Transformative Use Won’t Transform into a Monster, After All

If you are a frequent player of “Is It Fair Use?”, the exciting game in which I give you a fact pattern and you try (and fail) to guess whether the use was fair or not[ref]And, really, who isn’t?[/ref], then you surely remember the TVEyes case back in October 2014. Here’s how I described TVEyes’ service:

TVEyes charges $500 a month to monitor about 1400 television and radio stations, 24 hours a day, seven days a week, for certain keywords and phrases that are important to you. The service is invaluable to anybody that has to keep up-to-date on current events, such as politicians, public-relations firms, the military and law firms. It’s also useful to police and health departments for tracking how well their public messages are getting out: if the police issue an “Amber” alert, they like to know whether the report really is being reported adequately by the local media.
When you log on to your TVEyes account, you’re given a list of all instances where TVEyes detected the keyword or key-phrase. You can drill down on each instance by clicking on it. You’re then presented with a transcript showing the immediate context for the keyword and a thumbnail (if it’s a TV show) of an image of the show. If you click on that, your browser plays a copy of the broadcast, together with a running transcript, starting 14 seconds before the keyword is mentioned. It appears that, if you really wanted to, you could rewind the clip to its beginning and watch the whole thing, but apparently, as practical matter, hardly anyone does that. The video clips are no more than ten minutes long, and most are less than two minutes long. They remain on the TVEyes website for 32 days, but subscribers can download them and keep them indefinitely.
TVEyes achieves this useful functionality (and much more) by recording the 1400 channels continuously, and grabbing transcripts where available from close-captioning and the like. The transcript is crucial because otherwise the clips wouldn’t be searchable, and, if you think about it, search-ability is what TVEyes is primarily selling. Presumably, TVEyes then chops up its recording into these shorter clips[ref]Though I’m not sure what criteria it uses to end one and start another. (Original note.)[/ref] It stores these clips on its own servers, and prepares everything for its paying subscribers to play them back.
TVEyes pays nothing to the owners of the copyright in the TV and radio programs that are copied, stored and played back.

One of the newscasters, Fox News, objected to this arrangement and sued[ref]Query: why didn’t anyone else sue? Does TVEyes have licensing arrangements with the other news broadcasters?[/ref]. Now, not to spoil anything if you haven’t played this round of “Is It Fair Use?”, but the trial court ruled against Fox. It held that TVEyes’ wholesale copying and partial public performance of Fox’s content was fair use. The trial court’s decision turned mostly on “transformative use,” a concept first advanced by Judge Leval (of the Second Circuit, natch). Here, let me just quote his key paragraph describing it:

I believe the answer to the question of justification turns primarily on whether, and to what extent, the challenged use is transformative. The use must be productive and must employ the quoted matter in a different manner or for a different purpose from the original. A quotation of copyrighted material that merely repackages or republishes the original is unlikely to pass the test; in Justice Story’s words, it would merely “supersede the objects” of the original. If, on the other hand, the secondary use adds value to the original – if the quoted matter is used as raw material, transformed in the creation of new information, new aesthetics, new insights and understandings – this is the very type of activity that the fair use doctrine intends to protect for the enrichment of society.

In connection with this and other cases, I have been growing concerned that “transformative use” was threatening to take over fair use. Judge Leval had described it as a way of thinking of the first fair-use factor—the “purpose and character of the use”)—so even he acknowledged that there, in fact, four fair-use factors. The other three factors are: 2. “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 for or value of the copyrighted work.” In my humble little opinion, all of the factors are important, though courts usually place the most importance on the first and fourth factors. I detail the four factors here, though that post is getting a bit dated.
The problem was that courts were inserting transformative use into all of the factors. The second factor just gets ignored, as it does. The third factor becomes: did the defendant use more than necessary to carry out the transformative use? In the fourth factor, transformative use becomes a proxy for market harm: the more transformative, the less harmful. But I felt that even major transformations should still be subject to the rigors of the other factors.
This problem becomes critical if courts treat transformative use as an all-or-nothing proposition. And they do. But it’s a bad idea. One can easily imagine different uses that are more and less transformative than other uses. Cutting up photographs to use in a collage is very transformative. Just painting a guitar over a photograph is still transformative, just not very much.[ref]To take a completely random example.[/ref] The danger here is not only does this distort the first factor, but because of the effect on the other factors, it distorts all of the factors. If minor transformative uses become presumptively fair uses, we’re going to see a lot of business models based on locating the minimal viable transformative use of others’ works.
The trial court’s ruling in TVEyes, it seems to me, was a big step in this direction. The trial court regarded transformative use was a close question, but held the search function made the use transformative (even though the search function was separable from the playback function). It then found all of the other factors to have been essentially neutralized by that finding. If, on appeal, the Second Circuit not only affirmed the ruling but also adopted this reasoning, we would be maybe a case or two away from the complete conquest of fair use by transformative use.
I wasn’t necessarily hoping for a reversal by the Second Circuit of the TVEyes decision (though I really didn’t think it was fair use). What I was hoping for was a refutation of the trial court’s reasoning on transformative use. And that’s what I got.
The Second Circuit, bless its heart, found TVEyes’ service “at least somewhat transformative.” Not just “transformative,” but a little bit. It accepts that technological transformation—into a format more convenient or more efficient—is a form of transformative use, but a minor one. We perhaps shouldn’t call this “transformative” but “value-added,” but either way, it belongs in the first factor. Read the full opinion here.
The Second Circuit then looked at the commercial nature of TVEyes’ service, commercial use being a sub-factor of the first factor. The trial court had ruled that commerciality was never applicable to transformative uses (essentially neutralizing that sub-factor). On appeal, the Second Circuit held the commercial use was applicable and did weigh against fair use, though with what might be a caveat: “And [it weighs against fair use] especially when, as here, the transformative character of the secondary use is modest.” I don’t know if this means commercial use is still inapplicable where the transformative use is strong, but it does imply some relationship between the two. This doesn’t seem helpful to me. Commercial use should always be relevant—it’s specifically mentioned in the statute. Sure, it can be overwhelmed by highly transformative uses, but that’s just weighting, not some kind of sliding scale.
The Second Circuit then handled the other part of my concern. It proceeded to find that some of the remaining factors weighed against fair use, despite the transformative use. In fact, it found TVEyes’ service not to be fair use, despite the minor transformative use. If you are ever confronted by an argument that transformative use predisposes all factors in favor of fair use, I think you cite TVEyes against that.

