September 2013: Trademark/Copyright Litigation Update - Ninth Circuit Affirms District Court Denial of Preliminary Injunction in Ad-Skipping Case.

by Quinn Emanuel Urquhart & Sullivan, LLP

On July 24, 2013, the Ninth Circuit Court of Appeals weighed in for the first time in the closely-watched copyright infringement and breach of contract dispute between satellite TV provider Dish Networks and Fox Broadcasting over Dish’s controversial ad-skipping “AutoHop” and “PrimeTime Anytime” technologies. The Ninth Circuit’s opinion in Fox Broad. Co., et al. v. Dish Network LLC, et al, No. 12-57048, 2013 WL 3814917 (9th Cir. Jul. 24, 2013)—the first case to reach the Ninth Circuit out of a trio of AutoHop/PrimeTime Anytime lawsuits brought against Dish by Fox, CBS and NBC—completely affirmed the Central District of California’s denial of preliminary injunctive relief in the case.

Dish’s AutoHop feature works in conjunction with Dish’s PrimeTime Anytime technology to allow customers to set their Dish receivers to (1) automatically record all primetime programming from each of the four major broadcast networks using their set-top boxes; (2) automatically store copies of that programming for up to eight days; and then (3) automatically skip all commercial breaks upon playback. Customers with AutoHop enabled only see the first and last few seconds of each commercial break. To create this functionality, Dish technicians in Wyoming are employed to manually view primetime programming from each of the four broadcast networks each night and technologically “mark” the beginning and end of each commercial break, transmitting files with the commercial breaks marked to subscribers’ set-top boxes, where they can be utilized by the AutoHop feature starting at 3 a.m. ET the following morning. To ensure the accuracy of its AutoHop feature, Dish employs three central devices to record and store “quality assurance” copies of the primetime block of programming of each of the four broadcast networks to test the “marked” files submitted to consumers and to ensure that no portion of any program has been inadvertently cut off by the manual marking of commercial breaks by Dish technicians. Fox Broad. Co., et al. v. Dish Network LLC, et al, No. 12-57048, 2013 WL 3814917, at *5-9 (9th Cir. Jul. 24, 2013).

Like CBS and NBC, Fox responded to Dish’s PrimeTime Anytime and AutoHop features by bringing suit against Dish in the Central District of California. Fox quickly moved for a preliminary injunction in the case, alleging that Dish’s AutoHop and PrimeTime Anytime functionality constituted both direct and indirect copyright infringement and breached Dish’s distribution contract with the network. The relevant distribution contract, among other things, prohibited Dish from (1) distributing Fox programs on an “interactive, time-delayed, video-on-demand or similar basis” except in the case of Fox Video On Demand where fast-forward-functionality was disabled; (2) recording, copying, duplication and/or authorization of the recording, copying, or duplication of Fox’s signal; and (3) frustrating or circumventing any portion of the distribution contract. Fox Broad. Co., et al. v. Dish Network LLC, et al, No. 12-57048, 2013 WL 3814917 at *5-6 (9th Cir. Jul. 24, 2013). The district court denied Fox’s request for preliminary injunctive relief, finding that Fox had not demonstrated a likelihood of success on the merits for most of its copyright infringement and contract claims, and failed to show irreparable harm for the limited claims with respect to which it did show a likelihood of success on the merits. Fox Broad. Co. v. Dish Network, LLC, 905 F. Supp. 2d 1088, 1102-06, 1108-11.

On appeal, the Ninth Circuit affirmed the district court in full. As to Fox’s claim of direct copyright infringement against Dish based on the PrimeTime Anytime feature, the Court held that although Fox had ownership of the copyrights of some of the shows recorded using this feature, the question of direct copyright infringement ultimately turns on “who makes the copy” and, as Dish’s customers had to enable PrimeTime Anytime, Dish could not be liable for direct infringement: “[o]perating a system used to make copies at the user’s command does not mean that the system operator, rather than the user, caused copies to be made.” Fox Broad. Co., et al. v. Dish Network LLC, et al, No. 12-57048, 2013 WL 3814917 at *12 (9th Cir. Jul. 24, 2013). Fox also could not establish a likelihood of success on the merits of its secondary copyright infringement claims against Dish for the AutoHop and PrimeTime Anytime features because the recording of primetime programming and the skipping of commercials constitute “noncommercial, nonprofit” fair uses on the part of consumers, in part because Fox does not own the copyright to “the ads in the commercial breaks” and so “commercial-skipping does not implicate any copyright interest.” Id. at *13-17. And although the last question was “much closer,” the “very deferential standard of review” applicable to preliminary injunctions was enough to convince the Ninth Circuit that the district court’s finding that Fox was not likely to succeed on the merits of its breach of contract claim should be affirmed notwithstanding that the AutoHop and PrimeTime Anytime features were probably covered by the term of the contract prohibiting Dish from distributing programming on an “interactive, time-delayed, video-on-demand or similar basis.” Id. at *20-22.

The question of Dish’s liability for creating “quality assurance” copies to support the functionality of its AutoHop feature was a somewhat different matter: the Ninth Circuit did not disturb the district court’s finding that Fox was likely to succeed on the merits of its copyright infringement and breach of contract claims relating to Dish’s “quality assurance” copies for AutoHop. Fox Broad. Co., et al. v. Dish Network LLC, et al, No. 12-57048, 2013 WL 3814917 at *24 (9th Cir. Jul. 24, 2013). The Ninth Circuit nevertheless affirmed the district court’s finding that preliminary injunctive relief was not justified with respect to these claims because any irreparable harm suffered by Fox “d[oes] not ‘flow from’ the quality assurance copies themselves, but from the entire AutoHop program…the record demonstrates that the AutoHop [marked files] are created using an entirely separate process and the quality assurance copies are used only to test whether this process is working.” Id. at *24. Irreparable harm was also not shown by Fox because “Fox’s existing licensing agreements could, at the very least, constitute a starting point or an aid in calculating damages.” Id.

Although not a final ruling on the merits of Fox’s case, the Ninth Circuit’s opinion provides a useful guidepost for disputes over content distribution by broadcasters and cable and satellite providers in an era of increasing technological change.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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