IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks -- March 28, 2013



Table of Contents

Kirtsaeng v. John Wiley & Sons, Inc., U.S. Supreme Court, March 19, 2013
 Click here for a copy of the full decision.

  • In a 6-to-3 decision with far-reaching implications, U.S. Supreme Court holds that copyright “first sale” doctrine applies to copies of copyrighted works lawfully made abroad and that importation and resale of textbooks manufactured abroad is therefore not an infringement of publisher’s exclusive distribution right.

John Wiley & Sons, Inc., publishes academic textbooks and assigns a foreign subsidiary the right to publish and sell its English-language textbooks abroad. Supap Kirtsaeng, a Thai citizen who moved to the United States to attend Cornell University, arranged for his friends and family to buy copies of foreign-edition English-language textbooks at Thai bookshops, where they sold for lower prices, and to mail them to him in the United States, where he resold them for a profit. Wiley brought suit against Kirtsaeng for copyright infringement, claiming that his importation and resale of Wiley’s textbooks was unauthorized and infringed its exclusive right to distribute the books under section 106(3) of the Copyright Act and violated the importation prohibition of Section 602.

Kirtsaeng defended on the grounds that Section 109(a) of the Act, otherwise known as the “first sale” doctrine, permitted him to resell the books without Wiley’s permission. Section 109(a) provides:

Notwithstanding the provisions of section 106(3) (granting the copyright owner exclusive distribution rights), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.

The district court held that Kirtsaeng could not assert the first sale defense because the doctrine does not apply to foreign-made goods, even if made with the copyright owner’s permission. A divided panel of the Second Circuit affirmed, holding that the first sale doctrine did not apply because the textbooks were manufactured abroad and therefore were not “lawfully made under this title” as required by Section 109 to invoke the first sale doctrine. In light of differing views among the Circuit Courts, the Supreme Court granted certiorari to resolve the issue of whether the “first sale” doctrine, codified in Section 109, applies to copies of copyrighted works made abroad with the copyright owner’s authorization.

The Supreme Court reversed, holding that the first sale doctrine contains no geographic limitation and therefore applies to copies of copyrighted works made abroad. Justice Breyer, writing for the majority, found that the language of section 109(a), as well as the legislative history, statutory context and common law history, favored Kirtsaeng’s interpretation that the first sale doctrine is not subject to a geographical limitation.

The Court first examined the language of section 109(a) at issue – “lawfully made under this title” – and found that, read literally, it says nothing about geography and favors the non-geographical interpretation advanced by Kirtsaeng. The Court found that “lawfully made under this title” means made “in accordance with” or “in compliance with” the Copyright Act and, therefore, applied to copies made abroad. Justice Breyer also reasoned that a non-geographical interpretation gives meaning to each word in the phrase: “‘lawfully made’ suggests an effort to distinguish copies that were made lawfully from those that were not and ‘under this title’ sets forth the standard of ‘lawful[ness]’ (i.e., the U. S. Copyright Act).” In contrast, the interpretation advanced by Wiley, the Court found, “bristles with linguistic difficulties,” including that “neither ‘under’ nor any other word in ‘lawfully made under this title’ means ‘where.’ Nor can a geographical limitation be read into the word ‘applicable.’ ” The Court also noted that it was not clear that the Copyright Act has no application outside the U.S., which Wiley’s interpretation would require.

The Court found that both the historical and current statutory context of the first sale doctrine indicated that Congress did not have a geographic limitation in mind when it enacted the current version of section 109(a). According to the Court, the phrase “lawfully made under this title” was added to the current version of the Copyright Act only to limit its application to owners of lawfully made copies, as opposed to possessors of such copies. Noting that, like the current version of the first sale doctrine, the prior version said nothing about geographic limitation, the Court concluded that Congress did not implicitly introduce a geographical limitation when it enacted the current version of Section 109. The Court also noted that other aspects of the current Copyright Act favored application of the first sale doctrine to copies made abroad, including the fact that the current version of the Copyright Act omitted the so-called “manufacturing clause” (a clause in the prior Copyright Act that limited importation of copies of copyrighted works printed outside the United States) in order to treat copies manufactured in the U.S. the same as copies manufactured abroad.

