991 F.2d 511 (1993)

Nos. 92-55363, 93-55106.

Argued and Submitted June 4, 1992.
Submitted February 24, 1993.^[1]
Decided April 7, 1993.

[512] [513] William J. Robinson, Graham & James, Los Angeles, CA, for plaintiff-appellee.

James W. Miller, Musick, Peeler & Garrett, Los Angeles, CA, for defendants-appellants.

BEFORE: PREGERSON, BRUNETTI, and FERNANDEZ, Circuit Judges.

Argued and Submitted June 4, 1992 in No. 92-55363.

Submitted February 24, 1993 in No. 93-55106.^[1]

BRUNETTI, Circuit Judge:

Peak Computer, Inc. and two of its employees appeal the district court's order issuing a preliminary injunction pending trial as well as the district court's order issuing a permanent injunction following the grant of partial summary judgment.

I. FACTS

MAI Systems Corp., until recently, manufactured computers and designed software to run those computers. The company continues to service its computers and the software necessary to operate the computers. MAI software includes operating system software, which is necessary to run any other program on the computer.

Peak Computer, Inc. is a company organized in 1990 that maintains computer systems for its clients. Peak maintains MAI computers for more than one hundred clients in Southern California. This accounts for between fifty and seventy percent of Peak's business.

Peak's service of MAI computers includes routine maintenance and emergency repairs. Malfunctions often are related to the failure of circuit boards inside the computers, and it may be necessary for a Peak technician to operate the computer and its operating system software in order to service the machine.

In August, 1991, Eric Francis left his job as customer service manager at MAI and joined Peak. Three other MAI employees joined Peak a short time later. Some businesses that had been using MAI to service their computers switched to Peak after learning of Francis's move.

II. PROCEDURAL HISTORY

On March 17, 1992, MAI filed suit in the district court against Peak, Peak's president Vincent Chiechi, and Francis. The complaint includes counts alleging copyright infringement, misappropriation of trade secrets, trademark infringement, false advertising, and unfair competition.

MAI asked the district court for a temporary restraining order and preliminary injunction pending the outcome of the suit. The district court issued a temporary restraining order on March 18, 1992 and converted it to a preliminary injunction on March 26, 1992. On April 15, 1992, the district court issued a written version of the preliminary injunction along with findings of fact and conclusions of law.

The preliminary injunction reads as follows:

A. Defendants [and certain others] are hereby immediately restrained and enjoined pending trial of this action from:

1. infringing MAI's copyrights in any manner and from using, publishing, copying, selling, distributing or otherwise disposing [514] of any copies or portions of copies of the following MAI copyrighted computer program packages: "MPx," "SPx," "GPx40," and "GPx70" (collectively hereinafter, "The Software");

2. misappropriating, using in any manner in their business including advertising connected therewith, and/or disclosing to others MAI's trade secrets and confidential information, including, without limitation, The Software, MAI's Field Information Bulletins ("FIB") and Customer Database;

3. maintaining any MAI computer system, wherein:

(a) "maintaining" is defined as the engaging in any act, including, without limitation, service, repair, or upkeep in any manner whatsoever, that involves as part of such act, or as a preliminary or subsequent step to such act, the use, directly or indirectly, of The Software, including, without limitation, MAI's operating system, diagnostic, utility, or other software;

(b) "use" is defined as including, without limitation, the acts of running, loading, or causing to be run or loaded, any MAI software from any magnetic storage or read-only-memory device into the computer memory of the central processing unit of the computer system; and

(c) "computer system" is defined as an MAI central processing unit in combination with either a video display, printer, disk drives, and/or keyboard;

4. soliciting any MAI computer maintenance customer pursuant to Francis' employment contracts with MAI;

5. maintaining any contract where customer information was obtained by Francis while employed by MAI pursuant to Francis' employment contract with MAI;

6. using in any manner in their business, or in advertising connected therewith, directly or indirectly, the trademarks MAI, BASIC FOUR, and/or MAI Basic Four, the letters MAI (collectively, the "MAI Trademarks") or any mark, word, or name similar to or in combination with MAI's marks that are likely to cause confusion, mistake or to deceive;

7. committing any act which otherwise infringes any of the MAI Trademarks;

8. advertising, directly or indirectly, that MAI Basic Four is part of Peak's Product line, that Peak has "satellite facilities," and/or that Peak's technicians are "specifically trained on the latest hardware releases of MAI;" and

9. engaging in any other acts that amount to unfair competition with MAI.

B. IT IS FURTHER ORDERED that Defendants [and certain others] shall hereby, pending trial in this action:

1. provide a full accounting of all MAI property, including all copyrighted works presently in their possession; and

2. retain any fees paid to them by any MAI maintenance client and place any such fees in an interest bearing escrow account pending final determination of the action at trial or further order of this Court.

We stayed the preliminary injunction in part by an order of June 9, 1992 which provides:

The preliminary injunction issued by the district court on April 15, 1992 is stayed to the following extent:

Section (A)(1), enjoining defendants from "infringing MAI's copyrights in any manner and from using, publishing, copying, selling, distributing, or otherwise disposing of any copies or portions of copies" or certain MAI software, is stayed to the extent that it prohibits defendants from operating MAI computers in order to maintain them.

Section A(2), enjoining defendants from misappropriating MAI trade secrets, is stayed to the extent that it prohibits defendants from operating MAI computers in order to maintain them.

Section A(3), enjoining defendants from "maintaining any MAI computer system," is stayed in its entirety, including subsections (a), (b), and (c).

Section (B), ordering defendants to "provide a full accounting of all MAI property" and to retain fees paid to them [515] by "any MAI maintenance client" in an escrow account, is stayed in its entirety, including subsections (1) and (2).

The remainder of the district court's preliminary injunction shall remain in effect. This order shall remain in effect pending further order of this court.

In January, 1993, we denied a motion by Peak to stay the district court proceedings. The district court then heard a motion for partial summary judgment on some of the same issues raised in the preliminary injunction. The district court granted partial summary judgment for MAI and entered a permanent injunction on the issues of copyright infringement and misappropriation of trade secrets on February 2, 1993 which provides:

A. Defendants [and certain others] are hereby permanently enjoined as follows:

1. Peak [and certain others] are permanently enjoined from copying, disseminating, selling, publishing, distributing, loaning, or otherwise infringing MAI's copyrighted works, or any derivatives thereof, including those works for which registrations have issued, and works for which registrations may issue in the future. The "copying" enjoined herein specifically includes the acts of loading, or causing to be loaded, directly or indirectly, any MAI software from any magnetic storage or read only memory device into the electronic random access memory of the central processing unit of a computer system. As used herein, "computer system" means an MAI central processing unit in combination with either a video display, printer, disk drives, and/or keyboard.

MAI's copyrighted works, and their derivatives, for which registrations have issued include:

         Work          Cert. of Reg. No.          Date Issued
BOSS/IX SOFTWARE
VERSION 7.5B*20        TX 3 368 502                 12/16/91

BOSS/VS LEVEL 7A*42    TXU 524 424 (Supp.)           7/01/92
DIAGNOSTICS            TXU 507 015 (Basic)           3/09/92

BOSS/VS LEVEL 7.5B     TXU 524 423 (Supp.)           7/01/92
DIAGNOSTICS            TXU 507 013 (Basic)           3/09/92

 

Additional MAI copyright registrations are listed on Exh. A hereto.

2. (a) Peak and Francis [and certain others] are permanently enjoined from misappropriating, using in any manner in their business, including advertising connected therewith, and/or disclosing to others MAI's trade secrets, as that term is used in California Civil Code § 3426.1(d). MAI's trade secrets, for purposes of this injunction, shall include, but not be limited to the following: MAI's software, MAI's Field Information Bulletins ("FIB") and all information in such FIB's, and MAI Customer Database and all information in such Database.

(b) In particular, the persons identified in subparagraph (a) herein are permanently enjoined from soliciting any MAI computer maintenance customer and from maintaining any contract with any former MAI computer maintenance customer where knowledge of any such customers was obtained by Francis during his employment with MAI.

We then stayed the permanent injunction in part by an order on February 4, 1993 which provides:

Appellants' emergency motion for stay of the district court's permanent injunction is granted in part. The injunction entered by the district court on February 2, 1993 is stayed to the following extent:

Section (A)(1), enjoining defendants from "infringing MAI's copyrighted works," is stayed to the extent that it prohibits defendants from loading MAI software or operating MAI computers in order to maintain them.

Section A(2), enjoining defendants from misappropriating MAI trade secrets, is stayed to the extent that it prohibits [516] defendants from loading MAI software or operating MAI computers in order to maintain them.

The remainder of the district court's permanent injunction shall remain in effect....

Since the permanent injunction covers some of the same issues appealed in the preliminary injunction, the appeal of those issues in the context of the preliminary injunction has become moot. See Burbank-Glendale-Pasadena Airport Authority v. Los Angeles, 979 F.2d 1338, 1340 n. 1 (9th Cir.1992). Therefore, we grant MAI's motion to dismiss the appeal of the preliminary injunction relative to the issues of copyright infringement and trade secret misappropriation. Since other issues covered in the preliminary injunction are not covered in the permanent injunction,^[2] the appeals have been consolidated and both the permanent injunction and parts of the preliminary injunction are reviewed here.

III. JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over interlocutory orders granting injunctions under 28 U.S.C. § 1292(a)(1).

In addition, an appeal under 28 U.S.C. § 1292(a)(1) brings before the court the entire order, and, in the interests of judicial economy the court may decide the merits of the case. The court, however, generally will chose to decide only those matters `inextricably bound up with' the injunctive relief.

Bernard v. Air Line Pilots Ass'n, Int'l, AFL-CIO, 873 F.2d 213, 215 (9th Cir.1989) (citations omitted).

In this case, the district court's grant of the permanent injunction is "inextricably bound up" with the underlying decisions of that court on the merits of the copyright and trade secrets claims. Therefore, our review of the propriety of the permanent injunction is inextricably tied to the underlying decision, and this court has jurisdiction to review the entire order. Id.

A grant of summary judgment is reviewed de novo.^[3] We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Federal Deposit Ins. Corp. v. O'Melveny & Meyers, 969 F.2d 744, 747 (9th Cir.1992). The court must not weigh the evidence or determine the truth of the matter but only determine whether there is a genuine issue for trial. Id.

A district court's grant of preliminary injunctive relief is subject to limited review. This court will reverse a preliminary injunction only where the district court "abused its discretion or based its decision on an erroneous legal standard or on clearly erroneous findings of fact." However, "questions of law underlying the issuance of a preliminary injunction" are reviewed de novo. Glick v. McKay, 937 F.2d 434, 436 (9th Cir.1991).

"To obtain a preliminary injunction, a party must show either (1) a likelihood of success on the merits and the possibility of irreparable injury, or (2) the existence of serious questions going to the merits and the balance of hardships tipping in [the movant's] favor. These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." Diamontiney v. Borg, [517] 918 F.2d 793, 795 (9th Cir.1990) (internal quotations and citations omitted).

In other words, "[w]here a party can show a strong chance of success on the merits, he need only show a possibility of irreparable harm. Where, on the other hand, a party can show only that serious questions are raised, he must show that the balance of hardships tips sharply in his favor." Bernard v. Air Line Pilots Ass'n, Int'l, AFL-CIO, 873 F.2d 213, 215 (9th Cir.1989).

IV. COPYRIGHT INFRINGEMENT

The district court granted summary judgment in favor of MAI on its claims of copyright infringement and issued a permanent injunction against Peak on these claims. The alleged copyright violations include: (1) Peak's running of MAI software licenced to Peak customers; (2) Peak's use of unlicensed software at its headquarters; and, (3) Peak's loaning of MAI computers and software to its customers. Each of these alleged violations must be considered separately.

A. Peak's running of MAI software licenced to Peak customers

To prevail on a claim of copyright infringement, a plaintiff must prove ownership of a copyright and a "`copying' of protectable expression" beyond the scope of a license. S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085 (9th Cir.1989).

MAI software licenses allow MAI customers to use the software for their own internal information processing.^[4] This allowed use necessarily includes the loading of the software into the computer's random access memory ("RAM") by a MAI customer. However, MAI software licenses do not allow for the use or copying of MAI software by third parties such as Peak. Therefore, any "copying" done by Peak is "beyond the scope" of the license.

It is not disputed that MAI owns the copyright to the software at issue here, however, Peak vigorously disputes the district court's conclusion that a "copying" occurred under the Copyright Act.

The Copyright Act defines "copies" as: material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.

17 U.S.C. § 101.

The Copyright Act then explains:

A work is "fixed" in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated [518] for a period of more than transitory duration.

17 U.S.C. § 101.

The district court's grant of summary judgment on MAI's claims of copyright infringement reflects its conclusion that a "copying" for purposes of copyright law occurs when a computer program is transferred from a permanent storage device to a computer's RAM. This conclusion is consistent with its finding, in granting the preliminary injunction, that: "the loading of copyrighted computer software from a storage medium (hard disk, floppy disk, or read only memory) into the memory of a central processing unit ("CPU") causes a copy to be made. In the absence of ownership of the copyright or express permission by license, such acts constitute copyright infringement." We find that this conclusion is supported by the record and by the law.

Peak concedes that in maintaining its customer's computers, it uses MAI operating software "to the extent that the repair and maintenance process necessarily involves turning on the computer to make sure it is functional and thereby running the operating system." It is also uncontroverted that when the computer is turned on the operating system is loaded into the computer's RAM. As part of diagnosing a computer problem at the customer site, the Peak technician runs the computer's operating system software, allowing the technician to view the systems error log, which is part of the operating system, thereby enabling the technician to diagnose the problem.^[5]

Peak argues that this loading of copyrighted software does not constitute a copyright violation because the "copy" created in RAM is not "fixed." However, by showing that Peak loads the software into the RAM and is then able to view the system error log and diagnose the problem with the computer, MAI has adequately shown that the representation created in the RAM is "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration."

After reviewing the record, we find no specific facts (and Peak points to none) which indicate that the copy created in the RAM is not fixed. While Peak argues this issue in its pleadings, mere argument does not establish a genuine issue of material fact to defeat summary judgment. A party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials in pleadings, but "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.Proc. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Harper v. Wallingford, 877 F.2d 728 (9th Cir.1989).

The law also supports the conclusion that Peak's loading of copyrighted software into RAM creates a "copy" of that software in violation of the Copyright Act. In Apple Computer, Inc. v. Formula Int'l, Inc., 594 F.Supp. 617, 621 (C.D.Cal.1984), the district court held that the copying of copyrighted software onto silicon chips and subsequent sale of those chips is not protected by § 117 of the Copyright Act. Section 117 allows "the `owner'^[6] of a copy of a computer program to make or authorize the making of another copy" without infringing copyright law, if it "is an essential step in the utilization of the computer program" or if the new copy is "for archival purposes [519] only." 17 U.S.C. § 117 (Supp.1988).^[7] One of the grounds for finding that § 117 did not apply was the court's conclusion that the permanent copying of the software onto the silicon chips was not an "essential step" in the utilization of the software because the software could be used through RAM without making a permanent copy. The court stated:

RAM can be simply defined as a computer component in which data and computer programs can be temporarily recorded. Thus, the purchaser of [software] desiring to utilize all of the programs on the diskette could arrange to copy [the software] into RAM. This would only be a temporary fixation. It is a property of RAM that when the computer is turned off, the copy of the program recorded in RAM is lost.

Apple Computer at 622.

While we recognize that this language is not dispositive, it supports the view that the copy made in RAM is "fixed" and qualifies as a copy under the Copyright Act.

We have found no case which specifically holds that the copying of software into RAM creates a "copy" under the Copyright Act. However, it is generally accepted that the loading of software into a computer constitutes the creation of a copy under the Copyright Act. See e.g. Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 260 (5th Cir.1988) ("the act of loading a program from a medium of storage into a computer's memory creates a copy of the program"); 2 Nimmer on Copyright, § 8.08 at 8-105 (1983) ("Inputting a computer program entails the preparation of a copy."); Final Report of the National Commission on the New Technological Uses of Copyrighted Works, at 13 (1978) ("the placement of a work into a computer is the preparation of a copy"). We recognize that these authorities are somewhat troubling since they do not specify that a copy is created regardless of whether the software is loaded into the RAM, the hard disk or the read only memory ("ROM"). However, since we find that the copy created in the RAM can be "perceived, reproduced, or otherwise communicated," we hold that the loading of software into the RAM creates a copy under the Copyright Act. 17 U.S.C. § 101. We affirm the district court's grant of summary judgment as well as the permanent injunction as it relates to this issue.

B. Use of unlicensed software at headquarters

It is not disputed that Peak has several MAI computers with MAI operating software "up and running" at its headquarters. It is also not disputed that Peak only has a license to use MAI software to operate one system. As discussed above, we find that the loading of MAI's operating software into RAM, which occurs when an MAI system is turned on, constitutes a copyright violation. We affirm the district court's grant of summary judgment in favor of MAI on its claim that Peak violated its copyright through the unlicensed use of MAI software at Peak headquarters, and also affirm the permanent injunction as it relates to this issue.

C. Loaning of MAI computers and software

MAI contends that Peak violated the Copyright Act by loaning MAI computers and software to its customers. Among the exclusive rights given to the owner of a copyrighted work is the right to distribute copies of the work by lending. 17 U.S.C. § 106(3). Therefore, Peak's loaning of MAI software, if established, would constitute a violation of the Copyright Act.

[520] MAI argues that it is clear that Peak loaned out MAI computers because Peak advertisements describe the availability of loaner computers for its customers and Chiechi admitted that the available loaners included MAI computers. However, there was no evidence that a MAI computer was ever actually loaned to a Peak customer. Paul Boulanger, a Senior Field Engineer at Peak, testified in his deposition that he was not aware of any MAI systems being loaned to Peak customers or of any customer asking for one. Charles Weiner, a Field Service Manager at Peak, testified in his deposition that he did not have any knowledge of MAI systems being loaned to customers. Weighing this evidence in the light most favorable to Peak, whether Peak actually loaned out any MAI system remains a genuine issue of material fact.

As a general rule, a permanent injunction will be granted when liability has been established and there is a threat of continuing violations. See, National Football League v. McBee & Bruno's, Inc., 792 F.2d 726, 732 (8th Cir.1986); 3 Nimmer on Copyright § 14.06[B] at 14-88. However § 502(a) of the Copyright Act authorizes the court to "grant temporary and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." 17 U.S.C. § 502(a) (emphasis added). While there has been no showing that Peak has actually loaned out any MAI software, the threat of a violation is clear as Peak has MAI computers in its loaner inventory. The permanent injunction is upheld as it relates to this issue.

V. MISAPPROPRIATION OF TRADE SECRETS

The district court granted summary judgment in favor of MAI on its misappropriation of trade secrets claims and issued a permanent injunction against Peak on these claims. The permanent injunction prohibits Peak from "misappropriating, using in any manner in their business, including advertising connected therewith, and/or disclosing to others MAI's trade secrets," including: (1) MAI Customer Database; (2) MAI Field Information Bulletins ("FIB"); and, (3) MAI software.

Peak argues that since MAI's motion for summary judgment only included argument regarding the customer database as a trade secret that the grant of summary judgment on the FIBs and software was overbroad. However, in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), the Supreme Court held that "so long as the losing party was on notice that she had to come forward with all of her evidence," summary judgment can properly be entered. Id. at 326, 106 S.Ct. at 2554. Although Celotex dealt with the court's authority to grant summary judgment sua sponte, its notice analysis is applicable to any summary judgment motion.

MAI argues that Peak had adequate notice because, while MAI only presented argument regarding the customer database, it moved for summary judgment on its claims of misappropriation of trade secrets generally, and, because MAI's Statement of Uncontroverted Facts included statements that the FIBs and software were trade secrets. We agree. However, we do not agree with MAI's contention that Peak has waived its right to appeal summary judgment on these issues by failing address the merits in the district court. Therefore, we reach the merits of the grant of summary judgment on each trade secret claim.

A. Customer Database

California has adopted the Uniform Trade Secrets Act ("UTSA") which codifies the basic principles of common law trade secret protection. Cal.Civ.Code §§ 3426-3426.10 (West Supp.1993). To establish a violation under the UTSA, it must be shown that a defendant has been unjustly enriched by the improper appropriation, use or disclosure of a "trade secret."

Peak argues both that the MAI Customer Database is not a "trade secret," and that even if it is a trade secret, that Peak did not "misappropriate" it.

The UTSA defines a "trade secret" as:

[521] information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Cal.Civ.Code § 3426.1(d) (West Supp.1993).

MAI contends its Customer Database is a valuable collection of data assembled over many years that allows MAI to tailor its service contracts and pricing to the unique needs of its customers and constitutes a trade secret.

We agree that the Customer Database qualifies as a trade secret. The Customer Database has potential economic value because it allows a competitor like Peak to direct its sales efforts to those potential customers that are already using the MAI computer system. Further, MAI took reasonable steps to insure the secrecy to this information as required by the UTSA. MAI required its employees to sign confidentiality agreements respecting its trade secrets, including the Customer Database. Thus, under the UTSA, the MAI Customer Database constitutes a trade secret.

We also agree with MAI that the record before the district court on summary judgment establishes that Peak misappropriated the Customer Database.

"Misappropriation" is defined under the UTSA as:

(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;^[8] or

(2) Disclosure or use of a trade secret of another without express or implied consent by a person who:

(A) Used improper means to acquire knowledge of the trade secret; or

(B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was: (i) Derived from or through a person who had utilized improper means to acquire it; (ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(C) Before a material change of his or her position knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or by mistake.

Cal.Civ.Code § 3426.1(b) (West Supp.1993).

Peak contends that Francis never physically took any portion of MAI's customer database and that neither Francis nor any-one under his direction put information he had obtained from working at MAI in the Peak database. However, to find misappropriation under the UTSA, this need not be established.

The UTSA definition of "misappropriation" has been clarified by case law which establishes that the right to announce a new affiliation, even to trade secret clients of a former employer, is basic to an individual's right to engage in fair competition, and that the common law right to compete fairly and the right to announce a new business affiliation have survived the enactment of the UTSA. American Credit Indem. Co. v. Sacks, 213 Cal. App.3d 622, 262 Cal.Rptr. 92, 99-100 (Cal. Ct.App.1989). However, misappropriation occurs if information from a customer database is used to solicit customers. Id.

Merely informing a former employer's customers of a change of employment, without more, is not solicitation. Id. 262 Cal.Rptr. at 99 (citing Aetna Bldg. Maintenance Co. v. West, 39 Cal.2d 198, 246 P.2d 11 (1952)). However, in this case, Francis did more than merely announce his new affiliation with Peak. When Francis began [522] working for Peak, he called MAI customers whose names he recognized. Additionally, Francis personally went to visit some of these MAI customers with proposals to try and get them to switch over to Peak. These actions constituted solicitation and misappropriation under the UTSA definition. We affirm the district court's grant of summary judgment in favor of MAI on its claim that Peak misappropriated its Customer Database and affirm the permanent injunction as it relates to this issue.

B. Field Information Bulletins

MAI argues summary judgment was properly granted on its claim of misappropriation of the FIBs because the FIBs are a valuable trade secret of MAI and the evidence showed that the FIBs were being used by Peak to operate a business competing unfairly with MAI.

We agree that the FIBs constitute trade secrets. It is uncontroverted that they contain technical data developed by MAI to aid in the repair and servicing of MAI computers, and that MAI has taken reasonable steps to insure that the FIBs are not generally known to the public.

However, whether Peak has misappropriated the FIBs remains a genuine issue of material fact. The only evidence introduced by MAI to establish Peak's use of the FIBs is Peak's advertisements claiming that "Peak's system specialists are specifically trained on the latest hardware releases on MAI Basic Four." MAI asserts that if Peak did not use FIBs that this claim would have to be false. However, Weiner and Boulanger testified in their depositions that they had never seen a FIB at Peak. Similarly, Boulanger, Robert Pratt and Michael McIntosh^[9] each testified that they did not have any FIB information when they left MAI. Weighing this evidence in the light most favorable to Peak, whether Peak used any of the FIBs remains a genuine issue of material fact, and the district court's grant of summary judgment on this claim of trade secret misappropriation is reversed and the permanent injunction is vacated as it relates to this issue.

C. Software

MAI contends the district court properly granted summary judgment on its claim of misappropriation of software because its software constitutes valuable unpublished works that allow its machines to be maintained. MAI argues that Peak misappropriated the software by loading it into the RAM.

We recognize that computer software can qualify for trade secret protection under the UTSA. See e.g., S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1089-90 (9th Cir.1989). However, a plaintiff who seeks relief for misappropriation of trade secrets must identify the trade secrets and carry the burden of showing that they exist. Diodes, Inc. v. Franzen, 260 Cal.App.2d 244, 67 Cal.Rptr. 19, 22-24 (1968); see also Universal Analytics Inc. v. MacNeal-Schwendler Corp., 707 F.Supp. 1170, 1177 (C.D.Cal.1989) (plaintiff failed to inform defendant or the court "precisely which trade secret it alleges was misappropriated"), aff'd, 914 F.2d 1256 (9th Cir.1990).

Here, while MAI asserts that it has trade secrets in its diagnostic software and operating system, and that its licensing agreements constitute reasonable efforts to maintain their secrecy, MAI does not specifically identify these trade secrets. In his Declaration, Joseph Perez, a Customer Service Manager at MAI, stated that the diagnostic software "contain valuable trade secrets of MAI," however, the Declaration does not specify what these trade secrets are. Additionally, we find no declaration or deposition testimony which specifically identifies any trade secrets. Since the trade secrets are not specifically identified, we cannot determine whether Peak has misappropriated any trade secrets by running the MAI operating software and/or diagnostic software in maintaining MAI systems for its customers, and we reverse the district court's grant of summary judgment in favor of MAI on its claim that [523] Peak misappropriated trade secrets in its computer software and vacate the permanent injunction as it relates to this issue.

VI. BREACH OF CONTRACT

The district court granted summary judgment in favor of MAI on its breach of contract claim against Eric Francis. It is clear from the depositions of Francis and Chiechi that Francis solicited customers and employees of MAI in breach of his employment contract with MAI, and we affirm the district court's grant of summary judgment on this issue and affirm the permanent injunction as it relates to this claim.

VII. PRELIMINARY INJUNCTION

A. Trademark Infringement

In granting the preliminary injunction, the district court found that Peak advertisements that "MAI Basic Four" computers are part of "Peak's Product Line" imply that Peak is a MAI dealer for new computers and constitute trademark infringement. The district court also found that: "Such acts are likely to cause confusion, mistake or deception in that potential purchasers of MAI computers and/or maintenance services will be led to believe that Peak's activities are associated with or sanctioned or approved by MAI."

Peak claims that the district court erred in granting the preliminary injunction because it did not apply the legal tests established by the Ninth Circuit to evaluate whether a likelihood of confusion existed. See e.g., J.B. Williams Co. v. Le Conte Cosmetics, Inc., 523 F.2d 187, 191 (9th Cir.1975) (five factor test to determine likelihood of confusion) cert. denied, 424 U.S. 913, 96 S.Ct. 1110, 47 L.Ed.2d 317 (1976); AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir.1979) (eight factor test). However, the district court was not required to consider all these factors. As we recognized in Apple Computer, Inc. v. Formula Int'l, Inc., 725 F.2d 521 (9th Cir. 1984):

[I]n granting a preliminary injunction, the parties will not have had a full opportunity to either develop or present their cases and the district court will have had only a brief opportunity to consider the different factors relative to the likelihood of confusion determination.... The appropriate time for giving full consideration to [these factors] is when the merits of the case are tried.

Id. at 526 (citations and quotations omitted).

Peak has not shown how the district court clearly erred in its preliminary trademark conclusions. Accordingly, the district court did not abuse its discretion and this portion of the preliminary injunction is upheld.

B. False Advertising

In granting the preliminary injunction, the district court found that "Peak's advertising ... falsely misleads the public as to Peak's capability of servicing and maintaining MAI computer systems." The injunction prohibits Peak from "advertising, directly or indirectly, that MAI Basic Four is part of Peak's Product line, that Peak has `satellite facilities,' and/or that Peak's technicians are `specifically trained on the latest hardware releases of MAI.'"

Peak argues that these representations in its ads are not false. However, the district court's findings are supported by the record. Depositions show that Peak is not an authorized MAI dealer, that its technicians receive no ongoing training and that its "satellite facilities" are actually storage sheds. Perhaps the storage sheds could be legitimately characterized as satellite facilities, but the district court's conclusion otherwise was not clearly erroneous. Accordingly, the district court did not abuse its discretion and this portion of the preliminary injunction is upheld.

VIII. CONCLUSION

The following sections of the preliminary injunction issued by the district court on April 15, 1992 have been mooted by that court's issuing of a permanent injunction:

Section (A)(1), enjoining defendants from infringing MAI's copyrights; Section (A)(2) enjoining defendants from misappropriating [524] MAI trade secrets; Section (A)(3) enjoining defendants from maintaining MAI computers; Section (A)(4) enjoining defendants from soliciting customers; and, Section (A)(5) enjoining defendants from maintaining certain customer contracts.

The remainder of the district court's preliminary injunction shall remain in effect pending the district court's final judgment. Earlier orders of this court temporarily staying portions of the injunction are vacated.

The permanent injunction issued by the district court on February 2, 1993, is vacated to the following extent:

Section (A)(2)(a), enjoining defendants from "misappropriating ... MAI's trade secrets" is vacated as it relates to MAI's software and MAI's Field Information Bulletins.

The remainder of the permanent injunction shall remain in effect. Earlier orders of this court temporarily staying portions of the injunction are vacated.

The district court's grant of summary judgment is AFFIRMED in part and REVERSED in part. This case is REMANDED for proceedings consistent with this opinion.

[1] The panel unanimously finds this case suitable for decision without oral argument. Fed. R.App.P. 34(a); Ninth Circuit Rule 34-4.

[2] These issues include trademark infringement and false advertising.

[3] The Central District of California's Local Rule 7.14 provides for the filing of a Statement of Uncontroverted Facts and Conclusions of Law with each motion for summary judgment and for the filing of a Statement of Genuine Issues of Material Fact with all opposition papers. In granting summary judgment, the district court had before it these papers as well as MAI's Motion for Summary Judgment, Peak's Opposition, and MAI's Response. MAI's Statement of Uncontroverted Facts and Conclusions of Law and Peak's Statement of Genuine Issues of Material Fact rely on the declarations and deposition testimony which were filed with the district court in connection with MAI's earlier motion for a preliminary injunction. These declarations and deposition testimony make up the record in this case.

[4] A representative MAI software license provides in part:

4. Software License.

(a) License.... Customer may use the Software (one version with maximum of two copies permitted — a working and a backup copy) ... solely to fulfill Customer's own internal information processing needs on the particular items of Equipment ... for which the Software is configured and furnished by [MAI]. The provisions of this License ... shall apply to all versions and copies of the Software furnished to Customer pursuant to this Agreement. The term "Software" includes, without limitation, all basic operating system software....

(b) Customer Prohibited Acts.... Any possession or use of the Software ... not expressly authorized under this License or any act which might jeopardize [MAI]'s rights or interests in the Software ... is prohibited, including without limitation, examination, disclosure, copying, modification, reconfiguration, augmentation, adaptation, emulation, visual display or reduction to visually perceptible form or tampering....

(c) Customer Obligations. Customer acknowledges that the Software is [MAI]'s valuable and exclusive property, trade secret and copyrighted material. Accordingly, Customer shall ... (i) use the Software ... strictly as prescribed under this License, (ii) keep the Software ... confidential and not make [it] available to others....

A representative diagnostic license agreement provides in part:

6. Access/Non-Disclosure.

Licensee shall not give access nor shall it disclose the Diagnostics (in any form) ... to any person ... without the written permission of [MAI]. Licensee may authorize not more than three (3) of its bona fide employees to utilize the Diagnostics ... if, and only if, they agree to be bound by the terms hereof.

[5] MAI also alleges that Peak runs its diagnostic software in servicing MAI computers. Since Peak's running of the operating software constitutes copyright violation, it is not necessary for us to directly reach the issue of whether Peak also runs MAI's diagnostic software. However, we must note that Peak's field service manager, Charles Weiner, admits that MAI diagnostic software is built into the MAI MPx system and, further, that if Peak loads the MAI diagnostic software from whatever source into the computer's RAM, that such loading will produce the same copyright violation as loading the operating software.

[6] Since MAI licensed its software, the Peak customers do not qualify as "owners" of the software and are not eligible for protection under § 117.

[7] The current § 117 was enacted by Congress in 1980, as part of the Computer Software Copyright Act. This Act adopted the recommendations contained in the Final Report of the National Commission on New Technological Uses of Copyrighted Works ("CONTU") (1978). H.R.Rep. No. 1307, 96th Cong., 2d Sess., pt. 1, at 23. The CONTU was established by Congress in 1974 to perform research and make recommendations concerning copyright protection for computer programs. The new § 117 reflects the CONTU's conclusion that: "Because the placement of a work into a computer is the preparation of a copy, the law should provide that persons in rightful possession of copies of programs be able to use them freely without fear of exposure to copyright liability." Final Report at 13.

[8] The UTSA defines "improper means," as "theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means." Cal.Civ.Code § 3426.1(a) (West Supp.1993).

[9] Pratt and Boulanger are both computer technicians who left MAI to work at Peak.

536 F.3d 121

The CARTOON NETWORK LP, LLLP and Cable News Network L.P., L.L.L.P., Plaintiffs-Counter-Claimants-Defendants-Appellees,
Twentieth Century Fox Film Corporation, Universal City Studios Productions LLLP, Paramount Pictures Corporation, Disney Enterprises Inc., CBS Broadcasting Inc., American Broadcasting Companies, Inc., NBC Studios, Inc., Plaintiffs-Counter-Defendants-Appellees,
v.
CSC HOLDINGS, INC. and Cablevision Systems Corporation, Defendants-Counterclaim-Plaintiffs-Third-Party Plaintiffs-Appellants,
v.
Turner Broadcasting System, Inc., Cable News Network LP, LLP, Turner Network Sales, Inc., Turner Classic Movies, L.P., LLLP, Turner Network Television LP, LLLP, Third-Party-Defendants-Appellees.

Docket No. 07-1480-cv(L).

Docket No. 07-1511-cv(CON).

United States Court of Appeals, Second Circuit.

Argued: October 24, 2007.

Decided: August 4, 2008.

[536 F.3d 122]  Jeffrey A. Lamken (Robert K. Kry and Joshua A. Klein, on the brief), Baker Botts L.L.P., Washington, D.C., and Timothy A. Macht (on the brief), New York, N.Y., for Defendants-Appellants.

Katherine B. Forrest (Antony L. Ryan, on the brief), Cravath, Swaine & Moore LLP, New York, N.Y., for Plaintiffs-Appellees The Cartoon Network LP, LLLP, et al.

Robert Alan Garrett (Hadrian R. Katz, Jon Michaels, Peter L. Zimroth, and Eleanor Lackman, on the brief), Arnold & Porter LLP, Washington, D.C., for Plaintiffs-Appellees Twentieth Century Fox Film Corporation, et al.

Marc E. Isserles, Cohen & Gresser LLP, New York, N.Y., for Amici Curiae Law Professors.

Henry A. Lanman, Trachtenberg Rodes & Friedberg LLP, New York, N.Y., for Amicus Curiae Professor Timothy Wu.

Solveig Singleton, The Progress & Freedom Foundation, Washington, D.C., for Amicus Curiae Progress & Freedom Foundation.

Carol A. Witschel, White & Case LLP, and Richard H. Reimer, New York, N.Y., for Amicus Curiae The American Society of Composers, Authors & Publishers.

Michael E. Salzman, Hughes Hubbard & Reed LLP, and Marvin Berenson, Broadcast Music Inc., New York, N.Y., for Amicus Curiae Broadcast Music, Inc.

David Sohn, Center for Democracy & Technology, Washington, D.C., Fred von Lohman, Electronic Freedom Foundation, San Francisco, Cal., Sherwin Siy, Public Knowledge, Washington D.C., William P. Heaston, Broadband Service Providers Association Regulatory Committee, Jonathan Band PLLC, Washington, D.C., Julie [536 F.3d 123] Kearney, Consumer Electronics Association, Arlington, Va., Michael F. Altschul et al., CTIA-The Wireless Association®, Washington, D.C., Jonathan Banks, USTelecom, Washington, D.C., Michael K. Kellogg et al., Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington D.C., for Amici Curiae Center for Democracy & Technology et al.

Donald B. Verrilli, Jr., et al., Jenner & Block LLP, Washington, D.C., Kenneth L. Doroshow & Scott A. Zebrak, Recording Industry Association of America, Washington, D.C., Jacqueline C. Charlesworth, National Music Publishers' Association, Washington, D.C., Victor S. Perlman, American Society of Media Photographers, Inc., Philadelphia, Pa., Allan Robert Adler, Association of American Publishers, Washington, D.C., Linda Steinman, Davis Wright Tremaine LLP, New York, N.Y., David Korduner, Directors Guild of America, Inc., Los Angeles, Cal., Frederic Hirsch & Chun T. Wright, Entertainment Software Association, Washington, D.C., Susan Cleary, Independent Film & Television Alliance, Los Angeles, Cal., Gary Gertzog, National Football League, New York, N.Y., Thomas Ostertag, Office of the Commissioner of Baseball, New York, N.Y., Duncan Crabtree-Ireland, Screen Actors Guild, Inc., Los Angeles, Cal., John C. Beiter, Loeb & Loeb, LLP, Nashville, Tenn., Anthony R. Segall, Writers Guild of America, West, Inc., Los Angeles, Cal., for Amici Curiae American Society of Media Photographers, Inc. et al.

Steven J. Metalitz & J. Matthew Williams, Washington, D.C., for Amicus Curiae Americans for Tax Reform.

Before: WALKER, SACK, and LIVINGSTON, Circuit Judges.

JOHN M. WALKER, JR., Circuit Judge:

Defendant-Appellant Cablevision Systems Corporation ("Cablevision") wants to market a new "Remote Storage" Digital Video Recorder system ("RS-DVR"), using a technology akin to both traditional, set-top digital video recorders, like TiVo ("DVRs"), and the video-on-demand ("VOD") services provided by many cable companies. Plaintiffs-Appellees produce copyrighted movies and television programs that they provide to Cablevision pursuant to numerous licensing agreements. They contend that Cablevision, through the operation of its RS-DVR system as proposed, would directly infringe their copyrights both by making unauthorized reproductions, and by engaging in public performances, of their copyrighted works. The material facts are not in dispute. Because we conclude that Cablevision would not directly infringe plaintiffs' rights under the Copyright Act by offering its RS-DVR system to consumers, we reverse the district court's award of summary judgment to plaintiffs, and we vacate its injunction against Cablevision.

BACKGROUND

Today's television viewers increasingly use digital video recorders ("DVRs") instead of video cassette recorders ("VCRs") to record television programs and play them back later at their convenience. DVRs generally store recorded programming on an internal hard drive rather than a cassette. But, as this case demonstrates, the generic term "DVR" actually refers to a growing number of different devices and systems. Companies like TiVo sell a stand-alone DVR device that is typically connected to a user's cable box and television much like a VCR. Many cable companies also lease to their subscribers "set-top storage DVRs," which combine many of the functions of a standard cable box and a stand-alone DVR in a single device.

[536 F.3d 124] In March 2006, Cablevision, an operator of cable television systems, announced the advent of its new "Remote Storage DVR System." As designed, the RS-DVR allows Cablevision customers who do not have a stand-alone DVR to record cable programming on central hard drives housed and maintained by Cablevision at a "remote" location. RS-DVR customers may then receive playback of those programs through their home television sets, using only a remote control and a standard cable box equipped with the RS-DVR software. Cablevision notified its content providers, including plaintiffs, of its plans to offer RS-DVR, but it did not seek any license from them to operate or sell the RS-DVR.

Plaintiffs, which hold the copyrights to numerous movies and television programs, sued Cablevision for declaratory and injunctive relief. They alleged that Cablevision's proposed operation of the RS-DVR would directly infringe their exclusive rights to both reproduce and publicly perform their copyrighted works. Critically for our analysis here, plaintiffs alleged theories only of direct infringement, not contributory infringement, and defendants waived any defense based on fair use.

Ultimately, the United States District Court for the Southern District of New York (Denny Chin, Judge), awarded summary judgment to the plaintiffs and enjoined Cablevision from operating the RS-DVR system without licenses from its content providers. See Twentieth Century Fox Film Corp. v. Cablevision Sys. Corp. (Cablevision I), 478 F.Supp.2d 607 (S.D.N.Y.2007). At the outset, we think it helpful to an understanding of our decision to describe, in greater detail, both the RS-DVR and the district court's opinion.

I. Operation of the RS-DVR System

Cable companies like Cablevision aggregate television programming from a wide variety of "content providers"—the various broadcast and cable channels that produce or provide individual programs—and transmit those programs into the homes of their subscribers via coaxial cable. At the outset of the transmission process, Cablevision gathers the content of the various television channels into a single stream of data. Generally, this stream is processed and transmitted to Cablevision's customers in real time. Thus, if a Cartoon Network program is scheduled to air Monday night at 8pm, Cartoon Network transmits that program's data to Cablevision and other cable companies nationwide at that time, and the cable companies immediately re-transmit the data to customers who subscribe to that channel.

Under the new RS-DVR, this single stream of data is split into two streams. The first is routed immediately to customers as before. The second stream flows into a device called the Broadband Media Router ("BMR"), id. at 613, which buffers the data stream, reformats it, and sends it to the "Arroyo Server," which consists, in relevant part, of two data buffers and a number of high-capacity hard disks. The entire stream of data moves to the first buffer (the "primary ingest buffer"), at which point the server automatically inquires as to whether any customers want to record any of that programming. If a customer has requested a particular program, the data for that program move from the primary buffer into a secondary buffer, and then onto a portion of one of the hard disks allocated to that customer. As new data flow into the primary buffer, they overwrite a corresponding quantity of data already on the buffer. The primary ingest buffer holds no more than 0.1 seconds of each channel's programming at any moment. Thus, every tenth of a second, the data residing on this buffer are automatically erased and replaced. The [536 F.3d 125] data buffer in the BMR holds no more than 1.2 seconds of programming at any time. While buffering occurs at other points in the operation of the RS-DVR, only the BMR buffer and the primary ingest buffer are utilized absent any request from an individual subscriber.

As the district court observed, "the RS-DVR is not a single piece of equipment," but rather "a complex system requiring numerous computers, processes, networks of cables, and facilities staffed by personnel twenty-four hours a day and seven days a week." Id. at 612. To the customer, however, the processes of recording and playback on the RS-DVR are similar to that of a standard set-top DVR. Using a remote control, the customer can record programming by selecting a program in advance from an on-screen guide, or by pressing the record button while viewing a given program. A customer cannot, however, record the earlier portion of a program once it has begun. To begin playback, the customer selects the show from an on-screen list of previously recorded programs. See id. at 614-16. The principal difference in operation is that, instead of sending signals from the remote to an on-set box, the viewer sends signals from the remote, through the cable, to the Arroyo Server at Cablevision's central facility. See id. In this respect, RS-DVR more closely resembles a VOD service, whereby a cable subscriber uses his remote and cable box to request transmission of content, such as a movie, stored on computers at the cable company's facility. Id. at 612. But unlike a VOD service, RS-DVR users can only play content that they previously requested to be recorded.

Cablevision has some control over the content available for recording: a customer can only record programs on the channels offered by Cablevision (assuming he subscribes to them). Cablevision can also modify the system to limit the number of channels available and considered doing so during development of the RS-DVR. Id. at 613.

II. The District Court's Decision

In the district court, plaintiffs successfully argued that Cablevision's proposed system would directly infringe their copyrights in three ways. First, by briefly storing data in the primary ingest buffer and other data buffers integral to the function of the RS-DVR, Cablevision would make copies of protected works and thereby directly infringe plaintiffs' exclusive right of reproduction under the Copyright Act. Second, by copying programs onto the Arroyo Server hard disks (the "playback copies"), Cablevision would again directly infringe the reproduction right. And third, by transmitting the data from the Arroyo Server hard disks to its RS-DVR customers in response to a "playback" request, Cablevision would directly infringe plaintiffs' exclusive right of public performance. See id. at 617. Agreeing with all three arguments, the district court awarded summary declaratory judgment to plaintiffs and enjoined Cablevision from operating the RS-DVR system without obtaining licenses from the plaintiff copyright holders.

As to the buffer data, the district court rejected defendants' arguments 1) that the data were not "fixed" and therefore were not "copies" as defined in the Copyright Act, and 2) that any buffer copying was de minimis because the buffers stored only small amounts of data for very short periods of time. In rejecting the latter argument, the district court noted that the "aggregate effect of the buffering" was to reproduce the entirety of Cablevision's programming, and such copying "can hardly be called de minimis." Id. at 621.

[536 F.3d 126] On the issue of whether creation of the playback copies made Cablevision liable for direct infringement, the parties and the district court agreed that the dispositive question was "who makes the copies"? Id. at 617. Emphasizing Cablevision's "unfettered discretion" over the content available for recording, its ownership and maintenance of the RS-DVR components, and its "continuing relationship" with its RS-DVR customers, the district court concluded that "the copying of programming to the RS-DVR's Arroyo servers ... would be done not by the customer but by Cablevision, albeit at the customer's request." Id. at 618, 620, 621.

Finally, as to the public performance right, Cablevision conceded that, during the playback, "the streaming of recorded programming in response to a customer's request is a performance." Id. at 622. Cablevision contended, however, that the work was performed not by Cablevision, but by the customer, an argument the district court rejected "for the same reasons that [it] reject[ed] the argument that the customer is `doing' the copying involved in the RS-DVR." Id. Cablevision also argued that such a playback transmission was not "to the public," and therefore not a public performance as defined in the Copyright Act, because it "emanates from a distinct copy of a program uniquely associated with one customer's set-top box and intended for that customer's exclusive viewing in his or her home." Id. The district court disagreed, noting that "Cablevision would transmit the same program to members of the public, who may receive the performance at different times, depending on whether they view the program in real time or at a later time as an RS-DVR playback." Id. at 623 (emphasis added). The district court also relied on a case from the Northern District of California, On Command Video Corp. v. Columbia Pictures Industries, 777 F.Supp. 787 (N.D.Cal.1991), which held that when the relationship between the transmitter and the audience of a performance is commercial, the transmission is "to the public," see Cablevision I, 478 F.Supp.2d at 623 (citing On Command, 777 F.Supp. at 790).

Finding that the operation of the RS-DVR would infringe plaintiffs' copyrights, the district court awarded summary judgment to plaintiffs and enjoined Cablevision from copying or publicly performing plaintiffs' copyrighted works "in connection with its proposed RS-DVR system," unless it obtained the necessary licenses. Cablevision I, 478 F.Supp.2d at 624. Cablevision appealed.

DISCUSSION

We review a district court's grant of summary judgment de novo. Bill Graham Archives v. Dorling Kindersley Ltd., 448 F.3d 605, 607 (2d Cir.2006).

"Section 106 of the Copyright Act grants copyright holders a bundle of exclusive rights...." Id. at 607-08. This case implicates two of those rights: the right "to reproduce the copyrighted work in copies," and the right "to perform the copyrighted work publicly." 17 U.S.C. § 106(1), (4). As discussed above, the district court found that Cablevision infringed the first right by 1) buffering the data from its programming stream and 2) copying content onto the Arroyo Server hard disks to enable playback of a program requested by an RS-DVR customer. In addition, the district court found that Cablevision would infringe the public performance right by transmitting a program to an RS-DVR customer in response to that customer's playback request. We address each of these three allegedly infringing acts in turn.

[536 F.3d 127] I. The Buffer Data

It is undisputed that Cablevision, not any customer or other entity, takes the content from one stream of programming, after the split, and stores it, one small piece at a time, in the BMR buffer and the primary ingest buffer. As a result, the information is buffered before any customer requests a recording, and would be buffered even if no such request were made. The question is whether, by buffering the data that make up a given work, Cablevision "reproduce[s]" that work "in copies," 17 U.S.C. § 106(1), and thereby infringes the copyright holder's reproduction right.

"Copies," as defined in the Copyright Act, "are material objects ... in which a work is fixed by any method ... and from which the work can be ... reproduced." Id. § 101. The Act also provides that a work is "`fixed' in a tangible medium of expression when its embodiment ... is sufficiently permanent or stable to permit it to be ... reproduced ... for a period of more than transitory duration." Id. (emphasis added). We believe that this language plainly imposes two distinct but related requirements: the work must be embodied in a medium, i.e., placed in a medium such that it can be perceived, reproduced, etc., from that medium (the "embodiment requirement"), and it must remain thus embodied "for a period of more than transitory duration" (the "duration requirement"). See 2 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 8.02[B][3], at 8-32 (2007). Unless both requirements are met, the work is not "fixed" in the buffer, and, as a result, the buffer data is not a "copy" of the original work whose data is buffered.

The district court mistakenly limited its analysis primarily to the embodiment requirement. As a result of this error, once it determined that the buffer data was "[c]learly ... capable of being reproduced," i.e., that the work was embodied in the buffer, the district court concluded that the work was therefore "fixed" in the buffer, and that a copy had thus been made. Cablevision I, 478 F.Supp.2d at 621-22. In doing so, it relied on a line of cases beginning with MAI Systems Corp. v. Peak Computer Inc., 991 F.2d 511 (9th Cir.1993). It also relied on the United States Copyright Office's 2001 report on the Digital Millennium Copyright Act, which states, in essence, that an embodiment is fixed "[u]nless a reproduction manifests itself so fleetingly that it cannot be copied." U.S. Copyright Office, DMCA Section 104 Report 111 (Aug.2001) ("DMCA Report") (emphasis added), available at http://www.copyright.gov/reports/studies/dmca/sec-104-report-vol-1.pdf.

The district court's reliance on cases like MAI Systems is misplaced. In general, those cases conclude that an alleged copy is fixed without addressing the duration requirement; it does not follow, however, that those cases assume, much less establish, that such a requirement does not exist. Indeed, the duration requirement, by itself, was not at issue in MAI Systems and its progeny. As a result, they do not speak to the issues squarely before us here: If a work is only "embodied" in a medium for a period of transitory duration, can it be "fixed" in that medium, and thus a copy? And what constitutes a period "of more than transitory duration"?

In MAI Systems, defendant Peak Computer, Inc., performed maintenance and repairs on computers made and sold by MAI Systems. In order to service a customer's computer, a Peak employee had to operate the computer and run the computer's copyrighted operating system software. See MAI Sys., 991 F.2d at 513. The issue in MAI Systems was whether, [536 F.3d 128] by loading the software into the computer's RAM,^[1] the repairman created a "copy" as defined in § 101. See id. at 517. The resolution of this issue turned on whether the software's embodiment in the computer's RAM was "fixed," within the meaning of the same section. The Ninth Circuit concluded that

by showing that Peak loads the software into the RAM and is then able to view the system error log and diagnose the problem with the computer, MAI has adequately shown that the representation created in the RAM is "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration."

Id. at 518 (quoting 17 U.S.C. § 101).

The MAI Systems court referenced the "transitory duration" language but did not discuss or analyze it. The opinion notes that the defendants "vigorously" argued that the program's embodiment in the RAM was not a copy, but it does not specify the arguments defendants made. Id. at 517. This omission suggests that the parties did not litigate the significance of the "transitory duration" language, and the court therefore had no occasion to address it. This is unsurprising, because it seems fair to assume that in these cases the program was embodied in the RAM for at least several minutes.

Accordingly, we construe MAI Systems and its progeny as holding that loading a program into a computer's RAM can result in copying that program. We do not read MAI Systems as holding that, as a matter of law, loading a program into a form of RAM always results in copying. Such a holding would read the "transitory duration" language out of the definition, and we do not believe our sister circuit would dismiss this statutory language without even discussing it. It appears the parties in MAI Systems simply did not dispute that the duration requirement was satisfied; this line of cases simply concludes that when a program is loaded into RAM, the embodiment requirement is satisfied—an important holding in itself, and one we see no reason to quibble with here.^[2]

At least one court, relying on MAI Systems in a highly similar factual setting, has made this point explicitly. In Advanced Computer Services of Michigan, Inc. v. MAI Systems Corp., the district court expressly noted that the unlicensed user in that case ran copyrighted diagnostic software "for minutes or longer," but that the program's embodiment in the computer's RAM might be too ephemeral to be fixed if the computer had been shut down "within [536 F.3d 129] seconds or fractions of a second" after loading the copyrighted program. 845 F.Supp. 356, 363 (E.D.Va.1994). We have no quarrel with this reasoning; it merely makes explicit the reasoning that is implicit in the other MAI Systems cases. Accordingly, those cases provide no support for the conclusion that the definition of "fixed" does not include a duration requirement. See Webster v. Fall, 266 U.S. 507, 511, 45 S.Ct. 148, 69 L.Ed. 411 (1924) ("Questions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are not to be considered as having been so decided as to constitute precedents.").

Nor does the Copyright Office's 2001 DMCA Report, also relied on by the district court in this case, explicitly suggest that the definition of "fixed" does not contain a duration requirement. However, as noted above, it does suggest that an embodiment is fixed "[u]nless a reproduction manifests itself so fleetingly that it cannot be copied, perceived or communicated." DMCA Report, supra, at 111. As we have stated, to determine whether a work is "fixed" in a given medium, the statutory language directs us to ask not only 1) whether a work is "embodied" in that medium, but also 2) whether it is embodied in the medium "for a period of more than transitory duration." According to the Copyright Office, if the work is capable of being copied from that medium for any amount of time, the answer to both questions is "yes." The problem with this interpretation is that it reads the "transitory duration" language out of the statute.

We assume, as the parties do, that the Copyright Office's pronouncement deserves only Skidmore deference, deference based on its "power to persuade." Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944). And because the Office's interpretation does not explain why Congress would include language in a definition if it intended courts to ignore that language, we are not persuaded.

In sum, no case law or other authority dissuades us from concluding that the definition of "fixed" imposes both an embodiment requirement and a duration requirement. Accord CoStar Group Inc. v. LoopNet, Inc., 373 F.3d 544, 551 (4th Cir. 2004) (while temporary reproductions "may be made in this transmission process, they would appear not to be `fixed' in the sense that they are `of more than transitory duration'"). We now turn to whether, in this case, those requirements are met by the buffer data.

Cablevision does not seriously dispute that copyrighted works are "embodied" in the buffer. Data in the BMR buffer can be reformatted and transmitted to the other components of the RS-DVR system. Data in the primary ingest buffer can be copied onto the Arroyo hard disks if a user has requested a recording of that data. Thus, a work's "embodiment" in either buffer "is sufficiently permanent or stable to permit it to be perceived, reproduced," (as in the case of the ingest buffer) "or otherwise communicated" (as in the BMR buffer). 17 U.S.C. § 101. The result might be different if only a single second of a much longer work was placed in the buffer in isolation. In such a situation, it might be reasonable to conclude that only a minuscule portion of a work, rather than "a work" was embodied in the buffer. Here, however, where every second of an entire work is placed, one second at a time, in the buffer, we conclude that the work is embodied in the buffer.

Does any such embodiment last "for a period of more than transitory duration"? Id. No bit of data remains in any buffer for more than a fleeting 1.2 seconds. And unlike the data in cases like MAI [536 F.3d 130] Systems, which remained embodied in the computer's RAM memory until the user turned the computer off, each bit of data here is rapidly and automatically overwritten as soon as it is processed. While our inquiry is necessarily fact-specific, and other factors not present here may alter the duration analysis significantly, these facts strongly suggest that the works in this case are embodied in the buffer for only a "transitory" period, thus failing the duration requirement.

Against this evidence, plaintiffs argue only that the duration is not transitory because the data persist "long enough for Cablevision to make reproductions from them." Br. of Pls.-Appellees the Cartoon Network et al. at 51. As we have explained above, however, this reasoning impermissibly reads the duration language out of the statute, and we reject it. Given that the data reside in no buffer for more than 1.2 seconds before being automatically overwritten, and in the absence of compelling arguments to the contrary, we believe that the copyrighted works here are not "embodied" in the buffers for a period of more than transitory duration, and are therefore not "fixed" in the buffers. Accordingly, the acts of buffering in the operation of the RS-DVR do not create copies, as the Copyright Act defines that term. Our resolution of this issue renders it unnecessary for us to determine whether any copies produced by buffering data would be de minimis, and we express no opinion on that question.

II. Direct Liability for Creating the Playback Copies

In most copyright disputes, the allegedly infringing act and the identity of the infringer are never in doubt. These cases turn on whether the conduct in question does, in fact, infringe the plaintiff's copyright. In this case, however, the core of the dispute is over the authorship of the infringing conduct. After an RS-DVR subscriber selects a program to record, and that program airs, a copy of the program—a copyrighted work—resides on the hard disks of Cablevision's Arroyo Server, its creation unauthorized by the copyright holder. The question is who made this copy. If it is Cablevision, plaintiffs' theory of direct infringement succeeds; if it is the customer, plaintiffs' theory fails because Cablevision would then face, at most, secondary liability, a theory of liability expressly disavowed by plaintiffs.

Few cases examine the line between direct and contributory liability. Both parties cite a line of cases beginning with Religious Technology Center v. Netcom On-Line Communication Services, 907 F.Supp. 1361 (N.D.Cal.1995). In Netcom, a third-party customer of the defendant Internet service provider ("ISP") posted a copyrighted work that was automatically reproduced by the defendant's computer. The district court refused to impose direct liability on the ISP, reasoning that "[a]lthough copyright is a strict liability statute, there should still be some element of volition or causation which is lacking where a defendant's system is merely used to create a copy by a third party." Id. at 1370. Recently, the Fourth Circuit endorsed the Netcom decision, noting that

to establish direct liability under ... the Act, something more must be shown than mere ownership of a machine used by others to make illegal copies. There must be actual infringing conduct with a nexus sufficiently close and causal to the illegal copying that one could conclude that the machine owner himself trespassed on the exclusive domain of the copyright owner."

CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d 544, 550 (4th Cir.2004).

[536 F.3d 131] Here, the district court pigeon-holed the conclusions reached in Netcom and its progeny as "premised on the unique attributes of the Internet." Cablevision I, 478 F.Supp.2d at 620. While the Netcom court was plainly concerned with a theory of direct liability that would effectively "hold the entire Internet liable" for the conduct of a single user, 907 F.Supp. at 1372, its reasoning and conclusions, consistent with precedents of this court and the Supreme Court, and with the text of the Copyright Act, transcend the Internet. Like the Fourth Circuit, we reject the contention that "the Netcom decision was driven by expedience and that its holding is inconsistent with the established law of copyright," CoStar, 373 F.3d at 549, and we find it "a particularly rational interpretation of § 106," id. at 551, rather than a special-purpose rule applicable only to ISPs.

When there is a dispute as to the author of an allegedly infringing instance of reproduction, Netcom and its progeny direct our attention to the volitional conduct that causes the copy to be made. There are only two instances of volitional conduct in this case: Cablevision's conduct in designing, housing, and maintaining a system that exists only to produce a copy, and a customer's conduct in ordering that system to produce a copy of a specific program. In the case of a VCR, it seems clear — and we know of no case holding otherwise — that the operator of the VCR, the person who actually presses the button to make the recording, supplies the necessary element of volition, not the person who manufactures, maintains, or, if distinct from the operator, owns the machine. We do not believe that an RS-DVR customer is sufficiently distinguishable from a VCR user to impose liability as a direct infringer on a different party for copies that are made automatically upon that customer's command.

The district court emphasized the fact that copying is "instrumental" rather than "incidental" to the function of the RS-DVR system. Cablevision I, 478 F.Supp.2d at 620. While that may distinguish the RS-DVR from the ISPs in Netcom and CoStar, it does not distinguish the RS-DVR from a VCR, a photocopier, or even a typical copy shop. And the parties do not seem to contest that a company that merely makes photocopiers available to the public on its premises, without more, is not subject to liability for direct infringement for reproductions made by customers using those copiers. They only dispute whether Cablevision is similarly situated to such a proprietor.

The district court found Cablevision analogous to a copy shop that makes course packs for college professors. In the leading case involving such a shop, for example, "[t]he professor [gave] the copyshop the materials of which the coursepack [was] to be made up, and the copyshop [did] the rest." Princeton Univ. Press v. Mich. Document Servs., 99 F.3d 1381, 1384 (6th Cir.1996) (en banc). There did not appear to be any serious dispute in that case that the shop itself was directly liable for reproducing copyrighted works. The district court here found that Cablevision, like this copy shop, would be "doing" the copying, albeit "at the customer's behest." Cablevision I, 478 F.Supp.2d at 620.

But because volitional conduct is an important element of direct liability, the district court's analogy is flawed. In determining who actually "makes" a copy, a significant difference exists between making a request to a human employee, who then volitionally operates the copying system to make the copy, and issuing a command directly to a system, which automatically obeys commands and engages in no volitional conduct. In cases like Princeton [536 F.3d 132] University Press, the defendants operated a copying device and sold the product they made using that device. See 99 F.3d at 1383 ("The corporate defendant ... is a commercial copyshop that reproduced substantial segments of copyrighted works of scholarship, bound the copies into `coursepacks,' and sold the coursepacks to students. ..."). Here, by selling access to a system that automatically produces copies on command, Cablevision more closely resembles a store proprietor who charges customers to use a photocopier on his premises, and it seems incorrect to say, without more, that such a proprietor "makes" any copies when his machines are actually operated by his customers. See Netcom, 907 F.Supp. at 1369. Some courts have held to the contrary, but they do not explicitly explain why, and we find them unpersuasive. See, e.g., Elektra Records Co. v. Gem Elec. Distribs., Inc., 360 F.Supp. 821, 823 (E.D.N.Y.1973) (concluding that, "regardless" of whether customers or defendants' employees operated the tape-copying machines at defendants' stores, defendant had actively infringed copyrights).

The district court also emphasized Cablevision's "unfettered discretion in selecting the programming that it would make available for recording." Cablevision I, 478 F.Supp.2d at 620. This conduct is indeed more proximate to the creation of illegal copying than, say, operating an ISP or opening a copy shop, where all copied content was supplied by the customers themselves or other third parties. Nonetheless, we do not think it sufficiently proximate to the copying to displace the customer as the person who "makes" the copies when determining liability under the Copyright Act. Cablevision, we note, also has subscribers who use home VCRs or DVRs (like TiVo), and has significant control over the content recorded by these customers. But this control is limited to the channels of programming available to a customer and not to the programs themselves. Cablevision has no control over what programs are made available on individual channels or when those programs will air, if at all. In this respect, Cablevision possesses far less control over recordable content than it does in the VOD context, where it actively selects and makes available beforehand the individual programs available for viewing. For these reasons, we are not inclined to say that Cablevision, rather than the user, "does" the copying produced by the RS-DVR system. As a result, we find that the district court erred in concluding that Cablevision, rather than its RS-DVR customers, makes the copies carried out by the RS-DVR system.

Our refusal to find Cablevision directly liable on these facts is buttressed by the existence and contours of the Supreme Court's doctrine of contributory liability in the copyright context. After all, the purpose of any causation-based liability doctrine is to identify the actor (or actors) whose "conduct has been so significant and important a cause that [he or she] should be legally responsible." W. Page Keeton et al., Prosser and Keeton on Torts § 42, at 273 (5th ed.1984). But here, to the extent that we may construe the boundaries of direct liability more narrowly, the doctrine of contributory liability stands ready to provide adequate protection to copyrighted works.

Most of the facts found dispositive by the district court—e.g., Cablevision's "continuing relationship" with its RS-DVR customers, its control over recordable content, and the "instrumental[ity]" of copying to the RS-DVR system, Cablevision I, 478 F.Supp.2d at 618-20—seem to us more relevant to the question of contributory liability. In Sony Corp. of America v. Universal City Studios, Inc., the lack of an [536 F.3d 133] "ongoing relationship" between Sony and its VCR customers supported the Court's conclusion that it should not impose contributory liability on Sony for any infringing copying done by Sony VCR owners. 464 U.S. 417, 437-38, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984). The Sony Court did deem it "just" to impose liability on a party in a "position to control" the infringing uses of another, but as a contributory, not direct, infringer. Id. at 437, 104 S.Ct. 774. And asking whether copying copyrighted material is only "incidental" to a given technology is akin to asking whether that technology has "commercially significant noninfringing uses," another inquiry the Sony Court found relevant to whether imposing contributory liability was just. Id. at 442, 104 S.Ct. 774.

The Supreme Court's desire to maintain a meaningful distinction between direct and contributory copyright infringement is consistent with congressional intent. The Patent Act, unlike the Copyright Act, expressly provides that someone who "actively induces infringement of a patent" is "liable as an infringer," 35 U.S.C. § 271(b), just like someone who commits the underlying infringing act by "us[ing]" a patented invention without authorization, id. § 271(a). In contrast, someone who merely "sells ... a material or apparatus for use in practicing a patented process" faces only liability as a "contributory infringer." Id. § 271(c). If Congress had meant to assign direct liability to both the person who actually commits a copyright-infringing act and any person who actively induces that infringement, the Patent Act tells us that it knew how to draft a statute that would have this effect. Because Congress did not do so, the Sony Court concluded that "[t]he Copyright Act does not expressly render anyone liable for infringement committed by another." 464 U.S. at 434, 104 S.Ct. 774. Furthermore, in cases like Sony, the Supreme Court has strongly signaled its intent to use the doctrine of contributory infringement, not direct infringement, to "identify[] the circumstances in which it is just to hold one individual accountable for the actions of another." Id. at 435, 104 S.Ct. 774. Thus, although Sony warns us that "the lines between direct infringement, contributory infringement, and vicarious liability are not clearly drawn," id. at 435 n. 17, 104 S.Ct. 774 (internal quotation marks and citation omitted), that decision does not absolve us of our duty to discern where that line falls in cases, like this one, that require us to decide the question.

The district court apparently concluded that Cablevision's operation of the RS-DVR system would contribute in such a major way to the copying done by another that it made sense to say that Cablevision was a direct infringer, and thus, in effect, was "doing" the relevant copying. There are certainly other cases, not binding on us, that follow this approach. See, e.g., Playboy Enters. v. Russ Hardenburgh, Inc., 982 F.Supp. 503, 513 (N.D.Ohio 1997) (noting that defendant ISP's encouragement of its users to copy protected files was "crucial" to finding that it was a direct infringer). We need not decide today whether one's contribution to the creation of an infringing copy may be so great that it warrants holding that party directly liable for the infringement, even though another party has actually made the copy. We conclude only that on the facts of this case, copies produced by the RS-DVR system are "made" by the RS-DVR customer, and Cablevision's contribution to this reproduction by providing the system does not warrant the imposition of direct liability. Therefore, Cablevision is entitled to summary judgment on this point, and the district court erred in awarding summary judgment to plaintiffs.

[536 F.3d 134] III. Transmission of RS-DVR Playback

Plaintiffs' final theory is that Cablevision will violate the Copyright Act by engaging in unauthorized public performances of their works through the playback of the RS-DVR copies. The Act grants a copyright owner the exclusive right, "in the case of ... motion pictures and other audiovisual works, to perform the copyrighted work publicly." 17 U.S.C. § 106(4). Section 101, the definitional section of the Act, explains that

[t]o perform or display a work "publicly" means (1) to perform or display 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 (2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, 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.

Id. § 101.

The parties agree that this case does not implicate clause (1). Accordingly, we ask whether these facts satisfy the second, "transmit clause" of the public performance definition: Does Cablevision "transmit ... a performance ... of the work ... to the public"? Id. No one disputes that the RS-DVR playback results in the transmission of a performance of a work—the transmission from the Arroyo Server to the customer's television set. Cablevision contends that (1) the RS-DVR customer, rather than Cablevision, does the transmitting and thus the performing and (2) the transmission is not "to the public" under the transmit clause.

As to Cablevision's first argument, we note that our conclusion in Part II that the customer, not Cablevision, "does" the copying does not dictate a parallel conclusion that the customer, and not Cablevision, "performs" the copyrighted work. The definitions that delineate the contours of the reproduction and public performance rights vary in significant ways. For example, the statute defines the verb "perform" and the noun "copies," but not the verbs "reproduce" or "copy." Id. We need not address Cablevision's first argument further because, even if we assume that Cablevision makes the transmission when an RS-DVR playback occurs, we find that the RS-DVR playback, as described here, does not involve the transmission of a performance "to the public."

The statute itself does not expressly define the term "performance" or the phrase "to the public." It does explain that a transmission may be "to the public ... whether the members of the public capable of receiving the performance ... receive it in the same place or in separate places and at the same time or at different times." Id. This plain language instructs us that, in determining whether a transmission is "to the public," it is of no moment that the potential recipients of the transmission are in different places, or that they may receive the transmission at different times. The implication from this same language, however, is that it is relevant, in determining whether a transmission is made to the public, to discern who is "capable of receiving" the performance being transmitted. The fact that the statute says "capable of receiving the performance," instead of "capable of receiving the transmission," underscores the fact that a transmission of a performance is itself a performance. Cf. Buck v. Jewell-La Salle Realty Co., 283 U.S. 191, 197-98, 51 S.Ct. 410, 75 L.Ed. 971 (1931).

[536 F.3d 135] The legislative history of the transmit clause supports this interpretation. The House Report on the 1976 Copyright Act states that

[u]nder the bill, as under the present law, a performance made available by transmission to the public at large is "public" even though the recipients are not gathered in a single place, and even if there is no proof that any of the potential recipients was operating his receiving apparatus at the time of the transmission. The same principles apply whenever the potential recipients of the transmission represent a limited segment of the public, such as the occupants of hotel rooms or the subscribers of a cable television service.

H.R.Rep. No. 94-1476, at 64-65 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5678 (emphases added).

Plaintiffs also reference a 1967 House Report, issued nearly a decade before the Act we are interpreting, stating that the same principles apply where the transmission is "capable of reaching different recipients at different times, as in the case of sounds or images stored in an information system and capable of being performed or displayed at the initiative of individual members of the public." H.R.Rep. No. 90-83, at 29 (1967) (emphases added). We question how much deference this report deserves. But we need not belabor the point here, as the 1967 report is consistent with both legislative history contemporaneous with the Act's passage and our own interpretation of the statute's plain meaning.

From the foregoing, it is evident that the transmit clause directs us to examine who precisely is "capable of receiving" a particular transmission of a performance. Cablevision argues that, because each RS-DVR transmission is made using a single unique copy of a work, made by an individual subscriber, one that can be decoded exclusively by that subscriber's cable box, only one subscriber is capable of receiving any given RS-DVR transmission. This argument accords with the language of the transmit clause, which, as described above, directs us to consider the potential audience of a given transmission. We are unpersuaded by the district court's reasoning and the plaintiffs' arguments that we should consider a larger potential audience in determining whether a transmission is "to the public."

The district court, in deciding whether the RS-DVR playback of a program to a particular customer is "to the public," apparently considered all of Cablevision's customers who subscribe to the channel airing that program and all of Cablevision's RS-DVR subscribers who request a copy of that program. Thus, it concluded that the RS-DVR playbacks constituted public performances because "Cablevision would transmit the same program to members of the public, who may receive the performance at different times, depending on whether they view the program in real time or at a later time as an RS-DVR playback." Cablevision I, 478 F.Supp.2d at 623 (emphasis added). In essence, the district court suggested that, in considering whether a transmission is "to the public," we consider not the potential audience of a particular transmission, but the potential audience of the underlying work (i.e., "the program") whose content is being transmitted.

We cannot reconcile the district court's approach with the language of the transmit clause. That clause speaks of people capable of receiving a particular "transmission" or "performance," and not of the potential audience of a particular "work." Indeed, such an approach would render the "to the public" language surplusage. Doubtless the potential audience for every [536 F.3d 136] copyrighted audiovisual work is the general public. As a result, any transmission of the content of a copyrighted work would constitute a public performance under the district court's interpretation. But the transmit clause obviously contemplates the existence of non-public transmissions; if it did not, Congress would have stopped drafting that clause after "performance."

On appeal, plaintiffs offer a slight variation of this interpretation. They argue that both in its real-time cablecast and via the RS-DVR playback, Cablevision is in fact transmitting the "same performance" of a given work: the performance of the work that occurs when the programming service supplying Cablevision's content transmits that content to Cablevision and the service's other licensees. See Br. of Pls.-Appellees Twentieth Century Fox Film Corp. et al. at 27 ("Fox Br.") ("The critical factor ... is that the same performance is transmitted to different subscribers at different times .... more specifically, the performance of that program by HBO or another programming service." (third emphasis added)).

Thus, according to plaintiffs, when Congress says that to perform a work publicly means to transmit ... a performance ... to the public, they really meant "transmit ... the `original performance' ... to the public." The implication of this theory is that to determine whether a given transmission of a performance is "to the public," we would consider not only the potential audience of that transmission, but also the potential audience of any transmission of the same underlying "original" performance.

Like the district court's interpretation, this view obviates any possibility of a purely private transmission. Furthermore, it makes Cablevision's liability depend, in part, on the actions of legal strangers. Assume that HBO transmits a copyrighted work to both Cablevision and Comcast. Cablevision merely retransmits the work from one Cablevision facility to another, while Comcast retransmits the program to its subscribers. Under plaintiffs' interpretation, Cablevision would still be transmitting the performance to the public, solely because Comcast has transmitted the same underlying performance to the public. Similarly, a hapless customer who records a program in his den and later transmits the recording to a television in his bedroom would be liable for publicly performing the work simply because some other party had once transmitted the same underlying performance to the public.

We do not believe Congress intended such odd results. Although the transmit clause is not a model of clarity, we believe that when Congress speaks of transmitting a performance to the public, it refers to the performance created by the act of transmission. Thus, HBO transmits its own performance of a work when it transmits to Cablevision, and Cablevision transmits its own performance of the same work when it retransmits the feed from HBO.

Furthermore, we believe it would be inconsistent with our own transmit clause jurisprudence to consider the potential audience of an upstream transmission by a third party when determining whether a defendant's own subsequent transmission of a performance is "to the public." In National Football League v. PrimeTime 24 Joint Venture (NFL), 211 F.3d 10 (2000), we examined the transmit clause in the context of satellite television provider PrimeTime, which captured protected content in the United States from the NFL, transmitted it from the United States to a satellite ("the uplink"), and then transmitted it from the satellite to subscribers in both the United States and Canada ("the downlink"). PrimeTime had a license to [536 F.3d 137] transmit to its U.S. customers, but not its Canadian customers. It argued that although the downlink transmission to its Canadian subscribers was a public performance, it could not be held liable for that act because it occurred entirely outside of the United States and therefore was not subject to the strictures of the Copyright Act. It also argued that the uplink transmission was not a public performance because it was a transmission to a single satellite. See id. at 12.

The NFL court did not question the first assumption, but it flatly rejected the second on a specific and germane ground:

We believe the most logical interpretation of the Copyright Act is to hold that a public performance or display includes each step in the process by which a protected work wends its way to its audience. Under that analysis, it is clear that PrimeTime's uplink transmission of signals captured in the United States is a step in the process by which NFL's protected work wends its way to a public audience.

Id. at 13 (emphasis added) (internal quotation and citation omitted). Thus, while the uplink transmission that took place in the United States was not, in itself, "to the public," the NFL court deemed it so because it ultimately resulted in an undisputed public performance. Notably, the NFL court did not base its decision on the fact that an upstream transmission by another party (the NFL) might have been to the public. Nor did the court base its decision on the fact that Primetime simultaneously transmitted a performance of the work to the public in the United States. Because NFL directs us to look downstream, rather than upstream or laterally, to determine whether any link in a chain of transmissions made by a party constitutes a public performance, we reject plaintiffs' contention that we examine the potential recipients of the content provider's initial transmission to determine who is capable of receiving the RS-DVR playback transmission.

Plaintiffs also rely on NFL for the proposition that Cablevision publicly performs a work when it splits its programming stream and transmits the second stream to the RS-DVR system. Because NFL only supports that conclusion if we determine that the final transmission in the chain (i.e., the RS-DVR playback transmission) is "to the public," plaintiffs' reliance on NFL is misplaced. NFL dealt with a chain of transmissions whose final link was undisputedly a public performance. It therefore does not guide our current inquiry.

In sum, none of the arguments advanced by plaintiffs or the district court alters our conclusion that, under the transmit clause, we must examine the potential audience of a given transmission by an alleged infringer to determine whether that transmission is "to the public." And because the RS-DVR system, as designed, only makes transmissions to one subscriber using a copy made by that subscriber, we believe that the universe of people capable of receiving an RS-DVR transmission is the single subscriber whose self-made copy is used to create that transmission.

Plaintiffs contend that it is "wholly irrelevant, in determining the existence of a public performance, whether `unique' copies of the same work are used to make the transmissions." Fox Br. at 27. But plaintiffs cite no authority for this contention. And our analysis of the transmit clause suggests that, in general, any factor that limits the potential audience of a transmission is relevant.

Furthermore, no transmission of an audiovisual work can be made, we assume, without using a copy of that work: to transmit a performance of a movie, for [536 F.3d 138] example, the transmitter generally must obtain a copy of that movie. As a result, in the context of movies, television programs, and other audiovisual works, the right of reproduction can reinforce and protect the right of public performance. If the owner of a copyright believes he is injured by a particular transmission of a performance of his work, he may be able to seek redress not only for the infringing transmission, but also for the underlying copying that facilitated the transmission. Given this interplay between the various rights in this context, it seems quite consistent with the Act to treat a transmission made using Copy A as distinct from one made using Copy B, just as we would treat a transmission made by Cablevision as distinct from an otherwise identical transmission made by Comcast. Both factors—the identity of the transmitter and the source material of the transmission—limit the potential audience of a transmission in this case and are therefore germane in determining whether that transmission is made "to the public."

Indeed, we believe that Columbia Pictures Industries, Inc. v. Redd Horne, Inc., 749 F.2d 154 (3d Cir.1984), relied on by both plaintiffs and the district court, supports our decision to accord significance to the existence and use of distinct copies in our transmit clause analysis. In that case, defendant operated a video rental store, Maxwell's, which also housed a number of small private booths containing seats and a television. Patrons would select a film, enter the booth, and close the door. An employee would then load a copy of the requested movie into a bank of VCRs at the front of the store and push play, thereby transmitting the content of the tape to the television in the viewing booth. See id. at 156-57.

The Third Circuit found that defendants' conduct constituted a public performance under both clauses of the statutory definition. In concluding that Maxwell's violated the transmit clause, that court explicitly relied on the fact that defendants showed the same copy of a work seriatim to its clientele, and it quoted a treatise emphasizing the same fact:

Professor Nimmer's examination of this definition is particularly pertinent: "if the same copy ... of a given work is repeatedly played (i.e., `performed') by different members of the public, albeit at different times, this constitutes a 'public' performance." 2 M. Nimmer, § 8.14[C][3], at 8-142 (emphasis in original). ... Although Maxwell's has only one copy of each film, it shows each copy repeatedly to different members of the public. This constitutes a public performance.

Id. at 159 (first omission in original).

Unfortunately, neither the Redd Horne court nor Prof. Nimmer explicitly explains why the use of a distinct copy affects the transmit clause inquiry. But our independent analysis confirms the soundness of their intuition: the use of a unique copy may limit the potential audience of a transmission and is therefore relevant to whether that transmission is made "to the public." Plaintiffs' unsupported arguments to the contrary are unavailing.

Given that each RS-DVR transmission is made to a given subscriber using a copy made by that subscriber, we conclude that such a transmission is not "to the public," without analyzing the contours of that phrase in great detail. No authority cited by the parties or the district court persuades us to the contrary.

In addition to Redd Horne, the district court also cited and analyzed On Command Video Corp. v. Columbia Pictures Industries, 777 F.Supp. 787 (N.D.Cal. 1991), in its transmit clause analysis. In that case, defendant On Command developed [536 F.3d 139] and sold "a system for the electronic delivery of movie video tapes," which it sold to hotels. Id. at 788. The hub of the system was a bank of video cassette players, each containing a copy of a particular movie. From his room, a hotel guest could select a movie via remote control from a list on his television. The corresponding cassette player would start, and its output would be transmitted to that guest's room. During this playback, the movie selected was unavailable to other guests. See id. The court concluded that the transmissions made by this system were made to the public "because the relationship between the transmitter of the performance, On Command, and the audience, hotel guests, is a commercial, `public' one regardless of where the viewing takes place." Id. at 790.

Thus, according to the On Command court, any commercial transmission is a transmission "to the public." We find this interpretation untenable, as it completely rewrites the language of the statutory definition. If Congress had wished to make all commercial transmissions public performances, the transmit clause would read: "to perform a work publicly means ... to transmit a performance for commercial purposes." In addition, this interpretation overlooks, as Congress did not, the possibility that even non-commercial transmissions to the public may diminish the value of a copyright. Finally, like Redd Horne, On Command is factually distinguishable, as successive transmissions to different viewers in that case could be made using a single copy of a given work. Thus, at the moment of transmission, any of the hotel's guests was capable of receiving a transmission made using a single copy of a given movie. As a result, the district court in this case erred in relying on On Command.

Plaintiffs also rely on Ford Motor Co. v. Summit Motor Products, Inc., 930 F.2d 277 (3d Cir.1991), in which the Third Circuit interpreted § 106(3) of the Copyright Act, which gives the copyright holder the exclusive right "to distribute copies ... of the copyrighted work to the public," 17 U.S.C. § 106(3) (emphasis added). The court concluded that "even one person can be the public for the purposes of section 106(3)." Ford, 930 F.2d at 299 (emphasis added). Commentators have criticized the Ford court for divesting the phrase "to the public" of "all meaning whatsoever," 2 Nimmer & Nimmer, supra, § 8.11[A], at 8-149, and the decision does appear to have that result. Whether this result was justified in the context of the distribution right is not for us to decide in this case. We merely note that we find no compelling reason, in the context of the transmit clause and the public performance right, to interpret the phrase "to the public" out of existence.

In sum, we find that the transmit clause directs us to identify the potential audience of a given transmission, i.e., the persons "capable of receiving" it, to determine whether that transmission is made "to the public." Because each RS-DVR playback transmission is made to a single subscriber using a single unique copy produced by that subscriber, we conclude that such transmissions are not performances "to the public," and therefore do not infringe any exclusive right of public performance. We base this decision on the application of undisputed facts; thus, Cablevision is entitled to summary judgment on this point.

This holding, we must emphasize, does not generally permit content delivery networks to avoid all copyright liability by making copies of each item of content and associating one unique copy with each subscriber to the network, or by giving their subscribers the capacity to make their own individual copies. We do not address whether such a network operator would be [536 F.3d 140] able to escape any other form of copyright liability, such as liability for unauthorized reproductions or liability for contributory infringement.

In sum, because we find, on undisputed facts, that Cablevision's proposed RS-DVR system would not directly infringe plaintiffs' exclusive rights to reproduce and publicly perform their copyrighted works, we grant summary judgment in favor of Cablevision with respect to both rights.

CONCLUSION

For the foregoing reasons, the district court's award of summary judgment to the plaintiffs is REVERSED and the district court's injunction against Cablevision is VACATED. The case is REMANDED for further proceedings consistent with this opinion.

[1] To run a computer program, the data representing that program must be transferred from a data storage medium (such as a floppy disk or a hard drive) to a form of Random Access Memory ("RAM") where the data can be processed. The data buffers at issue here are also a form of RAM.

[2] The same reasoning also distinguishes this court's opinion in Matthew Bender & Co. v. West Publishing Co., 158 F.3d 693 (2d Cir. 1998). Language in that opinion, taken out of context, suggests that the definition of "fixed" imposes only an embodiment requirement: "Under § 101's definition of `copies,' a work satisfies the fixation requirement when it is fixed in a material object from which it can be perceived or communicated directly or with the aid of a machine." Id. at 702. Like the MAI Systems cases, Matthew Bender only addresses the embodiment requirement: specifically, whether West's copyrighted arrangement of judicial opinions was "embedded" in a CD-ROM compilation of opinions when the cases were normally arranged differently but could be manipulated by the user to replicate West's copyrighted arrangement. Id. at 703. The opinion merely quotes the duration language without discussing it, see id. at 702; that case therefore does not compel us to conclude that the definition of "fixed" does not impose a duration requirement.

839 F.Supp. 1552 (1993)

No. 93-489-Civ-J-20.

December 9, 1993.

[1553] [1554] George E. Schulz, Jr., Chad S. Roberts, Jacksonville, FL, David P. Peterson, John D. Vadenberg, Garth A. Winn Portland, OR, for plaintiff.

David M. Wiesenfeld, Carl D. Dawson, Jacksonville, FL, for defendants.

ORDER

SCHLESINGER, District Judge.

This cause is before the Court on Plaintiff's First Motion for Partial Summary Judgment (Copyright Infringement) as to Defendant Frena (Doc. No. S-1, filed July 26, 1993), and Plaintiff's Second and Third Motions for Partial Summary Judgment (Trademark Infringement and Lanham Act Violations) as to Defendant Frena (Doc. No. S-3, filed July 29, 1993). In its First Motion for Partial Summary Judgment, Plaintiff requests that the Court grant partial summary judgment that Defendant Frena infringed Plaintiff's copyrights and specifically that the 170 image files in question in Exhibit C to the Tesnakis Affidavit infringed Plaintiff's copyrights in 50 of Plaintiff's copyrighted magazines. In the Second and Third Motions for Partial Summary Judgment, Plaintiff requests that the Court grant partial summary judgment that Defendant Frena infringed Plaintiff's federally registered trademarks PLAYBOY® and PLAYMATE® specifically that Defendant Frena infringed United States Trademark registration numbers 600,018 and 721,987 and that Defendant Frena competed unfairly with Plaintiff, violating 15 U.S.C. § 1125(a). Furthermore, Plaintiff asks for oral argument on its Motions. Defendant Frena has filed responses to these Motions. (Doc. Nos. S-5 and S-6, filed August 4, 1993).

Defendant George Frena operates a subscription computer bulletin board service, Techs Warehouse BBS ("BBS"), that distributed unauthorized copies of Plaintiff Playboy Enterprises, Inc.'s ("PEI") copyrighted photographs. BBS is accessible via telephone modem to customers. For a fee, or to those who purchase certain products from Defendant Frena, anyone with an appropriately equipped computer can log onto BBS. Once logged on subscribers may browse through different BBS directories to look at the pictures and customers may also download^[1] the high quality computerized copies of the photographs and then store the copied image from Frena's computer onto their home computer. Many of the images found on BBS include adult subject matter. One hundred and seventy of the images that were available on BBS were copies of photographs taken from PEI's copyrighted materials.

Defendant Frena admits that these materials were displayed on his BBS, see Answer at ¶ 23; Defendant's Admissions, Response No. 8, that he never obtained authorization or consent from PEI, see Answer at ¶¶ 38, 39 and 40, and that each of the accused computer graphic files on BBS is substantially similar to copyrighted PEI photographs, see Defendant's Admissions, Response No. 5. Defendant Frena also admits that each of the files in question has been downloaded^[2] by one of his customers. See Defendant's Admissions, Response No. 11.

Subscribers can upload^[3] material onto the bulletin board so that any other subscriber, by accessing their computer, can see that material. Defendant Frena states in his Affidavit filed August 4, 1993, that he never uploaded any of PEI's photographs onto BBS and that subscribers to BBS uploaded the photographs. See Affidavit of George Frena at ¶ 6 (Doc. No. S-7). Defendant Frena states that as soon as he was served with a summons and made aware of this matter, he removed the photographs from BBS and has since that time monitored BBS to prevent additional photographs of PEI from being uploaded. See Affidavit of George Frena at ¶ 6.

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories [1555] and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the initial burden of showing the Court, by reference to materials on file that there are no genuine issues of material fact that should be decided at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Clark v. Coats & Clark, Inc., 929 F.2d 604 (11th Cir. 1991). A moving party discharges its burden on a motion for summary judgment by "showing" or "pointing out" to the Court that there is an absence of evidence to support the nonmoving party's case. Celotex, 477 U.S. at 325, 106 S.Ct. at 2554. Rule 56 permits the moving party to discharge its burden with or without supporting affidavits and to move for summary judgment on the case as a whole or on any claim. Id. When a moving party has discharged its burden, the nonmoving party must then "go beyond the pleadings," and by its own affidavits, or by "depositions, answers to interrogatories, and admissions on file," designate specific facts showing that there is a genuine issue for trial. Id. at 324.

In determining whether the moving party has met its burden of establishing that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law, the Court must draw inferences from the evidence in the light most favorable to the nonmovant, Key West Harbor v. City of Key West, 987 F.2d 723, 726 (11th Cir.1993), and resolve all reasonable doubts in that party's favor. Spence v. Zimmerman, 873 F.2d 256, 257 (11th Cir.1989). The nonmovant need not be given the benefit of every inference, but only of every "reasonable" inference. Brown v. City of Clewiston, 848 F.2d 1534, 1540 n. 12 (11th Cir.1988). The Eleventh Circuit has explained the reasonableness standard:

In deciding whether an inference is reasonable, the Court must "cull the universe of possible inferences from the facts established by weighing each against the abstract standard of reasonableness." [citation omitted]. The opposing party's inferences need not be more probable than those inferences in favor of the movant to create a factual dispute, so long as they reasonably may be drawn from the facts. When more than one inference reasonably can be drawn, it is for the trier of fact to determine the proper one.

WSB-TV v. Lee, 842 F.2d 1266, 1270 (11th Cir.1988).

Thus, if a reasonable fact finder evaluating the evidence could draw more than one inference from the facts, and if that inference introduces a genuine issue of material fact, then the court should not grant the summary judgment motion. Augusta Iron and Steel Works v. Employers Insurance of Wausau, 835 F.2d 855, 856 (11th Cir.1988). It must be emphasized that the mere existence of some alleged factual dispute will not defeat an otherwise properly supported summary judgement motion. Rather, "the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A dispute about a material fact is "genuine" if the "evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248, 106 S.Ct. at 2510. The inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52, 106 S.Ct. at 2511-12.

I. COPYRIGHT INFRINGEMENT

The Copyright Act of 1976 gives copyright owners control over most, if not all, activities of conceivable commercial value. The statute provides that

the owner of a copyright ... has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies ...; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies ... of the copyrighted work to the public ... and (5) in the case of ... pictorial ... works ... to display the copyrighted work publicly.

17 U.S.C. § 106. Engaging in or authorizing any of these categories without the copyright owner's permission violates the exclusive [1556] rights of the copyright owner and constitutes infringement of the copyright. See 17 U.S.C. § 501(a).

To establish copyright infringement, PEI must show ownership of the copyright and "copying" by Defendant Frena, see Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991); Southern Bell Tel. & Tel. v. Assoc. Telephone Directory Publishers, 756 F.2d 801, 810 (11th Cir.1985).