And So the Remaining Fair-Use Factors Were Saved from the Beast (but the Second Factor Died Anyway)

Speaking of the remaining factors, the Second Circuit’s treatment of them is worth discussing. The treatment of the second factor is… weird. The court just passes over it: “This factor has rarely played a significant role in the determination of a fair use dispute, and it plays no significant role here.” Yes, but it’s still a factor. At least explain why its role is not significant. Is it because news shows are a mixture of protectable and non-protectable elements, and so it’s a push?[ref]Maybe that’s what the court is getting at here. The court spares a short paragraph to reject TVEyes’ argument that factual nature of the programming means the second factor disfavors fair use.[/ref]
The court takes the third factor seriously as an independent factor. The court accepts the wholesale, behind-the-scenes copying of the TV programs as a necessary and harmless step in providing TVEyes’ service. We’re not supposed look under the hood, right?[ref]I’m being snarky. People who favor stronger copyright were excited about the recent ruling that embedding tweets can infringe the copyright of photographs attached to those tweets, especially because the court in that case invoked the Supreme Court’s decision in Aereo to a caution against looking under the hood to see how copyrighted works are actually being treated by the technology. As I pointed out, this cuts both ways. And this is one of those times it cuts the other way.[/ref] Instead, it focused on what the consumers actually experience and finds that they experience rather too much. A ten-minute clip of TV programming is actually quite a lot of content. It’s probably more than the entire segment the customer was interested in. And it’s hard to imagine any ten-minute segment of a news program that isn’t important to the program as a whole.
The fourth factor… is interesting. Except in rare instances where the parties are using the copyrighted material in the same market, this factor must focus on potential markets. If the potential market already exists, but the copyright owner just isn’t taking advantage of it, the analysis is fairly easy. Similarly, if the market is purely hypothetical or unsustainable or stupid, the analysis is easy. But what if the infringing party is the one creating the market, the market is something the copyright owner didn’t even envision, and the market is successful?
Fox licenses news clips, but it doesn’t provide a service like TVEyes. Maybe it should, but it doesn’t. In the Second Circuit’s view, TVEyes’ success with the market it invented was the determining factor:

The success of the TVEyes business model demonstrates that deep‐pocketed consumers are willing to pay well for a service that allows them to search for and view selected television clips, and that this market is worth millions of dollars in the aggregate. Consequently, there is a plausibly exploitable market for such access to televised content, and it is proper to consider whether TVEyes displaces potential Fox revenues when TVEyes allows its clients to watch Fox’s copyrighted content without Fox’s permission.

OK, fine. But it was hardly guaranteed that TVEyes’ aggregation-search-and-download service would be a success. At the time TVEyes should have asked Fox for a license, we didn’t know if there was a non-hypothetical potential market. It was like Schrodinger’s market: both hypothetical and non-hypothetical until you infringe.
But later success might be the only proxy for probability of a real future market, and we might just have to live with it. If so, this means living with some paradoxes. Actors like TVEyes might not know if they need a license until after they’re successful. Copyright owners like Fox might lose easy revenue because no one thought to ask for a license. Consumers might be deprived of very useful services because the resulting legal dispute (which tends to solidify parties’ positions and increase distrust) destroys the very useful service, one way or another.[ref]In this case, I believe TVEyes’ customers would just lose a feature, not the entire service.[/ref] If you wonder why innovators prefer to seek forgiveness instead of permission, this is one reason. All I can suggest is that the innovators plan for success and set aside money for the legal dispute.[ref]In this case, TVEyes is a big enough company that it could afford to go toe-to-toe with Fox. Also, the technology at issue isn’t that central to TVEyes’ overall revenue, which relies on monitoring, not viewing.[/ref]
There’s a temptation I would like us to all avoid. The temptation is to see that Fox is big enough and sophisticated enough to have created the potential market, and that Fox’s size and sophistication becomes a reason to weigh the fourth factor against fair use. The size and sophistication of the copyright owner should have nothing to do with it. A small copyright owner should not be put at a disadvantage just because it’s small.
Thanks for reading!

Rick Sanders

Rick is the litigation half of Aaron & Sanders, PLLC; and, from 2012 to 2014, an adjunct professor at Vanderbilt University Law School, where he was teaching Copyright Law. Vandy also happens to be where he got his law degree in 2000. After graduation, he practiced at a major intellectual-property law firm in Silicon Valley for a few years. He returned to Nashville in 2004, where he worked for a large Nashville firm, practicing as much intellectual-property law as he could, but also a lot of commercial law. He left that firm in 2011 to start Aaron & Sanders with Tara Aaron, so he could practice intellectual-property law full time and work with start-ups and other non-institutional clients.