The Court found that the first sale doctrine’s “impeccable historical pedigree” from the common law “makes no geographic distinctions” and therefore supported Kirtsaeng’s non-geographical interpretation of Section 109(a).

Finally, the Court noted that limiting the first sale doctrine to copies made in the U.S. would inhibit the constitutional objective of “promot[ing] the Progress of Science and useful Arts” by subjecting booksellers, libraries, museums, retailers and others, who have long relied on the protections of the first sale doctrine, to potential liability for displaying or distributing copies of copyrighted works made abroad. The Court rejected the argument that this “parade of horribles” was only theoretical and unlikely to occur, because the law in this area was, until now, unsettled, and a decision in Wiley’s favor would likely spur copyright owners to take action with respect to the resale of copies of copyrighted works made abroad.

Justice Ginsburg, joined by Justice Kennedy and, in part, by Justice Scalia, wrote a forceful dissent. She argued that the statutory language at issue – “lawfully made under this title” – is “most sensibly read as referring to instances in which a copy’s creation is governed by, and conducted in compliance with, [the Copyright Act],” which, according to the dissent, does not apply extraterritorially. The dissent also noted that the Court’s holding would greatly diminish the applicability of Section 602’s ban on unauthorized importations of copies of copyrighted works and would render meaningless exceptions to the importation ban for certain governmental, personal, scholarly, educational and religious purposes. Justice Ginsburg also contended that the Court’s decision would frustrate Congress’s intent in enacting the importation ban of enabling copyright owners to engage in “market segmentation,” whereby less expensive copies are sold in geographic regions where consumers are unable to afford more expensive copies. The dissent believed that the majority’s “parade of horribles” was unlikely to materialize, because most “downstream” resellers of copyrighted works made abroad would either obtain licenses from the copyright owner or successfully invoke the doctrines of fair use and implied license to defend infringement suits. Finally, Justice Ginsberg noted that the Court’s decision was inconsistent with the position taken by the United States in international treaty negotiations and was therefore “inconsistent with the long-term economic interests of the United States” and “risks undermining the United States’ credibility on the world stage.”

Columbia Pictures Industries, Inc. v. Fung, USCA Ninth Circuit, March 21, 2013
 Click here for a copy of the full decision.

  • Ninth Circuit affirms in part and vacates in part grant of summary judgment in favor of motion picture studios, finding defendants liable for contributory copyright infringement where their use of peer-to-peer file-sharing protocol BitTorrent induced third parties to download infringing copies of the studios’ copyright works.

Plaintiffs, motion picture studios, filed suit against the defendants, Gary Fung and his company, isoHunt Web Technologies, Inc., alleging that the services offered and websites maintained by the defendants induced third parties to download infringing copies of plaintiffs’ copyrighted works. Defendants’ websites use the BitTorrent peer-to-peer file-sharing protocol to collect and organize content files and, while not itself containing any copyrighted content, permits users to find and download such content from other users’ computers. In addition, each time a torrent file (a file containing information regarding a specific piece of content) is added to isoHunt, Fung’s flagship site, the site automatically modifies the torrent file by adding additional backup trackers to it, rendering the torrent files more reliable and better able to find the specific content than when they are uploaded to the site. Defendants also host an electronic message board, or forum, where users can post comments, queries, and other content, and on which Fung posted comments and also moderated. The district court granted plaintiffs’ motion for summary judgment, finding defendants liable for contributory copyright infringement for inducing others to infringe plaintiffs’ copyrights in their movies. The court rejected defendants’ argument that they were entitled to protection under the Digital Millennium Copyright Act’s safe harbor provisions and granted plaintiffs’ request for a permanent injunction. On appeal, the Ninth Circuit affirmed, holding that the defendants were liable for contributory copyright infringement on an inducement theory and that defendants were not entitled to safe harbor protection under the DMCA. The court also reversed and modified the district court’s award of a permanent injunction, holding that certain provisions of the injunction were too vague and unduly burdensome.