There is no dispute that PEI owns the copyrights on the photographs in question. PEI owns copyright registrations for each of the 50 issues of Playboy publications that contain the photographs on BBS. See Tesnakis Affidavit at ¶ 9. The copyright registration certificate constitutes prima facie evidence in favor of Plaintiff. See Southern Bell Tel., 756 F.2d at 811. Once the plaintiff has established his prima facie ownership, the burden then shifts to the defendant to counter this evidence. See 3 MELVILLE B. NIMMER, Nimmer on Copyright § 13.01[A], at 13-7 (1993). Defendant Frena, however, failed to rebut the appropriate inference of validity.

Next, PEI must demonstrate copying by Defendant Frena. Since direct evidence of copying is rarely available in a copyright infringement action, copying may be inferentially proven by showing that Defendant Frena had access to the allegedly infringed work, that the allegedly infringing work is substantially similar to the copyrighted work, see Howard v. Sterchi, 974 F.2d 1272 (11th Cir.1992), and that one of the rights statutorily guaranteed to copyright owners is implicated by Frena's actions. See Ford Motor Co. v. Summit Motor Products, Inc., 930 F.2d 277, 291 (3d Cir.1991), cert. denied, ___ U.S. ___, 112 S.Ct. 373, 116 L.Ed.2d 324.

Access to the copyrighted work is not at issue. Access is essentially undeniable because every month PEI sells over 3.4 million copies of Playboy magazine throughout the United States. See Kent Affidavit at ¶ 4.

Substantial similarity is also a non-issue in this case. Defendant Frena has admitted that every one of the accused images is substantially similar to the PEI copyrighted photograph from which the accused image was produced. See Defendant's Admissions at ¶ 5. Moreover, not only are the accused works substantially similar to the copyrighted work, but the infringing photographs are essentially exact copies. See Exhibits A and B in the Tesnakis Affidavit. In many cases, the only difference is that PEI's written text appearing on the same page of the photograph has been removed from the infringing copy.

The next step is to determine whether Defendant Frena violated one of the rights statutorily guaranteed to copyright owners under 17 U.S.C. § 106. See 17 U.S.C. § 501(a).

Public distribution of a copyrighted work is a right reserved to the copyright owner, and usurpation of that right constitutes infringement. See Cable/Home Communication Corp. v. Network Productions, Inc., 902 F.2d 829, 843 (11th Cir.1990). PEI's right under 17 U.S.C. § 106(3) to distribute copies to the public has been implicated by Defendant Frena. Section 106(3) grants the copyright owner "the exclusive right to sell, give away, rent or lend any material embodiment of his work." 2 MELVILLE B. NIMMER, Nimmer on Copyright § 8.11[A], at 8-124.1 (1993). There is no dispute that Defendant Frena supplied a product containing unauthorized copies of a copyrighted work. It does not matter that Defendant Frena claims he did not make the copies itself. See JAY DRATLER, JR., Intellectual Property Law: Commercial, Creative and Industrial Property § 6.01[3], at 6-15 (1991).

Furthermore, the "display" rights of PEI have been infringed upon by Defendant Frena. See 17 U.S.C. § 106(5). The concept of display is broad. See 17 U.S.C. § 101. It covers "the projection of an image on a screen or other surface by any method, the transmission of an image by electronic or other means, and the showing of an image on a cathode ray tube, or similar viewing apparatus connected with any sort of information storage and retrieval system." H.R.Rep. No. 1476, 94th Cong., 2d Sess. 64 (Sept. 3, 1976), reprinted in 1976 U.S.Code Cong. & Admin.News [1557] 5659, 5677. The display right precludes unauthorized transmission of the display from one place to another, for example, by a computer system. See H.R.Rep. No. 1476, 94th Cong., 2d Sess. 80 (Sept. 3, 1976), reprinted in 1976 U.S.Code Cong. & Admin.News 5659, 5694; JAY DRATLER, JR., Intellectual Property Law: Commercial, Creative and Industrial Property § 6.01[4], at 624 (1991).

"Display" covers any showing of a "copy" of the work, "either directly or by means of a film, slide, television image or any other device or process." 17 U.S.C. § 101. However, in order for there to be copyright infringement, the display must be public. A "public display" is a display "at a place open to the public or ... where a substantial number of persons outside of a normal circle of family and its social acquaintenances is gathered." 2 MELVILLE B. NIMMER, Nimmer on Copyright § 8.14[C], at 8-169 (1993). A place is "open to the public" in this sense even if access is limited to paying customers. 2 MELVILLE B. NIMMER, Nimmer on Copyright § 8.14[C], at 8-169 n. 36 (1993); see Columbia Pictures Indus., Inc. v. Redd Horne Inc., 749 F.2d 154 (3d Cir.1984).

Defendant's display of PEI's copyrighted photographs to subscribers was a public display. Though limited to subscribers, the audience consisted of "a substantial number of persons outside of a normal circle of family and its social acquaintenances." 2 MELVILLE B. NIMMER, Nimmer on Copyright § 8.14[C], at 8-169 (1993). See also Thomas v. Pansy Ellen Products, 672 F.Supp. 237, 240 (W.D.North Carolina 1987) (display at a trade show was public even though limited to members); Ackee Music, Inc. v. Williams, 650 F.Supp. 653 (D.Kan.1986) (performance of copyrighted songs at defendant's private club constituted a public performance).

Defendant Frena argues that the affirmative defense of fair use precludes a finding of copyright infringement. "Fair use" describes "limited and useful forms of copying and distribution that are tolerated as exceptions to copyright protection." Cable/Home Communications Corp., 902 F.2d at 843 (citing Pacific & Southern Co. v. Duncan, 744 F.2d 1490, 1494 (11th Cir.1984), cert. denied, 471 U.S. 1004, 105 S.Ct. 1867, 85 L.Ed.2d 161 (1985)).

The question of fair use constitutes a mixed issue of law and fact. See Harper & Row, Publishers, Inc. v. Nation Enterprises., 471 U.S. 539, 560, 105 S.Ct. 2218, 2230, 85 L.Ed.2d 588 (1985). Fair use may be addressed on summary judgment. See Cable/Home Communications Corp., 902 F.2d at 843-45 (affirming summary judgment holding that fair use doctrine did not apply).

The Copyright Act mandates four nonexclusive factors which courts shall consider case by case in determining fair use. Cable/Home Communications Corp., 902 F.2d at 843; see 17 U.S.C. § 107. Section 107 does not attempt to define "fair use." It merely lists the factors to be considered in determining whether a use made of a work in a particular case is fair. Section 107 states:

[T]he fair use of a copyrighted work ... for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include —

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(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 for or value of the copyrighted work.

17 U.S.C. § 107.

With respect to the first factor, "every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright ...," Harper & Row, Publishers, Inc., 471 U.S. at 562, 105 S.Ct. at 2231 (quoting Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 451, 104 S.Ct. 774, 793, 78 L.Ed.2d 574 (1984)), so that "any [1558] commercial use tends to cut against a fair use defense." Triangle Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171, 1175 (5th Cir.1980).

Defendant Frena's use was clearly commercial. BBS was provided to those paying twenty-five dollars ($25) per month or to those who purchased products from Defendant Frena. One who distributes copyrighted material for profit is engaged in a commercial use even if the customers supplied with such material themselves use it for personal use. See Pacific & Southern Co. v. Duncan, 572 F.Supp. 1186 (N.D.Ga.1983), affirmed, 744 F.2d 1490 (11th Cir.1984), cert. denied, 471 U.S. 1004, 105 S.Ct. 1867, 85 L.Ed.2d 161 (1985).

Implicit in the presumption that every commercial use is presumptively unfair is "some meaningful likelihood that future market harm exists." Cable/Home Communications Corp., 902 F.2d at 844 (citing Sony, 464 U.S. at 451, 104 S.Ct. at 793). It is clear that future market harm exists to PEI due to Frena's activities, as will be discussed in more detail under factor four.

The second factor is the "nature of the copyrighted work." 17 U.S.C. § 107. "Copyright protection is narrower, and the corresponding application of fair use defense greater, in the case of factual works than in the case of works of fiction or fantasy." 3 MELVILLE B. NIMMER, Nimmer on Copyright § 13.05[A], at 13-102.57 (1993). If a work is more appropriately characterized as entertainment, it is less likely that a claim of fair use will be accepted. See In New Era Publications Intern., ApS v. Carol Publishing Group, 904 F.2d 152 (2d Cir.), cert. denied, 498 U.S. 921, 111 S.Ct. 297, 112 L.Ed.2d 251 (1990). The copyrighted works involved in this case are in the category of fantasy and entertainment. Therefore, the second factor works against Frena's fair use defense.

Regarding the third factor, the amount and substantiality of the portion of the copyrighted work used, the Supreme Court has directed a qualitative evaluation of the copying of the copyrighted work. Cable/Home Communications Corp., 902 F.2d at 844 (citing Harper & Row, 471 U.S. at 564-65, 105 S.Ct. at 2232-33). That is, "a small degree of taking is sufficient to transgress fair use if the copying is the essential part of the copyrighted work." Id. See, e.g., Meeropol v. Nizer, 560 F.2d 1061, 1071 (2d Cir.1977) (although copyrighted letters were less than 1% of the infringing work, they were displayed prominently), cert. denied, 434 U.S. 1013, 98 S.Ct. 727, 54 L.Ed.2d 756 (1978); Roy Export Co. Establishment of Vaduz, Liechtenstein, Black, Inc. v. Columbia Broadcasting Sys., Inc., 503 F.Supp. 1137, 1145 (S.D.N.Y. 1980) (fifty-five seconds taken from a onehour and twenty-nine-minute film deemed qualitatively substantial for copyright infringement), aff'd, 672 F.2d 1095 (2d Cir.), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982); Sheldon v. MetroGoldwyn Pictures Corp., 81 F.2d 49, 56 (2d Cir.) ("[N]o plagiarist can excuse the wrong by showing how much of his work he did not pirate."), cert. denied, 298 U.S. 669, 56 S.Ct. 835, 80 L.Ed. 1392 (1936).

There is no doubt that the photographs in Playboy magazine are an essential part of the copyrighted work. The Court is not implying that people do not read the articles in PEI's magazine. However, a major factor to PEI's success is the photographs in its magazine. By pirating the photographs for which PEI has become famous, Defendant Frena has taken a very important part of PEI's copyrighted publications.

The fourth factor, the "effect of the use upon the potential market for or value of the copyrighted work," 17 U.S.C. § 107(4), is "undoubtedly the single most important element of fair use, since a proper application of fair use does not impair materially the marketability of the copied work." Cable/Home Communications Corp., 902 F.2d at 845. This factor poses the issue of "whether unrestricted and widespread conduct of the sort engaged in by the defendant (whether in fact engaged in by the defendant or others) would result in a substantially adverse impact on the potential market for or value of the plaintiff's present work." 3 MELVILLE B. NIMMER, Nimmer on Copyright § 13.05[A], at 13.102.61-62 (1993). "[P]otential market means either an immediate or delayed market, and includes harm to derivative works." Cable/Home [1559] Communications Corp., 902 F.2d at 845.

Obviously, if this type of conduct became widespread, it would adversely affect the potential market for the copyrighted work. Such conduct would deny PEI considerable revenue to which it is entitled for the service it provides.

There is irrefutable evidence of direct copyright infringement in this case. It does not matter that Defendant Frena may have been unaware of the copyright infringement. Intent to infringe is not needed to find copyright infringement. Intent or knowledge is not an element of infringement, and thus even an innocent infringer is liable for infringement; rather, innocence is significant to a trial court when it fixes statutory damages, which is a remedy equitable in nature. See D.C. Comics Inc. v. Mini Gift Shop, 912 F.2d 29 (2d Cir.1990).

Frena argues that his commercial use was so insignificant as to justify holding for him under the principle of de minimis non curat lex. The Court disagrees. The detrimental market effects coupled with the commercial-use presumption negates the fair use defense. Defendant Frena infringed Plaintiff's copyrights; specifically, the 170 image files in question in Exhibit C to the Tesnakis Affidavit infringed Plaintiff's copyrights in 50 of Plaintiff's copyrighted magazines. The Court finds that the undisputed facts mandate partial summary judgment that Defendant Frena's unauthorized display and distribution of PEI's copyrighted material is copyright infringement under 17 U.S.C. § 501.

II. TRADEMARK INFRINGEMENT UNDER 15 U.S.C. § 1114

In addition to the use of PEI's copyrighted photographs on BBS, PEI's registered trademarks, PLAYBOY® and PLAYMATE®, were used to identify many of the files containing the photographs. Furthermore, PEI's text was removed from the photographs and Defendant Frena's name, Techs Warehouse BBS, and telephone number were placed on PEI's copyrighted photographs. This is uncontested. Therefore, Plaintiff has moved for partial summary judgment on the issues of trademark infringement under 15 U.S.C. § 1114 and unfair competition under 15 U.S.C. § 1125(a).

Defendant Frena admits that the registered trademarks PLAYBOY® and PLAYMATE® were used in file descriptors for 170 of the images found on BBS and that such file descriptors were displayed to his customers. See Answer at ¶¶ 51 and 52. Defendant Frena contends that when a subscriber uploads the material onto BBS, the same subscriber provides a description of the uploaded material for the BBS index. Defendant Frena contends that he himself has never placed the words "Playboy" or "Playmate" onto BBS. Defendant Frena further alleges that he, innocently and without malice, allowed subscribers to upload whatever they wanted onto BBS.

The first issue the Court must address is whether the marks PLAYBOY® and PLAYMATE® are distinctive enough to deserve protection under the Trademark Act of 1946 (commonly known as the Lanham Act), 15 U.S.C. § 1051 et seq., specifically § 32(1) of the Lanham Act, 15 U.S.C. § 1114(1). See Freedom Sav. and Loan Ass'n v. Way, 757 F.2d 1176 n. 1 (11th Cir.), cert. denied, 474 U.S. 845, 106 S.Ct. 134, 88 L.Ed.2d 110 (1985); Ice Cold Auto Air v. Cold Air & Accessories, 828 F.Supp. 925, 930 (M.D.Fla. 1993).

There are four categories of distinctiveness in which a mark may be classified. "In ascending order they are: (1) generic; (2) descriptive; (3) suggestive; and (4) arbitrary or fanciful." Investacorp, Inc. v. Arabian Investment Banking Corp., 931 F.2d 1519, 1522-23 (11th Cir.1991), cert. denied, ___ U.S. ___, 112 S.Ct. 639, 116 L.Ed.2d 657 (1991). The categorization of a term as generic, descriptive, suggestive or arbitrary typically resolves the issue of whether a mark is protectable, with generic marks getting the least protection and arbitrary or fanciful marks receiving the highest degree of protection.

PLAYBOY® and PLAYMATE® are suggestive marks since they implicitly refer to their products qualities. See PEI v. P.K. [1560] Sorren Export Co. Inc. of Florida, 546 F.Supp. 987, 995 (S.D.Fl.1982). They are well known marks and widely associated with PEI's products. These marks have acquired great distinctiveness among consumers, and are therefore entitled to a high degree of protection. See Playboy Enterprises, Inc. v. Chuckleberry Publishing, Inc., 486 F.Supp. 414, 419 (S.D.N.Y.1980).

Once the threshold question of whether the mark is distinctive enough to deserve protection is answered affirmatively, the Court must turn to the central inquiry of whether there is a "likelihood of confusion." See Freedom Sav. and Loan Ass'n, 757 F.2d at 1179; Ice Cold Auto Air, 828 F.Supp. at 934.

The following factors are highly relevant in deciding whether there is a likelihood of confusion: "(1) the type of mark at issue; (2) similarity of marks; (3) similarity of product or services; (4) identity of purchasers and similarity of retail outlets; .... (6) the defendant's intent; and (7) actual confusion." Ice Cold Auto Air, 828 F.Supp. at 935 (citing Freedom Sav. and Loan Ass'n, 757 F.2d at 1182-83). The Court, however, is not required to specifically mention each of these factors in making its decision. See Univ. of Georgia Athletic Ass'n v. Laite, 756 F.2d 1535, 1542 (11th Cir.1985) (analyzing the factors in the context of a claim of unfair competition).

Rather than simply determining whether a majority of these factors indicate a likelihood of confusion, a court must "evaluate the weight to be accorded the individual factors and then make its ultimate decision." AmBrit, Inc. v. Kraft, Inc., 812 F.2d 1531, 1538 (11th Cir.1986), cert. denied, 481 U.S. 1041, 107 S.Ct. 1983, 95 L.Ed.2d 822 (1987). An analysis of fewer than all seven factors may support a finding of likelihood of confusion. See Univ. of Georgia Athletic Ass'n, 756 F.2d at 1543. In the Eleventh Circuit, the type of mark and evidence of actual confusion are the most important factors. Dieter v. B & H Industries of Southwest Florida, Inc., 880 F.2d 322, 326 (11th Cir.1989), cert. denied, 498 U.S. 950, 111 S.Ct. 369, 112 L.Ed.2d 332 (1990).

In analyzing the type of mark, the Court must determine whether the mark is strong or weak in order to determine the level of protection to be extended to the mark. See Ice Cold Auto Air, 828 F.Supp. at 935.

The more distinctive a plaintiff's servicemark, the greater the likelihood that consumers will associate the registered trademark and all similar marks with the registered owner. The law therefore provides the greatest protection to strong and distinctive servicemarks; the strength of a mark depends on the extent of third party usage and the relationship between the name and the service or good it describes.

Freedom Sav. and Loan Assoc., 757 F.2d at 1182.

In analyzing the relationship between the name and the service or good it describes, the Court again considers the proper categorization of the mark. At this stage of the analysis, the goal is to determine the degree of distinctiveness of the mark. See Ambrit, Inc., 812 F.2d at 1539 n. 36. Suggestive and arbitrary marks are considered to be the most distinctive marks, and, as relatively strong marks, entitled to the strongest protection. See Ice Cold Auto Air, 828 F.Supp. at 935. The Court previously categorized the marks involved as suggestive marks which are, therefore, entitled to the strongest protection.

There is no issue as to the similarity of the marks in the instant case. Not only are the marks similar, they are exactly the same.

The greater the similarity between products and services, the greater the likelihood of confusion. See Exxon Corp. v. Texas Motor Exchange of Houston, Inc., 628 F.2d 500, 505 (5th Cir.1980). Defendant Frena's product consisted of computer images of nude women. Of course, this is the core of PEI's business. Even though Defendant Frena's photographs were available in a different medium than Plaintiff's, the services both parties provided were virtually identical.

A finding that Defendant adopted a mark with the intent of deriving benefit from the reputation of Plaintiff's service or product may alone be enough to justify an inference that there is confusing similarity. See Ambrit, Inc., 812 F.2d at 1542. Defendant [1561] contends that he did not intend to use Plaintiff's mark. However, a showing of intent or bad faith is unnecessary to establish a violation of § 1141(a). See Chanel, Inc. v. Italian Activewear of Florida, Inc., 931 F.2d 1472, 1476 (11th Cir.1991). Intent is just one of the factors to consider in evaluating whether the infringing use is likely to cause confusion. See Chanel, Inc., 931 F.2d at 1472, 1476 n. 4 (citing Original Appalachian Artworks, Inc. v. The Toy Loft, 684 F.2d 821, 831-32 (11th Cir.1982)).

Even though a guilty state of mind is relevant evidence of trademark infringement, an innocent state of mind is irrelevant on the issue of likelihood of confusion since the lack of intent to deceive does nothing to alleviate the confusion precipitated by similarity of trademarks. See 3A RUDOLF CALLMAN, The Law of Unfair Competition, Trademarks and Monopolies § 20.49, at 385 (4th ed. 1993).

"Although evidence of actual confusion is not necessary to a finding of likelihood of confusion, it is nevertheless the best evidence of likelihood of confusion." John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 978 (11th Cir.1983) (quoting Amstar Corp. v. Domino's Pizza, Inc., 615 F.2d 252, 263 (5th Cir.), cert. denied, 449 U.S. 899, 101 S.Ct. 268, 66 L.Ed.2d 129 (1980)). Actual confusion by a few customers is evidence of likelihood of confusion by many customers. See Freedom Sav. and Loan Ass'n, 757 F.2d at 1185. Therefore, a plaintiff usually will not have to prove more than a few incidents of actual confusion. See id.

In its Motion for Summary Judgment, Plaintiff has not shown any evidence of actual confusion among consumers. However, it is not necessary to prove actual confusion on the part of customers. It is just that if evidence of actual confusion is available, it is so highly probative of likelihood of confusion that it can rarely be ignored.

An examination of the factors mentioned above indicates that Defendant Frena's use of PEI's marks is likely to confuse consumers. Defendant Frena is not merely using marks similar to those of Plaintiff, Defendant Frena is using the exact marks registered to Plaintiff.

This case involves a suggestive mark entitled to the strongest protection, Defendant Frena used the identical mark of Plaintiff and the services involved were virtually identical. Each of these elements tends to show a likelihood of confusion. It is likely that customers of Defendant Frena would believe that PEI was the source of Defendant Frena's images and that PEI either sponsored, endorsed or approved Defendant Frena's use of PEI's images.

It is well established that "falsely suggesting affiliation with the trademark owner in a manner likely to cause confusion as to source of sponsorship constitutes infringement." Burger King v. Mason, 710 F.2d 1480, 1492 (11th Cir.1983), cert. denied, 465 U.S. 1102, 104 S.Ct. 1599, 80 L.Ed.2d 130 (1984). Further, "the law is established that falsely suggesting the existence of affiliation with a well-known business by usurping the latter's good-will constitutes both trademark infringement and unfair competition." Showtime/The Movie Channel v. Covered Bridge Condominium Assoc., Inc., 693 F.Supp. 1080, 1089 (S.D.Fla.1988) (quoting Volkswagenwerk Aktiengesellschaft v. Tatum, 344 F.Supp. 235, 237 (S.D.Fla.1972)).

The Court finds that Defendant Frena infringed Plaintiff's federally registered trademarks PLAYBOY® and PLAYMATE®. More specifically, Defendant Frena infringed United States Trademark registration numbers 600,018 and 721,987.

III. UNFAIR COMPETITION UNDER 15 U.S.C. § 1125(a)

Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), provides:

(a)(1) Any person who, or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact which —

(A) is likely to cause confusion or to cause mistake, or to deceive as to the [1562] affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damages by such act.

15 U.S.C. § 1125(a). This statutory provision provides a federal cause of action for unfair competition. There are similarities between the analysis required for trademark infringement and for unfair competition. However, the unfair competition claim is broader. See Ice Cold Auto Air, 828 F.Supp. at 938 n. 14 (citing Freedom Sav. and Loan Ass'n v. Way, 757 F.2d 1176, 1186 (11th Cir.1985)), cert. denied, 474 U.S. 845, 106 S.Ct. 134, 88 L.Ed.2d 110 (1985).

15 U.S.C. § 1125(a) is designed to protect against a broader range of deceptive or unfair trade practices than 15 U.S.C. § 1114. In addition, both sections require the same test to determine whether the particular actions complained of are violative of their terms. See Showtime/The Movie Channel v. Covered Bridge Condo, 693 F.Supp. 1080, 1090 (S.D.Fla.1988). Thus, as a general rule, the same set of facts which support an action for trademark infringement also support an action for unfair competition. See Babbit Electronics Inc. v. Dynascan Corp., 828 F.Supp. 944, 957 (S.D.Fla.1993); Marathon Mrg. Co. v. Enerlite Products Corp., 767 F.2d 214, 217 (5th Cir.1985). Therefore, it appears that Defendant Frena violated 15 U.S.C. § 1125(a).

Defendant Frena has violated 15 U.S.C. § 1125(a) by falsely inferring and describing the origin of PEI's photographs. Defendant Frena makes it appear that PEI authorized Defendant Frena's product. Furthermore, the removal of PEI's trademarks from the photographs constitutes "reverse passing off." See 3A RUDOLF CALLMAN, The Law of Unfair Competition, Trademarks and Monopolies § 21.18, at 170 (4th ed. 1993).

PEI's trademarks were obliterated from the photographs, and then Defendant Frena attempted to take credit for Plaintiff's work by placing its own advertisement with its phone number on some of the photographs. Thus, PEI has been denied the right to public credit for the success and quality of its goods. Reverse passing off is a violation of § 43(a) of the Lanham Act. See Roho, Inc. v. Marquis, 902 F.2d 356 (5th Cir.1990); Debs v. Meliopoulos, 1991 U.S.Dist. LEXIS 19864 (N.D.Ga.1991).

There is no liability for reverse passing off when a defendant modifies a product to such an extent that the defendant converts it into something different in kind from the original product. Defendant Frena, however, did not convert PEI's product to such an extent that it could be considered different in kind from PEI's product.

In Roho, the defendant purchased the plaintiff's wheelchair cushions on the open market, removed plaintiff's labels therefrom, and fastened them together to make bed mattresses. It was held that the two products were commercially distinct, and that therefore defendant was not simply reselling the product of plaintiff. In the instant case, however, Defendant Frena is simply reselling the product of PEI stripped of its original identity.

Defendant Frena's actions of deleting Plaintiff's text from the photographs, adding his own text to some of the photographs and appropriating PEI's photographs without attribution to the copyright owner violated Section 43(a) of the Lanham Act. Defendant Frena competed unfairly with Plaintiff, violating 15 U.S.C. § 1125(a).

Accordingly,

(1) Plaintiff's Request for Oral Argument on its Motion for Partial Summary Judgment (Doc. No. S-1) is DENIED,

(2) Plaintiff's Request for Oral Argument on its Second and Third Motions for Partial Summary Judgment (Doc. No. S-3) is DENIED,

[1563] (3) Plaintiff's First Motion for Partial Summary Judgment (Copyright Infringement) as to Defendant Frena (Doc. No. S-1) is GRANTED,

(4) Plaintiff's Second and Third Motions for Partial Summary Judgment (Trademark Infringement and Lanham Act Violations) as to Defendant Frena (Doc. No. S-3) are GRANTED and

(4) The remaining issues of the injunction and damages are still remaining for the Court to decide.

DONE AND ORDERED.

[1] The process of transferring the image from the bulletin board to one's personal computer is known as downloading.

[2] See note 1.

[3] The process of transferring the image from one's personal computer to the bulletin board is known as uploading.

BREYER, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined. SCALIA, J., filed a dissenting opinion, in which THOMAS and ALITO, JJ., joined.

JUSTICE BREYER, delivered the opinion of the Court.

The Copyright Act of 1976 gives a copyright owner the "exclusive righ[t]" to "perform the copyrighted work publicly." 17 U. S. C. §106(4). The Act's Transmit Clause defines that exclusive right as including the right to

"transmit or otherwise communicate a performance. . . of the [copyrighted] work . . . to the public, by means of any device or process, whether the members of the public capable of receiving the performance . . . receive it in the same place or in separate places and at the same time or at different times." §101.

We must decide whether respondent Aereo, Inc., infringes this exclusive right by selling its subscribers a technologically complex service that allows them to watch television programs over the Internet at about the same time as the programs are broadcast over the air. We conclude that it does.

I

A

For a monthly fee, Aereo offers subscribers broadcast television programming over the Internet, virtually as the programming is being broadcast. Much of this program-ming is made up of copyrighted works. Aereo neither owns the copyright in those works nor holds a license from the copyright owners to perform those works publicly.

Aereo's system is made up of servers, transcoders, and thousands of dime-sized antennas housed in a central warehouse. It works roughly as follows: First, when a subscriber wants to watch a show that is currently being broadcast, he visits Aereo's website and selects, from a list of the local programming, the show he wishes to see.

Second, one of Aereo's servers selects an antenna, which it dedicates to the use of that subscriber (and that subscriber alone) for the duration of the selected show. A server then tunes the antenna to the over-the-air broadcast carrying the show. The antenna begins to receive the broadcast, and an Aereo transcoder translates the signals received into data that can be transmitted over the Internet.

Third, rather than directly send the data to the subscriber, a server saves the data in a subscriber-specific folder on Aereo's hard drive. In other words, Aereo's system creates a subscriber-specific copy—that is, a "personal" copy—of the subscriber's program of choice.

Fourth, once several seconds of programming have been saved, Aereo's server begins to stream the saved copy of the show to the subscriber over the Internet. (The subscriber may instead direct Aereo to stream the program at a later time, but that aspect of Aereo's service is not before us.) The subscriber can watch the streamed program on the screen of his personal computer, tablet, smart phone, Internet-connected television, or other Internet-connected device. The streaming continues, a mere few seconds behind the over-the-air broadcast, until the subscriber has received the entire show. See A Dictionary of Computing 494 (6th ed. 2008) (defining "streaming" as "[t]he process of providing a steady flow of audio or video data so that an Internet user is able to access it as it is transmitted").

Aereo emphasizes that the data that its system streams to each subscriber are the data from his own personal copy, made from the broadcast signals received by the particular antenna allotted to him. Its system does not transmit data saved in one subscriber's folder to any other subscriber. When two subscribers wish to watch the same program, Aereo's system activates two separate antennas and saves two separate copies of the program in two separate folders. It then streams the show to the subscribers through two separate transmissions—each from the subscriber's personal copy.

B

Petitioners are television producers, marketers, distributors, and broadcasters who own the copyrights in many of the programs that Aereo's system streams to its subscribers. They brought suit against Aereo for copyright infringement in Federal District Court. They sought a preliminary injunction, arguing that Aereo was infringing their right to "perform" their works "publicly," as the Transmit Clause defines those terms.

The District Court denied the preliminary injunction. 874 F. Supp. 2d 373 (SDNY 2012). Relying on prior Circuit precedent, a divided panel of the Second Circuit affirmed. WNET, Thirteen v. Aereo, Inc., 712 F. 3d 676 (2013) (citing Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F. 3d 121 (2008)). In the Second Circuit's view, Aereo does not perform publicly within the meaning of the Transmit Clause because it does not transmit "to the public." Rather, each time Aereo streams a program to a subscriber, it sends a private transmission that is available only to that subscriber. The Second Circuit denied rehearing en banc, over the dissent of two judges. WNET, Thirteen v. Aereo, Inc., 722 F. 3d 500 (2013). We granted certiorari.

II

This case requires us to answer two questions: First, in operating in the manner described above, does Aereo "perform" at all? And second, if so, does Aereo do so "publicly"? We address these distinct questions in turn.

Does Aereo "perform"? See §106(4) ("[T]he owner of [a] copyright . . . has the exclusive righ[t] . . . to perform the copyrighted work publicly" (emphasis added)); §101 ("To perform . . . a work `publicly' means [among other things] to transmit . . . a performance . . . of the work . . . to the public . . ." (emphasis added)). Phrased another way, does Aereo "transmit . . . a performance" when a subscriber watches a show using Aereo's system, or is it only the subscriber who transmits? In Aereo's view, it does not perform. It does no more than supply equipment that "emulate[s] the operation of a home antenna and [digital video recorder (DVR)]." Brief for Respondent 41. Like a home antenna and DVR, Aereo's equipment simply responds to its subscribers' directives. So it is only the subscribers who "perform" when they use Aereo's equipment to stream television programs to themselves.

Considered alone, the language of the Act does not clearly indicate when an entity "perform[s]" (or "transmit[s]") and when it merely supplies equipment that allows others to do so. But when read in light of its purpose, the Act is unmistakable: An entity that engages in activities like Aereo's performs.

A

History makes plain that one of Congress' primary purposes in amending the Copyright Act in 1976 was to overturn this Court's determination that community antenna television (CATV) systems (the precursors of modern cable systems) fell outside the Act's scope. In Fortnightly Corp. v. United Artists Television, Inc., 392 U. S. 390 (1968), the Court considered a CATV system that carried local television broadcasting, much of which was copyrighted, to its subscribers in two cities. The CATV provider placed antennas on hills above the cities and used coaxial cables to carry the signals received by the antennas to the home television sets of its subscribers. The system amplified and modulated the signals in order to improve their strength and efficiently transmit them to subscribers. A subscriber "could choose any of the . . . programs he wished to view by simply turning the knob on his own television set." Id., at 392. The CATV provider "neither edited the programs received nor originated any programs of its own." Ibid.

Asked to decide whether the CATV provider infringed copyright holders' exclusive right to perform their works publicly, the Court held that the provider did not "perform" at all. See 17 U. S. C. §1(c) (1964 ed.) (granting copyright holder the exclusive right to "perform . . . in public for profit" a nondramatic literary work), §1(d) (granting copyright holder the exclusive right to "perform. . . publicly" a dramatic work). The Court drew a line: "Broadcasters perform. Viewers do not perform." 392 U. S., at 398 (footnote omitted). And a CATV provider "falls on the viewer's side of the line." Id., at 399.

The Court reasoned that CATV providers were unlike broadcasters:

"Broadcasters select the programs to be viewed; CATV systems simply carry, without editing, whatever programs they receive. Broadcasters procure programs and propagate them to the public; CATV systems receive programs that have been released to the public and carry them by private channels to additional viewers." Id., at 400.

Instead, CATV providers were more like viewers, for "the basic function [their] equipment serves is little different from that served by the equipment generally furnished by" viewers. Id., at 399. "Essentially," the Court said, "a CATV system no more than enhances the viewer's capacity to receive the broadcaster's signals [by] provid[ing] a well-located antenna with an efficient connection to the viewer's television set." Ibid. Viewers do not become performers by using "amplifying equipment," and a CATV provider should not be treated differently for providing viewers the same equipment. Id., at 398-400.

In Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U. S. 394 (1974), the Court considered the copyright liability of a CATV provider that carried broadcast television programming into subscribers' homes from hundreds of miles away. Although the Court recognized that a viewer might not be able to afford amplifying equipment that would provide access to those distant signals, it nonetheless found that the CATV provider was more like a viewer than a broadcaster. Id., at 408-409. It explained: "The reception and rechanneling of [broadcast television signals] for simultaneous viewing is essentially a viewer function, irrespective of the distance between the broadcasting station and the ultimate viewer." Id., at 408.

The Court also recognized that the CATV system exercised some measure of choice over what to transmit. But that fact did not transform the CATV system into a broadcaster. A broadcaster exercises significant creativity in choosing what to air, the Court reasoned. Id., at 410. In contrast, the CATV provider makes an initial choice about which broadcast stations to retransmit, but then "`simply carr[ies], without editing, whatever programs [it] receive[s].'" Ibid. (quoting Fortnightly, supra, at 400 (alterations in original)).

B

In 1976 Congress amended the Copyright Act in large part to reject the Court's holdings in Fortnightly and Teleprompter. See H. R. Rep. No. 94-1476, pp. 86-87 (1976) (hereinafter H. R. Rep.) (The 1976 amendments "completely overturned" this Court's narrow construction of the Act in Fortnightly and Teleprompter). Congress enacted new language that erased the Court's line between broadcaster and viewer, in respect to "perform[ing]" a work. The amended statute clarifies that to "perform" an audiovisual work means "to show its images in any sequence or to make the sounds accompanying it audible." §101; see ibid. (defining "[a]udiovisual works" as "works that consist of a series of related images which are intrinsically intended to be shown by the use of machines . . ., together with accompanying sounds"). Under this new language, both the broadcaster and the viewer of a television program "perform," because they both show the program's images and make audible the program's sounds. See H. R. Rep., at 63 ("[A] broadcasting network is performing when it transmits [a singer's performance of a song] . . . and any individual is performing whenever he or she . . . communicates the performance by turning on a receiving set").

Congress also enacted the Transmit Clause, which specifies that an entity performs publicly when it "transmit[s]. . . a performance . . . to the public." §101; see ibid. (defining "[t]o `transmit' a performance" as "to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent"). Cable system activities, like those of the CATV systems in Fortnightly and Teleprompter, lie at the heart of the activities that Congress intended this language to cover. See H. R. Rep., at 63 ("[A] cable television system is performing when it retransmits [a network] broadcast to its subscribers"); see also ibid. ("[T]he concep[t] of public performance. . . cover[s] not only the initial rendition or showing, but also any further act by which that rendition or showing is transmitted or communicated to the public"). The Clause thus makes clear that an entity that acts like a CATV system itself performs, even if when doing so, it simply enhances viewers' ability to receive broadcast television signals.

Congress further created a new section of the Act to regulate cable companies' public performances of copyrighted works. See §111. Section 111 creates a complex, highly detailed compulsory licensing scheme that sets out the conditions, including the payment of compulsory fees, under which cable systems may retransmit broadcasts. H. R. Rep., at 88 (Section 111 is primarily "directed at the operation of cable television systems and the terms and conditions of their liability for the retransmission of copyrighted works").

Congress made these three changes to achieve a similar end: to bring the activities of cable systems within the scope of the Copyright Act.

C

This history makes clear that Aereo is not simply an equipment provider. Rather, Aereo, and not just its subscribers, "perform[s]" (or "transmit[s]"). Aereo's activities are substantially similar to those of the CATV companies that Congress amended the Act to reach. See id., at 89 ("[C]able systems are commercial enterprises whose basic retransmission operations are based on the carriage of copyrighted program material"). Aereo sells a service that allows subscribers to watch television programs, many of which are copyrighted, almost as they are being broadcast. In providing this service, Aereo uses its own equipment, housed in a centralized warehouse, outside of its users' homes. By means of its technology (antennas, transcoders, and servers), Aereo's system "receive[s] programs that have been released to the public and carr[ies] them by private channels to additional viewers." Fortnightly, 392 U. S., at 400. It "carr[ies] . . . whatever programs [it] receive[s]," and it offers "all the programming" of each over-the-air station it carries. Id., at 392, 400.

Aereo's equipment may serve a "viewer function"; it may enhance the viewer's ability to receive a broadcaster's programs. It may even emulate equipment a viewer could use at home. But the same was true of the equipment that was before the Court, and ultimately before Congress, in Fortnightly and Teleprompter.

We recognize, and Aereo and the dissent emphasize, one particular difference between Aereo's system and the cable systems at issue in Fortnightly and Teleprompter. The systems in those cases transmitted constantly; they sent continuous programming to each subscriber's television set. In contrast, Aereo's system remains inert until a subscriber indicates that she wants to watch a program. Only at that moment, in automatic response to the subscriber's request, does Aereo's system activate an antenna and begin to transmit the requested program.

This is a critical difference, says the dissent. It means that Aereo's subscribers, not Aereo, "selec[t] the copyrighted content" that is "perform[ed]," post, at 4 (opinion of SCALIA, J.), and for that reason they, not Aereo, "transmit" the performance. Aereo is thus like "a copy shop that provides its patrons with a library card." Post, at 5. A copy shop is not directly liable whenever a patron uses the shop's machines to "reproduce" copyrighted materials found in that library. See §106(1) ("exclusive righ[t] . . . to reproduce the copyrighted work"). And by the same token, Aereo should not be directly liable whenever its patrons use its equipment to "transmit" copyrighted television programs to their screens.

In our view, however, the dissent's copy shop argument, in whatever form, makes too much out of too little. Given Aereo's overwhelming likeness to the cable companies targeted by the 1976 amendments, this sole technological difference between Aereo and traditional cable companies does not make a critical difference here. The subscribers of the Fortnightly and Teleprompter cable systems also selected what programs to display on their receiving sets. Indeed, as we explained in Fortnightly, such a subscriber "could choose any of the . . . programs he wished to view by simply turning the knob on his own television set." 392 U. S., at 392. The same is true of an Aereo subscriber. Of course, in Fortnightly the television signals, in a sense, lurked behind the screen, ready to emerge when the subscriber turned the knob. Here the signals pursue their ordinary course of travel through the universe until today's "turn of the knob"—a click on a website—activates machinery that intercepts and reroutes them to Aereo's subscribers over the Internet. But this difference means nothing to the subscriber. It means nothing to the broadcaster. We do not see how this single difference, invisible to subscriber and broadcaster alike, could transform a system that is for all practical purposes a traditional cable system into "a copy shop that provides its patrons with a library card."

In other cases involving different kinds of service or technology providers, a user's involvement in the operation of the provider's equipment and selection of the content transmitted may well bear on whether the provider performs within the meaning of the Act. But the many similarities between Aereo and cable companies, considered in light of Congress' basic purposes in amending the Copyright Act, convince us that this difference is not critical here. We conclude that Aereo is not just an equipment supplier and that Aereo "perform[s]."

III

Next, we must consider whether Aereo performs petitioners' works "publicly," within the meaning of the Transmit Clause. Under the Clause, an entity performs a work publicly when it "transmit[s] . . . a performance . . . of the work . . . to the public." §101. Aereo denies that it satisfies this definition. It reasons as follows: First, the "performance" it "transmit[s]" is the performance created by its act of transmitting. And second, because each of these performances is capable of being received by one and only one subscriber, Aereo transmits privately, not publicly. Even assuming Aereo's first argument is correct, its second does not follow.

We begin with Aereo's first argument. What performance does Aereo transmit? Under the Act, "[t]o `transmit' a performance . . . is to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent." Ibid. And "[t]o `perform'" an audiovisual work means "to show its images in any sequence or to make the sounds accompanying it audible." Ibid.

Petitioners say Aereo transmits a prior performance of their works. Thus when Aereo retransmits a network's prior broadcast, the underlying broadcast (itself a performance) is the performance that Aereo transmits. Aereo, as discussed above, says the performance it transmits is the new performance created by its act of transmitting. That performance comes into existence when Aereo streams the sounds and images of a broadcast program to a subscriber's screen.

We assume arguendo that Aereo's first argument is correct. Thus, for present purposes, to transmit a performance of (at least) an audiovisual work means to communicate contemporaneously visible images and contemporaneously audible sounds of the work. Cf. United States v. American Soc. of Composers, Authors and Publishers, 627 F. 3d 64, 73 (CA2 2010) (holding that a download of a work is not a performance because the data transmitted are not "contemporaneously perceptible"). When an Aereo subscriber selects a program to watch, Aereo streams the program over the Internet to that subscriber. Aereo thereby "communicate[s]" to the subscriber, by means of a "device or process," the work's images and sounds. §101. And those images and sounds are contemporaneously visible and audible on the subscriber's computer (or other Internet-connected device). So under our assumed definition, Aereo transmits a performance whenever its subscribers watch a program.

But what about the Clause's further requirement that Aereo transmit a performance "to the public"? As we have said, an Aereo subscriber receives broadcast television signals with an antenna dedicated to him alone. Aereo's system makes from those signals a personal copy of the selected program. It streams the content of the copy to the same subscriber and to no one else. One and only one subscriber has the ability to see and hear each Aereo transmission. The fact that each transmission is to only one subscriber, in Aereo's view, means that it does not transmit a performance "to the public."

In terms of the Act's purposes, these differences do not distinguish Aereo's system from cable systems, which do perform "publicly." Viewed in terms of Congress' regulatory objectives, why should any of these technological differences matter? They concern the behind-the-scenes way in which Aereo delivers television programming to its viewers' screens. They do not render Aereo's commercial objective any different from that of cable companies. Nor do they significantly alter the viewing experience of Aereo's subscribers. Why would a subscriber who wishes to watch a television show care much whether images and sounds are delivered to his screen via a large multisubscriber antenna or one small dedicated antenna, whether they arrive instantaneously or after a few seconds' delay, or whether they are transmitted directly or after a personal copy is made? And why, if Aereo is right, could not modern CATV systems simply continue the same commercial and consumer-oriented activities, free of copyright restrictions, provided they substitute such new technologies for old? Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies.

The text of the Clause effectuates Congress' intent. Aereo's argument to the contrary relies on the premise that "to transmit . . . a performance" means to make a single transmission. But the Clause suggests that an entity may transmit a performance through multiple, discrete transmissions. That is because one can "transmit" or "communicate" something through a set of actions. Thus one can transmit a message to one's friends, irrespective of whether one sends separate identical e-mails to each friend or a single e-mail to all at once. So can an elected official communicate an idea, slogan, or speech to her constituents, regardless of whether she communicates that idea, slogan, or speech during individual phone calls to each constituent or in a public square.

The fact that a singular noun ("a performance") follows the words "to transmit" does not suggest the contrary. One can sing a song to his family, whether he sings the same song one-on-one or in front of all together. Similarly, one's colleagues may watch a performance of a particular play—say, this season's modern-dress version of "Measure for Measure"—whether they do so at separate or at the same showings. By the same principle, an entity may transmit a performance through one or several transmissions, where the performance is of the same work.

The Transmit Clause must permit this interpretation, for it provides that one may transmit a performance to the public "whether the members of the public capable of receiving the performance . . . receive it . . . at the same time or at different times." §101. Were the words "to transmit . . . a performance" limited to a single act of communication, members of the public could not receive the performance communicated "at different times." Therefore, in light of the purpose and text of the Clause, we conclude that when an entity communicates the same contemporaneously perceptible images and sounds to multiple people, it transmits a performance to them regardless of the number of discrete communications it makes.

We do not see how the fact that Aereo transmits via personal copies of programs could make a difference. The Act applies to transmissions "by means of any device or process." Ibid. And retransmitting a television program using user-specific copies is a "process" of transmitting a performance. A "cop[y]" of a work is simply a "material objec[t] . . . in which a work is fixed . . . and from which the work can be perceived, reproduced, or otherwise communicated." Ibid. So whether Aereo transmits from the same or separate copies, it performs the same work; it shows the same images and makes audible the same sounds. Therefore, when Aereo streams the same television program to multiple subscribers, it "transmit[s] . . . a performance" to all of them.

Moreover, the subscribers to whom Aereo transmits television programs constitute "the public." Aereo communicates the same contemporaneously perceptible images and sounds to a large number of people who are unrelated and unknown to each other. This matters because, although the Act does not define "the public," it specifies that an entity performs publicly when it performs at "any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered." Ibid. The Act thereby suggests that "the public" consists of a large group of people outside of a family and friends.

Neither the record nor Aereo suggests that Aereo's subscribers receive performances in their capacities as owners or possessors of the underlying works. This is relevant because when an entity performs to a set of people, whether they constitute "the public" often depends upon their relationship to the underlying work. When, for example, a valet parking attendant returns cars to their drivers, we would not say that the parking service provides cars "to the public." We would say that it provides the cars to their owners. We would say that a car dealership, on the other hand, does provide cars to the public, for it sells cars to individuals who lack a pre-existing relationship to the cars. Similarly, an entity that transmits a performance to individuals in their capacities as owners or possessors does not perform to "the public," whereas an entity like Aereo that transmits to large numbers of paying subscribers who lack any prior relationship to the works does so perform.

Finally, we note that Aereo's subscribers may receive the same programs at different times and locations. This fact does not help Aereo, however, for the Transmit Clause expressly provides that an entity may perform publicly "whether the members of the public capable of receiving the performance . . . receive it in the same place or in separate places and at the same time or at different times." Ibid. In other words, "the public" need not be situated together, spatially or temporally. For these reasons, we conclude that Aereo transmits a performance of petitioners' copyrighted works to the public, within the meaning of the Transmit Clause.

IV

Aereo and many of its supporting amici argue that to apply the Transmit Clause to Aereo's conduct will impose copyright liability on other technologies, including new technologies, that Congress could not possibly have wanted to reach. We agree that Congress, while intending the Transmit Clause to apply broadly to cable companies and their equivalents, did not intend to discourage or to control the emergence or use of different kinds of technologies. But we do not believe that our limited holding today will have that effect.

For one thing, the history of cable broadcast transmissions that led to the enactment of the Transmit Clause informs our conclusion that Aereo "perform[s]," but it does not determine whether different kinds of providers in different contexts also "perform." For another, an entity only transmits a performance when it communicates contemporaneously perceptible images and sounds of a work. See Brief for Respondent 31 ("[I]f a distributor . . . sells [multiple copies of a digital video disc] by mail to consumers, . . . [its] distribution of the DVDs merely makes it possible for the recipients to perform the work themselves—it is not a `device or process' by which the distributor publicly performs the work" (emphasis in original)).

Further, we have interpreted the term "the public" to apply to a group of individuals acting as ordinary members of the public who pay primarily to watch broadcast television programs, many of which are copyrighted. We have said that it does not extend to those who act as owners or possessors of the relevant product. And we have not considered whether the public performance right is infringed when the user of a service pays primarily for something other than the transmission of copyrighted works, such as the remote storage of content. See Brief for United States as Amicus Curiae 31 (distinguishing cloudbased storage services because they "offer consumers more numerous and convenient means of playing back copies that the consumers have already lawfully acquired" (emphasis in original)). In addition, an entity does not transmit to the public if it does not transmit to a substantial number of people outside of a family and its social circle.

We also note that courts often apply a statute's highly general language in light of the statute's basic purposes. Finally, the doctrine of "fair use" can help to prevent inappropriate or inequitable applications of the Clause. See Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417 (1984).

We cannot now answer more precisely how the Transmit Clause or other provisions of the Copyright Act will apply to technologies not before us. We agree with the Solicitor General that "[q]uestions involving cloud computing, [remote storage] DVRs, and other novel issues not before the Court, as to which `Congress has not plainly marked [the] course,' should await a case in which they are squarely presented." Brief for United States as Amicus Curiae 34 (quoting Sony, supra, at 431 (alteration in original)). And we note that, to the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are of course free to seek action from Congress. Cf. Digital Millennium Copyright Act, 17 U. S. C. §512.

* * *

In sum, having considered the details of Aereo's practices, we find them highly similar to those of the CATV systems in Fortnightly and Teleprompter. And those are activities that the 1976 amendments sought to bring within the scope of the Copyright Act. Insofar as there are differences, those differences concern not the nature of the service that Aereo provides so much as the technological manner in which it provides the service. We conclude that those differences are not adequate to place Aereo's activities outside the scope of the Act.

For these reasons, we conclude that Aereo "perform[s]" petitioners' copyrighted works "publicly," as those terms are defined by the Transmit Clause. We therefore reverse the contrary judgment of the Court of Appeals, and we remand the case for further proceedings consistent with this opinion.

It is so ordered.

JUSTICE SCALIA, with whom JUSTICE THOMAS and JUSTICE ALITO join, dissenting.

This case is the latest skirmish in the long-running copyright battle over the delivery of television program-ming. Petitioners, a collection of television networks and affiliates (Networks), broadcast copyrighted programs on the public airwaves for all to see. Aereo, respondent, operates an automated system that allows subscribers to receive, on Internet-connected devices, programs that they select, including the Networks' copyrighted programs. The Networks sued Aereo for several forms of copyright infringement, but we are here concerned with a single claim: that Aereo violates the Networks'"exclusive righ[t]" to "perform" their programs "publicly." 17 U. S. C. §106(4). That claim fails at the very outset because Aereo does not "perform" at all. The Court manages to reach the opposite conclusion only by disregarding widely accepted rules for service-provider liability and adopting in their place an improvised standard ("looks-like-cable-TV") that will sow confusion for years to come.

I. Legal Standard

There are two types of liability for copyright infringement: direct and secondary. As its name suggests, the former applies when an actor personally engages in infringing conduct. See Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417, 433 (1984). Secondary liability, by contrast, is a means of holding defendants responsible for infringement by third parties, even when the defendants "have not themselves engaged in the infringing activity." Id., at 435. It applies when a defendant "intentionally induc[es] or encourag[es]" infringing acts by others or profits from such acts "while declining to exercise a right to stop or limit [them]." Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U. S. 913, 930 (2005).

Most suits against equipment manufacturers and service providers involve secondary-liability claims. For example, when movie studios sued to block the sale of Sony's Betamax videocassette recorder (VCR), they argued that Sony was liable because its customers were making unauthorized copies. See Sony, supra, at 434-435. Record labels and movie studios relied on a similar theory when they sued Grokster and StreamCast, two providers of peer-to-peer file-sharing software. See Grokster, supra, at 920-921, 927.

This suit, or rather the portion of it before us here, is fundamentally different. The Networks claim that Aereo directly infringes their public-performance right. Accordingly, the Networks must prove that Aereo "perform[s]" copyrighted works, §106(4), when its subscribers log in, select a channel, and push the "watch" button. That process undoubtedly results in a performance; the question is who does the performing. See Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F. 3d 121, 130 (CA2 2008). If Aereo's subscribers perform but Aereo does not, the claim necessarily fails.

The Networks' claim is governed by a simple but profoundly important rule: A defendant may be held directly liable only if it has engaged in volitional conduct that violates the Act. See 3 W. Patry, Copyright §9:5.50 (2013). This requirement is firmly grounded in the Act's text, which defines "perform" in active, affirmative terms: One "perform[s]" a copyrighted "audiovisual work," such as a movie or news broadcast, by "show[ing] its images in any sequence" or "mak[ing] the sounds accompanying it audible." §101. And since the Act makes it unlawful to copy or perform copyrighted works, not to copy or perform in general, see §501(a), the volitional-act requirement demands conduct directed to the plaintiff's copyrighted material, see Sony, supra, at 434. Every Court of Appeals to have considered an automated-service provider's direct liability for copyright infringement has adopted that rule. See Fox Broadcasting Co. v. Dish Network LLC, 747 F. 3d 1060, 1066-1068 (CA9 2014); Cartoon Network, supra, at 130-131 (CA2 2008); CoStar Group, Inc. v. LoopNet, Inc., 373 F. 3d 544, 549-550 (CA4 2004).^[1] Although we have not opined on the issue, our cases are fully consistent with a volitional-conduct requirement. For example, we gave several examples of direct infringement in Sony, each of which involved a volitional act directed to the plaintiff's copyrighted material. See 464 U. S., at 437, n. 18.

The volitional-conduct requirement is not at issue in most direct-infringement cases; the usual point of dispute is whether the defendant's conduct is infringing (e.g., Does the defendant's design copy the plaintiff's?), rather than whether the defendant has acted at all (e.g., Did this defendant create the infringing design?). But it comes right to the fore when a direct-infringement claim is lodged against a defendant who does nothing more than operate an automated, user-controlled system. See, e.g., Fox Broadcasting, supra, at 1067; Cartoon Network, supra, at 131. Internet-service providers are a prime example. When one user sends data to another, the provider's equipment facilitates the transfer automatically. Does that mean that the provider is directly liable when the transmission happens to result in the "reproduc[tion]," §106(1), of a copyrighted work? It does not. The provider's system is "totally indifferent to the material's content," whereas courts require "some aspect of volition" directed at the copyrighted material before direct liability may be imposed. CoStar, 373 F. 3d, at 550-551.^[2] The defendant may be held directly liable only if the defendant itself "trespassed on the exclusive domain of the copyright owner." Id., at 550. Most of the time that issue will come down to who selects the copyrighted content: the defendant or its customers. See Cartoon Network, supra, at 131-132.

A comparison between copy shops and video-on-demand services illustrates the point. A copy shop rents out photocopiers on a per-use basis. One customer might copy his 10-year-old's drawings—a perfectly lawful thing to do— while another might duplicate a famous artist's copyrighted photographs—a use clearly prohibited by §106(1). Either way, the customer chooses the content and activates the copying function; the photocopier does nothing except in response to the customer's commands. Because the shop plays no role in selecting the content, it cannot be held directly liable when a customer makes an infringing copy. See CoStar, supra, at 550.

Video-on-demand services, like photocopiers, respond automatically to user input, but they differ in one crucial respect: They choose the content. When a user signs in to Netflix, for example, "thousands of . . . movies [and] TV episodes" carefully curated by Netflix are "available to watch instantly." See How [D]oes Netflix [W]ork?, online at http://help.netflix.com/en/node/412 (as visited June 20, 2014, and available in Clerk of Court's case file). That selection and arrangement by the service provider constitutes a volitional act directed to specific copyrighted works and thus serves as a basis for direct liability.

The distinction between direct and secondary liability would collapse if there were not a clear rule for determining whether the defendant committed the infringing act. See Cartoon Network, 536 F. 3d, at 132-133. The volitional-conduct requirement supplies that rule; its purpose is not to excuse defendants from accountability, but to channel the claims against them into the correct analytical track. See Brief for 36 Intellectual Property and Copyright Law Professors as Amici Curiae 7. Thus, in the example given above, the fact that the copy shop does not choose the content simply means that its culpability will be assessed using secondary-liability rules rather than direct-liability rules. See Sony, supra, at 434-442; Cartoon Network, supra, at 132-133.

II. Application to Aereo

So which is Aereo: the copy shop or the video-on-demand service? In truth, it is neither. Rather, it is akin to a copy shop that provides its patrons with a library card. Aereo offers access to an automated system consisting of routers, servers, transcoders, and dime-sized antennae. Like a photocopier or VCR, that system lies dormant until a subscriber activates it. When a subscriber selects a program, Aereo's system picks up the relevant broadcast signal, translates its audio and video components into digital data, stores the data in a user-specific file, and transmits that file's contents to the subscriber via the Internet—at which point the subscriber's laptop, tablet, or other device displays the broadcast just as an ordinary television would. The result of that process fits the statutory definition of a performance to a tee: The subscriber's device "show[s]" the broadcast's "images" and "make[s] the sounds accompanying" the broadcast "audible." §101. The only question is whether those performances are the product of Aereo's volitional conduct.

They are not. Unlike video-on-demand services, Aereo does not provide a prearranged assortment of movies and television shows. Rather, it assigns each subscriber an antenna that—like a library card—can be used to obtain whatever broadcasts are freely available. Some of those broadcasts are copyrighted; others are in the public domain. The key point is that subscribers call all the shots: Aereo's automated system does not relay any program, copyrighted or not, until a subscriber selects the program and tells Aereo to relay it. Aereo's operation of that system is a volitional act and a but-for cause of the resulting performances, but, as in the case of the copy shop, that degree of involvement is not enough for direct liability. See Grokster, 545 U. S., at 960 (BREYER, J., concurring) ("[T]he producer of a technology which permits unlawful copying does not himself engage in unlawful copying").

In sum, Aereo does not "perform" for the sole and simple reason that it does not make the choice of content. And because Aereo does not perform, it cannot be held directly liable for infringing the Networks' public-performance right.^[3] That conclusion does not necessarily mean that Aereo's service complies with the Copyright Act. Quite the contrary. The Networks' complaint alleges that Aereo is directly and secondarily liable for infringing their publicperformance rights (§106(4)) and also their reproduction rights (§106(1)). Their request for a preliminary injunction—the only issue before this Court—is based exclusively on the direct-liability portion of the public-performance claim (and further limited to Aereo's "watch" function, as opposed to its "record" function). See App. to Pet. for Cert. 60a-61a. Affirming the judgment below would merely return this case to the lower courts for consideration of the Networks' remaining claims.

III. Guilt By Resemblance

The Court's conclusion that Aereo performs boils down to the following syllogism: (1) Congress amended the Act to overrule our decisions holding that cable systems do not perform when they retransmit over-the-air broadcasts;^[4] (2) Aereo looks a lot like a cable system; therefore (3) Aereo performs. Ante, at 4-10. That reasoning suffers from a trio of defects.

First, it is built on the shakiest of foundations. Perceiving the text to be ambiguous, ante, at 4, the Court reaches out to decide the case based on a few isolated snippets of legislative history, ante, at 7-8 (citing H. R. Rep. No. 94-1476 (1976)). The Court treats those snippets as authoritative evidence of congressional intent even though they come from a single report issued by a committee whose members make up a small fraction of one of the two Houses of Congress. Little else need be said here about the severe shortcomings of that interpretative methodology. See Lawson v. FMR LLC, 571 U. S. ___, ___ (2014) (SCALIA, J., concurring in principal part and concurring in judgment) (slip op., at 1-2).

Second, the Court's reasoning fails on its own terms because there are material differences between the cable systems at issue in Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U. S. 394 (1974), and Fortnightly Corp. v. United Artists Television, Inc., 392 U. S. 390 (1968), on the one hand and Aereo on the other. The former (which were then known as community-antenna television systems) captured the full range of broadcast signals and forwarded them to all subscribers at all times, whereas Aereo transmits only specific programs selected by the user, at specific times selected by the user. The Court acknowledges this distinction but blithely concludes that it "does not make a critical difference." Ante, at 10. Even if that were true, the Court fails to account for other salient differences between the two technologies.^[5] Though cable systems started out essentially as dumb pipes that routed signals from point A to point B, see ante, at 5, by the 1970's, that kind of service "`no longer exist[ed],'" Brief for Petitioners in Columbia Broadcasting System, Inc. v. Teleprompter Corp., O. T. 1973, No. 72-1633, p. 22. At the time of our Teleprompter decision, cable companies "perform[ed] the same functions as `broadcasters' by deliberately selecting and importing distant signals, originating programs, [and] selling commercials," id., at 20, thus making them curators of content—more akin to video-ondemand services than copy shops. So far as the record reveals, Aereo does none of those things.

Third, and most importantly, even accepting that the 1976 amendments had as their purpose the overruling of our cable-TV cases, what they were meant to do and how they did it are two different questions—and it is the latter that governs the case before us here. The injury claimed is not violation of a law that says operations similar to cable TV are subject to copyright liability, but violation of §106(4) of the Copyright Act. And whatever soothing reasoning the Court uses to reach its result ("this looks like cable TV"), the consequence of its holding is that someone who implements this technology "perform[s]" under that provision. That greatly disrupts settled jurisprudence which, before today, applied the straightforward, bright-line test of volitional conduct directed at the copyrighted work. If that test is not outcome determinative in this case, presumably it is not outcome determinative elsewhere as well. And it is not clear what the Court proposes to replace it. Perhaps the Court means to adopt (invent, really) a two-tier version of the Copyright Act, one part of which applies to "cable companies and their equivalents" while the other governs everyone else. Ante, at 9-10, 16.

The rationale for the Court's ad hoc rule for cablesystem lookalikes is so broad that it renders nearly a third of the Court's opinion superfluous. Part II of the opinion concludes that Aereo performs because it resembles a cable company, and Congress amended the Act in 1976 "to bring the activities of cable systems within [its] scope." Ante, at 8. Part III of the opinion purports to address separately the question whether Aereo performs "publicly." Ante, at 10-15. Trouble is, that question cannot remain open if Congress's supposed intent to regulate whatever looks like a cable company must be given legal effect (as the Court says in Part II). The Act reaches only public performances, see §106(4), so Congress could not have regulated "the activities of cable systems" without deeming their retransmissions public performances. The upshot is this: If Aereo's similarity to a cable company means that it performs, then by necessity that same characteristic means that it does so publicly, and Part III of the Court's opinion discusses an issue that is no longer relevant—though discussing it certainly gives the opinion the "feel" of real textual analysis.

Making matters worse, the Court provides no criteria for determining when its cable-TV-lookalike rule applies. Must a defendant offer access to live television to qualify? If similarity to cable-television service is the measure, then the answer must be yes. But consider the implications of that answer: Aereo would be free to do exactly what it is doing right now so long as it built mandatory time shifting into its "watch" function.^[6] Aereo would not be providing live television if it made subscribers wait to tune in until after a show's live broadcast ended. A subscriber could watch the 7 p.m. airing of a 1-hour program any time after 8 p.m. Assuming the Court does not intend to adopt such a do-nothing rule (though it very well may), there must be some other means of identifying who is and is not subject to its guilt-by-resemblance regime.

Two other criteria come to mind. One would cover any automated service that captures and stores live television broadcasts at a user's direction. That can't be right, since it is exactly what remote storage digital video recorders (RS-DVRs) do, see Cartoon Network, 536 F. 3d, at 124-125, and the Court insists that its "limited holding" does not decide the fate of those devices, ante, at 16-17. The other potential benchmark is the one offered by the Government: The cable-TV-lookalike rule embraces any entity that "operates an integrated system, substantially dependent on physical equipment that is used in common by [its] subscribers." Brief for United States as Amicus Curiae 20. The Court sensibly avoids that approach because it would sweep in Internet service providers and a host of other entities that quite obviously do not perform.

That leaves as the criterion of cable-TV-resemblance nothing but th'ol' totality-of-the-circumstances test (which is not a test at all but merely assertion of an intent to perform test-free, ad hoc, case-by-case evaluation). It will take years, perhaps decades, to determine which automated systems now in existence are governed by the traditional volitional-conduct test and which get the Aereo treatment. (And automated systems now in contemplation will have to take their chances.) The Court vows that its ruling will not affect cloud-storage providers and cabletelevision systems, see ante, at 16-17, but it cannot deliver on that promise given the imprecision of its result-driven rule. Indeed, the difficulties inherent in the Court's makeshift approach will become apparent in this very case. Today's decision addresses the legality of Aereo's "watch" function, which provides nearly contemporaneous access to live broadcasts. On remand, one of the first questions the lower courts will face is whether Aereo's "record" function, which allows subscribers to save a program while it is airing and watch it later, infringes the Networks' public-performance right. The volitionalconduct rule provides a clear answer to that question: Because Aereo does not select the programs viewed by its users, it does not perform. But it is impossible to say how the issue will come out under the Court's analysis, since cable companies did not offer remote recording and playback services when Congress amended the Copyright Act in 1976.

* * *

I share the Court's evident feeling that what Aereo is doing (or enabling to be done) to the Networks' copyrighted programming ought not to be allowed. But perhaps we need not distort the Copyright Act to forbid it. As discussed at the outset, Aereo's secondary liability for performance infringement is yet to be determined, as is its primary and secondary liability for reproduction infringement. If that does not suffice, then (assuming one shares the majority's estimation of right and wrong) what we have before us must be considered a "loophole" in the law. It is not the role of this Court to identify and plug loopholes. It is the role of good lawyers to identify and exploit them, and the role of Congress to eliminate them if it wishes. Congress can do that, I may add, in a much more targeted, better informed, and less disruptive fashion than the crude "looks-like-cable-TV" solution the Court invents today.

We came within one vote of declaring the VCR contraband 30 years ago in Sony. See 464 U. S., at 441, n. 21. The dissent in that case was driven in part by the plaintiffs' prediction that VCR technology would wreak all manner of havoc in the television and movie industries. See id., at 483 (opinion of Blackmun, J.); see also Brief for CBS, Inc., as Amicus Curiae, O. T. 1982, No. 81-1687, p. 2 (arguing that VCRs "directly threatened" the bottom line of "[e]very broadcaster").

The Networks make similarly dire predictions about Aereo. We are told that nothing less than "the very existence of broadcast television as we know it" is at stake. Brief for Petitioners 39. Aereo and its amici dispute those forecasts and make a few of their own, suggesting that a decision in the Networks' favor will stifle technological innovation and imperil billions of dollars of investments in cloud-storage services. See Brief for Respondents 48-51; Brief for BSA, The Software Alliance as Amicus Curiae 5-13. We are in no position to judge the validity of those self-interested claims or to foresee the path of future technological development. See Sony, supra, at 430-431; see also Grokster, 545 U. S., at 958 (BREYER, J., concurring). Hence, the proper course is not to bend and twist the Act's terms in an effort to produce a just outcome, but to apply the law as it stands and leave to Congress the task of deciding whether the Copyright Act needs an upgrade. I conclude, as the Court concluded in Sony: "It may well be that Congress will take a fresh look at this new technology, just as it so often has examined other innovations in the past. But it is not our job to apply laws that have not yet been written. Applying the copyright statute, as it now reads, to the facts as they have been developed in this case, the judgment of the Court of Appeals must be [affirmed]." 464 U. S., at 456.

I respectfully dissent.

[1] An unpublished decision of the Third Circuit is to the same effect. Parker v. Google, Inc., 242 Fed. Appx. 833, 836-837 (2007) (per curiam).

The Networks muster only one case they say stands for a different approach, New York Times Co. v. Tasini, 533 U. S. 483 (2001). Reply Brief 18. But Tasini is clearly inapposite; it dealt with the question whether the defendants' copying was permissible, not whether the defendants were the ones who made the copies. See 533 U. S., at 487-488, 492, 504-506.

[2] Congress has enacted several safe-harbor provisions applicable to automated network processes, see, e.g., 17 U. S. C. §512(a)-(b), but those provisions do not foreclose "any other defense," §512(l), including a volitional-conduct defense.

[3] Because I conclude that Aereo does not perform at all, I do not reach the question whether the performances in this case are to the public. See ante, at 10-15.

[4] See Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U. S. 394 (1974); Fortnightly Corp. v. United Artists Television, Inc., 392 U. S. 390 (1968).

[5] The Court observes that "[t]he subscribers of the Fortnightly and Teleprompter cable systems . . . selected what programs to display on their receiving sets," but acknowledges that those choices were possible only because "the television signals, in a sense, lurked behind the screen, ready to emerge when the subscriber turned the knob." Ante, at 10. The latter point is dispositive: The signals were "ready to emerge" because the cable system—much like a video-on-demand provider— took affirmative, volitional steps to put them there. As discussed above, the same cannot be said of the programs available through Aereo's automated system.

[6] Broadcasts accessible through the "watch" function are technically not live because Aereo's servers take anywhere from a few seconds to a few minutes to begin transmitting data to a subscriber's device. But the resulting delay is so brief that it cannot reasonably be classified as time shifting.

542 F.Supp.2d 153

LONDON-SIRE RECORDS, INC., et al., Plaintiffs,
v.
DOE 1 et al., Defendants.

No. 04cv12434-NG.

United States District Court, D. Massachusetts.

March 31, 2008.

[156] John R. Bauer, Nancy M. Cremins, Robinson & Cole LLP, Boston, MA, Katheryn Jarvis, Moshe D. Rothman, Coggon Holme [157] Roberts & Owen LLP, Denver, CO, Emily A. Berger, San Francisco, CA, for Plaintiffs.

Raymond Sayeg, Jr. Law Office of Raymond Sayeg, Boston, MA, for Defendants.

ORDER ON MOTIONS TO QUASH

GERTNER, District Judge. 

This case consists of numerous actions consolidated under London-Sire Records, Inc. v. Does 1-4, Civil Action No. 04-cv-12434. The plaintiffs include several of the country's largest record companies. The defendants,^[1] the plaintiffs claim, are individual computer users — mainly college students — who use "peer-to-peer" filesharing software to download and disseminate music without paying for it, infringing the plaintiffs' copyrights.

In these cases, the plaintiffs have been able to infer some infringing file-sharing activity from their investigations, but have not been able to discover the file-sharer's identity. They have an Internet Protocol [158] number ("IP number" or "IP address") identifying the file-sharer's computer, but no more. Consequently, the plaintiffs — with the Court's permission — have served subpoenas on a number of internet service providers ("ISPs"), largely colleges and universities, seeking a name to go with the number. To preserve the rights of those whose identities are sought, the Court has required the ISPs to delay responding to the subpoena until the individual defendants have had an opportunity to move to quash it before their identities are disclosed.^[2] Several defendants have done so; those are the motions presently before the Court.

After briefing, argument, and amicus participation, the Court concludes that it has insufficient information to allow the plaintiffs to take expedited discovery under these circumstances. First, the movants are entitled to some First Amendment protection of their anonymity — albeit limited. Second, the defendants may have expectations of privacy with regard to their identity, but that depends on the terms of the internet service agreement they have with Boston University, which has not been provided to the Court. Third, the movants have raised an issue of fact with respect to the number of identities disclosed to the plaintiffs by the expedited discovery. As it currently exists, the plaintiffs' subpoena may invade the anonymity of many non-infringing internet users — anonymity that deserves protection by the Court. Under these circumstances, the best solution is in camera review of the terms of service agreement and the ISP's list of individuals who match the information supplied by the plaintiffs.

The Court will therefore GRANT two of the motions to quash (documents ##104 and 115), at least until the relevant information is obtained.^[3] The plaintiffs may renew their motion for expedited discovery, addressing the Court's concerns by modifying the subpoena they seek to serve on Boston University, as discussed below.

I. BACKGROUND

A. Facts

In each of these cases, the facts are substantially identical. Since the defendants' motions are effectively motions to dismiss — there is almost no evidence in the case, and the movants argue, among other things, that the plaintiffs have failed to state a claim upon which relief can be granted — the Court will apply that standard of review to the pleadings. The plaintiffs' pleadings are taken as true, and the Court will draw all reasonable inferences in their favor. See, e.g., Rivera v. Rhode Island, 402 F.3d 27, 33 (1st Cir. 2005) (stating standard for motion to dismiss). To survive a motion to dismiss, the plaintiffs' pleaded facts must "possess enough heft to sho[w] that [they are] entitled to relief." Clark v. Boscher, 514 F.3d 107, 112 (1st Cir.2008) (internal quotation marks omitted) (quoting Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1959, 167 L.Ed.2d 929 (2007)) (first alteration in Twombly). 

[159] The plaintiffs allege that the defendants used peer-to-peer software to "download and/or distribute to the public certain of the [plaintiffs'] Copyrighted Recordings.... Through his or her continuous and ongoing acts of downloading and/or distributing to the public the Copyrighted Recordings, each Defendant has violated Plaintiffs' exclusive rights of reproduction and distribution." E.g., Compl. at 5 (docket no. 07-cv-10834, document #1). To clarify the issues on which this case turns, the Court will briefly explain the nature of peer-to-peer software and its use.

Peer-to-peer software primarily exists to create decentralized networks of individual computer users. The software allows the users to communicate directly with one another, rather than routing their transmissions through a central server — thus the term "peer-to-peer" architecture, as opposed to "client-server." See, e.g., Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 919-920 & n. 1, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005). Each type of architecture has distinct advantages and disadvantages, most of which are not relevant to this case.

What is relevant is that users in a peerto-peer network can remain relatively anonymous or pseudonymous. Because communications between two computers on a peer-to-peer network can take place directly, without passing through a central network server,^[4] such transactions are not easily observable by a third party. By the nature of the network and software, then, peer-to-peer users can control what information they display to the world. See Linares Decl. at 4, Ex. A to PI. Mot. Leave to Take Immediate Discovery (docket no. 07-cv-10834, document #5). Moreover, generally speaking, anyone who has the requisite software and internet connection can participate in open peer-to-peer networks, such as the ones the defendants are alleged to have used in this case.

Peer-to-peer users can also transfer files over the network. Many such files are entirely legitimate. See Grokster, 545 U.S. at 920, 125 S.Ct. 2764. However, other files transferred are electronic versions of copyrighted music or video files. Notably, because the files on each user's computer are digital, another computer can make a precise copy of them with no attendant loss in quality. See Linares Decl. at 3-4, Ex. A to PI. Mot. Leave to Take Immediate Discovery (docket no. 07-cv-10834, document #5).

In this case, the plaintiffs allege that each of the defendants has taken part in just such a file transfer. To discover potentially infringing transfers, the plaintiffs (acting through their trade association, the Recording Industry Association of America, or "RIAA") have retained a third-party investigator, MediaSentry, Inc. [160] ("MediaSentry"). Id. at 4-5. MediaSentry essentially functions as an undercover user of the peer-to-peer networks. It connects to the network and searches for the plaintiff record companies' copyrighted files. Upon finding the files, it downloads them. See id. at 5-6. MediaSentry gathers what information it can about the computer from which the files were downloaded (the "sending computer.") Most crucially, that information includes the date and time at which the files were downloaded and the IP number of the sending computer. It can also include the user's name, but if given, the names are usually pseudonymous. See id. After the files are downloaded, the RIAA verifies that they can form the basis for a suit. It reviews a listing of the music files that the user has offered for download in order to determine whether they appear to be copyrighted sound recordings. The RIAA also listens to the downloaded music files from these users in order to confirm that they are, indeed, illegal copies of sound recordings whose copyrights are owned by RIAA members. Id. at 6.^[5]

At this point, assuming the plaintiffs wish to sue, they cannot do so; they have only the IP number of the sending computer. An IP number is sometimes called an IP address because it is just that: an address. It serves as a locator declaring the place of a particular piece of electronic equipment so that electronic data may be sent to it, and is usually represented as a series of four numbers between 0 and 255. See, e.g., America Online v. Huang, 106 F.Supp.2d 848, 851 (E.D.Va.2000). (For example, 168.122.128.38 is one of the IP addresses allegedly used by a defendant in this case. See Doe List, Ex. A to Compl. (docket no. 07-cv-10834, document #1).)

But relatively few personal computer users have a specific, set IP address, called a "static" address. Instead, many use their computers to connect to a network provided by their ISP, which uses a certain range of IP addresses — say, all of the numbers between 168.122.1.x to 168.122.100.x. The ISP assigns an address within its range to the user's computer for the user's session, allocating the numbers within its range on an as-needed basis. This process is known as "dynamic" addressing. See, e.g., H. Brian Holland, Tempest in a Teapot or Tidal Wave? Cybersquatting Rights & Remedies Run Amok, 10 J. Tech. L. & Pol'y 301, 305 & nn. 13-18 (2005). This makes the plaintiffs' task of discovering the identity of a particular infringer more difficult. The IP address that they have noted as belonging to a particular user's computer may be assigned to a different user's computer in short order. See id.

However, the plaintiffs are not without leads. The range in which the IP address is assigned may reveal the user's ISP. See Linares Decl. at 7, Ex. A to PI. Mot. Leave to Take Immediate Discovery (docket no. 07-cv-10834, document #5); see also, e.g., Network-Tools.com, http://network-tools. com/default.asp (last visited Mar. 31, 2008) (providing such a service). And ISPs generally keep logs of which IP address is assigned to which user — although it may purge those logs after a certain period of time, which was one of the key facts relied [161] upon by the Court in granting expedited discovery. See Linares Decl. at 9, Ex. A to PI. Mot. Leave to Take Immediate Discovery (docket no. 07-cv-10834, document #5). Thus, the plaintiffs seek, though their subpoena, the opportunity to place their list of IP addresses side-by-side with the ISP's user logs to determine who was using the IP address at the moment of the alleged infringement. The ISPs, particularly colleges and universities, appropriately decline to reveal the identities of their users without a court order. Therefore, the plaintiffs bring "John Doe" lawsuits and seek discovery in order to determine the real identities of the defendants.

B. Procedural History

The plaintiff record companies have brought approximately forty "John Doe" cases in this Court, many-perhaps mostdesignating more than one defendant, grouped by ISP.^[6] In each case, the Court has granted expedited discovery and leave to subpoena the ISP, recognizing that the plaintiffs' rights may be irreparably and unfairly prejudiced unless they are allowed to seek the defendants' identities. See, e.g., Order re: Expedited Discovery (Dec. 9, 2004) (document #7). Simultaneously, however, the Court has recognized that the defendants should have the opportunity to combat the subpoena if they desire to do so. Therefore, the Court has ordered that the ISP provide the individual users with notice of the lawsuit and a short statement of some of their rights before revealing their identities to the plaintiffs. Furthermore, the ISP may not respond to the subpoena for 14 days after each defendant has received notice. See id.; see also Appendix A (Court-Directed Notice).

Simultaneous with the grant of expedited discovery, the Court has consolidated each "John Doe" case with the first, London-Sire, No. 04-cv-12434. The cases involve similar, even virtually identical, issues of law and fact: the alleged use of peer-to-peer software to share copyrighted sound recordings and the discovery of defendants' identities through the use of a Rule 45 subpoena to their internet service provider. Consolidating the cases ensures administrative efficiency for the Court, the plaintiffs, and the ISP, and allows the defendants to see the defenses, if any, that other John Does have raised.^[7]

In view of the $750 statutory minimum damages per song, 17 U.S.C. § 504(c)(2), most defendants choose to settle. The approximate settlement range appears to be $3,000 to $6,000 per defendant, a considerable amount of money, particularly to the college students who have been caught in the plaintiffs' nets.

Only three of the defendants have elected to fight the subpoena. Two are Doe defendants from the case originally titled Arista Records LLC v. Does 1-21, No. 07cv-10834 (consolidated on May 8, 2007). In that case, the plaintiffs sought discovery from Boston University as the defendants' ISP, and the two Does^[8] separately moved [162] to quash the subpoena. Each primarily asserts that the plaintiffs have failed to state a sufficient claim for copyright infringement. See Mem. Supp. Mot. Quash (document #104); Mot. Quash (document #115). Because the two motions are substantively similar, the Court will address them together.

The third defendant to move to quash the subpoena is Doe no. 12 from Warner Brothers Records, Inc. v. Does 1-17, No. 07-cv-10924 (consolidated on May 18, 2007). The Internet Service Provider at issue is the University of Massachusetts. Doe no. 12 argues that she is not subject to personal jurisdiction in Massachusetts. See Mot. Quash (document #113).

The Court held a hearing on the Motions to Quash on January 28, 2008. Shortly thereafter, the Court granted the Electronic Frontier Foundation ("EFF") leave to file an amicus brief supporting the Motion to Quash. See Electronic Order (Feb. 6, 2008). Its brief principally treats the First Amendment implications of the subpoena^[9] and the proper sweep of the copyright laws. The Court thanks the amicus for its participation.

The Court will examine first the motions of the two Does in the Boston University case, which argue that the subpoena ought to be denied on substantive grounds. It will then turn to the University of Massachusetts Doe's argument that the subpoena should be quashed for lack of personal jurisdiction.

II. LEGAL STANDARDS

This case is still at a preliminary stage: The plaintiffs seek to learn the identities of the defendants so that, the issue may be properly joined on the merits. Under Federal Rule 45, the Court "shall quash or modify the subpoena if it ... requires disclosure of privileged or other protected matter and no exception or' waiver applies." Fed.R.Civ.P. 45(c)(3)(A)(iii). The substantive inquiry is similar to the one necessary for issuing a protective order. See Micro Motion, Inc. v. Kane Steel Co., 894 F.2d 1318, 1322-23 (Fed.Cir.1990). The party requesting that the subpoena be quashed must show good cause for protection by specifically demonstrating that disclosure will cause a clearly defined and serious harm. See Anderson v. Cryovac, Inc., 805 F.2d 1, 7-8 (1st Cir. 1986); Glenmede Trust Co. v. Thompson, 56 F.3d 476, 483 (3d Cir.1995). The Court balances the harm of disclosure against the harm to the other party of restricting discovery.

The Court must therefore first consider whether the defendants' anonymity is entitled to privilege or other protection. If so, it will turn to the balancing test necessary under Rule 45(c)(3).

III. THE DEFENDANTS' ANONYMITY IS ENTITLED TO SOME FIRST AMENDMENT PROTECTION

The motion to quash raises two First Amendment issues-the right to anonymous speech and the right to whatever creative activity is involved in the defendants' acts. While the Court recognizes some limited First Amendment protection here, that protection only goes so far as to subject the plaintiffs' subpoenas to somewhat heightened scrutiny. Other courts have [163] reached the same conclusion. See, e.g., Sony Music Entm't v. Does 1-40, 326 F.Supp.2d 556, 564 (S.D.N.Y.2004).

As the Supreme Court has repeatedly held, the First Amendment protects anonymous speech. The right to anonymity is an important foundation of the right to speak freely. Indeed, "[a]nonymity is a shield from the tyranny of the majority. It ... exemplifies the purpose behind the Bill of Rights, and of the First Amendment in particular: to protect unpopular individuals from retaliation — and their ideas from suppression — at the hand of an intolerant society." Mclntyre v. Ohio Elections Comm'n, 514 U.S. 334, 357, 115 S.Ct. 1511, 131 L.Ed.2d 426 (1995). See also NAACP v. Alabama ex rel. Patterson, 357 U.S. 449, 460-62, 78 S.Ct. 1163, 2 L.Ed.2d 1488 (1958) (discussing generally the importance of anonymity). Still, the anonymous activity that is being protected must be "speech."

Copyright infringement, per se, is clearly not speech entitled to First Amendment protection. See Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 555-57, 560, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985) (discussing the First Amendment and copyright, and examining whether fair use doctrine applied to alleged act of copyright infringement). But there are some creative aspects of downloading music or making it available to others to copy: the value judgment of what is worthy of being copied; the association of one recording with another by placing them together in the same library; the self-expressive act of identification with a particular recording; the affirmation of joining others listening to the same recording or expressing the same idea. See Rebecca Tushnet, Copy This Essay: How Fair Use Doctrine Harms Free Speech and How Copying Serves It, 114 Yale L.J. 535, 545-47, 562-81 (2004); Jack M. Balkin, Digital Speech and Democratic Culture: A Theory of Freedom of Expression for the Information Society, 79 N.Y.U. L.Rev. 1, 45-46 (2004); cf. Harper & Row, 471 U.S. at 547, 105 S.Ct. 2218 (noting that compilation of pure fact "entails originality" in selection and ordering of the facts). Thus, while the aspect of a file-sharer's act that is infringing is not entitled to First Amendment protection, other aspects of it are. Cf, e.g., Schad v. Mount Ephraim, 452 U.S. 61, 66, 101 S.Ct. 2176, 68 L.Ed.2d 671 (1981) ("[N]ude dancing is not without its First Amendment protections from official regulation."); Eugene Volokh, Crime-Facilitating Speech, 57 Stan. L.Rev. 1095 (2005) (arguing that crime-facilitating speech has "some First Amendment value").

Nevertheless, the fact that there is First Amendment value associated with sharing music over a peer-to-peer network does not insulate the defendants from liability. Rather, the minimal First Amendment protection their activity garners^[10] entitles them to some scrutiny of a discovery request that uses the power of the Court to threaten the privilege.^[11]

[164] IV. APPLICATION OF THE BALANCING TEST

As to how to balance the harms, the Court finds persuasive the approach of the Southern District of New York in Sony Music, 326 F.Supp.2d 556. In that case, the court reviewed the leading cases on subpoenas seeking disclosure of defendants' identities from their ISP. It isolated five important factors:^[12]

(1) a concrete showing of a prima facie claim of actionable harm, (2) specificity of the discovery request, (3) the absence of alternative means to obtain the subpoenaed information, (4) a central need for the subpoenaed information to advance the claim, and (5) the party's expectation of privacy.

Id. at 564-65 (citations omitted).^[13] The first factor ensures that the defendants cannot pierce the defendants' anonymity based on an unsupported or legally insufficient pleading. The second, third, and fourth factors ensure that the subpoena is narrowly tailored to reveal no more information about the defendants than necessary, and to ensure that third parties who are not accused of infringement remain anonymous. The fifth factor considers the defendants' expectations of privacy, including whatever service arrangement they might have with their ISP.

The Court considers each factor in turn.

A. Factor One: Prima Facie Claim of Actionable Harm

This factor has three parts. First, the plaintiffs must assert an "actionable harm," a claim upon which relief can be granted. Second, the claim must be supported by prima facie evidence. That standard does not require the plaintiffs to prove their claim. They need only proffer sufficient evidence that, if credited, would support findings in their favor on all facts essential to their claim. See Adelson v. Hananel, 510 F.3d 43, 48 (1st Cir.2007) (discussing prima facie standard for personal jurisdiction). Finally, both the claim and the prima facie evidence supporting it must be "concrete." That is, they must be [165] reasonably grounded in allegations of a specific act of infringement.

The movants and the EFF argue that the plaintiffs have failed to meet their burden under each part of the test. See Mot. Quash at 3-7 (document #104); Mot. Quash at 4-10 (document #115); EFF Br. at 9-24 (document #152). Their arguments involve important and difficult questions of copyright law. Ultimately, however, the Court finds that the plaintiffs have satisfied this factor. Considering as true the facts they have pleaded, and drawing all reasonable inferences in their favor, the plaintiffs have made a concrete showing of a prima facie case of an actionable harm.

1. Whether the Plaintiffs Have Asserted a Claim Upon Which Relief Can Be Granted

A claim for copyright infringement has two elements. First, the plaintiffs must demonstrate that they hold a valid copyright (an issue the defendants do not contest.) Second, the plaintiff must show that the defendant violated of one of the exclusive rights held by a copyright owner. See T-Peg, Inc. v. Vermont Timber Works, Inc., 459 F.3d 97, 108 (1st Cir.2006); see also Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 360-61, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991); 17 U.S.C. § 501(a). The plaintiffs claim that "each [defendant, without the permission or consent of [p]laintiffs, has ... downloaded] or distribut[ed] to the public" music files to which the plaintiff holds the copyright. Compl. at 5 (docket no. 07-cv-10834, document #1). Two rights reserved to the copyright holder are at issue in this case: the right "to reproduce the copyrighted work in copies or phonorecords," 17 U.S.C. § 106(1), and the right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending," id. § 106(3).

The movants and the amicus present two broad arguments, each of which requires the Court to consider the scope of a copyright holder's exclusive rights under the statutes quoted above. First, they contend that the copyright laws require an actual dissemination of copyrighted material; merely making copyrighted material available for another person to copy, they argue, is only an attempt at infringement — which is not actionable. Mem. Supp. Mot. Quash at 4-6 (document #104); Mot. Quash at 7 (document #115); EFF Br. at 10-15 (document #152). Second, they contend that the scope of the rights given to copyright owners by § 106 is limited by the definition of "phonorecords" as "material objects" in 17 U.S.C. § 101.^[14] In their view, the copyright owner's rights are limited to tangible, physical objects, and purely electronic transmissions over the internet fall outside those rights.^[15] Suppl. Mem. L. Supp. Mot. Quash at 4-6 (document #149); Mot. Quash at 7 (document #115); EFF Br. at 15-24 (document #152). Both of these broad arguments question whether the plaintiffs have alleged a legally cognizable [166] harm under the copyright statutes. If they have not, then the subpoena must be quashed.

a. Whether the Copyright Holder's Right Extends Only to Actual Distributions

The first question the Court must address is whether the distribution right under 17 U.S.C. § 106(3) requires an actual dissemination to constitute an infringement.^[16] It is an important issue, determining in part how to evaluate the proffered evidence in this case. MediaSentry, posing as just another peer-to-peer user, can easily verify that copyrighted material has been made available for download from a certain IP address. Arguably, though, MediaSentry's own downloads are not themselves copyright infringements because it is acting as an agent of the copyright holder, and copyright holders cannot infringe their own rights.^[17] If that argument is accepted, MediaSentry's evidence cannot alone demonstrate an infringement.

The plaintiffs suggest two reasons why an actual distribution might not be required. First, the statute reserves to the copyright owner the right "to do and to authorize ... [the distribution of] copies or phonorecords of the copyrighted work to the public." § 106(3) (emphasis added). The language appears to grant two distinct rights: "doing" and "authorizing" a distribution. Making the copyrighted material available over the internet might constitute an actionable "authorization" of a distribution. Second, if mere authorization is not enough, the plaintiffs argue that in appropriate circumstances — including these — "making available" copyrighted material is sufficient to constitute an act of actual distribution. Neither argument has merit.

The First Circuit has squarely considered and rejected the proposition that copyright liability arises where the defendant authorized an infringement, but no actual infringement occurred. See Venegas-Hernandez v. Ass'n De Compositores & Editores de Musica Latinoamericana, 424 F.3d 50, 57-58 (1st Cir.2005). It noted that Congress' intent in adding "authorize" to the statute was to "avoid any questions as to the liability of contributory infringers." Id. at 58 (internal quotation marks omitted) (quoting H.R. Rep. 94-1476 ("House Report") at 52 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5674). Authorization is sufficient to give rise to liability, but only if an infringing act occurs after the authorization. See id. at 59; see also Latin Am. Music Co. v. The Archdiocese of San Juan of the Roman Catholic & Apostolic Church, 499 F.3d 32, 46 (1st Cir.2007) (citing and applying Venegas-Hernandez).

