros. Entm’t Inc. v. WTV Sys., Inc., 824 F. Supp. 2d 1003, 1005 (C.D. Cal. 2011).

 

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