Citing to the standards set by the U.S. Supreme Court in its 2005 decision in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., the Ninth Circuit instructed that a defendant is liable for acts of infringement by third parties if the defendant distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement. As enunciated in Grokster, a claim for contributory infringement under the inducement theory has four elements: (1) the distribution of a device or product, (2) acts of infringement, (3) an object of promoting its use to infringe copyright, and (4) causation.

The court held that plaintiffs had carried their burden with respect to each element of their claim for contributory infringement. With respect to the first element, Fung argued that because he did not develop or distribute any device—that is, the software or technology used for downloading—he is not liable under the inducement rule enunciated in Grokster. Although the court acknowledged that the defendant did not develop and does not provide the client programs used to download media products, the court noted that Grokster applies to services as well as devices. Whether the service makes copies using machines of its own manufacture, machines it owns, or machines in someone else’s shop would not matter because copyright liability depends on one’s purposeful involvement in the process of reproducing copyrighted material, not the precise nature of that involvement.

Next, the court concluded that plaintiffs established the second element—acts of infringement—because they adduced evidence of actual infringement by users of Fung’s services. Both uploading and downloading copyrighted material, stated the court, are infringing acts. Based on statistical sampling, the plaintiffs’ expert averred that between 90 percent and 96 percent of the content associated with the torrent files available on Fung’s websites are for material that is either confirmed or highly likely to be infringing material.

The third element, which the court noted was usually dispositive, requires that the device or service be distributed with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps to foster infringement. Using the evidentiary categories applied in Grokster, the court concluded that there was more than enough unrebutted evidence in the summary judgment record to prove that Fung offered his services with the object of promoting their use to infringe copyrighted material. First, the court found that Fung actively encouraged the uploading of torrent files concerning copyrighted content by, among other things, prominently featuring a list of the highest-grossing “Box Office Movies” on his website. When a user clicked on a listed title, she would be invited to upload a torrent file for that movie. In other words, explained the court, she would be asked to upload a file that, once downloaded by other users, would lead directly to their obtaining infringing content. The court further noted that Fung posed numerous messages to his isoHunt website requesting that users upload torrents for specific copyrighted films. Second, the court found that Fung communicated a clear message by responding affirmatively to requests for help in locating and playing copyrighted materials. While the court cautioned that certain corroborative evidence would not be independently sufficient to establish the third element, it stated that Fung’s failure to develop filtering tools and other mechanisms to diminish the infringing activity, coupled with his generation of revenue from selling advertising space on his websites, further supported the conclusion that Fung acted with a purpose to cause copyright violations.

With respect to the causation element, both parties advanced competing interpretations. Fung argued that the acts of infringement must be caused by the manifestations of the distributor’s improper object, i.e., the inducing messages themselves. Plaintiffs, advancing a more lax causation requirement, maintained that they need only prove that the acts of infringement by third parties were caused by the product distributed or services provided. The court adopted the plaintiffs’ interpretation, but mindful of the potentially enormous reach of liability in the digital age, emphasized three points of caution. First, mere knowledge of infringing potential or of actual infringing uses does not subject a product distributor or service provider to liability. Second, when dealing with corporate or entity defendants, the relevant intent must be that of the entity itself, not on stray or unauthorized statements that cannot fairly be imputed to the entity. And third, proving that an entity had an unlawful purpose at a particular time in providing a product or service does not infinitely expand its liability in either temporal direction.