Thus, to constitute a violation of the distribution right under § 106(3), the defendants' actions must do more than "authorize" a distribution; they must actually "do" it. The Court therefore moves to [167] the plaintiffs' second argument: Merely making copyrighted works available to the public is enough where, as in this case, the alleged distributor does not need to take any more affirmative steps before an unauthorized copy of the work changes hands. Other courts have split over whether that is a valid reading of the statute. Compare Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199 (4th Cir. 1997) (holding that making copyrighted material available is sufficient to constitute a distribution), and Arista Records LLC v. Greubel, 453 F.Supp.2d 961, 969-70 (N.D.Tex.2006) (citing and following Hotaling), and Warner Bros. Records, Inc. v. Payne, No. W-06-CA051, 2006 WL 2844415, at *3-*4 (W.D.Tex. July 17, 2006) (same), with In re Napster, Inc. Copyright Litig., 377 F.Supp.2d 796, 802-05 (N.D.Cal.2005) (criticizing Hotaling as being "contrary to the weight of [other] authorities" and "inconsistent with the text and legislative history of the Copyright Act of 1976"), and Natl Car Rental Sys., Inc. v. Computer Assocs. Int'l, Inc., 991 F.2d 426, 434 (8th Cir.1993) (stating that infringement of the distribution right requires the actual dissemination of copies or phonorecords).

To suggest that "making available" may be enough, the plaintiffs rely primarily on the Fourth Circuit's decision in Hotaling.^[18] In that case, a library had an unauthorized copy of a book, which it "made available" to the public; the defendant argued that without a showing that any member of the public actually read the book, it could not be liable for "distribution." See id. at 201-02, 203. The district court agreed and granted summary judgment to the defendant. The Fourth Circuit reversed:

When a public library adds a work to its collection, lists the work in its index or catalog system, and makes the work available to the borrowing or browsing public, it has completed all the steps necessary for distribution to the public. At that point, members of the public can visit the library and use the work. Were this not to be considered distribution within the meaning of § 106(3), a copyright holder would be prejudiced by a library that does not keep records of public use, and the library would unjustly profit by its own omission.

Id.; see also id. at 204.

The plaintiffs contend that this case is analogous to Hotaling,^[19] and suggest [168] that the Court should reach the same conclusion as the Fourth Circuit. But the EFF correctly points out a lacuna in the Fourth Circuit's reasoning. See EFF Br. at 15 (citing William F. Patry, 4 Patry on Copyright §§ 13:9, 13:11 (2007)). Merely because the defendant has "completed all the steps necessary for distribution" does not necessarily mean that a distribution has actually occurred.^[20] It is a "distribution" that the statute plainly requires. See 17 U.S.C. § 106(3).

The plaintiffs encourage the Court to adopt a much more capacious definition of "distribution." They argue that the Supreme Court has held that the "terms `distribution' and `publication' ... [are] synonymous in the Copyright Act." Pls.' Resp. Opp. Amicus Curiae Br. at 2-3 (document #157) (citing Harper & Row, 471 U.S. at 552, 105 S.Ct. 2218).^[21] They further note, correctly, that the statutory definition of publication can include offers to distribute. See 17 U.S.C. § 101. And sharing music files on a peer-to-peer network does, at least arguably, constitute an offer to distribute them.

While some lower courts have accepted the equation of publication and distribution, see Greubel, 453 F.Supp.2d at 969; In re Napster, 377 F.Supp.2d at 803, the plaintiffs' argument mischaracterizes the Supreme Court's decision in Harper & Row. The Supreme Court stated only that § 106(3) "recognized for the first time a distinct statutory right of first publication," and quoted the legislative history as establishing that § 106(3) gives a copyright holder "the right to control the first public distribution of an authorized copy ... of his work." Harper & Row, 471 U.S. at 552, 105 S.Ct. 2218 (internal quotation marks omitted) (quoting House Report at 62, reprinted in 1976 U.S.C.C.A.N. at 5675) (alteration in Harper & Row). That is a far cry from squarely holding that publication and distribution are congruent.

To the contrary, even a cursory examination of the statute suggests that the terms are not synonymous. "Distribution" is undefined in the copyright statutes. "Publication," however, is defined, and incorporates "distribution" as part of its definition:

'Publication' is the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending. The offering to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display, constitutes publication. A public performance or display [169] of a work does not of itself constitute publication.

17 U.S.C. § 101. By the plain meaning of the statute, all "distributions ... to the public" are publications. But not all publications are distributions to the public — the statute explicitly creates an additional category of publications that are not themselves distributions. For example, suppose an author has a copy of her (as yet unpublished) novel. If she sells that copy to a member of the public, it constitutes both distribution and publication. If she merely offers to sell it to the same member of the public, that is neither a distribution nor a publication. And if the author offers to sell the manuscript to a publishing house "for purposes of further distribution," but does not actually do so, that is a publication but not a distribution.

Plainly, "publication" and "distribution" are not identical. And Congress' decision to use the latter term when defining the copyright holder's rights in 17 U.S.C. § 106(3) must be given consequence. In this context, that means that the defendants cannot be liable for violating the plaintiffs' distribution right unless a "distribution" actually occurred.

But that does not mean that the plaintiffs' pleadings and evidence are insufficient. The Court can draw from the Complaint and the current record a reasonable inference in the plaintiffs' favor — that where the defendant has completed all the necessary steps for a public distribution, a reasonable fact-finder may infer that the distribution actually took place. As in Hotaling, the defendants have completed the necessary steps for distribution, albeit electronic: Per the plaintiffs' pleadings, each individual Doe defendant connected to the peer-to-peer network in such a way as to allow the public to make copies of the plaintiffs' copyrighted recordings. See Compl. at 5 (docket no. 07-cv-10834, document #1). Through their investigator, the plaintiffs have produced evidence that the files were, in fact, available for download. They have also alleged that sound recordings are illegally copied on a large scale, supporting the inference that the defendants participated in the peer-topeer network with the intent that other users could download from the defendants copies of the plaintiffs' copyrighted material. See Linares Decl. at 3-4, Ex. A to PI. Mot. Leave to Take Immediate Discovery (docket no. 07-cv-10834, document #5). At least at this stage of the proceedings, that is enough. The plaintiffs have pled an actual distribution and provided some concrete evidence to support their allegation.

b. Whether the Distribution Right Is Limited to Physical, Tangible Objects

Next, the movants and the EFF contend that the distribution right under 17 U.S.C. § 106(3) is limited to physical, tangible objects. By its terms, the distribution right only extends to distributions of "phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease or lending." In turn, 17 U.S.C. § 101 defined "phonorecords" as "material objects in which sounds ... are fixed." The movants and the EFF focus on the phrase "material object," as well as the meaning of "sale or other transfer," and conclude that purely electronic file sharing does not fall within the scope of the right. If their argument is accepted, it would mean that the plaintiffs' Complaint is legally insufficient to allege a violation of the distribution right protected by§ 106(3).

The movants' argument is sweeping, carrying substantial implications for a great deal of internet commerce — any involving computer-to-computer electronic transfers of information. Indeed, this case is an exemplar. The plaintiffs have not [170] alleged a physical distribution. To the contrary, it is clear that their harm comes from the purely electronic copying of music files. See Linares Decl. at 3-4, Ex. A to PL Mot. Leave to Take Immediate Discovery (docket no. 07-cv-10834, document #5). After carefully considering the parties' and the EFF's arguments, the Court concludes that § 106(3) confers on copyright owners the right to control purely electronic distributions of their work.

As noted above, 17 U.S.C. § 106(3) applies to the distribution of "phonorecords." And "phonorecords" are defined in full as follows:

'Phonorecords' are material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term`phonorecords' includes the material object in which the sounds are first fixed.

17 U.S.C. § 101. The movants and the EFF contend that the electronic distribution, if it occurred, did not involve the "distribution" of a material object "by sale or other transfer of ownership, or by rental, lease or lending," as §§ 106(3) and 101 require. The argument has two closely related prongs-first, that no material object actually changed hands, and second, that even if it did, it was not through one of the methods of transfer enumerated in the statute.

Each of those arguments relies on an overly literal definition of "material object," and one that ignores the phrase's purpose in the copyright statutes. Congress intended for the copyright owner to be able to control the public distribution of items that can reproduce the artist's sound recording. It makes no difference that the distribution occurs electronically, or that the items are electronic sequences of data rather than physical objects.

Before squarely addressing the parties' arguments, however, the Court briefly revisits an important foundational issue — whether the electronic files at issue here can constitute "material objects" within the meaning of the copyright statutes. Doing so will help the Court explain the scope of the distribution right and frame the application of the Copyright Act to an electronic world.

(1) Electronic Files Are Material Objects

Understanding Congress' use of "material object" requires returning to a fundamental principle of the Copyright Act of 1976, Pub.L. No. 94-553, 90 Stat. 2541 (codified as amended in 17 U.S.C). Congress drew "a fundamental distinction between the`original work' which is the product of`authorship' and the multitude of material objects in which it can be embodied. Thus, in the sense of the [Copyright Act], a`book' is not a work of authorship, but is a particular kind of`copy.'" House Report at 53, reprinted in 1976 U.S.C.C.A.N. at 5666.^[22]

The Copyright Act thus does not use materiality in its most obvious sense — to mean a tangible object with a certain heft, like a book or compact disc. Rather, [171] it refers to materiality as a medium in which a copyrighted work can be "fixed." See 17 U.S.C. § 101 ("A work is`fixed' in a tangible medium of expression when its embodiment in a copy or phonorecord, ... is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration."). As the Second Circuit cogently explained, "[t]he sole purpose of § 101`s definitions of the words `copies' and`fixed' is to ... define the material objects in which copyrightable and infringing works may be embedded and to describe the requisite fixed nature of that work within the material object." Matthew Bender & Co., Inc. v. West Pub. Co., 158 F.3d 693, 702 (2d Cir.1998). The opposite is true as well. The sole purpose of the term "material object" is to provide a reference point for the terms "phonorecords" and "fixed."^[23]

This analysis is borne out in other aspects of the Copyright Act — for example, the Act's abrogation of a common-law presumption regarding the sale of copyrights. At common-law, if an author sold her manuscript, the sale included the author's copyrights in the original work unless the sale agreement specifically excepted them. See, e.g., Yardley v. Houghton Mifflin Co., 108 F.2d 28, 30-31 (2d Cir.1939); Pushman v. New York Graphic Soc'y, Inc., 287 N.Y. 302, 306-07, 39 N.E.2d 249 (1942). Congress specifically abolished that presumption by distinguishing between the abstract, original work on the one hand, which is the source of the copyrights, and its material incarnation on the other, which is protected by the copyrights. See 17 U.S.C. § 202; House Report at 53, 123, reprinted in 1976 U.S.C.C.A.N. at 5666, 5739-40. Because the two are different, the author can freely sell a copy without disturbing the copyrights.

Thus, any object in which a sound recording can be fixed is a "material object." That includes the electronic files at issue here. When a user on a peer-to-peer network downloads a song from another user, he receives into his computer a digital sequence representing the sound recording. That sequence is magnetically encoded on a segment of his hard disk (or likewise written on other media.) With the right hardware and software, the downloader can use the magnetic sequence to reproduce the sound recording. The electronic file (or, perhaps more accurately, the appropriate segment of the hard disk) is therefore a "phonorecord" within the meaning of the statute. See § 101 (defining "fixed" and "phonorecords"); Matthew Bender & Co., 158 F.3d at 703-04. See also New York Times Co. v. Tasini 533 U.S. 483, 490-91, 121 S.Ct. 2381, 150 L.Ed.2d 500 (2001) (appearing to assume that electronic-only distributions constitute material objects); Stenograph LLC v. Bossard Assocs., Inc., 144 F.3d 96, 100 (D.C.Cir.1998) (holding that installation [172] of software onto a computer results in "copying"); Working Group on Intellectual Property Rights, Intellectual Property and the National Information Infrastructure 213 (1995), available at http://www. uspto.gov/go/com/doc/ipnii/ipnii.pdf (noting that electronic transmissions implicate copyright holders' rights and strongly implying that electronic files constitute "material objects").

With that background, the Court turns to the movants' and the EFF's arguments.

(2) The Transmission of an Electronic File Constitutes a "Distribution" Within the Meaning of § 106(3)

The movants and the EFF present two reasons why the Court should decline to find that purely electronic transmissions are a violation of the distribution right. First, they note that the distribution right is limited to "phonorecords of the copyrighted work," 17 U.S.C. § 106(3), and that part of the definition of "phonorecords" is that they are "material objects," id. § 101. They focus on the phrase "material objects" to suggest that a copyright owner's distribution right only extends to "tangible" objects. See EFF Br. at 15-16. Because there was no exchange of tangible objects in this case — no "hand-to-hand" exchange of physical things — they argue that the plaintiffs' distribution right was not infringed by the defendants' actions.

The movants' second argument focuses on a different phrase in § 106(3): "distribution" is limited to exchanges "by sale or other transfer of ownership, or by rental, lease, or lending." They note, correctly, that an electronic download does not divest the sending computer of its file, and therefore does not implicate any ownership rights over the sound file held by the transferor. Therefore, they conclude, an electronic file does not fit within the defined limits of the distribution right.

The movants' two arguments appear to be analytically distinct, but in fact each is the obverse of the other: Any time the transfer of copyrighted material takes place electronically, both contentions at least potentially come into play. Electronic transfers generally involve the reading of data at point A and the replication of that data at point B. Whenever that is true, one person might be stationed at point A and another at point B, obviating the need for a "hand-to-hand" transfer. Similarly, because the data at point A is not necessarily destroyed by the process of reading it, the person at point A might retain ownership over the original, forestalling the need for a "sale or other transfer of ownership," as stated in § 106(3).

Clearly, that description accurately characterizes electronic file transfers. The internet makes it possible for a sending computer in Boston and a downloader in California to communicate quickly and easily; the physical distance between the two, as well as the purely electronic nature of the transfer, makes the movants' argument attractive. But the "point A-to-point B" characterization is no less apt for an older technology, such as a fax transfer over a phone line. And it also applies to cases in which point A and point B are very close together — even in the same room.^[24] The movants' argument thus pivots on the nature of the transfer, in which the copyrighted work is read by a machine, translated into data, transmitted (in data form), and re-translated elsewhere.

[173] After carefully considering the parties' and the EFF's arguments, the Court concludes that 17 U.S.C. § 106(3) does reach this kind of transaction. First, while the statute requires that distribution be of "material objects," there is no reason to limit "distribution" to processes in which a material object exists throughout the entire transaction — as opposed to a transaction in which a material object is created elsewhere at its finish. Second, while the statute addresses ownership, it is the newly minted ownership rights held by the transferee that concern it, not whether the transferor gives up his own.

The first point requires that the Court closely examine the scope of the distribution right under § 106(3). The statute provides copyright owners with the exclusive right "to distribute ... phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending." 17 U.S.C. § 106(3). In turn, phonorecords are defined in part as "material objects in which sounds ... are fixed by any method." Id. § 101. And as discussed above, in the sense of the Copyright Act, "material objects" should not be understood as separating tangible copies from non-tangible copies. Rather, it separates a copy from the abstract original work and from a performance of the work. See supra Section IV.A.l.b.(1).

Read contextually, it is clear that this right was intended to allow the author to control the rate and terms at which copies or phonorecords of the work become available to the public. In that sense, it is closely related to the reproduction right under § 106(1), but it is not the same. As Congress noted, "a printer [who] reproduces copies without selling them [and] a retailer [who] sells copies without having anything to do with their reproduction" invade different rights. House Report at 61, reprinted in 1976 U.S.C.C.A.N. at 5675. Under § 106(3),

[T]he copyright owner [has] the right to control the first public distribution of an authorized copy or phonorecord of his work, whether by sale, gift, loan, or some rental or lease arrangement. Likewise, any unauthorized public distribution of copies or phonorecords that were unlawfully made [is] an infringement. As section 109 makes clear, however, the copyright owner's rights under section 106(3) cease with respect to a particular copy or phonorecord once he has parted with ownership of it.

House Report at 62, reprinted in 1976 U.S.C.C.A.N. at 5675-76. Clearly, § 106(3) addresses concerns for the market for copies or phonorecords of the copyrighted work, and does so more explicitly and directly than the other provisions of § 106.^[25]

An electronic file transfer is plainly within the sort of transaction that § 106(3) was intended to reach. Indeed, electronic transfers comprise a growing part of the legitimate market for copyrighted sound recordings. See, e.g., Verne Kopytoff & [174] Ellen Lee, Tech Chronicles, S.F. Chron., Feb. 27, 2008, at CI (reporting that through its iTunes Store, which operates exclusively via electronic file transfer, Apple has sold more than 4 billion songs to 50 million customers).^[26] What matters in the marketplace is not whether a material object "changes hands," but whether, when the transaction is completed, the distributee has a material object. The Court therefore concludes that electronic file transfers fit within the definition of "distribution" of a phonorecord.^[27]

For similar reasons, the Court concludes that an electronic file transfer can constitute a "transfer of ownership" as that term is used in § 106(3). As noted above, Congress wrote § 106(3) to reach the "unauthorized public distribution of copies or phonorecords that were unlawfully made." House Report at 62, reprinted in 1976 U.S.C.C.A.N. at 5676. That certainly includes situations where, as here, an "original copy" is read at point A and duplicated elsewhere at point B.^[28] Since the focus of § 106(3) is the ability of the author to control the market, it is concerned with the ability of a transferor to create ownership in someone else — not the transferor's ability simultaneously to retain his own ownership.

This conclusion is supported by a comparison to the "first sale" doctrine, codified at 17 U.S.C. § 109. The "first sale" doctrine provides that once an author has released an authorized copy or phonorecord of her work, she has relinquished all control over that particular copy or phonorecord. See id. § 109(a); House Report at 79-80, reprinted in 1976 U.S.C.C.A.N. at 5693-94. The person who bought the copy — the "secondary" purchaser — may sell it to whomever she pleases, and at the terms she directs. The market implications are clear. The author controls the volume of copies entering the market, but once there, he has no right to control their secondary and successive redistribution. To be sure, the author retains a certain degree of control over the secondary sale, at least to the extent that he can control that redistributions through the terms in the original sales contract. But he must bring a contract suit, not an infringement action. See id. at 79, reprinted in 1976 U.S.C.C.A.N. at 5693. See also, e.g., Am. Int'l Pictures, Inc. v. Foreman, 576 F.2d 661, 664 (5th Cir.1978) (holding that where copyrighted material is resold subject to restrictions, and the secondary buyer violates those restrictions, no copyright infringement action lies). More often and more practically, however, the author will simply price the new copies or phonorecords to reflect the work's value in a secondary market. See, e.g., Vincent v. City Colleges of Chicago, 485 F.3d 919 (7th Cir.2007) (citing Stanley M. Besen & Sheila N. Kirby, Private Copying, Appropriability & Optimal, Copyright Royalties, 32 J.L. & Econ. 255 (1989)).

Conversely, where ownership is created through an illegal copy, the first [175] sale doctrine does not provide a defense to a distribution suit. See Quality King Distrib.. Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135, 148, 118 S.Ct. 1125, 140 L.Ed.2d 254 (1998). The distinction makes sense: where ownership is created through an illegal copy, the copyright holder has never had the chance to exercise his market rights over the copy. That is precisely the situation here.^[29]

2. Whether the Plaintiffs Have Adduced Prima Facie Evidence of Infringement

The second sub-element of the Sony Music test's first factor asks whether the plaintiffs have presented prima facie evidence of infringement. See 326 F.Supp.2d at 564. Just as police cannot invade the privacy of a home without some concrete evidence of wrongdoing inside, plaintiffs should not be able to use the Court to invade others' anonymity on mere allegation. By requiring plaintiffs to make out a prima facie case of infringement, the standard requires plaintiffs to adduce evidence showing that their complaint and subpoena are more than a mere fishing expedition. The plaintiffs need not actually prove their case at this stage; they need only present evidence adequate to allow a reasonable fact-finder to find that each element of their claim is supported. See Adelson, 510 F.3d at 48.' They have done so.

The first element of a copyright infringement suit is a valid copyright. See T-Peg, 459 F.3d at 108. The plaintiffs have asserted, and the defendants have not challenged, that they hold the copyright to each of the sound recordings incorporated into the complaint. See Compl. at 4-5 (docket no. 07-cv-10834, document #1).

The second element is violation of one of the copyright holder's exclusive rights. See T-Peg, 459 F.3d at 108. The movants and the EFF argue that because the plaintiffs have not demonstrated an actual infringement, they have not asserted an actual violation.^[30] They reason that the [176] investigator downloading the files from the defendants' computers was an agent of the plaintiffs, and plaintiffs cannot infringe their own copyrights. See Mem. Supp. Mot. Quash at 4-6 (document #149); EFF Br. at 12 n. 8 (document #152).

The Court need not now decide the precise nature of the evidence Media-Sentry gathered. While the parties dispute whether an investigator's download can be a perfected infringement, the downloads are also relevant, as described above, for another purpose: demonstrating that such infringement was technically feasible, thereby demonstrating that distributions could occur.

The plaintiffs have alleged that each defendant shared many, many music files — at least 100, and sometimes almost 700. See Ex. A to Compl. (docket no. 07-cv-10834, document #1) (providing information for each Doe, including number of copyrighted music files shared); Linares Decl. at 4, Ex. A to PI. Mot. Leave to Take Immediate Discovery (docket no. 07-cv-10834, document #5) (attesting to the veracity of the information contained in Exhibit A to the Complaint).^[31] As noted above, that evidence supports an inference that the defendants participated in the peer-to-peer network precisely to share copyrighted files. The evidence and allegations, taken together, are sufficient to allow a statistically reasonable inference that at least one copyrighted work was downloaded at least once. That is sufficient to make out a prima facie case for present purposes.^[32] Discovery may well reveal other factors relevant to the statistical inference, such as the length of time the defendant used peer-to-peer networks.

The plaintiffs have satisfied their burden for a prima facie case. As noted above, merely exposing music files to the internet is not copyright infringement. The defendants may still argue that they did not know that logging onto the peer-topeer network would allow others to access these particular files, or contest the nature of the files, or present affirmative evidence rebutting the statistical inference that downloads occurred. But these are substantive defenses for a later stage. Plaintiffs need not prove knowledge or intent in order to make out a prima facie case of infringement. See Feist, 499 U.S. at 361, [177] 111 S.Ct. 1282; Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1160 n. 19 (1st Cir.1994). As noted above, they are not required to win their case in order to serve the defendants with process.

3. Whether the Plaintiffs Have Tied Their Allegations and Evidence to Specific Acts of Infringement

The third sub-element of the first Sony Music factor is that the allegations be "concrete" — that they be tied to specific acts of infringement. See 326 F.Supp.2d at 564. The movants argue that the plaintiffs have failed to do so. Mot. Quash at 7-10 (document #115). In considering this question, the Court must keep in mind that transfers on a peer-to-peer network are not observable by outside users. To show infringement,^[33] the plaintiffs are obliged to build a chain of inferences. The Court finds that, on this record, the chain is adequately anchored to specific allegations to satisfy this sub-element.

The plaintiffs have alleged that each of the defendants used the peer-to-peer network to distribute copies of specific sound recordings, detailed in Exhibit A to the Complaint. For instance, Doe no. 21, one of the movants here, is alleged to have distributed the song "Clocks," by the artist Coldplay. Capitol Records holds the copyright to that song. See Ex. A to Compl. (docket no. 07-cv-10834, document #1). The plaintiffs allege that the downloading creates a precise copy of the song. And Doe no. 21 is alleged to have "continuously used, and [to] continue[] to use," a peerto-peer network. Compl. at 5 (docket no. 07-cv10834, document #1). Finally, the fact of MediaSentry's download shows that it was, in fact, possible to download "Clocks" from Doe no. 21's computer as of 6:56 a.m. on January 25, 2007. Thus, the plaintiffs have alleged the specific content at issue; the essential nature of the infringement of that content; a rough time period in which the infringement took place; and that at a certain time, the defendant had taken every step necessary for an infringement of Capitol Records's rights in "Clocks" to occur.

While the plaintiffs must eventually prove that an actual infringement of those rights occurred, they may certainly do so through circumstantial proof and inference. And drawing a reasonable inference in the plaintiffs' favor, one did occur. The plaintiffs' current showing is adequate to satisfy both Federal Rule of Civil Procedure 8 and the more exacting standard of Sony Music — even if they could not directly observe, and thus allege, an infringing act. See, e.g., 5 Patry, Patry on Copyright, §§ 19:3 (listing necessary elements to plead a copyright claim), 19:10 (discussing pleading acts of infringement with specificity).

B. Factors Two, Three, and Four: Need and Narrow Tailoring

The second, third, and fourth factors in the Sony Music test are designed to ensure that the subpoena is appropriate to the plaintiffs' needs, their allegations, and' the preliminary evidence they have presented. The Court weighs "(2) specificity of the discovery request, (3) the absence of alternative means to obtain the subpoenaed information, [and] (4) a central need for the subpoenaed information to advance the claim." Sony Music, 326 F.Supp.2d at 565. Thus, the second factor prevents the subpoena from being so overbroad that it unreasonably invades the anonymity of users who are not alleged to have infringed copyright. The third cuts against the subpoena if there is another [178] reasonable and less-intrusive means to gather the same information. And the fourth tests whether the plaintiffs must have the information to proceed. On the circumstances of this case, the third and fourth factors support the disclosure of the defendants' identities. However, the Court is unable to determine on this record whether the plaintiffs' request is adequately specific to satisfy the second factor.

1. Specificity of the Discovery Request

The second Sony Music factor examines the breadth of the information sought by the plaintiffs. It has two aspects: first, the breadth of the information the plaintiffs seek, and second, whether the subpoena requires the ISP to reveal identifying information for numerous non-infringing parties, piercing the First Amendment anonymity to which they are entitled.

Under the Court's Order permitting expedited discovery, the plaintiffs are limited to identifying information: "name, address, telephone number, e-mail address, and Media Access Control addresses for each defendant." Amended Order re: Expedited Discovery at 1 (May 9, 2007) (docket no. 07-cv-10834, document #8).^[34] The Court further ordered that "[n]o further information about the Doe defendants shall be revealed." Id. These limits are appropriate because they allow the plaintiffs to discover whom they are suing — the purpose of the expedited discovery — but no more. It does not, for example, permit disclosure of any information regarding the defendant's internet use.

Second, the Court must consider whether the information sought can be reasonably traced to a particular defendant. Generally speaking, according to the plaintiffs, the combination of IP address and date and time of access is sufficient to allow identification of the defendant. See Mem. Supp. Ex Parte Application for Leave To Take Immediate Discovery at 2 (docket no. 07-cv-10834, document #5).

That claim may not always be true. More than one computer may be placed under a single IP number. Thus, it is possible that the ISP may not be able to identify with any specificity which of numerous users is the one in question. See Stengel Decl. at 3 (document #118). If that is the case, giving the plaintiffs a long list of possible infringers would permit precisely the sort of fishing expedition the Sony Music test is designed to avoid. On the other hand, the ISP may frequently be able to narrow the list to a handful of possible users. In that situation, the plaintiffs should be entitled to use discovery to determine the identity of the alleged infringer. While it still might be possible that an unauthorized user was the actual infringer, see id., that is a matter better left for further discovery and presentation of the plaintiffs' claims on their merits.

The problem calls for a pragmatic solution that carefully respects the anonymity [179] of potentially innocent parties. Therefore, the Court will undertake to review particular cases as they come up, based on the number of users at issue and the degree of particularity with which the plaintiffs would be able to pick out the alleged infringer from a list. The subpoena to be served on Boston University shall be modified as discussed below in Section IV.D.

2. Absence of Alternative Means to Obtain Information

The third Sony Music factor requires that the plaintiffs have no other, less-intrusive way of obtaining the information they seek. This factor appears to be met in this case. Only the ISP has any record of which IP addresses were assigned to which users. To other entities online, those users would appear only as their IP addresses. The movants have not suggested any other method of obtaining the defendants' information; nor is the Court aware of any.

3. Central Need to Litigation

Finally, it is evident that the plaintiffs need the information in order to further the litigation. Without names and addresses, the plaintiffs cannot serve process, and the litigation can never progress. Therefore, the plaintiffs do have a central need for this information.

C. Factor Five: The Defendants' Expectations of Privacy

The final Sony Music factor regards the expectation of privacy held by the Doe defendants, as well as other innocent users who may be dragged into the case (for example, because they shared an IP address with an alleged infringer.) See 326 F.Supp.2d at 565.

As discussed above, see Section III, the alleged infringers have only a thin First Amendment protection. See Harper & Row, 471 U.S. at 559-60, 105 S.Ct. 2218.^[35] Moreover, many internet service providers require their users to acknowledge as a condition of service that they are forbidden from infringing copyright owners' rights, and that the ISP may be required to disclose their identity in litigation. See, e.g., Sony Music, 326 F.Supp.2d at 559.

The record is unfortunately silent as to Boston University's terms of service agreement, if one exists. That agreement could conceivably make a substantial difference to the expectation of privacy a student has in his or her internet use. The process through which the plaintiffs determine whether a particular user actually used a peer-to-peer network to distribute music files may be much more intrusive than merely obtaining identities. In one case before the Court,^[36] the plaintiffs have sought to obtain an image of a defendant's hard disk,^[37] allowing a forensic computer [180] expert to inspect it to determine whether the defendant possessed an electronic copy of the plaintiffs' copyrighted material. See Pls.' Mot. Compel Discovery (docket no. 03-cv-11661, document #527).^[38]

The Court finds that the terms of service arrangement, if one exists, would be extremely helpful in analyzing the privacy interests at issue. As this is an important factor for the Sony Music test, the Court will require that the subpoena served on Boston University be modified to require that it submit to the Court its terms of service arrangement.

D. Required Modifications to the Subpoenas

For the reasons explained above in Sections IV.B.1 and IV.C, the Court lacks the information to adjudicate whether the plaintiffs have carried their burden in demonstrating a need for expedited discovery under the Sony Music test. Therefore, the Motions to Quash that assert privacy interests (documents ##104 and 115) are GRANTED. The plaintiffs may renew their motion for expedited discovery, but must attach to such motion a copy of the Rule 45 subpoena to be served on Boston University. The subpoena must include the following language or language substantially similar:

The ISP shall submit to the Court, under seal, the information requested by the plaintiffs for its consideration in camera. For any IP address provided by the plaintiffs for which the ISP is unable to determine, to a reasonable degree of technical certainty, the identity of the user, it shall submit a list of all such users and a brief statement explaining the difficulty in selecting among them the alleged infringer.

The ISP shall simultaneously submit to the Court its terms of service agreement with its users, or, if it does not have a terms of service agreement, a statement to that effect.

The submissions by the ISP shall be made no later than 14 days after service of the subpoena.

The ISP shall not disclose to the plaintiffs any information regarding the identities of the defendants unless ordered to do so by this Court.

The Court, with the Sony Music framework thus in place, will consider the plaintiffs' request for expedited discovery as made in their renewed motion.

V. THE MOTION TO QUASH FOR LACK OF PERSONAL JURISDICTION

In addition to the Motions to Quash filed by the Boston University Does, one other Doe has filed a Motion to Quash. She claims that the Court lacks personal jurisdiction over her. She asserts, among other things, that she has never lived in Massachusetts and that "none of [her] visits to the State of Massachusetts had any relationship to the matter for which [she is] being sued, namely [her] alleged use of filesharing systems from [her] home in Maryland." Doe Aff. at 1, Ex. A to Mot. Quash Due to Lack of Personal Jurisdiction (document #113). The Court has the discretion to permit jurisdictional discovery. See, e.g., United States v. Swiss Am. Bank, Ltd., 274 F.3d [181] 610, 626 (1st Cir.2001). It is appropriate to do so in this case.

The only information the Court has before it is Jane Doe's affidavit — signed as Jane Doe — attesting that she is not a Massachusetts resident. On the facts of this case, that is an insufficient basis to disallow jurisdictional discovery. Even taking all of the facts in her affidavit as true, it is possible that the Court properly has personal jurisdiction. The Massachusetts long-arm statute permits jurisdiction to the extent allowed by constitutional limits. Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 52 (1st Cir.2002) (quoting 'Automatic' Sprinkler Corp. of Am. v. Seneca Foods Corp., 361 Mass. 441, 280 N.E.2d 423 (1972)). It is a broad license. For example, Jane Doe might well be subject to jurisdiction if she infringed the plaintiffs' copyrights on a trip into Massachusetts. See Mass. Gen. Laws ch. 223A, § 3(c)-(d). It would be premature to adjudicate personal jurisdiction on this record.

The Motion to Quash Due to Lack of Personal Jurisdiction (document #113) is DENIED without prejudice.

VI. CONCLUSION

For the foregoing reasons, the Motions to Quash (document ##103 and 115) are GRANTED. The plaintiffs' Motion for Expedited Discovery may be renewed subject to the requirements on the subpoena set forth above in Section IV.D. Boston University is ORDERED not to destroy the information sought by plaintiffs unless the subpoena is not renewed by April 16, 2008. Furthermore, the Motion to Quash Due to Lack of Personal Jurisdiction (document #113) is DENIED without prejudice.

SO ORDERED.

APPENDIX A

COURT — DIRECTED NOTICE REGARDING ISSUANCE OF SUBPOENA

A subpoena has been issued directing Boston University, your Internet Service Provider ("ISP"), to disclose your name. The subpoena has been issued because you have been sued in the United States District Court for the District of Massachusetts in Boston, Massachusetts, as a "John Doe" by several major record companies. You have been sued for infringing copyrights on the Internet by uploading and/or downloading music. The record companies have identified you only as a "John Doe" and have served a subpoena on your ISP to learn your identity. This notice is intended to inform you of some of your rights and options.

YOUR NAME HAS NOT YET BEEN DISCLOSED. YOUR NAME WILL BE DISCLOSED IN 14 DAYS IF YOU DO NOT CHALLENGE THE SUBPOENA.

Your name has not yet been disclosed. The record companies have given the Court enough information about your alleged infringement to obtain a subpoena to identify you, but the Court has not yet decided whether you are liable for infringement. You can challenge the subpoena in Court. You have 14 days from the date that you receive this notice to file a motion to quash or vacate the subpoena. If you file a motion to quash the subpoena, your identity will not be disclosed until the motion is resolved (and the companies cannot proceed against you until you are identified). The second page of this notice can assist you in locating an attorney, and lists other resources to help you determine how to respond to the subpoena. If you do not file a motion to quash, at the end of the 14 day period, your ISP will send the record [182] company plaintiffs your identification information.

OTHER ISSUES REGARDING THE LAWSUIT AGAINST YOU

To maintain a lawsuit against you in the District Court of Massachusetts, the record companies must establish jurisdiction over you in Massachusetts. If you do not live or work in Massachusetts, or visit the state regularly, you may be able to challenge the Massachusetts court's jurisdiction over you. If your challenge is successful, the case in Massachusetts will be dismissed, but the record companies may be able to file against you in another state where there is jurisdiction.

The record companies may be willing to discuss the possible settlement of their claims against you. The parties may be able to reach a settlement agreement without your name appearing on the public record. You may be asked to disclose your identity to the record companies if you seek to pursue settlement. If a settlement is reached, the case against you will be dismissed. It is possible that defendants who seek to settle at the beginning of a case will be offered more favorable settlement terms by the record companies. You may contact the record companies' representatives by phone at (206) 973-4145, by fax at (206) 242-0905, or by email at infosettlementsupportcenter.com.

You may also wish to find your own lawyer (see resource list below) to help you evaluate whether it is in your interest to try to reach a settlement or to defend against the lawsuit.

RESOURCE LIST

The organizations listed below provide guidance on how to find an attorney. If you live in or near Massachusetts or Boston, the second and third listings below provide referrals for local attorneys.

American Bar Association

http://www.abanet/org/legalservices/ findlegalhelp/home.htm

Massachusetts Bar Association

http://www.massbar.org

Lawyer referral service — (617) 338-0610

Boston Bar Association

http://www.bostonbar.org

Lawyer referral service — (617) 742-0625

The organizations listed below have appeared before other courts around the country in similar lawsuits as "friends of the court" to attempt to protect what they believe to be the due process and First Amendment rights of Doe defendants.

Electronic Frontier Foundation

454 Shotwell Street

San Francisco, California 94110-1914

email: RIAAcases@eff.org

Public Citizen

1600 20th Street, NW

Washington, DC 20009

phone: (202)588-7721

email: litigation@citizen.org

[1] The defendants in this case have not yet been named; the Court simply refers to them as "the defendants." Those who contest the subpoena are "the movants."

[2] Specifically, the Court requires that the plaintiffs attach a "Court-Directed Notice Regarding Issuance of Subpoena," which the ISPs distribute to the individuals in question. The Notice informs the putative defendants that they have the opportunity to move to quash the subpoena, as these defendants have done. See Appendix A (Court-Directed Notice).

[3] Document #115 is styled "Reply Memorandum of Law of Defendant`Doe,' "but the Court has no other related documents. The Court takes the filing as a pro se Motion to Quash, and for clarity's sake, refers to it as such.

[4] This is a small oversimplification. Many popular peer-to-peer networks use a "supernode" architecture. A supernode is a semicentralized computer that operates only to relay search queries and responses within the peer-to-peer network. Once the desired file is located, however, it may be transferred directly from one computer to another. See, e.g., Peter S. Menell & David Nimmer, Legal Realism in Action: Indirect Copyright Liability's Continuing Tort Framework and Sony's De Facto Demise, 55 UCLA L.Rev. 143, 183-84 (2007).

The history of peer-to-peer networks has been one of increasing decentralization, and thus, increasing anonymity. See id. at 179-85 (tracing history of peer-to-peer network technologies through lawsuits asserting contributory copyright liability). Some newer peer-topeer technologies even dispense with supernodes. See, e.g., Grokster, 545 U.S. at 922, 125 S.Ct. 2764; Matthew Helton, Secondary Liability for Copyright Infringement: BitTorrent as a Vehicle for Establishing a New Copyright Definition for Staple Articles of Commerce, 40 Colum. J.L. & Soc. Probs. 1, 20-21 (2006) (discussing new version of software that permits direct peer-to-peer connection without the need for a proxy computer).

[5] At the hearing, the defendants protested that it is impossible to determine whether a sound recording is "illegal" merely by listening to it. See Bestavros Decl. at 2-3 (document #110). True enough. Indeed, one of the key features of digital copyright infringement is that an nth-generation copy is more or less identical to a non-infringing first-generation copy, so there is no drop in sound quality over time. But listening to the files is still important. The defendants must ascertain that what is labeled as a sound recording to which they hold the copyright actually is such a recording (and not, say, a misnamed file or fair use that would not infringe the copyright.)

[6] According to the amicus brief of the Electronic Frontier Foundation, more than 20,000 individuals have been sued nationwide. Amicus Curiae Br. of the Electronic Frontier Foundation ("EFF Br.") at 5-9 (document #152).

[7] For these reasons, insofar as one of the movant Does requests severance, see Mot. Quash at 1-3 (document #115), the motion is DENIED without prejudice. The case against each Doe will be individually considered for purposes of any rulings on the merits, and the movant may renew the severance request before trial if the case proceeds to that stage.

[8] It is not clear which Does are the two movants. The Doe filing one Motion to Quash (document #115) identifies him or herself as Doe no. 21; the Doe filing the other Motion to Quash (document #103) called himself Doe no. 1. Doe no. 1 has been dismissed, however. See Notice of Dismissal (document #122) (dismissing Doe no. 1 from the civil action originally docketed with number 07-cv-10834); Notice of Dismissal (document #136) (same).

[9] The EFF's First Amendment arguments are taken on their merits, contrary to the plaintiffs' contention that no party has raised them. See Pls.' Resp. Opp. Amicus Curiae Br. at 2-3 (document #157). At least one of the motions to quash raises the same issues, albeit in less detail. See Mem. L. Supp. Mot. Quash at 7-8 (document #104).

[10] See Sony Music, 326 F.Supp.2d at 564 (finding file-sharers' activity "qualifies as speech, but only to a degree," because the "real purpose is to obtain music for free"); In re Verizon Internet Svcs., Inc., 257 F.Supp.2d 244, 260 (D.D.C.2003), rev'd on other grounds, Recording Indus. Ass'n of Am., Inc. v. Verizon Internet Svcs., Inc., 351 F.3d 1229 (D.C.Cir. 2003) (holding that file-sharers were entitled to some anonymity on First Amendment grounds, "even though the degree of protection is minimal where alleged copyright infringement is the expression at issue").

[11] Other forms of speech also receive such intermediate valuation. See Florida Bar v. Went For It, Inc., 515 U.S. 618, 623, 115 S.Ct. 2371, 132 L.Ed.2d 541 (noting that commercial speech is entitled to "a limited measure of protection, commensurate with its subordinate position in the scale of First Amendment values" (internal quotation omitted)). The Court need not, and does not, express a view as to the proper place of file-sharing in the speech hierarchy; it is enough for present purposes to determine that it has some First Amendment value.

[12] In doing so, the court subsumed the analysis a number of other leading cases, including, for example, Dendrite International, Inc. v. Doe, 342 N.J.Super. 134, 775 A.2d 756, 760, 772 (2001), a case relied upon by the EFF. See Sony Music, 326 F.Supp.2d at 563-64. Dendrite, like many other cases involving internet speech, is not directly applicable to these facts. In that case, the plaintiff asserted that the anonymous defendant had defamed it on an internet bulletin board — an act much more clearly in the wheelhouse of the First Amendment's protections. See 342 N.J.Super. at 140-41, 775 A.2d at 760. The court in that case therefore sensibly elected to apply a more stringent standard than the one appropriate here. See id., 342 N.J.Super. at 149 — 59, 775 A.2d at 765-72.

[13] A number of other courts have also found the Sony Music approach persuasive, some on substantially different facts. See Best Western Int'l, No. CV-06-1537-DGC, 2006 WL 2091695, at *3-*5 (D.Ariz. July 25, 2006) (posting to internet bulletin boards); Gen. Bd. of Global Ministries of the United Methodist Church v. Cablevision Lightpath, Inc., No. C06-3669-ETB, 2006 WL 3479332, at *4-*5 (E.D.N.Y. Nov.30, 2006) (unauthorized access to email); Elektra Entm't Group v. Does 1-9, No. 04CV2289-RWS, 2004 WL 2095581, at *2-*5 (S.D.N.Y. Sept.8, 2004) (file-sharing and copyright infringement). But see Mobilisa, Inc. v. Doe, 217 Ariz. 103, 170 P.3d 712, 720 (Ariz.App.2007) (declining to apply Sony Music standard in case involving alleged unlawful access to plaintiffs' computer server by anonymous user, and applying a more stringent standard).

[14] The parties refer to "copies." The statute makes clear that where sound recordings are at issue, "phonorecords" is a more precise term. See 17 U.S.C. § 101. The two terms appear to be functionally interchangeable, however, differing only in the nature of the copyrighted work. See H.R. Rep. 94-1476 at 53 (1976), reprinted in 1976 U.S.C.C.A.N. at 5666 (noting that under the copyright statutes, "`copies' and `phonorecords' together will comprise all of the material objects in which copyrightable works are capable of being fixed").

[15] Strictly speaking, much of the parties' briefing on this issue is directed toward the scope of the distribution right under § 106(3), not the reproduction right under § 106(1). But both refer to "copies or phonorecords," so the arguments implicate both rights, though to different degrees.

[16] The plaintiffs have also alleged a violation of their reproduction rights under § 106(1). Under that statute, a copyright owner's rights are infringed whenever an unauthorized person "reproduce[s] the copyrighted work in copies or phonorecords." The plaintiffs have alleged that the defendants downloaded music, as well as distributed it, and that they did not have authorization to do so. See Compl. at 5 (docket no. 07-cv-10834, document #1). At least subject to arguments over the definition of "phonorecords," discussed below, the plaintiffs thus appear to have alleged a legally sufficient harm under § 106(1). It is still appropriate to address briefly the distribution right under § 106(3), however; it was the focus of the parties' briefing and arguably constitutes the crux of the alleged infringement in this case. The Court's analysis may also inform later arguments, such as summary judgment or request for further data from the ISP not authorized by the current scope of the subpoena.

[17] See Mem. Supp. Mot. Quash at 4-6 (document #149); EFF Br. at 12 n. 8 (document #152). The Court need not reach this issue now.

[18] The plaintiffs also cite A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir.2001). In A & M v. Napster, the Ninth Circuit considered a suit against a provider of peer-to-peer services. The court stated that "Napster users who upload file names to the search index for others to copy violate plaintiffs' distribution rights." Id. at 1014. As the EFF argues, the Ninth Circuit's reasoning is not persuasive here. First, as the district court noted in that case, "it is pretty much acknowledged" that infringement had occurred. Id. (internal quotation marks omitted). Second, because the plaintiffs were suing the peer-topeer network provider rather than any particular user, they did not need to show that any particular copyright was infringed. It was enough to show that approximately 70% of the available material infringed the plaintiffs' copyrights. See id. at 1013. Finally, the court's very statement may betray a slight misunderstanding about the way the technology worked — it was not the "file names" that were copied, as the court's statement seems to imply, but the actual files themselves. Indeed, merely "upload[ing] file names" does not even constitute making the files themselves available. But see Motown Record Co., LP v. DePietro, No. 04-CV-2246, 2007 WL 576284, at *3 & n. 38 (E.D.Pa. Feb. 16, 2007) (finding A & M v. Napster persuasive on facts similar to those in the case at bar).

[19] Indeed, this case is closer to the facts of Hotaling than were the facts in the Napster litigation. In In re Napster, the court considered an "indexing" system in which central computer servers kept a record of which peerto-peer users had which files, somewhat analogous to the supernodes used by the peer-topeer system at issue here. See supra note 4. In rejecting the plaintiffs' theory, the court noted that the index was only an index-not the actual file containing the sound recording. See In re Napster, 377 F.Supp.2d at 803. In this case, the individual peer-to-peer users are alleged to have had the electronic files on their hard disks, not merely a reference. See also Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1162-63 (9th Cir.2007) (distinguishing Google's process of indexing images and providing thumbnails to users on similar grounds).

[20] The First Circuit's decisions in Venegas-Hernandez, 424 F.3d at 57-59, and Latin American Music Co., 499 F.3d at 46, appear to support this distinction.

[21] Before the Copyright Act was passed in 1976, "publication" determined the date on which statutory protection of the copyright began. See 17 U.S.C. § 24 (1970), repealed by Copyrights Act of 1976, ch. 3, § 302, 90 Stat. 2541. It occurred when "`the original or tangible copies of a work [were] ... made available to the general public'" Bartok v. Boosey & Hawkes, Inc., 523 F.2d 941, 945 (2d Cir.1975) (quoting Melville B. Nimmer, Nimmer on Copyright § 49 at 194-95 (1974)). It did not include the mere public performance of a work. See Ferris v. Frohman, 223 U.S. 424, 435-36, 32 S.Ct. 263, 56 L.Ed. 492 (1912).

[22] The term "material object" also distinguishes a tangible copy of a work from its performance. Compare 17 U.S.C. § 101 (defining "copies"), with id. (defining "perform"). Clearly, different copyrights are implicated by the ownership of a phonorecord and by a public performance of the sound recording physically embodied in that phonorecord. Compare 17 U.S.C. § 106(1), with id. § 106(3), and with id. §§ 106(4), 106(6). While this seems an elementary distinction, it is important to the scope of the distribution right, discussed more extensively below.

[23] This point of view is supported by Congress' abrogation of one judicial doctrine concerning the nature of a "copy." In White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1, 28 S.Ct. 319, 52 L.Ed. 655 (1908), the Supreme Court rejected the argument that the copyright for a piece of music applied to the perforated sheets used to instruct a player piano, holding that it was limited to sheet music from which a person could read and reproduce the music. Because the perforated sheets were not intelligible to a person, the Court held, they were not "copies." Id. at 17, 28 S.Ct. 319. Congress rightly rejected this "artificial and largely unjustifiable distinction[]," House Report at 52, reprinted in 1976 U.S.C.C.A.N. at 5665, by expanding the definition of "fixed" to include methods that required machines. Concurrently, Congress sought to broaden the definition of the medium in which copyrighted material could be fixed. See id. at 52-53, reprinted in 1976 U.S.C.C.A.N. at 5665-66. A "material object" is thus largely, if not entirely, a vehicle for the fixation requirement.

[24] Suppose someone has a copy of a copyrighted poem on a single sheet of paper. He announces, "I'm going to be at the copy machine with the poem pressing the`Copy' button, but I'm not going to touch the new copies that come out in the tray." If another person takes one of the new copies, no hand-to-hand transfer of a tangible object has occurred, and the person who presses the copy button has not been divested of ownership in his original.

[25] The House Report does not specifically address the distribution right as a protection of the copyright owner's right to control the market, but it is an inescapable inference from the nature of the right. See, e.g., Harper & Row, 471 U.S. at 558, 105 S.Ct. 2218 ("By establishing a marketable right to the use of one's expression, copyright supplies the economic incentive to create and disseminate ideas."); cf. House Report at 62-63, reprinted in 1976 U.S.C.C.A.N. at 5676 (noting that too broad an exception to performance rights for non-profit users could allow free displays and performances to "supplant markets for printed copies"); id. at 80, reprinted in 1976 U.S.C.C.A.N. at 5694 (expressing concern that illegitimate fair use could affect the copyright owner's market for distribution of copies). The Court does not express a view as to the extent to which peer-to-peer file sharing actually does cause economic damage to copyright owners.

[26] It is perhaps in recognition of this fact of internet-era life — and in recognition of the fact that copyrighted material can be "distributed" electronically — that Congress has made available compulsory licenses "to distribute [phonorecords] to the public for private use, including by means of a digital phonorecord delivery." 17 U.S.C. § 115.

[27] The reading is not a stretch. The dictionary definition of "to distribute" includes, inter alia, "to disperse through a space ...; spread; scatter[;] to promote, sell, and ship or deliver ... to individual customers ... [;] to pass out or deliver ... to intended recipients." Random House Unabridged Dictionary 572 (2d ed.1993). An electronic file transfer fits comfortably within each.

[28] It is irrelevant that such an action may also infringe the reproduction right secured to the copyright holder under 17 U.S.C. § 106(1). A single action can infringe more than one right held under § 106.

[29] The EFF's reliance on Age v. Paramount Communications, 59 F.3d 317, 325 (2d Cir. 1995), is misplaced. The plaintiff in Agee claimed the violation of several different rights after Paramount used his music as a soundtrack to a video without authorization; most relevantly, the plaintiff claimed violation of the distribution right protected by § 106(3). The video traveled from Paramount to local affiliate television stations, and from there to the public. The court concluded that the broadcast, as it traveled from the affiliate stations to the public, was a public performance, not the distribution of a copy. The affiliates were only the intermediaries through which Paramount's right to perform was exercised. See Agee, 59 F.3d at 325; see also 17 U.S.C. § 112(e)(1) (permitting retention of "ephemeral recordings" for retransmission). A key fact was that the transmission was designed to be transitory. Electronic files, such as those transferred here, are not.

The Court recognizes that electronic copies can be of varying permanence, see MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 518-19 (9th Cir. 1993) (discussing whether loading copyrighted software into temporary random access memory constitutes a "copy" under the Copyright Act), and it is not clear that all of them should be treated equally under the copyright statutes. But this is a clear case, at one end of the spectrum. The files at issue here were downloaded precisely to be copies, indefinitely replayable and transferable. The Court has no need to consider modes of electronic transmission beyond transfers over peer-to-peer networks.

[30] Counsel for one movant also represents that none of the movant's music files were unlicensed. See Suppl. Mem. Supp. Mot. Quash at 9-10 (document #149). While that may be the case, it is not clear why it is relevant to allegations of unlicensed distribution under 17 U.S.C. § 106(3). And insofar as it is relevant to allegations of unlicensed copying under 17 U.S.C. § 106(1), it is a matter better left for after discovery, when counsel's representation can be supported by evidence.

The same movant further contends that the Linares affidavit, which forms the basis of some of the plaintiffs' prima facie case, should be stricken. The movant claims that MediaSentry, the private investigator who downloaded the files from the Does and recorded their IP addresses, see Linares Decl. at 4-6, Ex. A to PL Mot. Leave to Take Immediate Discovery (docket no. 07-cv 10834, document #5), does not have the license to undertake private investigations required by Massachusetts General Laws ch. 147, §§ 23-25. The Court has no evidence properly before it as to whether or not MediaSentry has a license, how MediaSentry gathers its information, or whether that information is publicly available. It therefore declines to reach the issue on this record; the movant may refile a motion to strike.

[31] From the Linares Declaration, it is easily inferred how this information is gained. MediaSentry, on finding an alleged infringer, requests through the peer-to-peer software a list of all the files available to be shared on the sending computer. It then culls through the resulting list of files to isolate (and count) the plaintiffs' copyrighted sound recordings. See Linares Decl. at 5-6, Ex. A to PI. Mot. Leave to Take Immediate Discovery (docket no. 07-cv-10834, document #5).

[32] This general inference of infringement is not inconsistent with the "concrete" criterion discussed below. It bears re-emphasis that this is a preliminary stage of the litigation; the plaintiffs need only show that some infringement was likely and that they have specifically identified at least some of the copyrighted material at issue. This protects the defendants from a fishing expedition in which plaintiffs only wish to investigate specific behavior — for example, the large use of bandwidth by a single user continuously over a long period of time or the mere use of a peerto-peer network.

[33] At least, absent MediaSentry's downloads — again, the Court does not decide whether those downloads can constitute direct evidence of actual infringements.

[34] The Media Access Control ("MAC") number is a unique identifier embedded in most network adaptors — the physical piece of hardware that permits a user to connect to a network, and thus to the internet. The MAC address is used by the ISP in routing information through the network and is specific to the user's computer; it is therefore uniquely relevant in allowing a fact-finder to determine whether the defendant was, in fact, infringing the plaintiff's copyright. Although sophisticated users can use software to make MAC addresses appear otherwise than they actually are — a process called "spoofing" — the addresses are still highly probative evidence in this litigation. See, e.g., Daniel Kamitaki, Note, Beyond E-Mail: Threats to Network Security and Privileged Information for the Modem Law Firm, 15 S. Cal. Interdisc. L.J. 307, 312 & nn. 30-34 (2006) (discussing MAC addresses generally); United States v. Carter, No. 07-CR-00184-RLH, 2008 WL 623600, at *12 (D.Nev. Mar.6, 2008) (noting possibility of spoofing).

[35] Insofar as the defendants wish to assert a more substantial First Amendment value — fair use, for example — that is a matter better left for later in the litigation.

[36] The Court may take judicial notice of related proceedings. See, e.g., Anderson v. Rochester-Genesee Reg'l Transp. Auth., 337 F.3d 201, 205 n. 4 (2d Cir.2003).

[37] That is, a precise copy of the hard drive, exactly as it is in the defendant's computer. This allows the plaintiffs not only to see what is obviously present on the user's computer, but also deleted or concealed files. "`Deleting a file does not actually erase that data from the computer's storage devices. Rather, it simply finds the data's entry in the disk directory and changes it to a`not used' status — thus permitting the computer to write over the`deleted' data. Until the computer writes over the`deleted' data, however, it may be recovered by searching the disk itself rather than the disk's directory. Accordingly, many files are recoverable long after they have been deleted' — even if neither the computer user nor the computer itself is aware of their existence." Shira A. Scheindlin & Jeffrey Rabkin, Electronic Discovery in Federal Civil Litigation: Is Rule 34 Up to the Task?, 41 B.C. L.Rev. 327, 337 (2000) (footnotes omitted).

[38] Of course, even an infringer's non-infringing information is entitled to some protection. But the situation is more serious where the defendant asked to permit an image of her computer may not be an infringer at all.

704 F.2d 1009 (1983)

No. 82-1607.

Argued November 29, 1982.
Decided April 11, 1983.

[1010] Richard G. Kinney, Chicago, Ill., for defendant-appellant.

Eric C. Cohen, Fitch, Even, Tabin, Flannery & Welsh, Chicago, Ill., for plaintiff-appellee.

Before CUMMINGS, Chief Judge, POSNER, Circuit Judge, and SWYGERT, Senior Circuit Judge.

CUMMINGS, Chief Judge.

This appeal involves questions regarding the scope of protection video games enjoy under the 1976 Copyright Act, 90 Stat. 2541, 17 U.S.C. § 101 et seq.

Plaintiff manufactures video game machines. Inside these machines are printed circuit boards capable of causing images to appear on a television picture screen and sounds to emanate from a speaker when an electric current is passed through them. On the outside of each machine are a picture screen, sound speaker, and a lever or button that allows a person using the machine to alter the images appearing on the machine's picture screen and the sounds emanating from its speaker. Each machine can produce a large number of related images and sounds. These sounds and images are stored on the machine's circuit boards—how the circuits are arranged and connected determines the set of sounds and images the machine is capable of making. When a person touches the control lever or button on the outside of the machine he sends a signal to the circuit boards inside the machine which causes them to retrieve and display one of the sounds and images stored in them. Playing a video game involves manipulating the controls on the machine so that some of the images stored in the machine's circuitry appear on its picture screen and some of its sounds emanate from its speaker.

Defendant sells printed circuit boards for use inside video game machines. One of the circuit boards defendant sells speeds up the rate of play—how fast the sounds and images change—of "Galaxian," one of plaintiff's video games, when inserted in place of one of the "Galaxian" machine's circuit boards. Another of defendant's circuit boards stores a set of images and sounds almost identical to that stored in the [1011] circuit boards of plaintiff's "Pac-Man" video game machine^[1] so that the video game people play on machines containing defendant's circuit board looks and sounds virtually the same as plaintiff's "Pac-Man" game.

Plaintiff sued defendant alleging that defendant's sale of these two circuit boards infringes its copyrights in its "Galaxian" and "Pac-Man" video games. In a memorandum opinion and order reported at 547 F.Supp. 999 (N.D.Ill.1982), the district court granted plaintiff's motion for a preliminary injunction and denied defendant's motion for summary judgment. The district court's order enjoins defendant from manufacturing or distributing circuit boards that can be used to play video games substantially similar to those protected by plaintiff's copyrights. Defendant appeals from that order on the ground that plaintiff has not shown a likelihood of succeeding on the merits of its claim of copyright infringement. We affirm for the reasons that follow.

Plaintiff claims that its "Pac-Man" and "Galaxian" video games are "audiovisual works" protected under the 1976 Copyright Act. Section 101 of that Act defines audiovisual works as

works that consist of a series of related images which are intrinsically intended to be shown by the use of machines or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any, regardless of the nature of the material objects, such as films or tapes, in which the works are embodied. 17 U.S.C. § 101.

It is not immediately obvious that video games fall within this definition. The phrase "series of related images" might be construed to refer only to a set of images displayed in a fixed sequence. Construed that way, video games do not qualify as audiovisual works. Each time a video game is played, a different sequence of images appears on the screen of the video game machine—assuming the game is not played exactly the same way each time. But the phrase might also be construed more broadly to refer to any set of images displayed as some kind of unit. That is how we construed it in WGN Continental Broadcasting Co. v. United Video, Inc., 693 F.2d 622 (7th Cir.1982), where we held that a news program and a thematically related textual display ("teletext") transmitted on the same television signal but broadcast on different television channels constituted a single audiovisual work. We see no reason to construe it more narrowly here. As we noted there, the legislative history of the Copyright Act of 1976 suggests that "Congress probably wanted the courts to interpret the definitional provisions of the new act flexibly, so that it would cover new technologies as they appeared, rather than to interpret those provisions narrowly and so force Congress periodically to update the act." 693 F.2d at 627.

There is a second difficulty that must be overcome if video games are to be classified as audiovisual works. Strictly speaking, the particular sequence of images that appears on the screen of a video game machine when the game is played is not the same work as the set of images stored in the machine's circuit boards. The person playing the game can vary the order in which the stored images appear on the screen by moving the machine's control lever. That makes playing a video game a little like arranging words in a dictionary into sentences or paints on a palette into a painting. The question is whether the creative effort in playing a video game is enough like writing or painting to make each performance of a video game the work of the player and not the game's inventor.

We think it is not. Television viewers may vary the order of images transmitted on the same signal but broadcast on different channels by pressing a button that changes the channel on their television. In the WGN case, we held that the creative effort required to do that did not make the sequence of images appearing on a viewer's [1012] television screen the work of the viewer and not of the television station that transmitted the images. Playing a video game is more like changing channels on a television than it is like writing a novel or painting a picture. The player of a video game does not have control over the sequence of images that appears on the video game screen. He cannot create any sequence he wants out of the images stored on the game's circuit boards. The most he can do is choose one of the limited number of sequences the game allows him to choose. He is unlike a writer or a painter because the video game in effect writes the sentences and paints the painting for him; he merely chooses one of the sentences stored in its memory, one of the paintings stored in its collection.

Defendant suggests another reason why plaintiff's video games are not copyrightable—because the printed circuit boards in which the games are fixed are patentable. We reject this argument for the same reason District Judge Decker rejected it. See 547 F.Supp. at 1008-1009. Plaintiff claims copyrights in audiovisual works—the distinctive set of images and sounds stored in its circuit boards. It does not claim copyrights in the design of those circuit boards, so it matters not that those designs may be patentable. Recording images and sounds in circuit boards does not destroy their copyrightability any more than does recording them on rolls of celluloid film. Defendant cites Apple Computer, Inc. v. Franklin Computer Corp., 545 F.Supp. 812 (E.D.Pa.1982), and The Magnavox Co. v. Mattell, Inc., 216 U.S.P.Q. 28 (N.D.Ill.1982) in support of its argument, but those cases are easily distinguished. Both dealt with copyrights in computer programs, not with copyrights in audiovisual works fixed in computer programs. We thus conclude that video games are copyrightable as audiovisual works under the 1976 Copyright Act and we note that every other federal court (including our own) that has confronted this issue has reached the same conclusion. Williams Electronics, Inc. v. Artic International, Inc., 685 F.2d 870 (3rd Cir.1982); Atari, Inc. v. North American Philips Consumer Electronics Corp., 672 F.2d 607, 617 (7th Cir.1982); Stern Electronics, Inc. v. Kaufman, 669 F.2d 852 (2nd Cir.1982); Midway Manufacturing Co. v. Dirkschneider, 543 F.Supp. 466 (D.Neb. 1981). Cf. WGN Continental Broadcasting Co. v. United Video, Inc., 693 F.2d 622, 625-626 (7th Cir.1982).

Defendant next argues that plaintiff's copyrights are invalid because the 1976 Copyright Act does not apply to plaintiff's video games. Section 117 of the 1976 Copyright Act was amended in 1980 to define the exclusive rights of owners of copyrights in computer programs. As originally enacted, Section 117 provided that the 1909 Copyright Act and common law were to govern the rights of a copyright owner "with respect to the use of the [copyrighted] work in conjunction with" computers. Defendant argues that the 1980 amendment does not apply to copyrights, like those of plaintiff, in existence before the amendment took effect and that the original Section 117 requires that we look to the 1909 Act and common law to determine whether the circuit boards defendant manufactures are copies of plaintiff's audiovisual works.

We disagree. Even if the 1980 amendment applies only to copyrights issued after its effective date—an issue we do not decide—the district court properly applied the 1976 Act. The language and legislative history of the 1980 amendment are convincing that original Section 117 was intended only to leave unaltered the existing law governing the exclusive rights of owners of copyrights in computer programs. See H.Rep. No. 96-1307, 96th Cong., 2nd Sess. 27 (1980) (Part I) (Judiciary Committee), reprinted in 1980 U.S.Code Cong. & Ad.News 6460, 6486; id. at 19 (Part II) (Committee on Government Operations), reprinted in 1980 U.S.Code Cong. & Ad.News 6509; Tandy Corp. v. Personal Micro Computers, Inc., 524 F.Supp. 171, 174-175 (N.D. Cal.1981). It was not intended to permit pirating of audiovisual works stored in computers.

[1013] Defendant also argues that even if plaintiff's video games are copyrightable, plaintiff's asserted copyrights are invalid because the works they protect were originally published without the notice of copyright required by Section 401 of the 1976 Act. Plaintiff purchased the copyrights it asserts in this suit in 1979 and early 1980 from a Japanese company that invented the video game machines plaintiff now markets. Defendant claims that the Japanese company published in Japan without notice of copyright the audiovisual works stored in these machines before it assigned its copyrights to plaintiff. Even if that is so, however, the copyrights plaintiff purchased from the Japanese company are valid. Plaintiff registered its works in the United States in May and November 1980 (Supp. App. 102, 110)—within five years of the date they were originally published in Japan. Section 405(a)(2) affords a copyright owner five years within which to remedy the omission of a copyright notice from published copies of a work. Defendant does not allege that plaintiff has omitted to put a notice of copyright on any of the machines plaintiff has distributed in the United States or that its alleged infringement of plaintiff's copyrights was in reliance upon the omission of such notice from those copies originally published in Japan.

The final argument of defendant's that we address is that selling plaintiff's licensees circuit boards that speed up the rate of play of plaintiff's video games is not an infringement of plaintiff's copyrights. Speeding up the rate of play of a video game is a little like playing at 45 or 78 revolutions per minute ("RPM's") a phonograph record recorded at 33 RPM's. If a discotheque licensee did that, it would probably not be an infringement of the record company's copyright in the record. One might argue by analogy that it is not a copyright infringement for video game licensees to speed up the rate of play of video games, and that it is not a contributory infringement for the defendant to sell licensees circuit boards that enable them to do that.

There is this critical difference between playing records at a faster than recorded speed and playing video games at a faster than manufactured rate: there is an enormous demand for speeded-up video games but there is little if any demand for speeded-up records. Not many people want to hear 33 RPM records played at 45 and 78 RPM's so that record licensors would not care if their licensees play them at that speed. But there is a big demand for speeded-up video games. Speeding up a video game's action makes the game more challenging and exciting and increases the licensee's revenue per game. Speeded-up games end sooner than normal games and consequently if players are willing to pay an additional price-per-minute in exchange for the challenge and excitement of a faster game, licensees will take in greater total revenues. Video game copyright owners would undoubtedly like to lay their hands on some of that extra revenue and therefore it cannot be assumed that licensees are implicitly authorized to use speeded-up circuit boards in the machines plaintiff supplies.

Among a copyright owner's exclusive rights is the right "to prepare derivative works based upon the copyrighted work." 17 U.S.C. § 106(2). If, as we hold, the speeded-up "Galaxian" game that a licensee creates with a circuit board supplied by the defendant is a derivative work based upon "Galaxian," a licensee who lacks the plaintiff's authorization to create a derivative work is a direct infringer and the defendant is a contributory infringer through its sale of the speeded-up circuit board. See, e.g., Gershwin Publishing Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir.1971); Universal City Studios, Inc. v. Sony Corp. of America, 659 F.2d 963, 975 (9th Cir.1981), certiorari granted, 457 U.S. 1116, 102 S.Ct. 2926, 73 L.Ed.2d 1326 (1982).

Section 101 of the 1976 Copyright Act defines a derivative work as "a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture [1014] version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted." It is not obvious from this language whether a speeded-up video game is a derivative work. A speeded-up phonograph record probably is not. Cf. Shapiro, Bernstein & Co. v. Jerry Vogel Music Co., 73 F.Supp. 165, 167 (S.D.N.Y. 1947) ("The change in time of the added chorus, and the slight variation in the base of the accompaniment, there being no change in the tune or lyrics, would not be `new work'"); 1 Nimmer on Copyright § 3.03 (1982). But that is because the additional value to the copyright owner of having the right to market separately the speeded-up version of the recorded performance is too trivial to warrant legal protection for that right. A speeded-up video game is a substantially different product from the original game. As noted, it is more exciting to play and it requires some creative effort to produce. For that reason, the owner of the copyright on the game should be entitled to monopolize it on the same theory that he is entitled to monopolize the derivative works specifically listed in Section 101. The current rage for video games was not anticipated in 1976, and like any new technology the video game does not fit with complete ease the definition of derivative work in Section 101 of the 1976 Act. But the amount by which the language of Section 101 must be stretched to accommodate speeded-up video games is, we believe, within the limits within which Congress wanted the new Act to operate. Cf. WGN Continental Broadcasting Co., supra, 693 F.2d at 627; Williams Electronics, Inc., supra, 685 F.2d at 873-874; Atari, supra, 672 F.2d at 614-620.

Defendant raises other arguments on appeal, all of which we reject for the reasons set forth in District Judge Decker's exhaustive opinion. See 547 F.Supp. at 1005-1012.

AFFIRMED.

[1] We described the "Pac-Man" video game in some detail in Atari, Inc. v. North American Philips Consumer Electronics Corp., 672 F.2d 607, 610, 611 (7th Cir.1982).

309 F.Supp.2d 467 (2003)

No. 02 Civ. 8043(DAB).

December 22, 2003.

[468] [469] [470] [471] Marshall R. King, Terence P. Ross, Gibson, Dunn & Crutcher, L.L.P., New York, NY, for the Plaintiff.

Arnold Paul Lutzker, Carl Herman Settlemyer, Maureen Cohen Harrington, Lutzker & Lutzker, L.L.P., Washington, DC, Celia Goldwag Barenholtz, John A. Morris, Kronish, Lieb, Weiner & Hellman L.L.P., New York, NY, for Defendant WhenU.com.

James D. Jacobs, Wilson, Elser, Moskowitz, Edelman & Dicker LLP, White Plains, NY, for Defendant Vision Direct, Inc.

Opinion

BATTS, District Judge.

Before the Court is a Motion for a Preliminary Injunction by Plaintiff 1-800 Contacts ("1-800 Contacts" or "Plaintiff") to enjoin Defendants from delivering to computer users competitive "pop-up" Internet advertisements, in violation of federal and state copyright, trademark, and unfair competition laws. For the reasons set forth herein, Plaintiff's motion is GRANTED in part.

[472] I. BACKGROUND

A. Procedural Background

On October 9, 2002, Plaintiff filed this action with ten claims for relief.^[1] With its Complaint, Plaintiff also filed a Motion for Preliminary Injunction,^[2] to enjoin Defendants from: 1.) Placing, or causing any other entity to place, advertisements of any kind on any copy of Plaintiff's website, without the express consent of the Plaintiff; 2.) Altering or modifying, or causing any other entity to alter or modify, any copy of Plaintiff's website in any way, including its appearance or how it is displayed; 3.) Infringing, or causing any other entity to infringe, Plaintiff's copyright; 4.) Making any designations of origin, descriptions, representations or suggestions that Plaintiff is the source, sponsor or in any way affiliated with Defendant Vision Direct's website and services; 5.) Acting in any manner that causes Defendants' products, services, websites, or advertisements to be in any way associated with Plaintiff's products, services, or website, including, but not limited to, any means of marketing advertising, or agreements with third parties likely to induce the belief that Defendants or Defendants' websites, advertisements, products or services are in any way associated connected, or affiliated with, or licensed or authorized by Plaintiff; 6.) Infringing, or causing any other entity to infringe, Plaintiff's trademarks and/or service marks rights; 7.) Unfairly designating the origin of Defendant Vision Direct's website and services, or otherwise creating confusion regarding the origin of Defendant Vision Direct's website and services; 8.) Unfairly competing with Plaintiff in any manner; 9.) Acting, or causing another entity to act, in any manner likely to dilute, tarnish, or blur the distinctiveness of the 1-800 CONTACTS marks; 10.) Causing a likelihood of confusion or injuries to Plaintiff's business reputation; 11.) Interfering with Plaintiff's reasonable business expectations. (Plaintiff's Proposed Order, filed October 9, 2002.)

On October 22, 2002, the Court held a conference call with the parties, during which the parties agreed to cease the allegedly offending "pop-up" advertising conduct until a preliminary injunction hearing. The parties agreed to allow Defendants sufficient time to conduct a consumer survey to rebut Plaintiff's survey evidence and scheduled a Preliminary Injunction hearing for February 7, 2003.^[3]

[473] On January 7, 2003, the Court ordered, by memo-endorsement of a letter request from Defendant WhenU.com ("WhenU" or "WhenU.com"), an adjournment of the Preliminary Injunction Hearing in this case to March 18, 2003. (Memo-Endorsement of Def. Jan. 6, 2003.) On January 31, 2003, Defendant WhenU.com filed its Memorandum of Law in Opposition to Plaintiff's Motion for a Preliminary Injunction ("WhenU.com Jan. 31, 2003"),^[4] and Defendant Vision Direct filed its Memorandum in Opposition as well ("Vision Direct Jan. 31, 2003").^[5]

On February 28, 2003, Plaintiff filed its Memorandum of Law in Reply to Defendant WhenU.com's Opposition and its Memorandum of Law in Reply to Defendant Vision Direct's Opposition ("Pl. Feb. 28, 2003").

Evidentiary hearings and argument were heard on March 18, March 19, April 8, and April 10, 2003. The Court incorporates herein the record of the evidentiary hearings and argument. Relevant hearing testimony and arguments are set forth in more detail below.^[6]

B. Factual Background

The undisputed facts in this section, with the legal conclusions and facts found in the Discussion section, infra, constitute the Court's Findings of Fact and Conclusions of Law for purposes of Rule 52(a).

1. The Parties

Plaintiff 1-800 Contacts, Inc. ("1-800 Contacts") sells and markets replacement contact lenses and related products through its website, located at http://www.1800Contacts.com, and also through telephone and mail orders. (Declaration of Jason Mathison ("Mathison Dec.") ¶ 4; Plaintiff's October 9, 2002 Memorandum ("Pl. Oct. 9, 2002") at 3). Plaintiff has registered the "WE DELIVER, YOU SAVE" mark with the United States Patent and Trademark Office ("USPTO"), and has filed for registration of the mark "1-800 CONTACTS" and the 1-800 CONTACTS logo. (Complaint ("Compl.") Ex A-C; Pl. Oct. 9, 2002 at 4.) Plaintiff has expended considerable sums on marketing these marks; in 2001, 1-800 Contacts spent $27,118,000 on marketing. (Mathison Dec. ¶ 7; Pl. Oct. 9, 2002 at 4.) Since the founding of 1-800 Contacts in 1995, Plaintiff has continuously used its service marks to promote and identify its services in the United States and abroad. (Mathison Dec. ¶ 6) Plaintiff's sales have grown from $3,600,000 in 1995 to $169,000,000 in 2001. (Mathison Decl. ¶ 8; Pl. Oct. 9, 2002 at 3.)

Plaintiff is the sole owner of the 1-800Contacts.com website. (Mathison Dec. ¶ 5; Pl. Oct. 9, 2002 at 4.) Plaintiff registered its copyright to the 1-800Contacts.com website with the Copyright Office of the United States Library of Congress on October 2, 2000.^[7] (Compl., Exh. D.) Over 221,800 people visited Plaintiff's [474] website in the month of September, 2002.^[8] (Mathison Dec. ¶ 9; Pl. Oct. 9, 2002 at 4.)

Defendant Vision Direct, Inc. sells and markets replacement contact lenses and related products through its website, located at http://www.visiondirect.com. (Mummery Dec. ¶ 2; Vision Direct Jan. 31, 2002 at 2.) Vision Direct and 1-800 Contacts are competitors. Id. Defendant Vision Direct has registered and maintains a registration in the domain name^[9]www.www1800Contacts.com. (Barrier Aff. Ex. A.)

Defendant WhenU.com is a software company that has developed and distributes, among other products, the "SaveNow" program, a proprietary software application. (Tr. at 34; Naider Aff. ¶ 22.)

2. The Internet and the Windows Operating Environment

Since Plaintiff's claims arise from alleged anti-competitive and infringing action by Defendants through the Defendants' use of proprietary software that is distributed to computer users, a brief explanation of the Internet, the computer operating environment and associated terms and definitions is helpful. These facts are not in dispute.

The Internet is a global network of millions of interconnected computers. (Compl.¶ 20.) With a computer that is connected to the Internet, a computer user can access computer code and information that is stored on the Internet in repositories called "servers." (Tr. at 137-38.) Much of the information stored in servers on the Internet can be viewed by a computer user in the form of "webpages," which are collections of pictures and information, retrieved from the Internet, and assembled on the user's computer screen. (Compl.¶ 20.) "Websites" are collection of webpages that are organized and linked together to allow a computer user to move from webpage to webpage easily. (Id.) A single website may contain information or pictures that are stored on many different servers. (Tr. at 139-140.)

To gain access to the Internet, a computer user generally connects to the Internet using an internet service provider ("ISP").^[10] (Tr. at 136.) The ISP provides access to the Internet, which allows the user's computer to communicate with the Internet. (Tr. at 136.) Once a connection to the Internet has been established through an ISP, a user may "browse" or "surf" the Internet by using a software program called an Internet browser ("browser"). (Tr. at 136.) Microsoft Internet Explorer is one example of a browser program.^[11] (Tr. at 135.) Through the browser, a user retrieves information located on Internet servers.^[12] (Tr. at 138.)

To retrieve information from the Internet, a user may type the address^[13] of a [475] website into the web browser — the user's computer will then request information from the server or servers on which the website resides,^[14] and then will access the pertinent information on those servers. (Tr. at 137-38.)

Many computer users ("users") access the Internet with computers that use the Microsoft Windows operating system ("Windows"). Windows allows a user to work in numerous software applications simultaneously. (Naider Aff. at 4.) In Windows, the background screen is called the "desktop." When a software program is launched, a "window" appears on the desktop, within which the functions of that program are displayed and operate. (Naider Aff. at 4.) A user may open multiple windows simultaneously, allowing the user to launch and use more than one software application at the same time. Individual windows may be moved around the desktop, and because the computer screen is two-dimensional, one window may obscure another window, thus appearing to be "in front of" another window. (Naider Aff. at 4-5.)

A "search engine" is a website (or in some cases, a software program) that a computer user can use to find information on the Internet.^[15] Typically, a computer user will type in a word or words describing what is sought, and the search engine will identify websites and webpages that contain those words.^[16]

[476] 3. The SaveNow Program

The following description of the operation and function of the SaveNow software is not in dispute. The SaveNow program is computer software that only operates in the Microsoft Windows operating system. (Tr. at 27.) The SaveNow software, if installed, resides on individual computer users' computer desktops. (Tr. at 34; Naider Aff. ¶ 22.) When a computer user who has installed the SaveNow software (a "SaveNow user") browses the Internet, the SaveNow software scans activity conducted within the SaveNow user's Internet browser, (Naider Aff. ¶ 25), comparing URLs, website addresses, search terms and webpage content accessed by the SaveNow user with a proprietary directory,^[17] using algorithms contained in the software. (Tr. at 34, 55; Naider Aff. ¶ 23.)

Entering an URL into the browser can "trigger" the SaveNow software to deliver a "pop-up" advertisement.^[18] (Tr. at 172.) When a user types a search word or URL into the Internet browser, the SaveNow software looks to see what category of products or services the address belongs to. (Tr. at 144.) In general, if the SaveNow user's Internet usage "matches" information contained in the SaveNow directory, the SaveNow software will determine that an ad should be shown, will retrieve a pop-up advertisement from a server over the Internet, and will display that pop-up ad in a new window appearing on the user's computer screen. (Tr. at 34, 141, 145; Naider Aff. ¶ 26.) More pertinent to this case, when a user types in "1800contacts.com," the URL for Plaintiff's website, the SaveNow software recognizes that the user is interested in the eye-care category, and retrieves from an Internet server a pop-up advertisement from that category. (Tr. at 144-45.) Mr. Naider described the functioning of the proprietary directory contained in the SaveNow program:

[E]ssentially, the program contains a directory of the Internet, and ... has over 40,000 elements in this directory. Elements such as URL's, but many other elements, such as search terms, something we call key-word algorithms. So an example of a key-word algorithm would be, the software processes the content of the page and if I'm reading an article where the word "diabetes" appears four times and the word "type I" or "type II" in conjunction with that, that would be an example of a key-word algorithm. All of those elements, the URL's, the search terms, the key-word algorithms, are processed and compared against this directory of 40,000, and growing, elements. And then a decision is made that says, OK, this user is engaged in activity in a particular category — again, it may be hotel travel or air travel, in this case contact lenses or eye care — and the ad units themselves are basically associated with categories, such that if the software detects, by looking at these elements, activity in a category, it may display an ad that's relevant to that category.

(Tr. at 65.)

Usually there is a "few-second" delay between the moment a user accesses a [477] website, and the point at which a SaveNow pop-up advertisement appears on the user's screen. (Tr. at 146.)

If a SaveNow user who has accessed the 1-800 Contacts website and has received a WhenU.com pop-up advertisement does not want to view the advertisement or the advertiser's website, the user can click on the visible portion of the window containing the 1-800 Contacts website, and the 1-800 Contacts website will move to the front of the screen display, with the pop-up ad moving behind the website window. (Tr. at 63-64.) Or, if the user recognizes that a different website has appeared on the screen, the user can close the pop-up website by clicking on its "x," or close, button. If the user clicks on the pop-up ad, the main browser window (containing the 1-800 Contacts website) will be navigated to the website of the advertiser that was featured inside the pop-up advertisement. (Tr. at 63.)

The contents of the SaveNow proprietary directory are automatically updated. (Tr. at 142.) When a SaveNow user connects to the Internet, the SaveNow software receives information and updates itself without any prompting or conscious choice by the user. (Tr. at 142-43.) The SaveNow software does not store any information about the individual computer user, or track the user's usage of the computer. (Tr. at 28.) Once installed, the SaveNow software requires no action by the user to activate its operations; instead, the SaveNow software responds to a user's "in-the-moment" activities by generating pop-up advertisement windows that are related to the content of the websites a user has accessed. (Tr. at 27-28.)

Computer users typically install the SaveNow software as part of a "bundle"^[19] of other software applications that consumers download at no cost. (Tr. at 67, Naider Aff. ¶ 33). A user who installs a typical software "bundle" clicks through four screens,^[20] (Tr. at 68), and to proceed with installing the software "bundle," is required to approve a license agreement with WhenU, by clicking "I Agree" on the installation window.^[21] (Tr. at 68; Memo in Opposition at 10). There have been approximately 100 million downloads of the [478] SaveNow program. (Tr. at 166.) The SaveNow software can be uninstalled from a user's computer, and Mr. Naider testified that approximately 75 million people have uninstalled the program. (Tr. at 70-71.)

The SaveNow software generates at least three kinds of ads — an ad may be a small "pop-up" advertisement appearing in the bottom right-hand corner of a user's screen; it may be a "pop-under" advertisement that appears behind the webpage the user initially visited; or it may be a "panoramic" advertisement that stretches across the bottom of the user's computer screen. (Naider Aff. ¶ 41.)

Pop-up advertisement windows generated by the SaveNow software are "branded" — a green "$" mark and the text "SaveNow!" are affixed to the top of the pop-up window. On the upper right-hand corner of the SaveNow ad windows, next to the "X" symbol that typically closes windows, is a "?" symbol that, when clicked, opens a new window containing a notice explaining the SaveNow software and a link to a page with more detailed information for removing or "uninstalling" the software.^[22] (Tr. at 56-61; Naider Aff. ¶ 42.) As of the filing of this lawsuit, the pop-up advertisement windows contained text, at the bottom right of the pop-up window, stating: "A WhenU offer — click? for info."^[23]Id.

One of the elements contained in the SaveNow proprietary software directory is the URL, "1800Contacts.com," which is the Internet website address for Plaintiff 1-800 Contacts. (Tr. at 134.) Since at least the Summer of 2002, when computer users who had the SaveNow software installed on their computers ("SaveNow users") accessed Plaintiff's website, pop-up or pop-under advertisements for Defendant Vision Direct would appear on the user's screen. (Pl. Oct. 9, 2002 at 8; Mathison Decl. at ¶ 14).

WhenU.com's clients "buy categories" of goods or services, paying for delivery of their advertisements or coupons to SaveNow users' screens when the SaveNow users are working in relevant categories. (Tr. at 65-66, 152.) Under some of WhenU.com's contracts, advertisers pay WhenU.com to deliver pop-up advertisements to SaveNow users' screens; under other contracts, advertisers pay WhenU.com based on the number of people who click on the pop-up advertisements; still other advertisers pay WhenU.com based on the number of actual purchases made by SaveNow users from pop-up ads that have been delivered to their computers. (Tr. at 152.) Thus, WhenU.com has a fee relationship with the advertisers who pay it to deliver pop-up advertisements, and a free relationship with consumers who [479] install the SaveNow software on their computers, but no relationship with the companies on whose websites the pop-up advertisements appear.

C. Plaintiff's Theory of the Case

Plaintiff argues that it has been harmed by the creation of an "impermissible affiliation between Plaintiff and Defendant," since because of Defendants' pop-up advertising, users "are likely to have the impression that the pop-up advertisements operate in cooperation with, rather than in competition against, the Plaintiff." (Pl. Oct. 9, 2002 at 10-11). Plaintiff argues the "pop-up advertisements also interfere with and disrupt the carefully designed display of content" on Plaintiff's copyrighted website. (Id.) Plaintiff argues further that the pop-up advertising enables Defendants to "profit illegally from unauthorized pop-up advertisements delivered to Plaintiff's website," (Id. at 11), and that through the pop-up advertisements, "Defendants are free-riding on the name, reputation, and goodwill that Plaintiff has worked so hard to attain." (Id.) Plaintiff argues that, by causing pop-up advertisements to appear on the copyrighted 1-800 Contacts website, Defendants have altered the copyrighted website, and in so doing, have infringed Plaintiff's exclusive rights to display its copyrighted works and to prepare derivative works. (Tr. at 359.) Plaintiff also argues that Defendants' pop-up advertising has created a likelihood of confusion between Defendant Vision Direct and Plaintiff, and that since Plaintiff has a valid trademark, Defendants have infringed Plaintiff's trademark. (Tr. at 369-70.)

Plaintiff's expert, William D. Neal, conducted a consumer survey to determine whether Defendants' pop-up advertising scheme was likely to cause confusion as to the source of the pop-up advertisements. (Tr. at 209, 243; Neal Dec. ¶ 3.) Specifically, Mr. Neal's overall research goal was to "[d]etermine whether online shoppers who wear or expect to wear contact lenses in the future, and who have the SaveNow software from WhenU.com installed on their computers, are confused and/or misled as to the source of SaveNow generated pop-up advertisements." (Neal Dec., Ex. B.)

Mr. Neal began with an Internet panel^[24] to gather potential respondents to his survey. (Tr. at 210, 215.) Mr. Neal testified that from the initial 3.5 million people in the Internet panel, he selected a sample of 100,000 people,^[25] and invited them to take a survey, and that approximately 46,000 people responded to that invitation. (Tr. [480] at 210.) Of this group, Mr. Neal determined that approximately 9.6% had the SaveNow software installed on their computers. (Tr. at 210.) Mr. Neal testified that his survey data was based on responses of 994 respondents, about half of whom were individuals who had the SaveNow software installed on their computers. (Tr. at 209.) The survey was administered online. (Neal Dec., Ex. B.)

From the survey, Mr. Neal concluded that 76% of survey respondents who had SaveNow software on their computer did not know that SaveNow software generates pop-up advertisements on their computer screens when they visited certain websites.^[26] (Tr. at 211; Neal Dec. at ¶ 7c). Mr. Neal concluded that 60% of survey respondents who had experienced pop-up advertisements on their computer believe that "pop-up advertisements are placed on the website on which they appear by the owners of that site,"^[27] and 52% believe that "pop-up advertisements have been pre-screened and approved by the website on which they appear."^[28] (Tr. at 211; Neal Dec. at ¶ 7d). Mr. Neal also concluded that 51% of the survey respondents who had SaveNow software installed on their computer had never heard of that software program,^[29] and that 68% did not know it was installed on their computer prior to his research study.^[30] (Tr. at 210, Neal Dec. at ¶ 7b).

Mr. Neal testified that "a specific trademark was not researched" in his survey. (Tr. at 249.) Mr. Neal testified he did not view a SaveNow pop-up advertisement prior to administering the survey, (Tr. at 258), and did not show survey respondents an example of a SaveNow pop-up advertisement. (Tr. at 264.) Mr. Neal's survey did not ask whether the respondent had ever seen a SaveNow pop-up ad, (Tr. at 265.), did not attempt to distinguish between SaveNow pop-up ads and other pop-up ads, (Tr. at 266-67), and did not determine whether differences between SaveNow ads and other pop-up ads might have affected users' perceptions of the advertisements provided by SaveNow. (Tr. at 268-69.) Mr. Neal testified that although he had not provided survey respondents with an example of a SaveNow pop-up advertisement, it was "very reasonable" to assume that SaveNow users would have seen SaveNow pop-up ads. (Tr. at 272.) Mr. Neal testified that the reason he did [481] not research a specific trademark was that he understood

that there is a plethora of ads that can be demonstrated or generated through SaveNow, everything from contact lenses to indoor/outdoor carpet to almost anything else. To try to generate that plethora of ads in a research experiment would have been, one, very difficult. The other problem we have is how do you design a control for that? It's nearly impossible. My alternative position was to rely on people's recent recall of what they were seeing in terms of pop-up ads and ask them about their beliefs of those pop-up ads, who generated them, who authorized them, who was paying for them.

(Tr. at 272-73.)

D. Defendant WhenU's Theory of the Case

According to Avi Naider, CEO of WhenU.com, the SaveNow software was conceived to "revolutionize marketing from implied interest, interests that are deducted [sic] based on who a consumer is and what their personal information is, to actual interests, when you shop, when you travel, when you invest. And that's why we named the company WhenU.com." (Tr. at 24.) Mr. Naider testified that the way the SaveNow software works is that

the software runs in the background, and it doesn't require anything of the user. That's the point. Meaning if the user actually has to go and start saying to the software, OK, fine, offers on travel, they can do that through a search engine. This is a piece of software that is designed to remind the user, to push information to the user. So the user is on the Internet, they're looking at, let's say, travel or any other type of activity. The software, in a separate window, will deliver, or it may deliver, an ad to them that's relevant based on their in-the-moment activity.

(Tr. at 27, emphasis added.)

Mr. Naider testified that the SaveNow program performs "contextual marketing," which Mr. Naider defined as "delivering something to a consumer when they need it." (Tr. at 29.) As an example of contextual marketing, Mr. Naider discussed a receipt he had received after completing a grocery-store purchase of, among other things, a lactose-free, non-dairy milk product. Printed at the bottom of the store receipt was a coupon for a lactose-free, non-milk product, which Mr. Naider testified he received because a marketing company had identified his potential preferences from his purchasing behavior. (Tr. at 31.)

Mr. Naider analogized the operation of the pop-up windows generated by the SaveNow software to the functioning of several other common software programs. Specifically, using images from computer screen captures, Mr. Naider demonstrated that, in Windows, it is possible to have multiple windows, containing unrelated program applications, running at the same time. (Tr. at 36.) Mr. Naider continued, by demonstrating that windows generated by a Windows "instant messaging" application^[31] would pop up without warning while he was working in an unrelated spreadsheet program, in order to deliver messages sent over the Internet by friends. (Tr. at 37-38.) Mr. Naider also testified that on his home computer he received messages and alerts from programs,^[32] that [482] he had not triggered through any action of his own. (Tr. at 41.) Mr. Naider testified that, in general, computer users in the Windows operating environment expect to be working in multiple windows simultaneously, and that in "pushing" information to the user, the SaveNow software was acting much like other software applications that opened new "pop-up" windows. (Tr. at 41, 49-50.) Mr. Naider also testified that the pop-up windows had "no physical relationship with the main browser window," that the SaveNow software had "absolutely no knowledge" of where the main browser window was, and that the pop-up advertisements did not alter the main browser window in any way. (Tr. at 51.)

