About the author: Irene Rajagopal is an international business and copyright lawyer with  legal experience in U.S. and China. Irene is the founder of PAPER Law Office and licensed to practice law in Washington State. Irene helps clients to complete the copyright registration at U.S. Copyright Office and review the licensing agreements. Her office is located in Bellevue, Washington State. She can be reached at irene@irenerajlaw.com. Please feel free to click here to visit the website of PAPER Law Office PLLC (http://www.paperlawoffice.com). 

by Irene Rajagopal, PAPER Law Office PLLC

The Ninth Circuit Court of Appeals made its first interpretation on the legal authorization of filtering process under the Family Movie Act of 2005 (“FMA”), as an affirmative defense to copyright infringement claims in Disney Enterprises, Inc. v. VidAngel, Inc., 869 F.3d 848 (9th Cir. 2017), where the Ninth Circuit Court decided in favor of the Studios to grant an injunctive relief.

FMA's  Statutory Language 

FMA provides an exception of copyright infringement on the filtering process or the technologies of such filtering process of household movie viewing.  

The statute provides, in relevant part:

Notwithstanding the provisions of section 106, then following are not infringements of copyright:

[...] the making imperceptible, by or at the direction of a member of a private household, of limited portions of audio or video content of a motion picture, during a performance in or transmitted to that household for private home viewing, from an authorized copy of the motion picture, or the creation or provision of a computer program or other technology that enables such making imperceptible and that is designed and marketed to be used, at the direction of a member of a private household, for such making imperceptible, if no fixed copy of the altered version of the motion picture is created by such computer program or other technology.

17 U.S.C. § 110(11).

Background

In Disney Enterprises, Inc. v. VidAngel, Inc, the defendant-appellant VidAngel spent “millions of dollars” buying the DVDs or blue-ray discs of the new released movies, most of these movies are not available at online streaming platforms yet. VidAngel labels each physical copy of the discs with a unique barcode, rip the content into “intermediate copies” by removing the technological protection measures, and add tags to the digital content for filtering purpose. VidAngel’s customers buy a certain copy of DVD or blue-ray disc online and select at least one objectionable content. Then customers can view the movies through digital platforms when VidAngel filters the objectionable content and streams the movies to customers.

There is a tricky part. Customers, after viewing the movies, can sell back the DVD or blue-ray discs to VidAngel for the original purchase price less $1 for standard definition per night or $2 for HD per night. The most customers have never required for  the delivery of the discs, but rather just they viewed the movies and sold back the legal ownership of the DVD to VidAngel. VidAngel kept the possession of such discs from beginning to end. The plaintiffs-appellees called this “buy-sellback” as “a sham”. [1]

FMA Defense

When the studios (Disney, Twentieth Century Fox Film, Warner Brother Entertainment) brought the copyright infringement claim and the claim of circumvention of access control measures, one of VidAngel’s defenses is that its operation is in compliance with the exception under the FMA.

To defend claims of reproduction right claim and public performance claim, VidAngel argues its filtering process complies with FMA exemption.

• The creation of the “intermediate copies” is exempted for reproduction right claim, because FMA permits a filtered stream “from an authorized copy”, and VidAngel’s filtering processes begins from an authorized copy.
• FMA is a complete defense to the public performance claim, because the transmission is not public as VidAngel filters the content tailored for each customer and stream the content to such customer. At the moment of the streaming, such customer was the legal owner of the underlined DVD or blue-ray discs.

The Ninth Circuit Court rejects VidAngel’s arguments:

First, as suggested by the statutory heading “Limitations on exclusive rights: Exemption of certain performances and displays”, FMA provides an exemption to “compliant filtered performances, rather than the processes that make such performances possible”. [2] In addition, there is text limitation on the exemption, reading as “no fixed copy of the altered version of the motion picture is created by such computer program or other technology”. [3] The exemption shall not expand to the reproduction right, therefore making an unauthorized copy shall not be legalized by virtue of FMA. In this case, VidAngel created digital, altered copies before the filtering and streaming.

Second, the key phrases in the statute is filtering “from an authorized copy”. The Ninth Circuit Court held that the most natural reading of the statutory language is that, “the filtered performance or transmission itself must be ‘from’ an authorized copy of the motion picture.” [4] It shall not be read as a process that begins with an authorized copy.

Finally, the Ninth Circuit Court held that VidAngel’s interpretation will create a giant loophole in the copyright law:

“… [V]irtually all piracy of movies originates in some way from a legitimate copy. If the mere purchase of an authorized copy alone precluded infringement liability under the FMA, the statute would severely erode the commercial value of the public performance right in the digital context, permitting, for example, unlicensed streams which filter out only a movie's credits. See 4 Patry on Copyright § 14:2 (2017).” [5]

Disruptive Technologies on Existing Business Models?

The economics behind this case is the major studios' business model to release movie through "windows" in sequence of movie theaters, sale or rental of physical DVD or blue-ray discs, sale of digital downloads, on-demand for short-term online viewing, subscription of online viewing. 

VidAngel provides online filtering services that causes disruption of the orderly "windowing" business model, where the licensees paid huge amount to obtain the license in certain window. The Ninth Circuit therefore held there is "irreparable harm".

On the other hand, there may still be a question, whether a narrow and technical interpretation of the FMA will in fact make the online filtering services impossible, even if an online service provider does not create a "sell-buyback" options. 

[1] See Plaintiffs-Appellees’s answer, page 8.

[2] See Disney Enterprises, Inc. v. VidAngel, Inc., 869 F.3d 848, 858 (9th Cir. 2017).

[3] See Disney Enterprises, Inc. v. VidAngel, Inc., 869 F.3d 848, 857 (9th Cir. 2017).

[4] See Disney Enterprises, Inc. v. VidAngel, Inc., 869 F.3d 848, 858 (9th Cir. 2017)

[5] See Disney Enterprises, Inc. v. VidAngel, Inc., 869 F.3d 848, 859 (9th Cir. 2017)

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