Turning to the defendants’ affirmative defenses under sections 512(a), (c), and (d) of the DMCA, the court found that Fung did not meet his burden of establishing these defenses. As an initial matter, the Ninth Circuit rejected the district court’s holding that inducement liability is inherently incompatible with protection under the DMCA safe harbors. The DMCA does not, instructed the court, exempt from protection any mode of copyright liability, including liability under the doctrine of inducement. Moreover, the court noted that the DMCA’s legislative history confirms that Congress intended to provide protection for at least some vicarious and contributory infringement. In addressing Fung’s affirmative defense under section 512(a), the Ninth Circuit noted that the district court should not have rejected this safe harbor on the ground that infringing materials do not pass through or reside on Fung’s system. The court explained that the statute contains no requirement that the communications must themselves be infringing. The court, nonetheless, concluded that Fung was not entitled to safe harbor under section 512(a) on other grounds. The court instructed that section 512(a) applies to service providers who act only as conduits for the transmission of information. Because Fung’s trackers select which users will communicate with each other, stated the court, they serve as more than “conduits” between computer users and are therefore not “service providers” for purposes of section 512(a). The court further held that defendants were not entitled to safe harbor under sections 512(c) and (d) because safe harbor under those provisions is available only if the service provider does not have actual knowledge that the material or an activity using material on the system or network is infringing. The court stated that Fung had “red flag” knowledge of a broad range of infringing activity. Moreover, instructed the court, a service provider loses protection under the safe harbor if two conditions are met: the provider receives a financial benefit directly attributable to the infringing activity, and (2) the service provider has the right and ability to control such activity. The court concluded that both conditions were met because defendants’ revenue stream is predicated on the broad availability of infringing materials for his users and they unquestionably had the ability to locate infringing material and terminate users’ access.

Finally, the court modified the district court’s grant of an injunction on the grounds that it was vague and unduly burdensome. First, the court noted that the injunction’s definition of a key phrase, “Infringement-Related Terms,” was too vague to provide the notice required by Rule 65(d). For example, the injunction prohibited Fung from including Infringement-Related Terms in metadata for any web pages. The definition of Infringement-Related Terms states that it includes “terms that are widely known to be associated with copyright infringement,” however, and the court concluded that no one reading the injunction could discern what that meant. Furthermore, stated the court, the injunction could be interpreted to prevent Fung from ever working for any technology company whose services others might use to infringe copyright, even if those other companies are not themselves liable for primary or secondary copyright infringement. Insofar as the injunction can be interpreted to prohibit Fung from seeking legitimate employment, stated the court, it is more burdensome than necessary to provide plaintiffs’ relief. Accordingly, the court held that the permanent injunction should be amended appropriately to limit the employment prohibition.

Larson v. Warner Bros. Entertainment, Inc., USDC C.D. California, March 20, 2013
 Click here for a copy of the full decision.

  • District court grants partial summary judgment in favor of defendants DC Comics and related entities, finding that a 2001 agreement in which plaintiffs, heirs to Superman co-creator Jerry Siegel, settled their dispute with defendants, remains enforceable and operated to transfer plaintiffs’ rights in Superman to defendants.

Plaintiffs Laura Siegel Larson and Joanne Siegel are the heirs to Jerry Siegel who, along with Joseph Shuster, created the comic book hero Superman in 1933 and sold the rights to Superman to the predecessor of DC Comics. In 1997, after Jerry Siegel’s death, plaintiffs served defendants with a termination notice to recapture their copyright interests in Superman. In October 2001, after four years of negotiations, plaintiffs’ former attorney, Kevin Marks, negotiated a deal with Warner Brothers’ former counsel, John Schulman, to transfer plaintiffs’ rights in Superman to DC Comics in exchange for substantial consideration. On October 19, 2001, Marks sent a letter to Schulman memorializing the terms of the settlement, and the parties proceeded to negotiate the terms of a long-form agreement. In May 2002, plaintiff Joanne Siegel sent a letter to defendants rejecting a February 2002 draft of the long-form agreement prepared by Schulman and asserting that the parties had no deal. Plaintiffs notified Marks in September 2002 that they were ending negotiations with DC Comics and terminated Marks as their lawyer.

In 2004, plaintiffs sued DC Comics and its parent company, Time Warner, Inc., and others, seeking a declaration that plaintiffs had recaptured their copyright interests in Superman. Defendants counterclaimed for breach of the October 19, 2001, agreement and for a judicial declaration that the agreement transferred or required plaintiffs to transfer their rights in Superman to DC Comics. In March 2008, the trial court granted partial summary judgment for the plaintiffs, finding that Marks’ October 2001 letter was not an enforceable contract.

On appeal, the Ninth Circuit reversed, finding that the October 19, 2001, letter from Marks to Schulman created an enforceable agreement. (Read our summary of the Ninth Circuit’s decision here.) The appellate court remanded the case to the district court for a determination on defendants’ counterclaims for breach of contract and declaratory relief. On remand, defendants moved for summary judgment asserting that the Ninth Circuit’s decision ended the matter and seeking a judicial declaration that plaintiffs’ rights in Superman had been transferred to DC Comics.