At the hearing, Professor John Deighton, an expert in interactive marketing, testified that as a result of the structure of the Internet, a new publishing and retailing model has developed. (Tr. at 85-94.) Professor Deighton said the economic investment required to publish on the Internet is much lower than in traditional publishing industries^[33] and that, although 60 percent of the population of the United States is part of the Internet "audience," "no significant group of that audience is in any one place at any one time." (Tr. at 84-88.) As a result, Professor Deighton said that a new model has emerged, wherein publishing and retailing have "conjoined," and that individual websites are "a combination of publisher and marketplace," since it is expected that the websites will be read like a publication, but also an expectation that there will be competition, as in a marketplace. (Tr. at 88-90.) Professor Deighton said that the WhenU software is an example of a model for retailing and publishing that "will return to the Internet some of the cost that was made to build the Internet." (Tr. at 89.)

Professor Deighton also testified that a preliminary injunction in this case would have "some short-term immediate impacts and some chilling long-term impacts." (Tr. at 98.) Specifically, Professor Deighton testified that consumers who had elected to use the WhenU.com software would be frustrated in their attempts to continue to use it, and that competition in the advertising sector might be chilled. (Tr. at 98-99.) Dr. Deighton testified further:

The Internet is not a decade old and we have seen enormous fortunes made and lost. That process must be allowed to continue if the right model to support this wonderful institution is going to be discovered. I think that unnecessarily harsh restrictions on this initiative would discourage others from similar initiatives or improved initiatives.

(Tr. at 100.)

Defendants did not conduct their own survey to determine whether the SaveNow software caused consumer confusion. Instead, to challenge the validity of Mr. Neal's survey, Defendant WhenU.com produced Dr. Jacob Jacoby. Dr. Jacoby attacked Mr. Neal's research on a number of fronts.

Dr. Jacoby testified that because Mr. Neal failed to show any WhenU.com ads to survey respondents, survey respondents could not have had a "clear indication in their minds as to what [Mr. Neal] meant" when he defined pop-up ads. (Tr. at 290-91.)

Dr. Jacoby also testified that if Mr. Neal had intended to conduct a survey that revealed what respondents recalled about [483] pop-up advertising, Mr. Neal should have asked the survey respondents what they recalled about advertising, instead of providing his own definition of pop-up advertisements, followed by questions about pop-up advertisements. (Tr. at 294.) Dr. Jacoby testified that he had "never seen recall used in assessing likelihood of confusion," (Tr. at 295.), and that use of recall threatened the validity of Mr. Neal's survey, since there was nothing to guarantee that pop-up advertisements the survey respondents had seen were generated by the SaveNow program. (Tr. at 296.) Dr. Jacoby testified that this was significant because pop-up advertisements vary in size, placement, and content. (Tr. at 297.) Dr. Jacoby testified that the recall problem could have been avoided by use of an example, in order to distinguish SaveNow advertisements from other pop-up advertisements. (Tr. at 298.) In sum, Dr. Jacoby testified that Mr. Neal's suggestion of a definition of pop-up advertisements was "a leading, loaded kind of language." (Tr. at 304.)

Dr. Jacoby further testified that Mr. Neal inappropriately colored the language of questions, by suggesting that pop-up advertisements appeared "on a website" instead of on the computer screen, and by telling the respondents that pop-up advertisements were not authorized by the websites on which they appeared. (Tr. at 306-09.)

Avi Naider, the president of WhenU.com, testified that a preliminary injunction would result in damage to his company in excess of $10,000,000 over twelve months. (Tr. at 34.) His estimate of this amount was based on current or future advertisers who would cancel their advertising orders in order to avoid negative publicity or possible litigation. (Tr. at 33, 165.)

In a declaration attached to Defendant Vision Direct's Memorandum of Law, Ian Mummery stated:^[34]

A preliminary injunction against Vision Direct would undoubtedly damage it, possibly irreparably. Vision Direct's reputation is unblemished and must remain so if Vision Direct is to continue its spectacular success. Customers will undoubtedly be hesitent [sic] to purchase contact lenses from a company that has been enjoined.

(Mummery Dec. ¶ 9).

In addition, Mr. Mummery's declaration stated that on September 17, 2002, three weeks before this action was filed, Defendant Vision Direct voluntarily instructed its co-defendant, WhenU.com, to cease placing "pop-up" ads on Plaintiff's website, and that Vision Direct has no intention of resuming use of the offending pop-up advertising. (Mummery Dec. ¶ 7, 8.) Mr. Mummery's declaration also stated that Defendant Vision Direct had sued its co-defendant WhenU.com and Coastal Contacts, an Internet replacement contact lens retailer who is not a party in this case, for conduct that is substantially the same as that for which Vision Direct is being sued in this case.^[35] (Mummery Dec. ¶ 8.)

[484] II. DISCUSSION

A. Standard for Preliminary Injunction

It is well-settled in this Circuit that "a party seeking a preliminary injunction must demonstrate (1) the likelihood of irreparable injury in the absence of such an injunction, and (2) either (a) likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation plus a balance of hardships tipping decidedly toward the party requesting the preliminary relief."^[36]Fed. Express Corp. v. Fed. Espresso, Inc., 201 F.3d 168, 173 (2d Cir.2000); Procter & Gamble Co. v. Chesebrough-Pond's, Inc., 747 F.2d 114, 118 (2d Cir.1984); Coca-Cola Co. v. Tropicana Prods., Inc., 690 F.2d 312, 314-15 (2d Cir.1982); United States v. Siemens Corp., 621 F.2d 499, 505 (2d Cir.1980).

B. Copyright Claims

To establish a prima facie case of copyright infringement, a Plaintiff must show "1) Ownership of valid copyright, and 2) Copying of constituent elements of the work that are original." Feist Publications Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991); On Davis v. The Gap, Inc., 246 F.3d 152, 158-59 (2d Cir.2001) (finding on the basis of this standard that "the owner of a copyright is thus entitled to prevail in a claim for declaratory judgment of infringement without showing entitlement to monetary relief").

Plaintiff has filed as an exhibit to its Complaint a certificate of registration with the United States Copyright Office of the "1800 Contacts Web site," (Memorandum in Support at 4; Complaint Exh. D); this serves as prima facie evidence of valid ownership of a copyright. 17 U.S.C. § 410(c). This protection extends to both the computer code for the website and the screen displays of the website. OP Solutions, Inc. v. Intellectual Property Network Ltd., 1999 WL 47191 at *10 (S.D.N.Y.1999), 1999 U.S. Dist. LEXIS 16639, at *10 (noting that the protection accorded "non-literal" elements of a computer program extends to screen displays); Harbor Software, Inc. v. Applied Systems, Inc., 925 F.Supp. 1042, 1045 (S.D.N.Y.1996) (finding sufficient expressive choices in the selection and arrangement of information compiled in screen reports and displays to satisfy the minimal requirement of originality to warrant protection).

Plaintiff alleges that Defendants have "copied" constituent elements of Plaintiff's website in the "broad sense of invasion of one of the exclusive rights secured to copyright owners under the Copyright Act." (Pl. Oct. 9, 2002 at 28) (quoting Dynamic Solutions, Inc. v. Planning & Control, Inc., 646 F.Supp. 1329, 1337 n. 12 (S.D.N.Y.1986)). Plaintiff argues that the 1-800 Contacts website, as perceived by a SaveNow user,^[37] appears differently than [485] the copyrighted website, and that the website's appearance has therefore been "modified and that Defendants' pop-up scheme caused this modification." (Pl. February 28, 2003 at 7). Specifically, Plaintiff alleges that Defendants have invaded Plaintiff's exclusive right to display the 1-800 Contacts website, in violation of 17 U.S.C. § 106(1), and its exclusive right to prepare derivative works based on the 1-800 Contacts website, secured to Plaintiff under 17 U.S.C. § 106(2).

1. Display Right, 17 U.S.C. § 106(1)

Plaintiff alleges that Defendants have invaded Plaintiff's exclusive right to display the 1-800 Contacts website. 17 U.S.C. § 106(1). Plaintiff argues it gives computer users a license to "use and display" its website, but does not give them a license to alter the website or change its appearance in any way. Plaintiff argues that, by delivering pop-up advertisements to a SaveNow user's computer while the user views Plaintiff's website, Defendants create a new screen display that incorporates Plaintiff's copyrighted work, thereby infringing Plaintiff's exclusive right to display its copyrighted work. (Memorandum in Support at 29).

For this Court to hold that computer users are limited in their use of Plaintiff's website to viewing the website without any obstructing windows or programs would be to subject countless computer users and software developers to liability for copyright infringement and contributory copyright infringement, since the modern computer environment in which Plaintiff's website exists allows users to obscure, cover, and change the appearance of browser windows containing Plaintiff's website.

Without authority or evidence for the claim that users exceed their license to view the copyrighted 1-800 Contacts website when they obscure the website with other browser windows (including pop-up ads generated by the SaveNow program), Plaintiff has little basis for its claim that Defendants have infringed its display right.

2. Derivative Works Right, 17 U.S.C. § 106(2)

Plaintiff also alleges that Defendants have invaded Plaintiff's exclusive right to prepare derivative works based on the 1-800 Contacts website, secured to Plaintiff under 17 U.S.C. § 106(2).

Section 106 of the Copyright Act provides that "the owner of copyright under this title has the exclusive right to ... prepare derivative works based upon the copyrighted work." 17 U.S.C. § 106. However, Plaintiff has failed to show that [486] Defendants have created a "derivative work" that infringes Plaintiff's exclusive rights under § 106(2).

Plaintiff argues that, by delivering pop-up advertisements to a SaveNow user's computer while the user views Plaintiff's website, Defendants are adding a Vision Direct advertisement to Plaintiff's copyrighted screen display, thus creating a derivative of the Plaintiff's copyrighted screen display, and in the process violating "two fundamental tenets of copyright law — exceeding the license granted and destroying the author's control over the manner in which its work is presented." (Pl. Oct. 9, 2002 at 30).

For the reason set forth above, to the extent Plaintiff's derivative work argument relies on a theory that Defendants cause or contribute to copyright infringement by a SaveNow user when viewing Plaintiff's copyrighted screen display, in excess of the license granted by Plaintiff,^[38] this argument fails.

Plaintiff's second theory is that Defendants have created a derivative work by adding to or deleting from Plaintiff's copyrighted website, and therefore have transformed or recast the website, in derogation of Plaintiff's exclusive derivative work right. (Pl. Oct. 9, 2002 at 29.) Plaintiff argues that to infringe their derivative work right, Defendants need not have made a copy of the original work in order to create a derivative work,^[39] and that to violate its protected right to prepare derivative works, Defendants "need only transform or recast the copyrighted work in some way," as by "adding to or deleting from" Plaintiff's copyrighted website. (Pl. Oct. 9, 2002 at 29.) Plaintiff analogizes the pop-up ads in this case to advertisements added to and interspersed throughout the text of a copyrighted book in National Bank of Commerce v. Shaklee Corp., 503 F.Supp. 533 (W.D.Tex.1980), which were found to be "unauthorized additions" to the book text, in violation of the book author's copyright. (Pl. Oct. 9, 2002 at 30). Plaintiff's argument fails because Defendants have not created a "derivative work."

In order for Plaintiff's derivative work right to have been infringed, the Court must find that the screen display of the 1-800 Contacts website, with Defendant's pop-up ads, is in fact a "derivative work," as defined at 17 U.S.C. § 101.

A "derivative work" is:

... a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a `derivative work'.

17 U.S.C. § 101 (emphasis added).

In general, copyright protection is limited to protection of

... original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either [487] directly or with the aid of a machine or device.

17 U.S.C. § 102.

A work is "fixed" in a tangible medium of expression:

... when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced or otherwise communicated for a period of more than transitory duration. A work consisting of sounds, images, or both, that are being transmitted, is "fixed" for purposes of this title if a fixation of the work is being made simultaneously with its transmission.

17 U.S.C. § 101.

Applying the "fixation" requirement here, Plaintiff has failed to show that its website, and Defendants' pop-up advertisements are "sufficiently permanent or stable to permit it to be perceived, reproduced or otherwise communicated for a period of more than transitory duration." 17 U.S.C. § 101. Indeed, Defendants' pop-up ad windows may be moved, obscured, or "closed" entirely — thus completely disappearing from perception, with a single click of a mouse. (Tr. at 63-64.) Moreover, to the extent pop-up advertisements fit the description of "transmitted images," they are not "fixed" works, since there is no evidence that a fixation is made "simultaneously with" the pop-up advertisements' "transmission" to the viewer of the website.^[40] 17 U.S.C. § 101.

Given that the screen display of the 1-800 Contacts website with Defendant's pop-up ads is not "fixed in any medium," it is not sufficiently "original" to qualify as a derivative work under the second sentence of 17 U.S.C. § 101.

The first sentence of 17 U.S.C. § 101 also allows "non-original" works to qualify for "derivative" work status. Since the screen display of the 1-800 Contacts website with Defendant's pop-up ads is not a "translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation," for Plaintiff's to prevail, it must show that Defendants have "recast, transformed, or adapted" the 1-800 Contacts website. None of these three actions seems to describe what is done to Plaintiff's website by Defendants' pop-up ads, since Plaintiff's website remains "intact" on the computer screen. Defendants' pop-up ads may "obscure" or "cover" a portion of Plaintiff's website — but they do not "change" the website, and accordingly do not "recast, transform or adapt" the website. Lee v. A.R.T. Company, 125 F.3d 580, 582 (7th Cir.1997) (mounting plaintiff's art works on ceramic tiles did not create "derivative work," and therefore did not infringe plaintiff's copyright). Moreover, if obscuring a browser window containing a copyrighted website with another computer window produces a "derivative work," then any action by a computer user that produced a computer window or visual graphic that altered the screen appearance of Plaintiff's website, however slight, would require Plaintiff's permission. A definition of "derivative work" that sweeps within the scope of the copyright law a multi-tasking Internet shopper whose word-processing program [488] obscures the screen display of Plaintiff's website is indeed "jarring," and not supported by the definition set forth at 17 U.S.C. § 101. See id.

Since Plaintiff has failed to demonstrate that Defendants have invaded the exclusive rights secured to Plaintiff under the Copyright Act, there is little likelihood that Plaintiff will succeed on the merits of its copyright claims. Dynamic Solutions, Inc. v. Planning Control, Inc., 646 F.Supp. 1329, 1337 n. 12 (S.D.N.Y.1986). In view of this finding, there is no need to address the question of irreparable injury on these grounds.

Accordingly, Plaintiff's motion for a preliminary injunction based on the Defendants' alleged infringement of Plaintiff's copyrights is DENIED.

C. Trademark Infringement

The Lanham Act prohibits the use in commerce, without consent, of any "registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods," in a way that is likely to cause confusion. 15 U.S.C. § 1114(1)(a). The act also prohibits the infringement of any unregistered, common law trademark. 15 U.S.C. § 1125(a)(1); Time, Inc. v. Petersen Publishing Co., 173 F.3d 113, 117 (2d Cir.1999); Genesee Brewing Co., Inc. v. Stroh Brewing Co., 124 F.3d 137, 142 (2d Cir.1997). Under 15 U.S.C. § 1125(a)(1), the plaintiff has the burden of proving:

a) ownership of a valid mark that is entitled to protection under the Lanham Act;

b) Defendant's use of the mark is likely to cause confusion within the consuming public.^[41]

In a trademark infringement case, "a showing of likelihood of confusion establishes both a likelihood of success on the merits and irreparable harm ... assuming that the plaintiff has a protectible mark." Hasbro, Inc. v. Lanard Toys, Ltd., 858 F.2d 70, 73 (2d Cir.1988) (citations omitted).

1. "Use" under the Lanham Act

Defendant WhenU.com argues it is not using Plaintiff's mark for purposes of the Lanham Act. Defendant notes that, as a result of features of the Windows operating environment that allow users to open multiple windows at one time, Defendant WhenU's SaveNow program generates new windows, displayed simultaneously with other pages. (Naider Aff. ¶ 40-42; WhenU.com Jan. 31, 2003 at 15-16). As a result, windows generated by SaveNow may be visible at the same time as a window containing Plaintiff's website, but WhenU.com argues this is not "use" within the Lanham Act. Defendant WhenU.com argues that "[n]othing is more fundamental than that a plaintiff cannot prevail on a claim for trademark infringement, pursuant to Section 1114 of the Lanham Act, or unfair competition, pursuant to Section 1125(a) of the Lanham Act, unless it can show that the defendant is using one of its marks in commerce in a way that is likely to cause confusion." (WhenU.com Jan. 31, 2003 at 17-18.)

A trademark is "used in commerce" for purposes of the Lanham Act "when it is used or displayed in the sale or advertising of services and the services are rendered in commerce, or the services are rendered in more than one State or in the United States and a foreign country and the person rendering the services is engaged in commerce in connection with the services." 15 U.S.C. § 1127.

[489] Defendants here use Plaintiff's mark in two ways. First, in causing pop-up advertisements for Defendant Vision Direct to appear when SaveNow users have specifically attempted to access Plaintiff's website — on which Plaintiff's trademark appears — Defendants are displaying Plaintiff's mark "in the ... advertising of" Defendant Vision Direct's services. Both Defendant Vision Direct and Plaintiff 1-800 Contacts are retail providers of replacement contact lenses, and therefore are unquestionably providing services "rendered in commerce." SaveNow users that type Plaintiff's website address into their browsers are clearly attempting to access Plaintiff's website because of prior knowledge of the website, knowledge that is dependent on Plaintiff's reputation and goodwill. SaveNow users that type Plaintiff's trademark "1-800 Contacts" into a search engine in an attempt to find the URL for Plaintiff's website are exhibiting a similar knowledge of Plaintiff's goods and services, and pop-up advertisements that capitalize on this are clearly using Plaintiff's mark. Thus, by causing pop-up advertisements to appear when SaveNow users have specifically attempted to find or access Plaintiff's website, Defendants are "using" Plaintiff's marks that appear on Plaintiff's website. 15 U.S.C. § 1127.

Second, Defendant WhenU.com includes Plaintiff's URL, , in the proprietary WhenU.com directory of terms that triggers pop-up advertisements on SaveNow users' computers. (Tr. at 134.) In so doing, Defendant WhenU.com "uses" Plaintiff's mark, by including a version of Plaintiff's 1-800 CONTACTS mark, to advertise and publicize companies that are in direct competition with Plaintiff.

Accordingly, the Court finds that Defendants have "used" Plaintiff's mark in commerce. OBH, Inc. v. Spotlight Magazine, Inc., 86 F.Supp.2d 176, 185-86 (W.D.N.Y.2000) (finding defendants to have "used in commerce" plaintiffs' mark where defendants: 1. used plaintiffs' trademark as the domain name for defendants' web site — which contained a link to defendants' other web site that was operated for commercial purposes; 2. used plaintiffs' trademark on the Internet, an international network; and 3. affected plaintiffs' ability to offer their services in commerce); Planned Parenthood Fed'n of Am., Inc. v. Bucci, 1997 WL 133313, at *3 (S.D.N.Y. Mar.24, 1997), aff'd, 152 F.3d 920 (2d Cir.1998), cert. denied, 525 U.S. 834, 119 S.Ct. 90, 142 L.Ed.2d 71 (1998).

Defendant errs in construing use "in connection with the services" to require "use as a trademark to identify or distinguish products or services." In support of its too narrow reading of the definition of "use," Defendant cites Lone Star Steakhouse v. Longhorn Steaks, 106 F.3d 355, 361 (11th Cir.1997). In Lone Star, the 11th Circuit upheld the district court's denial of the plaintiff restaurant owner's motion for a preliminary injunction, because plaintiffs had not "used" the service mark at issue prior to the defendant's registration of a similar mark. The court held that, as a matter of law, use of the mark "on a sign displayed on an interior wall of Plaintiff's ... [r]estaurant ... did not constitute a valid service mark use because it was not being used to identify or distinguish the services being offered." 106 F.3d at 361. The facts here are not controlled by the Lone Star court's reasoning. First, the question here is not whether Plaintiff adequately used its mark to establish a valid service mark; the question is whether Defendant is "using" Plaintiff's trademark. Second, even if this Court were to find that the standard for "use" required to establish a valid service mark is the same as the standard for "use" in the infringement context, in any case WhenU's use exceeds that of the plaintiff in Lone Star. Here, [490] WhenU.com is doing far more than merely "displaying" Plaintiff's mark. WhenU's advertisements are delivered to a SaveNow user when the user directly accesses Plaintiff's website — thus allowing Defendant Vision Direct to profit from the goodwill and reputation in Plaintiff's website that led the user to access Plaintiff's website in the first place.

Defendant WhenU.com also cites Holiday Inns, Inc. v. 800 Reservation, Inc., 86 F.3d 619, 623-25 (6th Cir.1996), wherein the Sixth Circuit reversed the district court, which had found that the defendant — who used a 1-800 telephone number that differed from plaintiff's 1-800 HOLIDAY telephone number in the use of a "zero" instead of the "o" — had "used" plaintiff's mark because there was a "clear violation of the spirit, if not the letter, of the Lanham Act." The Sixth Circuit, noting that § 32 of the Lanham Act forbids the "use in commerce [of] any reproduction, counterfeit, copy, or colorable imitation of a registered mark ... which ... is likely to cause confusion," reversed because the defendants did not actually "use" the plaintiff's mark, since plaintiff's number was 1-800 HOLIDAY,^[42] and defendants were using 1-800 409-4329, and also because the defendants "did not create any confusion," since the district court found that the defendants had "never advertised or publicized anything to do with Holiday Inns or its telephone number." Holiday Inns, Inc., 86 F.3d at 623-25 (emphasis in original). Again, this case does not support Defendant WhenU.com's claim that it has not "used" Plaintiff's website within the meaning of the Lanham Act.^[43]

b. Confusion Under the Lanham Act

Confusion for purposes of the Lanham Act is shown where there is a "likelihood that an appreciable number of ordinarily prudent purchasers are likely to be misled, or indeed simply confused, as to the source of the goods in question" or where "consumers are likely to believe that the challenged use of a trademark is somehow sponsored, endorsed, or authorized by its owner." New York Stock Exchange, Inc. v. New York, New York Hotel LLC, 293 F.3d 550 (2d Cir.2002) (internal citations and quotations omitted). Thus, "[c]onfusion" for purposes of the Lanham Act includes confusion "of any kind, including confusion as to source, sponsorship, affiliation, connection or identification." Guinness United Distillers & Vintners v. Anheuser-Bush, 2002 WL 1543817, *2 (S.D.N.Y.2002); Tommy Hilfiger Licensing, Inc. v. Nature Labs, LLC, 221 F.Supp.2d 410, 413-14 (S.D.N.Y.2002).

Under the Lanham Act, actionable "confusion" may take a number of forms. In some cases, there may be actual confusion among members of the consuming public, and the plaintiff may be able to demonstrate — even at the preliminary injunction stage of the case — such actual confusion. E.g., Register.Com, Inc. v. Domain Registry of America, Inc., 2002 WL 31894625, *11 (S.D.N.Y.2002); Les Ballets Trockadero de Monte Carlo, Inc. v. Trevino, 945 F.Supp. 563 (S.D.N.Y.1996) (confusion [491] among consumers, plaintiff's employees, and defendant's friends sufficient to show actual confusion).

However, a plaintiff may be unable to prove actual confusion in the market — in some cases because the market for a particular mark or product has not yet developed, or because the plaintiff has acted early enough to prevent actual confusion from developing. Thus, although in order to support a claim of infringement a plaintiff must show a probability, not just a possibility, of confusion, Streetwise Maps, Inc. v. VanDam, Inc., 159 F.3d 739, 743 (2d Cir.1998), a likelihood of confusion is actionable even absent evidence of actual confusion. E.g., Hasbro, Inc. v. Lanard Toys, Ltd., 858 F.2d 70 (2d Cir.1988) (finding likelihood of confusion despite lack of evidence of actual confusion); Centaur Communications, Ltd. v. A/S/M Communications, Inc., 830 F.2d 1217, 1227 (2d Cir.1987) (finding lack of actual confusion did not undermine district court finding of likelihood of confusion), overruled on other grounds, 973 F.2d 1033, 1043-44 (2d Cir.1992); Lexington Management Corp. v. Lexington Capital Partners, 10 F.Supp.2d 271, 286 (S.D.N.Y.1998) (lack of evidence of actual confusion neither supported nor detracted from plaintiff's motion for preliminary injunction); Clinique Laboratories, Inc. v. Dep Corp., 945 F.Supp. 547, 555 (S.D.N.Y.1996).

Confusion need not be limited to the "point of sale" to be actionable under the Lanham Act. The Second Circuit has held that confusion among non-purchasers, arising from use of a mark outside of a retail environment after any sale or purchase of a product has concluded, is actionable under the Lanham Act.^[44]Clinique Laboratories, Inc., 945 F.Supp. at 558 (S.D.N.Y.1996) (use of disclaimers insufficient to address post-sale confusion among consumers).

Confusion that occurs prior to a sale may also be actionable under the Lanham Act. One such type of actionable pre-sale confusion, "initial interest confusion," occurs when a consumer, seeking a particular trademark holder's product, is instead lured away to the product of a competitor because of the competitor's use of a similar mark, even though the consumer is not actually confused about the source of the products or services at the time of actual purchase. See Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254 (2d Cir.1987).

Although the term "initial interest confusion" was coined in a Ninth Circuit case, Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036 (9th Cir.1999), the principle that such confusion is actionable as grounds for a trademark [492] infringement action originated in this Circuit. Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254 (2d Cir.1987); Grotrian, Helfferich, Schulz, Th. Steinweg Nachf v. Steinway and Sons, 523 F.2d 1331, 1342 (2d Cir.1975) (finding harm to the defendant in the likelihood that a consumer, upon hearing plaintiff's name and thinking it had some connection with defendant's name, would consider plaintiff's product on that basis, since plaintiff's name would attract potential customers based on the reputation built up by the defendant for many years); Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867, 872 (2d Cir.1986) (acknowledging that the likelihood of confusion among potential customers is actionable harm under the Lanham Act); Jordache Enters., Inc. v. Levi Strauss & Co., 841 F.Supp. 506, 514-15 (S.D.N.Y.1993) ("Types of confusion that constitute trademark infringement include where ... potential consumers initially are attracted to the junior user's mark by virtue of its similarity to the senior user's mark, even though these consumers are not actually confused at the time of purchase".)

In Mobil Oil Corp. v. Pegasus Petroleum Corp., 229 U.S.P.Q. 890, 1986 WL 83765 (S.D.N.Y.1986), the district court found that plaintiff oil company would be harmed by "the likelihood that potential purchasers will think that there is some connection or nexus between the products and business of [defendant] and that of [plaintiff]." 229 U.S.P.Q. at 894, 1986 WL 83765. On appeal, the Second Circuit upheld the district court's finding, noting specifically that the district judge had

found a likelihood of confusion not in the fact that a third party would do business with Pegasus Petroleum believing it related to Mobil, but rather in the likelihood that Pegasus Petroleum would gain crucial credibility during the initial phases of a deal. For example, an oil trader might listen to a cold phone call from Pegasus Petroleum — an admittedly oft used procedure in the oil trading business — when otherwise he might not, because of the possibility that Pegasus Petroleum is related to Mobil.

Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254, 259 (2d Cir.1987).

Application of this principle to the Internet context was recognized in Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036 (9th Cir.1999), in which the Ninth Circuit held that the Lanham Act bars a website owner from including in its HTML code any term that is confusingly similar to a competitor's mark. In Brookfield, the court found that the defendant's use of terms confusingly similar to plaintiff's trademarked term "MovieBuff" in metatags^[45] placed in defendant's website would result in initial interest confusion "in the sense that, by using `moviebuff.com' or `MovieBuff' to divert people looking for `MovieBuff' to its website, [defendant] improperly benefits from the goodwill that [plaintiff] developed in its mark." Brookfield, 174 F.3d at 1062. The court held that the resulting likelihood of initial interest confusion was actionable under the Lanham Act.^[46]Brookfield, 174 F.3d at 1063.

[493] District courts in this circuit have noted that, on the Internet, initial interest confusion occurs when "potential consumers of one website will be diverted and distracted to a competing website." Bihari v. Gross 119 F.Supp.2d 309, 319 (S.D.N.Y.2000) ("In the cyberspace context, the concern is that potential customers of one website will be diverted and distracted to a competing website. The harm is that the potential customer believes that the competing website is associated with the website the customer was originally searching for and will not resume searching for the original website."); BigStar Entertainment, Inc. v. Next Big Star, Inc., 105 F.Supp.2d 185, 207 (S.D.N.Y.2000) ("The concern is that many of those initially interested potential customers of plaintiff's would be diverted and distracted by defendants' site and would either believe that defendants' site is associated with plaintiff's or would not return to plaintiff's domain."); Planned Parenthood, 1997 WL 133313, at *12 (Defendant's use of a domain name and home page address similar to plaintiff's mark "on their face, causes confusion among Internet users and may cause Internet users who seek plaintiff's web site to expend time and energy accessing defendant's web site."); New York State Soc. of Certified Public Accountants v. Eric Louis Assoc., Inc., 79 F.Supp.2d 331, 342 (S.D.N.Y.1999) (Use by defendant of a domain name and metatag similar to plaintiff's common law service mark "caused a likelihood of confusion because it created initial interest confusion.").

As part of its argument that Defendants' pop-up advertising results in a likelihood of confusion, Plaintiff argues it has been injured by "initial interest confusion." (Pl. Oct. 19, 2002 at 20-21). Defendant WhenU.com devotes only a footnote to its argument that Plaintiff cannot show initial interest confusion "because consumers are not drawn to another online location without knowing where they are being taken." (Memorandum in Opposition at 24 n. 14 (citing BigStar Entm't, Inc. v. Next Big Star, Inc., 105 F.Supp.2d 185, 207-208 (S.D.N.Y.2000))). Defendant apparently misunderstands both the doctrine of initial interest confusion and the context of its quote from BigStar. The harm to Plaintiff from initial interest confusion lies not in the loss of Internet users who are unknowingly whisked away from Plaintiff's website; instead, harm to the Plaintiff from initial interest confusion lies in the possibility that, through the use of pop-up advertisements Defendant Vision Direct "would gain crucial credibility during the initial phases of a deal." Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d at 259. BigStar in no way requires that a consumer be unaware that he or she is being drawn to another online location:

Even if the customer quickly becomes aware of the competing source's actual identity and can rectify the mistake, the damage to the first user that the courts have identified manifest in three ways: the original diversion of the prospective customers' interest; the potential consequent effect of that diversion on the customer's ultimate decision whether or not to purchase caused by an erroneous impression that two sources of a product may be associated; and the initial credibility which may be accorded by the interested buyer to the junior user's products — customer consideration that otherwise may be unwarranted and that may be built on the strength of the senior user's mark, reputation and goodwill.

[494] BigStar Entertainment, Inc. v. Next Big Star, Inc., 105 F.Supp.2d 185, 207 (S.D.N.Y.2000)

The Court finds that the principle of initial interest confusion is applicable in the specific context of Internet sales, and applies the Polaroid factors^[47] "with an eye to how they bear on the likelihood that"^[48] Defendants' pop-up advertisements will confuse consumers into thinking that Defendants are somehow associated with Plaintiff or that Plaintiff has consented to their use of the pop-up advertisements. Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867, 872 (2d Cir.1986).

3. Likelihood of Confusion

Traditionally, whether a mark is likely to cause confusion is determined by the familiar eight-factor test set forth by Judge Friendly in Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir.), cert. denied, 368 U.S. 820, 82 S.Ct. 36, 7 L.Ed.2d 25 (1961). Under the Polaroid test, courts assess^[49] the likelihood of consumer confusion by examining:

1) the strength of Plaintiff's Mark;

2) the similarity between the plaintiff's and defendant's marks;

3) proximity of the parties' services;

4) the likelihood that one party will "bridge the gap" into the other's product line;

5) the existence of actual confusion between the marks;

6) the good faith of the Defendant in using the mark;

7) the quality of the Defendant's services;

8) the sophistication of the consumers.

Polaroid, 287 F.2d at 495.

However, while a trial court considering the likelihood of confusion must evaluate the Polaroid factors,^[50] the Second Circuit has cautioned that the Polaroid factors are not always dispositive. Streetwise Maps, Inc. v. VanDam, Inc., 159 F.3d 739 (2d Cir.1998); Estee Lauder Inc. v. The Gap. Inc., 108 F.3d 1503 (2d Cir.1997). Moreover, courts may consider other variables in evaluating the likelihood of confusion, and irrelevant factors may be abandoned. See Gruner + Jahr USA Publishing v. Meredith Corp., 991 F.2d 1072, 1077 (2d Cir.1993). The unique facts of each case must be considered in evaluating the likelihood of confusion. W.W.W. Pharm. Co., Inc. v. Gillette Co., 984 F.2d 567, 572 (2d Cir.1993); Thompson Medical Co. v. Pfizer Inc., 753 F.2d 208, 214 (2d Cir.1985) [495] ("[T]he complexities attendant to an accurate assessment of likelihood of confusion require that the entire panoply of elements constituting the relevant factual landscape be comprehensively examined. No single Polaroid factor is pre-eminent, nor can the presence or absence of one without analysis of the others, determine the outcome of an infringement suit.")

a. Strength of Plaintiff's Mark

In W.W.W. Pharmaceutical Co., Inc. v. Gillette Co., 984 F.2d 567, 572 (2d Cir.1993) limited on other grounds, Deere & Co. v. MTD Prods., Inc., 41 F.3d 39, 46 (2d Cir.1994), the Second Circuit set forth the test for the strength of a mark:

The focus under this factor is on the distinctiveness of the mark, or more precisely, its tendency to identify the goods sold under the mark as emanating from a particular, although possibly anonymous source. Turning on its "origin-indicating" quality in the eyes of the purchasing public, a mark's strength is assessed using two factors: (1) the degree to which it is inherently distinctive; and (2) the degree to which it is distinctive in the marketplace.

To gauge the inherent distinctiveness of a mark, courts have used four categories: generic, descriptive, suggestive, and arbitrary or fanciful. A generic mark is generally a common description of goods and is ineligible for trademark protection. A descriptive mark describes a product's features, qualities or ingredients in ordinary language, and may be protected only if secondary meaning is established. A suggestive mark employs terms which do not describe but merely suggest the features of the product, requiring the purchaser to use imagination, thought and perception to reach a conclusion as to the nature of goods ... Fanciful or arbitrary marks are eligible for protection without proof of secondary meaning and with ease of establishing infringement.

984 F.2d at 572 (internal citations and quotations omitted).

Because Plaintiff's mark, 1-800 Contacts, "is not a common description of goods," the Court finds Plaintiff's mark is not generic. Cline v. 1-888-PLUMBING Group, Inc., 146 F.Supp.2d 351 (S.D.N.Y.2001) (finding the mark "1-888-PLUMBING" not generic, but instead descriptive).^[51]

Plaintiff's 1-800 CONTACTS mark is not descriptive, since it does not convey an immediate idea of the ingredients, qualities, or characteristics of the contact lens products sold by Plaintiff, and neither informs a consumer about qualities, ingredients or characteristics nor points to contact lens' intended purpose, [496] function or intended use, size, or merit. Gruner + Jahr USA Publishing v. Meredith Corp., 991 F.2d 1072, 1076 (2d Cir.1993); Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4 (2d Cir.1976).

Plaintiff's 1-800 CONTACTS mark is clearly suggestive since, although it may take some imagination to grasp that what Plaintiff markets is contact lenses (as opposed to electrical contacts or business contacts), the mark suggests Plaintiff's product. Thus, the Court finds that since Plaintiff's mark is suggestive, it is inherently distinctive and satisfies the first prong of the strength test set forth supra.

The 1-800 CONTACTS mark is also distinctive in the marketplace. Plaintiff has invested significant sums in marketing its marks — in 2001, Plaintiff spent $27,118,000 on marketing. (Mathison Dec. at ¶ 7.) Such efforts have generated significant sales — some $169,000,000 worth in 2001. (Id.) Over 221,800 people visited Plaintiff's website in the month of September, 2002. (Mathison Dec. at ¶ 9.) These figures are persuasive evidence that Plaintiff has established distinctiveness in the marketplace. Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 631 F.Supp. 735, 741 (S.D.N.Y.1985) (evidence of widespread advertising and promotion of defendants' product that featured defendant's mark, continuous use of the mark for more than a century, and sales figures were all relevant to determination of the strength of the mark).

That Plaintiff's mark has gained such an identity is apparent from the fact that Defendant WhenU.com uses Plaintiff's trademarked name in its directory of terms that will "trigger" a pop-up advertisement for eye-care products.^[52] Defendant WhenU.com's CEO stated in his affidavit that "[t]he web address is included in the eye-care category of WhenU's directory solely for the purpose of identifying consumers who visit the web address as consumers potentially interested in eye care products such as contact lenses." (Naider Aff. at 10). Accordingly, Plaintiff's mark passes the test for being a strong mark.

b. Similarity between Plaintiff's and Defendant's marks^[53]

"In assessing the similarity of the marks, `courts look to the overall impression created by the logos and the context in which they are found and consider the totality of factors that could cause confusion among prospective purchasers.'" Lexington Management Corp. v. Lexington Capital Partners, 10 F.Supp.2d 271, 279 n. 4 (S.D.N.Y.1998), (quoting Gruner + Jahr USA Publishing, 991 F.2d at 1078 (2d Cir.1993)). A court should look not just at "the typewritten and aural similarity of the marks, but [also at] how they are presented in the marketplace" to determine: [497] 1.) whether the similarity between the two marks is likely to cause confusion and 2.) what effect the similarity has upon prospective purchasers." Sports Authority, Inc. v. Prime Hospitality Corp., 89 F.3d 955, 962 (2d Cir.1996).

Defendant WhenU.com has included the URL address of Plaintiff's website, < www.1800Contacts.com>, in its proprietary directory of terms, (Tr. at 134), so that pop-up advertisements for the website of Defendant Vision Direct and other competitors will appear when computer users enter Plaintiff's URL into the address bar on their Internet browsers. (Tr. at 144-45.) Defendants also use the address www.1800Contacts.com in the advertising of Defendant Vision Direct's products by causing pop-up advertisements to appear when a SaveNow user types the address into an Internet browser.

The website address , used by Defendants in the SaveNow proprietary directory of terms incorporates completely the Plaintiff's trademark 1-800 CONTACTS. As used in the WhenU.com directory, Plaintiff's address, , differs from Plaintiff's trademark only in the omission of spaces and grammatical marks, and in the addition of the "www" and ".com." These distinctions are not significant. TCPIP Holding Co., Inc. v. Haar Communications, Inc., 244 F.3d 88, 101-02 (2d Cir.2001) (omission of spaces and addition of domain identifier ".com" or ".net" "are of little or no significance," since "it is necessary in the registration of an internet address to eliminate spaces and possessive punctuation"); OBH, Inc. v. Spotlight Magazine, Inc., 86 F.Supp.2d 176 (W.D.N.Y.2000) (finding "The Buffalo News" and "thebuffalonews.com," for all intents and purposes, identical); New York State Soc'y of Certified Pub. Accountants v. Eric Louis Assocs., Inc., 79 F.Supp.2d 331, 340 (S.D.N.Y.1999) (finding "nysscpa.com" nearly identical to "NYSSCPA"); Planned Parenthood Fed'n of Am., Inc. v. Bucci, 1997 WL 133313, at *8 (S.D.N.Y. Mar.24, 1997) (finding "plannedparenthood.com" nearly identical to "Planned Parenthood"), aff'd, 152 F.3d 920 (2d Cir.1998), cert. denied, 525 U.S. 834, 119 S.Ct. 90, 142 L.Ed.2d 71 (1998).

The similarity of the mark used by Defendants to Plaintiff's 1-800 Contacts mark is clearly relevant and increases the likelihood of confusion. If Defendants used a mark less similar to Plaintiff's mark — for example, "www.contacts.com" — then a SaveNow user who received Defendants' pop-up advertisements after typing into a browser "www.contacts.com" would be less likely to associate Plaintiff's mark with Defendants' pop-up advertisements. Accordingly, the Court finds Plaintiff's mark and the mark used by Defendants to be extremely similar, and that this similarity weighs in favor of a finding of likelihood of confusion.

c. Proximity of the parties' services

This factor is satisfied if Plaintiff shows that the parties' products are sufficiently related that customers are likely to confuse the source of origin. Lexington Management v. Lexington Capital Partners, 10 F.Supp.2d 271, 284-85 (S.D.N.Y.1998) (Noting that the Second Circuit has suggested that "the `proximity of products' factor should be considered together with the `sophistication of buyers'") (citing Cadbury Beverages v. Cott, 73 F.3d 474, 480 (2d Cir.1996)); see also Beneficial Corp. v. Beneficial Capital Corp., 529 F.Supp. 445, 449 (S.D.N.Y.1982) (noting that "the closeness of two products is, at least in part, a function of the extent to which purchasers can and do examine and distinguish them").

Here, the service offered by Plaintiff is identical to the service offered by Defendant [498] Vision Direct — both offer replacement contact lenses to consumers over the Internet. Defendant Vision Direct concedes that it is a competitor of Plaintiff. (Mummery Dec. ¶ 2.)

Defendant WhenU.com does not provide a service similar to Plaintiff's, since WhenU.com is a provider of Internet marketing services, and Plaintiff is an Internet retailer of contact lenses. However, it is apparent that WhenU's SaveNow software relies on the close similarity between Plaintiff's services and those of Defendant Vision Direct. At the hearing, WhenU's CEO, Avi Naider, described how the SaveNow software operates to trigger pop-up advertisements — by identifying the category of services provided by 1-800 Contacts, and then retrieving and displaying a pop-up advertisement of a competitor who fits into the same category of services. (Tr. at 65, 144-45.) Clearly, WhenU.com is intentionally benefitting from the fact that Defendant Vision Direct provides services that are substantially the same as Plaintiff's services.

Additionally, analysis of this factor "with an eye to" the likelihood of initial interest confusion adds support to the Court's finding that this factor weighs in favor Plaintiff. The close proximity of services provided by Defendant Vision Direct and Plaintiff increases the likelihood that consumers, having clicked on the pop-up advertisements provided by the SaveNow software, would shift their interest from Plaintiff's website and services to those of Vision Direct. Thus, the close similarity of Defendant Vision Direct's services to Plaintiff's increases the likelihood that, by "piggy-backing" on the good will and reputation of Plaintiff, Defendant's pop-up advertisements might divert potential customers from Plaintiff. Accordingly, this factor tips in favor of Plaintiff.

d. Likelihood that one party will "bridge the gap" into the other's product line

"Where the market for competing goods or services is the same, there is no need to consider whether plaintiff will bridge the gap between the markets." Planned Parenthood Federation of America, Inc. v. Bucci, 1997 WL 133313 at *8 (S.D.N.Y.1997) (declining to consider this factor where both plaintiff and defendant, whose websites were both on the Internet, were "vying for users in the same `market'") (citing Paddington Corp. v. Attiki Importers & Distributors, Inc., 996 F.2d 577, 586 (2d Cir.1993) (upholding the district court's finding that, where plaintiff's and defendant's ouzo products "would compete in the same market," the "likelihood-of-bridging-the-gap factor" was irrelevant)). Accordingly, while there is no need to address this factor, were the Court to do so, it is clear it would weigh in Plaintiff's favor.

e. Existence of actual confusion between the marks

"Actual confusion" is defined as the likelihood of consumer confusion that enables a seller to pass off his goods as the goods of another. W.W.W. Pharm. Co., Inc. v. Gillette Co., 984 F.2d 567, 574 (2d Cir.1993); Les Ballets Trockadero de Monte Carlo, Inc. v. Trevino, 945 F.Supp. 563, 571 (S.D.N.Y.1996).

However, "it is black letter law that actual confusion need not be shown to prevail under the Lanham Act, since actual confusion is very difficult to prove and the Act requires only a likelihood of confusion as to source." Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867, 875 (2d Cir.1986); see also Guinness United Distillers & Vintners v. Anheuser-Bush, 2002 WL 1543817, *4 (S.D.N.Y.2002) (finding plaintiff's survey, showing only 2% [499] actual confusion among consumers to weigh in favor of defendant, but nonetheless granting plaintiff's motion for preliminary injunction on the strength of other factors); Lexington Management Corp. v. Lexington Capital Partners, 10 F.Supp.2d 271, 286 (S.D.N.Y.1998) (where plaintiff provided no evidence of actual confusion in connection with its motion, this Polaroid factor neither supported nor detracted from plaintiff's motion for preliminary injunction).

As evidentiary support for its claim that consumers are likely to be confused by Defendants' pop-up advertisements as to their source, Plaintiff proffered its consumer survey, conducted by William D. Neal. (Pl. Oct. 9.2002 at 19.) The goal of Mr. Neal's survey was to "[d]etermine whether online shoppers who wear or expect to wear contact lenses in the near future, and who have the SaveNow software from WhenU.com installed on their computers, are confused and/or mislead as to the source of SaveNow generated pop-up advertisements." (Neal Aff., Ex. B at 16.) Plaintiff also notes that Defendants, who requested and were granted an opportunity to conduct its own survey, did not conduct one. (Tr. at 371.)

Proof of actual confusion, in the form of market research survey evidence, is highly probative of the likelihood of consumer confusion, "subject to the condition that `[t]he survey must ... have been fairly prepared and its results directed to the relevant issues.'" Schieffelin & Co. v. Jack Co. of Boca, Inc., 850 F.Supp. 232, 245 (S.D.N.Y.1994) (quoting Universal City Studios, Inc. v. Nintendo Co., 746 F.2d 112, 118 (2d Cir.1984)). However, survey evidence is not required to show actual confusion. The Sports Authority, Inc. v. Prime Hospitality Corp., 89 F.3d 955, 964 (2d Cir.1996).

The evidentiary value of a consumer survey's results depends upon the underlying objectivity of the survey itself, which is determined by reference to, inter alia: whether the proper universe was examined and the representative sample was drawn from that universe; whether the survey's methodology and execution were in accordance with generally accepted standards of objective procedure and statistics in the field of such surveys; whether the questions were leading or suggestive; whether the data gathered was accurately reported; and whether persons conducting the survey were recognized experts. See Universal City Studios v. Nintendo Co., Ltd., 746 F.2d 112, 118 (2d Cir.1984); SmithKline Beecham Consumer Healthcare v. Johnson & Johnson-Merck, 2001 WL 588846 at *11 (S.D.N.Y.2001).

Plaintiff's survey statistics rely on numerous leading questions that suggested their own answers,^[54] and that are therefore entitled to little weight in assessing consumer confusion. Universal City Studios, Inc. v. Nintendo Co., Ltd., 746 F.2d 112 (2d Cir.1984) (Responses to survey question [500] that read, "To the best of your knowledge, was the Donkey Kong game made with the approval or under the authority of the people who produce the King Kong movies?" were not probative of confusion, because "[a] survey question which begs its answer cannot be a true indicator of the likelihood of consumer confusion.").

Even if these questions are disregarded, the survey is burdened by other flaws. To have substantial probative value, Plaintiff's survey must examine the impression of a junior mark on a potential consumer. See Conopco v. Cosmair, Inc., 49 F.Supp.2d 242, 253 (S.D.N.Y.1999) (citing Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033, 1042 (2d Cir.1992)). "Typically, trademark infringement surveys use stimuli, such as pictures, advertisements or clothing, that directly expose potential consumers to the products or the marks in question." Trouble v. Wet Seal, Inc., 179 F.Supp.2d 291, 308 (S.D.N.Y.2001). Plaintiff's expert, Mr. Neal, testified that "a specific trademark was not researched" in his survey, (Tr. at 249), and that in the survey he did not show respondents an example of a SaveNow pop-up advertisement prior to drafting the survey. (Tr. at 264.) Mr. Neal's survey also did not ask whether survey respondents had ever seen a SaveNow pop-up ad, (Tr. at 265.), did not attempt to distinguish between SaveNow pop-up ads and other pop-up ads, (Tr. at 266-67), and did not determine whether differences between SaveNow ads and other pop-up ads might have affected users' perceptions of the advertisements provided by SaveNow. (Tr. at 268-69.)

Mr. Neal denied that he was conducting a trademark infringement survey; even so, the survey failed to use any stimulus that would inform consumers as to the competing products or marks in question. Mr. Neal also testified that although he had not provided survey respondents with an example of a SaveNow pop-up advertisement, it was "very reasonable" to assume that SaveNow users would have seen SaveNow pop-up ads. (Tr. at 272.) But this testimony is insufficient to support the leap Plaintiff requires of this Court. First, it does not necessarily follow that all survey respondents who had the SaveNow software on their computers saw SaveNow advertisements. (Tr. at 303.) Second, even if survey respondents who had SaveNow on their computers had seen SaveNow ads, it does not necessarily follow that those respondents were thinking of the SaveNow ads they had seen when they answered the survey questions from recall. (Tr. at 303.) Finally, since survey respondents answered questions about pop-up advertisements generally, it is just as "reasonable" to assume that they were thinking about pop-up advertisements from other sources when they answered the survey. Accordingly, Mr. Neal's survey, as designed and carried out, is not dispositive of whether pop-up advertisements generated by the SaveNow software has caused actual confusion among SaveNow users, and is not evidence of actual confusion.

However, Mr. Neal's survey is at least suggestive of the likelihood of initial interest confusion. The survey results indicate that 68% of 490 surveyed SaveNow users did not know that they had the SaveNow software on their computers, that 76% of those who knew the SaveNow software was on their computers were unaware of what the SaveNow software does, that 59% of SaveNow users believed that "pop-up advertisements are placed on the website on which they appear by the owners of that website," and that 52% of all users believed "pop-up advertisements have been pre-screened and approved by the website on which they appear." (Neal Aff. ¶ 7.) The fact that a significant number of SaveNow users may believe that pop-up advertisements are associated with the [501] owner of the website on which it appears is relevant to the likelihood of initial interest confusion, since this means a consumer is likely to associate a Vision Direct pop-up advertisement generated by the SaveNow program with the 1800-Contacts websites on which it appeared.

It seems likely that a SaveNow user, thinking the Vision Direct pop-up advertisement generated by SaveNow was part of the 1-800 Contacts website, might be lured into clicking on the Vision Direct SaveNow pop-up advertisement, which would result in the user's main browser window shifting to Vision Direct's website, making likely that the consumer's attention and interest would shift to Vision Direct's website, and that ultimately the consumer would purchase products from Vision Direct, instead of from 1-800 Contacts. Although the survey does not show that a SaveNow user who receives a Vision Direct pop-up advertisement is likely to click on it, nor that a consumer who is diverted from the 1-800 Contacts website to the Vision Direct website is likely to purchase products from the Vision Direct website, this only reduces the weight of the survey evidence in establishing a risk of initial interest confusion. Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867 (2d Cir.1986) ("While the complete absence of actual confusion evidence after a significant period of competition may weigh in a defendant's favor, such an inference is unjustified in the instant case in view of the survey evidence, even with its methodological defects. While these defects go to the weight of the survey, it is still somewhat probative of actual confusion in the post-sale context.") Nonetheless, the survey is supportive of the likelihood of initial interest confusion.

In view of the foregoing, the Court finds that the evidence does not support a finding of actual source confusion; however, in view of the survey's weak probative value in establishing the likelihood of initial interest confusion, this factor weighs in favor of neither Defendant nor Plaintiff.

Of course, since actual confusion is only one of the eight factors considered under Polaroid, that Plaintiff has not presented evidence of actual source confusion does not require a finding of no likelihood of confusion. The Mobil Oil court upheld the lower court where the district judge

found a likelihood of confusion not in the fact that a third party would do business with [defendant] believing it related to [plaintiff], but rather in the likelihood that [defendant] would gain crucial credibility during the initial phases of a deal. For example, an oil trader might listen to a cold phone call from [defendant] — an admittedly oft used procedure in the oil trading business — when otherwise he might not, because of the possibility that [defendant] is related to [plaintiff].

818 F.2d at 259.

Thus, while 1-800 Contacts' survey evidence is methodologically insufficient to show that a third party would do business with Vision Direct believing Vision Direct's advertisements (placed by WhenU's software) are related to 1-800 Contacts, this is not determinative of whether Plaintiff has established a likelihood of confusion generally.

f. Bad faith of the Defendant in using the mark

In analyzing the "bad faith" factor, the question is whether Defendants used Plaintiff's mark with the "intention of capitalizing on plaintiff's reputation and goodwill and any confusion between his and the senior user's product.'" Lang v. Retirement Living Publ'g Co., 949 F.2d 576, 583 (2d Cir.1991) (quoting Edison Brothers Stores, Inc. v. Cosmair, Inc., 651 [502] F.Supp. 1547, 1560 (S.D.N.Y.1987)). It is apparent that Defendants here did not "innocently select" Plaintiff's 1-800 CONTACTS mark for inclusion in its proprietary directory of terms. Instead, WhenU.com's president and CEO testified and affirmed in a sworn affidavit that the 1-800 CONTACTS trademark was included in the WhenU.com proprietary directory. (Tr. at 134.)

Actual or constructive knowledge of a trademark owner's exclusive right to use a registered mark may signal bad faith. Mobil Oil at 259. Here, Defendant WhenU.com has knowingly included Plaintiff's mark in the SaveNow proprietary software directory, to increase the competitive advantage of Defendant Vision Direct. Such knowing use of Plaintiff's mark supports a finding of bad faith. Accordingly, this factor tips in favor of Plaintiff.

g. Quality of the Defendant's services

The quality of Defendant's product may be relevant because:

(1) an inferior product may cause injury to the plaintiff trademark owner because people may think that the senior and junior products came from the same source; or (2) products of equal quality may tend to create confusion as to source because of this very similarity.

Hormel Foods Corp. v. Jim Henson Prods., 73 F.3d 497, 505 (2d Cir.1996).

Plaintiff notes that "Defendants' services may or may not have the same quality as Plaintiff's services," but argues that the fact that Defendant's services are of comparable quality may confuse customers further, "precisely because the services are so similar." (Pl. Oct. 9, 2002 at 22.) However, here there is no evidence regarding the quality of Defendant's products. Without evidence, this factor could cut in favor of either Defendants or Plaintiff, Tommy Hilfiger Licensing, Inc. v. Nature Labs, LLC, 221 F.Supp.2d 410, 420 (S.D.N.Y.2002), and accordingly the Court finds it to be of assistance to neither Plaintiff nor Defendants.

h. Sophistication of the Consumers

Plaintiff argues that the level of care and attention paid by consumers on the Internet is diminished, and that therefore this factor cuts in Plaintiff's favor, as the likelihood of confusion will be high. (Pl. Oct. 9, 2002 at 23.) (citing Something Old, Something New, Inc. v. QVC, Inc., 53 U.S.P.Q.2d 1715, 1724 (S.D.N.Y.1999)). In Something Old, Something New, the court considered the sophistication of consumers purchasing goods from a cable television and website home shopping network and found that "[a]rguably, home shoppers are more subject to impulse buying than store shoppers; the product can be easily glorified and the consequence of the purchase can be masked." Id. By contrast, here there are no passive couch-potato consumers. Internet shoppers have a specific product in mind when they go online and have the ability to navigate the Internet to get what they want. Moreover, in the mixed publishing/retailing context of the Internet, (Tr. at 88-90), only a few clicks of a mouse by the consumer separates a pop-up advertisement from an actual purchase by that consumer. Thus, consumers who have typed Plaintiff's < 1800Contacts.com> URL into the browser bar are clearly searching for contact lens products, and expect to be able to complete a transaction with Plaintiff in a short span of time, with little effort or transaction costs.

However, whether or not consumers of replacement contact lenses on the Internet are "sophisticated" will not change the harm that flows from initial interest confusion, since that harm arises when consumers' interest is diverted from Plaintiff's products by association of Plaintiff's trademark with Defendants' products. Since [503] the harm from initial interest confusion does not depend on actual confusion, the sophistication of consumers does not mitigate the likelihood of initial interest confusion. Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254, 260 (2d Cir.1987) (upholding a finding of trademark infringement where defendant's use of plaintiff's mark made probable "that potential purchasers would be misled into an initial interest" in defendant competitor's product, despite the sophistication of the consumers); Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867, 875 (2d Cir.1986) (sophistication of the buyers of expensive designer blue jeans contributed to, rather than prevented, initial interest confusion caused by infringer's use of trademark stitching patterns substantially similar to mark owner's, since sophisticated jeans consumers would be more likely to assume some sort of association between the mark-owner and the infringer); Grotrian, Helfferich, Schulz, Th. Steinweg Nachf v. Steinway and Sons, 523 F.2d 1331, 1342 (2d Cir.1975); New York State Soc. of Certified Public Accountants v. Eric Louis Associates, Inc., 79 F.Supp.2d 331, 341-42 (S.D.N.Y.1999) (sophistication of consumers does not mitigate initial interest confusion, since sophisticated consumers are as likely to be initially confused as unsophisticated consumers); Kompan A.S. v. Park Structures, Inc., 890 F.Supp. 1167 (N.D.N.Y.1995) (holding that the sophistication of purchasers of expensive playground equipment does not prevent initial confusion caused by defendants copying of plaintiff's trade dress).

The fact that Defendants' pop-up advertisement for competing Internet contact lenses retailers appears shortly after a consumer types into the browser bar Plaintiff's trademarked name and accesses Plaintiff's homepage increases the likelihood that a consumer might assume Defendants' pop-up advertisements are endorsed or licensed by Plaintiff, since the user will first see the 1-800 Contacts website, with logos and graphics, and then will see the pop-up advertisement. Planned Parenthood Fed'n. of Amer., Inc. v. Bucci, 1997 WL 133313, *8 (S.D.N.Y.1997) (plaintiff's mark appeared during a short delay while trademark infringer's homepage loaded, increasing the likelihood that Internet users would believe they had accessed plaintiff's website). Even if a consumer who clicked on Defendants' pop-up advertisements and accessed Defendant Vision Direct's website eventually realized — prior to purchasing anything — that Vision Direct's website was not related to Plaintiff, the consumer might then proceed to purchase replacement contacts on Vision Direct's website, instead of taking the steps necessary to return to Plaintiff's website. Bihari v. Gross 119 F.Supp.2d 309, 319 (S.D.N.Y.2000); BigStar Entm't, Inc. v. Next Big Star, 105 F.Supp.2d 185, 207 (S.D.N.Y.2000). Accordingly, this factor weighs in favor of the Plaintiff.

i. Other Factors: Branding by WhenU.com

Defendant WhenU.com argues that it has taken steps to ensure effectively there will be no confusion among consumers as to the source of the pop-up advertisements. Advertisement windows generated by Defendant WhenU's SaveNow software are "branded" — a green "$" mark and the text "SaveNow!" are affixed to the top of the window. (Naider Aff. ¶ 42; Memo in Opposition at 11.) On the upper right-hand corner of the SaveNow ad windows, next to the "X" symbol that typically closes windows, is a "?" symbol that, when clicked, opens a new window containing an explanation of the SaveNow software and a direct link to a page with more detailed information for removing or "uninstalling" the software. (Memo in Opposition at 11.) At the bottom right of the advertisement window is text stating: "A WhenU offer — click ? for info." (Memo in Opposition at [504] 11^[55] (citing Upjohn Co. v. AHPC, 598 F.Supp. 550, 561-62 (S.D.N.Y.1984))).

WhenU.com argues that its disclaimers are "the preferred way of alleviating consumer confusion." (WhenU.com Memorandum at 23). WhenU.com argues further that, "unlike the use of trademarks in metatags to "trick" consumers into believing that a website is in fact the website that they intended to visit, where ... consumers see both the website they accessed as well as WhenU's clearly labelled ad, they are not likely to be confused." (Memorandum in Opposition at 24, n. 14 (citing Bihari v. Gross, 119 F.Supp.2d 309, 321-322 (S.D.N.Y.2000))).

While the Second Circuit has "found the use of disclaimers to be an adequate remedy when they are sufficient to avoid substantially the risk of consumer confusion," it is also important to note that "each case must be judged by considering the circumstances of the relevant business and its consumers." See Home Box Office, Inc. v. Showtime/The Movie Channel Inc., 832 F.2d 1311, 1315 (2d Cir.1987).

Here, consumer confusion caused by the pop-up advertisements can hardly be alleviated by WhenU's use of disclaimers with terms that are buried in other web pages, requiring viewers to scroll down or click on a link. Moreover, Defendant "has failed to come forth with any evidence whatsoever to support its contention that the disclaimer would reduce consumer confusion." Charles of the Ritz Group Ltd. v. Quality King Distribs., Inc., 832 F.2d 1317, 1324 (2d Cir.1987). The burden imposed upon Defendants to "come forward with evidence sufficient to demonstrate that [its disclaimers] would significantly reduce the likelihood of consumer confusion" is a heavy one. Home Box Office, Inc. v. Showtime/The Movie Channel Inc., 832 F.2d 1311 (2d Cir.1987).

Even if Defendants had offered evidence of the effect of its branding and disclaimers, such evidence would do little to counter Plaintiff's showing of the likelihood of initial interest confusion. OBH, Inc. v. Spotlight Magazine Inc., 86 F.Supp.2d 176, 190 (W.D.N.Y.2000) (rejecting disclaimer defense because defendant's disclaimer could not remedy initial interest confusion caused by defendant's use of plaintiff's mark on its website); NYS Soc'y of CPAs v. Eric Louis Associates, 79 F.Supp.2d 331 (S.D.N.Y.1999) (same); Planned Parenthood Fed'n of Am., Inc. v. Bucci, 1997 WL 133313 (S.D.N.Y.1997) (same); cf. Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867 (2d Cir.1986) (finding a likelihood of confusion in the post-sale context, and finding that "[a]ppellants' labeling in no way dispels the likelihood that consumers will conclude that appellants' jeans are somehow connected to appellee by virtue of the nearly identical stitching patterns").

Accordingly, Defendant WhenU's use of the "Save!" brand, the "A WhenU ad" brand, and the license agreement on installation do not alleviate Plaintiff's showing of a likelihood of confusion.

In sum, as discussed above, the Polaroid factors weigh heavily in favor of the Plaintiff's showing a likelihood of both source confusion and initial interest confusion. Having established a likelihood of confusion, Plaintiff has established both a likelihood [505] of success on the merits and irreparable harm on its trademark infringement claim. Hasbro, Inc. v. Lanard Toys. Ltd., 858 F.2d 70, 73 (2d Cir.1988).

C. Cybersquatting

The Second Circuit has described cybersquatting as follows:

Cybersquatting involves the registration as domain names of well-known trademarks by non-trademark holders who then try to sell the names back to the trademark owners. Since domain name registrars do not check to see whether a domain name request is related to existing trademarks, it has been simple and inexpensive for any person to register as domain names the marks of established companies. This prevents use of the domain name by the mark owners, who not infrequently have been willing to pay `ransom' in order to get `their names' back.

Sporty's Farm L.L.C. v. Sportsman's Market, Inc., 202 F.3d 489, 493 (2d Cir.2000)

In passing the Anticybersquatting Consumer Protection Act ("ACPA"), Pub.L. No. 106-113 (1999), Congress provided a federal remedy for cybersquatting. 15 U.S.C. § 1125(d)(1)(A) provides

A person shall be liable in a civil action by the owner of a mark, including a personal name which is protected as a mark under this section, if, without regard to the goods or services of the parties, that person —

(i) has a bad faith intent to profit from that mark, including a personal name which is protected as a mark under this section; and

(ii) registers, traffics in, or uses a domain name that

(I) in the case of a mark that is distinctive at the time of registration of the domain name, is identical or confusingly similar to that mark;

(II) in the case of a famous mark that is famous at the time of the registration of the domain name, is identical or confusingly similar to or dilutive of that mark; ...

15 U.S.C. § 1125(d)(1)(A).

"[A] court may order the forfeiture or cancellation of the domain name or the transfer of the domain name to the owner of the mark." 15 U.S.C. § 1125(d)(1)(C).

Plaintiff 1-800 Contacts has continuously used its marks in commerce since its inception in 1995. (Mathison Aff. ¶ 6.) Defendant Vision Direct registered^[56] and maintains its registration in the domain name www.www1800Contacts.com. (Barrier Aff. Ex. A.) Plaintiff argues that this domain name is "almost identical" to Plaintiff's www.1-800Contacts.com website domain name, and that Defendant Vision Direct registered and maintains the www.www1800Contacts.com domain name with the bad faith intent to divert consumers from the 1-800 Contacts website to Defendant Vision Direct's website, and to profit from the use of Plaintiff's mark. (Pl. 10/9/02 at 32.) Vision Direct has not addressed these arguments.

The Court has already concluded that the 1-800 Contacts mark is suggestive, and also distinctive. See Discussion, supra.

The domain name registered by Defendant Vision Direct, www.www1800Contacts.com, differs from Plaintiff's 1-800 Contacts mark in the addition of the web prefix "www" and the omission of spaces. These distinctions are not significant.^[57]

The statute provides that

[506] In determining whether a person has a bad faith intent described under subparagraph (a), a court may consider factors such as, but not limited to

(I) the trademark or other intellectual property rights of the person, if any, in the domain name;

(II) the extent to which the domain name consists of the legal name of the person or a name that is otherwise commonly used to identify that person;

(III) the person's prior use, if any, of the domain name in connection with the bona fide offering of any goods or services;

(IV) the person's bona fide noncommercial or fair use of the mark in a site accessible under the domain name;

(V) the person's intent to divert consumers from the mark owner's online location to a site accessible under the domain name that could harm the goodwill represented by the mark, either for commercial gain or with the intent to tarnish or disparage the mark, by creating a likelihood of confusion as to the source, sponsorship, affiliation, or endorsement of the site;

* * * *

(IX) the extent to which the mark incorporated in the person's domain name registration is or is not distinctive and famous within the meaning of subsection (c)(1) of this section.

15 U.S.C. § 1125(d)(1)(B)(i).

Relying on these factors, it is apparent that Vision Direct has acted with bad faith. Vision Direct has no trademark rights in the domain name, is not identified by the domain name, has not demonstrated any prior bona fide use of the domain name or any site accessible using the domain name — accordingly, these factors weigh in favor of the Plaintiff. 15 U.S.C. § 1125(d)(1)(B)(i)(I-IV). Defendant Vision Direct and Plaintiff are competitors, offering virtually identical services over the Internet — this alone tends to show that Vision Direct has registered the www.www1800Contacts.com domain name with the "intent to divert consumers from the mark owner's online location to a site accessible under the domain name that could harm the goodwill represented by the mark, either for commercial gain or with the intent to tarnish or disparage the mark, by creating a likelihood of confusion as to the source, sponsorship, affiliation, or endorsement of the site." 15 U.S.C. § 1125(d)(1)(B)(i)(V).

Accordingly, the Court finds sufficient evidence to establish the bad faith of Defendant Vision Direct in registering and maintaining the www.www1800Contacts.com domain name. Based on the foregoing, Plaintiff has established a likelihood of success on its Cybersquatting claims.

Some district courts have found the trademark infringment principle applies in cybersquatting actions under the ACPA — that irreparable harm may be caused by the improper registration, trafficking or use of a confusingly similar domain name. E.g. Advance Magazine Publishers Inc. v. Vogue Int'l, 123 F.Supp.2d 790, 801 (D.N.J.2000) (citing Shields v. Zuccarini, 89 F.Supp.2d 634, 641 (E.D.Pa.2000)). However, other courts have not applied this principle, and have required a showing of irreparable harm to the plaintiff. E.g., BroadBridge Media, L.L.C. v. Hypercd.com, 106 F.Supp.2d 505, 509-10 (S.D.N.Y.2000). The Second Circuit has not weighed in on the distinction between irreparable harm for purposes of trademark infringement claims and cybersquatting claims. This Court joins the courts that find irreparable harm may be presumed on a motion for a preliminary injunction in a cybersquatting case where a [507] plaintiff has shown a likelihood of success on the merits.^[58] Accordingly, issuance of a preliminary injunction against Defendant Vision Direct's use of the domain name www.www1800Contacts.com is appropriate.

D. Mootness

Defendant Vision Direct argues it should not be preliminarily enjoined in this case because any grounds for relief that Plaintiff may have had prior to the filing of the lawsuit have been mooted.^[59] (Vision Direct Jan. 31, 2003 at 3.) Vision Direct notes that it voluntarily instructed its co-defendant, WhenU.com, to cease placing "pop-up" ads on Plaintiff's website three weeks before this action was filed,^[60] and claims it has no intention of resuming use of the offending pop-up advertising. (Id. at 2-3; Mummery Dec. ¶ 7, 8.) Vision Direct also notes that it sued Coastal Contacts for substantially the same conduct in 02-Civ-9788. (Vision Direct Jan. 31, 2003 at 3.)

Although Vision Direct may have ceased its use of the complained-of pop-up advertisements, the Court nonetheless has authority to issue a preliminary injunction. See Blisscraft of Hollywood v. United Plastics Co., 294 F.2d 694, 701 (2d Cir.1961) (Injunction issued against future infringement although the defendant discontinued the use of offending labels, since the defendant continued to dispute the validity of the trademark); United States v. W.T. Grant Co., 345 U.S. 629, 633, 73 S.Ct. 894, 97 L.Ed. 1303 (1953) ("[t]he court's power to grant injunctive relief survives discontinuance of the illegal conduct" since the "purpose of an injunction is to prevent future conduct"). Moreover, since here there is little to support a conclusion that use by Defendant Vision Direct of pop-up advertisements will not reoccur, the Court rejects Defendant's claim that a preliminary injunction should not issue merely because Defendant has ceased the offending conduct. E.g., United Farm Workers v. Sloan's Supermarkets, Inc., 352 F.Supp. 1025, 1028-29 (S.D.N.Y.1972); Consumers Union of United States, Inc. v. Theodore Hamm Brewing Co., 314 F.Supp. 697, 701 (D.Conn.1970); Consumers Union of United States, Inc. v. Admiral Corp., 186 F.Supp. 800, 801 (S.D.N.Y.1960).

Vision Direct's claim that "no likelihood exists that Vision Direct will resume causing pop-up advertisements to appear on 1-800's web pages" is supported by nothing more than the affidavit of Ian Mummery stating that "Vision Direct has no intention of again participating in pop-up advertising." (Mummery Dec. at ¶ 8.) This avowed lack of "intention" to participate is a far cry from a guarantee by Vision Direct that it will not participate in pop-up advertising in the future. Here, Vision Direct has not convinced the Court that it has voluntarily done "everything within its power" to ensure that "there is not even a slight danger that it would now turn around and embark upon another course of deceptive conduct." Twentieth Century [508] Fox v. Suarez Corp., 1998 WL 126065, *3-5 (S.D.N.Y.1998)(denying preliminary injunction where defendant voluntarily changed website and attempted to cancel 42 advertisements, and "[p]laintiff ... specifically conceded that the defendant [did] everything within its power to cancel all advertisements").

Vision Direct argues that the balance of the hardships weighs in favor of denying the injunction, because of the harm to its reputation that will result from the imposition of a preliminary injunction against it. In support of its argument, Vision Direct cites United Farm Workers v. Sloan's Supermarkets, Inc., 352 F.Supp. at 1028-29. In Sloan's, the court acknowledged that "a preliminary injunction is not precluded merely because the action complained of has ceased, or because it was inadvertent, or because the defendant has sworn it will not happen again, or because the defendant might suffer some harm from the injunction," but held that the balance of harms tipped in favor of denying a preliminary injunction where "[t]he mere announcement to the public that [defendant] had been preliminarily enjoined ... would convey an incorrect impression of the defendant's position with regard to the plaintiff union; would misrepresent its good faith efforts; and would likely do considerable injury to its general business reputation which is not presently justified by the record".

However, here Vision Direct has offered only statements by Ian Mummery, that

[a] preliminary injunction against Vision Direct would undoubtedly damage it, possibly irreparably. Vision Direct's reputation is unblemished and must remain so if Vision Direct is to continue its spectacular success. Customers will undoubtedly be hesitent [sic] to purchase contact lenses from a company that has been enjoined.

(Mummery Dec. ¶ 9.)

Mr. Mummery provides no basis for his conclusions about what "undoubtedly" might happen. Notwithstanding his speculation, it is far from clear that enjoining Defendant Vision Direct from placing pop-up advertisements on Plaintiff's website will have any effect at all on sales by Vision Direct. Accordingly, these statements are insufficient to sustain Vision Direct's burden of showing that a preliminary injunction will harm its good will and reputation.

E. Other Claims

Plaintiff advances several other related theories under the Lanham Act and state law, in support of its Motion for Preliminary Injunction. As none of those theories, if established, would entitle plaintiff to greater relief" than that appropriate under its infringement and cybersquatting claims, "there is no need to consider them." E.G.L. Gem Lab Ltd. v. Gem Quality Institute, Inc., 90 F.Supp.2d 277, 298 (S.D.N.Y.2000).

F. Remedies

Defendant uses Plaintiff's mark within the meaning of the Lanham Act by causing pop-up advertisements to appear when SaveNow users have specifically attempted to find or access Plaintiff's website, by either typing Plaintiff's web address into the browser bar or by typing the Plaintiff's mark into a search engine. Defendant also uses Plaintiff's mark by including Plaintiff's mark and confusingly similar terms as elements in the proprietary SaveNow directory. These uses are likely to cause source confusion and initial interest confusion.

As Professor Deighton noted, the distinction between marketing and publishing [509] may be diminishing in the context of the unique environment of the Internet. (Tr. at 88-90.) On the other hand, technological advances should not trample on the traditionally-protected rights established by the trademark infringement laws. On the Internet, online shoppers have a myriad of competing retailers literally at their fingertips, are easily able to research preferences, and with very little time and effort are able to enact their preferences with purchases. In this context, the good will and reputation that Plaintiff and other online retailers have established is of extreme importance. Plaintiff has spent considerable sums to establish and maintain its marks' notoriety with online consumers, and is entitled to protect this investment from conduct that infringes those marks. An online shopper who has knowledge of Plaintiff's mark and an interest sufficient to choose to visit or find Plaintiff's website is a potential buyer that Plaintiff is entitled to protect from confusion.

Enjoining the Defendants from triggering pop-up advertisements when SaveNow users type in Plaintiff's website address and/or type Plaintiff's mark into a search engine will prevent Defendants from capitalizing on the goodwill and reputation that Plaintiff has earned through its own investment. Such an injunction will eliminate the likelihood that a SaveNow user will be confused as to the source of the pop-up advertisements that appear when the 1-800 Contacts website is accessed; it will also eliminate the likelihood that a SaveNow user would be lured from Plaintiff's website to Defendant Vision Direct's website in the initial phases of the user's attempts to shop for contact lens products on Plaintiff's website.

Of course, an injunction should not impede traffic in the more general free-for-all of the Internet superhighway, where general information is often sought. For example, a SaveNow user who enters a generic term such as "contact lenses" into a search engine is clearly looking for general information, and has not exhibited any preference for 1-800 Contacts. Plaintiff's website, as well as Defendant Vision Direct's website, may appear on the results page of the search engine along with other contact lens retailers and manufacturers. In this environment, all contact lens retailers including Plaintiff and Defendant Vision Direct, are "on the same page," and the unique interplay of publishing and marketing provided by the technology of the Internet should be given free reign.

Accordingly, it is appropriate that Defendants be preliminarily enjoined from using Plaintiff's mark or confusingly similar terms as an element in the SaveNow proprietary directory. It is also appropriate that Defendants be preliminarily enjoined from causing pop-up advertisements to appear when a computer user has made a specific choice to access or find Plaintiff's website by typing Plaintiff's mark into the URL bar of a web browser or into an Internet search engine.

Since it is likely that Plaintiff will succeed in its claims that Defendant Vision Direct registered and maintained a registration of the domain name www.www1800Contacts.com, that the domain name is confusingly similar to Plaintiff's 1800Contacts mark, and that the registration and maintenance of registration was in bad faith, it is also appropriate that Defendant Vision Direct be and hereby is ORDERED to cancel its registration of the domain name www.www1800Contacts.com.

III. CONCLUSION

For the foregoing reasons, 1-800 Contacts' Motion for a preliminary injunction is GRANTED in part and in DENIED in part.

[510] Defendants are preliminarily enjoined from: 1) including the 1-800 Contacts mark, and confusingly similar terms, as elements in the SaveNow software directory, and 2) displaying Plaintiff's mark "in the ... advertising of" Defendant Vision Direct's services, by causing Defendant Vision Direct's pop-up advertisements to appear when a computer user has made a specific choice to access or find Plaintiff's website by typing Plaintiff's mark into the URL bar of a web browser or into an Internet search engine. Within 30 days of the date of this Order, Defendants SHALL effect this injunction.

Plaintiff's Motion for preliminary injunctive relief on its cybersquatting claims is GRANTED. Defendant Vision Direct shall within 30 days of the date of this Order cancel its registration of the www.www1800Contacts.com domain name.

Plaintiff's Motion for preliminary injunctive relief on its copyright claims is DENIED.

The parties shall appear before the Court for a case conference on January 16, 2004 at 11:00 AM.

SO ORDERED.

[1] Plaintiff's claims included: 1.) Trademark infringement, in violation of the Section 32(1) of the Lanham Act, 15 U.S.C. § 1114; 2.) Unfair Competition, in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); 3.) False designation of origin, in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); 4.) Trademark dilution, in violation of Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c); 5.) Cybersquatting, in violation of Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(d); 6.) Copyright infringement, in violation of the Federal Copyright Act, 17 U.S.C. §§ 101, et seq.; 7.) Contributory Copyright Infringement, in violation of the Federal Copyright Act, 17 U.S.C. §§ 101, et seq.; 8.) Dilution of trademark and/or injury to business reputation, in violation of N.Y.G.B.L. § 360-1; 9.) Common law unfair competition; and 10.) Tortious Interference with Prospective Economic Advantage.

[2] With its Preliminary Injunction Motion, Plaintiff filed a Memorandum of Law ("Pl. October 9, 2002"), supported by the Declaration of Jason Mathison ("Mathison Dec.") and the Affidavit of Amy Barrier ("Barrier Aff.").

[3] In a follow-up call on October 24, 2002, the parties notified the Court that they had formalized a stipulation, under which the parties ceased pop-up advertising activities on each others' websites, to "continue in effect through a hearing by this Court on Plaintiff's Motion for a Preliminary Injunction." (October 29, 2002 Stipulation and Order at 4). The Court signed the Stipulation on October 29, 2002 and reset the Preliminary Injunction hearing date to February 24, 2003.

[4] Defendant WhenU.com's Opposition was supported by the Affidavit of Avi Naider ("Naider Aff."), the Declaration of Dr. Jacob Jacoby ("Jacoby Dec."), and the Declaration of Dr. John A. Deighton ("Deighton Dec.")

[5] WhenU.com's Opposition was supported by the Declaration of Ian Mummery ("Mummery Dec.").

[6] References to the Preliminary Injunction hearing transcript are denoted by "Tr."

[7] Appended to Plaintiff's Complaint is Certificate of Registration No. VA-1-032-662, which provides, inter alia, that the "1800 Contacts Web site" was completed in the year 2000, that the work was first published on March 1, 2000, and that the effective date of the copyright registration was October, 2, 2000. (Compl., Ex. D.)

[8] Mr. Mathison's Declaration states that "Approximately 221,864 people visited the website in the past month" — his declaration was dated October 4, 2002.

[9] See fn. 13, infra.

[10] Examples of ISPs include Earthlink, Verizon, NetZero, America Online.

[11] Other examples of browser programs include Netscape Navigator, Opera, and Mozilla; in addition, many residential ISPs like Earthlink and America Online provide their own proprietary browsers.

[12] With appropriate software, any computer that is connected to the Internet can act as a server, by providing access, via the Internet, to other computer users who are connected to the Internet. Thus, there are many, many servers acting as "hosts" for information that is found on the Internet.

[13] The Second Circuit has explained that

Web pages are designated by an address called a domain name. A domain name consists of two parts: a top level domain and a secondary level domain. The top level domain is the domain name's suffix. Currently, the Internet is divided primarily into six top level domains: (1) .edu for educational institutions; (2) .org for non-governmental and non-commercial organizations; (3) .gov for governmental entities; (4) .net for networks; (5) .com for commercial users, and (6) a nation-specific domain, which is .us in the United States. The secondary level domain is the remainder of the address, and can consist of combinations of letters, numbers, and some typographical symbols. To take a simple example, in the domain name "cnn.com," cnn ("Cable News Network") represents the secondary level domain and .com represents the top level domain. Each domain name is unique.

Sporty's Farm L.L.C. v. Sportsman's Market, Inc., 202 F.3d 489, 492-93 (2d Cir.2000).

In common usage, an "URL" (Uniform Resource Locator) is the location for a specific webpage, such that if the URL were entered into a browser, the webpage would appear. By contrast, a "domain name" is often used to refer to the URL for the "front" or "home" page of a website. Thus, the domain name for the 1-800 Contacts is www.1800Contacts.com, while the URL for a specific webpage within the 1-800 Contacts website might be www.1800Contacts.com/xxxxx.xxx, with the "x's" providing specific locations within the 1-800 Contacts domain. The URL of a webpage may be entered directly into a web browser to retrieve that webpage.

[14] Given that a single website contains text and information located on multiple servers, when a user's computer accesses a single website, the computer may be receiving information from several different servers. (Tr. at 140.) Avi Naider, CEO of WhenU analogized accessing a website to fishing:

The way a desktop computer actually operates is it communicates with multiple servers at the same time. So it's not a one-to-one thing. A desktop, even in the 1-800 Contacts web page, the text for the page might come from one server that might be owned by the 1-800 Contacts company, the images on the webpage might come from a commercial server somewhere that's set up to deliver images. Different elements on a desktop can come from lots of different places. Maybe the best way to describe a desktop is you've got lots of open fishing lines. Once you establish a connection into the Internet, you've sort of got your boat out into the ocean, and you can toss out lots of different lines to lots of different places and collect information from lots of different places.

(Tr. at 139.)

[15] Examples of search engines are www.Google.com, www.Yahoo.com and www.AskJeeves.com.

[16] The Second Circuit has defined the term "search engine" operationally:

A search engine will find all web pages on the Internet with a particular word or phrase. Given the current state of search engine technology, that search will often produce a list of hundreds of web sites through which the user must sort in order to find what he or she is looking for.

Sporty's Farm L.L.C. v. Sportsman's Market, Inc., 202 F.3d 489, 493 (2d Cir.2000)

[17] The directory is stored on the SaveNow user's computer as a part of the SaveNow application. (Naider Aff. ¶ 23.)

[18] "Pop-up" windows are windows containing notifications or advertisements that appear on the screen, usually without any triggering action by the computer user.

[19] E.g. if a user wants a free cartoon character screensaver, in order to get it the user has to accept also the other programs it is bundled with. The screensaver is the lure that hooks the user into downloading the bundled software.

[20] As demonstrated at the hearing, the first screen encountered by a user installing a typical software bundle is a welcome screen, the second screen contains a license agreement for a screensaver software program (not related to WhenU.com's software), the third screen contains an opportunity to join an email list for the screensaver program, and the fourth screen describes where on the computer the software will be installed. (Tr. at 68.)

[21] A "typical" SaveNow License Agreement states, in pertinent part:

SaveNow shows users relevant contextual information and offers as they surf the Web. There are a vast number of offers and services available to Internet users that SaveNow may display. In addition, WhenU.com negotiates exclusive offers to maximize value for users. The software's goal is to show users information about these offers and services — right at the moment when they need it. Offers and information are provided to users by showing a limited number of relevant ads in the form of interstitials ("pop-up ads") and other ad formats. These offers and ads are shown when users visit various sites across the Internet, based on URLs visited by the user and/or search terms typed into search engines and/or the HTML content of the page viewed by the user. SaveNow ads/offers are delivered independently from the site the user happens to be visiting when they see a SaveNow ad/offer and are not endorsed or affiliated with anyone other than WhenU.com.

(Naider Aff. ¶ 23, Ex. G.)

[22] The notice says:

This offer is brought to you by WhenU.com, through the SaveNow service. SaveNow alerts you to offers and services at the moment when they are most relevant to you. SaveNow does not collect any personal information or browsing history from its users. Your privacy is 100 percent protected. The offers shown to you by SaveNow are not affiliated with the site you are visiting. For more about SaveNow, click here or e-mail information at WhenU.com. At WhenU, we are committed to putting you in control of your Internet experience.

(Tr. at 58-59).

[23] In December 2002, subsequent to the filing of this lawsuit, WhenU.com replaced this text with a new disclaimer, stating: "This is a WhenU offer and is not sponsored or displayed by the websites you are visiting. More ..." If a user clicks on the "More," a new window displays the same statement that was generated when the user clicked on the "?" character. (Tr. at 58.) However, since "there is no guarantee that Defendants will not simply return to the same conduct if the case is dismissed without issuance of an injunction," the Court considers the disclaimers as they appeared at the time the action was filed. OBH, Inc. v. Spotlight Magazine, Inc., 86 F.Supp.2d 176, 186 n. 8 (W.D.N.Y.2000).

[24] In his "Description of Data Analyst Online Panel," Mr. Neal affirms that:

A sample of respondents was drawn from American Consumer OpinionTM Online, Decision Analyst, Inc.'s Internet panel of over 3,500,000 consumers. These respondents were screened, and qualified participants were invited to Decision Analyst's encrypted OpinionSurveyTM Internet server to complete the survey.

(Neal Aff., Ex. D.)

Mr. Neal notes that "[t]he maximum number of surveys completed per panel household is two surveys per month, although this maximum is rarely achieved. The average panel household participates in three or four studies per year." Id.

Mr. Neal also states that "Panels are recruited by a combination of online and offline methods (telephone, mail, banner advertising, print advertising, publicity). The recruiting is designed to make each panel as representative of its target population as possible. American Consumer OpinionTM Online is linked to over 1,000 other Internet sites to provide a steady stream of new panelists."

[25] Mr. Neal drew a "nationally representative stratified quota sample" from the internet panel, "balanced by geography and demographics such as age and income." (Neal Dec., Ex. D.)

[26] In response to Question 9, "Were you aware that, when viewing websites on the Internet, SaveNow software causes `Pop-Up' advertisements to be displayed on your computer which are not authorized by the website on which they apppear?", 75.74% of those respondents who had SaveNow on their computers responded "No." (Neal Dec., Ex. E.)

[27] In response to Question 4-1, "I believe that `Pop-Up' advertisements are placed on the website on which they appear by the owners of the website", 59.98% of those respondents who had SaveNow on their computers responded "Agree," while 61.11% who did not have SaveNow on their computers responded "Agree." (Neal Dec., Ex. E.)

[28] In response to Question 4-6, "I believe that `Pop-Up' advertisements have been pre-screened and approved by the website on which they appear", 52.04% of those respondents who had SaveNow on their computers responded "Agree," while 52.21% who did not have SaveNow on their computers responded "Agree." (Neal Dec., Ex. E.)

[29] In response to Question 5, "Prior to your participation in this survey, had you ever heard of a free software program offered by WhenU.com called SaveNow?", 51.02% of those respondents who had SaveNow on their computers responded "No." (Neal Dec., Ex. E.)

[30] In response to Question 6, "Prior to your participation in this survey, did you know that the SaveNow software from WhenU.com was installed on your computer?", 68.16% of those respondents who had SaveNow on their computers responded "No." (Neal Dec., Ex. E.)

[31] The "instant messaging" windows demonstrated were generated by an America Online program; however Mr. Naider testified that other instant messaging applications behaved similarly. (Tr. at 42.)

[32] Mr. Naider referred specifically to a video software, called "Realplayer," which he testified "every once in a while, something pops in front of my screen from them." (Tr. at 41.)

[33] Professor Deighton testified that "[c]reating a website is within the reach of a child." (Tr. at 87.)

[34] Mr. Mummery's declaration was attached to Vision Direct's opposition to Plaintiff's motion. However, although Mr. Mummery makes his declarations upon personal knowledge, (Mummery Dec. ¶ 1), he does not identify what position he holds at Vision Direct. Mr. Mummery was not called to testify at the Preliminary Injunction hearing.

[35] On December 11, 2002, Defendant Vision Direct filed a separate action, Vision Direct v. WhenU.Com and Coastal Contacts, Inc., 02-Civ-9788 (DAB), against WhenU.com, its co-defendant in this case, and against Coastal Contacts, a Canadian corporation that is not a party in this case. With the complaint in 02-Civ-9788, Vision Direct also filed an application for an ex parte Temporary Restraining Order. The Court held a conference call with counsel for all parties to both cases on December 16, 2002. Based on that call, on December 18, 2002 the Court denied Vision Direct's application for a Temporary Restraining Order, and denied the parties' requests for full discovery in this case until the disposition of the Preliminary Injunction motion.

[36] Citing Abdul Wali v. Coughlin, 754 F.2d 1015, 1025 (2d Cir.1985), Plaintiff argues that, to show a likelihood of success on the merits, a party moving for a preliminary injunction "need not show that success is an absolute certainty," but that instead a movant need only show that the probability of success is "better than 50%" despite the fact that "considerable room for doubt" may remain about the ultimate case outcome. (Memorandum in Support at 12). Plaintiff misstates the relevant standard, since the Second Circuit specifically noted in Abdul Wali that where, as here, a grant of preliminary injunctive relief would do more than merely maintain the status quo, the movant "must show a substantial likelihood of success on the merits, i.e., that their cause is considerably more likely to succeed than fail." 754 F.2d 1015, 1026 overruled on other grounds, 482 U.S. 342, 107 S.Ct. 2400, 96 L.Ed.2d 282 (1987).

[37] Plaintiff argues that, under New York Times Co. v. Tasini, 533 U.S. 483, 121 S.Ct. 2381, 150 L.Ed.2d 500 (2001), "this Court must view Plaintiff's website as would a PC user surfing the web in order to determine whether Defendant modified Plaintiff's copyrighted works." Plaintiff appears to read Tasini too broadly. (Pl. Feb. 28, 2003 at 7). In Tasini, the Supreme Court held that the privilege accorded a newspaper, as a collective work copyright owner under § 201(c) of the Copyright Act, to reproduce and distribute parts of a collective work did not shield the newspaper from liability for permitting electronic publishers to include the work of individual authors in electronic online Databases. Tasini, 533 U.S. at 500, 121 S.Ct. 2381. The Court explained that "[i]n determining whether the Articles have been reproduced and distributed `as part of' a `revision' of the collective works in issue, we focus on the Articles as presented to, and perceptible by, the user of the Databases." Tasini, 533 U.S. at 499-500, 121 S.Ct. 2381. Although the Tasini Court turned to the perceptions of the computer user to determine whether articles had been reproduced and distributed "as part of" a "revision" of collective works for purposes of § 201(c), Tasini does not require this Court to "view Plaintiff's website as would a PC user surfing the web in order to determine whether Defendant modified Plaintiff's copyrighted works" in preparing a derivative work in violation of 17 U.S.C. § 106(2).

