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The Saga of VidAngel (Or, The Dangers In Setting Up An Unauthorized Digital Streaming Platform)

by Daniel B. Lifschitz

Fig. 1: VidAngel, as it sees itself.

Fig. 1: VidAngel, as it sees itself.

With every new advancement in the delivery of entertainment comes a slew of third parties looking to capitalize on it, often without seeking the permission of copyright holders to do so. The advent of video recording devices gave rise to the Betamax machine, and consequently the Supreme Court case of Sony v. Universal. Similarly, the rapid proliferation of Internet access ushered in a wave of peer-to-peer file sharing programs for trading copyrighted content, culminating in the Supreme Court case of MGM v. Grokster. Even digital streaming has had its time in the Supreme Court thanks to Aereo, which tried allowing subscribers to digitally stream television ptograms recaptured from over-the-air broadcasts - and while the case resulted in a decisive loss for Aereo, it has not deterred upstarts intent on riding the lucrative wave of Netflix-like digital streaming without the hassle or expense of seeking licenses from copyright holders first.

The latest upstart, VidAngel, has taken a slightly more unorthodox approach to its offering than its predecessors in the field did. Billing itself as a family-friendly alternative to existing streaming options, VidAngel made waves by allowing customers to "buy" movies from it for $20, stream them over the internet, then "sell" the films back to VidAngel for $19 in credit (less $1 for each additional day the films were kept). However, this setup -- intended as it was to creatively avoid claims of copyright infringement -- has not fared well in the courts to date, and all signs currently point to VidAngel ultimately being enjoined out of the market entirely. As such, it is useful to see just how we got here in order to see why these start-ups just can't get over their copyright hurdles.

The History of Streaming

A. The Legal Backdrop

While digital streaming has only come into its own over the last decade, the history of streaming actually stretches back to the analog era of VHS cassettes and physical rentals. The ability for a video rental store to operate hinged, as it still does today, on a portion of copyright law known as the "first sale doctrine," which restricts a copyright owner's ability to prevent members of the public from reselling lawfully-purchased or received copies of the work. Under the first sale doctrine, codified at 17 U.S.C. § 109, once that copy leaves the copyright holder's hands, it can be freely resold or rented on the secondary market without any obligations to the copyright holder. This allows video stores that purchase authorized copies of a film to turn around and rent those copies to members of the public without violating copyright law.

What the first sale doctrine does not allow, however, is exercising rights of copyright other than distribution, such as public performance. In other words, the owner of a copy of a film may sell or rent that copy without permission of the copyright holder, but cannot put on a public screening of that film, either (a) by performing it "at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered;" or (b) "transmit[ting] or otherwise communicat[ing] a performance or display of the work to such an audience by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times." 17 U.S.C. § 101. Thus, owners of copies still required the permission of copyright holders to play those copies in a place open to the public, or to transmit them generally to members of the public. 

B. The Analog Era

Video Rental Stores

With the understanding that copyright holders controlled the public performance of their works, the next question became what constitutes a public performance? The question came up in cases such as 1984's Columbia v. Redd Horne, in which the Third Circuit held that a video store's rental of cassettes for viewing in on-site private screening rooms constituted public performance of those cassettes. Although the rooms were ostensibly private, they were made available to any member of the public willing to pay, and because the rental store operated the VCRs that played the tapes centrally (piping their video feeds into the rented rooms), the store effectively controlled and was responsible for the actual performance of the tapes.

While the element of centralized control was highly relevant to the court in Redd Horne, it proved to not be dispositive in later cases, such as 1986's Columbia v. Aveco, which involved private room rentals where patrons manually viewed tapes obtained from the adjoining store. While the store did not centrally control the performances, they were still found liable for "authorizing" performances, which were once again deemed to be "to the public" by dint of the fact that anyone could rent a room (even if the individuals viewings were limited to small groups). In the Aveco court's view, Redd Horne did not turn on the location of the VCRs nor the occupancy of the viewing room. It was enough that the space was open to the public and the cassettes available to the same.

