Answer: YES, FAIR USE!

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The Court held that TVEyes’ service was fair use. You can read the entire opinion here.
As with so many fair-use decisions, most notably the recent one involving the movie Deep Throat, the fair-use analysis more or less turned on whether the defendant’s use was “transformative.” Although I thought the Deep Throat decision was correct, I criticized the way the court used transformativeness to determine all four fair-use factors. You get a little bit of that here, as well, but the case for transformativeness isn’t nearly so strong.
In this case, the court followed Hathi Trust and the Google Books decision for the proposition that “databases that convert copyrighted works into a research tool for further learning are transformative.” Evidently, it believed that, so long as it could distinguish Meltwater13I’m not sure what happened to Infinity Broadcast, the use had to be transformative. In distinguishing those decisions, the court focused on the difference between video and print media. In particular, the print that Meltwater used was easily available elsewhere, whereas the video in TVEyes wasn’t.

Unlike the indexing and excerpting of news articles, where the printed word conveys the same meaning no matter the forum or medium in which it is viewed, the service provided by TVEyes is transformative. By indexing and excerpting all content appearing in television, every hour of the day and every day of the week, month, and year, TVEyes provides a service that no content provider provides. Subscribers to TVEyes gain access, not only to the news that is presented, but to the presentations themselves, as colored, processed, and criticized by commentators, and as abridged, modified, and enlarged by news broadcasts.

That TVEyes makes a good deal of money from its service didn’t impress the judge at all. Thus, the first factor—“purpose and character of the use”—weighed strongly in favor of fair use.
The second factor—“the nature of the copyrighted work”—was a push. Normally, this factor weighs against fair use, but in this case, the copyrighted works at issue weren’t very creative. They were news programs, and the facts conveyed by the news programs were not subject to copyright.14On the other hand, in finding the use transformative, the court emphasized how you can’t replace the tone and emphasis—the most obviously creative parts of a news program—that only video provides.
The third factor—“the amount and substantiality of the portion used”—was also found to be a push, even though TVEyes records the entirety of the copyrighted programs. The court let the first factor’s finding of transformativeness dictate this factor. The court reasoned that TVEyes had to record the entirety of the programs in order for its service to work.
The court also found the fourth factor—“the effect of the use upon the potential market for or value of the copyrighted work”—to be a push. Although Fox News has a robust program for licensing its content, the court found that TVEyes’ service didn’t really substitute for Fox News’ licensing. The clips were too short, and it was too difficult to string them together to make an entire program. Further, although TVEyes’ subscribers could watch the entire clip, they actually watched, on average, about a minute of the clips each time—and often much less. They were, in short, using the service as intended.

Economics vs. Economic Incentive

A common thread runs through the Google Books decision, Hathi Trust and this decision: if the use of someone else’s copyrighted work provides a public benefit, it will be deemed a fair use. The legal vehicle for these decisions is transformativeness, but as I argued previously, these “transformations” are not what Judge Leval had in mind when he first invented the concept. Judge Leval did emphasize that the use had to be “productive” and “socially useful” to be “transformative,” but he meant that in connection with the creation of new works—like Lovelace—not the creation of new business models or ways of transmitting copyrighted works.
From the point of view of pure economics, these fair-use decisions make sense. In a perfect world, TVEyes would have obtained licenses from all of the copyright holders, who would negotiate sensible rates. But in the real world, there are too many rights holders, not all copyrighted works are available for licensing at any price (e.g., they’ve already been exclusively licensed), and TVEyes probably couldn’t reach agreements with a critical mass of content owners.
Thus, in the real world, without fair use, exactly nobody would benefit from TVEyes’ service. The rights holders would get no royalties, TVEyes would get no profits, and TVEyes’ customers wouldn’t get a valuable service. Under these fair-use decisions, an economist might point out, at least two of the three players “wins,” even if it’s at the rights holders’ expense15Since TVEyes doesn’t have to pay royalties, its expenses are less than they would otherwise be, and TVEyes probably pockets part of those savings as profit and passes the rest on to its customers., and that’s a lot better than nothing.
But this isn’t how copyright law’s system of economic incentives is supposed to work. We put the rights holders in the driver’s seat, to decide what to do with the copyrights they own. We assume they’re best positioned to best exploit their works, and the public benefits thereby. This has been the system since modern copyright law was first developed in the 18th Century.
Do we have the sense that this system isn’t working very well any more? It’s true that copyright’s economic incentive model comes under strain when multiple rights holders are involved because it causes each right holder to overvalue its right because each one is equally capable of holding the entire project hostage.16It’s a kind of prisoner’s dilemma. Imagine if you needed ten licenses to make a lucrative project happen. If you got nine easily but there was one hold-out, the hold-out could negotiate a higher price. That would annoy the other nine. Foreseeing this, then, all ten rights holders will treat itself like the lone hold-out and price its license accordingly. Furthermore, rights holders are bewildered at the ever-shifting distribution models and ever-multiplying choices, and they are enraged by blatant acts of piracy. They are thus very cautious about new licensing opportunities, and sometimes just obstinate. As a result, the public, which is also presented with an array of delivery options, feels deprived (and sometimes a bit petulant), which in turn fuels piracy and puts additional pressure on the rights holders.
Any solution to this problem will involve somehow getting money into the rights holders’ pockets without torpedoing the useful business models. There are ways to achieve this, but they would involve weakening fair use, bringing some rationality to damage awards and thinking in terms of “efficient infringement” of copyright—concepts that won’t fly very far with many of the stakeholders.
Thanks for reading!

Rick Sanders

Rick is an intellectual-property litigator. He handles lawsuits, arbitrations, emergency injunctions and temporary restraining orders, opposition and cancellation proceedings, uniform dispute resolution proceedings (UDRPs), pre-litigation counseling, litigation avoidance, and other disputes, relating to copyrights, trademarks, trade secrets, domain names, technology and intellectual-property licenses, and various privacy rights. He has taught Copyright Law at Vanderbilt University Law School. He co-founded Aaron | Sanders with Tara Aaron-Stelluto in 2011.