[38] Memorandum in Support, at 28 (citing Matthew Bender & Co., Inc. v. West Publ'g Co., 158 F.3d 693 (2d Cir.1998)).

[39] Plaintiff cites Aymes v. Bonelli, 47 F.3d 23, 25 (2d Cir.1995) as support for this proposition. However, in Aymes the defendant conceded that it had altered the computer program at issue and thereby created a "derivative work." Aymes, 47 F.3d at 25.

[40] The lack of any "fixation" here explains why Plaintiff errs in its assertion that this case is analogous to National Bank of Commerce v. Shaklee Corp., 503 F.Supp. 533 (W.D.Tex.1980). While in this case any "derivative" work created when a computer user views Plaintiff's copyrighted website as modified by Defendants' pop-up advertisements is not fixed in any tangible medium of expression, the books published with unauthorized interspersed advertisements in National Bank of Commerce v. Shaklee Corp., were clearly "fixed" in print.

[41] Arrow Fastener Co. v. Stanley Works, 59 F.3d 384, 390 (2d Cir.1995) (internal citations omitted); Estee Lauder, Inc. v. The Gap, Inc., 108 F.3d 1503, 1508 (2d Cir.1997).

[42] On a telephone keypad, 1-800 HOLIDAY translates numerically as 1-800 469-4329.

[43] While this case was sub judice, Defendants called to the Court's attention two decisions denying a preliminary injunction, by finding that "use" did not occur. In Wells Fargo & Co. v. WhenU.com, 293 F.Supp.2d 734, 763 (E.D.Mich.2003), the court determined that inclusion in SaveNow's proprietary directory of the Plaintiff's trademark was not "use," based on its reading of Sixth Circuit case law. In U-Haul Intern., Inc. v. WhenU.com, Inc., 279 F.Supp.2d 723, 728 (E.D.Va.2003), the court made a similar ruling based on a factual finding that WhenU.com uses the marks for a "pure machine-linking function." This Court disagrees with, and is not bound by these findings.

[44] In Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 631 F.Supp. 735 (S.D.N.Y.1985), the plaintiff sought a declaration that the pattern of stitching on the back pockets of its jeans, which was virtually identical to the trademarked stitch pattern on the back pocket of the declaratory defendant's jeans — "two curved arches intercepting at midpoint" — did not infringe defendant's trademark. Id. at 737-39.

The district court held that, even if there were little likelihood of point-of-sale confusion among consumers, there was a "substantial likelihood of confusion among prospective purchasers viewing the marks in a post-sale context," and accordingly granted summary judgment for defendants. Id. at 747-48.

On appeal, the Second Circuit reaffirmed that harm to a trademark owner — resulting from the likelihood that misuse of a mark might attract potential consumers to the junior user's product "based on the reputation built up by [the trademark owner]" — was actionable under the Lanham Act, and that "the Lanham Act was designed to prevent a competitor from such a bootstrapping of a trademark owner's goodwill ..." Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867, 872 (2d Cir.1986).

[45] A metatag is "buried code" that is not visible to Internet users, which is referenced by domain name search engines or directories to determine whether a website corresponds to descriptive keywords entered into the search engine by a computer user. Those websites with metatags corresponding to the requested keywords appear on the computer screen as the search engine's response. Brookfield, 174 F.3d at 1061-62 n. 23.

[46] The facts of the case required the 9th Circuit to clarify whether use of a competitor's mark in a website's "metatags" infringed the competitor's rights under the Lanham Act. The Ninth Circuit defined "metatags" as "HTML code not visible to Web users but used by search engines in determining which sites correspond to the keywords entered by a Web user." Brookfield Communications, Inc., 174 F.3d at 1061 n. 23.

[47] See Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir.), cert. denied, 368 U.S. 820, 82 S.Ct. 36, 7 L.Ed.2d 25 (1961).

[48] In Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867, 872 (2d Cir.1986), the Second Circuit stated

the Polaroid factors must be applied in the instant case with an eye to how they bear on the likelihood that the appellants' use of appellee's trademark stitching pattern will confuse consumers into thinking that appellee is somehow associated with appellants or has consented to their use of the stitching pattern regardless of labeling.

[49] "The ultimate conclusion as to whether a likelihood of confusion exists is not to be determined in accordance with some rigid formula. The Polaroid factors serve as a useful guide through a difficult quagmire. Each case, however, presents its own peculiar circumstances." Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 799 F.2d 867, 872 (2d Cir.1986).

[50] "The steady application of Polaroid is critical to the proper development of trademark law, for it is only when the Polaroid factors are applied consistently and clearly over time that the relevant distinctions between different factual configurations can emerge." New Kayak Pool Corp. v. R & P Pools, Inc., 246 F.3d 183 (2d Cir.2001) (remanding for consideration of the Polaroid factors).

[51] Defendant argues that "1-800 CONTACTS" is "merely" a phone number that uses the generic term "contacts," and that the 1-800 CONTACTS mark and logo are therefore entitled to protection only against confusingly similar phone numbers. (Memorandum in Opposition at 21-22.) However, the case Defendant cites in support of this argument, Dial-A-Mattress Franchise Corp. v. Page, 880 F.2d 675, 678 (2d Cir.1989), does not limit the protection of telephone numbers against trademark infringement solely to "confusingly similar phone numbers." Instead, the court in Dial-A-Mattress stated

[t]he principles limiting protection for the use of generic terms serve to prevent a marketer from appropriating for its exclusive use words that must remain available to competitors to inform their customers as to the nature of the competitor's business or product. These principles do not require that a competitor remain free to confuse the public with a telephone number or the letters identifying that number that are deceptively similar to those of a first user.

Id. at 678.

[52] It is also of note here that Defendant Vision Direct registered and maintains a registration for the domain name www.www1800Contacts.com.

[53] Traditional cases addressing the question of similarity in the Polaroid factors have contemplated that the consumer actually sees or hears the parties' marks or logos, and might confuse the junior mark with the senior mark. In the Internet context, the issue is not whether the WhenU or Vision Direct marks themselves are similar to the Plaintiff's marks, but whether the marks used by the Defendants (whether actually seen by the consumer or not) are so similar to Plaintiff's mark that that similarity could ultimately cause consumer confusion. See Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1061 n. 23 (9th Cir.1999) (placement of a trademarked term in metatags, which the court defined as "HTML code not visible to Web users but used by search engines in determining which sites correspond to the keywords entered by a Web user," was actionable use under the Lanham Act).

[54] Question 4-2 reads, "I believe that anyone should have the right to place `Pop-Up' advertisements on any website at any time, even if the owner of the website does not authorize or approve it." (Neal Aff., Ex. C at 32.) By suggesting in the second clause that the pop-up ads might be unauthorized, Mr. Neal's survey suggests that they should not be permitted on the website. Question 4-5 reads: "I believe that `Pop-Up' advertisements are sometimes not sponsored by or authorized by the website on which they appear." However, Question 9 reads: "Were you aware that, when viewing websites on the Internet, SaveNow software causes `Pop-Up' advertisements to be displayed on your computer which are not authorized by the website on which they appear?" (Neal Aff., Ex. C at 35.) Since Question 9 flatly states that pop-up ads generated by SaveNow software are unauthorized, the survey itself suggest the answer to Question 4-5.

[55] As noted above, in December 2002, subsequent to the filing of this lawsuit, WhenU.com replaced this text with a new disclaimer, stating: "This is a WhenU offer and is not sponsored or displayed by the websites you are visiting. More ...," (Memo in Opposition at 10). However, since "there is no guarantee that Defendants will not simply return to the same conduct if the case is dismissed without issuance of an injunction," the Court considers the disclaimers as they appeared at the time the action was filed. OBH, Inc. v. Spotlight Magazine, Inc., 86 F.Supp.2d 176, 186 n. 8 (W.D.N.Y.2000).

[56] It appears from that the registration occurred sometime in 2002. (Barrier Aff. Ex. A.)

[57] See discussion, infra, p. 497.

[58] It is not insignificant that Congress chose to make the ACPA part of the Lanham Act, and for purposes of preliminary injunctions on trademark infringement claims under the Lanham Act, irreparable harm is presumed upon a finding of a likelihood of confusion.

[59] Arguing "[i]f a defendant voluntarily ceases the complained-of activities, a preliminary injunction request is moot when there is no reasonable expectation that the complained-of activities will resume in the future," Defendant Vision Direct cites American Express Travel Related Services, Inc. v. MasterCard International, Inc., 776 F.Supp. 787, 790-91 (S.D.N.Y.1991); Upjohn v. American Home Products Corp., 598 F.Supp. at 550, 554-55. (Vision Direct Jan. 31, 2003 at 3.)

[60] Defendant alleges that it voluntarily ceased its pop-up advertising activities on September 17, 2002. (Mummery Dec. ¶ 7, 8.)

964 F.2d 965 (1992)

No. 91-16205.

Argued and Submitted March 12, 1992.
Decided May 21, 1992.
As Amended August 5, 1992.

[966] Thomas G. Gallatin, Jr., Mudge Rose Guthrie Alexander & Ferdon, New York City, for defendant-appellant.

Jerome B. Falk, Jr., Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, Cal., for plaintiff-appellee.

Before FARRIS and RYMER, Circuit Judges, and KENYON,^[1] District Judge.

[967] FARRIS, Circuit Judge:

Nintendo of America appeals the district court's judgment following a bench trial (1) declaring that Lewis Galoob Toys' Game Genie does not violate any Nintendo copyrights and dissolving a temporary injunction and (2) denying Nintendo's request for a permanent injunction enjoining Galoob from marketing the Game Genie. Lewis Galoob Toys, Inc. v. Nintendo of America, Inc., 780 F.Supp. 1283 (N.D.Cal.1991). We have appellate jurisdiction pursuant to 15 U.S.C. § 1121 and 28 U.S.C. §§ 1291 and 1292(a)(1). We affirm.

FACTS

The Nintendo Entertainment System is a home video game system marketed by Nintendo. To use the system, the player inserts a cartridge containing a video game that Nintendo produces or licenses others to produce. By pressing buttons and manipulating a control pad, the player controls one of the game's characters and progresses through the game. The games are protected as audiovisual works under 17 U.S.C. § 102(a)(6).

The Game Genie is a device manufactured by Galoob that allows the player to alter up to three features of a Nintendo game. For example, the Game Genie can increase the number of lives of the player's character, increase the speed at which the character moves, and allow the character to float above obstacles. The player controls the changes made by the Game Genie by entering codes provided by the Game Genie Programming Manual and Code Book. The player also can experiment with variations of these codes.

The Game Genie functions by blocking the value for a single data byte sent by the game cartridge to the central processing unit in the Nintendo Entertainment System and replacing it with a new value. If that value controls the character's strength, for example, then the character can be made invincible by increasing the value sufficiently. The Game Genie is inserted between a game cartridge and the Nintendo Entertainment System. The Game Genie does not alter the data that is stored in the game cartridge. Its effects are temporary.

DISCUSSION

1. Derivative work

The Copyright Act of 1976 confers upon copyright holders the exclusive right to prepare and authorize others to prepare derivative works based on their copyrighted works. See 17 U.S.C. § 106(2). Nintendo argues that the district court erred in concluding that the audiovisual displays created by the Game Genie are not derivative works. The court's conclusions of law are reviewed de novo. See Rozay's Transfer v. Local Freight Drivers, Local 208, 850 F.2d 1321, 1326 (9th Cir.1988), cert. denied, 490 U.S. 1030, 109 S.Ct. 1768, 104 L.Ed.2d 203 (1989). Its findings of fact are reviewed for clear error. See id.

A derivative work must incorporate a protected work in some concrete or permanent "form." The Copyright Act defines a derivative work as follows:

A "derivative work" is a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a "derivative work."

17 U.S.C. § 101 (emphasis added). The examples of derivative works provided by the Act all physically incorporate the underlying work or works. The Act's legislative history similarly indicates that "the infringing work must incorporate a portion of the copyrighted work in some form." 1976 U.S.Code Cong. & Admin.News 5659, 5675. See also Mirage Editions, Inc. v. Albuquerque A.R.T. Co., 856 F.2d 1341, 1343-44 (9th Cir.1988) (discussing same), cert. denied, 489 U.S. 1018, 109 S.Ct. 1135, 103 L.Ed.2d 196 (1989).

Our analysis is not controlled by the Copyright Act's definition of "fixed." The [968] Act defines copies as "material objects, other than phonorecords, in which a work is fixed by any method." 17 U.S.C. § 101 (emphasis added). The Act's definition of "derivative work," in contrast, lacks any such reference to fixation. See id. Further, we have held in a copyright infringement action that "[i]t makes no difference that the derivation may not satisfy certain requirements for statutory copyright registration itself." Lone Ranger Television v. Program Radio Corp., 740 F.2d 718, 722 (9th Cir.1984). See also Paul Goldstein, Derivative Rights and Derivative Works in Copyright, 30 J. Copyright Soc'y U.S.A. 209, 231 n. 75 (1983) ("the Act does not require that the derivative work be protectable for its preparation to infringe"). Cf. Kalem Co. v. Harper Bros., 222 U.S. 55, 61, 32 S.Ct. 20, 21, 56 L.Ed. 92 (1911) (finding the movie "Ben Hur" infringed copyright in the book Ben Hur even though Copyright Act did not yet include movies as protectable works). A derivative work must be fixed to be protected under the Act, see 17 U.S.C. § 102(a), but not to infringe.

The argument that a derivative work must be fixed because "[a] `derivative work' is a work," 17 U.S.C. § 101, and "[a] work is `created' when it is fixed in a copy or phonorecord for the first time," id., relies on a misapplication of the Copyright Act's definition of "created":

A work is `created' when it is fixed in a copy or phonorecord for the first time; where a work is prepared over a period of time, the portion of it that has been fixed at any particular time constitutes the work as of that time, and where the work has been prepared in different versions, each version constitutes a separate work.

Id. The definition clarifies the time at which a work is created. If the provision were a definition of "work," it would not use that term in such a casual manner. The Act does not contain a definition of "work." Rather, it contains specific definitions: "audiovisual works," "literary works," and "pictorial, graphic and sculptural works," for example. The definition of "derivative work" does not require fixation.

The district court's finding that no independent work is created, see Galoob, 780 F.Supp. at 1291, is supported by the record. The Game Genie merely enhances the audiovisual displays (or underlying data bytes) that originate in Nintendo game cartridges. The altered displays do not incorporate a portion of a copyrighted work in some concrete or permanent form. Nintendo argues that the Game Genie's displays are as fixed in the hardware and software used to create them as Nintendo's original displays. Nintendo's argument ignores the fact that the Game Genie cannot produce an audiovisual display; the underlying display must be produced by a Nintendo Entertainment System and game cartridge. Even if we were to rely on the Copyright Act's definition of "fixed," we would similarly conclude that the resulting display is not "embodied," see 17 U.S.C. § 101, in the Game Genie. It cannot be a derivative work.

Mirage Editions is illustrative. Albuquerque A.R.T. transferred artworks from a commemorative book to individual ceramic tiles. See Mirage Editions, 856 F.2d at 1342. We held that "[b]y borrowing and mounting the preexisting, copyrighted individual art images without the consent of the copyright proprietors ... [Albuquerque A.R.T.] has prepared a derivative work and infringed the subject copyrights." Id. at 1343. The ceramic tiles physically incorporated the copyrighted works in a form that could be sold. Perhaps more importantly, sales of the tiles supplanted purchasers' demand for the underlying works. Our holding in Mirage Editions would have been much different if Albuquerque A.R.T. had distributed lenses that merely enabled users to view several artworks simultaneously.

Nintendo asserted at oral argument that the existence of a $150 million market for the Game Genie indicates that its audiovisual display must be fixed. We understand Nintendo's argument; consumers clearly would not purchase the Game Genie if its display was not "sufficiently permanent or [969] stable to permit it to be perceived ... for a period of more than transitory duration." 17 U.S.C. § 101. But, Nintendo's reliance on the Act's definition of "fixed" is misplaced. Nintendo's argument also proves too much; the existence of a market does not, and cannot, determine conclusively whether a work is an infringing derivative work. For example, although there is a market for kaleidoscopes, it does not necessarily follow that kaleidoscopes create unlawful derivative works when pointed at protected artwork. The same can be said of countless other products that enhance, but do not replace, copyrighted works.

Nintendo also argues that our analysis should focus exclusively on the audiovisual displays created by the Game Genie, i.e., that we should compare the altered displays to Nintendo's original displays. Nintendo emphasizes that "`[a]udiovisual works' are works that consist of a series of related images ... regardless of the nature of the material objects ... in which the works are embodied." 17 U.S.C. § 101 (emphasis added). The Copyright Act's definition of "audiovisual works" is inapposite; the only question before us is whether the audiovisual displays created by the Game Genie are "derivative works." The Act does not similarly provide that a work can be a derivative work regardless of the nature of the material objects in which the work is embodied. A derivative work must incorporate a protected work in some concrete or permanent form. We cannot ignore the actual source of the Game Genie's display.

Nintendo relies heavily on Midway Mfg. Co. v. Artic Int'l, Inc., 704 F.2d 1009 (7th Cir.), cert. denied, 464 U.S. 823, 104 S.Ct. 90, 78 L.Ed.2d 98 (1983). Midway can be distinguished. The defendant in Midway, Artic International, marketed a computer chip that could be inserted in Galaxian video games to speed up the rate of play. The Seventh Circuit held that the speeded-up version of Galaxian was a derivative work. Id. at 1013-14. Artic's chip substantially copied and replaced the chip that was originally distributed by Midway. Purchasers of Artic's chip also benefited economically by offering the altered game for use by the general public. The Game Genie does not physically incorporate a portion of a copyrighted work, nor does it supplant demand for a component of that work. The court in Midway acknowledged that the Copyright Act's definition of "derivative work" "must be stretched to accommodate speeded-up video games." Id. at 1014. Stretching that definition further would chill innovation and fail to protect "society's competing interest in the free flow of ideas, information, and commerce." Sony Corp. of America v. Universal Studios, Inc., 464 U.S. 417, 429, 104 S.Ct. 774, 782, 78 L.Ed.2d 574 (1984).

In holding that the audiovisual displays created by the Game Genie are not derivative works, we recognize that technology often advances by improvement rather than replacement. See Christian H. Nadan, Note, A Proposal to Recognize Component Works: How a Teddy Bears on the Competing Ends of Copyright Law, 78 Cal.L.Rev. 1633, 1635 (1990). Some time ago, for example, computer companies began marketing spell-checkers that operate within existing word processors by signalling the writer when a word is misspelled. These applications, as well as countless others, could not be produced and marketed if courts were to conclude that the word processor and spell-checker combination is a derivative work based on the word processor alone. The Game Genie is useless by itself, it can only enhance, and cannot duplicate or recaste, a Nintendo game's output. It does not contain or produce a Nintendo game's output in some concrete or permanent form, nor does it supplant demand for Nintendo game cartridges. Such innovations rarely will constitute infringing derivative works under the Copyright Act. See generally Nadan, supra, at 1667-72.

2. Fair use

"The doctrine of fair use allows a holder of the privilege to use copyrighted material in a reasonable manner without the consent of the copyright owner." Narell v. Freeman, 872 F.2d 907, 913 (9th Cir.1989) (citations omitted). The district court concluded that, even if the audiovisual displays created by the Game Genie are derivative works, Galoob is not liable under 17 U.S.C. § 107 because the displays are a fair use of Nintendo's copyrighted displays. "Whether a use of copyrighted material is a `fair use' is a mixed question of law and fact. If the district court found sufficient facts to evaluate each of the statutory factors, the appellate court may decide whether defendants may claim the fair use defense as a matter of law." Abend v. MCA, Inc., 863 F.2d 1465, 1468 (9th Cir.1988), aff'd sub nom. Stewart v. Abend, 495 U.S. 207, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990).

[970] Section 107 codifies the fair use defense:

In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include —

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(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;

(4) the effect of the use upon the potential market for or value of the copyrighted work.

The factors are nonexclusive, see Fisher v. Dees, 794 F.2d 432, 435 (9th Cir.1986), and section 107 does not indicate how much weight should be ascribed to each.

Much of the parties' dispute regarding the fair use defense concerns the proper focus of the court's inquiry: (1) Galoob or (2) consumers who purchase and use the Game Genie. Nintendo's complaint does not allege direct infringement, nor did it try the case on that theory. The complaint, for example, alleges only that "Galoob's marketing advertising [sic], promoting and selling of Game Genie has and will contribute to the creation of infringing derivatives of Nintendo's copyrighted ... games." (emphasis added). Contributory infringement is a form of third party liability. See Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright § 12.04[A][2], at 12-68 (1991). The district court properly focused on whether consumers who purchase and use the Game Genie would be infringing Nintendo's copyrights by creating (what are now assumed to be) derivative works.

Nintendo emphasizes that the district court ultimately addressed its direct infringement by authorization argument. The court concluded that, "[b]ecause the Game Genie does not create a derivative work when used in conjunction with a copyrighted video game, Galoob does not `authorize the use of a copyrighted work without the actual authority from the copyright owner.'" Galoob, 780 F.Supp. at 1298 (quoting Sony, 464 U.S. at 435 n. 17, 104 S.Ct. at 785 n. 17). Although infringement by authorization is a form of direct infringement, this does not change the proper focus of our inquiry; a party cannot authorize another party to infringe a copyright unless the authorized conduct would itself be unlawful.

Nintendo disputes this conclusion. According to Nintendo, a party can unlawfully authorize another party to use a copyrighted work even if that party's use of the work would not violate the Copyright Act. Nintendo's argument is unpersuasive. In Sony, 464 U.S. at 449, 104 S.Ct. at 792, for example, the Court considered whether consumers were using the Betamax for a commercial or noncommercial purpose even though Sony itself obviously was acting in its own commercial self-interest. Professor Nimmer similarly concludes that, "to the extent that an activity does not violate one of those five enumerated rights [see 17 U.S.C. § 106], authorizing such activity does not constitute copyright infringement." 3 Nimmer on Copyright § 12.04[A][3][a], at 12-80 n.82.

The district court concluded that "a family's use of a Game Genie for private home enjoyment must be characterized as a non-commercial, nonprofit activity." Galoob, 780 F.Supp. at 1293. Nintendo argues that Game Genie users are supplanting its commercially valuable right to make and sell derivative works. Nintendo's reliance on Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 562, 105 S.Ct. 2218, 2231, 85 L.Ed.2d 588 (1985), is misplaced. The commercially valuable right at issue in Harper & Row was the right of first publication; Nation Enterprises intended to publish the copyrighted materials for profit. See id. at 562-63, 105 S.Ct. at 2231-32. See also Sony, 464 U.S. at 449, 104 S.Ct. at 792 ("If the Betamax were used to make copies for a commercial or profit-making purpose, such use would presumptively be unfair."). Game Genie users are engaged in a non-profit activity. Their use of the Game Genie to create derivative works therefore is presumptively fair. See Sony, 464 U.S. at 449, 104 S.Ct. at 792.

The district court also concluded that "[t]he [Nintendo] works' published nature supports the fairness of the use." Galoob, 780 F.Supp. at 1293. Nintendo argues that it has not published the derivative works created by the Game Genie. This argument ignores the plain language of section 107: "the factors to be considered shall include ... the nature of the copyrighted work." The argument also would make the fair use defense unavailable in all cases of derivative works, including "criticism, comment, news reporting, teaching ..., scholarship, or research." 17 U.S.C. § 107. A commentary that incorporated large portions of For Whom the Bell Tolls, for [971] example, would be undeserving of fair use protection because the incorporated portions would constitute an unpublished derivative work. This cannot be the law.

The district court further concluded that the amount of the portion used in relation to the copyrighted work as a whole "cannot assist Nintendo in overcoming the presumption of fair use." Galoob, 780 F.Supp. at 1293. The video tape recorders at issue in Sony allowed consumers to tape copyrighted works in their entirety. The Supreme Court nevertheless held that, "when one considers ... that [video tape recording] merely enables a viewer to see such a work which he had been invited to witness in its entirety free of charge, the fact that the entire work is reproduced does not have its ordinary effect of militating against a finding of fair use." 464 U.S. at 449-50, 104 S.Ct. at 792 (citations omitted). Consumers are not invited to witness Nintendo's audiovisual displays free of charge, but, once they have paid to do so, the fact that the derivative works created by the Game Genie are comprised almost entirely of Nintendo's copyrighted displays does not militate against a finding of fair use.

Nintendo would distinguish Sony because it involved copying copyrighted works rather than creating derivative works based on those works. In other words, the consumers in Sony could lawfully copy the copyrighted works because they were invited to view those works free of charge. Game Genie users, in contrast, are not invited to view derivative works based on Nintendo's copyrighted works without first paying for that privilege. Sony cannot be read so narrowly. It is difficult to imagine that the Court would have reached a different conclusion if Betamax purchasers were skipping portions of copyrighted works or viewing denouements before climaxes. Sony recognizes that a party who distributes a copyrighted work cannot dictate how that work is to be enjoyed. Consumers may use a Betamax to view copyrighted works at a more convenient time. They similarly may use a Game Genie to enhance a Nintendo Game cartridge's audiovisual display in such a way as to make the experience more enjoyable.

"The fourth factor is the `most important, and indeed, central fair use factor.'" Stewart, 495 U.S. at 238, 110 S.Ct. at 1769 (quoting 3 Nimmer on Copyright § 13.05[A], at 13-81). The district court concluded that "Nintendo has failed to show any harm to the present market for its copyrighted games and has failed to establish the reasonable likelihood of a potential market for slightly altered versions of the games at suit." Galoob, 780 F.Supp. at 1295. Nintendo's main argument on appeal is that the test for market harm encompasses the potential market for derivative works. Because the Game Genie is used for a noncommercial purpose, the likelihood of future harm may not be presumed. See Sony, 464 U.S. at 451, 104 S.Ct. at 793. Nintendo must show "by a preponderance of the evidence that some meaningful likelihood of future harm exists." Id. (emphasis supplied).

Nintendo's argument is supported by case law. Although the Copyright Act requires a court to consider "the effect of the use upon the potential market for or value of the copyrighted work," 17 U.S.C. § 107(4) (emphasis added), we held in Abend that "[a]lthough the motion picture will have no adverse effect on bookstore sales of the [underlying] novel — and may in fact have a beneficial effect — it is `clear that [the film's producer] may not invoke the defense of fair use.'" 863 F.2d at 1482 (quoting 3 Nimmer on Copyright § 13.05[B], at 13-84). We explained: "`If the defendant's work adversely affects the value of any of the rights in the copyrighted work ... the use is not fair even if the rights thus affected have not as yet been exercised by the plaintiff.'" Id. (quoting 3 Nimmer on Copyright § 13.05[B], at 13-84 to 13-85 (footnotes omitted)). The Supreme Court specifically affirmed our finding that the motion picture adaptation "impinged on the ability to market new versions of the story." Stewart, 495 U.S. at 238, 110 S.Ct. at 1769.

Still, Nintendo's argument is undermined by the facts. The district court considered the potential market for derivative works based on Nintendo game cartridges and found that: (1) "Nintendo has not, to date, issued or considered issuing altered versions of existing games," Galoob, 780 F.Supp. at 1295, and (2) Nintendo "has failed to show the reasonable likelihood of such a market." Id. The record supports the court's findings. According to Stephen Beck, Galoob's expert witness, junior or expert versions of existing Nintendo games would enjoy very little market interest because the original version of each game already has been designed to appeal to the largest number of consumers. Mr. Beck [972] also testified that a new game must include new material or "the game player is going to feel very cheated and robbed, and [the] product will have a bad reputation and word of mouth will probably kill its sales." Howard Lincoln, Senior Vice President of Nintendo of America, acknowledged that Nintendo has no present plans to market such games.

The district court also noted that Nintendo's assertion that it may wish to re-release altered versions of its game cartridges is contradicted by its position in various other lawsuits:

In those actions, Nintendo opposes antitrust claims by using the vagaries of the video game industry to rebut the impact and permanence of its market control, if any. Having indoctrinated this Court as to the fast pace and instability of the video game industry, Nintendo may not now, without any data, redefine that market in its request for the extraordinary remedy sought herein.... While board games may never die, good video games are mortal.

Galoob, 780 F.Supp. at 1295. The existence of this potential market cannot be presumed. See Sony, 464 U.S. at 451, 104 S.Ct. at 793. See also Wright v. Warner Books, Inc., 953 F.2d 731, 739 (2d Cir.1991) (affirming district court's finding of no reasonable likelihood of injury to alleged market because "[p]laintiff has offered no evidence that the project will go forward"). The fourth and most important fair use factor also favors Galoob.

Nintendo's most persuasive argument is that the creative nature of its audiovisual displays weighs against a finding of fair use. The Supreme Court has acknowledged that "fair use is more likely to be found in factual works than fictional works." Stewart, 495 U.S. at 237, 110 S.Ct. at 1769. This consideration weighs against a finding of fair use, but it is not dispositive. See Sony, 464 U.S. at 448, 104 S.Ct. at 792 (fair use defense is an "equitable rule of reason"). The district court could properly conclude that Game Genie users are making a fair use of Nintendo's displays.

3. Temporary and permanent injunction

Galoob has not violated the Copyright Act. Nintendo therefore is not entitled to a temporary or permanent injunction.

AFFIRMED.

RYMER, Circuit Judge, concurring in the judgment:

I concur in the judgment for reasons stated by the district court, Lewis Galoob Toys, Inc. v. Nintendo of America, Inc., 780 F.Supp. 1283 (N.D.Cal.1991).

[1] Honorable David V. Kenyon, United States District Judge for the Central District of California, sitting by designation.

154 F.3d 1107

1998 Copr.L.Dec. P 27,820, 48 U.S.P.Q.2d 1026,
98 Cal. Daily Op. Serv. 7130,
98 Daily Journal D.A.R. 9859

MICRO STAR, Plaintiff-Appellant,
v.
FORMGEN INC., a corporation; GT Interactive Software Corp.;
3D Realms Entertainment, aka 3D Realms
Entertainment; DOES, 1 through 100,
inclusive., Defendants-Appellees.
MICRO STAR, Plaintiff-Appellant/Cross-Appellee,
v.
FORMGEN INC., a corporation; GT Interactive Software Corp.;
3D Realms Entertainment, aka 3D Realms
Entertainment; Does, 1 through 100,
inclusive., Defendants-Appellees/Cross-Appellants.

Nos. 96-56426, 96-56433.

United States Court of Appeals,
Ninth Circuit.

Argued and Submitted Nov. 4, 1997.
Decided Sept. 11, 1998.

[1109] Philip H. Stillman, Flynn, Sheridan, Tabb & Stillman, San Diego, CA, for plaintiff-appellant/cross-appellee.

Michael S. Oberman, Kramer, Levin, Naftalis & Frankel, New York City, for defendants-appellees/cross-appellants.

Mark E. Nebergall, Mark Traphagen, Software Publishers Association, Washington, DC, for defendants-appellees/cross-appellants.

Gail E. Markels, Interactive Digital Software Association, New York City, for defendants-appellees/cross-appellants.

Appeal from the United States District Court for the Southern District of California Marilyn L. Huff, District Judge, Presiding. D.C. No. CV-96-03435-MLH.

Before: KOZINSKI, THOMPSON^[*] and TROTT, Circuit Judges.

KOZINSKI, Circuit Judge.

Duke Nukem routinely vanquishes Octabrain and the Protozoid Slimer. But what about the dreaded Micro Star?

I

FormGen Inc., GT Interactive Software Corp. and Apogee Software, Ltd. (collectively FormGen) made, distributed and own the rights to Duke Nukem 3D (D/N-3D), an immensely popular (and very cool) computer game. D/N-3D is played from the first-person perspective; the player assumes the personality and point of view of the title character, who is seen on the screen only as a pair of hands and an occasional boot, much as one might see oneself in real life without the aid of a mirror.^[1] Players explore a futuristic city infested with evil aliens and other hazards. The goal is to zap them before they zap you, while searching for the hidden passage to the next level. The basic game comes with twenty-nine levels, each with a different combination of scenery, aliens, and other challenges. The game also includes a "Build Editor," a utility that enables players to create their own levels. With FormGen's encouragement, players frequently post levels they have created on the Internet where others can download them. Micro Star, a computer software distributor, did just that: It downloaded 300 user-created levels and stamped them onto a CD, which it then sold commercially as Nuke It (N/I). N/I is packaged in a box decorated with numerous "screen shots," pictures of what the new levels look like when played.

Micro Star filed suit in district court, seeking a declaratory judgment that N/I did not infringe on any of FormGen's copyrights. FormGen counterclaimed, seeking a preliminary injunction barring further production and distribution of N/I. Relying on Lewis Galoob Toys, Inc. v. Nintendo of Am., Inc., 964 F.2d 965 (9th Cir.1992), the district court held that N/I was not a derivative work and therefore did not infringe FormGen's copyright. The district court did, however, grant a preliminary injunction as to the screen shots, finding that N/I's packaging violated FormGen's copyright by reproducing pictures of D/N-3D characters without a license. The court rejected Micro Star's fair use claims. Both sides appeal their losses.

II

A party seeking a preliminary injunction must show "either a likelihood of success on the merits and the possibility of irreparable injury, or that serious questions going to the merits were raised and the balance of hardships tips sharply in its favor." Johnson Controls, Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173, 1174 (9th Cir.1989). Because "in a copyright infringement claim, a showing of a reasonable likelihood of success on the merits raises a presumption of irreparable harm," id., FormGen need only show a likelihood of success on the merits to get the preliminary injunction it seeks (barring the manufacture and distribution of N/I) and to preserve the preliminary injunction it already won (barring the screen shots on N/I's packaging).

III

To succeed on the merits of its claim that N/I infringes FormGen's copyright, FormGen must show (1) ownership of the copyright to D/N-3D, and (2) copying of protected expression by Micro Star. See Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330, 1335 (9th Cir.1995). FormGen's [1110] copyright registration creates a presumption of ownership, see id., and we are satisfied that FormGen has established its ownership of the copyright. We therefore focus on the latter issue.

FormGen alleges that its copyright is infringed by Micro Star's unauthorized commercial exploitation of user-created game levels. In order to understand FormGen's claims, one must first understand the way D/N-3D works. The game consists of three separate components: the game engine, the source art library and the MAP files.^[2] The game engine is the heart of the computer program; in some sense, it is the program. It tells the computer when to read data, save and load games, play sounds and project images onto the screen. In order to create the audiovisual display for a particular level, the game engine invokes the MAP file that corresponds to that level. Each MAP file contains a series of instructions that tell the game engine (and, through it, the computer) what to put where. For instance, the MAP file might say scuba gear goes at the bottom of the screen. The game engine then goes to the source art library, finds the image of the scuba gear, and puts it in just the right place on the screen.^[3] The MAP file describes the level in painstaking detail, but it does not actually contain any of the copyrighted art itself; everything that appears on the screen actually comes from the art library. Think of the game's audiovisual display as a paint-by-numbers kit. The MAP file might tell you to put blue paint in section number 565, but it doesn't contain any blue paint itself; the blue paint comes from your palette, which is the low-tech analog of the art library, while you play the role of the game engine. When the player selects one of the N/I levels, the game engine references the N/I MAP files, but still uses the D/N-3D art library to generate the images that make up that level.

FormGen points out that a copyright holder enjoys the exclusive right to prepare derivative works based on D/N-3D. See 17 U.S.C. § 106(2) (1994). According to FormGen, the audiovisual displays generated when D/N-3D is run in conjunction with the N/I CD MAP files are derivative works that infringe this exclusivity. Is FormGen right? The answer is not obvious.

The Copyright Act defines a derivative work as

a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a "derivative work."

Id. § 101. The statutory language is hopelessly overbroad, however, for "[e]very book in literature, science and art, borrows and must necessarily borrow, and use much which was well known and used before." Emerson v. Davies, 8 F. Cas. 615, 619 (C.C.D.Mass.1845) (No. 4436), quoted in 1 Nimmer on Copyright, § 3.01, at 3-2 (1997). To narrow the statute to a manageable level, we have developed certain criteria a work must satisfy in order to qualify as a derivative work. One of these is that a derivative work must exist in a "concrete or permanent form," Galoob, 964 F.2d at 967 (internal quotation marks omitted), and must substantially incorporate protected material from the preexisting work, see Litchfield v. Spielberg, 736 F.2d 1352, 1357 (9th Cir.1984). Micro Star argues that N/I is not a derivative work because the audiovisual displays generated when D/N-3D is run with N/I's MAP files are [1111] not incorporated in any concrete or permanent form, and the MAP files do not copy any of D/N-3D's protected expression. It is mistaken on both counts.

The requirement that a derivative work must assume a concrete or permanent form was recognized without much discussion in Galoob. There, we noted that all the Copyright Act's examples of derivative works took some definite, physical form and concluded that this was a requirement of the Act. See Galoob, 964 F.2d at 967-68; see also Edward G. Black & Michael H. Page, Add-On Infringements, 15 Hastings Comm/Ent. L.J. 615, 625 (1993) (noting that in Galoob the Ninth Circuit "re-examined the statutory definition of derivative works offered in section 101 and found an independent fixation requirement of sorts built into the statutory definition of derivative works"). Obviously, N/I's MAP files themselves exist in a concrete or permanent form; they are burned onto a CD-ROM. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1453 (7th Cir.1996) (computer files on a CD are fixed in a tangible medium of expression). But what about the audiovisual displays generated when D/N-3D runs the N/I MAP files--i.e., the actual game level as displayed on the screen? Micro Star argues that, because the audiovisual displays in Galoob didn't meet the "concrete or permanent form" requirement, neither do N/I's.

In Galoob, we considered audiovisual displays created using a device called the Game Genie, which was sold for use with the Nintendo Entertainment System. The Game Genie allowed players to alter individual features of a game, such as a character's strength or speed, by selectively "blocking the value for a single data byte sent by the game cartridge to the [Nintendo console] and replacing it with a new value." Galoob, 964 F.2d at 967. Players chose which data value to replace by entering a code; over a billion different codes were possible. The Game Genie was dumb; it functioned only as a window into the computer program, allowing players to temporarily modify individual aspects of the game. See Lewis Galoob Toys, Inc. v. Nintendo of Am., Inc., 780 F.Supp. 1283, 1289 (N.D.Cal.1991).

Nintendo sued, claiming that when the Game Genie modified the game system's audiovisual display, it created an infringing derivative work. We rejected this claim because "[a] derivative work must incorporate a protected work in some concrete or permanent form." Galoob, 964 F.2d at 967 (internal quotation marks omitted). The audiovisual displays generated by combining the Nintendo System with the Game Genie were not incorporated in any permanent form; when the game was over, they were gone. Of course, they could be reconstructed, but only if the next player chose to reenter the same codes.^[4]

Micro Star argues that the MAP files on N/I are a more advanced version of the Game Genie, replacing old values (the MAP files in the original game) with new values (N/I's MAP files). But, whereas the audiovisual displays created by Game Genie were never recorded in any permanent form, the audiovisual displays generated by D/N-3D from the N/I MAP files are in the MAP files themselves. In Galoob, the audiovisual display was defined by the original game cartridge, not by the Game Genie; no one could possibly say that the data values inserted by the Game Genie described the audiovisual display. In the present case the audiovisual display that appears on the computer monitor when a N/I level is played is described--in exact detail--by a N/I MAP file.

This raises the interesting question whether an exact, down to the last detail, description of an audiovisual display (and--by definition--we know that MAP files do describe audiovisual displays down to the last detail) [1112] counts as a permanent or concrete form for purposes of Galoob. We see no reason it shouldn't. What, after all, does sheet music do but describe in precise detail the way a copyrighted melody sounds? See 1 William F. Patry, Copyright Law and Practice 168 (1994) ("[A] musical composition may be embodied in sheet music...."). To be copyrighted, pantomimes and dances may be "described in sufficient detail to enable the work to be performed from that description." Id. at 243 (citing Compendium II of Copyright Office Practices § 463); see also Horgan v. Macmillan, Inc., 789 F.2d 157, 160 (2d Cir.1986). Similarly, the N/I MAP files describe the audiovisual display that is to be generated when the player chooses to play D/N-3D using the N/I levels. Because the audiovisual displays assume a concrete or permanent form in the MAP files, Galoob stands as no bar to finding that they are derivative works.

In addition, "[a] work will be considered a derivative work only if it would be considered an infringing work if the material which it has derived from a preexisting work had been taken without the consent of a copyright proprietor of such preexisting work." Mirage Editions v. Albuquerque A.R.T. Co., 856 F.2d 1341, 1343 (quoting 1 Nimmer on Copyright § 3.01 (1986)) (internal quotation marks omitted). "To prove infringement, [FormGen] must show that [D/N-3D's and N/I's audiovisual displays] are substantially similar in both ideas and expression." Litchfield v. Spielberg, 736 F.2d 1352, 1356 (9th Cir.1984) (emphasis omitted). Similarity of ideas may be shown by comparing the objective details of the works: plot, theme, dialogue, mood, setting, characters, etc. See id. Similarity of expression focuses on the response of the ordinary reasonable person, and considers the total concept and feel of the works. See id. at 1356-57. FormGen will doubtless succeed in making these showings since the audiovisual displays generated when the player chooses the N/I levels come entirely out of D/N-3D's source art library. Cf. Atari, Inc. v. North Am. Philips Consumer Elec. Corp., 672 F.2d 607, 620 (7th Cir.1982) (finding two video games substantially similar because they shared the same "total concept and feel").

Micro Star further argues that the MAP files are not derivative works because they do not, in fact, incorporate any of D/N-3D's protected expression. In particular, Micro Star makes much of the fact that the N/I MAP files reference the source art library, but do not actually contain any art files themselves. Therefore, it claims, nothing of D/N-3D's is reproduced in the MAP files. In making this argument, Micro Star misconstrues the protected work. The work that Micro Star infringes is the D/N-3D story itself--a beefy commando type named Duke who wanders around post-Apocalypse Los Angeles, shooting Pig Cops with a gun, lobbing hand grenades, searching for medkits and steroids, using a jetpack to leap over obstacles, blowing up gas tanks, avoiding radioactive slime. A copyright owner holds the right to create sequels, see Trust Co. Bank v. MGM/UA Entertainment Co., 772 F.2d 740 (11th Cir.1985), and the stories told in the N/I MAP files are surely sequels, telling new (though somewhat repetitive) tales of Duke's fabulous adventures. A book about Duke Nukem would infringe for the same reason, even if it contained no pictures.^[5]

Micro Star nonetheless claims that its use of D/N-3D's protected expression falls within the doctrine of fair use, which permits unauthorized use of copyrighted works "for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research." 17 U.S.C. § 107; see Narell v. Freeman, 872 F.2d 907, 913 (9th Cir.1989). Section 107 instructs courts "determining whether the use made of a work in any particular case is a fair use" to consider four factors: (1) the purpose and character of the use, including whether it is commercial in nature; (2) the nature of the copyrighted work; (3) the amount and substantiality of the copied material in relation to the copyrighted work as a whole; and (4) the effect of the use on the potential market for the copyrighted work. 17 U.S.C. § 107.

[1113] As a preliminary matter, Micro Star asks us to focus on the player's use of the N/I CD in evaluating the fair use claim, because-according to Micro Star-the player actually creates the derivative work. In Galoob, after we assumed for purposes of argument that the Game Genie did create derivative works, we went on to consider the fair use defense from the player's point of view. See Galoob, 964 F.2d at 970. But the fair use analysis in Galoob was not necessary and therefore is clearly dicta. More significantly, Nintendo alleged only contributory infringement--that Galoob was helping consumers create derivative works; FormGen here alleges direct infringement by Micro Star, because the MAP files encompass new Duke stories, which are themselves derivative works.

Our examination of the section 107 factors yields straightforward results. Micro Star's use of FormGen's protected expression was made purely for financial gain. While that does not end our inquiry, see Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 584, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994), "every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright." Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 451, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984).^[6] The Supreme Court has explained that the second factor, the nature of the copyrighted work, is particularly significant because "some works are closer to the core of intended copyright protection than others, with the consequence that fair use is more difficult to establish when the former works are copied." Campbell, 510 U.S. at 586, 114 S.Ct. 1164. The fair use defense will be much less likely to succeed when it is applied to fiction or fantasy creations, as opposed to factual works such as telephone listings. See United Tel. Co. v. Johnson Publ'g Co., 855 F.2d 604, 609 (8th Cir.1988); see also Stewart v. Abend, 495 U.S. 207, 237, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990). Duke Nukem's world is made up of aliens, radioactive slime and freezer weapons-clearly fantasies, even by Los Angeles standards. N/I MAP files "expressly use[ ] the [D/N-3D] story's unique setting, characters, [and] plot," Stewart, 495 U.S. at 238, 110 S.Ct. 1750; both the quantity and importance of the material Micro Star used are substantial. Finally, by selling N/I, Micro Star "impinged on [FormGen's] ability to market new versions of the [D/N-3D] story." Stewart, 495 U.S. at 238, 110 S.Ct. 1750; see also Twin Peaks Productions, Inc. v. Publications Int'l, Ltd., 996 F.2d 1366, 1377 (2d Cir.1993). Only FormGen has the right to enter that market; whether it chooses to do so is entirely its business. "[N/I] neither falls into any of the categories enumerated in section 107 nor meets the four criteria set forth in section 107." Stewart, 495 U.S. at 237, 110 S.Ct. 1750. It is not protected by fair use.

Micro Star also argues that it is the beneficiary of the implicit license FormGen gave to its customers by authorizing them to create new levels. Section 204 of the Copyright Act requires the transfer of the exclusive rights granted to copyright owners (including the right to prepare derivative works) to be in writing. See 17 U.S.C. § 204(a); Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 556 (9th Cir.1990). A nonexclusive license may, however, be granted orally or implied by conduct. See Effects, 908 F.2d at 558. Nothing indicates that FormGen granted Micro Star any written license at all; nor is there evidence of a nonexclusive oral license. The only written license FormGen conceivably granted was to players who designed their own new levels, but that license contains a significant limitation: Any new levels the players create "must be offered [to others] solely for free." The parties dispute whether the license is binding, but it doesn't matter. If the license is valid, it clearly prohibits commercial distribution of levels; if it doesn't, FormGen hasn't granted any written licenses at all.^[7]

[1114] In case FormGen didn't license away its rights, Micro Star argues that, by providing the Build Editor and encouraging players to create their own levels, FormGen abandoned all rights to its protected expression. It is well settled that rights gained under the Copyright Act may be abandoned. But abandonment of a right must be manifested by some overt act indicating an intention to abandon that right. See Hampton v. Paramount Pictures Corp., 279 F.2d 100, 104 (9th Cir.1960). Given that it overtly encouraged players to make and freely distribute new levels, FormGen may indeed have abandoned its exclusive right to do the same. But abandoning some rights is not the same as abandoning all rights, and FormGen never overtly abandoned its rights to profit commercially from new levels. Indeed, FormGen warned players not to distribute the levels commercially and has actively enforced that limitation by bringing suits such as this one.

IV

Because FormGen will likely succeed at trial in proving that Micro Star has infringed its copyright, we reverse the district court's order denying a preliminary injunction and remand for entry of such an injunction. Of course, we affirm the grant of the preliminary injunction barring Micro Star from selling N/I in boxes covered with screen shots of the game. ^[8]

AFFIRMED in part, REVERSED in part, and REMANDED. Micro Star to bear costs of both appeals.

---------------

[*] Judge Thompson was drawn to replace Judge Floyd Gibson who became unavailable after the case was submitted.

[1] This form of play was pioneered by a company called id Software with its classic Wolfenstein 3D character.

[2] So-called because the files all end with the extension ".MAP". Also, no doubt, because they contain the layout for the various levels.

[3] Actually, this is all a bit metaphorical. Computer programs don't actually go anywhere or fetch anything. Rather, the game engine receives the player's instruction as to which game level to select and instructs the processor to access the MAP file corresponding to that level. The MAP file, in turn, consists of a series of instructions indicating which art images go where. When the MAP file calls for a particular art image, the game engine tells the processor to access the art library for instructions on how each pixel on the screen must be colored in order to paint that image.

[4] A low-tech example might aid understanding. Imagine a product called the Pink Screener, which consists of a big piece of pink cellophane stretched over a frame. When put in front of a television, it makes everything on the screen look pinker. Someone who manages to record the programs with this pink cast (maybe by filming the screen) would have created an infringing derivative work. But the audiovisual display observed by a person watching television through the Pink Screener is not a derivative work because it does not incorporate the modified image in any permanent or concrete form. The Game Genie might be described as a fancy Pink Screener for video games, changing a value of the game as perceived by the current player, but never incorporating the new audiovisual display into a permanent or concrete form.

[5] We note that the N/I MAP files can only be used with D/N-3D. If another game could use the MAP files to tell the story of a mousy fellow who travels through a beige maze, killing vicious saltshakers with paper-clips, then the MAP files would not incorporate the protected expression of D/N-3D because they would not be telling a D/N-3D story.

[6] Of course, transformative works have greater recourse to the fair use defense as they "lie at the heart of the fair use doctrine's guarantee of breathing space within the confines of copyright ... and the more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use." Campbell, 510 U.S. at 579, 114 S.Ct. 1164 (citations omitted). N/I can hardly be described as transformative; anything but.

[7] We would have no reason to sever the limitation from the license; the limitation is plainly stated in the User License, unambiguous, and not the least bit unreasonable. Indeed, it is precisely the sort of term we would expect to see in such a license.

[8] Micro Star raises various other claims alleging copyright misuse and abuse of the discovery process. However, nothing indicates that FormGen abused its copyright. See Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330, 1337 (9th Cir.1995). And we are at a loss to understand why Micro Star complains about the discovery process; certainly the district court did not abuse its discretion. See Sopcak v. Northern Mountain Helicopter Serv., 52 F.3d 817, 819 (9th Cir.1995).

EDWARD H. ROSENTHAL (Jeremy S. Goldman, Anna Kadyshevich, on the brief), Frankfurt Kurnit Klein & Selz, P.C., New York, NY, for Plaintiffs-Appellants.

JOSEPH PETERSEN (Robert Potter, Joseph Beck, Andrew Pequignot, Allison Scott Roach, on the brief), Kilpatrick Townsend & Stockton LLP, New York, NY, for Defendants-Appellees.

DANIEL F. GOLDSTEIN (Jessica P. Weber, on the brief), Brown Goldstein & Levy, LLP, Baltimore, MD; Robert J. Bernstein, New York, NY, on the brief; Peter Jaszi, Chevy Chase, MD, on the brief, for Intervenor Defendants-Appellees.

Jennifer M. Urban, Pamela Samuelson, David Hansen, Samuelson Law, Technology & Public Policy Clinic, University of California, Berkeley, School of Law, Berkeley, CA, for Amici Curiae 133 Academic Authors.

Blake E. Reid, Brian Wolfman, Institute for Public Representation, Georgetown University Law Center, Washington, DC, for Amicus Curiae American Association of People with Disabilities.

Jonathan Band, Jonathan Band PLLC, Washington, DC, for Amicus Curiae American Library Association.

David Leichtman, Hillel I. Parness, Shane D. St. Hill, Robins, Kaplan, Miller & Ciresi L.L.P., New York, NY, for Amicus Curiae American Society of Journalists and Authors, Inc.

Brian G. Joseph, Karyn K. Ablin, Wiley Rein LLP; Ada Meloy, General Counsel, American Council on Education, Washington, DC, for Amici Curiae American Council on Education, Association of American Universities, et al.

Elizabeth A. McNamara, Alison B. Schary, Colin J. Peng-Sue, Davis Wright Tremaine LLP, New York, NY, for Amicus Curiae the Associated Press.

Mary E. Rasenberger, Nancy E. Wolff, Eleanor M. Lackman, Nicholas J. Tardif, Cowan DeBaets, Abrahams & Sheppard LLP, New York, NY, for Amicus Curiae Association of American Publishers.

Jo Anne Simon, Mary J. Goodwin, Amy F. Robertson, Jo Anne Simon, P.C., Brooklyn, NY, for Amici Curiae Association on Higher Education and Disability, Marilyn J. Bartlett, et al.

Brandon Butler, Washington, DC, for Amici Curiae Beneficent Technolology, Inc., and Learning Ally, Inc.

Susan M. Kornfield, Bodman PLC, Ann Arbor, MI, for Amici Curiae Board of Trustees of the University of Illinois, Board of Trustees of Michigan State University, et al.

Jason Schultz, Berkeley, CA; Matthew Sag, Chicago, IL, for Amici Curiae Digital Humanities and Law Scholars.

Michael Waterstone, Los Angeles, CA; Robert Dinerstein, Washington, DC; Christopher H. Knauf, Knauf Associates, Santa Monica, CA; Michael Stein, Cambridge, MA, for Amici Curiae Disability Law Professors.

Roderick M. Thompson, Stephanie P. Skaff, Deepak Gupta, Rochelle L. Woods, Farella Braun + Martel LLP, San Francisco, CA; Corynne McSherry, Daniel Nazer, Electronic Frontier Foundation, San Francisco, CA; John Bergmayer, Public Knowledge, Washington, DC; David Sohn, Center for Democracy & Technology, Washington, DC, for Amicus Curiae Electronic Frontier Foundation.

Stephen M. Schaetzel, Meunier Carlin & Curfman, LLC, Atlanta, GA, for Amicus Curiae Emory Vaccine Center.

Frederick A. Brodie, Pillsbury Winthrop Shaw Pittman LLP, New York, NY, for Amicus Curiae the Leland Stanford Junior University.

Eric J. Grannis, The Law Offices of Eric J. Grannis, New York, NY, for Amici Curiae Medical Historians.

Steven B. Fabrizio, Kenneth L. Doroshow, Steven R. Englund, Jenner & Block LLP, Washington, DC, for Amicus Curiae Motion Picture Association of America, Inc.

Before: WALKER, CABRANES, and PARKER, Circuit Judges.

BARRINGTON D. PARKER, Circuit Judge.

Beginning in 2004, several research universities including the University of Michigan, the University of California at Berkeley, Cornell University, and the University of Indiana agreed to allow Google to electronically scan the books in their collections. In October 2008, thirteen universities announced plans to create a repository for the digital copies and founded an organization called HathiTrust to set up and operate the HathiTrust Digital Library (or "HDL"). Colleges, universities, and other nonprofit institutions became members of HathiTrust and made the books in their collections available for inclusion in the HDL. HathiTrust currently has 80 member institutions and the HDL contains digital copies of more than ten million works, published over many centuries, written in a multitude of languages, covering almost every subject imaginable. This appeal requires us to decide whether the HDL's use of copyrighted material is protected against a claim of copyright infringement under the doctrine of fair use. See 18 U.S.C. § 107.

BACKGROUND

A. The HathiTrust Digital Library

HathiTrust permits three uses of the copyrighted works in the HDL repository. First, HathiTrust allows the general public to search for particular terms across all digital copies in the repository. Unless the copyright holder authorizes broader use, the search results show only the page numbers on which the search term is found within the work and the number of times the term appears on each page. The HDL does not display to the user any text from the underlying copyrighted work (either in "snippet" form or otherwise). Consequently, the user is not able to view either the page on which the term appears or any other portion of the book.

Below is an example of the results a user might see after running an HDL full-text search:

[Image Omitted]

J.A. 681 ¶ 80 (Wilkin Decl.).

Second, the HDL allows member libraries to provide patrons with certified print disabilities access to the full text of copyrighted works. A "print disability" is any disability that prevents a person from effectively reading printed material. Blindness is one example, but print disabilities also include those that prevent a person from physically holding a book or turning pages. To use this service, a patron must obtain certification of his disability from a qualified expert. Through the HDL, a print-disabled user can obtain access to the contents of works in the digital library using adaptive technologies such as software that converts the text into spoken words, or that magnifies the text. Currently, the University of Michigan's library is the only HDL member that permits such access, although other member libraries intend to provide it in the future.

Third, by preserving the copyrighted books in digital form, the HDL permits members to create a replacement copy of the work, if the member already owned an original copy, the member's original copy is lost, destroyed, or stolen, and a replacement copy is unobtainable at a "fair" price elsewhere.

The HDL stores digital copies of the works in four different locations. One copy is stored on its primary server in Michigan, one on its secondary server in Indiana, and two on separate backup tapes at the University of Michigan.^[3] Each copy contains the full text of the work, in a machine readable format, as well as the images of each page in the work as they appear in the print version.

B. The Orphan Works Project

Separate and apart from the HDL, in May 2011, the University of Michigan developed a project known as the Orphan Works Project (or "OWP"). An "orphan work" is an out-of-print work that is still in copyright, but whose copyright holder cannot be readily identified or located. See U.S. Copyright Office, Notice of Inquiry, Orphan Works and Mass Digitization, 77 Fed. Reg. 64555 (Oct. 22, 2012).

The University of Michigan conceived of the OWP in two stages: First, the project would attempt to identify out-of-print works, try to find their copyright holders, and, if no copyright holder could be found, publish a list of orphan works candidates to enable the copyright holders to come forward or be otherwise located. If no copyright holder came forward, the work was to be designated as an orphan work. Second, those works identified as orphan works would be made accessible in digital format to the OWP's library patrons (with simultaneous viewers limited to the number of hard copies owned by the library).

The University evidently became concerned that its screening process was not adequately distinguishing between orphan works (which were to be included in the OWP) and in-print works (which were not). As a result, before the OWP was brought online, but after the complaint was filed in this case, the University indefinitely suspended the project. No copyrighted work has been distributed or displayed through the project and it remains suspended as of this writing.

C. Proceedings in the District Court

This case began when twenty authors and authors' associations (collectively, the "Authors") sued HathiTrust, one of its member universities, and the presidents of four other member universities (collectively, the "Libraries") for copyright infringement seeking declaratory and injunctive relief. The National Federation of the Blind and three print-disabled students (the "Intervenors") were permitted to intervene to defend their ability to continue using the HDL.

The Libraries initially moved for partial judgment on the pleadings on the ground that the authors' associations lacked standing to assert claims on behalf of their members and that the claims related to the OWP were not ripe. See Fed. R. Civ. P. 12(c). The Libraries then moved for summary judgment on the remaining claims on the ground that their uses of copyrighted material were protected by the doctrine of fair use, see 17 U.S.C. § 107, and also by the Chafee Amendment, see id. § 121. The Intervenors moved for summary judgment on substantially the same grounds as the Libraries and, finally, the Authors cross-moved for summary judgment.

D. The District Court's Opinion

The district court granted the Libraries' and Intervenors' motions for summary judgment on the infringement claims on the basis that the three uses permitted by the HDL were fair uses. In this assessment, the district court gave considerable weight to what it found to be the "transformative" nature of the three uses and to what it described as the HDL's "invaluable" contribution to the advancement of knowledge, Authors Guild, Inc. v. HathiTrust, 902 F. Supp. 2d 445, 460-64 (S.D.N.Y. 2012). The district court explained:

Although I recognize that the facts here may on some levels be without precedent, I am convinced that they fall safely within the protection of fair use such that there is no genuine issue of material fact. I cannot imagine a definition of fair use that would not encompass the transformative uses made by [the HDL] and would require that I terminate this invaluable contribution to the progress of science and cultivation of the arts that at the same time effectuates the ideals espoused by the [Americans With Disabilities Act of 1990, Pub. L. No. 101-336, 104 Stat. 327 (codified as amended at 42 U.S.C. §§ 12101, et seq.)].

Id. at 464.

Next, the district court addressed the Libraries' Chafee Amendment defense. Under the Amendment, "authorized entities" are permitted to reproduce or distribute copies of a previously published, nondramatic literary work in specialized formats exclusively for use by the blind or other persons with disabilities. See 17 U.S.C. § 121; HathiTrust, 902 F. Supp. 2d at 465. Under § 121, an "`authorized entity' means a nonprofit organization or a governmental agency that has a primary mission to provide specialized services relating to training, education, or adaptive reading or information access needs of blind or other persons with disabilities." 17 U.S.C. § 121(d)(1).

The district court stated that the ADA requires that libraries of educational institutions, such as the Libraries in this case, "have a primary mission to reproduce and distribute their collections to print-disabled individuals," which, according to Judge Baer, made "each library a potential `authorized entity' under the Chafee Amendment." HathiTrust, 902 F. Supp. 2d at 465. As a result, the district court concluded that "[t]he provision of access to previously published non-dramatic literary works within the HDL fits squarely within the Chafee Amendment, although Defendants may certainly rely on fair use . . . to justify copies made outside of these categories or in the event that they are not authorized entities." Id.

The district court held that certain associational plaintiffs lacked standing under the Copyright Act and dismissed them from the suit. Id. at 450-55. The district court also held that the OWP claims were unripe for judicial review in the absence of crucial information about what the program would look like and whom it would affect should it be implemented, and because the Authors would suffer no hardship by deferring litigation until such time as the Libraries released the details of a new OWP and a revised list of orphan work candidates. Id. at 455-56. The court entered judgment against the Authors, and this appeal followed.

DISCUSSION

We review de novo under well-established standards the district court's decisions granting summary judgment and judgment on the pleadings. See Maraschiello v. City of Buffalo Police Dep't, 709 F.3d 87, 92 (2d Cir. 2013) (summary judgment); LaFaro v. N.Y. Cardiothoracic Grp., PLLC, 570 F. 3d 471, 475 (2d Cir. 2009) (judgment on the pleadings).

As a threshold matter, we consider whether the authors' associations have standing to assert infringement claims on behalf of their members.

Three of these authors' associations—Authors Guild, Inc., Australian Society of Authors Limited, and Writers' Union of Canada—claim to have standing, solely as a matter of U.S. law, to seek an injunction for copyright infringement on their members' behalf. But, as we have previously explained, § 501 of "the Copyright Act does not permit copyright holders to choose third parties to bring suits on their behalf." ABKCO Music, Inc. v. Harrisongs Music, Ltd., 944 F.2d 971, 980 (2d Cir. 1991); see also Itar-Tass Russian News Agency v. Russian Kurier, Inc., 153 F.3d 82, 92 (2d Cir. 1998) ("United States law permits suit only by owners of `an exclusive right under a copyright' . . . ." (quoting 17 U.S.C. § 501(b))). Accordingly, we agree with the district court that these associations lack standing to bring suit on behalf of their members, and they were properly dismissed from the suit.

The remaining four authors' associations—Union des Écrivaines et des Écrivains Québécois, Authors' Licensing and Collecting Society, Sveriges Författarförbund, and Norsk faglitterær forfattero og oversetterforening—assert that foreign law confers upon them certain exclusive rights to enforce the copyrights of their foreign members (an assertion that the Libraries do not contest on this appeal). These four associations do have standing to bring suit on behalf of their members. See Itar-Tass, 153 F.3d at 93-94 (recognizing that an association authorized by foreign law to administer its foreign members' copyrights has standing to seek injunctive relief on behalf of those members in U.S. court).

I. Fair Use^[4]

A

As the Supreme Court has explained, the overriding purpose of copyright is "`[t]o promote the Progress of Science and useful Arts. . . .'" Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 574 (1994) (quoting U.S. CONST. art. I, § 8, cl. 8); see also Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975). This goal has animated copyright law in Anglo-American history, beginning with the first copyright statute, the Statute of Anne of 1709, which declared itself to be "[a]n Act for the Encouragement of Learning, by Vesting the Copies of Printed Books in the Authors . . . during the Times therein mentioned." Act for the Encouragement of Learning, 8 Anne, ch. 19. In short, our law recognizes that copyright is "not an inevitable, divine, or natural right that confers on authors the absolute ownership of their creations. It is designed rather to stimulate activity and progress in the arts for the intellectual enrichment of the public." Pierre N. Leval, Toward a Fair Use Standard, 103 HARV. L. REV. 1105, 1107 (1990).

The Copyright Act furthers this core purpose by granting authors a limited monopoly over (and thus the opportunity to profit from) the dissemination of their original works of authorship. See 17 U.S.C. §§ 102, 106, 302-305. The Copyright Act confers upon authors certain enumerated exclusive rights over their works during the term of the copyright, including the rights to reproduce the copyrighted work and to distribute those copies to the public. Id. § 106(1), (3). The Act also gives authors the exclusive right to prepare certain new works—called "derivative works"—that are based upon the copyrighted work. Id. § 106(2). Paradigmatic examples of derivative works include the translation of a novel into another language, the adaptation of a novel into a movie or a play, or the recasting of a novel as an e-book or an audiobook. See id. § 101. As a general rule, for works created after January 1, 1978, copyright protection lasts for the life of the author plus an additional 70 years. Id. § 302.

At the same time, there are important limits to an author's rights to control original and derivative works. One such limit is the doctrine of "fair use," which allows the public to draw upon copyrighted materials without the permission of the copyright holder in certain circumstances. See id. § 107 ("[T]he fair use of a copyrighted work . . . is not an infringement of copyright."). "From the infancy of copyright protection, some opportunity for fair use of copyrighted materials has been thought necessary to fulfill copyright's very purpose, `[t]o promote the Progress of Science and useful Arts. . . .'" Campbell, 510 U.S. at 574.

Under the fair-use doctrine, a book reviewer may, for example, quote from an original work in order to illustrate a point and substantiate criticisms, see Folsom v. Marsh, 9 F. Cas. 342, 344 (C.C.D. Mass. 1841) (No. 4901), and a biographer may quote from unpublished journals and letters for similar purposes, see Wright v. Warner Books, Inc., 953 F.2d 731 (2d Cir. 1991). An artist may employ copyrighted photographs in a new work that uses a fundamentally different artistic approach, aesthetic, and character from the original. See Cariou v. Prince, 714 F.3d 694, 706 (2d Cir. 2013). An internet search engine can display low-resolution versions of copyrighted images in order to direct the user to the website where the original could be found. See Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1165 (9th Cir. 2007); Kelly v. Arriba Soft Corp., 336 F.3d 811, 818-22 (9th Cir. 2002). A newspaper can publish a copyrighted photograph (taken for a modeling portfolio) in order to inform and entertain the newspaper's readership about a news story. See Nunez v. Caribbean Int'l News Corp., 235 F.3d 18, 25 (1st Cir. 2000). A viewer can create a recording of a broadcast television show in order to view it at a later time. See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 447-450 (1984). And a competitor may create copies of copyrighted software for the purpose of analyzing that software and discovering how it functions (a process called "reverse engineering"). See Sony Comp. Entertainment, Inc. v. Connectix Corp., 203 F.3d 596, 599-601 (9th Cir. 2000).

The doctrine is generally subject to an important proviso: A fair use must not excessively damage the market for the original by providing the public with a substitute for that original work. Thus, a book review may fairly quote a copyrighted book "for the purposes of fair and reasonable criticism," Folsom, 9 F. Cas. at 344, but the review may not quote extensively from the "heart" of a forthcoming memoir in a manner that usurps the right of first publication and serves as a substitute for purchasing the memoir, Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539 (1985).

In 1976, as part of a wholesale revision of the Copyright Act, Congress codified the judicially created fair-use doctrine at 17 U.S.C. § 107. See Copyright Act of 1976, Pub. L. No. 94-553, § 107, 90 Stat. 2541, 2546 (1976) (codified as amended at 17 U.S.C. § 107). Section 107 requires a court to consider four nonexclusive factors which are to be weighed together to assess whether a particular use is fair:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(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 for or value of the copyrighted work.

17 U.S.C. § 107.

An important focus of the first factor is whether the use is "transformative." A use is transformative if it does something more than repackage or republish the original copyrighted work. The inquiry is whether the work "adds something new, with a further purpose or different character, altering the first with new expression, meaning or message. . . ." Campbell, 510 U.S. at 579 (citing Leval, 103 HARV. L. REV. at 1111). "[T]he more transformative the new work, the less will be the significance of other factors . . . that may weigh against a finding of fair use." Id. Contrary to what the district court implied, a use does not become transformative by making an "invaluable contribution to the progress of science and cultivation of the arts." HathiTrust, 902 F. Supp. 2d at 464. Added value or utility is not the test: a transformative work is one that serves a new and different function from the original work and is not a substitute for it.

The second factor considers whether the copyrighted work is "of the creative or instructive type that the copyright laws value and seek to foster." Leval, 103 HARV. L. REV. at 1117; see also Folsom, 9 F. Cas. at 348 ("[W]e must often . . . look to the nature and objects of the selections made . . . ."). For example, the law of fair use "recognizes a greater need to disseminate factual works than works of fiction or fantasy." Harper & Row, 471 U.S. at 563.

The third factor asks whether the secondary use employs more of the copyrighted work than is necessary, and whether the copying was excessive in relation to any valid purposes asserted under the first factor. Campbell, 510 U.S. at 586-87. In weighing this factor, we assess the quantity and value of the materials used and whether the amount copied is reasonable in relation to the purported justifications for the use under the first factor. Leval, 103 HARV. L. REV. at 1123.

Finally, the fourth factor requires us to assess the impact of the use on the traditional market for the copyrighted work. This is the "single most important element of fair use." Harper & Row, 471 U.S. at 566. To defeat a claim of fair use, the copyright holder must point to market harm that results because the secondary use serves as a substitute for the original work. See Campbell, 510 U.S. at 591 ("cognizable market harm" is limited to "market substitution"); see also NXIVM Corp. v. Ross Inst., 364 F.3d 471, 481-82 (2d Cir. 2004).

B

As discussed above, the Libraries permit three uses of the digital copies deposited in the HDL. We now consider whether these uses are "fair" within the meaning of our copyright law.

1. Full-Text Search

It is not disputed that, in order to perform a full-text search of books, the Libraries must first create digital copies of the entire books. Importantly, as we have seen, the HDL does not allow users to view any portion of the books they are searching. Consequently, in providing this service, the HDL does not add into circulation any new, human-readable copies of any books. Instead, the HDL simply permits users to "word search"—that is, to locate where specific words or phrases appear in the digitized books. Applying the relevant factors, we conclude that this use is a fair use.

i.

Turning to the first factor, we conclude that the creation of a full-text searchable database is a quintessentially transformative use. As the example on page 7, supra, demonstrates, 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. Indeed, we can discern little or no resemblance between the original text and the results of the HDL full-text search.

There is no evidence that the Authors write with the purpose of enabling text searches of their books. Consequently, the full-text search function does not "supersede[] the objects [or purposes] of the original creation," Campbell, 510 U.S. at 579 (internal quotation marks omitted). The HDL does not "merely repackage[] or republish[] the original[s]," Leval, 103 HARV. L. REV. at 1111, or merely recast "an original work into a new mode of presentation," Castle Rock Entm't, Inc. v. Carol Publ'g Grp., Inc., 150 F.3d 132, 143 (2d Cir. 1998). Instead, by enabling full-text search, the HDL adds to the original something new with a different purpose and a different character.

Full-text search adds a great deal more to the copyrighted works at issue than did the transformative uses we approved in several other cases. For example, in Cariou v. Prince, we found that certain photograph collages were transformative, even though the collages were cast in the same medium as the copyrighted photographs. 714 F.3d at 706. Similarly, in Bill Graham Archives v. Dorling Kindersley Ltd., we held that it was a transformative use to include in a biography copyrighted concert photos, even though the photos were unaltered (except for being reduced in size). 448 F.3d 605, 609-11 (2d Cir. 2006); see also Blanch v. Koons, 467 F.3d 244, 252-53 (2d Cir. 2006) (transformative use of copyrighted photographs in collage painting); Leibovitz v. Paramount Pictures Corp., 137 F.3d 109, 114 (2d Cir. 1998) (transformative use of copyrighted photograph in advertisement).

Cases from other Circuits reinforce this conclusion. In Perfect 10, Inc., the Ninth Circuit held that the use of copyrighted thumbnail images in internet search results was transformative because the thumbnail copies served a different function from the original copyrighted images. 508 F.3d at 1165; accord Arriba Soft Corp., 336 F.3d at 819. And in A.V. ex rel. Vanderhye v. iParadigms, LLC, a company created electronic copies of unaltered student papers for use in connection with a computer program that detects plagiarism. Even though the electronic copies made no "substantive alteration to" the copyrighted student essays, the Fourth Circuit held that plagiarism detection constituted a transformative use of the copyrighted works. 562 F.3d 630, 639-40.

ii.

The second fair-use factor—the nature of the copyrighted work—is not dispositive. The HDL permits the full-text search of every type of work imaginable. Consequently, there is no dispute that the works at issue are of the type that the copyright laws value and seek to protect. However, "this factor `may be of limited usefulness where,' as here, `the creative work . . . is being used for a transformative purpose." Cariou, 714 F.3d at 710 (quoting Bill Graham Archives, 448 F.3d at 612). Accordingly, our fair-use analysis hinges on the other three factors.

iii.

The third factor asks whether the copying used more of the copyrighted work than necessary and whether the copying was excessive. As we have noted, "[t]here are no absolute rules as to how much of a copyrighted work may be copied and still be considered a fair use." Maxtone-Graham v. Burtchaell, 803 F.2d 1253, 1263 (2d Cir. 1986). "[T]he extent of permissible copying varies with the purpose and character of the use." Campbell, 510 U.S. at 586-87. The crux of the inquiry is whether "no more was taken than necessary." Id. at 589. For some purposes, it may be necessary to copy the entire copyrighted work, in which case Factor Three does not weigh against a finding of fair use. See Bill Graham Archives, 448 F.3d at 613 (entire image copied); Arriba Soft, 336 F.3d at 821 ("If Arriba only copied part of the image, it would be more difficult to identify it, thereby reducing the usefulness of the visual search engine.").

In order to enable the full-text search function, the Libraries, as we have seen, created digital copies of all the books in their collections.^[5] Because it was reasonably necessary for the HDL to make use of the entirety of the works in order to enable the full-text search function, we do not believe the copying was excessive.

The Authors also contend that the copying is excessive because the HDL creates and maintains copies of the works at four different locations Appellants' Br. 27-28. But the record demonstrates that these copies are also reasonably necessary in order to facilitate the HDL's legitimate uses. In particular, the HDL's services are offered to patrons through two servers, one at the University of Michigan (the primary server) and an identical one at the University of Indiana (the "mirror" server). Both servers contain copies of the digital works at issue. According to the HDL executive director, the "existence of a[n] [identical] mirror site allows for balancing the load of user web traffic to avoid overburdening a single site, and each site acts as a back-up of the HDL collection in the event that one site were to cease operation (for example, due to failure caused by a disaster, or even as a result of routine maintenance)." J.A. 682-83 ¶ 88-89 (Wilkin Decl.). To further guard against the risk of data loss, the HDL stores copies of the works on two encrypted backup tapes, which are disconnected from the internet and are placed in separate secure locations on the University of Michigan campus. Id. at 683 ¶ 90. The HDL creates these backup tapes so that the data could be restored in "the event of a disaster causing large-scale data loss" to the primary and mirror servers. Id.

We have no reason to think that these copies are excessive or unreasonable in relation to the purposes identified by the Libraries and permitted by the law of copyright. In sum, even viewing the evidence in the light most favorable to the Authors, the record demonstrates that these copies are reasonably necessary to facilitate the services HDL provides to the public and to mitigate the risk of disaster or data loss. Accordingly, we conclude that this factor favors the Libraries.

iv.

The fourth factor requires us to consider "the effect of the use upon the potential market for or value of the copyrighted work," 17 U.S.C. § 107(4), and, in particular, whether the secondary use "usurps the market of the original work," NXIVM Corp., 364 F.3d at 482.

The Libraries contend that the full-text-search use poses no harm to any existing or potential traditional market and point to the fact that, in discovery, the Authors admitted that they were unable to identify "any specific, quantifiable past harm, or any documents relating to any such past harm," resulting from any of the Libraries' uses of their works (including full-text search). Defs.-Appellees' Br. 38 (citing Pls.' Resps. to Interrogs.). The district court agreed with this contention, as do we.

At the outset, it is important to recall that the Factor Four analysis is concerned with only one type of economic injury to a copyright holder: the harm that results because the secondary use serves as a substitute for the original work. See Campbell, 510 U.S. at 591 ("cognizable market harm" is limited to "market substitution"). In other words, under Factor Four, any economic "harm" caused by transformative uses does not count because such uses, by definition, do not serve as substitutes for the original work. See Bill Graham Archives, 448 F.3d at 614.

To illustrate why this is so, consider how copyright law treats book reviews. Book reviews often contain quotations of copyrighted material to illustrate the reviewer's points and substantiate his criticisms; this is a paradigmatic fair use. And a negative book review can cause a degree of economic injury to the author by dissuading readers from purchasing copies of her book, even when the review does not serve as a substitute for the original. But, obviously, in that case, the author has no cause for complaint under Factor Four: The only market harms that count are the ones that are caused because the secondary use serves as a substitute for the original, not when the secondary use is transformative (as in quotations in a book review). See Campbell, 510 U.S. at 591-92 ("[W]hen a lethal parody, like a scathing theater review, kills demand for the original, it does not produce a harm cognizable under the Copyright Act.").

The Authors assert two reasons why the full-text-search function harms their traditional markets. The first is a "lost sale" theory which posits that a market for licensing books for digital search could possibly develop in the future, and the HDL impairs the emergence of such a market because it allows patrons to search books without any need for a license. Thus, according to the Authors, every copy employed by the HDL in generating full-text searches represents a lost opportunity to license the book for search. Appellants' Br. 43.

This theory of market harm does not work under Factor Four, because the full-text search function does not serve as a substitute for the books that are being searched. See Campbell, 510 U.S. at 591-92; Bill Graham Archives, 448 F.3d at 614. Thus, it is irrelevant that the Libraries might be willing to purchase licenses in order to engage in this transformative use (if the use were deemed unfair). Lost licensing revenue counts under Factor Four only when the use serves as a substitute for the original and the full-text-search use does not.

Next, the Authors assert that the HDL creates the risk of a security breach which might impose irreparable damage on the Authors and their works. In particular, the Authors speculate that, if hackers were able to obtain unauthorized access to the books stored at the HDL, the full text of these tens of millions of books might be distributed worldwide without restriction, "decimat[ing]" the traditional market for those works. Appellants' Br. 40.

The record before us documents the extensive security measures the Libraries have undertaken to safeguard against the risk of a data breach. Some of those measures were described by the HDL executive director as follows:

First, [HDL] maintains . . . rigorous physical security controls. HDL servers, storage, and networking equipment at Michigan and Indiana University are mounted in locked racks, and only six individuals at Michigan and three at Indiana University have keys. The data centers housing HDL servers, storage, and networking equipment at each site location are monitored by video surveillance, and entry requires use of both a keycard and a biometric sensor.

Second, network access to the HDL corpus is highly restricted, even for the staff of the data centers housing HDL equipment at Michigan and Indiana University. For example, two levels of network firewalls are in place at each site, and Indiana University data

center staff do not have network access to the HDL corpus, only access to the physical equipment. For the backup tapes, network access is limited to the administrators of the backup system, and these individuals are not provided the encryption key that would be required to access the encrypted files on the backup tapes.

Web access to the HDL corpus is also highly restricted. Access by users of the HDL service is governed by primarily by [sic] the HDL rights database, which classifies each work by presumed copyright status, and also by a user's authentication to the system (e.g., as an individual certified to have a print disability by Michigan's Office of Services for Students with Disabilities).. . .

Even where we do permit a work to be read online, such as a work in the public domain, we make efforts to ensure that inappropriate levels of access do not take place. For example, a mass download prevention system called "choke" is used to measure the rate of activity (such as the rate a user is reading pages) by each individual user. If a user's rate of activity exceeds certain thresholds, the system assumes that the user is mechanized (e.g., a web robot) and blocks that user's access for a set period of time.

J.A. 683-85 ¶¶ 94-96, 98 (Wilkins Decl.).

This showing of the security measures taken by the Libraries is essentially unrebutted. Consequently, we see no basis in the record on which to conclude that a security breach is likely to occur, much less one that would result in the public release of the specific copyrighted works belonging to any of the plaintiffs in this case. Cf. Clapper v. Amnesty Int'l USA, ___ U.S. ___, ___, 133 S. Ct. 1138, 1143, 1149 (2013) (risk of future harm must be "certainly impending," rather than merely "conjectural" or "hypothetical," to constitute a cognizable injury-in-fact); Sony Corp., 464 U.S. at 453-54 (concluding that time-shifting using a Betamax is fair use because the copyright owners' "prediction that live television or movie audiences will decrease" was merely "speculative"). Factor Four thus favors a finding of fair use.

Without foreclosing a future claim based on circumstances not now predictable, and based on a different record, we hold that the balance of relevant factors in this case favors the Libraries. In sum, we conclude that the doctrine of fair use allows the Libraries to digitize copyrighted works for the purpose of permitting full-text searches.

2. Access to the Print-Disabled

The HDL also provides print-disabled patrons with versions of all of the works contained in its digital archive in formats accessible to them. In order to obtain access to the works, a patron must submit documentation from a qualified expert verifying that the disability prevents him or her from reading printed materials, and the patron must be affiliated with an HDL member that has opted-into the program. Currently, the University of Michigan is the only HDL member institution that has opted-in. We conclude that this use is also protected by the doctrine of fair use.

i.

In applying the Factor One analysis, the district court concluded that "[t]he use of digital copies to facilitate access for print-disabled persons is [a] transformative" use. HathiTrust, 902 F. Supp. 2d at 461. This is a misapprehension; providing expanded access to the print disabled is not "transformative."

As discussed above, a transformative use adds something new to the copyrighted work and does not merely supersede the purposes of the original creation. See Campbell, 510 U.S. at 579. The Authors state that they "write books to be read (or listened to)." Appellants' Br. 34-35. By making copyrighted works available in formats accessible to the disabled, the HDL enables a larger audience to read those works, but the underlying purpose of the HDL's use is the same as the author's original purpose.

Indeed, when the HDL recasts copyrighted works into new formats to be read by the disabled, it appears, at first glance, to be creating derivative works over which the author ordinarily maintains control. See 17 U.S.C. § 106(2). As previously noted, paradigmatic examples of derivative works include translations of the original into a different language, or adaptations of the original into different forms or media. See id. § 101 (defining "derivative work"). The Authors contend that by converting their works into a different, accessible format, the HDL is simply creating a derivative work.

It is true that, oftentimes, the print-disabled audience has no means of obtaining access to the copyrighted works included in the HDL. But, similarly, the non-English-speaking audience cannot gain access to untranslated books written in English and an unauthorized translation is not transformative simply because it enables a new audience to read a work.

This observation does not end the analysis. "While a transformative use generally is more likely to qualify as fair use, `transformative use is not absolutely necessary for a finding of fair use.'" Swatch Grp. Mgmt. Servs. Ltd. v. Bloomberg L.P., ___ F.3d ___, ___, 2014 WL 2219162, at *7 (2d Cir. 2014) (quoting Campbell, 510 U.S. at 579). We conclude that providing access to the print-disabled is still a valid purpose under Factor One even though it is not transformative. We reach that conclusion for several reasons.

First, the Supreme Court has already said so. As Justice Stevens wrote for the Court: "Making a copy of a copyrighted work for the convenience of a blind person is expressly identified by the House Committee Report as an example of fair use, with no suggestion that anything more than a purpose to entertain or to inform need motivate the copying." Sony Corp. of Am., 464 U.S. at 455 n.40.

Our conclusion is reinforced by the legislative history on which he relied. The House Committee Report that accompanied codification of the fair use doctrine in the Copyright Act of 1976 expressly stated that making copies accessible "for the use of blind persons" posed a "special instance illustrating the application of the fair use doctrine . . . ." H.R. REP. NO. 94-1476, at 73 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5686. The Committee noted that "special [blind-accessible formats] . . . are not usually made by the publishers for commercial distribution." Id. In light of its understanding of the market (or lack thereof) for books accessible to the blind, the Committee explained that "the making of a single copy or phonorecord by an individual as a free service for a blind persons [sic] would properly be considered a fair use under section 107." Id. We believe this guidance supports a finding of fair use in the unique circumstances presented by print-disabled readers.

Since the passage of the 1976 Copyright Act, Congress has reaffirmed its commitment to ameliorating the hardships faced by the blind and the print disabled. In the Americans with Disabilities Act, Congress declared that our "Nation's proper goals regarding individuals with disabilities are to assure equality of opportunity, full participation, independent living, and economic self-sufficiency for such individuals." 42 U.S.C. § 12101(7). Similarly, the Chafee Amendment illustrates Congress's intent that copyright law make appropriate accommodations for the blind and print disabled. See 17 U.S.C. § 121.

ii.

Through the HDL, the disabled can obtain access to copyrighted works of all kinds, and there is no dispute that those works are of the sort that merit protection under the Copyright Act. As a result, Factor Two weighs against fair use. This does not preclude a finding of fair use, however, given our analysis of the other factors. Cf. Davis v. Gap, Inc., 246 F.3d 152, 175 (2d Cir. 2001) ("The second statutory factor, the nature of the copyrighted work . . ., is rarely found to be determinative.").

iii.

Regarding Factor Three, as previously noted, the HDL retains copies as digital image files and as text-only files, which are then stored in four separate locations. The Authors contend that this amount of copying is excessive because the Libraries have not demonstrated their need to retain the digital image files in addition to the text files.

We are unconvinced. The text files are required for text searching and to create text-to-speech capabilities for the blind and disabled. But the image files will provide an additional and often more useful method by which many disabled patrons, especially students and scholars, can obtain access to these works. These image files contain information, such as pictures, charts, diagrams, and the layout of the text on the printed page that cannot be converted to text or speech. None of this is captured by the HDL's text-only copies. Many legally blind patrons are capable of viewing these images if they are sufficiently magnified or if the color contrasts are increased. And other disabled patrons, whose physical impairments prevent them from turning pages or from holding books, may also be able to use assistive devices to view all of the content contained in the image files for a book. For those individuals, gaining access to the HDL's image files—in addition to the text-only files—is necessary to perceive the books fully. Consequently, it is reasonable for the Libraries to retain both the text and image copies.^[6]

iv.

The fourth factor also weighs in favor of a finding of fair use. It is undisputed that the present-day market for books accessible to the handicapped is so insignificant that "it is common practice in the publishing industry for authors to forgo royalties that are generated through the sale of books manufactured in specialized formats for the blind. . . ." Appellants' Br. 34. "[T]he number of accessible books currently available to the blind for borrowing is a mere few hundred thousand titles, a minute percentage of the world's books. In contrast, the HDL contains more than ten million accessible volumes." J.A. 173 ¶ 10 (Maurer Decl.). When considering the 1976 Act, Congress was well aware of this problem. The House Committee Report observed that publishers did not "usually ma[ke]" their books available in specialized formats for the blind. H.R. REP. NO. 94-1476, at 73, 1976 U.S.C.C.A.N. at 5686. That observation remains true today.

Weighing the factors together, we conclude that the doctrine of fair use allows the Libraries to provide full digital access to copyrighted works to their print-disabled patrons.^[7]

3. Preservation

By storing digital copies of the books, the HDL preserves them for generations to come, and ensures that they will still exist when their copyright terms lapse. Under certain circumstances, the HDL also proposes to make one additional use of the digitized works while they remain under copyright: The HDL will permit member libraries to create a replacement copy of a book, to be read and consumed by patrons, if (1) the member already owned an original copy, (2) the member's original copy is lost, destroyed, or stolen, and (3) a replacement copy is unobtainable at a fair price. The Authors claim that this use infringes their copyrights.

Even though the parties assume that this issue is appropriate for our determination, we are not convinced that this is so. The record before the district court does not reflect whether the plaintiffs own copyrights in any works that would be effectively irreplaceable at a fair price by the Libraries and, thus, would be potentially subject to being copied by the Libraries in case of the loss or destruction of an original. The Authors are not entitled to make this argument on behalf of others, because § 501 of "the Copyright Act does not permit copyright holders to choose third parties to bring suits on their behalf." ABKCO Music, 944 F.2d at 980; see also our discussion of standing, supra pp. 12-13.

Because the record before us does not reflect the existence of a non-speculative risk that the HDL might create replacement copies of the plaintiffs' copyrighted work, we do not believe plaintiffs have standing to bring this claim, and this concern does not present a live controversy for adjudication. See Clapper, ___ U.S. at ___, 133 S. Ct. at 1147; Jennifer Matthew Nursing & Rehab. Ctr. v. U.S. Dep't of Health & Human Servs., 607 F.3d 951, 955 (2d Cir. 2010) (noting that we have an "independent obligation" to evaluate subject matter jurisdiction, including whether there is "a live controversy"). Accordingly, we vacate the district court's judgment insofar as it adjudicated this issue without first considering whether plaintiffs have standing to challenge the preservation use of the HDL, and we remand for the district court to so determine.

II. Ripeness of Claims Relating to the Orphan Works Project

The district court also held that the infringement claims asserted in connection with the OWP were not ripe for adjudication because the project has been abandoned and the record contained no information about whether the program will be revived and, if so, what it would look like or whom it would affect. HathiTrust, 902 F. Supp. 2d at 455-56. We agree.

In considering whether a claim is ripe, we consider (1) "the fitness of the issues for judicial decision" and (2) "the hardship to the parties of withholding court consideration." Murphy v. New Milford Zoning Comm'n, 402 F.3d 342, 347 (2d Cir. 2005) (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967)).

The fitness analysis is concerned with whether the issues sought to be adjudicated are contingent on unknowable future events. N.Y. Civil Liberties Union v. Grandeau, 528 F. 3d 122, 132 (2d Cir. 2008). The Authors assert that their OWP claim is fit for judicial decision because it "will not change based upon the particular procedures that [the University of Michigan] ultimately employs to identify orphan works." Appellants' Br. 13. According to the Authors, the legality of the OWP does not depend upon the specific means the Libraries ultimately employ to identify orphan candidates or the time the Libraries wait before making works available. Rather, the Authors believe that any iteration of the OWP that results in the publication of complete copyrighted works is an infringement of copyright.

We are not persuaded that these concerns create a ripe dispute. Even assuming, arguendo, that "[a]ny iteration of the OWP under which copyrighted works are made available for public view and download" would infringe someone's copyright, id., it does not follow that the OWP will inevitably infringe the copyrights held by the remaining plaintiffs in this case.^[8] It is conceivable that, should the University of Michigan ever revive the OWP, the procedures it ultimately implements to identify orphan works would successfully identify and exclude works to which a plaintiff in this suit holds a copyright. Consequently, we cannot say that any of the plaintiffs face a "certainly impending" harm under our ripeness analysis, Clapper, ___ U.S. at ___, 133 S. Ct. at 1147; see also Grandeau, 528 F.3d at 130 n.8.

Nor do we perceive any hardship if decision is withheld. See Grandeau, 528 F.3d at 134. The Authors argue that they would suffer hardship because "there is nothing to stop the Libraries from reinstituting the OWP and then, if owners of the listed works come forward, suspending it again." Appellants' Br. 16.