The district court granted summary judgment for the defendants, finding that the October 19, 2001, agreement continued to be effective. Plaintiffs argued that their May 2002 correspondence with defendants and their September 2002 letter to their attorney constituted rescission of the October 19, 2001, contract or established that defendants had abandoned, breached or acquiesced in plaintiffs’ rescission of the contract. The court disagreed, finding that while plaintiffs’ letters denied the existence of a contract, they did not rescind or allege a breach of the contract. The court also found that defendants had not abandoned their rights in, or acquiesced in the rescission of, the October 2001 contract, because they continued to assert their rights under that contract through more than eight years of litigation.

The court also held that plaintiffs’ breach of contract and rescission defenses were not properly before the court, because plaintiffs failed to raise these defenses earlier in the litigation, and plaintiffs were not entitled to raise these arguments for the first time after appeal. Because the October 19, 2001, agreement remained enforceable and transferred plaintiffs’ rights in Superman to defendants, the court granted summary judgment for defendants on their counterclaim.

The court also ordered additional briefing as to the effect of the Ninth Circuit’s decision on the rights to other properties, including Superboy and certain early Superman advertisements.

Ascend Health Corp. v. Wells, USDC E.D. North Carolina, March 14, 2013
 Click here for a copy of the full decision.

  • District Court grants defendant’s motion to dismiss plaintiffs’ copyright infringement claim, finding that it could dismiss the claim at the motion-to-dismiss stage based on an affirmative defense of fair use.

Plaintiffs—entities and individuals affiliated with a psychiatric facility in Texas—brought suit against defendant, a former patient at the facility, alleging copyright infringement based on her unauthorized use of images from plaintiffs’ website. Plaintiffs alleged that, following the dismissal of a lawsuit against some of the plaintiffs, defendant started two blogs in which she made defamatory statements about the plaintiffs, and she posted defamatory statements on Facebook, Twitter, and YouTube. In doing so, defendant used and reproduced copyrighted images taken from two of the plaintiffs’ websites, without authorization. The images included photographs of the psychiatric facility as well as an image of the facility’s logo. Plaintiffs asserted claims for copyright infringement for the unauthorized use of these images, as well as claims for defamation and business disparagement for the disparaging remarks. Defendant moved to dismiss all these claims, asserting as a defense to the copyright claim argued that her use of the images constituted fair use. The District Court agreed, dismissing the copyright infringement claim after applying the four fair use factors listed in 17 U.S.C. § 107: (1) the purpose and character of the use, including whether the use was commercial in nature and whether the use was transformative; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion of the work used; and (4) the effect of the use on the potential market for the work.

The court first noted that although fair use is a mixed question of law and fact, it can be decided at the motion-to-dismiss stage where the “defense’s applicability is apparent from the face of the complaint” and from any documents properly submitted for the court’s consideration. In this case, plaintiffs attached to their complaint copies of the web pages on which the defendant posted the images alongside the allegedly disparaging remarks in question. The court presumed that the second and third fair use factors were neutral since neither party addressed them. As to the first factor, the court found that the defendant used the images in connection with statements criticizing the plaintiffs, including, in at least one instance, claiming that a photo of the psychiatric facility misleadingly depicted better conditions at the facility than actually existed. According to the court, defendant’s use of the images were noncommercial and transformative, because she was using the images to criticize the plaintiffs, in contrast to plaintiffs’ use of the images to promote the psychiatric facility. As to the fourth factor, which it deemed the most important, the court found that while the defendant’s remarks arguably caused harm to plaintiffs’ business, her use of the images did not hurt the market for those images because the images themselves have no commercial value or market. Having found the first and fourth fair use factors to favor fair use, and the second and third factors to be neutral, the court dismissed the claim for copyright infringement.

For more information, please contact Jonathan Zavin at jzavin@loeb.com or at 212.407.4161.

Westlaw decisions are reprinted with permission of Thomson/West. If you wish to check the currency of these cases, you may do so using KeyCite on Westlaw by visiting http://www.westlaw.com/.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

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