In a closely watched case attracting more than a dozen amici, the US Court of Appeals for the Second Circuit further clarified the boundaries of fair use, finding that a key element of this balancing test is “the effect of the [secondary] use on the potential market for or value of the copyrighted work.” Fox News Network, LLC v. TVEyes, Inc., Case Nos. 15-3885; -3886 (2d Cir., Feb. 27, 2018) (Jacobs, J). The Court referenced its 2015 decision in in Authors Guild v. Google (Google Books) (IP Update, Vol. 16, No. 12), in which it found that Google’s creation of a text‐searchable database of millions of books (including books under copyright) was a fair use because Google’s service was “transformative” and because integral features protected the rights of copyright holders. The Court cautioned, however, that Google Books “test[ed] the boundaries of fair use.” Here, the Court concluded that “TVEyes has exceeded those bounds.”

TVEyes is a for-profit media company offering a service that allows clients to sort through large quantities of television content using search terms in order to find clips that discuss items of interest to them. TVEyes records essentially all television broadcasts as they happen on more than 1,400 channels for 24 hours a day, every day, and copies the accompanying closed-captioned text to create a text-searchable transcript of the words spoken in each video. Using a text-searchable database, clients can input a search term to get a list of video clips that mention the term and then watch relevant video clips. Clips can be played for no more than 10 minutes, but a user can play an unlimited number of clips. Clients also have the ability to “archive” videos permanently on the TVEyes servers and to download videos directly to their computers. 

Fox brought a lawsuit for copyright infringement when TVEyes refused to stop using Fox’s programming after Fox refused TVEyes’ request to grant a license. The key legal question was whether TVEyes had a “fair use” defense to Fox’s copyright infringement claims. The question was limited to TVEyes’ “Watch function,” which allows clients to view up-to-10-minute-long unaltered video clips of copyrighted content. Fox did not challenge the “Search function” on appeal; that function allows clients to identify videos that contain key words of interest.

There are four statutory factors considered in a fair use defense: “(1) the purpose and character of the use . . . , (2) the nature of the copyrighted work, (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and (4) the effect of the use upon the potential market or value for the copyrighted work.” 17 USC § 107.

The first factor, the “purpose and character” of the use, looks at whether the use is transformative—that is, whether the use “communicates something new and different from the original or [otherwise] expands its utility.” Merely repackaging or republishing the original generally does not establish a fair use defense. Quoting from Google Books, the Second Circuit explained that in order for the copying to serve a transformative purpose, it must “communicate something new and different from the original.” As the Google Books Court noted, “the result of a word search is different in purpose, character, expression, meaning, and message from the page (and the book) from which it is drawn.” Similarly, the Court reasoned that TVEyes’ Watch function enhances efficiency by enabling its clients to view all of the Fox programming discussing a topic of particular interest to them without having to monitor the television programming and/or view entire programs to find the relevant segments.

When considering whether the nature of a secondary use is transformative, the “commercial nature” of the use can weigh against a finding of fair use, particularly when, as in this case, the transformative character of the secondary use is modest. Although the Watch function delivers content in a transformative manner, it is essentially republishing the content unaltered from its original form without adding any “new expression, meaning or message.” Thus, TVEyes clients use Fox’s broadcasts for the same purpose as authorized Fox viewers do: to learn the information reported. Overall, despite the commercial nature of the use, the Court found that the first statutory factor slightly favored TVEyes.

The second statutory factor, “the nature of the copyrighted work,” played no significant role in the Second Circuit’s analysis. There was no reasonable argument to be made that others may freely copy and re-disseminate news reports.

The third statutory factor, “the amount and substantiality of the portion used in relation to the copyrighted work as a whole,” looks at the amount of copyrighted work made available to the public rather than the amount of material used by the copier. Because TVEyes makes virtually the entirety of the Fox programming available to TVEyes users, the Second Circuit found that this factor clearly favored Fox. The Court distinguished the Google Books database from the TVEyes Watch function because while Google used the entire copyrighted work, it only made available snippets cumulating up to one page of the copyrighted work and had limitations in place to prevent users from compiling large, coherent blocks of text. TVEyes users can view all of the Fox programming they seek, with no limitations. Thus, the Court found TVEyes’ use of Fox’s content to be both “extensive” and inclusive of all that is “important” from the copyrighted work, making the third factor weigh in Fox’s favor. 

The fourth statutory factor, “the effect of the [secondary] use upon the potential market for or value of the copyrighted work,” is the single most important element of fair use. This factor examines the market harm caused by the actions of the alleged infringer and the market harm that would result from unrestricted and widespread conduct of a similar nature. The Second Circuit found that the success of TVEyes’ business model demonstrates that there is a multi-million dollar market for providing a service that allows certain consumers to search for and view selected television clips. By providing Fox’s content to TVEyes clients without payment to Fox, TVEyes is depriving Fox of licensing revenues from TVEyes or similar entities, or depriving Fox of its own right to exploit the market for this type of service. Because TVEyes’ action of selling access to Fox’s audiovisual content without a license deprives Fox of revenues to which Fox is entitled as the copyright holder, the fourth factor favored Fox.

Weighing all four factors, the court concluded that the balance of these factors strongly favored Fox and defeated TVEyes’ defense of fair use. The Second Circuit remanded the case to the district court to revise the injunction in accordance with this opinion, noting that any injunction should not bar the Search function.