We disagree. As indicated above, it is far from clear that the University of Michigan or HathiTrust will reinstitute the OWP in a manner that would infringe the copyrights of any proper plaintiffs. If that occurs, the Authors may always return to court. Suffice it to say that "[t]he mere possibility of future injury, unless it is the cause of some present detriment, does not constitute hardship." Grandeau, 528 F.3d at 134 (internal quotation marks omitted). For these reasons, we conclude that the OWP claims are not ripe for adjudication.

CONCLUSION

The judgment of the district court is AFFIRMED, in part, insofar as the district court concluded that certain plaintiffs-appellants lack associational standing; that the doctrine of "fair use" allows defendants-appellees to create a full-text searchable database of copyrighted works and to provide those works in formats accessible to those with disabilities; and that claims predicated upon the Orphan Works Project are not ripe for adjudication. We VACATE the judgment, in part, insofar as it rests on the district court's holding related to the claim of infringement predicated upon defendants-appellees' preservation of copyrighted works, and we REMAND for further proceedings consistent with this opinion.

[1] Pursuant to Federal Rule of Appellate Procedure 43(c)(2), we automatically substitute the current president of the University of California, Janet Napolitano, and the current president of the University of Wisconsin System, Raymond W. Cross, in place of their predecessors-in-office.

[2] The Clerk of Court is directed to amend the caption as set forth above.

[3] Separate from the HDL, one copy is also kept by Google. Google's use of its copy is the subject of a separate lawsuit currently pending in this Court. See Authors Guild, Inc. v. Google, Inc., 721 F.3d 132 (2d Cir. 2013), on remand, 954 F. Supp. 2d 282 (S.D.N.Y. 2013), appeal docketed, No. 13-4829 (2d Cir. Dec. 23, 2013).

[4] Plaintiffs argue that the fair use defense is inapplicable to the activities at issue here, because the Copyright Act includes another section, 108, which governs "Reproduction [of copyrighted works] by Libraries . . ." 17 U.S.C. § 108. However, section 108 also includes a "savings clause," which states, "Nothing in this section in any way affects the right of fair use as provided by section 107. . . ." § 108(f)(4). Thus, we do not construe § 108 as foreclosing our analysis of the Libraries' activities under fair use, and we proceed with that analysis.

[5] The HDL also creates digital copies of the images of each page of the books. As the Libraries acknowledge, the HDL does not need to retain these copies to enable the full-text search use. We discuss the fair-use justification for these copies in the context of the disability-access use, see infra pp. 29-30.

[6] The Authors also complain that the HDL creates and maintains four separate copies of the copyrighted works at issue. Appellants' Br. 27-28. For reasons discussed in the full-text search section, this does not preclude a finding of fair use. See supra pp. 20-22.

[7] In light of our holding, we need not consider whether the disability-access use is protected under the Chafee Amendment, 17 U.S.C. § 121.

[8] We note that, in addition to our conclusion about ripeness, the same reasoning leads us to conclude that the remaining plaintiffs lack standing to bring this claim, see our discussion of standing, supra pp. 12-13.

ORDER GRANTING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

MARGARET M. MORROW, District Judge.

[1] Plaintiffs Los Angeles Times and The Washington Post Company publish newspapers in print and online versions. Defendant Free Republic is a "bulletin board" website whose members use the site to post news articles to which they add remarks or commentary. Other visitors to the site then read the articles and add their comments. For the most part, Free Republic members post the entire text of articles in which they are interested; among these are verbatim copies of articles from the Los Angeles Times and Washington Post websites. Plaintiffs' complaint alleges that the unauthorized copying and posting of the articles on the Free Republic site constitutes copyright infringement.

Defendants have now moved for summary judgment. They assert that the copying of news articles onto their website is protected by the fair use doctrine. Plaintiffs have filed a cross-motion for partial summary judgment, arguing that defendants may not invoke fair use as a defense.

The fair use doctrine, codified at 17 U.S.C. § 107, permits the reproduction of copyrighted works for certain purposes. Section 107 sets forth four nonexclusive factors to be considered in determining whether a defendant's copying is fair use: "(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (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 for or value of the copyrighted work." 17 U.S.C. § 107. Based on the evidence submitted by the parties, the court concludes that the first, third and fourth factors militate against a finding of fair use in this case. The second factor weighs in defendants' favor. The balance of all factors tips toward plaintiffs, and the court thus finds that defendants are not entitled to assert a fair use defense to the claims of copyright infringement alleged in the complaint.

Defendants also allege that the First Amendment protects the posting of plaintiffs' news articles to their website. They contend that, absent wholesale copying, Free Republic visitors will be unable to express their criticism and comments. There are other methods in which the visitors' rights of free expression can be protected, however, and the court cannot conclude that enforcing plaintiffs' rights under the copyright law impermissibly restricts defendants' right to free speech.

I. FACTUAL BACKGROUND^[1]

A. The Parties

Plaintiffs publish the Los Angeles Times and The Washington Post in print and online at "http://www.latimes.com" and "http://www.washingtonpost.com."^[2] Their respective websites contain the current edition of the newspaper, which can be viewed free of charge, and archived articles that users must pay to view,^[3] The Times charges $1.50 to view an archived article, while the Post charges from $1.50 to $2.95 depending on the time of day.^[4] In addition to income generated in this fashion, the websites also produce advertising and licensing revenue for the papers.^[5] Because advertising is sold "CPM" (cost per thousand), the revenue generated from this source depends on the volume of traffic the sites experience during a given period.^[6] The parties dispute the extent to which being able to access archived articles at a different site for free affects plaintiffs' ability to advertise, license, and sell the archived articles.^[7]

[2] Defendant Jim Robinson is the owner and operator of defendants Electronic Orchard and Free Republic.^[8] Although no longer actively engaged in business, Electronic Orchard is a for-profit limited liability company that offers "Internet programming and design services."^[9] Free Republic is a limited liability corporation that operates freerepublic.com.^[10] The website, which has been operational since 1996, allows registered visitors to "post" news articles and comments concerning them on the site.^[11] Registered members may then post additional comments.^[12] Free Republic has approximately 20,000 registered participants. The website receives as many as 100,000 hits per day, and between 25 and 50 million page views each month.^[13]

Plaintiffs contend that "perfect copies" of news articles appearing in their publications and on their websites are posted to the Free Republic site. Defendants maintain that the posted articles are merely "purported copies" of the original, and assert that one can verify that a posting is an exact copy only by visiting plaintiffs' websites.^[14] Defendants nonetheless apparently concede that some of the postings are verbatim copies of original articles.^[15]

B. Defendants' Profit Or Non–Profit Status

The parties dispute whether Free Republic is a for-profit or not-for-profit entity.^[16] Despite this purported disagreement, it appears uncontroverted that Free Republic is presently a for-profit limited liability company. Free Republic's corporate counsel is currently preparing documents seeking tax-exempt status for the Free Republic Institute, a company incorporated on September 27, 1999.^[17]Nothing has yet been submitted to the IRS, however, and tax-exempt status has not been granted.^[18]

Defendants contend that Robinson was not paid to create the Free Republic website, that he receives no salary from the entity, and that he receives almost no compensation for posting banners or links on the site.^[19] Plaintiffs counter that Free Republic earns revenue through commercial advertising, merchandise sales, saleable consumer data, donations, "voluntary" subscriptions, and membership dues.^[20] They also assert that Robinson uses the Free Republic site to advertise Electronic Orchard's services.^[21]

Defendants dispute these claims, contending that they have received no advertising revenue, commissions or donations for permitting various individuals and entities to place links on the freerepublic.com site. They assert, in fact, that the links have in some instances been posted on the site by third-party users.^[22] Defendants also contend that Electronic Orchard has received no business or financial benefit from any links appearing on the Free Republic website, and that Robinson has placed links for Electronic Orchard customers there solely as a courtesy.^[23] Defendants maintain that Free Republic does not collect consumer data, and that it has not sold any information regarding its registered users to any other entity.^[24] Additionally, they contend they have no connection with membership organizations of Free Republic supporters, and receive no benefit from dues revenue generated by these groups.^[25]Defendants concede, however, that Free Republic has facilitated links to web pages run by third-party supporters where donations to Free Republic and/or Robinson are solicited. They also acknowledge that the website carries links to third-party web pages that offer Free Republic-related souvenir items in exchange for donations.^[26]

C. The Impact Of The Free Republic Site On Traffic At Plaintiffs' Websites

[3] The parties also dispute whether the posting of plaintiffs' news articles to the Free Republic site causes an increase or decrease in traffic at the Times and Post websites, whether it diminishes the available market for sale of plaintiffs' news articles, and whether it has a negative impact on plaintiffs' ability to license the works. Defendants assert that plaintiffs' websites actually gain viewers because people go to them after visiting the Free Republic site.^[27] Plaintiffs maintain they lose traffic when Internet users read an article posted on freerepublic.com rather than visiting the Times or Post websites. They further assert that their ability to sell copies of the archived articles and their ability to license the works is diminished by having copies made freely available on the Free Republic site.^[28]

II. DISCUSSION

A. Legal Standard Governing Motions For Summary Judgment

A motion for summary judgment must be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses which demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the moving party will have the burden of proof on an issue at trial, the movant must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. On an issue as to which the nonmoving party will have the burden of proof at trial, however, the movant can prevail merely by pointing out that there is an absence of evidence to support the nonmoving party's case. See id. If the moving party meets its initial burden, the nonmoving party must then set forth, by affidavit or as otherwise provided in Rule 56, "specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Fed.R.Civ.P. 56(e).

In judging evidence at the summary judgment stage, the court does not make credibility determinations or weigh conflicting evidence. Rather, it draws all inferences in the light most favorable to the nonmoving party. See T.W. Electric Service, Inc. v. Pacific Electric Contractors Ass'n, 809 F.2d 626, 630–31 (9th Cir.1987). The evidence presented by the parties must be admissible. Fed.R.Civ.P. 56(e). Conclusory, speculative testimony in affidavits and moving papers is not sufficient to raise genuine issues of fact and defeat summary judgment. See Falls Riverway Realty, Inc. v. Niagara Falls, 754 F.2d 49, 56 (2d Cir.1985); Thornhill Pub. Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir.1979).

[4] Fair use is a mixed question of law and fact. Harper & Row, Publishers, Inc. v. Nation Enter., 471 U.S. 539, 560, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985). It is nonetheless proper to decide the issue at the summary judgment stage if the historical facts are undisputed and the only question is the proper legal conclusion to be drawn from those facts. Narell v. Freeman, 872 F.2d 907, 910 (9th Cir.1989) ("Fair use is a mixed question of law and fact that may be resolved on summary judgment if a reasonable trier of fact could reach only one conclusion"); Hustler Magazine, Inc. v. Moral Majority, Inc., 796 F.2d 1148, 1151 (9th Cir.1986) ("If there are no genuine issues of material fact, or if, even after resolving all issues in favor of the opposing party, a reasonable trier of fact can reach only one conclusion, a court may conclude as a matter of law whether the challenged use qualifies as a fair use of the copyrighted work"); Fisher v. Dees, 794 F.2d 432, 436 (9th Cir.1986) (fair use issue was properly resolved on summary judgment because "[n]o material historical facts [were] at issue in this case [and t]he parties dispute[d] only the ultimate conclusions to be drawn from the admitted facts").

B. Elements Of Copyright Infringement

"Copyright law protects an author's expression; facts and ideas within a work are not protected." Shaw v. Lindheim, 919 F.2d 1353, 1356 (9th Cir.1990). See also Sid & Marty Kroft Television Productions v. McDonald's Corp., 562 F.2d 1157, 1163 (9th Cir.1977) ("It is an axiom of copyright law that the protection granted to a copyrighted work extends only to the particular expression of the idea and never to the idea itself"). Copyright infringement is established by demonstrating (1) ownership of a valid copyright and (2) copying of the original elements of the protected work. Feist Publications v. Rural Telephone Service Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991); Kouf v. Walt Disney Pictures & Television, 16 F.3d 1042, 1043, n. 2 (9th Cir.1994). To prove copying, plaintiffs must show that defendants had access to the copyrighted work and that there is a substantial similarity between the copyrighted work and defendants' work. Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1472 (9th Cir.1992); Chase–Riboud v. Dreamworks, Inc., 987 F.Supp. 1222, 1224 (C.D.Cal.1997).

Before proceeding to the substance of the parties' motions, it is important to state what issues are not before the court at this time. Because the parties address the availability of a defense to copyright infringement, their motions assume for present purposes that such a claim can be proved. The court expresses no opinion as to whether this is so, given that the "copying" of news articles at issue in this case is to a large extent copying by third-party users of the Free Republic site. The court also makes no determination as to whether plaintiffs have in any manner consented to the copying of their articles.^[29]

C. The Fair Use Defense

[5] The fair use defense is a limitation on the exclusive right of a copyright owner "to reproduce the copyrighted work in copies." 17 U.S.C. § 106(1). It is codified at 17 U.S.C. § 107, which provides:

"Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(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 for or value of the copyrighted work.

The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors."

Because fair use is an affirmative defense to a claim of infringement, defendants carry the burden of proof on the issue. American Geophysical Union v. Texaco Inc., 60 F.3d 913, 918 (2d Cir.1995); Columbia Pictures v. Miramax Films Corp., 11 F.Supp.2d 1179, 1187 (C.D.Cal.1998) ("[b]ecause fair use is an affirmative defense, Defendants bear the burden of proof on all of its factors"). See also Dr. Seuss Enterprises, L.P. v. Penguin Books USA, Inc., 109 F.3d 1394, 1403 (9th Cir.), cert. dismissed, 521 U.S. 1146, 118 S.Ct. 27, 138 L.Ed.2d 1057 (1997).

1. The Purpose And Character Of The Use

The first factor listed in § 107 is "the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes." 17 U.S.C. § 107. This factor assesses whether "the new work 'merely supersedes the objects' of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message; it asks, in other words, whether and to what extent the new work is 'transformative.' " Campbell v. Acuff–Rose Music, Inc., 510 U.S. 569, 579, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1995) (quoting Folsom v. Marsh, 9 F.Cas. 342, 348 (D.Mass.1841)). "... [T]he more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use." Campbell, supra, 510 U.S. at 579.

Inquiry concerning the character and purpose of a challenged use should be guided by the examples provided in the statute—i.e., whether the use was for purposes of "criticism, comment, news reporting, teaching ..., scholarship, or research." 17 U.S.C. § 107; Campbell, supra. The list, however, is not intended to be exhaustive or to single out any particular use as presumptively fair. Harper & Row, supra, 471 U.S. at 561. Indeed, the fact that a use falls within one of these categories "is simply one factor in [the] fair use analysis." Id. Similarly, while the statute draws a distinction between non-profit and commercial use, not every commercial use of a copyrighted work is presumptively unfair. Campbell, supra, 510 U.S. at 579.

a. The Purpose Of Free Republic's Use And The Extent To Which Its Work Is Transformative

[6] There is no dispute that at least some of the items posted on the Free Republic website are exact copies of plaintiffs' articles.^[30]While defendants assert there is "no evidence" that all of the Times and Post articles that have been posted are verbatim copies,^[31]the evidence they have presented reveals that, generally, exact copies of whole or substantial portions of articles^[32] are posted.^[33]

There is little transformative about copying the entirety or large portions of a work verbatim. See Nihon Keizai Shimbun, supra, 166 F.3d at 72 (where the infringing news abstracts were "for the most part direct translations of Nikkei articles," the court held that the first factor "weigh[ed] strongly against fair use"); Infinity Broadcast Corp. v. Kirkwood, 150 F.3d 104, 108 (2d Cir.1998) (holding that "[t]here [was] no transformation" where defendant retransmitted original broadcasts over the telephone); Los Angeles News Service v. Reuters Television Int'l, 149 F.3d 987, 993 (9th Cir.1998) (defendant's unauthorized copying of news footage "was not very transformative" because it did "not explain the footage, edit the content of the footage, or include editorial comment"); Sundeman v. The Seajay Society, Inc., 142 F.3d 194, 205–06 (4th Cir.1998) (while it does not preclude a finding of fair use, "[c]opying an entire work weighs against [such a] finding"); Princeton University Press v. Michigan Document Service, 99 F.3d 1381, 1389 (6th Cir.1996)("If you make verbatim copies of 95 pages of a 316–page book, you have not transformed the 95 pages very much—even if you juxtapose them to excerpts from other works and package everything conveniently. This kind of mechanical 'transformation' bears little resemblance to the creative metamorphosis accomplished by the parodists in the Campbell case"), cert. denied, 520 U.S. 1156, 117 S.Ct. 1336, 137 L.Ed.2d 495 (1997); Religious Technology Center v. Netcom On-line Communication Services, Inc., 923 F.Supp. 1231, 1243 (N.D.Cal.1995) ("Netcom On–Line II ") (defendant's posting of plaintiffs' copyrighted material on the Internet was "only minimally transformative since, unlike the typical critic, [defendant] adds little new expression to the Church's works"). As the Supreme Court said in Campbell, supra:

"[W]hether 'a substantial portion of the infringing work was copied verbatim' from the copyrighted work is a relevant question, ... for it may reveal a dearth of transformative character or purpose under the first factor, or a greater likelihood of market harm under the fourth; a work composed primarily of an original, particularly its heart, with little added or changed, is more likely to be a merely superseding use, fulfilling demand for the original." Campbell, supra, 510 U.S. at 587–88.

See also 3 M. and D. Nimmer, NIMMER ON COPYRIGHT, § 13.05[D][1] ("whatever the intent of the copier, a verbatim reproduction will of necessity serve the function of the plaintiff's work").

[7] Defendants proffer two reasons why their full text copying of plaintiffs' articles is nonetheless transformative. First, they assert that the copies of the articles found on the Free Republic site do not in reality substitute for the originals found on plaintiffs' web pages. Second, they contend they copy no more than necessary to fulfill their purpose of criticizing the manner in which the media covers current events and politics. Each of these contentions will be examined in turn.

Defendants' first argument—that the copies of plaintiffs' articles found on the Free Republic site do not substitute for those on plaintiffs' sites—focuses on readers' ability to access and review specific articles in which they are interested. Defendants contend that using the Free Republic site to read current articles would be impractical since there is a delay between the time information is posted to the site and the time it is indexed by third-party search engines. Additionally, they assert that the imprecision of search language makes it difficult to locate archived articles at the site.^[34] These arguments overlook the fact that the Free Republic site has its own search engine that apparently has immediate search capability.^[35]

Even were this not true, the articles posted on the Free Republic site ultimately serve the same purpose as "that [for which] one would normally seek to obtain the original—to have it available ... for ready reference if and when [website visitors adding comments] need[ ] to look at it." American Geophysical Union v. Texaco, Inc., 60 F.3d 913, 918 (2d Cir.1995) (the court held that the first fair use factor weighed against a defendant that encouraged its employees to make unauthorized photocopies of articles in scientific and medical journals and keep them in their offices for ready reference).

Defendants' web page acknowledges this. It states, inter alia, that the Free Republic site is a place where visitors "can often find breaking news and up to the minute updates."^[36] Indeed, it is clear from the content of the representative pages submitted by defendants that visitors can read copies of plaintiffs' current and archived articles at the Free Republic site. For those who visit the site regularly, therefore, the articles posted there serve as substitutes for the originals found on plaintiffs' websites or in their newspapers.

Defendants next argue that their use of plaintiffs' works is transformative because registered Free Republic users add comments and criticism concerning the articles following a posting. Copying portions of a copyrighted work for the purpose of criticism or commentary is often considered fair use. See Twin Peaks Productions, Inc. v. Publications Int'l, Ltd., 996 F.2d 1366, 1375 (9th Cir.1993) ("Inevitably, some identification of the subject matter of a writing must occur before any useful comment may be made about it, and it is not uncommon for works serving a fair use purpose to give at least a brief indication of the plot. Works of criticism, teaching, and news reporting customarily do so"). The fact that criticism is involved, however, does end the inquiry. See Harper & Row, supra, 471 U.S. at 561 (list contained in § 107 is not intended to be exhaustive or to single out any particular use as presumptively fair); Sony Corp., supra, 464 U.S. at 452 ("[e]ven copying for noncommercial purposes may impair the copyright holder's ability to obtain the rewards that Congress intended him to have"). Rather, it must be considered in combination with other circumstances to determine if the first factor favors defendants. See Twin Peaks, supra, 996 F.2d at 1375–76 (" 'Purpose' in fair use analysis is not an all-or-nothing matter. The issue is not simply whether a challenged work serves one of the non-exclusive purposes identified in section 107, such as comment or criticism, but whether it does so to an insignificant or a substantial extent. The weight ascribed to the 'purpose' factor involves a more refined assessment than the initial, fairly easy decision that a work serves a purpose illustrated by the categories listed in section 107").

[8] Since the first posting of an article to the Free Republic site often contains little or no commentary, it does not significantly transform plaintiffs' work. In Netcom On–Line II, supra, defendant posted verbatim copies of works copyrighted by the Church of Scientology to an Internet website "with little or no added comment or criticism." Id. at 1243. The court found that the works were only "minimally transformative" because "unlike the typical critic, [defendant] add[ed] little new expression to the Church's works." Id.The court specifically rejected defendant's argument that his copying was fair use because subsequent visitors added further comments. It concluded that while the copying of "works that were previously posted by their authors on the basis of an implied license or fair use argument" might be justified, such a defense would not be available "where the first posting made an unauthorized copy of a copyrighted work." Id. at 1247, n. 18.^[37]

Similarly, in Religious Technology Center v. Lerma, 1996 WL 633131 (E.D.Va.1996),^[38] defendant downloaded or scanned into his computer portions of works copyrighted by the Church of Scientology. He then posted segments of the works on the Internet. Id. at * 4. Defendant argued that his use was transformative, because he was a "dedicated researcher delving into the theory and scholarship of Scientology," and was "providing materials which 'add new value to public knowledge and understanding, thereby advancing the goals of copyright as set forth in the Constitution.' " Id. at * 5. The court rejected this argument, noting that it did "not justify the wholesale copying and republication of copyrighted material," and concluding that "[t]he degree of copying by [defendant] combined with the absence of commentary on most of his Internet postings, is inconsistent with the scholarship exception." Id.^[39]

Additionally, even where copying serves the "criticism, comment and news reporting" purposes highlighted in § 107, its extent cannot exceed what is necessary to the purpose. See Twin Peaks, supra, 996 F.2d at 1375–76 (the fact that defendant "detailed ... the plots [of episodes of a television series] ... far beyond merely identifying their basic outline for the transformative purposes of comment or criticism" weighed against a finding of fair use because the "abridgment ... elaborate[d] in detail far beyond what is required to serve any legitimate [transformative] purpose"); Toho Co., Ltd. v. William Morrow and Co., Inc., 33 F.Supp.2d 1206, 1217 (C.D.Cal.1998)(relying, inter alia, on the fact that the infringing work contained detailed plot summaries of the Godzilla movies to find that the first fair use factor weighed heavily in favor of a copyright plaintiff, despite the fact that the work also contained "numerous biographies [and] analyses of the movies, including commentary, trivia and other bits of information"). Thus, an individualized assessment of the purpose for which defendants are copying the works and a comparison of that purpose to the amount copied is required. See Campbell, supra, 510 U.S. at 586–87 ("we recognize that the extent of permissible copying varies with the purpose and character of the use"); Sundeman, supra, 142 F.3d at 205–05 (same). See also Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 449–50, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984) (reproduction of an entire television program did "not have its ordinary effect of militating against a finding of fair use" where programs were videotaped for home viewing); Harper & Row, supra, 471 U.S. at 564 ("[E]ven substantial quotations might qualify as fair use in a review of a published work or a news account of a speech").

[9] Here, it seems clear that the primary purpose of the postings to the Free Republic site is to facilitate discussion, criticism and comment by registered visitors. Defendants contend that copying all or parts of articles verbatim is necessary to facilitate this purpose.^[40] They argue that full text posting is required because links expire after a week or two, and because unsophisticated Internet users will have difficulty accessing a linked site.^[41] Defendants' assertion that links expire after a period of time is presumably a reference to the fact that articles are available on plaintiffs' websites free of charge only for a certain number of days.Thereafter, there is a charge for viewing and/or printing them. That this is so does not make linking plaintiffs' websites to the Free Republic site "impractical." It merely requires that Free Republic visitors pay a fee for viewing plaintiffs' articles just as other members of the public do. Similarly, defendants' suggestion that articles are posted to the Free Republic site long after they are published is not supported by the representative postings they have submitted.^[42] These reflect that the vast majority of comments are posted the same day the articles appear or within one to three days afterwards.^[43] Finally, defendants' assertion that unsophisticated Internet users would be confused by links is unpersuasive. Linking is familiar to most Internet users, even those who are new to the web.

As evidence that verbatim copying is in fact not necessary to defendants' purpose, plaintiffs cite the fact that defendants provided a hypertext link to Jewish World Review's website at its request, and requested that registered Free Republic visitors no longer copy the publication's articles verbatim.^[44] That defendants accommodated Jewish World Review belies their current contention that only verbatim posting of articles will serve the criticism and comment purposes of the Free Republic site. Indeed, they acknowledge that honoring Jewish World Review's request "did not significantly detract from the purpose of the freerepublic.com website."^[45]

The fact that linking the text of an article as it appears on plaintiffs' websites to the Free Republic site, or summarizing the article's text, is not as easy or convenient for Free Republic users as full text posting does not render the practice a fair use. Rather, the focus of the inquiry must be whether verbatim copying is necessary to defendants' critical purpose. See Campbell, supra, 510 U.S. at 586–87; Castle Rock Entertainment, Inc. v. Carol Publishing Group, Inc., 150 F.3d 132, 144 (2d Cir.1998) ("The inquiry must focus upon whether '[t]he extent of ... copying' is consistent with or more than necessary to further 'the purpose and character of the use' "); Rogers v. Koons, 960 F.2d 301, 311 (2d Cir.1992) ("It is not fair use when more of the original is copied than necessary"); Walt Disney Prods. v. Air Pirates, 581 F.2d 571, 758 (9th Cir.1978) ("[w]hile other factors in the fair use calculus may not be sufficient by themselves to preclude the fair use defense, ... excessive copying precludes fair use").

[10] Defendants have not met their burden of demonstrating that verbatim copying of all or a substantial portion of plaintiffs' articles is necessary to achieve their critical purpose. They argue that the purpose of full text posting is to enable Free Republic users to criticize the manner in which the media covers current events.^[46] The statement of purpose found on the website, however, is somewhat different. There, defendants state that visitors to the Free Republic site "are encouraged to comment on the news of the day ... and ... to contribute whatever information they may have to help others better understand a particular story."^[47] In fact, a review of the representative articles submitted by defendants reveals that visitors' commentary focuses much more on the news of the day than it does on the manner in which the media reports that news.^[48] This is significant, since the extent of copying that might be necessary to comment on the nature of the media's coverage of a news event is arguably greater than the amount needed to facilitate comment on the event itself. Commentary on news events requires only recitation of the underlying facts, not verbatim repetition of another's creative expression of those facts in a news article. So too, the fact that a particular media outlet published a given story, or approached that story from a particular angle can be communicated to a large degree without posting a full text copy of the report.^[49] For this reason, the court concludes that verbatim posting of plaintiffs' articles is "more than is necessary" to further defendants' critical purpose. See Castle Rock Entertainment, supra, 150 F.3d at 144. See also Hustler Magazine, Inc. v. Moral Majority, Inc., 796 F.2d 1148, 1153 (9th Cir.1986) (examining whether defendant copied "more than was necessary" in responding to a parody).

For all these reasons, the court concludes that defendants' use of plaintiffs' articles is minimally, if at all, transformative.

b. Commercial Nature Of The Free Republic Website

In addition to examining defendants' purpose in copying plaintiffs' articles, the first fair use factor also directs that the court evaluate the "character" of the use. The mere fact that a use is commercial does not "give rise to a presumption of unfairness." Sony Computer Entertainment, Inc. v. Connectix Corp., 203 F.3d 596, 606 (9th Cir.2000). See also Campbell, supra, 510 U.S. at 584–85 (noting that the Court's earlier decision in Sony, supra, 464 U.S. at 451, "called for no hard evidentiary presumption"). Rather, a defendant's commercial purpose is only "a separate factor that tends to weigh against a finding of fair use." Campbell, supra, 510 U.S. at 585. Thus, a court evaluating the first fair use factor "must weigh the extent of any transformation ... against the significance of other factors, including commercialism, that militate against fair use." Sony Computer, supra, 203 F.3d at 607.

[11] The parties vigorously dispute whether defendants' operation of the Free Republic website is a profit or non-profit venture as those terms are used in § 107. Their disagreement focuses on the corporate status of Free Republic, and on the extent to which defendants' operation of the website generates revenue, donations, and commissions.

Defendants argue that Free Republic is a non-profit organization and that they make no money from operating the website. The undisputed evidence reveals that Free Republic is currently a for-profit company. It also demonstrates that Free Republic solicits donations from visitors to the website who wish to support its mission and operations.^[50] In addition to these direct solicitations, defendants concede that they have facilitated links to third-party web pages where donations to Free Republic and/or Robinson are requested, and where donors receive Free Republic-related souvenir items in exchange for a contribution.^[51]

There is also evidence that the Free Republic web page advertises the website design services of Electronic Orchard, and contains links to Electronic Orchard clients.^[52] Defendants maintain that these links have been included as a courtesy to Electronic Orchard customers, and that they receive no revenue from them. Accepting this as true, the fact that Electronic Orchard's services are advertised and that Robinson is able to provide free links for his clients' businesses demonstrates that he and Electronic Orchard derive goodwill from the Free Republic site.

Nonetheless, defendants' operation possesses many characteristics of a non-profit entity. It does not market or sell a product, and does not generate revenue in the traditional sense. "The commercial nature of a use is a matter of degree, not an absolute...." Maxtone–Graham v. Burtchaell, 803 F.2d 1253, 1262 (2d Cir.1986). See also Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510, 1522 (9th Cir.1993) (same). Here, while the Free Republic operation has commercial aspects, its overall character is more properly viewed as non-commercial.

Additionally, the Free Republic site provides a public service by fostering debate and discussion regarding the issues of the day. This too is a factor that should be taken into account in assessing the character of defendants' use of plaintiffs' copyrighted material. See Sega Enterprises, supra, 977 F.2d at 1523 ("Public benefit need not be direct or tangible, but may arise because the challenged use serves a public interest"); Hustler, supra, 796 F.2d at 1153 ("When the use has both commercial and non-profit characteristics, the court may consider 'whether the alleged infringing use was primarily for public benefit or for private commercial gain' ").

Section 107(1) does not mandate "a clear-cut choice between two polar characterizations, 'commercial' and 'non-profit.' " Maxtone–Graham, supra, 803 F.2d at 1262. Here, choosing one of these two extremes does not properly reflect the nature of the Free Republic site, or defendants' activities in operating it. Rather, attempting the "sensitive balancing of interests" required for application of the fair use doctrine (Campbell, supra, 510 U.S. at 584; Sony, supra, 464 U.S. at 455, n. 40), the court finds that the operation of the Free Republic site is only minimally commercial.

[12] The relevant inquiry, however, "is not whether the sole motive of the use is monetary gain but whether the user stands to profit from exploitation of the copyrighted material without paying the customary price." Harper & Row, supra, 471 U.S. at 562. See Campbell, supra, 510 U.S. at 584 ("the mere fact that a use is educational and not for profit does not insulate it from a finding of infringement, any more than the commercial character of a use bars a finding of fairness"); Infinity Broadcasting, supra, 150 F.3d at 110 ("societal benefit does not guarantee a finding of fair use"); Marcus v. Rowley, 695 F.2d 1171, 1175 (9th Cir.1983) ("a finding of a nonprofit educational purpose does not automatically compel a finding of fair use").^[53] Here, defendants and registered third-party visitors to the Free Republic site copy and post plaintiffs' news articles, which are then available to others visiting the site free of charge. Since the general purpose of the site is to provide a forum where individuals can discuss current events and media coverage of them, posting copies of plaintiffs' articles assists in attracting viewers to the site.

In Marobie–FL, Inc. v. National Assoc. of Fir Equipment Distributors, 983 F.Supp. 1167 (N.D.Ill.1997), the court examined an analogous situation in which a non-profit organization placed copyrighted clip art on its website without paying the copyright owners. Id. at 1175. Despite defendant's non-profit status, the court found that "its conduct [could] still be considered commercial." Id. The court reasoned that defendant had obtained the clip art for free, although it would ordinarily have cost money, and then had made the files available on its website to members and other Internet users without charge. Id. This was beneficial to it, since the organization used the website "for the commercial purposes of promoting the association (whose members pay dues) and generating advertising revenue." Id. Consequently, the court concluded that defendant's use of the clip art "enhanced the Web Page and furthered ... commercial purposes." Id. See also Marcus, supra, 697 F.2d at 1175–76 (the court held that a defendant who replicated a substantial portion of plaintiff's copyrighted work could not assert a fair use defense despite the fact that her copying was for a nonprofit educational purpose, since both she and plaintiff used the material for the same purpose, i.e., to teach cake decorating); Television Digest, Inc. v. United States Telephone Assoc., 841 F.Supp. 5, 9–10 (D.D.C.1993) (the court concluded that a non-profit trade association's duplication and distribution of a copyrighted newsletter was not a non-commercial use because it saved money by photocopying one subscription issue rather than ordering the number of subscriptions it required per reader); Encyclopedia Britannica Educational Corp. v. Crooks, 447 F.Supp. 243, 252 (W.D.N.Y.1978) (a non-profit educational services corporation that videotaped copyrighted films, made copies, and distributed them to public schools was not making fair use of the films since it was reproducing large numbers of the videotapes in a "highly organized and systematic" way).

[13] Cases decided since Marobie–FL have utilized a more nuanced approach in evaluating the commercial/non-commercial aspect of the first fair use factor. Recent Ninth Circuit decisions, for example, assess whether a defendant's copying led directly to the generation of revenue and profit, or whether it merely had an indirect relation to commercial gain. See Sony Computer, supra, 203 F.3d at 607 (because defendant copied video game for purpose of reverse engineering it and producing software that would be compatible with it, its "commercial use of the copyrighted material was an intermediate one, and thus was only 'indirect or derivative' "); Sega Enterprises, supra, 977 F.2d at 1522 (although defendant's ultimate purpose was the commercial one of developing Genesis-compatible games for sale, "its direct purpose in copying Sega's code, and thus its direct use of the copyrighted material, was simply to study the functional requirements for Genesis compatibility so that it could modify existing games and make them usable with the Genesis console").

Citing Sega, the Second Circuit has described the proper analysis as "differentiating between a direct commercial use and [a] more indirect relation to ... commercial activity." American Geophysical, supra, 60 F.3d at 921. In American Geophysical, the court stated that the heart of "[t]he commercial/nonprofit dichotomy concerns the unfairness that arises when a secondary user makes unauthorized use of copyrighted material to capture significant revenues as a direct consequence of copying the original work." Id. at 922. Since, in the case before it, Texaco did not derive direct or immediate revenue or profits from photocopying articles in scientific and medical journals for members of its research staff, the court held that its use was "intermediate," and that the link between the copying and Texaco's commercial gain was "somewhat attenuated." Id. at 921, 922. Nonetheless, it concluded that Texaco "reap[ed] at least some indirect benefit from its photocopying," and that this in turn had some impact on its ability to develop marketable products. Id. at 922. Accordingly, the court stated, "it is not obvious why it is fair for Texaco to avoid having to pay at least some price to copyright holders for the right to photocopy the original articles." Id.

Here, the analysis is much the same. Defendants do not generate revenue or profits from posting plaintiffs' articles on the Free Republic website. At most, they derive indirect economic benefit by enhancing the website's cachet, increasing registrations, and hence increasing donations and other forms of support. Coupled with the fact that Free Republic has many of the attributes of a non-profit organization, this indirect benefit argues against a finding that the use is strictly commercial. Rather, it is more appropriate to conclude that, while defendants do not necessarily "exploit" the articles for commercial gain, their posting to the Free Republic site allows defendants and other visitors to avoid paying the "customary price" charged for the works. See Harper & Row, supra, 471 U.S. at 562.

c. Conclusion Regarding First Fair Use Factor

[14] Following Campbell, it is clear that the court must balance and weigh the various elements of the first fair use factor in deciding whether it favors plaintiffs or defendants. See Campbell, supra, 510 U.S. at 584 (emphasizing the need for a "sensitive balancing of interests," and noting that Congress has "eschewed a rigid, bright-line approach to fair use," quoting Sony, supra, 464 U.S. 455, n. 40). See also Sony Computer, supra, 203 F.3d at 607 ("we must weigh the extent of any transformation ... against the significance of other factors, including commercialism, that militate against fair use"). In the process, it must bear in mind that "the concept of a 'transformative use' is central to a proper analysis under the first factor." American Geophysical, supra, 60 F.3d at 923. For this reason, "[t]he more critical inquiry under the first factor and in fair use analysis generally is ... whether and to what extent the new work is transformative," not whether the use is commercial. Castle Rock, supra, 150 F.3d at 142 (internal quotations omitted).

Here, the court has found that defendants' copying of plaintiffs' articles is minimally, if at all, transformative. The comments of the individual who posts an article generally add little by way of comment or criticism to its substance. The extent of the copying is more than is necessary to foster the critical purpose it is designed to serve. Because the copying is verbatim, encompasses large numbers of articles, and occurs on an almost daily basis, the evidence supports a finding that defendants (and visitors to the Free Republic page) engage in extensive, systematic copying of plaintiffs' works.

Weighed against the essentially non-transformative nature of defendants' use is the fact that they do not directly derive revenue or profit from the posting of plaintiffs' articles, and the fact that their operation of the Free Republic website has many characteristics of a non-profit venture. So too, their use of plaintiffs' articles appears to be intended more for public benefit than for private commercial gain.

Since the "central purpose" of the inquiry on the first fair use factor is to determine "whether the new work merely 'supersede[s] the objects' of the original creation, ... or instead adds something new" (Campbell, supra, 510 U.S. at 579), the court finds that the nontransformative character of the copying in this case tips the scale in plaintiffs' favor, and outweighs the non-profit/public benefit nature of the purpose for which the copying is performed. This is particularly true since the posting of plaintiffs' articles to the Free Republic site amounts to "systematic ... multiplying [of] the available number of copies" of the articles, "thereby serving the same purpose" for which licenses are sold or archive charges imposed. See American Geophysical, supra, 60 F.3d at 924. The first fair use factor thus favors plaintiffs.

2. The Nature Of The Copyrighted Work

[15] The second factor identified in § 107 recognizes "that some works are closer to the core of intended copyright protection than others, with the consequence that fair use is more difficult to establish when the former works are copied." Campbell, supra 510 U.S. at 586. Thus, "the more creative a work, the more protection it should be accorded from copying; correlatively, the more informational or functional the plaintiff's work, the broader should be the scope of the fair use defense." NIMMER, supra, § 13.05[A][2][a]. Newspaper articles to a large extent gather and report facts. Nonetheless, a news reporter must determine which facts are significant and recount them in an interesting and appealing manner. See Harper & Row, supra, 471 U.S. at 547 ("[c]reation of a nonfiction work, even a compilation of pure fact, entails originality").

A number of cases that have analyzed alleged copying of news articles or videotapes of news events have concluded that the second fair use factor weighs in the defendant's favor. See Reuters Television, supra, 149 F.3d at 994 (the court held that the second factor weighed in favor of defendants that copied news footage); Los Angeles News Service v. KCAL–TV Channel 9, 108 F.3d 1119, 1122 (9th Cir.1997) (the second factor weighed in favor of a finding of fair use where defendants copied news footage);Los Angeles News Service v. Tullo, 973 F.2d 791, 792, 798 (9th Cir.1992) (the second factor favored a video news clipping service that used portions of copyrighted videotapes of newsworthy events). See also American Geophysical, supra, 60 F.3d at 925 (given the "manifestly factual character of the ... articles" from scientific and medical journals copied by defendant, the court held that the second factor weighed in favor of fair use); Television Digest, supra, 841 F.Supp. at 10 (the court found that the second factor weighed in favor of a defendant that copied a newsletter containing original news stories). Compare Nihon Keizai Shimbun, supra,166 F.3d at 72–73 (in a suit by a newspaper publisher against a defendant that gathered news articles from various sources and sold "abstracts" of them to its customers, the court recognized that newspaper articles are predominantly factual in nature and that expressive elements do not dominate, but nonetheless concluded that the second "factor is at most neutral on the question of fair use").

While plaintiffs' news articles certainly contain expressive elements, they are predominantly factual. Consequently, defendants' fair use claim is stronger than it would be had the works been purely fictional. See Sony, supra, 464 U.S. at 455, n. 40 ("Copying a news broadcast may have a stronger claim to fair use than copying a motion picture"). The court concludes that the second factor weighs in favor of a finding of fair use of the news articles by defendants in this case.

3. The Amount And Substantiality Of The Portion Used In Relation To The Copyrighted Work As A Whole

[16] Defendants concede that they have copied and posted entire articles published in plaintiffs' newspapers, although they dispute that all of plaintiffs' articles posted to the Free Republic site are verbatim copies. As noted earlier, defendants' evidence does not support their contention in this regard. In his deposition, defendant Robinson conceded that verbatim copying of entire articles or substantial portions thereof is the norm, and the exhibits submitted by defendants bear this out.^[54]

The fact that exact copies of plaintiffs' article are posted to the Free Republic site weighs strongly against a finding of fair use in this case. See American Geophysical, supra, 60 F.3d at 926 (defendant's copying of entire copyrighted articles militated against a finding of fair use and led the court to conclude that the third factor weighed in plaintiffs' favor); Hustler, supra, 796 F.2d at 1155 ("although wholesale copying does not preclude fair use per se," reproducing an entire parody was the type of wholesale copying that "militate[d] against a finding of fair use"); Supermarket of Homes, Inc. v. San Fernando Valley Board of Realtors, 786 F.2d 1440, 1409 (9th Cir.1986) ( "[g]enerally, no more of a work may be taken than is necessary to make the accompanying comment understandable"); Television Digest, supra, 841 F.Supp. at 10 (because an entire copyrighted work was used, the court concluded that the third factor weighed against a finding of fair use); NIMMER, supra, § 13.05 [A][3] ("whatever the use, generally, it may not constitute a fair use if the entire work is reproduced").

Citing the fact that plaintiffs' copyright registration covers their newspapers as a whole, defendants contend that the papers are plaintiffs' "works," and not the individual articles that appear in them. Thus, they contend, the copying of a single article constitutes reproduction of only a small portion of the work. This proposition is not supported by the case law. See American Geophysical, supra, 60 F.3d at 925–26 (despite the fact that plaintiffs' copyright registration covered their journals as a whole, the court held that copying an entire article was equivalent to copying the entire work); Hustler, supra, 796 F.2d at 1155 (stating that "[a] creative work does not deserve less copyright protection just because it is part of a composite work" and holding that the copying of a one-page parody from a 154–page magazine constituted reproduction of the entire work); Netcom On–Line II, supra, 923 F.Supp. at 1247 ("although many of Hubbard's lectures, policy statements, and course packets are collected into larger volumes, and registered as a whole, they may still constitute separate works for the purposes of this factor"); Lerma, supra, 1996 WL 633131 at * 9 ("we find that the Works at issue in this case are combined in 'collections' and that each subpart must be considered a 'single work' for the purposes of fair use analysis").

[17] Defendants also contend that copying all or a substantial portion of the articles is essential to the critical purpose of the Free Republic website. See Campbell, supra, 510 U.S. at 586 (the applicable test to use in assessing the third fair use factor is whether the amount copied was "reasonable in relation to the purpose of the copying"). In assessing such an argument, Campbell instructs that the court focus on "the persuasiveness of a [copier's] justification for the particular copying done," and noted that "the enquiry will harken back to the first of the statutory factors, for ... the extent of the permissible copying varies with the purpose and character of the use." Id. at 586–87.

As detailed in the court's consideration of the first fair use factor, defendants have not offered a persuasive argument that full-text copying is essential to the critical purpose of the Free Republic site. Contrasted with the purpose and character of me use, the wholesale copying of plaintiffs' articles weighs against a finding of fair use. See Castle Rock, supra, 150 F.3d at 144 ("In Campbell, ... the Supreme Court clarified that the third factor—the amount and substantiality of the portion of the copyrighted work used—must be examined in context. The inquiry must focus upon whether '[t]he extent of ... copying' is consistent with or more than necessary to further 'the purpose and character of the use' "); Infinity Broadcasting, supra, 150 F.3d at 110 ("the question most relevant to th[e third] factor [is] whether 'no more was taken than necessary' ").

4. The Effect Of The Use On The Potential Market For Or Value Of The Copyrighted Work

The fourth factor examines "the effect of the use upon the potential market for or value of the copyrighted work." 17 U.S.C. § 107(4). It requires evaluating not only the extent of market harm caused by the alleged infringer's use, but also " 'whether unrestricted and widespread conduct of the sort engaged in by the defendant ... would result in a substantially adverse impact on the potential market' for the original." Campbell, supra (quoting NIMMER, supra, § 13.05[A][4] ); Harper & Row, supra, 471 U.S. at 568. In this regard, it is significant if widespread use of the type in which the defendant is engaged would "diminish[ ] potential sales, interfer[e] with marketability, or usurp[ ] the market" for the original. Sega, supra, 977 F.2d at 1523 (noting that if copying had this effect, "all other considerations might be irrelevant"). Markets for derivative works, i.e., those markets 'that creators of original works would in general develop or license others to develop,' must be considered in addition to the market for the original. Campbell, supra, 510 U.S. at 590, 592. See also American Geophysical, supra, 60 F.3d at 929–30; Cable/Home Communication Corp. v. Network Productions, Inc., 902 F.2d 829, 845 (11th Cir.1990) (" 'potential market' means either an immediate or a delayed market, and includes harm to derivative works").

[18] In assessing the fourth factor, courts frequently contrast a use that "suppresses" or "destroys" the market for the original or derivative works with one that "usurps" or "substitutes" for those markets. See, e.g., Castle Rock, supra, 150 F.3d at 145. See also Campbell, supra, 510 U.S. at 593; Sony Computer, supra, 203 F.3d at 607; Sundeman, supra, 142 F.3d at 207; Sega, supra, 977 F.2d at 1523. "[A] work that merely supplants or supersedes another is likely to cause a substantially adverse impact on the potential market of the original, [while] a transformative work is less likely to do so." Sony Computer, supra, 203 F.3d at 607. See also Sega, supra, 977 F.2d at 1523 ("The Harper & Row Court found a use that effectively usurped the market for the copyrighted work by supplanting that work to be dispositive").

Applying these principles to the present case, the undisputed evidence shows that the Free Republic website has approximately 20,000 registered users, receives as many as 100,000 hits per day, and attracts between 25 and 50 million page views each month. The evidence also shows that visitors to the site are able to read full text copies of articles from plaintiffs' newspapers and archives without purchasing the papers, visiting plaintiffs' websites or paying the fee plaintiffs charge for retrieving an article from their archives. While defendants argue that the Free Republic site is a "poor substitute" for locating plaintiffs' articles on their websites,^[55]the court has found that for those individuals who visit the site, the articles posted to freerepublic.com do substitute for the original works. Given the number of registered visitors, hits and page views Free Republic attracts, the court cannot accept defendants' assertion that the site has only a de minimis effect on plaintiffs' ability to control the market for the copyrighted works.^[56]

Moreover, this kind of de minimis argument has been rejected by the courts. In Infinity Broadcasting, for example, the court considered the fair use defense of an individual who operated a "dial-up" service that allowed "subscribers (for a fee) to listen over the telephone to contemporaneous radio broadcast in remote cities," including broadcasts by stations owned by the plaintiff. Infinity Broadcasting, supra, 150 F.3d at 106. Infinity offered a similar service on a limited basis to certain clients, but acknowledged that it had "no present interest" in developing the market further. Id. at 107, 111. The defendant argued that its operation was likely to have no material effect on the value of the copyrighted works because it was "directed to a narrow and specialized audience" and generated "extremely modest" revenues. Id. at 111. The court rejected this. Noting that it could not conclude defendant's use had only a negligible effect on Infinity's ability to exploit the potential market, the court stated:

[19] "Infinity, in the exercise of its business judgment, has decided that its best current use of listen lines is to offer them at no additional cost to certain 'valued customers.' Dial–Up disrupts this practice by removing Infinity's control over who should have access to such lines. Kirkwood is selling Infinity's copyrighted material in a market that Infinity, as the copyright owner, is exclusively entitled to exploit. Kirkwood does not suppress demand for Infinity's broadcasts in the manner of a reviewer, but instead replaces Infinity as the supplier of those broadcasts to meet the demand of his customers. This is precisely the kind of harm the fourth factor aims to prevent." Id.^[57]

See also Sega Enterprises Ltd. v. Maphia, 948 F.Supp. 923, 937 (N.D.Cal.1996) (in finding that the fourth fair use factor cut against a bulletin board service that allowed users to download plaintiff's video games, the court rejected defendant's argument that any impact on plaintiff's sales was de minimis, since only a limited number of users had copiers that enabled them to play the games, the users probably played in their own homes, and there was no evidence that they had further distributed the downloaded video games; the court determined that "unrestricted and widespread conduct of this sort would result in a substantial adverse impact on the market for the Sega games"); Playboy Enterprises, Inc. v. Frena, 839 F.Supp. 1552, 1559 (M.D.Fla.1993) (rejecting defendant's argument that his use was de minimis).

This is precisely defendants' argument here—that the Free Republic site is small in comparison to the sites operated by plaintiffs, is not known to the general public, and thus could not divert a substantial amount of business from plaintiffs. As the copyright holders, however, plaintiffs have the "right to control" access to the articles, and defendants' activities affect a market plaintiffs currently seek to exploit.

Plaintiffs assert they have lost and will lose revenue because visitors to the Free Republic site can read plaintiffs' archived news articles without paying the fee they would be charged for accessing the articles at plaintiffs' sites. Similarly, plaintiffs contend that defendants' use affects their ability to generate licensing revenue, since the fact that the articles are available for free viewing on Free Republic's web page diminishes their value to licensees. Finally, plaintiffs argue that defendants' copying reduces the number of people visiting their sites, and thus causes them to lose advertising revenue calculated on the number of hits they receive.^[58]

Defendants respond that plaintiffs have not adduced evidence of lost revenue resulting from operation of the Free Republic site. This, however, is not determinative. See Sony, supra, 464 U.S. at 451 ("Actual present harm need not be shown"). In Reuters, supra,149 F.3d at 994, defendants copied plaintiffs' news footage without permission. Plaintiffs could not prove that they had lost sales of the footage or that they had suffered any actual adverse market effect. Id. The court noted that allowing a customer to buy the footage from defendants rather than plaintiffs lessened the market for plaintiffs' footage, and concluded that "such actions if permitted would result in a substantially adverse impact on the potential market for the original works." Id. See also Ringgold v. Black Entertainment Television, 126 F.3d 70, 81 (2d Cir.1997) (artist who created a story quilt that was used as set decoration for a television program was "not required to show a decline in the number of licensing requests for" a poster depicting the quilt since the program aired so long as she could demonstrate that there was "a 'traditional, reasonable, or likely to be developed' market for licensing [the] work as set decoration").

[20] Here, plaintiffs have shown that they are attempting to exploit the market for viewing their articles online, for selling copies of archived articles, and for licensing others to display or sell the articles.^[59] Defendants' use "substitutes" for the originals, and has the potential of lessening the frequency with which individuals visit plaintiffs' websites, of diminishing the market for the sale of archived articles, and decreasing me interest in licensing the articles. See Hustler, supra, 796 F.2d at 1155–56 (if the copying "fulfill[s] 'the demand for the original' works and 'diminish [es] or prejudice[s]' their potential sale," this justifies a finding that the fourth fair use factor favors the copyright holder); Wainwright Securities, supra, 558 F.2d at 96 (defendant's abstracts filled the demand for plaintiff's financial reports).

Defendants counter that there is no evidence that people who view me articles on me Free Republic site would ever have visited plaintiffs' websites. It is not necessary, however, to show with certainty that future harm will result. See Sony, supra, 464 U.S. at 451. Rather, "[w]hat is necessary is a showing by a preponderance of the evidence that some meaningful likelihood of future harm exists."Id. That likelihood is present when articles that would otherwise be available only at sites controlled or licensed by plaintiffs are available at a different site as well. The likelihood only increases when one considers the impact on the market if defendants' practice of full text copying were to become widespread.

Defendants also contend that plaintiffs actually benefit from having their articles posted verbatim on the Free Republic site. While they argue that plaintiffs' sites receive "literally tens of thousands, if not hundreds of thousands of hits per month"^[60] as a result of referrals from the Free Republic site, this overstates their expert's quantification of the number of referral hits. In his declaration, Richard Stout states that the Los Angeles Times' website receives approximately 20,000 hits per month from users who visit the Free Republic site before accessing the Times' site. Stout estimates that these referral hits generate approximately $1,000 in revenue for the paper each month.^[61] Defendants argue that this information regarding referral hits demonstrates that plaintiffs' advertising revenue is not diminished because of a reduction in the number of hits to their sites. Stout's declaration, however, does not address how many hits are diverted from plaintiffs' websites as a consequence of the posting of articles to the Free Republic site, and this is the pertinent inquiry in terms of potential market harm.

Defendants assert the evidence regarding referral hits demonstrates that Free Republic is creating a demand for plaintiffs' works. Even if this is the case, it does not mandate a conclusion that the fourth fair use factor favors defendants. Courts have routinely rejected the argument that a use is fair because it increases demand for the plaintiff's copyrighted work. See Campbell, supra, 510 U.S. at 591, n. 21 (even if a "film producer's appropriation of a composer's previously unknown song ... turns the song into a commercial success[,] the boon to the song does not make the film's ... copying fair"); Ringgold, supra, 126 F.3d at 81, n. 16 ("Even if the unauthorized use of plaintiff's work in the televised program might increase poster sales, that would not preclude her entitlement to a licensing fee"); D.C. Comics Inc. v. Reel Fantasy, Inc., 698 F.2d 24, 28 (2d Cir.1982) ("Since one of the benefits of ownership of copyrighted material is the right to license its use for a fee, even a speculated increase in DC's comic book sales as a consequence of RFI's infringement would not call the fair use defense into play as a matter of law. The owner of the copyright is in the best position to balance the prospect of increased sales against revenue from a license"); Storm Impact, Inc. v. Software of the Month Club, 13 F.Supp.2d 782, 790 (N.D.Ill.1998) ("This argument that increased distribution of the author's work is a benefit to the author has been rejected by the Supreme Court," citing Harper & Row, supra, 471 U.S. at 569)).

[21] In short, plaintiffs have demonstrated that they are attempting to exploit the market for viewing their articles online, for selling copies of archived articles, and for licensing others to display or sell the articles. They have demonstrated that the availability of verbatim copies of the articles at the Free Republic site has the potential to interfere with these markets, particularly if it becomes a widespread practice. See Sony, supra, 464 U.S. at 451; Tullo, supra, 973 F.2d at 798; Hustler, supra, 796 F.2d at 1155 (copyright owner may demonstrate that there is "some meaningful likelihood of future harm" by showing that, "should the challenged use become widespread, it would adversely affect the potential market for the work"; this inquiry focuses on "whether the infringing use (1) 'tends to diminish or prejudice the potential sale of [the] work,' or (2) tends to interfere with the marketability of the work"). Defendants, who bear the burden of proof on fair use, have not rebutted this showing by proving "an absence of 'usurpation' harm to" plaintiffs. Infinity Broadcasting, supra, 150 F.3d at 111. Accordingly, the fourth factor weighs against a finding of fair use in this case.

5. Balancing The Fair Use Factors

In sum, three of the four fair use factors weigh in plaintiffs' favor. Moreover, the factor that favors defendants—the nature of the copyrighted work—does not provide strong support for a fair use finding, since defendants copied both the factual and the expressive elements of plaintiffs' news articles. Conversely, the amount and substantiality of the copying and the lack of any significant transformation of the articles weigh heavily in favor of plaintiffs on this issue. The court thus finds that defendants may not assert a fair use defense to plaintiffs' copyright infringement claim. See Reuters, supra, 149 F.3d at 994–95 ("the district court, having found that only one of the four statutory factors weighed in favor of defendants, correctly concluded that the fair use defense did not apply"); Tullo, supra, 973 F.2d at 799 (since only one of the four fair use factors—the nature of the copyrighted work—supported a fair use finding, the court held that the defense could not be invoked to shield defendant from liability for infringing plaintiff's copyrights).

D. First Amendment Defense

Defendants assert, as a separate defense, the fact that the First Amendment protects their posting of copies of plaintiffs' news articles to the Free Republic website.^[62] Defendants contend that visitors to the Free Republic site will be unable to express their views concerning the manner in which the media covers current events since the omissions and biases in the articles will be difficult to communicate to readers without the full text of the article available.^[63]

In Harper & Row, supra, Nation magazine reprinted, without authorization, 300 words from the memoirs of President Gerald Ford. 471 U.S. at 542–45. The Court noted that factual information concerning current events contained in news articles is not protected by copyright. It stated, however, that "copyright assures those who write and publish factual narratives ... that they may at least enjoy the right to market the original expression contained therein as just compensation for their investment." Id. at 556–57 (citing Zacchini v. Scripps–Howard Broadcasting Co., 433 U.S. 562, 575, 97 S.Ct. 2849, 53 L.Ed.2d 965 (1977)). It stressed that copyright fosters free expression because it "supplies the economic incentive to create and disseminate ideas" by "establishing a marketable right to the use of one's expression." Id. at 558. It noted that copyright also promotes the countervailing First Amendment right to refrain from speech by protecting the owner of a copyrighted work from being forced to publish it. Id. at 559. For all these reasons, the Court concluded that "that copyright's idea/expression dichotomy 'strike[s] a definitional balance between the First Amendment and the Copyright Act by permitting free communication of facts while still protecting an author's expression.' " Id. at 556. Accordingly, it rejected defendant's First Amendment argument that material could be copied because it was "newsworthy," (id. at 559) and "limited its inquiry to 'the traditional equities of fair use,' unexpanded by any free speech concerns." NIMMER, supra, § 1.10[B][2] (quoting Harper & Row, supra, 471 U.S. at 560). Courts have generally interpreted this discussion in Harper & Row to mean that First Amendment considerations are subsumed within the fair use Analysis. Nihon Keizai Shimbun, supra, 166 F.3d at 74 ("We have repeatedly rejected First Amendment challenges to injunctions from copyright infringement on the ground that First Amendment concerns are protected by and coextensive with the fair use doctrine"); Twin Peaks, supra, 996 F.2d at 1378 ("except perhaps in an extraordinary case, 'the fair use doctrine encompasses all claims of first amendment in the copyright field' "); Tullo, supra, 973 F.2d at 795 ("Copyright law incorporates First Amendment goals by ensuring that copyright protection extends only to the forms in which ideas and information are expressed and not to the ideas and information themselves.... First Amendment concerns are also addressed in the copyright field through the 'fair use' doctrine").

[22] Nimmer argues that if the "copying of the expression is essential effectively to convey the idea expressed," then the First Amendment protects the copying regardless of copyright. As the court in Tullo noted, "[n]o court has adopted Nimmer's proposal." Tullo, supra, 973 F.2d at 796, n. 5. Nimmer argues that the Supreme Court in Harper & Row implicitly adopted this framework when it acknowledged that some of the briefer quotations from President Ford's memoirs were "arguably necessary adequately to convey the facts; for example, Mr. Ford's characterization of the White House tapes as the 'smoking gun' is perhaps so integral to the idea expressed as to be inseparable from it." Harper & Row, supra, 471 U.S. at 563; NIMMER, supra, § 1.10[D].

Even assuming this is true, defendants have failed to show that copying plaintiffs' news articles verbatim is essential to communication of the opinions and criticisms visitors to the website express. As discussed above in connection with analysis of defendants' fair use defense, visitors' comments more often concern the underlying news event than they do the manner in which that event was covered by the media. And, even where media coverage is the subject of the critique, the gist of the comments (which concern the fact that a particular media outlet published a story or approached the story from a particular angle) can generally be communicated without full text copying of the article. The availability of alternatives—such as linking and summarizing—further undercuts any claim that First Amendment rights are implicated. While defendants and other users of the Free Republic site may find these options less ideal than copying plaintiffs' articles verbatim, this does not demonstrate that a First Amendment violation will occur if full text posting is prohibited.

III. CONCLUSION

For the foregoing reasons, plaintiffs' motion for summary adjudication with respect to fair use is granted, and defendants' motion is denied.

[1] All parties have filed evidentiary objections to the declarations submitted in support of or opposition to the cross-motions. To the extent the court has considered evidence contained in the declarations, it has ruled on the objections to that evidence and noted its rulings in this order. To the extent evidence contained in the declarations is not mentioned in this order, it has not been considered by the court, and no ruling on the objections is required.

[2] Declaration of Carol Perruso ("Perruso Decl."), ¶ 2; Declaration of Eric Koefoot ("Koefoot Decl."), ¶¶ 2–3.

[3] Perruso Decl., ¶ 4; Koefoot Decl., ¶ 4

[4] Plaintiffs' Statement of Uncontroverted Facts and Conclusions of Law ("Pls.' Facts"), ¶ 50; Defendants' Response to Plaintiffs' Separate Statement of Uncontroverted Facts ("Defs.' Genuine Issues"), ¶ 50. The price per view figures cited in the text are set forth in the Perruso (Los Angeles Times) and Koefoot (Washington Post) declarations. While defendants have objected to the paragraphs of the declarations in which this information is found, their objection appears to relate to the declarants' assertion that it is not "impractical" to view the full text of an archived article on plaintiffs' websites rather than the Free Republic's site. (See Perruso Decl., ¶ 8; Koefoot Decl., ¶ 8; Defendants' Evidentiary Objections to Declarations of Carol Perruso, Eric Koefoot and Chappell Aldridge ("Defs.' Objections") at 2:7–10, 4:21–24.) The statements concerning the amounts charged for viewing articles on the Times and Post websites are not irrelevant, do not lack foundation, and are not ambiguous, speculative or conclusory. Consequently, to the extent defendants object to this aspect of the declarations, their objections are overruled.

[5] Perruso Decl., ¶¶ 10–12; Koefoot Decl., ¶¶ 10–12. Defendants object to paragraphs 10 and 12 of the Perruso and Koefoot declarations on the basis that they lack foundation, and are ambiguous, conclusory and speculative. (See Defs.' Objections at 2:12–15, 2:17–22, 4:26–28, 5:3–8.) Perruso and Koefoot are executive officers of their respective companies, and have personal knowledge of company operations and Internet business generally. Each is aware of the sources of revenue generated by their company's website, and of the factors that cause such revenue to increase or decrease. The testimony, which is general in nature and not directed specifically to the impact of the Free Republic site, is not speculative, ambiguous or conclusory. Consequently, defendants' objections to these portions of the Perruso and Koefoot declarations are overruled.

[6] Pls.' Facts, ¶¶ 33, 48; Defs.' Genuine Issues, ¶¶ 33, 48.

[7] See Pls.' Facts, ¶¶ 49, 51, 52; Defs.' Genuine Issues, ¶¶ 49, 51, 52.

[8] Defendants' Exhibits—Vol. 4, Ex. 1009 [Deposition of James Curtis Robinson ("Robinson Depo.") ] at 25:6–26:10, 19:16–19. Robinson's son, John, and Amy DeFendis are co-owners of the two companies. (Id. at 25:24–26:10.)

[9] Id. at 20:2–12; Pls.' Facts, ¶ 24; Defs.' Genuine Issues, ¶ 24.

[10] Robinson Depo. at 26:16–20.

[11] Pls.' Facts, ¶¶ 1, 24, 25; Defs.' Genuine Issues, ¶¶ 1, 24, 25; Declaration of James Robinson ("Robinson Decl."), ¶ 35; Memorandum of Points and Authorities in Support of Defendants' Motion for Summary Judgment ("Defs.' Mot.") at 7:17–24; Declaration of Heather L. Wayland ("Wayland Decl."), Ex. B (D000441, D000445).

[12] See, e.g., Wayland Decl., Ex. D.

[13] Pl.'s Facts, ¶¶ 18, 38; Defs.' Genuine Issues, ¶¶ 18, 38.

[14] See, e.g., Pls.' Facts, ¶¶ 45, 47; Defs.' Genuine Issues, ¶¶ 45, 47, 49. 51, 52.

[15] Defs.' Genuine Issues, ¶¶ 45, 47, 49, 51, 52 ("... [W]ith the exception of a very few articles, there is no evidence in the record to establish that the articles are 'perfect copies' as Plaintiffs allege").

[16] See Pls.' Facts, ¶ 23; Defs.' Genuine Issues, ¶ 23; Defendants' Separate Statement of Uncontroverted Facts ("Defs.' Facts"), ¶ 6; Plaintiffs' Response to Defendants' Separate Statement of Uncontroverted Facts ("Pls.' Genuine Issues"), ¶ 6.

[17] Free Republic Institute will apparently assume responsibility for operation of the website, freerepublic.com. (See Robinson Depo. at 98:15–21.)

[18] See Declaration of Harold Szabo ("Szabo Decl."), ¶¶ 3–6. Plaintiffs object to the Szabo Declaration on the basis that it is irrelevant, vague and ambiguous, without foundation, conclusory, and speculative, and that it offers improper opinion testimony to the extent it suggests tax-exempt status will be granted. (See Plaintiffs' Evidentiary Objections to Declarations of Richard L. Stout and Howard K. Szabo ("Pls.' Objections") at 11:21–15:19.) These objections are overruled as Szabo has personal knowledge of his retention, the work he was asked to perform, and the tasks he has completed to date. Thus, the statements he offers concerning the incorporation of Free Republic Institute and the status of his work on the tax-exempt application are neither vague, ambiguous, speculative or conclusory. Additionally, Szabo offers no opinions concerning the ultimate outcome of the application for tax-exempt status. Finally, while plaintiffs dispute the relevance of the information set forth in Szabo's declaration, this objection is not an attack on the admissibility of the evidence. Rather, it is argument concerning the legal import of the information Szabo provides. Consequently, there is no basis for striking the declaration.

[19] Robinson Depo. at 24:1–8, 27:18–28:23, 38:4–40:12.

[20] Pls.' Facts, ¶¶ 27, 28, 29, 30, 31, 32, 34, 35.

[21] Pls.' Facts, ¶¶ 27, 28. Plaintiffs additionally note that the Free Republic website uses a ".com" domain name of the type generally employed by commercial entities. (Pls.' Facts, ¶ 26.) Defendants dispute the relevance of this fact, noting that use of a ".com" domain name does not indicate whether their business is for-profit or not-for-profit. (Defs.' Genuine Issues, ¶ 26; Supplemental Declaration of Richard Stout ("Supp. Stout Decl."), ¶¶ 35–38.)

[22] Defs.' Genuine Issues, ¶¶ 32, 34.

[23] See Defs.' Genuine Issues, ¶¶ 27, 28,

[24] Defs.' Genuine Issues, ¶ 35.

[25] Defs.' Genuine Issues, ¶ 31.

[26] See Defs.' Genuine Issues, ¶¶ 29, 30.

[27] Defs.' Genuine Issues, ¶¶ 49, 51, 52. As support, defendants rely, in part, on the Declaration of Rick Stout. Plaintiffs have filed objections to portions of this declaration, only certain of which are pertinent here. (See Pls.' Objections at 3:8–11:19.) Specifically, plaintiffs object to paragraphs 46, 50 and 51 on the basis that they lack foundation and are irrelevant, conclusory, speculative, vague and ambiguous. Plaintiffs' objections to paragraph 46 are overruled, as Stout has demonstrated that he is qualified to offer an opinion concerning the traffic moving from the Free Republic site to the Times site, and has offered a detailed explanation of his methodology in the preceding paragraphs of the declaration. As respects paragraphs 50 and 51, it is true that the opinions set forth therein are general. Stout's qualifications and his specific expertise in analyzing Internet traffic permits him to offer an opinion concerning the relative impact of freerepublic.com on plaintiffs' websites, however, and the generalized nature of the conclusions found in these paragraphs goes to their weight rather than their admissibility.

[28] Pls.' Facts, ¶¶ 49, 51, 52. Plaintiffs support these contentions with citations to the Perruso, Koefoot and Aldridge Declarations. Defendants object to the relevant portions of these declarations on the basis that they lack foundation, are speculative, conclusory, and ambiguous, and assume facts not in evidence. The relevant statements are found at paragraph 21 of the Perruso and Koefoot Declarations, and paragraphs 3–6 of the Aldridge Declaration. In his declaration, Chappell Aldridge details a search he made for an article on the Post website and his retrieval of the full text of the article on the Free Republic site. The testimony is based on personal knowledge, and is not speculative, conclusory or ambiguous. Consequently, the court overrules defendants' objections to the Aldridge declaration, with the exception that the court has not considered the argumentative statement that this method of accessing articles is "a dodge ... available to anyone." As respects the Perruso and Koefoot Declarations, each is an executive officer of his or her respective company, and each thus has personal knowledge of company operations and Internet business generally. This knowledge provides a sufficient foundation for the expression of the opinions set forth in the declarations concerning the impact of freerepublic.com on traffic at the Times and Post sites. The generalized nature of the opinions offered goes to their weight rather than their admissibility. Consequently, defendants' objections to these portions of the Perruso, Koefoot and Aldridge declarations are overruled.

[29] Defendants Robinson and Free Republic admit that they have personally posted certain of plaintiffs' articles on the Free Republic site. (See Defs.' Genuine Issues, ¶ 9.) Because several thousand articles have been posted to the site, however, defendants assert that much of the posting has been done by registered third-party users. (See Pls.' Facts, ¶¶ 10, 41; Defs.' Genuine Issues, ¶¶ 10, 41). Plaintiffs contend that defendants provide instructions and tools that permit third-party copying, that they have the ability to control what is posted on their website, and that they have removed certain postings from time to time. (Pls.' Facts, ¶¶ 11, 12, 13.) Defendants agree that they have the technical ability to remove material from the site, but argue that it is not feasible to monitor the large quantity of daily postings the site receives. (Defs.' Genuine Issues, ¶¶ 12, 13.) They do not respond directly to the assertion that they provide tools and instructions that permit third parties to copy plaintiffs' articles; rather, they acknowledge that "the Free Republic web site provides a virtual 'bulletin board' forum which enables and allows registered users to post whatever content they wish." (Defs.' Genuine Issues, ¶ 11.) Whether defendants' operation of the Free Republic website, and the posting by third parties of verbatim copies of plaintiffs' copyrighted news articles renders defendants liable for copyright infringement is not an issue decided in this order. Similarly, the court does not address defendants' assertion that plaintiffs' posting of the articles on their websites constitutes implied consent for others to copy the works. (See Defs.' Genuine Issues, ¶¶ 6, 7, 9, 10, 11.)

[30] See Defendants' Exhibits—Vol. 4, Ex. 1009 at 53:8–54:3.

[31] See Defs.' Genuine Issues, ¶¶ 45, 46, 47 ("with the exception of a very few articles, there is no evidence in the record to establish that the articles are 'perfect copies' as Plaintiffs allege").

[32] Copying excerpts from the articles would satisfy the "copying" element of plaintiffs' copyright claim. See Nihon Keizai Shimbun, Inc. v. Comline Business Data, Inc., 166 F.3d 65, 70–71 (2d Cir.1999) (holding that there was substantial similarity between defendants' abstracts and plaintiffs' news stories because the "abstracts appear[ed] to be direct, if not word-for-word, translations of the Nikkei articles, edited only for clarity," to "use[ ] about two-thirds of the protectable material in the corresponding Nikkei article," to "track the information in the articles sentence by sentence, in sequence," occasionally "combin[ing] two Nikkei sentences, divid[ing] a sentence, or rearrang[ing] the facts among different sentences," and to "adopt[ ], by and large, the exact same structure and organization of the facts reported by Nikkei"). See also Wainwright Sec. Inc. v. Wall St. Transcript Corp., 558 F.2d 91, 93–94 and n. 1 (2d Cir.1977) (the court held that defendant had infringed plaintiff's copyrights by summarizing its analytical financial reports because it "appropriated almost verbatim the most creative and original aspects of the reports, the financial analyses and predictions, which represent a substantial investment of time, money and labor"), cert. denied, 434 U.S. 1014, 98 S.Ct. 730, 54 L.Ed.2d 759 (1978).

[33] See Defendants' Exhibits—Vol. 2, Exs. 1006; Vol. 3, 1007; Vol. 4, Ex. 1009 at 55:14–18 (Robinson's testimony that "[most people do not summarize" but post full text articles). Defendants contend that the only way to determine if the items posted to the Free Republic site are verbatim copies is to conduct a side-by-side comparison of the posting and the original article. Defendants bear the burden of proof on the issue of fair use. To the extent they wish to argue that something other than whole articles or substantial portions of articles are posted, they must adduce evidence that this is so. As noted, their evidence supports a contrary conclusion.

[34] See Defs.' Mot. at 11:14–12:3. See also Supp. Stout Decl., ¶¶ 4–25.

[35] See Defendants' Exhibits—Vol. 4, Exs. 1002, 1003; Aldridge Decl., ¶ 5.

[36] Wayland Decl., Ex. C (D000448).

[37] While the court made this observation in analyzing the third fair use factor, it is equally relevant in evaluating the extent to which a particular work is transformative.

[38] The court believes that Netcom On–Line II and Lerma are more pertinent to analysis of defendants' fair use defense than the decision in Religious Technology Center v. Netcom On–Line Communication Services, Inc., 907 F.Supp. 1361 (N.D.Cal.1995) ("Netcom On–Line I "). In Netcom On–Line I, the court considered the fair use defense of Internet access provider Netcom On–Line. In doing so, it distinguished Netcom's involvement in the posting of copyrighted works from that of the individual who actually posted copies of the works to a Usenet newsgroup. The poster gained access to the web through a bulletin board service that was not directly linked to the Internet, but that connected through the facilities of Netcom On–Line. See id. at 1365–66. The court stated: "The proper focus here is on whether Netcom's actions qualify as fair use, not on whether Erlich himself engaged in fair use; the court has already found that Erlich was not likely entitled to his own fair use defense, as his postings contained large portions of plaintiffs' published and unpublished works quoted verbatim with little added commentary." Id. at 1378. Despite the commercial nature of Netcom's function as an Internet access provider, the court found that the first fair use factor weighed in its favor, inter alia, because (1) "its financial incentive [was] unrelated to the infringing activity and [it] receive[d] no direct financial benefit from the acts of infringement"; (2) "there [was] no easy way for a defendant like Netcom to secure a license for carrying every possible type of copyrighted work onto the Internet," and thus it "should not be seen as 'profit[ing] from the exploitation of the copyrighted work without paying the customary prices' "; (3) Netcom did not "directly gain anything from the content of the information available to its subscribers on the Internet"; and (4) it did not "provide the files or solicit infringing works." Id. at 1379. Here, defendants admit that they themselves post copies of plaintiffs' new articles to the Free Republic site. Additionally, their relationship to the site, and to the material posted, is significantly more direct than that of Netcom, a company that maintains a software system that automatically forwards messages received from subscribers onto the Usenet, and temporarily stores copies of the messages on its system in the process. See id. at 1368.

[39] The decision in Religious Technology Center v. F.A.C.T.NET, Inc., 901 F.Supp. 1519 (D.Colo.1995) is not to the contrary. There, because the matter before it was a motion for preliminary injunction, the court did not make final legal rulings, but merely assessed the likelihood that plaintiff would prevail on the merits. Defendant in the case,F.A.C.T.NET, was a nonprofit corporation that maintained a library of materials concerning the Church of Scientology. Certain of its materials were posted on an Internet bulletin board by Arnaldo Lerma (the defendant in the case cited in text). Id. at 1521–22. Focusing heavily on the fact that it had copied the works for inclusion in its private library, the court found that F.A.C.T.NET was likely to prevail on its fair use defense. See id. at 1524. As respects its possible involvement in supplying materials to Lerma for Internet posting (an involvement F.A.C.T.NET denied), the court noted evidence that the postings "were made in the context of ongoing dialogue in [a] particular newsgroup," and that they "form[ed] part of the topical debate concerning whether the Works are of substance or are perpetuated as part of systemic mind control." Id. at 1526. Because plaintiff had adduced no evidence "showing a likelihood that a follower of the Church would consider the postings by Lerma as a market substitute for the Works," nor any demonstrating that the postings "were of a commercial nature or had any effect on the potential market for the works," the court held they might "well be considered as having been made for the purposes of criticism, comment or research falling within the fair use doctrine." Id. Given the limited nature of the evidence before it, the F.A.C.T.NET court's "preliminary" findings are substantially less persuasive than, and cannot be said to contradict, the Lerma court's direct and detailed analysis of Lerma's posting activities.

[40] See Defs.' Mot. at 17:21–23. See also id. at 12:20–23; 13:20–21; Defs.' Genuine Issues, ¶ 42; Defendants' Exhibits—Vol. 4, Ex. 1009 at 75:12–76:20.

[41] Defs.' Genuine Issues, ¶ 42.

[42] See id., ¶ 42.

[43] See Defendants' Exhibits—Vol. 2, Ex. 1006; Vol. 3, Ex. 1007.

[44] See Wayland Decl., Ex. Q.

[45] Defs. Genuine Issues, ¶ 43. While defendants dispute the proposition that "widespread use of such 'links' would not significantly detract from the purpose of the freerepublic.com site, ... and contend that there is controverting evidence," none of the evidence they cite in support addresses the subject.

[46] Defs. Mot. at 12:20–22; 17:21–23.

[47] Wayland Decl., Ex. C (D000448).

[48] See Defendants' Exhibits—Vol. 2, Ex. 1006; Vol. 3, Ex. 1007.

[49] Indeed, a few Free Republic visitors summarize the content of news articles rather than post verbatim copies of the text with little apparent impact on the quantity and quality of the commentary their postings attract. (See, e.g., Defendants' Exhibits—Vol. 2, Ex. 1006 at 24–25.)

[50] See Wayland Decl., Ex. M (TM092) ("FreeRepublic is supported by donations. We are a non commercial and NOT for profit public forum and discussion group. If you would like to sponsor FreeRepublic and/or place a [n] ad or banner linking your website, contact Jim. If you would like to support FreeRepublic, donations may be sent to: [¶] Jim Robinson[,] c/o Electronic Orchard[,] P.O. Box 9771[,] Fresno, CA 93794–9771.[¶] Or click here to donate by secure credit card transaction"). See also id., Ex. P (TM001, TM084).

[51] See Defs.' Genuine Issues, ¶¶ 29, 30.

[52] Wayland Decl., Ex. M (TM092) ("Jim also operates Electronic Orchard[,] an Internet web design and software development company located in Fresco, California. Please visit www.e-orchard.com and our clients' websites. We can also create and/or host your website. For effective Internet software that gets results, contact Jim Robinson"). See also id., Ex. P (TM001, TM084).

[53] In American Geophysical, the court stated that the proper focus of the commercial/non-commercial inquiry is "on the use of the copyrighted material," not on the profit or not-for-profit status of the user. American Geophysical, supra, 60 F.3d at 921–22. Nonetheless, it noted that the profit or non-profit status of the user was not "irrelevant' and "need not [be] ignore[d]." Id. at 921, 922.

[54] See Defendants' Exhibits—Vol. 2, Ex. 1006; Vol. 3, Ex. 1007; Vol. 4, Ex. 1009 at 55:14–18.

[55] Defs.' Opp. at 20:4–5.

[56] See id. at 20:7–8; Stout Decl., ¶¶ 47–51. In his declaration, Richard Stout opines that the detrimental impact of the Free Republic site on plaintiffs' websites is "trivial." (Id., ¶ 51.) He bases this conclusion on the fact that the volume of traffic visiting the Free Republic site is "trivial" in comparison with the number of visitors to plaintiffs' sites, and that only a small percentage of the articles that appear on the Free Republic site are from plaintiffs' publications. (Id., ¶¶ 48, 49.) Thus, he concludes that the "general public" wishing to read articles from plaintiffs' publications has "no reason to believe" that the Free Republic site is a better place to view plaintiff's articles than the papers' own websites. (Id., ¶ 50.) This overlooks the fact that those who visit the Free Republic site can read plaintiffs' articles without visiting their websites. As to those individuals, the articles posted to the Free Republic site clearly substitute for the originals, and make a visit to plaintiffs' websites unnecessary.

[57] While the Supreme Court's decision in Sony suggests that some potential markets should be considered "too insubstantial [or speculative] to tilt the fourth fair use factor in favor of the copyright holder" (see American Geophysical, supra, 60 F.3d at 930, n. 18), the market is presently being exploited by plaintiffs via their websites, and thus cannot be said to be of this type.

[58] At the hearing on the motions, defendants claimed they had been "sandbagged" because, contrary to the declarations submitted in connection with the motions for summary judgment, plaintiffs' designated Rule 30(b)(6) witnesses testified at their depositions that mere was no evidence that posting plaintiffs' articles to the Free Republic site diverted hits from plaintiffs' websites. Specifically, defendants cited Koefoot's testimony, in which he said there was no quantitative data that defendants' posting of articles diverted traffic from the Washington Post website. (See Defendants' Exhibits—Vol. 7, Ex. 1012 (Deposition of Eric Koefoot) at 56:15–57:24.) Koefoot added, however, that "qualitative data" supported such a conclusion since it is self-evident that a person who reads an article on the Free Republic site will not go to the Washington Post site to read the same thing. (Id. at 57:25–58:8.) Defendants also cited Eric Schvimmer's deposition testimony, in which he stated that he did not search for, and did not know of, any documents showing an decrease or increase in the number of hits to the Washington Post's website as a result of defendants' allegedly infringing acts. (Defendants' Exhibits—Vol. 6, Ex. 1011 (Deposition of Eric Schvimmer) at 65:6–11, Ex. 5 at 6.) Plaintiffs did not submit a declaration from Schvimmer in connection with the motions. They did submit Koefoot's declaration, however, which contains generalized statements to the effect that the Washington Post website loses potential "hits" when people can access Post articles at the Free Republic site. (Koefoot Decl., ¶¶ 21–22.) Perruso makes an almost identical statement respecting the Los Angeles Times' website in her declaration. (Perruso Decl., ¶¶ 20–21.) These statements do not contradict the deposition testimony. While plaintiffs may have no "quantitative data" to support the claim, they have consistently asserted that the Free Republic site reduces traffic on their web pages.

[59] Koefoot Decl., ¶¶ 8, 10–13; Perruso Decl., ¶¶ 8, 10–13.

[60] Defs.' Mot. at 14:16.

[61] See Stout Decl., ¶ 46. Stout's figures concern the Los Angeles Times site only.

[62] Often, First Amendment concerns are considered as part of the fair use analysis. See, e.g., Hustler, supra, 796 F.2d at 1151–52 ("Courts balance [me fair use] factors to determine whether the public interest in me free flow of information outweighs the copyright holder's interest in exclusive control over the work").

[63] Defs.' Mot. at 17:21–23.

433 F.Supp.2d 1236 (2006)

Civil Action No. 02-CV-01662-RPM.

United States District Court, D. Colorado.

July 6, 2006.

[1237] David N. Schachter, Sherman & Howard, L.L.C., Denver, CO, Scott Joseph Mikulecky, Sherman & Howard, L.L.C., Colorado Springs, CO, for Plaintiff and Counterclaim Defendants.

Christopher P. Beall, Natalie Marie Hanlon-Leh, Thomas Buchan Kelley, Faegre & Benon, LLP, Denver, CO, Jonathan Zavin, Loeb & Loeb, LLP, New York, NY, for Defendants-Counterclaimants.

Erika Zimmer Enger, Dorsey & Whitney, LLP, Mark A. Wielga, Nathan Michael Longenecker, Temkin Wielga Hardt & Longenecker, L.L.P., Denver, CO, Ernest J. Getto, Latham & Watkins, San Francisco, CA, for Defendants-Counterclaimants, Defendant-in-Intervention and Counterclaimant-in-Intervention.

Jeffrey Nahinu Aldous, Leefe, Gibbs, Sullivan Dupre and Aldous, Attorneys Law, Provo, UT, Mark Yablonovich, Initiative Legal Group, LLP, Los Angeles, CA, Cameron T. Chandler, Kathleen E. Craigmile, Bennington, Johnson, Biermann & Craigmile, LLC, Denver, CO, Howard Troy Romero, Romero Montague P.S., Bellevue, WA, Mark F. Wright, Wright Law Group, PLLC, Chandler, AZ, for Counterclaim Defendants.

Family Flix, U.S.A., L.L.C., Provo, UT, pro se.

Play It Clean Video, L.L.C., Joann Moulton, Saint George, UT, pro se.

MEMORANDUM OPINION AND ORDER

MATSCH, Senior District Judge.

After years of pleadings with multiple claims, counterclaims and parties, many of them now dismissed by stipulation, the Motion Picture Studios^[1] ("Studios") have moved for a partial summary judgment on their counterclaims of copyright infringement against the parties characterized as "Mechanical Editing Parties." An injunction is the relief requested against CleanFlicks, LLC, ("CleanFlicks"), Family Flix, U.S.A., L.L.C. ("Family Flix"), as creators and distributors of infringing works and against ASR Management Corporation, d/b/a CleanFilms, f/k/a MyCleanFlicks ("CleanFilms") and Play It Clean Video, LLC ("Play It Clean"), as distributors of infringing works. While the counterclaim defendants have argued that there are factual disputes to be resolved by a trial, the Court has determined that those disputes [1238] are not material to the legal issues raised wider Fed.R.Civ.P. 56 and that the Studios are entitled to the injunctive relief requested. Subject matter jurisdiction is pleaded and found under 28 U.S.C. §§ 1338 & 1367(a).

The applicable law is the Copyright Act, 17 U.S.C. §§ 101-122. The Studios, in the aggregate, have valid copyrights for the motion pictures ("movies") identified by name in the filed papers and, therefore, have the exclusive rights granted by § 106 of the Act. They sell and otherwise distribute their movies to the consuming public in various ways, including on DVDs and VHS videocassettes for purchase and rental. They also sell and otherwise distribute edited versions of their movies for use by airlines, network television and syndicated television broadcasters. The Studios' edits are made to conform to such criteria as ratings, content standards and practices, run time, formatting and industry standards. The Studios do not now sell or rent copies of edited versions of their movies on home video directly to consumers. That is the market reached by the counterclaim defendants' businesses.

CleanFlicks is a limited liability company in Utah, owned by Ray and Sharon Lines. It has created and publicly distributed copies of the Studios' movies that it altered by deleting "sex, nudity, profanity and gory violence," using its own guidelines. CleanFlicks began editing movies on VHS videocassettes in June, 2000, added DVDs at some time and now does only DVDs. The deletions are from both audio and visual content of the movies. The editing techniques used include redaction of audio content, replacing the redaction with ambient noise, "blending" of audio and visual content to provide transition of edited scenes, cropping, fogging or the use of a black bar to obscure visual content.

CleanFlicks first obtains an original copy of the movie from its customer or by its own purchase from an authorized retailer. It then makes a digital copy of the entire movie onto the hard drive of a computer, overcoming such technology as a digital content scrambling protection system in the acquired DVD, that is designed to prevent copying. After using software to make the edits, the company downloads from the computer an edited master copy which is then used to create a new recordable DVD-R to be sold to the public, directly or indirectly through a retailer. Thus, the content of the authorized DVD has been changed and the encryption removed. The DVD-R bears the CleanFlicks trademark. CleanFlicks makes direct sales and rentals to consumers online through its web-site requiring the purchaser to buy both the authorized and edited copies. CleanFlicks purchases an authorized copy of each edited copy it rents. CleanFlicks stops selling to any retailer that makes unauthorized copies of an edited movie.

Family Flix is an Arizona limited liability company owned by Richard and Sandra Teraci. It also copies authorized versions of movies into a computer and edits them to delete "profanity, nudity, strong graphic violence and sexual content or innuendos." Using methods comparable to CleanFlicks, Family Flix sells or rents its DVD-Rs directly to subscribers and to retailers. The original DVD is disabled and generally mounted inside the case with the DVD-R. The Family Flix logo with a disclaimer sticker is put on the case. There are no technical obstructions to copying the DVD-Rs.

CleanFilms, a Utah corporation, and Play It Clean Video, LLC, a Utah limited liability company, both rent and sell edited versions of the movies, obtained from Family Flix, CleanFlicks and others not [1239] parties in this case. CleanFilms maintains an inventory of the unedited versions of the copies it rents or sells to its members in a one-to-one ratio. Play It Clean does not keep an inventory of unedited copies; it relies on its suppliers' representations that they purchase such a copy for each copy sold.

Each of the counterclaim defendants is a commercial entity, obtaining revenue from the sale and rental of the edited movies by their pricing and subscription practices.

The Studios claim that CleanFlicks and Family Flix are infringing their exclusive right to reproduce the copyrighted works under § 106(1); that CleanFlicks and Family Flix are violating the Studios' right to create derivative works under § 106(2); and that all four of the counterclaim defendants are infringing the exclusive right of distribution of copies under § 106(3).

Section 106(1) provides that the owner of a copyright has the exclusive right to "reproduce the copyrighted work in copies or phonorecords." Section 101 defines "copies" as "material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term `copies' includes the material object, other than a phonorecord, in which the work is first fixed." The reproduction complained of is the making by CleanFlicks and Family Flix of voluminous fixed copies of the edited master versions of the Studios' movies, i.e., copies of copies, for which their "one-to-one ratio" of edited to original version argument does not preclude a finding of infringement.

Section 106(3) gives the owner of a copyright the exclusive right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending." Here, it is undisputed that all four of the counterclaim defendants distributed, by sale and rental, copies (albeit edited) of the Studios' copyrighted works and are therefore liable for infringement in the absence of any applicable defense.

All of the counterclaim defendants assert that they are making "fair use" of the copyrighted works, invoking the limitations on the exclusive rights granted by § 106, as provided in § 107 of the Act. The pertinent language of that section reads as follows:

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of a copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include —

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(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 for or value of the copyrighted work.

Fair use is an affirmative defense on which the counterclaim defendants have the burden of proof. They argue that they have made a sufficient showing of the applicability of the fair use doctrine to warrant a trial.

[1240] The Supreme Court in Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994) has instructed that the fair use doctrine must be applied using a case-by-case analysis, considering all four of the statutory factors, no one of which should be considered controlling.

Under the purpose and character of use factor, the counterclaim defendants concede that their use of the copyrighted works is for commercial gain, but argue, correctly, that under Campbell, that fact is not determinative. They seek to establish a public policy test that they are criticizing the objectionable content commonly found in current movies and that they are providing more socially acceptable alternatives to enable families to view the films together, without exposing children to the presumed harmful effects emanating from the objectionable content.