Hotel Rooms

An interesting quirk arose in the context of hotel rooms, which got courts to focus in much more on the streaming (or "transmitting") aspect of a public performance. This is because hotel rooms (as opposed to video rental rooms), once rented, were not considered public spaces. As such, a finding of copyright infringement was forced to hinge on the particular method in which rented videos were performed. In Columbia v. Professional Real Estate, for example, a hotel's rental of cassettes that customers physically took back to their' rooms to watch was not infringing, because the hotel's primary business was to provide lodging, and so the rentals (being incidental to that business) were not truly "to the public."

In contrast, while 1991's On Command Video v. Columbia reconfirmed that guest rooms in a hotel were not "public places" under copyright law, the hotel was still found liable for copyright infringement. The distinction? Unlike the defendant in Professional Real Estate, the hotel in On Command Video had used a central control mechanism like that found in Redd Horne to "communicate" videos by a "device or process" -- the equipment and wiring network in the hotel -- to individual guest rooms, where the images and sounds were received "beyond the place from which they are sent." While the hotel guests were not watching those transmissions in a "public place,” they were nonetheless members of "the public." By providing two definitions of a public performance under the Copyright Act, Congress had made sure that performances could still be "public" by transmission "whether the members of the public . . . receive it in the same place or in separate places and at the same time or at different times,"

C. The Digital Era

The "One User, One Copy” Rule

Once analog technology gave way to digital, streaming capabilities began to stretch beyond the on-site consoles of Redd Horne and On Command Video to encompass transmissions from around the world. This came to a head in the case of Cartoon Network v. CSC Holdings, when Cablevision was sued for copyright infringement for providing a remote DVR system that allowed customers to digitally record shows on hard drives under Cablevision’s control and stream the recorded programs to their homes. The court concluded that because each performance offered by Cablevision was made to a single subscriber using a single unique copy of a program produced by that subscriber (and sanctioned under the fair use doctrine), such transmissions were not performances "to the public" within the meaning of the Copyright Act. Although only a Second Circuit decision, the Cablevision decision birthed a common wisdom in the industry known as the "one user, one copy" rule -- a presumption that any system modeled after Cablevision's essential principles would fly under copyright law.

The Transmit Clause Still Prevails

The truth, however, proved a bit more nuanced than that, as defendants discovered in 2011's Warner Bros. v. WTV Sys. The defendant in this case operated a service known as Zediva, which allowed customers to “rent” access to one of hundreds of DVD players sitting in a warehouse, which would then digitally stream a DVD housed in the player directly to them. The court compared Zediva’s “rental service” arguments to those found in On Command, noting that Zediva's technology clearly transmits performances "directly under the language of the [copyright] statute." Furthermore, the court rejected application of the Cablevision and Professional Real Estate cases to Zediva, noting that “Defendants' customers do not produce their own unique copy of [a film]. Instead, like On Command and Red Horne, the same DVD is used over and over again to transmit performances of Plaintiffs' Copyrighted Works. Moreover, the service access an online copy of the film that has bypassed the digital rights management on the disk

Many copyright skeptics have quibbled with the inherent logic of these decisions, arguing that the only real difference between a system like in Aveco and a system like Zediva is the length of the cable transmitting the performance and who physically possesses the copy being watched. Nevertheless, these are real and substantive distinctions under copyright law, intended to separate the value and utility of each constituent right in the bundle of rights provided by the Copyright Act, and start-ups in the public performance space ignore them at their own peril.

Enter VidAngel

A. The VidAngel Service

VidAngel, the latest entrant in the long line of technology companies aiming to break through the copyright monopoly of streaming services, first appeared on the scene in 2016, when it offered streaming of the latest Star Wars film long before authorized streaming services could. While its "buy it for $20, sell it back for $19" system raised many eyebrows at the time (particularly since all streaming took place from "master" copies of the films on VidAngel's servers rather than from the individual DVDs ostensibly being purchased), what truly made the service unique was that customers also had the option to filter out violence, profanity, and nudity from each of the films they purchased - hence the "angel" in VidAngel.

In this way, VidAngel hoped to justify the fact that it had bypassed the digital rights management systems on the DVDs it acquired by taking advantage of an obscure law known as the Family Home Movie Act of 2005, which permits the use of technology to "sanitize" potentially offensive content without committing copyright infringement thereby. Initially intended to safeguard ClearPlay, a company that marketed DVD-sanitizing technology, VidAngel decided to creatively piggyback the law onto its business model by allowing its customers to set equivalent filters as part of a streaming (rather than DVD) setup, arguing that it was technologically necessary to break the digital rights management in order to accomplish the sanitizing. Of course, however, this did not stop the film industry from going on the attack.

B. The Injunction

In December of 2016, Warner Bros., Disney, and 20th Century Fox obtained a preliminary injunction against VidAngel. The district court judge ruled that even if VidAngel's buy/sellback service gave customers valid ownership interests in the DVDs, "this ownership would only apply to the physical DVD, not the digital content that VidAngel streams to paying subscribers," In fact, because VidAngel subscribers actually streamed from a master copy of each film stored on a VidAngel server rather than from the actual DVD ostensibly temporarily "owned" by the user, it seemed unlikely that VidAngel even rose to Zediva's level of compliance on the issue. Furthermore, the court held that "lawful ownership of a DVD only conveys authorization to view the DVD, not to decrypt it for the purpose of viewing it on an alternative platform." The Family Home Movie Act was held to not serve as the legal Spackle that VidAngel was hoping for either, as "[t]he statute clearly requires that a performance or transmission of filtered content must come from an 'authorized copy' of the motion picture," which the cracked "master" copy offered by VidAngel did not satisfy.

C. The Aftermath

While VidAngel has so far found little success in the courts, the company has been consistently defiant, first in timely complying with the injunction handed down by the district court, then in waiting for the Ninth Circuit to rule on the validity of the injunction. Instead, the company completely revamped their platform to transition from a buy/sellback model to a pure filtering service, seemingly in a genuine attempt to be the streaming version of ClearPlay. Customers would now link authorized streaming services (such as Netflix and HBO) to VidAngel, which would then filter out profanity, nudity, and violence, all while seemingly ensuring copyright holders were still getting paid for authorized streams of their content.

Had this been VidAngel's intent all along, it is unlikely that copyright holders would have raised any issues with the company. After all, the ability for third parties to offer services that modify copyrighted content in real time without actually infringing those copyrights stretches back at least to 1992's Galoob v. Nintendo, wherein the district court compared usage of cheat code hardware on a video game system to "skipping portions of a book" or fast-forwarding through a purchased movie -- literally the circumstances found here. However, the defendant in Galoob never attempted to bundle copies of the video games it modified with the cheat code hardware it sold, and by first attempting to cut copyright holders out of the picture entirely, VidAngel ensured that any subsequent steps taken, regardless of purported intent, would come under continued harsh scrutiny.

And indeed, that is exactly what has occurred. As of last week, the major studios have requested that the court let them undertake a thorough examination of VidAngel's new service and the systems behind it. Specifically, they noted that a declaration from VidAngel's general counsel seemed to suggest that despite linking to customers' accounts on authorized video-on-demand services, the subsequent streams passed through VidAngel's platform were, in fact, originating from VidAngel's own "master" copies of copyrighted works, rather than the authorized services themselves. In this way, VidAngel would appear to be treating the customer's VOD account as a "green light" to stream separate copies of works in the same way it viewed the "purchase" of a DVD on the old platform, once again flouting the strictures of copyright law to its own detriment. The injunction is currently on appeal to the Ninth Circuit (oral argument, viewable below, was taken on June 8th), with other aspects of the case remaining before the District Court.

 
 

Conclusion

Based on both its conduct to date and the general trajectory of the unlicensed streaming services that came before (few if any of which are still around to tell their tales), it seems doubtful that VidAngel will find much legal success in the weeks and months ahead. While some of this can be attributed to the defiant tone it has taken, litigants typically do not fail based on tone alone -- rather, a significant body of case law has been forged to demarcate where a copyright owner's ability to control the performance of its works ends, and to date, few (if any) streaming services have been able to build their platforms outside those lines. For now, until we see either a legal or technological sea change in the field, any start-ups seeking to cannibalize copyright holders' streaming revenues with their own particular brand of streaming should expect both fierce resistance from the industry and little support from the judiciary.

Pierce Law Group LLP