They seek some comfort in language appearing in the opinion deciding Chicago Bd. of Education v. Substance, Inc., 354 F.3d 624 (7th Cir.2003), that the privilege protects public criticism and may justify substantial copying of that which is being criticized. The holding in that case was an affirmance of the denial of the fair use defense under summary judgment standards. Ironically, Judge Posner wrote that a teacher does not have the right to publish the criticized tests indiscriminately "any more than a person who dislikes Michelangelo's statue of David has a right to take a sledgehammer to it." Id. at 630. Or, as maybe more aptly said in this case, to put a fig leaf on it to make it more acceptable for viewing by parents with young children.

The accused parties make much of their public policy argument and have submitted many communications from viewers expressing their appreciation for the opportunity to view movies in the setting of the family home without concern for any harmful effects on their children. This argument is inconsequential to copyright law and is addressed in the wrong forum. This Court is not free to determine the social value of copyrighted works. What is protected are the creator's rights to protect its creation in the form in which it was created.

During the pendency of this case Congress enacted the Family Movie Act of 2005, Pub.L. No. 109-9, 119 Stat. 218, 223-224, amending § 110 to provide an exemption for the editing of motion pictures by a member of a private household if no fixed copy of the altered version of the motion picture is created. That statute eliminated from this case those parties selling technology enabling such private editing. The legislative history shows that the amendment was not intended to exempt actions resulting in fixed copies of altered works which the House Committee believed illegal.^[2] Thus, the appropriate branch of government had the opportunity to make the policy choice now urged and rejected it.

The Studios contend that the counterclaim defendants are violating the right to create derivative works, being the edited versions of their films. A "derivative work" is defined in § 101 as

A "derivative work" is a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an [1241] original work of authorship, is a "derivative work".

This raises the question of whether these DVD-Rs are "transformative." That same question arises under the fair use defense. The parties take inconsistent positions on this question. The counterclaim defendants argue that they are making a transformative use of the copyrighted works for purposes of the first factor under § 107(1) — that the purpose and character of their use are for criticism of the objectionable content of the movies, and then deny that their edited versions are derivative works because they are not recasting or revising the copyrighted material in a manner that can be characterized as a work of authorship within the statutory definition. On the other hand, the Studios say that the edited versions meet the definition of derivative works but deny that the character of the use is transformative within the scope of the fair use defense.

The transformative nature of the use of copyrighted material requires such a contribution of originality as may be of such public benefit as would serve the underlying purpose of providing copyright protection, as identified in Article 1, § 8 of the Constitution: . . . to Promote the Progress of Science and useful Arts."

In Campbell, the Supreme Court said that a use is transformative if it "adds something new, with a further purpose or different character, altering the first with new expression, meaning or message." Campbell, 510 U.S. at 579, 114 S.Ct. 1164. The counterclaim defendants add nothing new to these movies. They delete scenes and dialogue from them.

Since oral argument in this case the Second Circuit Court of Appeals decided Bill Graham Archives v. Dorling Kindersley Ltd., 448 F.3d 605 (2d Cir.2006). It held that the publisher of a "coffee table book," telling the story of the Grateful Dead, made fair use of that music group's artistic images on its event posters and tickets. In so doing, the opinion addressed all of the statutory factors and emphasized that these images were not exploitative and their appearance was only incidental to the commercial value of the historical/biographical book. Therefore, the use of the copyrighted images was "transformatively different from the images' original expressive purpose and [the publisher] does not seek to exploit the images' expressive value for commercial gain." Id. at 612.

That is in sharp contrast to the counterclaim defendants' use of the copyrighted works in this case. It is undisputed that the edits are a small percentage of most of the films copied and the use is clearly for commercial gain. There is nothing transformative about the edited copies. Therefore, the first statutory factor in the fair use defense does not support the infringers.

The non-transformative nature of the edited copies coupled with the creative expressions of the movies weigh heavily in favor of the Studios under the second factor, the nature of the copyrighted work.

The third factor requires an examination of the quantitative and qualitative nature of the copyrighted material taken. Campbell, supra at 586-587; Bill Graham Archives, supra at 613. This factor also weighs against fair use as the amount used is substantial for the movies are copied in almost their entirety for non-transformative use.

The primary argument on the fair use defense is the fourth statutory factor. The counterclaim defendants contend that there is no adverse effect from their use of the movies on the value of the copyrighted work to the Studios. They suggest that the Studios benefit because they are selling [1242] more copies of their movies as a result of the editing parties' practice of maintaining a one-to-one ratio of the original and edited versions. It is assumed that the consumers of the edited versions would not have themselves purchased the authorized versions because of the objectionable content and the Studios do not compete in this alternative market.

The argument has superficial appeal but it ignores the intrinsic value of the right to control the content of the copyrighted work which is the essence of the law of copyright. Whether these films should be edited in a manner that would make them acceptable to more of the public playing them on DVD in a home environment is more than merely a matter of marketing; it is a question of what audience the copyright owner wants to reach.

Section 107 is a partial codification of the equitable doctrine of fair use as an affirmative defense to copyright infringement that has long been a part of the common law of copyright. The Supreme Court recounted the history of this equitable defense in Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985), and commented that it is predicated on a theory of an author's implied consent to reasonable and customary use when he releases his work for public consumption. Id. at 550, 105 S.Ct. 2218. That theory is not applicable here because the infringing parties are exploiting a market for movies that is different from what the Studios have released into and for an audience the Studios have not sought to reach.

Accepting all of the counterclaim defendants' factual allegations as true, the fair use defense is not applicable to this case. But because the infringing copies of these movies are not used in a transformative manner, they are not derivative works and do not violate § 106(2).

The counterclaim defendants assert the "first sale" doctrine as another affirmative defense. That doctrine protects the purchaser in any use of the authorized copy acquired but does not permit the making of additional copies. The Studios have made clear that they are not asserting that the use of a lawfully acquired copy in making the digital master copy is an infringement; they are asking this Court to prevent the use of that master copy in making the edits and creating the copies that are distributed to the public. Accordingly, the first sale doctrine has no relevance to this case.^[3]

Counterclaim defendants CleanFilms, Family Flix, and Play It Clean in their replies raised waiver, estoppel and laches as additional affirmative defenses but they have failed to provide any support for them.

The counterclaim defendants argue the grant of the requested injunction would destroy their businesses and deprive the public of the benefit of seeing these movies without offending their sensibilities to the deleted material. They rely heavily on Williams & Wilkins Co. v. United States, 203 Ct.C1. 74, 487 F.2d 1345 (1973), aff'd, 420 U.S. 376, 95 S.Ct. 1344, 43 L.Ed.2d 264 (1975), in their claim that in weighing the equities to determine whether an injunction under § 502 is a reasonable remedy, the court must recognize the loss to the public of this viewing experience against the lack of any lost revenue to the Studios. They say there is no economic loss because the Studios are not in the [1243] same market and their sales have increased under the one-to-one policy requiring purchase of the originals.

In Williams & Wilkins, the court, in a divided opinion, held that government libraries' photocopying of medical journals for use by researchers should be considered fair use because medical science would be seriously hurt if such copying were stopped.. The dissenting judges were sharply critical of the majority view and it has not become a guiding precedent, particularly because of the unique factual context. At any rate, the entertainment value of in-home viewing of the edited films does not equate with the advancement of medical science. Under the facts of this case, the presumed destruction of the counterclaim defendants' businesses is not a justification for denying these copyright holders — the Studios — the right to control the reproduction and distribution of the protected work in their original form. The Studios have not asked for damages for any loss of revenue to them; they have not sought to recover the counterclaim defendants' profits and they do not ask for statutory damages under 17 U.S.C. § 504. Their objective in the motion for partial summary judgment is to stop the infringement because of its irreparable injury to the creative artistic expression in the copyrighted movies. There is a public interest in providing such protection despite the injury the infringers may sustain. Their business is illegitimate.

Upon the foregoing, it is ORDERED that:

1. The Studios' motion for partial summary judgment is granted as to their claim for copyright infringement under 17 U.S.C. § 106(1), the infringement of their right to reproduce their copyrighted works, against counterclaim defendants CleanFlicks, LLC and Family Flix, USA, LLC.

2. The Studios' motion for partial summary judgment is denied as to their claim for copyright infringement under 17 U.S.C. § 106(2), the infringement of the right to create derivative works, against counterclaim defendants CleanFlicks, LLC and Family Flix, USA, LLC.

3. The Studios' motion for partial summary judgment is granted as to their claim for copyright infringement under 17 U.S.C. § 106(3), the infringement of their right to distribute their copyrighted works, against all counterclaim defendants, CleanFlicks, LLC; ASR Management Corporation d/b/a CleanFilms f/k/a MyCleanFlicks; Family Flix, USA, LLC; and Play It Clean Video, LLC.

4. The Studios' motion for partial summary judgment is granted against Play It Clean Video, LLC on its claim for declaratory relief that its actions in distributing the Studios' copyrighted works are noninfringing.

5. The Studios' motion for partial summary judgment of dismissal is granted as to the counterclaim defendants' affirmative defense of fair use under 17 U.S.C. § 107.

6. The Studios' motion for partial summary judgment of dismissal is granted as to the counterclaim defendants' affirmative defense of the first sale doctrine under 17 U.S.C. § 109(a).

7. The Studios' motion for partial summary judgment of dismissal is granted as to counterclaim defendants ASR Management Corporation d/b/a CleanFilms f/k/a MyCleanFlicks', Family Flix, USA, LLC's, and Play It Clean Video, LLC's affirmative defenses of estoppel, laches and waiver.

8. CleanFlicks, LLC and Family Flix, USA, LLC, their officers, agents, servants, and employees, and all persons in active concert or participation with any of them [1244] are permanently enjoined and restrained from:

(i) Producing, manufacturing, creating, designing, selling, renting (in any format, including VHS tape, DVD and/or DVDR), advertising, marketing (including, without limitation, on television, in print media and on the Internet), offering for sale or rent, merchandising, distributing, providing, importing, promoting, displaying, and/or publicly performing unauthorized edited, or otherwise altered, copies of any motion picture, the copyright in which is owned or controlled by any of the Studios; and

(ii) Engaging in any acts contributing to and/or assisting any of the foregoing.

9. ASR Management Corporation d/b/a CleanFilms f/k/a MyCleanFlicks and Play It Clean Video, LLC, their officers, agents, servants, and employees, and all persons in active concert or participation with any of them are permanently enjoined and restrained from:

(i) Selling, renting (in any format, including VHS tape, DVD and/or DVDR), advertising, marketing (including, without limitation, on television, in print media and on the Internet), offering for sale or rent, merchandising, distributing, providing, importing, promoting, displaying, and/or publicly performing unauthorized edited, or otherwise altered, copies of any motion picture, the copyright in which is owned or controlled by any of the Studios; and

(ii) Engaging in any acts contributing to and/or assisting any of the foregoing.

10. Within five (5) business days of the date of this Order, CleanFlicks, LLC; ASR Management Corporation d/b/a CleanFilms f/k/a MyCleanFlicks; Family Flix, USA, LLC; and Play It Clean Video, LLC, their officers, agents, servants, and employees, and all persons in active concert or participation with any of them shall deliver to counsel for the Studios for destruction all unauthorized edited, or otherwise altered, copies or versions of any motion picture in their possession, custody and control the copyright in which is owned or controlled by any of the Studios.

11. Within five (5) business days of the date of this Order, CleanFlicks, LLC; ASR Management Corporation d/b/a CleanFilms f/k/a MyCleanFlicks; Family Flix, USA, LLC; and Play It Clean Video, LLC shall each execute and deliver to counsel for the Studios an affidavit confirming that all materials set forth in Paragraph 10 have been delivered to counsel for the Studios in accordance with said paragraph and that it is no longer in possession, custody or control of any such items.

[1] The Co-Defendant Motion Picture Studios are Metro-Goldwyn-Mayer Studios Inc., Warner Bros. Entertainment, Inc. (as successor-in-interest to the copyright interests of named counterclaimant Time Warner Entertainment Company, L.P.), Sony Pictures Entertainment, Inc., Disney Enterprises, Inc., Dream-Works L.L.C., Universal City Studios LLLP, Twentieth Century Fox Film Corporation, and Paramount Pictures Corporation (collectively, together with their subsidiaries and affiliates).

[2] H.R.Rep. No. 109-33(I) at 6-7 (2005), printed in 2005 U.S.C.C.A.N. 220, 225.

[3] The Studios have not claimed that this initial copying is a violation of the Digital Millennium Copyright Act, Pub.L. No. 105-304, 112 Stat. 2860 (1998), but assert that such a claim could be made.

[1153] Russell J. Frackman and Jeffrey D. Goldman, Mitchell, Silberberg & Knupp LLP, Los Angeles, CA, Jeffrey N. Mausner, Berman, Mausner & Resser, Los Angeles, CA, Daniel J. Cooper, Perfect 10, Inc., Beverly Hills, CA, for plaintiff-appellant Perfect 10, Inc.

Andrew P. Bridges and Jennifer A. Golinveaux, Winston & Strawn LLP, San Francisco, CA, Gene C. Schaerr, Winston & Strawn LLP, Washington, DC, for defendant-appellee and cross-appellant Google Inc.

Mark T. Jansen & Anthony J. Malutta, Townsend and Townsend and Crew LLP, San Francisco, CA, for defendants-appellees Amazon.com and A9.com, Inc.

Fred von Lohmann, Electronic Frontier Foundation, San Francisco, CA, for amicus curiae Electronic Frontier Foundation, American Library Association, Medical Library [1154] Association, American Association of Law Libraries, Association of Research Libraries, and Special Libraries Association in support of Google Inc.

Victor S. Perlman, of counsel, American Society of Media Photographers; Nancy E. Wolff, of counsel, Cowan, DeBaets, Abrahams & Sheppard, LLP; Robert W. Clarida and Jason D. Sanders, Cowan, Liebowitz & Latman, P.C., New York, NY, for amicus curiae American Society of Media Photographers, Inc., Picture Archive Council of America, Inc., British Association of Picture Libraries and Agencies, Inc., Stock Artists Alliance, The Graphic Artists Guild, American Society of Picture Professionals and National Press Photographers, in support of Perfect 10 on issue of Google's liability for the display of full-size images.

Eric J. Schwartz and Steven J. Metalitz, Smith & Metalitz LLP, Washington, DC, for amicus curiae Motion Picture Association of America, Inc. in support of Perfect 10.

Jonathan Band, Jonathan Band PLLC, Washington, DC, for amicus curiae Net-Coalition, Computer and Communications Industry Association, U.S. Internet Service Provider Association, Consumer Electronics Association, Home Recording Rights Coalition, Information Technology Association of America, and Internet Commerce Coalition in support of Google Inc.

Kenneth L. Doroshow and Linda J. Zirkelbach, Recording Industry Association of America, Washington, DC; Jacqueline C. Charlesworth, National Music Publishers' Association, Washington, DC; Robert W. Clarida, Richard S. Mandel and Jonathan Z. King, Cowan, Liebowitz & Latman, P.C., New York, NY, for amicus curiae Recording Industry Association of America and National Music Publishers' Association in support of neither party.

Appeal from the United States District Court for the Central District of California; A. Howard Matz, District Judge, Presiding. D.C. Nos. CV-05-04753-AHM, CV-04-09484-AHM.

Before: CYNTHIA HOLCOMB HALL, HAWKINS, and SANDRA S. IKUTA, Circuit Judges.

IKUTA, Circuit Judge:

In this appeal, we consider a copyright owner's efforts to stop an Internet search engine from facilitating access to infringing images. Perfect 10, Inc. sued Google Inc., for infringing Perfect 10's copyrighted photographs of nude models, among other claims. Perfect 10 brought a similar action against Amazon.com and its subsidiary A9.com (collectively, "Amazon.com"). The district court preliminarily enjoined Google from creating and publicly displaying thumbnail versions of Perfect 10's images, Perfect 10 v. Google, Inc., 416 F.Supp.2d 828 (C.D.Cal.2006), but did not enjoin Google from linking to third-party websites that display infringing full-size versions of Perfect 10's images. Nor did the district court preliminarily enjoin Amazon.com from giving users access to information provided by Google. Perfect 10 and Google both appeal the district court's order. We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1).^[1]

[1155] The district court handled this complex case in a particularly thoughtful and skillful manner. Nonetheless, the district court erred on certain issues, as we will further explain below. We affirm in part, reverse in part, and remand.

I

Background

Google's computers, along with millions of others, are connected to networks known collectively as the "Internet." "The Internet is a world-wide network of networks ... all sharing a common communications technology." Religious Tech. Ctr. v. Netcom On-Line Commc'n Servs., Inc., 923 F.Supp. 1231, 1238 n. 1 (N.D.Cal.1995). Computer owners can provide information stored on their computers to other users connected to the Internet through a medium called a webpage. A webpage consists of text interspersed with instructions written in Hypertext Markup Language ("HTML") that is stored in a computer. No images are stored on a webpage; rather, the HTML instructions on the webpage provide an address for where the images are stored, whether in the webpage publisher's computer or some other computer. In general, webpages are publicly available and can be accessed by computers connected to the Internet through the use of a web browser.

Google operates a search engine, a software program that automatically accesses thousands of websites (collections of webpages) and indexes them within a database stored on Google's computers. When a Google user accesses the Google website and types in a search query, Google's software searches its database for websites responsive to that search query. Google then sends relevant information from its index of websites to the user's computer. Google's search engines can provide results in the form of text, images, or videos.

The Google search engine that provides responses in the form of images is called "Google Image Search." In response to a search query, Google Image Search identifies text in its database responsive to the query and then communicates to users the images associated with the relevant text. Google's software cannot recognize and index the images themselves. Google Image Search provides search results as a webpage of small images called "thumbnails," which are stored in Google's servers. The thumbnail images are reduced, lower-resolution versions of full-sized images stored on third-party computers.

When a user clicks on a thumbnail image, the user's browser program interprets HTML instructions on Google's webpage. These HTML instructions direct the user's browser to cause a rectangular area (a "window") to appear on the user's computer screen. The window has two separate areas of information. The browser fills the top section of the screen with information from the Google webpage, including the thumbnail image and text. The HTML instructions also give the user's browser the address of the website publisher's computer that stores the full-size version of the thumbnail.^[2] By following [1156] the HTML instructions to access the third-party webpage, the user's browser connects to the website publisher's computer, downloads the full-size image, and makes the image appear at the bottom of the window on the user's screen. Google does not store the images that fill this lower part of the window and does not communicate the images to the user; Google simply provides HTML instructions directing a user's browser to access a third-party website. However, the top part of the window (containing the information from the Google webpage) appears to frame and comment on the bottom part of the window. Thus, the user's window appears to be filled with a single integrated presentation of the full-size image, but it is actually an image from a third-party website framed by information from Google's website. The process by which the webpage directs a user's browser to incorporate content from different computers into a single window is referred to as "in-line linking." Kelly v. Arriba Soft Corp., 336 F.3d 811, 816 (9th Cir.2003). The term "framing" refers to the process by which information from one computer appears to frame and annotate the in-line linked content from another computer. Perfect 10, 416 F.Supp.2d at 833-34.

Google also stores webpage content in its cache.^[3] For each cached webpage, Google's cache contains the text of the webpage as it appeared at the time Google indexed the page, but does not store images from the webpage. Id. at 833. Google may provide a link to a cached webpage in response to a user's search query. However, Google's cache version of the webpage is not automatically updated when the webpage is revised by its owner. So if the webpage owner updates its webpage to remove the HTML instructions for finding an infringing image, a browser communicating directly with the webpage would not be able to access that image. However, Google's cache copy of the webpage would still have the old HTML instructions for the infringing image. Unless the owner of the computer changed the HTML address of the infringing image, or otherwise rendered the image unavailable, a browser accessing Google's cache copy of the website could still access the image where it is stored on the website publisher's computer. In other words, Google's cache copy could provide a user's browser with valid directions to an infringing image even though the updated webpage no longer includes that infringing image.

In addition to its search engine operations, Google generates revenue through a business program called "AdSense." Under this program, the owner of a website can register with Google to become an AdSense "partner." The website owner then places HTML instructions on its webpages that signal Google's server to place advertising on the webpages that is relevant to the webpages' content. Google's computer program selects the advertising automatically by means of an algorithm. AdSense participants agree to share the revenues that flow from such advertising with Google.

[1157] Google also generated revenues through an agreement with Amazon.com that allowed Amazon.com to in-line link to Google's search results. Amazon.com gave its users the impression that Amazon.com was providing search results, but Google communicated the search results directly to Amazon.com's users. Amazon.com routed users' search queries to Google and automatically transmitted Google's responses (i.e., HTML instructions for linking to Google's search results) back to its users.

Perfect 10 markets and sells copyrighted images of nude models. Among other enterprises, it operates a subscription website on the Internet. Subscribers pay a monthly fee to view Perfect 10 images in a "members' area" of the site. Subscribers must use a password to log into the members' area. Google does not include these password-protected images from the members' area in Google's index or database. Perfect 10 has also licensed Fonestarz Media Limited to sell and distribute Perfect 10's reduced-size copyrighted images for download and use on cell phones.

Some website publishers republish Perfect 10's images on the Internet without authorization. Once this occurs, Google's search engine may automatically index the webpages containing these images and provide thumbnail versions of images in response to user inquiries. When a user clicks on the thumbnail image returned by Google's search engine, the user's browser accesses the third-party webpage and in-line links to the full-sized infringing image stored on the website publisher's computer. This image appears, in its original context, on the lower portion of the window on the user's computer screen framed by information from Google's webpage.

Procedural History. In May 2001, Perfect 10 began notifying Google that its thumbnail images and in-line linking to the full-size images infringed Perfect 10's copyright. Perfect 10 continued to send these notices through 2005.

On November 19, 2004, Perfect 10 filed an action against Google that included copyright infringement claims. This was followed by a similar action against Amazon.com on June 29, 2005. On July 1, 2005 and August 24, 2005, Perfect 10 sought a preliminary injunction to prevent Amazon.com and Google, respectively, from "copying, reproducing, distributing, publicly displaying, adapting or otherwise infringing, or contributing to the infringement" of Perfect 10's photographs; linking to websites that provide full-size infringing versions of Perfect 10's photographs; and infringing Perfect 10's username/password combinations.

The district court consolidated the two actions and heard both preliminary injunction motions on November 7, 2005. The district court issued orders granting in part and denying in part the preliminary injunction against Google and denying the preliminary injunction against Amazon.com. Perfect 10 and Google cross-appealed the partial grant and partial denial of the preliminary injunction motion, and Perfect 10 appealed the denial of the preliminary injunction against Amazon.com. On June 15, 2006, the district court temporarily stayed the preliminary injunction.

II

Standard of Review

We review the district court's grant or denial of a preliminary injunction for an abuse of discretion. A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir.2001). The district court must support a preliminary injunction with findings of fact, which we review for clear error. Earth Island Inst. v. U.S. Forest Serv., 442 F.3d 1147, 1156 (9th Cir.2006). We review the district court's conclusions of law de novo. Napster, 239 F.3d at 1013.

[1158] Section 502(a) of the Copyright Act authorizes a court to grant injunctive relief "on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." 17 U.S.C. § 502(a). "Preliminary injunctive relief is available to a party who demonstrates either: (1) a combination of probable success on the merits and the possibility of irreparable harm; or (2) that serious questions are raised and the balance of hardships tips in its favor. These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." Napster, 239 F.3d at 1013 (internal quotation and citation omitted).

Because Perfect 10 has the burden of showing a likelihood of success on the merits, the district court held that Perfect 10 also had the burden of demonstrating a likelihood of overcoming Google's fair use defense under 17 U.S.C. § 107. Perfect 10, 416 F.Supp.2d at 836-37. This ruling was erroneous. At trial, the defendant in an infringement action bears the burden of proving fair use. See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 590, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994). Because "the burdens at the preliminary injunction stage track the burdens at trial," once the moving party has carried its burden of showing a likelihood of success on the merits, the burden shifts to the non-moving party to show a likelihood that its affirmative defense will succeed. Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 418, 429, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006); see also Abbott Labs. v. Andrx Pharms., Inc., 473 F.3d 1196, 1201 (Fed. Cir.2007) (to defeat a motion for preliminary injunctive relief in a patent infringement case, the non-moving party must establish a likelihood of success in proving its defenses of invalidity or unenforceability); PHG Techs., LLC v. St. John Cos., 469 F.3d 1361, 1365 (Fed.Cir.2006). Accordingly, once Perfect 10 has shown a likelihood of success on the merits, the burden shifts to Google to show a likelihood that its affirmative defenses will succeed.

In addition to its fair use defense, Google also raises an affirmative defense under title II of the Digital Millennium Copyright Act ("DMCA"), 17 U.S.C. § 512. Congress enacted title II of the DMCA "to provide greater certainty to service providers concerning their legal exposure for infringements that may occur in the course of their activities." Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004) (internal quotation omitted). Sections 512(a) through (d) limit liability for (respectively): "(1) transitory digital network communications; (2) system caching; (3) information residing on systems or networks at the direction of users; and (4) information location tools." Id. at 1077. A service provider that qualifies for such protection is not liable for monetary relief and may be subject only to the narrow injunctive relief set forth in section 512(j). 17 U.S.C. § 512(a). If Perfect 10 demonstrates a likelihood of success on the merits, Google must show a likelihood of succeeding in its claim that it qualifies for protection under title II of the DMCA.^[4][1159]

III

Direct Infringement

Perfect 10 claims that Google's search engine program directly infringes two exclusive rights granted to copyright holders: its display rights and its distribution rights.^[5] "Plaintiffs must satisfy two requirements to present a prima facie case of direct infringement: (1) they must show ownership of the allegedly infringed material and (2) they must demonstrate that the alleged infringers violate at least one exclusive right granted to copyright holders under 17 U.S.C. § 106." Napster, 239 F.3d at 1013; see 17 U.S.C. § 501(a). Even if a plaintiff satisfies these two requirements and makes a prima facie case of direct infringement, the defendant may avoid liability if it can establish that its use of the images is a "fair use" as set forth in 17 U.S.C. § 107. See Kelly, 336 F.3d at 817.

Perfect 10's ownership of at least some of the images at issue is not disputed. See Perfect 10, 416 F.Supp.2d at 836.

The district court held that Perfect 10 was likely to prevail in its claim that Google violated Perfect 10's display right with respect to the infringing thumbnails. Id. at 844. However, the district court concluded that Perfect 10 was not likely to prevail on its claim that Google violated either Perfect 10's display or distribution right with respect to its full-size infringing images. Id. at 844-45. We review these rulings for an abuse of discretion. Napster, 239 F.3d at 1013.

A. Display Right

In considering whether Perfect 10 made a prima facie case of violation of its display right, the district court reasoned that a computer owner that stores an image as electronic information and serves that electronic information directly to the user ("i.e., physically sending ones and zeroes over the [I]nternet to the user's browser," Perfect 10, 416 F.Supp.2d at 839) is displaying the electronic information in violation of a copyright holder's exclusive display right. Id. at 843-45; see 17 U.S.C. § 106(5). Conversely, the owner of a computer that does not store and serve the electronic information to a user is not displaying that information, even if such owner in-line links to or frames the electronic information. Perfect 10, 416 F.Supp.2d at 843-45. The district court referred to this test as the "server test." Id. at 838-39.

Applying the server test, the district court concluded that Perfect 10 was likely to succeed in its claim that Google's thumbnails constituted direct infringement but was unlikely to succeed in its claim that Google's in-line linking to full-size infringing images constituted a direct infringement. [1160] Id. at 843-45. As explained below, because this analysis comports with the language of the Copyright Act, we agree with the district court's resolution of both these issues.

We have not previously addressed the question when a computer displays a copyrighted work for purposes of section 106(5). Section 106(5) states that a copyright owner has the exclusive right "to display the copyrighted work publicly." The Copyright Act explains that "display" means "to show a copy of it, either directly or by means of a film, slide, television image, or any other device or process...." 17 U.S.C. § 101. Section 101 defines "copies" as "material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." Id. Finally, the Copyright Act provides that "[a] work is `fixed' in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration." Id.

We must now apply these definitions to the facts of this case. A photographic image is a work that is "`fixed' in a tangible medium of expression," for purposes of the Copyright Act, when embodied (i.e., stored) in a computer's server (or hard disk, or other storage device). The image stored in the computer is the "copy" of the work for purposes of copyright law. See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 517-18 (9th Cir.1993) (a computer makes a "copy" of a software program when it transfers the program from a third party's computer (or other storage device) into its own memory, because the copy of the program recorded in the computer is "fixed" in a manner that is "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration" (quoting 17 U.S.C. § 101)). The computer owner shows a copy "by means of a ... device or process" when the owner uses the computer to fill the computer screen with the photographic image stored on that computer, or by communicating the stored image electronically to another person's computer. 17 U.S.C. § 101. In sum, based on the plain language of the statute, a person displays a photographic image by using a computer to fill a computer screen with a copy of the photographic image fixed in the computer's memory. There is no dispute that Google's computers store thumbnail versions of Perfect 10's copyrighted images and communicate copies of those thumbnails to Google's users.^[6] Therefore, Perfect 10 has made a prima facie case that Google's communication of its stored thumbnail images directly infringes Perfect 10's display right.

Google does not, however, display a copy of full-size infringing photographic images for purposes of the Copyright Act when Google frames in-line linked images that appear on a user's computer screen. Because Google's computers do not store the photographic images, Google does not have a copy of the images for purposes of the Copyright Act. In other words, Google does not have any "material objects ... in [1161] which a work is fixed ... and from which the work can be perceived, reproduced, or otherwise communicated" and thus cannot communicate a copy. 17 U.S.C. § 101.

Instead of communicating a copy of the image, Google provides HTML instructions that direct a user's browser to a website publisher's computer that stores the full-size photographic image. Providing these HTML instructions is not equivalent to showing a copy. First, the HTML instructions are lines of text, not a photographic image. Second, HTML instructions do not themselves cause infringing images to appear on the user's computer screen. The HTML merely gives the address of the image to the user's browser. The browser then interacts with the computer that stores the infringing image. It is this interaction that causes an infringing image to appear on the user's computer screen. Google may facilitate the user's access to infringing images. However, such assistance raises only contributory liability issues, see Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 929-30, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005), Napster, 239 F.3d at 1019, and does not constitute direct infringement of the copyright owner's display rights.

Perfect 10 argues that Google displays a copy of the full-size images by framing the full-size images, which gives the impression that Google is showing the image within a single Google webpage. While in-line linking and framing may cause some computer users to believe they are viewing a single Google webpage, the Copyright Act, unlike the Trademark Act, does not protect a copyright holder against acts that cause consumer confusion. Cf. 15 U.S.C. § 1114(1) (providing that a person who uses a trademark in a manner likely to cause confusion shall be liable in a civil action to the trademark registrant).^[7]

Nor does our ruling that a computer owner does not display a copy of an image when it communicates only the HTML address of the copy erroneously collapse the display right in section 106(5) into the reproduction right set forth in section 106(1). Nothing in the Copyright Act prevents the various rights protected in section 106 from overlapping. Indeed, under some circumstances, more than one right must be infringed in order for an infringement claim to arise. For example, a "Game Genie" device that allowed a player to alter features of a Nintendo computer game did not infringe Nintendo's right to prepare derivative works because the Game Genie did not incorporate any portion of the game itself. See Lewis Galoob Toys, Inc. v. Nintendo of Am., Inc., 964 F.2d 965, 967 (9th Cir.1992). We held that a copyright holder's right to create derivative works is not infringed unless the alleged derivative work "incorporate[s] a protected work in some concrete or permanent `form.'" Id. In other words, in some contexts, the claimant must be able to claim infringement of its reproduction right in order to claim infringement of its right to prepare derivative works.

[1162] Because Google's cache merely stores the text of webpages, our analysis of whether Google's search engine program potentially infringes Perfect 10's display and distribution rights is equally applicable to Google's cache. Perfect 10 is not likely to succeed in showing that a cached webpage that in-line links to full-size infringing images violates such rights. For purposes of this analysis, it is irrelevant whether cache copies direct a user's browser to third-party images that are no longer available on the third party's website, because it is the website publisher's computer, rather than Google's computer, that stores and displays the infringing image.

B. Distribution Right

The district court also concluded that Perfect 10 would not likely prevail on its claim that Google directly infringed Perfect 10's right to distribute its full-size images. Perfect 10, 416 F.Supp.2d at 844-45. The district court reasoned that distribution requires an "actual dissemination" of a copy. Id. at 844. Because Google did not communicate the full-size images to the user's computer, Google did not distribute these images. Id.

Again, the district court's conclusion on this point is consistent with the language of the Copyright Act. Section 106(3) provides that the copyright owner has the exclusive right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending." 17 U.S.C. § 106(3). As noted, "copies" means "material objects ... in which a work is fixed." 17 U.S.C. § 101. The Supreme Court has indicated that in the electronic context, copies may be distributed electronically. See N.Y. Times Co. v. Tasini, 533 U.S. 483, 498, 121 S.Ct. 2381, 150 L.Ed.2d 500 (2001) (a computer database program distributed copies of newspaper articles stored in its computerized database by selling copies of those articles through its database service). Google's search engine communicates HTML instructions that tell a user's browser where to find full-size images on a website publisher's computer, but Google does not itself distribute copies of the infringing photographs. It is the website publisher's computer that distributes copies of the images by transmitting the photographic image electronically to the user's computer. As in Tasini, the user can then obtain copies by downloading the photo or printing it.

Perfect 10 incorrectly relies on Hotaling v. Church of Jesus Christ of Latter-Day Saints and Napster for the proposition that merely making images "available" violates the copyright owner's distribution right. Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199 (4th Cir.1997); Napster, 239 F.3d 1004. Hotaling held that the owner of a collection of works who makes them available to the public may be deemed to have distributed copies of the works. Hotaling, 118 F.3d at 203. Similarly, the distribution rights of the plaintiff copyright owners were infringed by Napster users (private individuals with collections of music files stored on their home computers) when they used the Napster software to make their collections available to all other Napster users. Napster, 239 F.3d at 1011-14.

This "deemed distribution" rule does not apply to Google. Unlike the participants in the Napster system or the library in Hotaling, Google does not own a collection of Perfect 10's full-size images and does not communicate these images to the computers of people using Google's search engine. Though Google indexes these images, it does not have a collection of stored full-size images it makes available to the public. Google therefore cannot be deemed to distribute copies of these images under the reasoning of Napster or [1163] Hotaling. Accordingly, the district court correctly concluded that Perfect 10 does not have a likelihood of success in proving that Google violates Perfect 10's distribution rights with respect to full-size images.

C. Fair Use Defense

Because Perfect 10 has succeeded in showing it would prevail in its prima facie case that Google's thumbnail images infringe Perfect 10's display rights, the burden shifts to Google to show that it will likely succeed in establishing an affirmative defense. Google contends that its use of thumbnails is a fair use of the images and therefore does not constitute an infringement of Perfect 10's copyright. See 17 U.S.C. § 107.

The fair use defense permits the use of copyrighted works without the copyright owner's consent under certain situations. The defense encourages and allows the development of new ideas that build on earlier ones, thus providing a necessary counterbalance to the copyright law's goal of protecting creators' work product. "From the infancy of copyright protection, some opportunity for fair use of copyrighted materials has been thought necessary to fulfill copyright's very purpose...." Campbell, 510 U.S. at 575, 114 S.Ct. 1164. "The fair use doctrine thus `permits [and requires] courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster.'" Id. at 577, 114 S.Ct. 1164 (quoting Stewart v. Abend, 495 U.S. 207, 236, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990)) (alteration in original).

Congress codified the common law of fair use in 17 U.S.C. § 107, which provides:

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(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 for or value of the copyrighted work.

The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.

17 U.S.C. § 107.

We must be flexible in applying a fair use analysis; it "is not to be simplified with bright-line rules, for the statute, like the doctrine it recognizes, calls for case-by-case analysis.... Nor may the four statutory factors be treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright." Campbell, 510 U.S. at 577-78, 114 S.Ct. 1164; see also Kelly, 336 F.3d at 817-18. The purpose of copyright law is "[t]o promote the Progress of Science and useful Arts," U.S. CONST. art. I, § 8, cl. 8, and to serve "`the welfare of the public.'" Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 n. 10, 104 S.Ct. 774, 78 L.Ed.2d 574 (quoting H.R.Rep. No. 2222, 60th Cong., 2d Sess. 7 (1909)).

[1164] In applying the fair use analysis in this case, we are guided by Kelly v. Arriba Soft Corp., which considered substantially the same use of copyrighted photographic images as is at issue here. See 336 F.3d 811. In Kelly, a photographer brought a direct infringement claim against Arriba, the operator of an Internet search engine. The search engine provided thumbnail versions of the photographer's images in response to search queries. Id. at 815-16. We held that Arriba's use of thumbnail images was a fair use primarily based on the transformative nature of a search engine and its benefit to the public. Id. at 818-22. We also concluded that Arriba's use of the thumbnail images did not harm the photographer's market for his image. Id. at 821-22.

In this case, the district court determined that Google's use of thumbnails was not a fair use and distinguished Kelly. Perfect 10, 416 F.Supp.2d at 845-51. We consider these distinctions in the context of the four-factor fair use analysis.

Purpose and character of the use. The first factor, 17 U.S.C. § 107(1), requires a court to consider "the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes." The central purpose of this inquiry is to determine whether and to what extent the new work is "transformative." Campbell, 510 U.S. at 579, 114 S.Ct. 1164. A work is "transformative" when the new work does not "merely supersede the objects of the original creation" but rather "adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message." Id. (internal quotation and alteration omitted). Conversely, if the new work "supersede[s] the use of the original," the use is likely not a fair use. Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 550-51, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985) (internal quotation omitted) (publishing the "heart" of an unpublished work and thus supplanting the copyright holder's first publication right was not a fair use); see also Wall Data Inc. v. L.A. County Sheriff's Dep't, 447 F.3d 769, 778-82 (9th Cir.2006) (using a copy to save the cost of buying additional copies of a computer program was not a fair use).^[8]

As noted in Campbell, a "transformative work" is one that alters the original work [1165] "with new expression, meaning, or message." Campbell, 510 U.S. at 579, 114 S.Ct. 1164. "A use is considered transformative only where a defendant changes a plaintiff's copyrighted work or uses the plaintiff's copyrighted work in a different context such that the plaintiff's work is transformed into a new creation." Wall Data, 447 F.3d at 778.

Google's use of thumbnails is highly transformative. In Kelly, we concluded that Arriba's use of thumbnails was transformative because "Arriba's use of the images serve[d] a different function than Kelly's use—improving access to information on the [I]nternet versus artistic expression." Kelly, 336 F.3d at 819. Although an image may have been created originally to serve an entertainment, aesthetic, or informative function, a search engine transforms the image into a pointer directing a user to a source of information. Just as a "parody has an obvious claim to transformative value" because "it can provide social benefit, by shedding light on an earlier work, and, in the process, creating a new one," Campbell, 510 U.S. at 579, 114 S.Ct. 1164, a search engine provides social benefit by incorporating an original work into a new work, namely, an electronic reference tool. Indeed, a search engine may be more transformative than a parody because a search engine provides an entirely new use for the original work, while a parody typically has the same entertainment purpose as the original work. See, e.g., id. at 594-96, 114 S.Ct. 1164 (holding that 2 Live Crew's parody of "Oh, Pretty Woman" using the words "hairy woman" or "bald headed woman" was a transformative work, and thus constituted a fair use); Mattel, Inc. v. Walking Mountain Prods., 353 F.3d 792, 796-98, 800-06 (9th Cir.2003) (concluding that photos parodying Barbie by depicting "nude Barbie dolls juxtaposed with vintage kitchen appliances" was a fair use). In other words, a search engine puts images "in a different context" so that they are "transformed into a new creation." Wall Data, 447 F.3d at 778.

The fact that Google incorporates the entire Perfect 10 image into the search engine results does not diminish the transformative nature of Google's use. As the district court correctly noted, Perfect 10, 416 F.Supp.2d at 848-49, we determined in Kelly that even making an exact copy of a work may be transformative so long as the copy serves a different function than the original work, Kelly, 336 F.3d at 818-19. For example, the First Circuit has held that the republication of photos taken for a modeling portfolio in a newspaper was transformative because the photos served to inform, as well as entertain. See Nunez v. Caribbean Int'l News Corp., 235 F.3d 18, 22-23 (1st Cir.2000). In contrast, duplicating a church's religious book for use by a different church was not transformative. See Worldwide Church of God v. Phila. Church of God, Inc., 227 F.3d 1110, 1117 (9th Cir.2000). Nor was a broadcaster's simple retransmission of a radio broadcast over telephone lines transformative, where the original radio shows were given no "new expression, meaning, or message." Infinity Broad. Corp. v. Kirkwood, 150 F.3d 104, 108 (2d Cir.1998). Here, Google uses Perfect 10's images in a new context to serve a different purpose.

The district court nevertheless determined that Google's use of thumbnail images was less transformative than Arriba's use of thumbnails in Kelly because Google's use of thumbnails superseded Perfect 10's right to sell its reduced-size images for use on cell phones. See Perfect 10, 416 F.Supp.2d at 849. The district court stated that "mobile users can download and save the thumbnails displayed by Google Image Search onto their phones," and concluded "to the extent that users may choose to download free images to their [1166] phone rather than purchase [Perfect 10's] reduced-size images, Google's use supersedes [Perfect 10's]." Id.

Additionally, the district court determined that the commercial nature of Google's use weighed against its transformative nature. Id. Although Kelly held that the commercial use of the photographer's images by Arriba's search engine was less exploitative than typical commercial use, and thus weighed only slightly against a finding of fair use, Kelly, 336 F.3d at 818-20, the district court here distinguished Kelly on the ground that some website owners in the AdSense program had infringing Perfect 10 images on their websites, Perfect 10, 416 F.Supp.2d at 846-47. The district court held that because Google's thumbnails "lead users to sites that directly benefit Google's bottom line," the AdSense program increased the commercial nature of Google's use of Perfect 10's images. Id. at 847.

In conducting our case-specific analysis of fair use in light of the purposes of copyright, Campbell, 510 U.S. at 581, 114 S.Ct. 1164, we must weigh Google's superseding and commercial uses of thumbnail images against Google's significant transformative use, as well as the extent to which Google's search engine promotes the purposes of copyright and serves the interests of the public. Although the district court acknowledged the "truism that search engines such as Google Image Search provide great value to the public," Perfect 10, 416 F.Supp.2d at 848-49, the district court did not expressly consider whether this value outweighed the significance of Google's superseding use or the commercial nature of Google's use. Id. at 849. The Supreme Court, however, has directed us to be mindful of the extent to which a use promotes the purposes of copyright and serves the interests of the public. See Campbell, 510 U.S. at 579, 114 S.Ct. 1164; Harper & Row, 471 U.S. at 556-57, 105 S.Ct. 2218; Sony, 464 U.S. at 431-32, 104 S.Ct. 774.

We note that the superseding use in this case is not significant at present: the district court did not find that any downloads for mobile phone use had taken place. See Perfect 10, 416 F.Supp.2d at 849. Moreover, while Google's use of thumbnails to direct users to AdSense partners containing infringing content adds a commercial dimension that did not exist in Kelly, the district court did not determine that this commercial element was significant. See id. at 848-49. The district court stated that Google's AdSense programs as a whole contributed "$630 million, or 46% of total revenues" to Google's bottom line, but noted that this figure did not "break down the much smaller amount attributable to websites that contain infringing content." Id. at 847 & n. 12 (internal quotation omitted).

We conclude that the significantly transformative nature of Google's search engine, particularly in light of its public benefit, outweighs Google's superseding and commercial uses of the thumbnails in this case. In reaching this conclusion, we note the importance of analyzing fair use flexibly in light of new circumstances. Sony, 464 U.S. at 431-32, 104 S.Ct. 774; id. at 448 n. 31, 104 S.Ct. 774 ("`[Section 107] endorses the purpose and general scope of the judicial doctrine of fair use, but there is no disposition to freeze the doctrine in the statute, especially during a period of rapid technological change.'" (quoting H.R.Rep. No. 94-1476, p. 65-66 (1976), U.S.Code Cong. & Admin. News 1976, p. 5680)). We are also mindful of the Supreme Court's direction that "the more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use." Campbell, 510 U.S. at 579, 114 S.Ct. 1164.

[1167] Accordingly, we disagree with the district court's conclusion that because Google's use of the thumbnails could supersede Perfect 10's cell phone download use and because the use was more commercial than Arriba's, this fair use factor weighed "slightly" in favor of Perfect 10. Perfect 10, 416 F.Supp.2d at 849. Instead, we conclude that the transformative nature of Google's use is more significant than any incidental superseding use or the minor commercial aspects of Google's search engine and website. Therefore, this factor weighs heavily in favor of Google.

The nature of the copyrighted work. With respect to the second factor, "the nature of the copyrighted work," 17 U.S.C. § 107(2), our decision in Kelly is directly on point. There we held that the photographer's images were "creative in nature" and thus "closer to the core of intended copyright protection than are more fact-based works." Kelly, 336 F.3d at 820 (internal quotation omitted). However, because the photos appeared on the Internet before Arriba used thumbnail versions in its search engine results, this factor weighed only slightly in favor of the photographer. Id.

Here, the district court found that Perfect 10's images were creative but also previously published. Perfect 10, 416 F.Supp.2d at 850. The right of first publication is "the author's right to control the first public appearance of his expression." Harper & Row, 471 U.S. at 564, 105 S.Ct. 2218. Because this right encompasses "the choices of when, where, and in what form first to publish a work," id., an author exercises and exhausts this one-time right by publishing the work in any medium. See, e.g., Batjac Prods. Inc. v. Good-Times Home Video Corp., 160 F.3d 1223, 1235 (9th Cir.1998) (noting, in the context of the common law right of first publication, that such a right "does not entail multiple first publication rights in every available medium"). Once Perfect 10 has exploited this commercially valuable right of first publication by putting its images on the Internet for paid subscribers, Perfect 10 is no longer entitled to the enhanced protection available for an unpublished work. Accordingly the district court did not err in holding that this factor weighed only slightly in favor of Perfect 10.^[9] See Perfect 10, 416 F.Supp.2d at 849-50.

The amount and substantiality of the portion used. "The third factor asks whether the amount and substantiality of the portion used in relation to the copyrighted work as a whole ... are reasonable in relation to the purpose of the copying." Campbell, 510 U.S. at 586, 114 S.Ct. 1164 (internal quotation omitted); see also 17 U.S.C. § 107(3). In Kelly, we held Arriba's use of the entire photographic image was reasonable in light of the purpose of a search engine. Kelly, 336 F.3d at 821. Specifically, we noted, "[i]t was necessary for Arriba to copy the entire image to allow users to recognize the image and decide whether to pursue more information about the image or the originating [website]. If Arriba only copied part of the image, it would be more difficult to identify it, thereby reducing the usefulness of the visual search engine." Id. Accordingly, we concluded that this factor did not weigh in favor of either [1168] party. Id. Because the same analysis applies to Google's use of Perfect 10's image, the district court did not err in finding that this factor favored neither party.

Effect of use on the market. The fourth factor is "the effect of the use upon the potential market for or value of the copyrighted work." 17 U.S.C. § 107(4). In Kelly, we concluded that Arriba's use of the thumbnail images did not harm the market for the photographer's full-size images. See Kelly, 336 F.3d at 821-22. We reasoned that because thumbnails were not a substitute for the full-sized images, they did not harm the photographer's ability to sell or license his full-sized images. Id. The district court here followed Kelly's reasoning, holding that Google's use of thumbnails did not hurt Perfect 10's market for full-size images. See Perfect 10, 416 F.Supp.2d at 850-51. We agree.

Perfect 10 argues that the district court erred because the likelihood of market harm may be presumed if the intended use of an image is for commercial gain. However, this presumption does not arise when a work is transformative because "market substitution is at least less certain, and market harm may not be so readily inferred." Campbell, 510 U.S. at 591, 114 S.Ct. 1164. As previously discussed, Google's use of thumbnails for search engine purposes is highly transformative, and so market harm cannot be presumed.

Perfect 10 also has a market for reduced-size images, an issue not considered in Kelly. The district court held that "Google's use of thumbnails likely does harm the potential market for the downloading of [Perfect 10's] reduced-size images onto cell phones." Perfect 10, 416 F.Supp.2d at 851 (emphasis omitted). The district court reasoned that persons who can obtain Perfect 10 images free of charge from Google are less likely to pay for a download, and the availability of Google's thumbnail images would harm Perfect 10's market for cell phone downloads. Id. As we discussed above, the district court did not make a finding that Google users have downloaded thumbnail images for cell phone use. This potential harm to Perfect 10's market remains hypothetical. We conclude that this factor favors neither party.

Having undertaken a case-specific analysis of all four factors, we now weigh these factors together "in light of the purposes of copyright." Campbell, 510 U.S. at 578, 114 S.Ct. 1164; see also Kelly, 336 F.3d at 818 ("We must balance[the section 107] factors in light of the objectives of copyright law, rather than view them as definitive or determinative tests."). In this case, Google has put Perfect 10's thumbnail images (along with millions of other thumbnail images) to a use fundamentally different than the use intended by Perfect 10. In doing so, Google has provided a significant benefit to the public. Weighing this significant transformative use against the unproven use of Google's thumbnails for cell phone downloads, and considering the other fair use factors, all in light of the purpose of copyright, we conclude that Google's use of Perfect 10's thumbnails is a fair use. Because the district court here "found facts sufficient to evaluate each of the statutory factors ... [we] need not remand for further factfinding." Harper & Row, 471 U.S. at 560, 105 S.Ct. 2218 (internal quotation omitted). We conclude that Google is likely to succeed in proving its fair use defense and, accordingly, we vacate the preliminary injunction regarding Google's use of thumbnail images.

IV

Secondary Liability for Copyright Infringement

We now turn to the district court's ruling that Google is unlikely to be secondarily [1169] liable for its in-line linking to infringing full-size images under the doctrines of contributory and vicarious infringement.^[10] The district court ruled that Perfect 10 did not have a likelihood of proving success on the merits of either its contributory infringement or vicarious infringement claims with respect to the full-size images. See Perfect 10, 416 F.Supp.2d at 856, 858. In reviewing the district court's conclusions, we are guided by the Supreme Court's recent interpretation of secondary liability, namely: "[o]ne infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it." Grokster, 545 U.S. at 930, 125 S.Ct. 2764 (internal citations omitted).

Direct Infringement by Third Parties. As a threshold matter, before we examine Perfect 10's claims that Google is secondarily liable, Perfect 10 must establish that there has been direct infringement by third parties. See Napster, 239 F.3d at 1013 n. 2 ("Secondary liability for copyright infringement does not exist in the absence of direct infringement by a third party.").

Perfect 10 alleges that third parties directly infringed its images in three ways. First, Perfect 10 claims that third-party websites directly infringed its copyright by reproducing, displaying, and distributing unauthorized copies of Perfect 10's images. Google does not dispute this claim on appeal.

Second, Perfect 10 claims that individual users of Google's search engine directly infringed Perfect 10's copyrights by storing full-size infringing images on their computers. We agree with the district court's conclusion that Perfect 10 failed to provide sufficient evidence to support this claim. See Perfect 10, 416 F.Supp.2d at 852. There is no evidence in the record directly establishing that users of Google's search engine have stored infringing images on their computers, and the district court did not err in declining to infer the existence of such evidence.

Finally, Perfect 10 contends that users who link to infringing websites automatically make "cache" copies of full-size images and thereby directly infringe Perfect 10's reproduction right. The district court rejected this argument, holding that any such reproduction was likely a "fair use." Id. at 852 n. 17. The district court reasoned that "[l]ocal caching by the browsers of individual users is noncommercial, transformative, and no more than necessary to achieve the objectives of decreasing network latency and minimizing unnecessary bandwidth usage (essential to the [I]nternet). It has a minimal impact on the potential market for the original work...." Id. We agree; even assuming such automatic copying could constitute direct infringement, it is a fair use in this context. The copying function performed automatically by a user's computer to assist in accessing the Internet is a transformative use. Moreover, as noted by the district court, a cache copies no more than is necessary to assist the user in Internet use. It is designed to enhance an individual's computer use, not to supersede the copyright holders' exploitation of their works. Such automatic background copying has no more than a minimal effect on Perfect 10's rights, but a considerable public benefit. Because the four fair use factors weigh in favor of concluding that [1170] cache copying constitutes a fair use, Google has established a likelihood of success on this issue. Accordingly, Perfect 10 has not carried its burden of showing that users' cache copies of Perfect 10's full-size images constitute direct infringement.

Therefore, we must assess Perfect 10's arguments that Google is secondarily liable in light of the direct infringement that is undisputed by the parties: third-party websites' reproducing, displaying, and distributing unauthorized copies of Perfect 10's images on the Internet. Id. at 852.

A. Contributory Infringement

In order for Perfect 10 to show it will likely succeed in its contributory liability claim against Google, it must establish that Google's activities meet the definition of contributory liability recently enunciated in Grokster. Within the general rule that "[o]ne infringes contributorily by intentionally inducing or encouraging direct infringement," Grokster, 545 U.S. at 930, 125 S.Ct. 2764, the Court has defined two categories of contributory liability: "Liability under our jurisprudence may be predicated on actively encouraging (or inducing) infringement through specific acts (as the Court's opinion develops) or on distributing a product distributees use to infringe copyrights, if the product is not capable of `substantial' or `commercially significant' noninfringing uses." Id. at 942, 125 S.Ct. 2764 (Ginsburg, J., concurring) (quoting Sony, 464 U.S. at 442, 104 S.Ct. 774); see also id. at 936-37, 125 S.Ct. 2764.

Looking at the second category of liability identified by the Supreme Court (distributing products), Google relies on Sony, 464 U.S. at 442, 104 S.Ct. 774, to argue that it cannot be held liable for contributory infringement because liability does not arise from the mere sale of a product (even with knowledge that consumers would use the product to infringe) if the product is capable of substantial non-infringing use. Google argues that its search engine service is such a product. Assuming the principle enunciated in Sony is applicable to the operation of Google's search engine, then Google cannot be held liable for contributory infringement solely because the design of its search engine facilitates such infringement. Grokster, 545 U.S. at 931-32, 125 S.Ct. 2764 (discussing Sony, 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574). Nor can Google be held liable solely because it did not develop technology that would enable its search engine to automatically avoid infringing images. See id. at 939 n. 12, 125 S.Ct. 2764. However, Perfect 10 has not based its claim of infringement on the design of Google's search engine and the Sony rule does not immunize Google from other sources of contributory liability. See id. at 933-34, 125 S.Ct. 2764.

We must next consider whether Google could be held liable under the first category of contributory liability identified by the Supreme Court, that is, the liability that may be imposed for intentionally encouraging infringement through specific acts.^[11] Grokster tells us that contribution to infringement must be intentional for liability to arise. Grokster, 545 U.S. at 930, 125 S.Ct. 2764. However, Grokster also directs us to analyze contributory liability in light of "rules of fault-based liability derived from the common law," id. at 934-35, 125 S.Ct. 2764, and [1171] common law principles establish that intent may be imputed. "Tort law ordinarily imputes to an actor the intention to cause the natural and probable consequences of his conduct." DeVoto v. Pac. Fid. Life Ins. Co., 618 F.2d 1340, 1347 (9th Cir. 1980); RESTATEMENT (SECOND) OF TORTS § 8A cmt. b (1965) ("If the actor knows that the consequences are certain, or substantially certain, to result from his act, and still goes ahead, he is treated by the law as if he had in fact desired to produce the result."). When the Supreme Court imported patent law's "staple article of commerce doctrine" into the copyright context, it also adopted these principles of imputed intent. Grokster, 545 U.S. at 932, 125 S.Ct. 2764 ("The [staple article of commerce] doctrine was devised to identify instances in which it may be presumed from distribution of an article in commerce that the distributor intended the article to be used to infringe another's patent, and so may justly be held liable for that infringement."). Therefore, under Grokster, an actor may be contributorily liable for intentionally encouraging direct infringement if the actor knowingly takes steps that are substantially certain to result in such direct infringement.

Our tests for contributory liability are consistent with the rule set forth in Grokster. We have adopted the general rule set forth in Gershwin Publishing Corp. v. Columbia Artists Management, Inc., namely: "one who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a `contributory' infringer," 443 F.2d 1159, 1162 (2d Cir.1971). See Ellison, 357 F.3d at 1076; Napster, 239 F.3d at 1019; Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir.1996).

We have further refined this test in the context of cyberspace^[12] to determine when contributory liability can be imposed on a provider of Internet access or services. See Napster, 239 F.3d at 1019-20. In Napster, we considered claims that the operator of an electronic file sharing system was contributorily liable for assisting individual users to swap copyrighted music files stored on their home computers with other users of the system. Napster, 239 F.3d at 1011-13, 1019-22. We stated that "if a computer system operator learns of specific infringing material available on his system and fails to purge such material from the system, the operator knows of and contributes to direct infringement." Id. at 1021. Because Napster knew of the availability of infringing music files, assisted users in accessing such files, and failed to block access to such files, we concluded that Napster materially contributed to infringement. Id. at 1022.

The Napster test for contributory liability was modeled on the influential district court decision in Religious Technology Center v. Netcom On-Line Communication Services, Inc. (Netcom), 907 F.Supp. 1361, 1365-66 (N.D.Cal.1995). See Napster, 239 F.3d at 1021. In Netcom, a disgruntled former Scientology minister posted allegedly infringing copies of Scientological works on an electronic bulletin board service. Netcom, 907 F.Supp. at 1365-66. The messages were stored on the bulletin board operator's computer, then automatically copied onto Netcom's computer, and from there copied onto other computers comprising "a worldwide community" of electronic bulletin board systems. Id. at 1366-67 & n. 4 (internal quotation omitted). Netcom held that if plaintiffs [1172] could prove that Netcom knew or should have known that the minister infringed plaintiffs' copyrights, "Netcom [would] be liable for contributory infringement since its failure to simply cancel [the former minister's] infringing message and thereby stop an infringing copy from being distributed worldwide constitute[d] substantial participation in [the former minister's] public distribution of the message." Id. at 1374.

Although neither Napster nor Netcom expressly required a finding of intent, those cases are consistent with Grokster because both decisions ruled that a service provider's knowing failure to prevent infringing actions could be the basis for imposing contributory liability. Under such circumstances, intent may be imputed. In addition, Napster and Netcom are consistent with the longstanding requirement that an actor's contribution to infringement must be material to warrant the imposition of contributory liability. Gershwin, 443 F.2d at 1162. Both Napster and Netcom acknowledge that services or products that facilitate access to websites throughout the world can significantly magnify the effects of otherwise immaterial infringing activities. See Napster, 239 F.3d at 1022; Netcom, 907 F.Supp. at 1375. The Supreme Court has acknowledged that "[t]he argument for imposing indirect liability" is particularly "powerful" when individuals using the defendant's software could make a huge number of infringing downloads every day. Grokster, 545 U.S. at 929, 125 S.Ct. 2764. Moreover, copyright holders cannot protect their rights in a meaningful way unless they can hold providers of such services or products accountable for their actions pursuant to a test such as that enunciated in Napster. See id. at 929-30, 125 S.Ct. 2764 ("When a widely shared service or product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, the only practical alternative being to go against the distributor of the copying device for secondary liability on a theory of contributory or vicarious infringement."). Accordingly, we hold that a computer system operator can be held contributorily liable if it "has actual knowledge that specific infringing material is available using its system," Napster, 239 F.3d at 1022, and can "take simple measures to prevent further damage" to copyrighted works, Netcom, 907 F.Supp. at 1375, yet continues to provide access to infringing works.

Here, the district court held that even assuming Google had actual knowledge of infringing material available on its system, Google did not materially contribute to infringing conduct because it did not undertake any substantial promotional or advertising efforts to encourage visits to infringing websites, nor provide a significant revenue stream to the infringing websites. Perfect 10, 416 F.Supp.2d at 854-56. This analysis is erroneous. There is no dispute that Google substantially assists websites to distribute their infringing copies to a worldwide market and assists a worldwide audience of users to access infringing materials. We cannot discount the effect of such a service on copyright owners, even though Google's assistance is available to all websites, not just infringing ones. Applying our test, Google could be held contributorily liable if it had knowledge that infringing Perfect 10 images were available using its search engine, could take simple measures to prevent further damage to Perfect 10's copyrighted works, and failed to take such steps.

The district court did not resolve the factual disputes over the adequacy of Perfect 10's notices to Google and Google's responses to these notices. Moreover, there are factual disputes over whether there are reasonable and feasible means for Google to refrain from providing access [1173] to infringing images. Therefore, we must remand this claim to the district court for further consideration whether Perfect 10 would likely succeed in establishing that Google was contributorily liable for in-line linking to full-size infringing images under the test enunciated today.^[13]

B. Vicarious Infringement

Perfect 10 also challenges the district court's conclusion that it is not likely to prevail on a theory of vicarious liability against Google. Perfect 10, 416 F.Supp.2d at 856-58. Grokster states that one "infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it." Grokster, 545 U.S. at 930, 125 S.Ct. 2764. As this formulation indicates, to succeed in imposing vicarious liability, a plaintiff must establish that the defendant exercises the requisite control over the direct infringer and that the defendant derives a direct financial benefit from the direct infringement. See id. Grokster further explains the "control" element of the vicarious liability test as the defendant's "right and ability to supervise the direct infringer." Id. at 930 n. 9, 125 S.Ct. 2764. Thus, under Grokster, a defendant exercises control over a direct infringer when he has both a legal right to stop or limit the directly infringing conduct, as well as the practical ability to do so.

We evaluate Perfect 10's arguments that Google is vicariously liable in light of the direct infringement that is undisputed by the parties, namely, the third-party websites' reproduction, display, and distribution of unauthorized copies of Perfect 10's images on the Internet. Perfect 10, 416 F.Supp.2d at 852; see supra Section IV.A. In order to prevail at this preliminary injunction stage, Perfect 10 must demonstrate a likelihood of success in establishing that Google has the right and ability to stop or limit the infringing activities of third party websites. In addition, Perfect 10 must establish a likelihood of proving that Google derives a direct financial benefit from such activities. Perfect 10 has not met this burden.

With respect to the "control" element set forth in Grokster, Perfect 10 has not demonstrated a likelihood of showing that Google has the legal right to stop or limit the direct infringement of third-party websites. See Grokster, 545 U.S. at 930, 125 S.Ct. 2764. Unlike Fonovisa, where by virtue of a "broad contract" with its vendors the defendant swap meet operators had the right to stop the vendors from selling counterfeit recordings on its premises, Fonovisa, 76 F.3d at 263, Perfect 10 has not shown that Google has contracts with third-party websites that empower Google to stop or limit them from reproducing, displaying, and distributing infringing copies of Perfect 10's images on the Internet. Perfect 10 does point to Google's AdSense agreement, which states that Google reserves "the right to monitor and terminate partnerships with entities that violate others' copyright[s]." Perfect 10, 416 F.Supp.2d at 858. However, Google's right to terminate an AdSense partnership does not give Google the right to [1174] stop direct infringement by third-party websites. An infringing third-party website can continue to reproduce, display, and distribute its infringing copies of Perfect 10 images after its participation in the AdSense program has ended.

Nor is Google similarly situated to Napster. Napster users infringed the plaintiffs' reproduction and distribution rights through their use of Napster's proprietary music-file sharing system. Napster, 239 F.3d at 1011-14. There, the infringing conduct was the use of Napster's "service to download and upload copyrighted music." Id. at 1014 (internal quotation omitted). Because Napster had a closed system requiring user registration, and could terminate its users' accounts and block their access to the Napster system, Napster had the right and ability to prevent its users from engaging in the infringing activity of uploading file names and downloading Napster users' music files through the Napster system.^[14] Id. at 1023-24. By contrast, Google cannot stop any of the third-party websites from reproducing, displaying, and distributing unauthorized copies of Perfect 10's images because that infringing conduct takes place on the third-party websites. Google cannot terminate those third-party websites or block their ability to "host and serve infringing full-size images" on the Internet. Perfect 10, 416 F.Supp.2d at 831.

Moreover, the district court found that Google lacks the practical ability to police the third-party websites' infringing conduct. Id. at 857-58. Specifically, the court found that Google's supervisory power is limited because "Google's software lacks the ability to analyze every image on the [I]nternet, compare each image to all the other copyrighted images that exist in the world ... and determine whether a certain image on the web infringes someone's copyright." Id. at 858. The district court also concluded that Perfect 10's suggestions regarding measures Google could implement to prevent its web crawler from indexing infringing websites and to block access to infringing images were not workable. Id. at 858 n. 25. Rather, the suggestions suffered from both "imprecision and overbreadth." Id. We hold that these findings are not clearly erroneous. Without image-recognition technology, Google lacks the practical ability to police the infringing activities of third-party websites. This distinguishes Google from the defendants held liable in Napster and Fonovisa. See Napster, 239 F.3d at 1023-24 (Napster had the ability to identify and police infringing conduct by searching its index for song titles); Fonovisa, 76 F.3d at 262 (swap meet operator had the ability to identify and police infringing activity by patrolling its premises).

Perfect 10 argues that Google could manage its own operations to avoid [1175] indexing websites with infringing content and linking to third-party infringing sites. This is a claim of contributory liability, not vicarious liability. Although "the lines between direct infringement, contributory infringement, and vicarious liability are not clearly drawn," Sony, 464 U.S. at 435 n. 17, 104 S.Ct. 774 (internal quotation omitted), in general, contributory liability is based on the defendant's failure to stop its own actions which facilitate third-party infringement, while vicarious liability is based on the defendant's failure to cause a third party to stop its directly infringing activities. See, e.g., Ellison, 357 F.3d at 1077-78; Fonovisa, 76 F.3d at 261-64. Google's failure to change its operations to avoid assisting websites to distribute their infringing content may constitute contributory liability, see supra Section IV.A. However, this failure is not the same as declining to exercise a right and ability to make third-party websites stop their direct infringement. We reject Perfect 10's efforts to blur this distinction.

Because we conclude that Perfect 10 has not shown a likelihood of establishing Google's right and ability to stop or limit the directly infringing conduct of third-party websites, we agree with the district court's conclusion that Perfect 10 "has not established a likelihood of proving the [control] prong necessary for vicarious liability." Perfect 10, 416 F.Supp.2d at 858.^[15]

C. Digital Millennium Copyright Act

Google claims that it qualifies for the limitations on liability set forth in title II of the DMCA, 17 U.S.C. § 512. In particular, section 512(d) limits the liability of a service provider "for infringement of copyright by reason of the provider referring or linking users to an online location containing infringing material or infringing activity, by using information location tools, including a directory, index, reference, pointer, or hypertext link" if the service provider meets certain criteria. We have held that the limitations on liability contained in 17 U.S.C. § 512 protect secondary infringers as well as direct infringers. Napster, 239 F.3d at 1025.

The parties dispute whether Google meets the specified criteria. Perfect 10 claims that it sent qualifying notices to Google and Google did not act expeditiously to remove the infringing material. Google claims that Perfect 10's notices did not comply with the notice provisions of section 512 and were not adequate to inform Google of the location of the infringing images on the Internet or identify the underlying copyrighted work. Google also claims that it responded to all notices it received by investigating the webpages identified by Perfect 10 and suppressing links to any webpages that Google confirmed were infringing.

Because the district court determined that Perfect 10 was unlikely to succeed on its contributory and vicarious liability claims, it did not reach Google's arguments under section 512. In revisiting the question of Perfect 10's likelihood of success on its contributory infringement claims, the district court should also consider whether Google would likely succeed in showing that it was entitled to the limitations on injunctive relief provided by title II of the DMCA.

V

Amazon.com

Perfect 10 claims that Amazon.com displays and distributes Perfect 10's copyrighted images and is also secondarily [1176] liable for the infringements of third-party websites and Amazon.com users. The district court concluded that Perfect 10 was unlikely to succeed in proving that Amazon.com was a direct infringer, because it merely in-line linked to the thumbnails on Google's servers and to the full-size images on third-party websites.^[16] Perfect 10 v. Amazon, No. 05-4753, consolidated with 04-9484 (C.D.Cal. February 21, 2006) (order denying preliminary injunction). In addition, the district court concluded that Perfect 10's secondary infringement claims against Amazon.com were likely to fail because Amazon.com had no program analogous to AdSense, and thus did not provide any revenues to infringing sites. Id. Finally, the district court determined that Amazon.com's right and ability to control the infringing conduct of third-party websites was substantially less than Google's. Id. Therefore, the district court denied Perfect 10's motion for a preliminary injunction against Amazon.com. Id.

We agree that Perfect 10 has not shown a likelihood that it would prevail on the merits of its claim that Amazon.com directly infringed its images. Amazon.com communicates to its users only the HTML instructions that direct the users' browsers to Google's computers (for thumbnail images) or to a third party's computer (for full-size infringing images). Therefore, Amazon.com does not display or distribute a copy of the thumbnails or full-size images to its users.

We also agree with the district court's conclusion that Amazon.com does not have "the right and ability to supervise the infringing activity" of Google or third parties. The district court did not clearly err in concluding that Amazon.com lacked a direct financial interest in such activities. Therefore, Perfect 10's claim that Amazon.com is vicariously liable for third-party infringement is unlikely to succeed.

However, the district court did not consider whether Amazon.com had "actual knowledge that specific infringing material is available using its system," Napster, 239 F.3d at 1022 (emphasis in original), and could have "take[n] simple measures to prevent further damage" to copyrighted works, Netcom, 907 F.Supp. at 1375, yet continued to provide access to infringing works. Perfect 10 has presented evidence that it notified Amazon.com that it was facilitating its users' access to infringing material. It is disputed whether the notices gave Amazon.com actual knowledge of specific infringing activities available using its system, and whether Amazon.com could have taken reasonable and feasible steps to refrain from providing access to such images, but failed to do so. Nor did the district court consider whether Amazon.com is entitled to limit its liability under title II of the DMCA. On remand, the district court should consider Amazon.com's potential contributory liability, as well as possible limitations on the scope of injunctive relief, in light of our rulings today.

VI

We conclude that Google's fair use defense is likely to succeed at trial, and therefore we reverse the district court's determination that Google's thumbnail versions of Perfect 10's images likely constituted a direct infringement. The district court also erred in its secondary liability [1177] analysis because it failed to consider whether Google and Amazon.com knew of infringing activities yet failed to take reasonable and feasible steps to refrain from providing access to infringing images. Therefore we must also reverse the district court's holding that Perfect 10 was unlikely to succeed on the merits of its secondary liability claims. Due to this error, the district court did not consider whether Google and Amazon.com are entitled to the limitations on liability set forth in title II of the DMCA. The question whether Google and Amazon.com are secondarily liable, and whether they can limit that liability pursuant to title II of the DMCA, raise fact-intensive inquiries, potentially requiring further fact finding, and thus can best be resolved by the district court on remand. We therefore remand this matter to the district court for further proceedings consistent with this decision.

Because the district court will need to reconsider the appropriate scope of injunctive relief after addressing these secondary liability issues, we do not address the parties' arguments regarding the scope of the injunction issued by the district court. For the same reason, we do not address the parties' dispute over whether the district court abused its discretion in determining that Perfect 10 satisfied the irreparable harm element of a preliminary injunction.

Therefore, we reverse the district court's ruling and vacate the preliminary injunction regarding Google's use of thumbnail versions of Perfect 10's images.^[17] We reverse the district court's rejection of the claims that Google and Amazon.com are secondarily liable for infringement of Perfect 10's full-size images. We otherwise affirm the rulings of the district court. We remand this matter for further proceedings consistent with this opinion. Each party shall bear its own costs on appeal. See FED. R. APP. P. 39(a)(4).

AFFIRMED IN PART; REVERSED IN PART; REMANDED.

[1] Google argues that we lack jurisdiction over the preliminary injunction to the extent it enforces unregistered copyrights. Registration is generally a jurisdictional prerequisite to a suit for copyright infringement. See 17 U.S.C. § 411. But section 411 does not limit the remedies a court can grant. Rather, the Copyright Act gives courts broad authority to issue injunctive relief. See 17 U.S.C. § 502(a). Once a court has jurisdiction over an action for copyright infringement under section 411, the court may grant injunctive relief to restrain infringement of any copyright, whether registered or unregistered. See, e.g., Olan Mills, Inc. v. Linn Photo Co., 23 F.3d 1345, 1349 (8th Cir.1994); Pac. & S. Co., Inc. v. Duncan, 744 F.2d 1490, 1499 n. 17 (11th Cir.1984). Because at least some of the Perfect 10 images at issue were registered, the district court did not err in determining that it could issue an order that covers unregistered works. Therefore, we have jurisdiction over the district court's decision and order.

[2] The website publisher may not actually store the photographic images used on its webpages in its own computer, but may provide HTML instructions directing the user's browser to some further computer that stores the image. Because this distinction does not affect our analysis, for convenience, we will assume that the website publisher stores all images used on its webpages in the website publisher's own computer.

[3] Generally, a "cache" is "a computer memory with very short access time used for storage of frequently or recently used instructions or data." United States v. Ziegler, 474 F.3d 1184, 1186 n. 3 (9th Cir.2007) (quoting MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY 171 (11th ed.2003)). There are two types of caches at issue in this case. A user's personal computer has an internal cache that saves copies of webpages and images that the user has recently viewed so that the user can more rapidly revisit these webpages and images. Google's computers also have a cache which serves a variety of purposes. Among other things, Google's cache saves copies of a large number of webpages so that Google's search engine can efficiently organize and index these webpages.

[4] Perfect 10 argues that we are bound by the language and structure of title II of the DMCA in determining Google's liability for copyright infringement. We have noted that the DMCA does not change copyright law; rather, "Congress provided that [the DMCA's] limitations of liability apply if the provider is found to be liable under existing principles of law." Ellison, 357 F.3d at 1077 (emphasis and internal quotation omitted). As a result, "[c]laims against service providers for direct, contributory, or vicarious copyright infringement, therefore, are generally evaluated just as they would be in the non-online world." Id.; see also 17 U.S.C. § 512(l) ("The failure of a service provider's conduct to qualify for limitation of liability under this section shall not bear adversely upon the consideration of a defense by the service provider that the service provider's conduct is not infringing under this title or any other defense."). Therefore, we must consider Google's potential liability under the Copyright Act without reference to title II of the DMCA.

[5] 17 U.S.C. § 106 states, in pertinent part:

Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

(1) to reproduce the copyrighted work in copies or phonorecords;

....

(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;

....

(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly....

[6] Because Google initiates and controls the storage and communication of these thumbnail images, we do not address whether an entity that merely passively owns and manages an Internet bulletin board or similar system violates a copyright owner's display and distribution rights when the users of the bulletin board or similar system post infringing works. Cf. CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d 544 (4th Cir.2004).

[7] Perfect 10 also argues that Google violates Perfect 10's right to display full-size images because Google's in-line linking meets the Copyright Act's definition of "to perform or display a work `publicly.'" 17 U.S.C. § 101. This phrase means "to transmit or otherwise communicate a performance or display of the work to ... the public, 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." Id. Perfect 10 is mistaken. Google's activities do not meet this definition because Google transmits or communicates only an address which directs a user's browser to the location where a copy of the full-size image is displayed. Google does not communicate a display of the work itself.

[8] We reject at the outset Perfect 10's argument that providing access to infringing websites cannot be deemed transformative and is inherently not fair use. Perfect 10 relies on Video Pipeline, Inc. v. Buena Vista Home Entm't, Inc., 342 F.3d 191 (3d Cir.2003), and Atari Games Corp. v. Nintendo of Am. Inc., 975 F.2d 832, 843 (Fed.Cir.1992). But these cases, in essence, simply apply the general rule that a party claiming fair use must act in a manner generally compatible with principles of good faith and fair dealing. See Harper & Row, 471 U.S. at 562-63, 105 S.Ct. 2218. For this reason, a company whose business is based on providing scenes from copyrighted movies without authorization could not claim that it provided the same public benefit as the search engine in Kelly. See Video Pipeline, 342 F.3d at 198-200. Similarly, a company whose overriding desire to replicate a competitor's computer game led it to obtain a copy of the competitor's source code from the Copyright Office under false pretenses could not claim fair use with respect to its purloined copy. Atari Games, 975 F.2d at 843.

Unlike the alleged infringers in Video Pipeline and Atari Games, who intentionally misappropriated the copyright owners' works for the purpose of commercial exploitation, Google is operating a comprehensive search engine that only incidentally indexes infringing websites. This incidental impact does not amount to an abuse of the good faith and fair dealing underpinnings of the fair use doctrine. Accordingly, we conclude that Google's inclusion of thumbnail images derived from infringing websites in its Internet-wide search engine activities does not preclude Google from raising a fair use defense.

[9] Google contends that Perfect 10's photographic images are less creative and less deserving of protection than the images of the American West in Kelly because Perfect 10 boasts of its un-retouched photos showing the natural beauty of its models. Having reviewed the record, we conclude that the district court's finding that Perfect 10's photographs "consistently reflect professional, skillful, and sometimes tasteful artistry" is not clearly erroneous. Perfect 10, 416 F.Supp.2d at 849 n. 15. We agree with the district court that there is no basis for concluding that photos of the American West are more deserving of protection than photos of nude models. See id.

[10] Because the district court concluded that Perfect 10 was likely to prevail on its direct infringement claim with respect to Google's use of thumbnails, but not with respect to its in-line linking to full-size images, the district court considered Google's potential secondary liability only on the second issue.

[11] Google's activities do not meet the "inducement" test explained in Grokster because Google has not promoted the use of its search engine specifically to infringe copyrights. See Grokster, 545 U.S. at 935-37, 125 S.Ct. 2764. However, the Supreme Court in Grokster did not suggest that a court must find inducement in order to impose contributory liability under common law principles.

[12] "Cyberspace is a popular term for the world of electronic communications over computer networks." Religious Tech. Ctr. v. Netcom On-Line Commc'n Servs., Inc., 907 F.Supp. 1361, 1365 n. 1 (N.D.Cal.1995).

[13] Perfect 10 claims that Google materially contributed to infringement by linking to websites containing unauthorized passwords, which enabled Google users to access Perfect 10's website and make infringing copies of images. However, Perfect 10 points to no evidence that users logging onto the Perfect 10 site with unauthorized passwords infringed Perfect 10's exclusive rights under section 106. In the absence of evidence that Google's actions led to any direct infringement, this argument does not assist Perfect 10 in establishing that it would prevail on the merits of its contributory liability claim. See Napster, 239 F.3d at 1013 n. 2 ("Secondary liability for copyright infringement does not exist in the absence of direct infringement by a third party.").

[14] Napster's system included "Napster's MusicShare software, available free of charge from Napster's Internet site, and Napster's network servers and server-side software." Napster, 239 F.3d at 1011. By downloading Napster's MusicShare software to the user's personal computer, and registering with the Napster system, a user could both upload and download music files. Id. at 1011-13. If the Napster user uploaded a list of music files stored on the user's personal computer to the Napster system, such music files would be automatically available to other Napster users whenever the user was logged on to the Napster system. Id. at 1012. In addition, the Napster user could download music files directly from other users' personal computers. Id. We explained the infringing conduct as "Napster users who upload file names to the [Napster] search index for others to copy violate plaintiffs' distribution rights. Napster users who download files [through the Napster system] containing copyrighted music violate plaintiffs' reproduction rights." Id. at 1014.

[15] Having so concluded, we need not reach Perfect 10's argument that Google received a direct financial benefit.

[16] Amazon.com states that it ended its relationship with Google on April 30, 2006. Perfect 10's action for preliminary injunction against Amazon.com is not moot, however, because Amazon.com has not established "that the allegedly wrongful behavior cannot reasonably be expected to recur." F.T.C. v. Affordable Media, LLC, 179 F.3d 1228, 1238 (9th Cir.1999) (internal quotation omitted).

[17] Because we vacate the injunction, Google's motion for stay of the injunction is moot.

Steven E. Sletten, Robert E. Cooper, Robert H. Platt and Mark S. Lee, New York, New York, for Plaintiffs.

William Taylor, New York, New York, for Defendants.

TICKETS.COM'S NOTICE OF MOTION AND MOTION FOR SUMMARY JUDGMENT ON CONTRACT, TRESPASS AND COPYRIGHT CLAIMS

HUPP, J.

ORDER

[1] This motion by defendant Tickets.com, Inc. (hereafter TX) for summary judgment on plaintiffs Ticketmaster Corporation and Ticket Online–CitySearch, Inc. (hereafter collectively TM), intellectual property issues is denied as to the contract claim of TM and granted as to the copyright and trespass to chattels claims, which are dismissed by this minute order.

At this point in the case, both parties have narrowed their claims. TM, the original plaintiff, has narrowed its intellectual property claims to a contract theory, a copyright theory, and a trespass to chattels theory. The court finds triable issues of fact on the contract theory and finds no triable issues of fact and grants summary judgment on the copyright and trespass to chattels claims.

Many of the factual items are not contested, although the legal result of applying the law to the uncontested facts is heavily contested. Among the uncontested facts are the following: Both TM and TX are in the business of selling tickets to all kinds of "events" (sports, concerts, plays, etc.) to the public. They are in heavy competition with one another, but operate in distinctive ways. TM is the largest company in the industry. It sells tickets by the four methods of ticket selling–venue box office, retail outlets, by telephone, and over the internet. Telephone and internet sales require the customer to establish credit with the ticket seller (usually by credit card). Internet sales have been the fastest growing segment of the industry. TX at the time of the events considered in this motion was primarily (but not exclusively) an internet seller. Both TM and TX maintain a web page reachable by anyone with an internet connection. Each of their web pages has many subsidiary (or interior) web pages which describe one event each and provide such basic information as to location, date, time, description of the event, and ticket prices. The TM interior web pages each have a separate electronic address or Uniform Resource Locator ("URL") which, if possessed by the internet user, allows the user to reach the web page for any particular event by by-passing the "home" web page and proceeding past the index to reach the interior web page for the event in question. The TM interior web pages provide telephone numbers for customers or allow the customer to order tickets to the event by interactive computer use. A charge is made for the TM service.

TM principally does business by exclusive contracts with the event providers or their producers, and its web pages only list the events for which TM is the exclusive ticket seller. TX also sells tickets to a number of events for which it is the ticket seller. At one point, its web pages attempted to list all events for which tickets were available whether or not TX sold the tickets. Its interior web pages also listed the event, the date, time, ticket prices, and provided for internet purchase if TX could sell the tickets. When TX could not sell the tickets, it listed ticket brokers who sold at premium prices. In early 2000, TX discontinued this practice of listing events with tickets sold by other ticket brokers. Until early 2000, in situations where TM was the only source of tickets, TX provided a "deep link" by which the customer would be transferred to the interior web page of TM's web site, where the customer could purchase the ticket from TM. This process of "deep linking" is the subject of TM's complaint in this action, of which there is now left the contract, copyright, and trespass theories.

[2] Starting in 1998 and continuing to July 2001, when it stopped the practice, TX employed an electronic program called a "spider" or "crawler" to review the internal web pages (available to the public) of TM. The "spider" "crawled" through the internal web pages to TM and electronically extracted the electronic information from which the web page is shown on the user's computer. The spider temporarily loaded this electronic information into the Random Access Memory ("RAM") of TX's computers for a period of from 10–15 seconds. TX then extracted the factual information (event, date, time, tickets prices, and URL) and discarded the rest (which consisted of TM identification, logos, ads, and other information which TX did not intend to use; much of this discarded material was protected by copyright). The factual information was then organized in the TX format to be displayed on the TX internal web page. The TX internal web page carried no TM identification and had only the factual information about the event on it which was taken from TM's interior web page but rearranged in TX format plus any information or advertisement added by TX. From March 1998, to early 2000, the TX user was provided the deep linking option described above to go directly from the TX web site to the relevant TM interior web page. This option stopped (or was stopped by TM) in early 2000. For an unknown period afterward, the TX customer was given the option of linking to the TM home page, from which the customer could work his way to the interior web page in which he was interested. (The record does not reveal whether this practice still exists or whether TM objects to it.) Thus, the intellectual property issues in this case appear to be limited to events which occurred between November 1998, when spidering started, and July 2001, when it stopped. The "deep linking" aspect of the case is relevant only from March 1998, to early 2000, when it stopped.

The contract aspect of the case derives from a notice placed on the home page of the TM web site which states that anyone going beyond that point into the interior web pages of the web site accepts certain conditions, which include, relevant to this case, that all information obtained from the website is for the personal use of the user and may not be used for commercial purposes. Earlier in this case (and at the time of the motion for preliminary injunction) the notice was placed at the bottom of the home page of the TM web site, so that a user without an especially large screen would have to scroll down the page to read the conditions of use. Since then, TM has placed in a prominent place on the home page the warning that proceeding further binds the user to the conditions of use. As one TX executive put it, it could not be missed. At the time of the preliminary injunction motion, the court commented that there was no evidence that the conditions of use were known to TX. Since then, there has been developed evidence that TX was fully familiar with the conditions TM claimed to impose on users, including a letter from TM to TX which quoted the conditions (and a reply by TX stating that it did not accept the conditions). Thus, there is sufficient evidence to defeat summary judgment on the contract theory if knowledge of the asserted conditions of use was had by TX, who nevertheless continued to send its spider into the TM interior web pages, and if it is legally concluded that doing so can lead to a binding contract. For reasons dealing with the desirability of clear unmistakable evidence of assent to the conditions on trial of such issues, the court would prefer a rule that required an unmistakable assent to the conditions easily provided by requiring clicking on an icon which says "I agree" or the equivalent. Such a rule would provide certainty in trial and make it clear that the user had called to his attention the conditions he or she accepted when using the web site. (The court notes that Professor Lemley also approves this approach, but this is treated as a legal opinion, not a fact). However, the law has not developed this way. Use of a cruise ship ticket with a venue provision printed on the back commits one to the venue provided. (Carnival Cruise Lines '91 499 U.S. 585, 113 L.Ed.2d 622.) The Carriage of Goods by Sea Act, the Carmack Act, and the Warsaw Convention provide that limitations of liability on the bill of lading, air waybill, or airplane ticket are enforceable if the services are used by the customer. The "shrinkwrap" cases find the printed conditions plainly wrapped around the cassette or CD enforceable. Even the back of your parking lot ticket may be enforceable. The principle has been applied to cases similar to this. (Register.com SDNY'00 126 FSupp2d 238; Pollstar EDCA'00 170 FSupp2d 974.) The principle has long been established that no particular form of words is necessary to indicate assent–the offeror may specify that a certain action in connection with his offer is deemed acceptance, and ripens into a contract when the action is taken. (Binder '99 75 CA4th 832, 89 CR2d 540; Penn Security Life Ins. 62 CA3d 302, 133 CR 59.) Thus, as relevant here, a contract can be formed by proceeding into the interior web pages after knowledge (or, in some cases, presumptive knowledge) of the conditions accepted when doing so. In Specht 2Cir'02 306 F.3d 17, the court found that there was no mutual assent when a notice of the existence of license terms governing the use of software was visible to internet users only if they scrolled down the screen. That case is distinguishable from the facts at hand on the grounds that in Specht, the plaintiff's terms of use were not plainly visible or known to defendants. See id. at 31. Moreover, Specht involved a different set of circumstances, that of consumers invited to download free software from an internet site that did not contain a plainly visible notice of license terms. See id. at 32. As a result, the TX motion for summary judgment on the contract issue is denied.

[3] The trespass to chattels issue requires adapting the ancient common law action to the modern age. No cases seem to have reached the appellate courts although there appears to be a number of district court cases. One case (Intel v. Hamadi '01 94 CA4th 325, 114 CR 244) is pending in the California Supreme Court since it granted a hearing which has the effect of vacating the state Court of Appeal opinion (and which has no precedent value once the hearing was granted). The court is informed that the eBayNDCA'00 100 FSupp2d 1058 preliminary injunction was not appealed. At the time of the preliminary injunction motion, only the eBaycase was before the court. Since then, there have been a number of district court cases discussing the chattel theory (some published and some not). These cases tend to support the proposition that mere invasion or use of a portion of the web site by a spider is a trespass (leading at least to nominal damages), and that there need not be an independent showing of direct harm either to the chattel (unlikely in the case of a spider) or tangible interference with the use of the computer being invaded. However, scholars and practitioners alike have criticized the extension of the trespass to chattels doctrine to the internet context, noting that this doctrinal expansion threatens basic internet functions (i.e., search engines) and exposes the flaws inherent in applying doctrines based in real and tangible property to cyberspace. See, e.g., Laura Quilter, Cyberlaw: The Continuing Expansion of Cyberspace Trespass to Chattels, 17 Berkeley Tech. L.J. 421 (2002); Clifton Merrell, Trespass to Chattels in the Age of the Internet, 80 Wash. U.L.Q. 675 (2002); Mary Anne Bendotoff and Elizabeth R. Gosse, "Stay Off My Cyberproperty!": Trespass to Chattels on the Internet (2001), 6 Intell. Prop. L. Bull. 12; Edward Lee, Rules and Standards for Cyberspace, 77 Notre Dame L.Rev. 1275, 1283–1284 (2002). Pending appellate guidance, this court comes down on the side of requiring some tangible interference with the use or operation of the computer being invaded by the spider. Restatement (Second) of Torts § 219 requires a showing that "the chattel is impaired as to its condition, quality, or value." Therefore, unless there is actual dispossession of the chattel for a substantial time (not present here), the elements of the tort have not been made out. Since the spider does not cause physical injury to the chattel, there must be some evidence that the use or utility of the computer (or computer network) being "spiderized" is adversely affected by the use of the spider. No such evidence is presented here. This court respectfully disagrees with other district courts' finding that mere use of a spider to enter a publically available web site to gather information, without more, is sufficient to fulfill the harm requirement for trespass to chattels.

TM complains that the information obtained by the use of the spider was valuable (and even that it was sold by TX), and that it spent time and money attempting to frustrate the spider, but neither of these items shows damage to the computers or their operation. One must keep in mind that we are talking about the common law tort of trespass, not damage from breach of contract or copyright infringement. The tort claim may not succeed without proof of tort-type damage. Plaintiff TM has the burden to show such damage. None is shown here. The motion for summary judgment is granted to eliminate the claim for trespass to chattels. This minute order is the order eliminating that claim. This approach to the tort of trespass to chattels should hurt no one's policy feelings; after all, what is being attempted is to apply a medieval common law concept in an entirely new situation which should be disposed of by modern law designed to protect intellectual property interests.

[4] The copyright issues are more difficult. They divide into three issues. The first is whether the momentary resting in the TX computers of all of the electronic signals which are used to form the video representation to the viewer of the interior web pages of the TX computer constitutes actionable copyright infringement. The second is whether the URLs, which were copied and used by TX, contain copyrightable material. The third is whether TX's deep-linking caused the unauthorized public display of TM event pages. In examining these questions, we must keep in mind a prime theorem of copyright law–facts, as such, are not subject to copyright protection. What is subject to copyright protection is the manner or mode of expression of those facts. Thus, addresses and telephone numbers contained in a directory do not have copyright protection (Feist Publications 499 U.S. 350, 113 L.Ed.2d 358), despite the fact that time, money, and effort went into compiling the information. Similarly, in this case, the existence of the event, its date and time, and its ticket prices, are not subject to copyright. Anyone is free to print (or show on the internet) such information. Thus, if TX had sat down a secretary at the computer screen with instructions manually to go through TM's web sites and pick out and write down purely factual information about the events, and then feed it into the TX web pages (using the TX distinctive format only), no one could complain. The objection is that the same thing was done with an electronic program. However, the difference is that the spider picks up all of the electronic symbols which, if it had been put on a monitor with the right software, would duplicate the TM web page. However, this is not the way it was done. The spider picks up the electronic symbols and loads them momentarily (for 10 to 15 seconds) into the RAM of the TX computers, where a program picks up the factual data (not protected), places same into the TX format for its web pages, and immediately discards the balance, which may consist of TM logos, TM advertisements, TM format for presentation of the material, and other material which is copyrightable. Thus, the actual copying (if it can be called that) is momentary while the non-protected material, all open to the public, is extracted. Is this momentary resting of the electronic symbols from which a TM web page could be (but is not) constructed fair use where the purpose is to obtain non-protected facts? The court thinks the answer is "yes". There is not much law in point. However, there are two Ninth Circuit cases which shed light on the problem. They are Sony Computer Entertainment 9 Cir '00 203 F3d 596 and Sega 9 Cir '92 977 F.2d 1510. In each of these cases, the alleged infringer attempted to get at non-protected source code by reverse engineering of the plaintiff's copyrighted software. In doing so, the necessary method was to copy the software and work backwards to derive the unprotected source code. The copied software was then destroyed. In each case, this was held to be fair use since it was necessary to temporarily copy the software to obtain the non-protected material. There may be a difference with this case, however, at least TM claims so. It asserts in its points and authorities that taking the temporary copy in this case was not the only way to obtain the unprotected information, and that TX was able to, and in actuality did purchase such information from certain third-parties. Both Sony and Sega stated that the fair use was justified because reverse engineering (including taking a temporary copy) was the only way the unprotected information could be obtained. Although this court recognizes that the holdings of Sony and Sega were limited to the specific context of "disassembling" copyrighted object code in order to access unprotected elements contained in the source code, this court believes that the "fair use" doctrine can be applied to the current facts.

[5] Taking the temporary copy of the electronic information for the limited purpose of extracting unprotected public facts leads to the conclusion that the temporary use of the electronic signals was "fair use" and not actionable. In determining whether a challenged use of copyrighted material is fair, a court must keep in mind the public policy underlying the Copyright Act: to secure a fair return for an author's creative labor and to stimulate artistic creativity for the general good. This court sees no public policy that would be served by restricting TX from using spiders to temporarily download TM's event pages in order to acquire the unprotected, publicly available factual event information. The rest of the event page information (which consisted of TM identification, logos, ads, and other information) was discarded and not used by TX and is not exposed to the public by TX. In temporarily downloading TM's event pages to its RAM through the use of spiders, TX was not exploiting TM's creative labors in any way: its spiders gathered copyrightable and non-copyrightable information alike but then immediately discarded the copyrighted material. It is unlikely that the spiders could have been programmed to take only the factual information from the TM web pages without initially downloading the entire page.

Consideration of the fair use factors listed in 17 USC § 106 supports this result. First, TX operates its site for commercial purposes, and this fact tends to weigh against a finding of fair use. Campbell '94 510 U.S. 569, 585, 127 L.Ed.2d 500, 519. TX's use of the data gathered from TM's event pages was only slightly transformative. As for the second factor, the nature of the copyrighted work, the copying that occurred when spiders download the event page, access the source code for each page, and extract the factual data embedded in the code, is analogous to the process of copying that the Sony court condoned (however, the Court recognizes that the fair use holding from that decision does not fit perfectly onto the facts at hand). Third, because TX's final product-the TX web site-did not contain any infringing material, the "amount and substantiality of the portion used" is of little weight. Connectix 9Cir'00 203F3d at 606 (quoting Sega 9Cir'93 977 F.2d at 1526–1537). The fourth factor (the effect on the market value of the copyrighted work) is, of course nil, and weighs towards finding fair use. TM's arguments and evidence regarding loss of advertising revenue, as well as the loss of potential business with Volt Delta, are not persuasive.

The second copyright problem is whether the URLs (Uniform Resource Locator) are subject to copyright protection. The URLs are copied by TX and, while TX was deep hyper-linking to TM interior web pages, were used by TX to allow the deep-linking (by providing the electronic address of the particular relevant TM interior web page). This electronic address is kept in TX's computer (not provided to the customer) but was used to connect the customer to the TM interior web page when the customer pushed the button to be transferred to the web page of the broker who sells the tickets. In fact, anyone who uses the TM interior web page–TM customer or not–uses the URL to get there, although sometimes through another computer which also has the URL. TM contends that, although the URLs are strictly functional, they are entitled to copyright protection because there are several ways to write the URL, and, thus, original authorship is used. The court disagrees. A URL is simply an address, open to the public, like the street address of a building, which, if known, can enable the user to reach the building. There is nothing sufficiently original to make the URL a copyrightable item, especially the way it is used. Feist Publications '91 499 U.S. 340, 345, 113 L.Ed.2d 358, 369. There appear to be no cases holding the URLs to be subject to copyright. On principle, they should not be.

[6] The third copyright problem is whether TX's deep-linking caused the unauthorized public display of TM event pages in violation of TM's exclusive rights of reproduction and display under 17 U.S.C. § 106. The Ninth Circuit in Kelly 9 Cir '02 280 F3d 934, recognized that inline linking and framing of full-sized images of plaintiff's copyrighted photographs within the defendant's web site violated the plaintiff's public display rights. In that case, defendant's web site contained links to plaintiff's photographs (which were on plaintiff's publicly available website). Users were able to view plaintiff's photographs within the context of defendant's site: Plaintiff's images were "framed" by the defendant's window, and were thus surrounded by defendant web page's text and advertising. In one short paragraph in a declaration offered on the preliminary injunction motion, TM alleges that when a user was deep-linked from the TX site to a TM event page, a smaller window was opened. The smaller window was described as containing a page from the TM web site which was "framed" by the larger window. At the time of the preliminary injunction motion, TX stated that whether "framing" occurs or not depends on the settings on the user's computer, over which TX has no control. Thus, framing occurred on some occasions but not on others. However, TX says that it "did not try to disguise a sale by use of frames occurring on the Tickets.com website." (Reply, p. 10) TX further states that when users were linked to TM web pages, the TM event pages were clearly identified as belonging to TM.

However, even if the TM interior web site page was "framed" within the TX web page, this case is distinguishable from Kelly. In Kelly, the defendant's site would display a variety of "thumbnail" images as a result of the user's search. By clicking on the desired thumbnail image, a user could view the "Images Attributes" page, which displayed the original full-size image, a description of its dimensions, a link to the originating web site, and defendant's banner and advertising. The full-size image was not technically located on defendant's web site, but was taken directly from the originating web site. However, only the image itself, and not any other part of the originating web site, was displayed on the "Images Attributes" page. The Ninth Circuit determined that by importing plaintiff's images into its own web page, and by showing them in the context of its own site, defendant infringed upon plaintiff's exclusive public display right.

In this case, a user on the TX site was taken directly to the originating TM site, containing all the elements of that particular TM event page. Each TM event page clearly identified itself as belonging to TM. Moreover, the link on the TX site to the TM event page contained the following notice: "Buy this ticket from another online ticketing company. Click here to buy tickets. These tickets are sold by another ticketing company. Although we can't sell them to you, the link above will take you directly to the other company's web site where you can purchase them." (2d Am.Compl.Ex.I) (emphasis in original) Even if the TM site may have been displayed as a smaller window that was literally "framed" by the larger TX window, it is not clear that, as matter of law, the linking to TX event pages would constitute a showing or public display in violation of 17 U.S.C. § 106(5). Accordingly, summary judgment is granted on the copyright claims of TM and it is eliminated from this action.

75 F.Supp.2d 1290 (1999)

No. 2:99-CV-808C.

December 6, 1999.

[1291] Mr. Todd E Zenger, Kirton & McConkie, Salt Lake City, UT, for Plaintiff.

Brian M. Barnard, Utah Legal Clinic, Salt Lake City, UT, for Defendants.

CAMPBELL, District Judge.

This matter is before the court on plaintiff's motion for preliminary injunction. Plaintiff claims that unless a preliminary injunction issues, defendants will directly infringe and contribute to the infringement of its copyright in the Church Handbook of Instructions ("Handbook"). Defendants do not oppose a preliminary injunction, but argue that the scope of the injunction should be restricted to only prohibit direct infringement of plaintiff's copyright.

Having fully considered the arguments of counsel, the submissions of the parties and applicable legal authorities, the court grants plaintiff's motion for a preliminary injunction. However, the scope of the preliminary injunction is limited.

Discussion

The United States Copyright Act allows a court to "grant temporary and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." 17 U.S.C. § 502(a). Here, in determining whether plaintiff is now entitled to the injunctive relief, the following factors are to be considered:

(1) substantial likelihood that the movant will eventually prevail on the merits: (2) a showing that the movant will suffer irreparable injury unless the injunction issues; (3) proof that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) a showing that the injunction, if issued, [1292] would not be adverse to the public interest.

Equifax Servs., Inc. v. Hitz, 905 F.2d 1355, 1360 (10th Cir.1990) (quoting Lundgrin v. Claytor, 619 F.2d 61, 63 (10th Cir.1980)).

I. Likelihood of Plaintiff Prevailing on the Merits

First, the court considers whether there is a substantial likelihood that plaintiff will eventually prevail on the merits. Plaintiff alleges that the defendants infringed its copyright directly by posting substantial portions of its copyrighted material on defendants' website, and also contributed to infringement of its copyright by inducing, causing or materially contributing to the infringing conduct of another. To determine the proper scope of the preliminary injunction, the court considers the likelihood that plaintiff will prevail on either or both of its claims.

A. Direct Infringement

To prevail on its claim of direct copyright infringement, "[p]laintiff must establish both: (1) that it possesses a valid copyright and (2) that [d]efendants `copied' protectable elements of the copyrighted work." Country Kids `N City Slicks, Inc. v. Sheen, 77 F.3d 1280, 1284 (10th Cir. 1996). Defendants initially conceded in a hearing, for purposes of the temporary restraining order and preliminary injunction, that plaintiff has a valid copyright in the Handbook, and that defendants directly infringed plaintiff's copyright by posting substantial portions of the copyrighted material.^[1] Defendants changed their position, in a motion to dismiss, claiming that plaintiff has failed to allege facts necessary to show ownership of a valid copyright. Despite the defendants' newly-raised argument, the court finds, for purpose of this motion, that the plaintiff owns a valid copyright on the material defendants posted on their website. Plaintiff has provided evidence of a copyright registration certificate, (see Verified Compl., Ex. A), and the certificate "constitutes prima facie evidence of the validity of the copyright."^[2]Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 831 (10th Cir.1993). Defendants have not advanced any additional affirmative defenses to the claim of direct infringement. Therefore, the court finds that there is a substantial likelihood that plaintiff will prevail on its claim of direct infringement.

B. Contributory Infringement

According to plaintiff, after the defendants were ordered to remove the Handbook from their website, the defendants began infringing plaintiff's copyright by inducing, causing, or materially contributing to the infringing conduct of others. It is undisputed that defendants placed a notice on their website that the Handbook was online, and gave three website addresses of websites containing the material defendants were ordered to remove from their website. Defendants also posted emails on their website that encouraged browsing^[3] those websites, printing copies of the Handbook and sending the Handbook to others.

Although the copyright statute does not expressly impose liability for contributory infringement,

[t]he absence of such express language in the copyright statute does not preclude the imposition of liability for copyright infringements on certain parties [1293] who have not themselves engaged in the infringing activity. For vicarious liability is imposed in virtually all areas of the law, and the concept of contributory infringement is merely a species of the broader problem of identifying the circumstances in which it is just to hold one accountable for the actions of another.

Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 435, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984) (footnote omitted). Even though "'the lines between direct infringement, contributory infringement and vicarious liability are not clearly drawn'" distinctions can be made between them. Id. at n. 17 (quoting Universal City Studios, Inc. v. Sony Corp., 480 F.Supp. 429, 457-58 (C.D.Cal.1979)). Vicarious liability is grounded in the tort concept of respondeat superior, and contributory infringement is founded in the tort concept of enterprise liability. See Demetriades v. Kaufmann, 690 F.Supp. 289, 292 (S.D.N.Y. 1988). "[B]enefit and control are the signposts of vicarious liability, [whereas] knowledge and participation [are] the touchstones of contributory infringement." Id. at 293.

Liability for contributory infringement is imposed when "one who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another." Gershwin Publ'g Corp. v. Columbia Artists Mgt., Inc., 443 F.2d 1159, 1162 (2d Cir.1971). Thus, to prevail on its claim of contributory infringement, plaintiff must first be able to establish that the conduct defendants allegedly aided or encouraged could amount to infringement. See Subafilms, Ltd. v. MGM-Pathe Comms. Co., 24 F.3d 1088, 1092 (9th Cir.1994). Defendants argue that they have not contributed to copyright infringement by those who posted the Handbook on websites nor by those who browsed the websites on their computers.

1. Can the Defendants Be Liable Under a Theory of Contributory Infringement for the Actions of Those Who Posted the Handbook on the Three Websites?

a. Did those who posted the Handbook on the websites infringe plaintiff's copyright?

During a hearing on the motion to vacate the temporary restraining order, defendants accepted plaintiff's proffer that the three websites contain the material which plaintiff alleges is copyrighted.^[4] Therefore, plaintiff at trial is likely to establish that those who have posted the material on the three websites are directly infringing plaintiff's copyright.

b. Did the defendants induce, cause or materially contribute to the infringement?

The evidence now before the court indicates that there is no direct relationship between the defendants and the people who operate the three websites. The defendants did not provide the website operators with the plaintiff's copyrighted material, nor are the defendants receiving any kind of compensation from them. The only connection between the defendants and those who operate the three websites appears to be the information defendants have posted on their website concerning the infringing sites. Based on this scant evidence, the court concludes that plaintiff has not shown that defendants contributed to the infringing action of those who operate the infringing websites.

2. Can the Defendants Be Liable Under a Theory of Contributory Infringement for the Actions of Those Who Browse the Three Infringing Websites?

Defendants make two arguments in support of their position that the activities [1294] of those who browse the three websites do not make them liable under a theory of contributory infringement. First, defendants contend that those who browse the infringing websites are not themselves infringing plaintiff's copyright; and second, even if those who browse the websites are infringers, defendants have not materially contributed to the infringing conduct.

a. Do those who browse the websites infringe plaintiff's copyright?

The first question, then, is whether those who browse any of the three infringing websites are infringing plaintiff's copyright. Central to this inquiry is whether the persons browsing are merely viewing the Handbook (which is not a copyright infringement), or whether they are making a copy of the Handbook (which is a copyright infringement). See 17 U.S.C. § 106.

"Copy" is defined in the Copyright Act as: "material objects ... in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." 17 U.S.C. § 101. "A work is `fixed' ... when its ... sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration." Id.

When a person browses a website, and by so doing displays the Handbook, a copy of the Handbook is made in the computer's random access memory (RAM), to permit viewing of the material. And in making a copy, even a temporary one, the person who browsed infringes the copyright.^[5]See MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 518 (9th Cir.1993) (holding that when material is transferred to a computer's RAM, copying has occurred; in the absence of ownership of the copyright or express permission by licence, such an act constitutes copyright infringement); Marobie-Fl., Inc. v. National Ass'n of Fire Equip. Distrib., 983 F.Supp. 1167, 1179 (N.D.Ill.1997) (noting that liability for copyright infringement is with the persons who cause the display or distribution of the infringing material onto their computer); see also Nimmer on Copyright § 8.08(A)(1) (stating that the infringing act of copying may occur from "loading the copyrighted material ... into the computer's random access memory (RAM)"). Additionally, a person making a printout or re-posting a copy of the Handbook on another website would infringe plaintiff's copyright.

b. Did the defendants induce, cause or materially contribute to the infringement?

The court now considers whether the defendants' actions contributed to the infringement of plaintiff's copyright by those who browse the three websites.

The following evidence establishes that defendants have actively encouraged the infringement of plaintiff's copyright^[6] After being ordered to remove the Handbook from their website, defendants posted on [1295] their website: "Church Handbook of Instructions is back online!" and listed the three website addresses. (See Pl.'s Reply Supp.Mot.Prelim.Inj., Ex. 1; Memo. Re: Contributory Infringement, at 9 n. 6.) Defendants also posted e-mail suggesting that the lawsuit against defendants would be affected by people logging onto one of the websites and downloading the complete handbook. (See id., Ex. 2.) One of the e-mails posted by the defendants mentioned sending a copy of the copyrighted material to the media. (See id.) In response to an e-mail stating that the sender had unsuccessfully tried to browse a website that contained the Handbook, defendants gave further instruction on how to browse the material. (See id.) At least one of the three websites encourages the copying and posting of copies of the allegedly infringing material on other websites. (See id., Ex. 4 ("Please mirror these files.... It will be a LOT quicker for you to download the compressed version ... Needless to say, we need a LOT of mirror sites, as absolutely soon as possible.").)

Based on the above, the court finds that the first element necessary for injunctive relief is satisfied.

II. Irreparable Injury

Because this is a copyright infringement case and plaintiff has demonstrated a likelihood of success on the merits, there is a presumption of injury. See Country Kids `N City Slicks, Inc. v. Sheen, 77 F.3d 1280, 1288-89 (10th Cir.1996). In addition, plaintiff will suffer additional immediate and real irreparable harm if defendants are permitted to post the copyrighted material or to knowingly induce, cause or materially contribute to the infringement of plaintiff's copyright by others.

III. Harm to Defendants

Defendants argue that their First Amendment rights will be infringed by a preliminary injunction. However, the First Amendment does not give defendants the right to infringe on legally recognized rights under the copyright law. See Cable/Home Comm. Corp. v. Network Productions, Inc., 902 F.2d 829, 849 (11th Cir.1990). "[C]opyright interests [] must be guarded under the Constitution, and injunctive relief is a common judicial response to infringement of a valid copyright." Id. The court, in fashioning the scope of injunctive relief, is aware of and will protect the defendants' First Amendment rights.

IV. The Public Interest

Finally, it is in the public's interest to protect the copyright laws and the interests of copyright holders.

Order

Therefore, for the reasons stated, the court orders the following preliminary injunction:

1. Defendants, their agents and those under their control, shall remove from and not post on defendants' website the material alleged to infringe plaintiff's copyright;

2. Defendants, their agents and those under their control, shall not reproduce or distribute verbatim, in a tangible medium, material alleged to infringe plaintiff's copyright;

3. Defendants, their agents and those under their control, shall remove from and not post on defendants' website, addresses to websites that defendants know, or have reason to know, contain the material alleged to infringe plaintiff's copyright;

Defendants have not requested that a security be obtained from plaintiff. If defendants consider a security to be appropriate in this case, defendants shall file a motion and memorandum within twenty days from this date. Plaintiff shall then have fifteen days after service to respond. [1296] A reply memorandum may be filed by defendants within seven days after service.

[1] By so doing, defendants did not admit fault or liability. (See Consent to Extension of Temporary Order and Response, at 1.)

[2] This issue will be fully explored when the court decides the motion to dismiss.

[3] The term browse, as used in this order, means to call up or open a website onto a computer screen.

[4] Defendants also have stated that they believe the three websites contain the material which plaintiff alleges is copyrighted. (See Memo. Re: Contributory Infringement, at 9 n. 6.)

[5] Although this seems harsh, the Copyright Act has provided a safeguard for innocent infringers. Where the infringer "was not aware and had no reason to believe that his or her acts constituted an infringement of copyright, the court in its discretion may reduce the award of statutory damages...." 17 U.S.C. § 504(c)(2).

[6] Plaintiff at this point has been unable to specifically identify persons who have infringed its copyright because they were induced or assisted by defendants' conduct, however, there is a substantial likelihood that plaintiff will be able to do so after conducting discovery. There is evidence that at least one of the websites has seen a great increase in "hits" recently. (See Pl.'s Reply Supp.Mot.Prelim.Inj., Ex. 5.) Also, plaintiff does not have to establish that the defendants' actions are the sole cause of another's infringement; rather plaintiff may prevail by establishing that defendants' conduct induces or materially contributes to the infringing conduct of another.

92 F.Supp.2d 349

UMG RECORDINGS, INC., Sony Music Entertainment Inc., Warner Bros. Records Inc., Arista Records Inc., Atlantic Recordings Corp., BMG Music d/b/a The RCA Records Label, Capitol Records, Inc., Elektra Entertainment Group, Inc., Interscope Records, and Sire Records Group Inc., Plaintiffs,
v.
MP3.COM, INC., Defendant.

No. 00 Civ. 472(JSR).

United States District Court, S.D. New York.

May 4, 2000.

Robert A. Goodman, Arnold & Porter, New York City, Hadrian R. Katz, Jule L. Sigall, Helene T. Krasnoff, Washington, DC, Steven B. Fabrizio, Washington, DC, for UMG Recordings, Inc., Sony Music Entertainment Inc., Arista Records Inc., BMG Music.

Katherine B. Forrest, Cravath, Swaine & Moore, New York City, Robert A. Goodman, Arnold & Porter, New York City, Evan R. Chesler, Cravath Swaine & [350] Moore, New York City, Hadrian R. Katz, Jule L. Sigall, Helene T. Krasnoff, Washington, DC, Steven B. Fabrizio, Washington, DC, for Warner Bros. Records Inc., Atlantic Recording Corp.

Steven Neal and Michael Rhodes of Cooley Godward LLP, San Diego, CA, Michael B. Carlinsky, Jeffrey A. Conciatori, Orrick, Herrington & Sutcliffe, L.L.P., New York City, for MP3.Com, Inc.

OPINION

RAKOFF, District Judge.

The complex marvels of cyberspatial communication may create difficult legal issues; but not in this case. Defendant's infringement of plaintiffs' copyrights is clear. Accordingly, on April 28, 2000, the Court granted defendant's motion for partial summary judgment holding defendant liable for copyright infringement. This opinion will state the reasons why.

The pertinent facts, either undisputed or, where disputed, taken most favorably to defendant, are as follows:

The technology known as "MP3" permits rapid and efficient conversion of compact disc recordings ("CDs") to computer files easily accessed over the Internet. See generally Recording Industry Ass'n of America v. Diamond Multimedia Systems Inc., 180 F.3d 1072, 1073-74 (9th Cir. 1999). Utilizing this technology, defendant MP3.com, on or around January 12, 2000, launched its "My.MP3.com" service, which is advertised as permitting subscribers to store, customize and listen to the recordings contained on their CDs from any place where they have an Internet connection. To make good on this offer, defendant purchased tens of thousands of popular CDs in which plaintiffs held the copyrights, and, without authorization, copied their recordings onto its computer servers so as to be able to replay the recordings for its subscribers.

Specifically, in order to first access such a recording, a subscriber to MP3.com must either "prove" that he already owns the CD version of the recording by inserting his copy of the commercial CD into his computer CD-Rom drive for a few seconds (the "Beam-it Service") or must purchase the CD from one of defendant's cooperating online retailers (the "instant Listening Service"). Thereafter, however, the subscriber can access via the Internet from a computer anywhere in the world the copy of plaintiffs' recording made by defendant. Thus, although defendant seeks to portray its service as the "functional equivalent" of storing its subscribers' CDs, in actuality defendant is re-playing for the subscribers converted versions of the recordings it copied, without authorization, from plaintiffs' copyrighted CDs. On its face, this makes out a presumptive case of infringement under the Copyright Act of 1976 ("Copyright Act"), 17 U.S.C. § 101 et seq. See, e.g., Castle Rock Entertainment, Inc. v. Carol Publishing Group, Inc., 150 F.3d 132, 137 (2d Cir.1998); Hasbro Bradley, Inc. v. Sparkle Toys, Inc., 780 F.2d 189, 192 (2d Cir.1985).^[1]

Defendant argues, however, that such copying is protected by the affirmative defense of "fair use." See 17 U.S.C. § 107. In analyzing such a defense, the Copyright Act specifies four factors that must be considered: "(1) the purpose and [351] character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (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 for or value of the copyrighted work." Id. Other relevant factors may also be considered, since fair use is an "equitable rule of reason" to be applied in light of the overall purposes of the Copyright Act. Sony Corporation of America v. Universal City Studios, Inc., 464 U.S. 417, 448, 454, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984); see Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 549, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985).

Regarding the first factor — "the purpose and character of the use" — defendant does not dispute that its purpose is commercial, for while subscribers to My. MP3.com are not currently charged a fee, defendant seeks to attract a sufficiently large subscription base to draw advertising and otherwise make a profit. Consideration of the first factor, however, also involves inquiring into whether the new use essentially repeats the old or whether, instead, it "transforms" it by infusing it with new meaning, new understandings, or the like. See, e.g., Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994); Castle Rock, 150 F.3d at 142; See also Pierre N. Leval, "Toward a Fair Use Standard," 103 Harv. L.Rev. 1105, 111 (1990). Here, although defendant recites that My.MP3.com provides a transformative "space shift" by which subscribers can enjoy the sound recordings contained on their CDs without lugging around the physical discs themselves, this is simply another way of saying that the unauthorized copies are being retransmitted in another medium — an insufficient basis for any legitimate claim of transformation, See, e.g., Infinity Broadcast Corp. v. Kirkwood, 150 F.3d 104, 108 (2d Cir.1998) (rejecting the fair use defense by operator of a service that retransmitted copyrighted radio broadcasts over telephone lines); Los Angeles News Serv. v. Reuters Television Int'l Ltd., 149 F.3d 987 (9th Cir.1998) (rejecting the fair use defense where television news agencies copied copyrighted news footage and retransmitted it to news organizations), cert. denied, 525 U.S. 1141, 119 S.Ct. 1032, 143 L.Ed.2d 41 (1999); see also American Geophysical Union v. Texaco Inc., 60 F.3d 913, 923 (2d Cir.), cert. dismissed, 516 U.S. 1005, 116 S.Ct. 592, 133 L.Ed.2d 486 (1995); Basic Books, Inc. v. Kinko's Graphics Corp., 758 F.Supp. 1522, 1530-31 (S.D.N.Y.1991); see generally Leval, supra, at 1111 (repetition of copyrighted material that "merely repackages or republishes the original" is unlikely to be deemed a fair use).

Here, defendant adds no new "new aesthetics, new insights and understandings" to the original music recordings it copies, see Castle Rock, 150 F.3d at 142 (internal quotation marks omitted), but simply repackages those recordings to facilitate their transmission through another medium. While such services may be innovative, they are not transformative.^[2]

Regarding the second factor — "the nature of the copyrighted work" — the creative recordings here being copied are "close[ ] to the core of intended copyright protection," Campbell, 510 U.S. at 586, 114 S.Ct. 1164, and, conversely, far removed from the more factual or descriptive work more amenable to "fair use," see Nihon [352] Keizai Shimbun, Inc. v. Comline Business Data, Inc., 166 F.3d 65, 72-73 (2d Cir. 1999); see also Castle Rock, 150 F.3d at 143-44.

Regarding the third factor — "the amount and substantiality of the portion [of the copyrighted work] used [by the copier] in relation to the copyrighted work as a whole" — it is undisputed that defendant copies, and replays, the entirety of the copyrighted works here in issue, thus again negating any claim of fair use. See Infinity Broadcast, 150 F.3d at 109 ("[T]he more of a copyrighted work that is taken, the less likely the use is to be fair ...."); see generally Leval, supra, at 1122 ("[T]he larger the volume ... of what is taken, the greater the affront to the interests of the copyright owner, and the less likely that a taking will qualify as a fair use").

Regarding the fourth factor — "the effect of the use upon the potential market for or value of the copyrighted work" — defendant's activities on their face invade plaintiffs' statutory right to license their copyrighted sound recordings to others for reproduction. See 17 U.S.C. § 106. Defendant, however, argues that, so far as the derivative market here involves is concerned, plaintiffs have not shown that such licensing is "traditional, reasonable, or likely to be developed." American Geophysical, 60 F.3d at 930 & n. 17. Moreover, defendant argues, its activities can only enhance plaintiffs' sales, since subscribers cannot gain access to particular recordings made available by MP3.com unless they have already "purchased" (actually or purportedly), or agreed to purchase, their own CD copies of those recordings.

Such arguments — though dressed in the garb of an expert's "opinion" (that, on inspection, consists almost entirely of speculative and conclusory statements) — are unpersuasive. Any allegedly positive impact of defendant's activities on plaintiffs' prior market in no way frees defendant to usurp a further market that directly derives from reproduction of the plaintiffs' copyrighted works. See Infinity Broadcast, 150 F.3d at 111. This would be so even if the copyrightholder had not yet entered the new market in issue, for a copyrighterholder's "exclusive" rights, derived from the Constitution and the Copyright Act, include the right, within broad limits, to curb the development of such a derivative market by refusing to license a copyrighted work or by doing so only on terms the copyright owner finds acceptable. See Castle Rock, 150 F.3d at 145-46; Salinger v. Random House, Inc., 811 F.2d 90, 99 (2d Cir.), cert. denied, 484 U.S. 890, 108 S.Ct. 213, 98 L.Ed.2d 177 (1987). Here, moreover, plaintiffs have adduced substantial evidence that they have in fact taken steps to enter that market by entering into various licensing agreements. See, e.g., Forrest R. Aff., Ex. F., Vidich Dep. at 61-63; id., Ex. N; Goodman R. Aff., Ex. B., Silver Dep. at 64-65; id., Ex. D, Eisenberg Dep. at 130-32; id., Ex. E., Evans Dep. 145-48.

Finally, regarding defendant's purported reliance on other factors, see Campbell, 510 U.S. at 577, 114 S.Ct. 1164, this essentially reduces to the claim that My. MP3.com provides a useful service to consumers that, in its absence, will be served by "pirates." Copyright, however, is not designed to afford consumer protection or convenience but, rather, to protect the copyrightholders' property interests. Moreover, as a practical matter, plaintiffs have indicated no objection in principle to licensing their recordings to companies like MP3.com; they simply want to make sure they get the remuneration the law reserves for them as holders of copyrights on creative works. Stripped to its essence, defendant's "consumer protection" argument amounts to nothing more than a bald claim that defendant should be able to misappropriate plaintiffs' property simply because there is a consumer demand for it. This hardly appeals to the conscience of equity.

In sum, on any view, defendant's "fair use" defense is indefensible and must be denied as a matter of law. Defendant's [353] other affirmative defenses, such as copyright misuse, abandonment, unclean hands, and estoppel, are essentially frivolous and may be disposed of briefly. While defendant contends, under the rubric of copyright misuse, that plaintiffs are misusing their "dominant market position to selectively prosecute only certain online music technology companies," Def.'s Consolidated Opp. to Pls.' Motions for Summ.J. at 21, the admissible evidence of records shows only that plaintiffs have reasonably exercised their right to determine which infringers to pursue, and in which order to pursue them, cf. Broadcast Music, Inc. v. Peppermint Club, Inc., 1985 WL 6141, at *4 (N.D.Ohio Dec.16, 1985). The abandonment defense must also fall since defendant has failed to adduce any competent evidence of an overt act indicating that plaintiffs, who filed suit against MP3.com shortly after MP3.com launched its infringing My.MP3.com service, intentionally abandoned their copyrights. See Richard Feiner & Co., Inc. v. H.R. Indus., Inc., 10 F.Supp.2d 310, 313 (S.D.N.Y.1998). Similarly, defendant's estoppel defense must be rejected because defendant has failed to provide any competent evidence that it relied on any action by plaintiffs with respect to defendant's My.MP3.com service. Finally, the Court must reject defendant's unclean hands defense given defendant's failure to come forth with any admissible evidence showing bad faith or misconduct on the part of plaintiffs. See generally Dunlop-McCullen v. Local 1-S, AFL-CIO-CLC, 149 F.3d 85, 90 (2d Cir.1998); A.H. Emery Co. v. Marcan Prods. Corp., 389 F.2d 11, 18 n. 4 (2d Cir.), cert. denied, 393 U.S. 835, 89 S.Ct. 109, 21 L.Ed.2d 106 (1968).^[3]

The Court has also considered defendant's other points and arguments and finds them sufficiently without merit as not to warrant any further comment.

Accordingly, the Court, for the foregoing reasons, has determined that plaintiffs are entitled to partial summary judgment holding defendant to have infringed plaintiffs' copyrights.

[1] Defendant's only challenge to plaintiffs' prima facie case of infringement is the suggestion, buried in a footnote in its opposition papers, that its music computer files are not in fact "reproductions" of plaintiffs' copyrighted works within the meaning of the Copyright Act. See, e.g., 17 U.S.C. § 114(b). Specifically, defendant claims that the simulated sounds on MP3-based music files are not physically identical to the sounds on the original CD recordings. See Def.'s Consolidated Opp. to Pls.' Motions for Partial Summ.J. at 13-14 n. 9. Defendant concedes, however, that the human ear cannot detect a difference between the two. Id. Moreover, defendant admits that a goal of its copying is to create a music file that is sonically as identical to the original CD as possible. See Goodman Reply Aff., Robertson Dep., Ex. A, at 85. In such circumstances, some slight, humanly undetectable difference between the original and the copy does not qualify for exclusion from the coverage of the Act.

[2] Defendant's reliance on the Ninth Circuit's "reverse engineering" cases, see Sony Computer Entertainment, Inc. v. Connectix Corp., 203 F.3d 596 (9th Cir.2000); Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510, 1527 (9th Cir.1992), is misplaced, because, among other relevant distinctions, those cases involved the copying of software in order to develop a new product, see Sony Computer Entertainment, 203 F.3d at 606; Sega Enterprises, 977 F.2d at 1522, whereas here defendant copied CDs onto its servers not to create any new form of expression but rather to retransmit the same expression in a different medium.

[3] The Court also finds no reason to alter or postpone its determination simply because of the recent filing of the complaint in Lester Chambers et al. v. Time Warner, Inc., et al., 00 Civ. 2839 (S.D.N.Y. filed Apr. 12, 2000) (JSR), the allegations of which, according to the defendant here, call into question the exclusivity of plaintiffs' copyrights. The allegations of a complaint, having no evidentiary value, cannot defeat a motion for summary judgment.

239 F.3d 1004 (2001)

Nos. 00-16401, 00-16403.

Argued and Submitted October 2, 2000.
Filed February 12, 2001.
As Amended April 3, 2001.

[1005] [1006] [1007] [1008] [1009] David Boies, Jonathan Schiller and Robert Silver, Boies, Schiller & Flexner, Armonk, New York, Laurence F. Pulgram, David L. Hayes, Daniel Johnson, Jr. and Darryl M. Woo, Fenwick & West, Palo Alto, California, for the defendant-appellant.

Russell J. Frackman (argued), George M. Borkowski, Jeffrey D. Goldman, Roy L. Shults, and Peter B. Gelblum, Mitchell Silberberg & Knupp LLP, Los Angeles, CA, Leon P. Gold, Hank Goldsmith, Lawrence I. Weinstein, Frank P. Scibilia, Proskauer Rose LLP, New York, New York, Steven B. Fabrizio, Recording Industry Ass'n of America, Inc., Washington, DC, for A & M Records, Inc. Plaintiffs-Appellees.

Carey R. Ramos(argued), Aidan Synnott, Michael C. Keats, Lewis E. Farberman, Paul Weiss, Rifkind Wharton & Garrison, New York, New York, Jeffrey G. Knowles, Keith Evans-Orville, Julia D. Greer, Coblentz, Patch, Duffy & Bass LLP, San Francisco, California, for Leiber plaintiffs-appellees.

Hannah Bentley, San Anselmo, California, for amicus Casanova Records.

Andrew P. Bridges, Wilson, Sonsini, Goodrich & Rosati, Palo Alto, California, for amicus Digital Media Association.

Bruce G. Joseph, Thomas W. Kirby, and Scott E. Bain, Wiley, Rein & Fielding, Washington, D.C., for amici Ad Hoc Copyright Coalition; Commercial Internet Exchange; Computer & Communications Industry Association; Information Technology Association of America; Netcoalition.com; United States Internet Industry Association, and United States Telecommunications Association.

Scott R. McIntosh, Civil Division, Department of Justice, Washington, D.C., for amicus United States.

Ann Brick, San Francisco, California, for amici American Civil Liberties Union and the American Civil Liberties Union of Northern California.

Judith B. Jennison, Perkins Coie, San Francisco, California, for amicus Scour, Inc.

Ralph Oman, Dechert, Price & Rhoads, Washington, D.C., as amicus.

Christopher Tayback, Quinn, Emanuel, Urquhart, Oliver & Hedges, Los Angeles, California, for amicus National Academy of Recording Arts & Sciences.

[1010] E. Edward Bruce, Covington & Burling, Washington, D.C., for amicus Business Software Alliance.

Kevin T. Baine, Williams & Connolly, Washington, D.C., for amici Motion Picture Association of America, Inc., Software & Information Industry Association, American Film Marketing Association, Association of American Publishers, American Society of Media Photographers, Professional Photographers Association, Graphic Artists Guild, Interactive Digital Software Association, American Society of Composers, Authors and Publishers, Broadcast Music, Inc., Producers Guild of America, Directors Guild of America, Inc., Writers Guild of America, West, Inc., American Federation of Musicians of the United States and Canada, Reed Elsevier, Inc., American Federation of Television and Radio Artists, Office of the Commissioner of Baseball, Songwriters Guild of America, and AmSong, Inc.; Joel M. Litvin, New York, New York, for amicus National Basketball Association.

Salvatore A. Romano, Seyfarth, Shaw, Washington, D.C., for amici National Association of Recording Merchandisers, Inc. and Video Software Dealers Association.

Erwin Chemerinsky, University of Southern California School of Law, Los Angeles, California, for amicus Law Professors Erwin Chemerinsky, Kenneth L. Karst, Steven Shiffrin, Rodney A. Smolla and Marcy Strauss.

Barry I. Slotnick, Richards & O'Neil, New York, New York, for amicus Association for Independent Music.

Morton David Goldberg, Cowan, Liebowitz & Latman, New York, New York, for amici Alliance Entertainment Corp., Audible Inc., Blue Spike, Inc., The Clandestine Group, Inc., Digimarc Corporation, Digital Media on Demand, Inc., FullAudio Corporation, InterTrust Technologies Corporation, Oak Technology, Inc., Reciprocal, Inc., RioPort, Inc., RPK SecureMedia Inc., Verance Corporation, and VNU USA, Inc.

Richie T. Thomas, Squire, Sanders & Dempsey, Washington, D.C., for amici Consumer Electronics Association, Digital Future Coalition, and Computer & Communications Industry Association.

Karen B. Tripp, Houston, Texas, for amici Association of American Physicians & Surgeons, Inc. and Eagle Forum Education and Legal Defense Fund.

Professor Jessica Litman, Wayne State University Law School, Detroit, Michigan; Professor Keith Aoki, University of Oregon School of Law; Professor Ann Bartow, University of South Carolina School of Law; Professor Dan Burk, University of Minnesota; Professor Julie Cohen, Georgetown University School of Law; Professors Christine Haight Farley and Peter Jaszi, Washington College of Law, American University; Professor Lydia Pallas Loren, Lewis and Clark College Northwestern School of Law; Professor Pamela Samuelson, Boalt Hall School of Law, University of California Berkeley; Professor Shubha Ghosh, University at Buffalo, SUNY; Professors Paul J. Heald, Allen Post Professor of Law, L. Ray Patterson, Pope Brock Professor of Law, and Laura N. Gasaway, University of Georgia School of Law; Professor Michael Madison, University of Pittsburgh School of Law; Professor Ruth Okediji, University of Oklahoma Law School; Alfred C. Yen, Associate Dean for Academic Affairs and Professor of Law, Boston College Law School; Professor Diame Zimmerman, New York University School of Law, and Professor Dennis Karjala, Arizona State University College of Law, for amicus Copyright Law Professors.

Before: MARY M. SCHROEDER, Chief Judge, ROBERT R. BEEZER and RICHARD A. PAEZ, Circuit Judges.

Argued and Submitted October 2, 2000. — San Francisco, California

ORDER AND AMENDED OPINION

The Opinion filed February 12, 2001 in this appeal is amended as follows:

Slip opinion at 2196, lines 4-6 — delete the see generally citation to "Copyright Infringement Issues on the Internet" and insert: "see generally 3 Melville B. Nimmer & David Nimmer, Nimmer On Copyright §§ 12.04[A][2] & [A][2][b] (2000) (confining Sony to contributory infringement analysis: "Contributory infringement itself is of two types — personal conduct that forms part of or furthers the infringement and contribution of machinery or goods that provide the means to infringe")."

Slip opinion at 2203, first full paragraph, lines 1-2 — insert "not" between "Napster argues that the district court erred in" and "finding that . . ."

Slip opinion at 2204, last paragraph, line 5 — delete "911 F.2d 970 at 976-77" and insert "911 F.2d at 976-77"

BEEZER, Circuit Judge:

Plaintiffs are engaged in the commercial recording, distribution and sale of copyrighted [1011] musical compositions and sound recordings. The complaint alleges that Napster, Inc. ("Napster") is a contributory and vicarious copyright infringer. On July 26, 2000, the district court granted plaintiffs' motion for a preliminary injunction. The injunction was slightly modified by written opinion on August 10, 2000. A & M Records, Inc. v. Napster, Inc., 114 F.Supp.2d 896 (N.D.Cal.2000). The district court preliminarily enjoined Napster "from engaging in, or facilitating others in copying, downloading, uploading, transmitting, or distributing plaintiffs' copyrighted musical compositions and sound recordings, protected by either federal or state law, without express permission of the rights owner." Id. at 927. Federal Rule of Civil Procedure 65(c) requires successful plaintiffs to post a bond for damages incurred by the enjoined party in the event that the injunction was wrongfully issued. The district court set bond in this case at $5 million.

We entered a temporary stay of the preliminary injunction pending resolution of this appeal. We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1). We affirm in part, reverse in part and remand.

I

We have examined the papers submitted in support of and in response to the injunction application and it appears that Napster has designed and operates a system which permits the transmission and retention of sound recordings employing digital technology.

In 1987, the Moving Picture Experts Group set a standard file format for the storage of audio recordings in a digital format called MPEG-3, abbreviated as "MP3." Digital MP3 files are created through a process colloquially called "ripping." Ripping software allows a computer owner to copy an audio compact disk ("audio CD") directly onto a computer's hard drive by compressing the audio information on the CD into the MP3 format. The MP3's compressed format allows for rapid transmission of digital audio files from one computer to another by electronic mail or any other file transfer protocol.

Napster facilitates the transmission of MP3 files between and among its users. Through a process commonly called "peer-to-peer" file sharing, Napster allows its users to: (1) make MP3 music files stored on individual computer hard drives available for copying by other Napster users; (2) search for MP3 music files stored on other users' computers; and (3) transfer exact copies of the contents of other users' MP3 files from one computer to another via the Internet. These functions are made possible by Napster's MusicShare software, available free of charge from Napster's Internet site, and Napster's network servers and server-side software. Napster provides technical support for the indexing and searching of MP3 files, as well as for its other functions, including a "chat room," where users can meet to discuss music, and a directory where participating artists can provide information about their music.

A. Accessing the System

In order to copy MP3 files through the Napster system, a user must first access Napster's Internet site and download^[1] the MusicShare software to his individual computer. See http://www.Napster.com. Once the software is installed, the user can access the Napster system. A first-time user is required to register with the Napster system by creating a "user name" and password.

B. Listing Available Files

If a registered user wants to list available files stored in his computer's hard drive on Napster for others to access, he [1012] must first create a "user library" directory on his computer's hard drive. The user then saves his MP3 files in the library directory, using self-designated file names. He next must log into the Napster system using his user name and password. His MusicShare software then searches his user library and verifies that the available files are properly formatted. If in the correct MP3 format, the names of the MP3 files will be uploaded from the user's computer to the Napster servers. The content of the MP3 files remains stored in the user's computer.

Once uploaded to the Napster servers, the user's MP3 file names are stored in a server-side "library" under the user's name and become part of a "collective directory" of files available for transfer during the time the user is logged onto the Napster system. The collective directory is fluid; it tracks users who are connected in real time, displaying only file names that are immediately accessible.

C. Searching For Available Files

Napster allows a user to locate other users' MP3 files in two ways: through Napster's search function and through its "hotlist" function.

Software located on the Napster servers maintains a "search index" of Napster's collective directory. To search the files available from Napster users currently connected to the network servers, the individual user accesses a form in the MusicShare software stored in his computer and enters either the name of a song or an artist as the object of the search. The form is then transmitted to a Napster server and automatically compared to the MP3 file names listed in the server's search index. Napster's server compiles a list of all MP3 file names pulled from the search index which include the same search terms entered on the search form and transmits the list to the searching user. The Napster server does not search the contents of any MP3 file; rather, the search is limited to "a text search of the file names indexed in a particular cluster. Those file names may contain typographical errors or otherwise inaccurate descriptions of the content of the files since they are designated by other users." Napster, 114 F.Supp.2d at 906.

To use the "hotlist" function, the Napster user creates a list of other users' names from whom he has obtained MP3 files in the past. When logged onto Napster's servers, the system alerts the user if any user on his list (a "hotlisted user") is also logged onto the system. If so, the user can access an index of all MP3 file names in a particular hotlisted user's library and request a file in the library by selecting the file name. The contents of the hotlisted user's MP3 file are not stored on the Napster system.

D. Transferring Copies of an MP3 file

To transfer a copy of the contents of a requested MP3 file, the Napster server software obtains the Internet address of the requesting user and the Internet address of the "host user" (the user with the available files). See generally Brookfield Communications, Inc. v. West Coast Entm't Corp., 174 F.3d 1036, 1044 (9th Cir.1999) (describing, in detail, the structure of the Internet). The Napster servers then communicate the host user's Internet address to the requesting user. The requesting user's computer uses this information to establish a connection with the host user and downloads a copy of the contents of the MP3 file from one computer to the other over the Internet, "peer-to-peer." A downloaded MP3 file can be played directly from the user's hard drive using Napster's MusicShare program or other software. The file may also be transferred back onto an audio CD if the user has access to equipment designed for that purpose. In both cases, the quality of the original sound recording is slightly diminished by transfer to the MP3 format.

This architecture is described in some detail to promote an understanding of transmission mechanics as opposed to the content of the transmissions. The content [1013] is the subject of our copyright infringement analysis.

II

We review a grant or denial of a preliminary injunction for abuse of discretion. Gorbach v. Reno, 219 F.3d 1087, 1091 (9th Cir.2000) (en banc). Application of erroneous legal principles represents an abuse of discretion by the district court. Rucker v. Davis, 237 F.3d 1113, 1118-19 (9th Cir.2001) (en banc). If the district court is claimed to have relied on an erroneous legal premise in reaching its decision to grant or deny a preliminary injunction, we will review the underlying issue of law de novo. Id. at 1118 (citing Does 1-5 v. Chandler, 83 F.3d 1150, 1152 (9th Cir. 1996)).

On review, we are required to determine, "whether the court employed the appropriate legal standards governing the issuance of a preliminary injunction and whether the district court correctly apprehended the law with respect to the underlying issues in the case." Id. "As long as the district court got the law right, `it will not be reversed simply because the appellate court would have arrived at a different result if it had applied the law to the facts of the case.'" Gregorio T. v. Wilson, 59 F.3d 1002, 1004 (9th Cir.1995) (quoting Sports Form, Inc. v. United Press, Int'l, 686 F.2d 750, 752 (9th Cir.1982)).

Preliminary injunctive relief is available to a party who demonstrates either: (1) a combination of probable success on the merits and the possibility of irreparable harm; or (2) that serious questions are raised and the balance of hardships tips in its favor. Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867, 874 (9th Cir.2000). "These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." Id.

III

Plaintiffs claim Napster users are engaged in the wholesale reproduction and distribution of copyrighted works, all constituting direct infringement.^[2] The district court agreed. We note that the district court's conclusion that plaintiffs have presented a prima facie case of direct infringement by Napster users is not presently appealed by Napster. We only need briefly address the threshold requirements.

A. Infringement

Plaintiffs must satisfy two requirements to present a prima facie case of direct infringement: (1) they must show ownership of the allegedly infringed material and (2) they must demonstrate that the alleged infringers violate at least one exclusive right granted to copyright holders under 17 U.S.C. § 106. See 17 U.S.C. § 501(a) (infringement occurs when alleged infringer engages in activity listed in § 106); see also Baxter v. MCA, Inc., 812 F.2d 421, 423 (9th Cir.1987); see, e.g., S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085 n. 3 (9th Cir.1989) ("The word `copying' is shorthand for the infringing of any of the copyright owner's five exclusive rights. . . ."). Plaintiffs have sufficiently demonstrated ownership. The record supports the district court's determination that "as much as eighty-seven percent of the files available on Napster may be copyrighted and more than seventy percent may be owned or administered by plaintiffs." Napster, 114 F.Supp.2d at 911.

The district court further determined that plaintiffs' exclusive rights under § 106 were violated: "here the evidence establishes [1014] that a majority of Napster users use the service to download and upload copyrighted music. . . . And by doing that, it constitutes — the uses constitute direct infringement of plaintiffs' musical compositions, recordings." A & M Records, Inc. v. Napster, Inc., Nos. 99-5183, 00-0074, 2000 WL 1009483, at *1 (N.D.Cal. July 26, 2000) (transcript of proceedings). The district court also noted that "it is pretty much acknowledged . . . by Napster that this is infringement." Id. We agree that plaintiffs have shown that Napster users infringe at least two of the copyright holders' exclusive rights: the rights of reproduction, § 106(1); and distribution, § 106(3). Napster users who upload file names to the search index for others to copy violate plaintiffs' distribution rights. Napster users who download files containing copyrighted music violate plaintiffs' reproduction rights.

Napster asserts an affirmative defense to the charge that its users directly infringe plaintiffs' copyrighted musical compositions and sound recordings.

B. Fair Use

Napster contends that its users do not directly infringe plaintiffs' copyrights because the users are engaged in fair use of the material. See 17 U.S.C. § 107 ("[T]he fair use of a copyrighted work . . . is not an infringement of copyright."). Napster identifies three specific alleged fair uses: sampling, where users make temporary copies of a work before purchasing; space-shifting, where users access a sound recording through the Napster system that they already own in audio CD format; and permissive distribution of recordings by both new and established artists.

The district court considered factors listed in 17 U.S.C. § 107, which guide a court's fair use determination. These factors are: (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 work as a whole; and (4) the effect of the use upon the potential market for the work or the value of the work. See 17 U.S.C. § 107. The district court first conducted a general analysis of Napster system uses under § 107, and then applied its reasoning to the alleged fair uses identified by Napster. The district court concluded that Napster users are not fair users.^[3] [1015] We agree. We first address the court's overall fair use analysis.

1. Purpose and Character of the Use

This factor focuses on whether the new work merely replaces the object of the original creation or instead adds a further purpose or different character. In other words, this factor asks "whether and to what extent the new work is `transformative.'" See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994).

The district court first concluded that downloading MP3 files does not transform the copyrighted work. Napster, 114 F.Supp.2d at 912. This conclusion is supportable. Courts have been reluctant to find fair use when an original work is merely retransmitted in a different medium. See, e.g., Infinity Broadcast Corp. v. Kirkwood, 150 F.3d 104, 108 (2d Cir.1998) (concluding that retransmission of radio broadcast over telephone lines is not transformative); UMG Recordings, Inc. v. MP3.com, Inc., 92 F.Supp.2d 349, 351 (S.D.N.Y.) (finding that reproduction of audio CD into MP3 format does not "transform" the work), certification denied, 2000 WL 710056 (S.D.N.Y. June 1, 2000) ("Defendant's copyright infringement was clear, and the mere fact that it was clothed in the exotic webbing of the Internet does not disguise its illegality.").

This "purpose and character" element also requires the district court to determine whether the allegedly infringing use is commercial or noncommercial. See Campbell, 510 U.S. at 584-85, 114 S.Ct. 1164. A commercial use weighs against a finding of fair use but is not conclusive on the issue. Id. The district court determined that Napster users engage in commercial use of the copyrighted materials largely because (1) "a host user sending a file cannot be said to engage in a personal use when distributing that file to an anonymous requester" and (2) "Napster users get for free something they would ordinarily have to buy." Napster, 114 F.Supp.2d at 912. The district court's findings are not clearly erroneous.

Direct economic benefit is not required to demonstrate a commercial use. Rather, repeated and exploitative copying of copyrighted works, even if the copies are not offered for sale, may constitute a commercial use. See Worldwide Church of God v. Philadelphia Church of God, 227 F.3d 1110, 1118 (9th Cir.2000) (stating that church that copied religious text for its members "unquestionably profit[ed]" from the unauthorized "distribution and use of [the text] without having to account to the copyright holder"); American Geophysical Union v. Texaco, Inc., 60 F.3d 913, 922 (2d Cir.1994) (finding that researchers at for-profit laboratory gained indirect economic advantage by photocopying copyrighted scholarly articles). In the record before us, commercial use is demonstrated by a showing that repeated and exploitative unauthorized copies of copyrighted works were made to save the expense of purchasing authorized copies. See Worldwide Church, 227 F.3d at 1117-18; Sega Enters. Ltd. v. MAPHIA, 857 F.Supp. 679, 687 (N.D.Cal.1994) (finding commercial use when individuals downloaded copies of video games "to avoid having to buy video game cartridges"); see also American Geophysical, 60 F.3d at 922. Plaintiffs made such a showing before the district court.^[4]

We also note that the definition of a financially motivated transaction for the purposes of criminal copyright actions includes trading infringing copies of a work for other items, "including the receipt of other copyrighted works." See No Electronic Theft Act ("NET Act"), Pub.L. No. 105-147, 18 U.S.C. § 101 (defining "Financial Gain").

[1016] 2. The Nature of the Use

Works that are creative in nature are "closer to the core of intended copyright protection" than are more fact-based works. See Campbell, 510 U.S. at 586, 114 S.Ct. 1164. The district court determined that plaintiffs' "copyrighted musical compositions and sound recordings are creative in nature . . . which cuts against a finding of fair use under the second factor." Napster, 114 F.Supp.2d at 913. We find no error in the district court's conclusion.

3. The Portion Used

"While `wholesale copying does not preclude fair use per se,' copying an entire work `militates against a finding of fair use.'" Worldwide Church, 227 F.3d at 1118 (quoting Hustler Magazine, Inc. v. Moral Majority, Inc., 796 F.2d 1148, 1155 (9th Cir.1986)). The district court determined that Napster users engage in "wholesale copying" of copyrighted work because file transfer necessarily "involves copying the entirety of the copyrighted work." Napster, 114 F.Supp.2d at 913. We agree. We note, however, that under certain circumstances, a court will conclude that a use is fair even when the protected work is copied in its entirety. See, e.g., Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 449-50, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984) (acknowledging that fair use of time-shifting necessarily involved making a full copy of a protected work).

4. Effect of Use on Market

"Fair use, when properly applied, is limited to copying by others which does not materially impair the marketability of the work which is copied." Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 566-67, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985). "[T]he importance of this [fourth] factor will vary, not only with the amount of harm, but also with the relative strength of the showing on the other factors." Campbell, 510 U.S. at 591 n. 21, 114 S.Ct. 1164. The proof required to demonstrate present or future market harm varies with the purpose and character of the use:

A challenge to a noncommercial use of a copyrighted work requires proof either that the particular use is harmful, or that if it should become widespread, it would adversely affect the potential market for the copyrighted work. . . . If the intended use is for commercial gain, that likelihood [of market harm] may be presumed. But if it is for a noncommercial purpose, the likelihood must be demonstrated.

Sony, 464 U.S. at 451, 104 S.Ct. 774 (emphases added).

Addressing this factor, the district court concluded that Napster harms the market in "at least" two ways: it reduces audio CD sales among college students and it "raises barriers to plaintiffs' entry into the market for the digital downloading of music." Napster, 114 F.Supp.2d at 913. The district court relied on evidence plaintiffs submitted to show that Napster use harms the market for their copyrighted musical compositions and sound recordings. In a separate memorandum and order regarding the parties' objections to the expert reports, the district court examined each report, finding some more appropriate and probative than others. A & M Records, Inc. v. Napster, Inc., Nos. 99-5183 & 00-0074, 2000 WL 1170106 (N.D.Cal. August 10, 2000). Notably, plaintiffs' expert, Dr. E. Deborah Jay, conducted a survey (the "Jay Report") using a random sample of college and university students to track their reasons for using Napster and the impact Napster had on their music purchases. Id. at *2. The court recognized that the Jay Report focused on just one segment of the Napster user population and found "evidence of lost sales attributable to college use to be probative of irreparable harm for purposes of the preliminary injunction motion." Id. at *3.

Plaintiffs also offered a study conducted by Michael Fine, Chief Executive Officer of Soundscan, (the "Fine Report") to determine the effect of online sharing of MP3 [1017] files in order to show irreparable harm. Fine found that online file sharing had resulted in a loss of "album" sales within college markets. After reviewing defendant's objections to the Fine Report and expressing some concerns regarding the methodology and findings, the district court refused to exclude the Fine Report insofar as plaintiffs offered it to show irreparable harm. Id. at *6.

Plaintiffs' expert Dr. David J. Teece studied several issues ("Teece Report"), including whether plaintiffs had suffered or were likely to suffer harm in their existing and planned businesses due to Napster use. Id. Napster objected that the report had not undergone peer review. The district court noted that such reports generally are not subject to such scrutiny and overruled defendant's objections. Id.

As for defendant's experts, plaintiffs objected to the report of Dr. Peter S. Fader, in which the expert concluded that Napster is beneficial to the music industry because MP3 music file-sharing stimulates more audio CD sales than it displaces. Id. at *7. The district court found problems in Dr. Fader's minimal role in overseeing the administration of the survey and the lack of objective data in his report. The court decided the generality of the report rendered it "of dubious reliability and value." The court did not exclude the report, however, but chose "not to rely on Fader's findings in determining the issues of fair use and irreparable harm." Id. at *8.

The district court cited both the Jay and Fine Reports in support of its finding that Napster use harms the market for plaintiffs' copyrighted musical compositions and sound recordings by reducing CD sales among college students. The district court cited the Teece Report to show the harm Napster use caused in raising barriers to plaintiffs' entry into the market for digital downloading of music. Napster, 114 F.Supp.2d at 910. The district court's careful consideration of defendant's objections to these reports and decision to rely on the reports for specific issues demonstrates a proper exercise of discretion in addition to a correct application of the fair use doctrine. Defendant has failed to show any basis for disturbing the district court's findings.

We, therefore, conclude that the district court made sound findings related to Napster's deleterious effect on the present and future digital download market. Moreover, lack of harm to an established market cannot deprive the copyright holder of the right to develop alternative markets for the works. See L.A. Times v. Free Republic, 54 U.S.P.Q.2d 1453, 1469-71 (C.D.Cal.2000) (stating that online market for plaintiff newspapers' articles was harmed because plaintiffs demonstrated that "[defendants] are attempting to exploit the market for viewing their articles online"); see also UMG Recordings, 92 F.Supp.2d at 352 ("Any allegedly positive impact of defendant's activities on plaintiffs' prior market in no way frees defendant to usurp a further market that directly derives from reproduction of the plaintiffs' copyrighted works."). Here, similar to L.A. Times and UMG Recordings, the record supports the district court's finding that the "record company plaintiffs have already expended considerable funds and effort to commence Internet sales and licensing for digital downloads." 114 F.Supp.2d at 915. Having digital downloads available for free on the Napster system necessarily harms the copyright holders' attempts to charge for the same downloads.

Judge Patel did not abuse her discretion in reaching the above fair use conclusions, nor were the findings of fact with respect to fair use considerations clearly erroneous. We next address Napster's identified uses of sampling and space-shifting.

5. Identified Uses

Napster maintains that its identified uses of sampling and space-shifting were wrongly excluded as fair uses by the district court.

[1018] a. Sampling

Napster contends that its users download MP3 files to "sample" the music in order to decide whether to purchase the recording. Napster argues that the district court: (1) erred in concluding that sampling is a commercial use because it conflated a noncommercial use with a personal use; (2) erred in determining that sampling adversely affects the market for plaintiffs' copyrighted music, a requirement if the use is noncommercial; and (3) erroneously concluded that sampling is not a fair use because it determined that samplers may also engage in other infringing activity.

The district court determined that sampling remains a commercial use even if some users eventually purchase the music. We find no error in the district court's determination. Plaintiffs have established that they are likely to succeed in proving that even authorized temporary downloading of individual songs for sampling purposes is commercial in nature. See Napster, 114 F.Supp.2d at 913. The record supports a finding that free promotional downloads are highly regulated by the record company plaintiffs and that the companies collect royalties for song samples available on retail Internet sites. Id. Evidence relied on by the district court demonstrates that the free downloads provided by the record companies consist of thirty-to-sixty second samples or are full songs programmed to "time out," that is, exist only for a short time on the downloader's computer. Id. at 913-14. In comparison, Napster users download a full, free and permanent copy of the recording. Id. at 914-15. The determination by the district court as to the commercial purpose and character of sampling is not clearly erroneous.

The district court further found that both the market for audio CDs and market for online distribution are adversely affected by Napster's service. As stated in our discussion of the district court's general fair use analysis: the court did not abuse its discretion when it found that, overall, Napster has an adverse impact on the audio CD and digital download markets. Contrary to Napster's assertion that the district court failed to specifically address the market impact of sampling, the district court determined that "[e]ven if the type of sampling supposedly done on Napster were a non-commercial use, plaintiffs have demonstrated a substantial likelihood that it would adversely affect the potential market for their copyrighted works if it became widespread." Napster, 114 F.Supp.2d at 914. The record supports the district court's preliminary determinations that: (1) the more music that sampling users download, the less likely they are to eventually purchase the recordings on audio CD; and (2) even if the audio CD market is not harmed, Napster has adverse effects on the developing digital download market.

Napster further argues that the district court erred in rejecting its evidence that the users' downloading of "samples" increases or tends to increase audio CD sales. The district court, however, correctly noted that "any potential enhancement of plaintiffs' sales . . . would not tip the fair use analysis conclusively in favor of defendant." Id. at 914. We agree that increased sales of copyrighted material attributable to unauthorized use should not deprive the copyright holder of the right to license the material. See Campbell, 510 U.S. at 591 n. 21, 114 S.Ct. 1164 ("Even favorable evidence, without more, is no guarantee of fairness. Judge Leval gives the example of the film producer's appropriation of a composer's previously unknown song that turns the song into a commercial success; the boon to the song does not make the film's simple copying fair."); see also L.A. Times, 54 U.S.P.Q.2d at 1471-72. Nor does positive impact in one market, here the audio CD market, deprive the copyright holder of the right to develop identified alternative markets, here the digital download market. See id. at 1469-71.

[1019] We find no error in the district court's factual findings or abuse of discretion in the court's conclusion that plaintiffs will likely prevail in establishing that sampling does not constitute a fair use.

b. Space-Shifting

Napster also maintains that space-shifting is a fair use. Space-shifting occurs when a Napster user downloads MP3 music files in order to listen to music he already owns on audio CD. See id. at 915-16. Napster asserts that we have already held that space-shifting of musical compositions and sound recordings is a fair use. See Recording Indus. Ass'n of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1079 (9th Cir.1999) ("Rio [a portable MP3 player] merely makes copies in order to render portable, or `space-shift,' those files that already reside on a user's hard drive. . . . Such copying is a paradigmatic noncommercial personal use."). See also generally Sony, 464 U.S. at 423, 104 S.Ct. 774 (holding that "time-shifting," where a video tape recorder owner records a television show for later viewing, is a fair use).

We conclude that the district court did not err when it refused to apply the "shifting" analyses of Sony and Diamond. Both Diamond and Sony are inapposite because the methods of shifting in these cases did not also simultaneously involve distribution of the copyrighted material to the general public; the time or space-shifting of copyrighted material exposed the material only to the original user. In Diamond, for example, the copyrighted music was transferred from the user's computer hard drive to the user's portable MP3 player. So too Sony, where "the majority of VCR purchasers . . . did not distribute taped television broadcasts, but merely enjoyed them at home." Napster, 114 F.Supp.2d at 913. Conversely, it is obvious that once a user lists a copy of music he already owns on the Napster system in order to access the music from another location, the song becomes "available to millions of other individuals," not just the original CD owner. See UMG Recordings, 92 F.Supp.2d at 351-52 (finding space-shifting of MP3 files not a fair use even when previous ownership is demonstrated before a download is allowed); cf. Religious Tech. Ctr. v. Lerma, No. 95-1107A, 1996 WL 633131, at *6 (E.D.Va. Oct.4, 1996) (suggesting that storing copyrighted material on computer disk for later review is not a fair use).

c. Other Uses

Permissive reproduction by either independent or established artists is the final fair use claim made by Napster. The district court noted that plaintiffs did not seek to enjoin this and any other noninfringing use of the Napster system, including: chat rooms, message boards and Napster's New Artist Program. Napster, 114 F.Supp.2d at 917. Plaintiffs do not challenge these uses on appeal.

We find no error in the district court's determination that plaintiffs will likely succeed in establishing that Napster users do not have a fair use defense. Accordingly, we next address whether Napster is secondarily liable for the direct infringement under two doctrines of copyright law: contributory copyright infringement and vicarious copyright infringement.

IV

We first address plaintiffs' claim that Napster is liable for contributory copyright infringement. Traditionally, "one who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a `contributory' infringer." Gershwin Publ'g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir.1971); see also Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir.1996). Put differently, liability exists if the defendant engages in "personal conduct that encourages or assists the infringement." Matthew Bender & Co. v. West Publ'g Co., 158 F.3d 693, 706 (2d Cir.1998).

[1020] The district court determined that plaintiffs in all likelihood would establish Napster's liability as a contributory infringer. The district court did not err; Napster, by its conduct, knowingly encourages and assists the infringement of plaintiffs' copyrights.

A. Knowledge

Contributory liability requires that the secondary infringer "know or have reason to know" of direct infringement. Cable/Home Communication Corp. v. Network Prods., Inc., 902 F.2d 829, 845 & 846 n. 29 (11th Cir.1990); Religious Tech. Ctr. v. Netcom On-Line Communication Servs., Inc., 907 F.Supp. 1361, 1373-74 (N.D.Cal.1995) (framing issue as "whether Netcom knew or should have known of" the infringing activities). The district court found that Napster had both actual and constructive knowledge that its users exchanged copyrighted music. The district court also concluded that the law does not require knowledge of "specific acts of infringement" and rejected Napster's contention that because the company cannot distinguish infringing from noninfringing files, it does not "know" of the direct infringement. 114 F.Supp.2d at 917.

It is apparent from the record that Napster has knowledge, both actual and constructive,^[5] of direct infringement. Napster claims that it is nevertheless protected from contributory liability by the teaching of Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984). We disagree. We observe that Napster's actual, specific knowledge of direct infringement renders Sony's holding of limited assistance to Napster. We are compelled to make a clear distinction between the architecture of the Napster system and Napster's conduct in relation to the operational capacity of the system.

The Sony Court refused to hold the manufacturer and retailers of video tape recorders liable for contributory infringement despite evidence that such machines could be and were used to infringe plaintiffs' copyrighted television shows. Sony stated that if liability "is to be imposed on petitioners in this case, it must rest on the fact that they have sold equipment with constructive knowledge of the fact that their customers may use that equipment to make unauthorized copies of copyrighted material." Id. at 439, 104 S.Ct. 774 (emphasis added). The Sony Court declined to impute the requisite level of knowledge where the defendants made and sold equipment capable of both infringing and "substantial noninfringing uses." Id. at 442 (adopting a modified "staple article of commerce" doctrine from patent law). See also Universal City Studios, Inc. v. Sony Corp., 480 F.Supp. 429, 459 (C.D.Cal. 1979) ("This court agrees with defendants that their knowledge was insufficient to make them contributory infringers."), rev'd, 659 F.2d 963 (9th Cir.1981), rev'd, 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984); Alfred C. Yen, Internet Service Provider Liability for Subscriber Copyright Infringement, Enterprise Liability, and the First Amendment, 88 Geo. L.J. 1833, 1874 & 1893 n.210 (2000) (suggesting that, after Sony, most Internet service providers lack "the requisite level of knowledge" for the imposition of contributory liability).

We are bound to follow Sony, and will not impute the requisite level of knowledge to Napster merely because [1021] peer-to-peer file sharing technology may be used to infringe plaintiffs' copyrights. See 464 U.S. at 436, 104 S.Ct. 774 (rejecting argument that merely supplying the "`means' to accomplish an infringing activity" leads to imposition of liability). We depart from the reasoning of the district court that Napster failed to demonstrate that its system is capable of commercially significant noninfringing uses. See Napster, 114 F.Supp.2d at 916, 917-18. The district court improperly confined the use analysis to current uses, ignoring the system's capabilities. See generally Sony, 464 U.S. at 442-43, 104 S.Ct. 774 (framing inquiry as whether the video tape recorder is "capable of commercially significant noninfringing uses") (emphasis added). Consequently, the district court placed undue weight on the proportion of current infringing use as compared to current and future noninfringing use. See generally Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 264-67 (5th Cir.1988) (single noninfringing use implicated Sony). Nonetheless, whether we might arrive at a different result is not the issue here. See Sports Form, Inc. v. United Press Int'l, Inc., 686 F.2d 750, 752 (9th Cir.1982). The instant appeal occurs at an early point in the proceedings and "the fully developed factual record may be materially different from that initially before the district court. . . ." Id. at 753. Regardless of the number of Napster's infringing versus noninfringing uses, the evidentiary record here supported the district court's finding that plaintiffs would likely prevail in establishing that Napster knew or had reason to know of its users' infringement of plaintiffs' copyrights.

This analysis is similar to that of Religious Technology Center v. Netcom On-Line Communication Services, Inc., which suggests that in an online context, evidence of actual knowledge of specific acts of infringement is required to hold a computer system operator liable for contributory copyright infringement. 907 F.Supp. at 1371. Netcom considered the potential contributory copyright liability of a computer bulletin board operator whose system supported the posting of infringing material. Id. at 1374. The court, in denying Netcom's motion for summary judgment of noninfringement and plaintiff's motion for judgment on the pleadings, found that a disputed issue of fact existed as to whether the operator had sufficient knowledge of infringing activity. Id. at 1374-75.

The court determined that for the operator to have sufficient knowledge, the copyright holder must "provide the necessary documentation to show there is likely infringement." 907 F.Supp. at 1374; cf. Cubby, Inc. v. CompuServe, Inc., 776 F.Supp. 135, 141 (S.D.N.Y.1991) (recognizing that online service provider does not and cannot examine every hyperlink for potentially defamatory material). If such documentation was provided, the court reasoned that Netcom would be liable for contributory infringement because its failure to remove the material "and thereby stop an infringing copy from being distributed worldwide constitutes substantial participation" in distribution of copyrighted material. Id.

We agree that if a computer system operator learns of specific infringing material available on his system and fails to purge such material from the system, the operator knows of and contributes to direct infringement. See Netcom, 907 F.Supp. at 1374. Conversely, absent any specific information which identifies infringing activity, a computer system operator cannot be liable for contributory infringement merely because the structure of the system allows for the exchange of copyrighted material. See Sony, 464 U.S. at 436, 442-43, 104 S.Ct. 774. To enjoin simply because a computer network allows for infringing use would, in our opinion, violate Sony and potentially restrict activity unrelated to infringing use.

We nevertheless conclude that sufficient knowledge exists to impose contributory liability when linked to demonstrated infringing use of the Napster system. See Napster, 114 F.Supp.2d at 919 ("Religious [1022] Technology Center would not mandate a determination that Napster, Inc. lacks the knowledge requisite to contributory infringement."). The record supports the district court's finding that Napster has actual knowledge that specific infringing material is available using its system, that it could block access to the system by suppliers of the infringing material, and that it failed to remove the material. See Napster, 114 F.Supp.2d at 918, 920-21.^[6]

B. Material Contribution

Under the facts as found by the district court, Napster materially contributes to the infringing activity. Relying on Fonovisa, the district court concluded that "[w]ithout the support services defendant provides, Napster users could not find and download the music they want with the ease of which defendant boasts." Napster, 114 F.Supp.2d at 919-20 ("Napster is an integrated service designed to enable users to locate and download MP3 music files."). We agree that Napster provides "the site and facilities" for direct infringement. See Fonovisa, 76 F.3d at 264; cf. Netcom, 907 F.Supp. at 1372 ("Netcom will be liable for contributory infringement since its failure to cancel [a user's] infringing message and thereby stop an infringing copy from being distributed worldwide constitutes substantial participation."). The district court correctly applied the reasoning in Fonovisa, and properly found that Napster materially contributes to direct infringement.

We affirm the district court's conclusion that plaintiffs have demonstrated a likelihood of success on the merits of the contributory copyright infringement claim. We will address the scope of the injunction in part VIII of this opinion.

V

We turn to the question whether Napster engages in vicarious copyright infringement. Vicarious copyright liability is an "outgrowth" of respondeat superior. Fonovisa, 76 F.3d at 262. In the context of copyright law, vicarious liability extends beyond an employer/employee relationship to cases in which a defendant "has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities." Id. (quoting Gershwin, 443 F.2d at 1162); see also Polygram Int'l Publ'g, Inc. v. Nevada/TIG, Inc., 855 F.Supp. 1314, 1325-26 (D.Mass.1994) (describing vicarious liability as a form of risk allocation).

Before moving into this discussion, we note that Sony's "staple article of commerce" analysis has no application to Napster's potential liability for vicarious copyright infringement. See Sony, 464 U.S. at 434-435, 104 S.Ct. 774; see generally 3 Melville B. Nimmer & David Nimmer, Nimmer On Copyright §§ 12.04[A][2] & [A][2][b] (2000) (confining Sony to contributory infringement analysis: "Contributory infringement itself is of two types — personal conduct that forms part of or furthers the infringement and contribution of machinery or goods that provide the means to infringe"). 617 PLI/Pat 455, 528 (Sept. 2, 2000) (indicating that the "staple article of commerce" doctrine "provides a defense only to contributory infringement, not to vicarious infringement"). The issues of Sony's liability under the "doctrines of `direct infringement' and `vicarious liability'" were not before the Supreme Court, although the Court recognized that the "lines between direct infringement, contributory infringement, and vicarious liability are not clearly drawn." Id. at 435 n. 17, 104 S.Ct. 774. Consequently, when the Sony Court used the term "vicarious [1023] liability," it did so broadly and outside of a technical analysis of the doctrine of vicarious copyright infringement. Id. at 435 ("[V]icarious liability is imposed in virtually all areas of the law, and the concept of contributory infringement is merely a species of the broader problem of identifying the circumstances in which it is just to hold one individual accountable for the actions of another."); see also Black's Law Dictionary 927 (7th ed. 1999) (defining "vicarious liability" in a manner similar to the definition used in Sony).

A. Financial Benefit

The district court determined that plaintiffs had demonstrated they would likely succeed in establishing that Napster has a direct financial interest in the infringing activity. Napster, 114 F.Supp.2d at 921-22. We agree. Financial benefit exists where the availability of infringing material "acts as a `draw' for customers." Fonovisa, 76 F.3d at 263-64 (stating that financial benefit may be shown "where infringing performances enhance the attractiveness of a venue"). Ample evidence supports the district court's finding that Napster's future revenue is directly dependent upon "increases in userbase." More users register with the Napster system as the "quality and quantity of available music increases." 114 F.Supp.2d at 902. We conclude that the district court did not err in determining that Napster financially benefits from the availability of protected works on its system.

B. Supervision

The district court determined that Napster has the right and ability to supervise its users' conduct. Napster, 114 F.Supp.2d at 920-21 (finding that Napster's representations to the court regarding "its improved methods of blocking users about whom rights holders complain . . . is tantamount to an admission that defendant can, and sometimes does, police its service"). We agree in part.

The ability to block infringers' access to a particular environment for any reason whatsoever is evidence of the right and ability to supervise. See Fonovisa, 76 F.3d at 262 ("Cherry Auction had the right to terminate vendors for any reason whatsoever and through that right had the ability to control the activities of vendors on the premises."); cf. Netcom, 907 F.Supp. at 1375-76 (indicating that plaintiff raised a genuine issue of fact regarding ability to supervise by presenting evidence that an electronic bulletin board service can suspend subscriber's accounts). Here, plaintiffs have demonstrated that Napster retains the right to control access to its system. Napster has an express reservation of rights policy, stating on its website that it expressly reserves the "right to refuse service and terminate accounts in [its] discretion, including, but not limited to, if Napster believes that user conduct violates applicable law . . . or for any reason in Napster's sole discretion, with or without cause."

To escape imposition of vicarious liability, the reserved right to police must be exercised to its fullest extent. Turning a blind eye to detectable acts of infringement for the sake of profit gives rise to liability. See, e.g., Fonovisa, 76 F.3d at 261 ("There is no dispute for the purposes of this appeal that Cherry Auction and its operators were aware that vendors in their swap meets were selling counterfeit recordings."); see also Gershwin, 443 F.2d at 1161-62 (citing Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304 (2d Cir.1963), for the proposition that "failure to police the conduct of the primary infringer" leads to imposition of vicarious liability for copyright infringement).

The district court correctly determined that Napster had the right and ability to police its system and failed to exercise that right to prevent the exchange of copyrighted material. The district court, however, failed to recognize that the boundaries of the premises that Napster "controls and patrols" are limited. See, e.g., Fonovisa, 76 F.3d at 262-63 (in addition to having the right to exclude vendors, defendant "controlled and patrolled" the premises); see also Polygram, 855 F.Supp. at 1328-29 (in addition to having the contractual right to remove exhibitors, trade show operator reserved the right to police during the show and had its "employees walk the [1024] aisles to ensure `rules compliance'"). Put differently, Napster's reserved "right and ability" to police is cabined by the system's current architecture. As shown by the record, the Napster system does not "read" the content of indexed files, other than to check that they are in the proper MP3 format.

Napster, however, has the ability to locate infringing material listed on its search indices, and the right to terminate users' access to the system. The file name indices, therefore, are within the "premises" that Napster has the ability to police. We recognize that the files are user-named and may not match copyrighted material exactly (for example, the artist or song could be spelled wrong). For Napster to function effectively, however, file names must reasonably or roughly correspond to the material contained in the files, otherwise no user could ever locate any desired music. As a practical matter, Napster, its users and the record company plaintiffs have equal access to infringing material by employing Napster's "search function."

Our review of the record requires us to accept the district court's conclusion that plaintiffs have demonstrated a likelihood of success on the merits of the vicarious copyright infringement claim. Napster's failure to police the system's "premises," combined with a showing that Napster financially benefits from the continuing availability of infringing files on its system, leads to the imposition of vicarious liability. We address the scope of the injunction in part VIII of this opinion.

VI

We next address whether Napster has asserted defenses which would preclude the entry of a preliminary injunction.

Napster alleges that two statutes insulate it from liability. First, Napster asserts that its users engage in actions protected by § 1008 of the Audio Home Recording Act of 1992, 17 U.S.C. § 1008. Second, Napster argues that its liability for contributory and vicarious infringement is limited by the Digital Millennium Copyright Act, 17 U.S.C. § 512. We address the application of each statute in turn.

A. Audio Home Recording Act

The statute states in part:

No action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.

17 U.S.C. § 1008 (emphases added). Napster contends that MP3 file exchange is the type of "noncommercial use" protected from infringement actions by the statute. Napster asserts it cannot be secondarily liable for users' nonactionable exchange of copyrighted musical recordings.

The district court rejected Napster's argument, stating that the Audio Home Recording Act is "irrelevant" to the action because: (1) plaintiffs did not bring claims under the Audio Home Recording Act; and (2) the Audio Home Recording Act does not cover the downloading of MP3 files. Napster, 114 F.Supp.2d at 916 n. 19.

We agree with the district court that the Audio Home Recording Act does not cover the downloading of MP3 files to computer hard drives. First, "[u]nder the plain meaning of the Act's definition of digital audio recording devices, computers (and their hard drives) are not digital audio recording devices because their `primary purpose' is not to make digital audio copied recordings." Recording Indus. Ass'n of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1078 (9th Cir.1999). Second, notwithstanding Napster's claim that computers are "digital audio recording devices," computers do not make "digital music recordings" as defined by the Audio Home Recording Act. Id. at 1077 (citing S. Rep. 102-294) ("There are simply no [1025] grounds in either the plain language of the definition or in the legislative history for interpreting the term `digital musical recording' to include songs fixed on computer hard drives.").

B. Digital Millennium Copyright Act

Napster also interposes a statutory limitation on liability by asserting the protections of the "safe harbor" from copyright infringement suits for "Internet service providers" contained in the Digital Millennium Copyright Act, 17 U.S.C. § 512. See Napster, 114 F.Supp.2d at 919 n. 24. The district court did not give this statutory limitation any weight favoring a denial of temporary injunctive relief. The court concluded that Napster "has failed to persuade this court that subsection 512(d) shelters contributory infringers." Id.

We need not accept a blanket conclusion that § 512 of the Digital Millennium Copyright Act will never protect secondary infringers. See S. Rep. 105-190, at 40 (1998) ("The limitations in subsections (a) through (d) protect qualifying service providers from liability for all monetary relief for direct, vicarious, and contributory infringement."), reprinted in Melville B. Nimmer & David Nimmer, Nimmer on Copyright: Congressional Committee Reports on the Digital Millennium Copyright Act and Concurrent Amendments (2000); see also Charles S. Wright, Actual Versus Legal Control: Reading Vicarious Liability for Copyright Infringement Into the Digital Millennium Copyright Act of 1998, 75 Wash. L.Rev. 1005, 1028-31 (July 2000) ("[T]he committee reports leave no doubt that Congress intended to provide some relief from vicarious liability").

We do not agree that Napster's potential liability for contributory and vicarious infringement renders the Digital Millennium Copyright Act inapplicable per se. We instead recognize that this issue will be more fully developed at trial. At this stage of the litigation, plaintiffs raise serious questions regarding Napster's ability to obtain shelter under § 512, and plaintiffs also demonstrate that the balance of hardships tips in their favor. See Prudential Real Estate, 204 F.3d at 874; see also Micro Star v. Formgen, Inc. 154 F.3d 1107, 1109 (9th Cir.1998) ("A party seeking a preliminary injunction must show . . . `that serious questions going to the merits were raised and the balance of hardships tips sharply in its favor.'").

Plaintiffs have raised and continue to raise significant questions under this statute, including: (1) whether Napster is an Internet service provider as defined by 17 U.S.C. § 512(d); (2) whether copyright owners must give a service provider "official" notice of infringing activity in order for it to have knowledge or awareness of infringing activity on its system; and (3) whether Napster complies with § 512(i), which requires a service provider to timely establish a detailed copyright compliance policy. See A & M Records, Inc. v. Napster, Inc., No. 99-05183, 2000 WL 573136 (N.D.Cal. May 12, 2000) (denying summary judgment to Napster under a different subsection of the Digital Millennium Copyright Act, § 512(a)).

The district court considered ample evidence to support its determination that the balance of hardships tips in plaintiffs' favor:

Any destruction of Napster, Inc. by a preliminary injunction is speculative compared to the statistical evidence of massive, unauthorized downloading and uploading of plaintiffs' copyrighted works-as many as 10,000 files per second by defendant's own admission. See Kessler Dec. ¶ 29. The court has every reason to believe that, without a preliminary injunction, these numbers will mushroom as Napster users, and newcomers attracted by the publicity, scramble to obtain as much free music as possible before trial.

114 F.Supp.2d at 926.

VII

Napster contends that even if the district court's preliminary determinations that it is liable for facilitating copyright infringement are correct, the district court [1026] improperly rejected valid affirmative defenses of waiver, implied license and copyright misuse. We address the defenses in turn.

A. Waiver

"Waiver is the intentional relinquishment of a known right with knowledge of its existence and the intent to relinquish it." United States v. King Features Entm't, Inc., 843 F.2d 394, 399 (9th Cir.1988). In copyright, waiver or abandonment of copyright "occurs only if there is an intent by the copyright proprietor to surrender rights in his work." 4 Melville B. Nimmer & David Nimmer, Nimmer On Copyright ¶ 13.06 (2000); see also Micro Star v. Formgen, Inc., 154 F.3d 1107, 1114 (9th Cir.1998) (discussing abandonment).

Napster argues that the district court erred in not finding that plaintiffs knowingly provided consumers with technology designed to copy and distribute MP3 files over the Internet and, thus, waived any legal authority to exercise exclusive control over creation and distribution of MP3 files. The district court, however, was not convinced "that the record companies created the monster that is now devouring their intellectual property rights." Napster, 114 F.Supp.2d at 924. We find no error in the district court's finding that "in hastening the proliferation of MP3 files, plaintiffs did [nothing] more than seek partners for their commercial downloading ventures and develop music players for files they planned to sell over the Internet." Id.^[7]

B. Implied License

Napster also argues that plaintiffs granted the company an implied license by encouraging MP3 file exchange over the Internet. Courts have found implied licenses only in "narrow" circumstances where one party "created a work at [the other's] request and handed it over, intending that [the other] copy and distribute it." SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharms., Inc., 211 F.3d 21, 25 (2d Cir.2000) (quoting Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558 (9th Cir.1990)), cert. denied, ___ U.S. ___, 121 S.Ct. 173, 148 L.Ed.2d 118 (2000). The district court observed that no evidence exists to support this defense: "indeed, the RIAA gave defendant express notice that it objected to the availability of its members' copyrighted music on Napster." Napster, 114 F.Supp.2d at 924-25. The record supports this conclusion.

C. Misuse

The defense of copyright misuse forbids a copyright holder from "secur[ing] an exclusive right or limited monopoly not granted by the Copyright Office." Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 977-79 (4th Cir.1990), quoted in Practice Mgmt. Info. Corp. v. American Med. Ass'n, 121 F.3d 516, 520 (9th Cir.), amended by 133 F.3d 1140 (9th Cir.1997). Napster alleges that online distribution is not within the copyright monopoly. According to Napster, plaintiffs have colluded to "use their copyrights to extend their control to online distributions."

We find no error in the district court's preliminary rejection of this affirmative defense. The misuse defense prevents copyright holders from leveraging their limited monopoly to allow them control of areas outside the monopoly. See Lasercomb, 911 F.2d at 976-77; see also Religious [1027] Tech. Ctr. v. Lerma, No. 95-1107A, 1996 WL 633131, at *11 (E.D.Va. Oct.4, 1996) (listing circumstances which indicate improper leverage).^[8] There is no evidence here that plaintiffs seek to control areas outside of their grant of monopoly. Rather, plaintiffs seek to control reproduction and distribution of their copyrighted works, exclusive rights of copyright holders. 17 U.S.C. § 106; see also, e.g., UMG Recordings, 92 F.Supp.2d at 351 ("A [copyright holder's] `exclusive' rights, derived from the Constitution and the Copyright Act, include the right, within broad limits, to curb the development of such a derivative market by refusing to license a copyrighted work or by doing so only on terms the copyright owner finds acceptable."). That the copyrighted works are transmitted in another medium-MP3 format rather than audio CD-has no bearing on our analysis. See id. at 351 (finding that reproduction of audio CD into MP3 format does not "transform" the work).

VIII

The district court correctly recognized that a preliminary injunction against Napster's participation in copyright infringement is not only warranted but required. We believe, however, that the scope of the injunction needs modification in light of our opinion. Specifically, we reiterate that contributory liability may potentially be imposed only to the extent that Napster: (1) receives reasonable knowledge of specific infringing files with copyrighted musical compositions and sound recordings; (2) knows or should know that such files are available on the Napster system; and (3) fails to act to prevent viral distribution of the works. See Netcom, 907 F.Supp. at 1374-75. The mere existence of the Napster system, absent actual notice and Napster's demonstrated failure to remove the offending material, is insufficient to impose contributory liability. See Sony, 464 U.S. at 442-43, 104 S.Ct. 774.

Conversely, Napster may be vicariously liable when it fails to affirmatively use its ability to patrol its system and preclude access to potentially infringing files listed in its search index. Napster has both the ability to use its search function to identify infringing musical recordings and the right to bar participation of users who engage in the transmission of infringing files.

The preliminary injunction which we stayed is overbroad because it places on Napster the entire burden of ensuring that no "copying, downloading, uploading, transmitting, or distributing" of plaintiffs' works occur on the system. As stated, we place the burden on plaintiffs to provide notice to Napster of copyrighted works and files containing such works available on the Napster system before Napster has the duty to disable access to the offending content. Napster, however, also bears the burden of policing the system within the limits of the system. Here, we recognize that this is not an exact science in that the files are user named. In crafting the injunction on remand, the district court should recognize that Napster's system does not currently appear to allow Napster access to users' MP3 files.

Based on our decision to remand, Napster's additional arguments on appeal [1028] going to the scope of the injunction need not be addressed. We, however, briefly address Napster's First Amendment argument so that it is not reasserted on remand. Napster contends that the present injunction violates the First Amendment because it is broader than necessary. The company asserts two distinct free speech rights: (1) its right to publish a "directory" (here, the search index) and (2) its users' right to exchange information. We note that First Amendment concerns in copyright are allayed by the presence of the fair use doctrine. See 17 U.S.C. § 107; see generally Nihon Keizai Shimbun v. Comline Business Data, Inc., 166 F.3d 65, 74 (2d Cir.1999); Netcom, 923 F.Supp. at 1258 (stating that the Copyright Act balances First Amendment concerns with the rights of copyright holders). There was a preliminary determination here that Napster users are not fair users. Uses of copyrighted material that are not fair uses are rightfully enjoined. See Dr. Seuss Enters. v. Penguin Books USA, Inc., 109 F.3d 1394, 1403 (9th Cir.1997) (rejecting defendants' claim that injunction would constitute a prior restraint in violation of the First Amendment).

IX

We address Napster's remaining arguments: (1) that the court erred in setting a $5 million bond, and (2) that the district court should have imposed a constructive royalty payment structure in lieu of an injunction.

A. Bond

Napster argues that the $5 million bond is insufficient because the company's value is between $1.5 and $2 billion. We review objections to the amount of a bond for abuse of discretion. Walczak v. EPL Prolong, Inc., 198 F.3d 725 (9th Cir.1999).

We are reluctant to dramatically raise bond amounts on appeal. See GoTo.com, Inc. v. The Walt Disney Co., 202 F.3d 1199, 1211 (9th Cir.2000); see also Fed.R.Civ.P. 65(c). The district court considered competing evidence of Napster's value and the deleterious effect that any injunction would have upon the Napster system. We cannot say that Judge Patel abused her discretion when she fixed the penal sum required for the bond.

B. Royalties

Napster contends that the district court should have imposed a monetary penalty by way of a compulsory royalty in place of an injunction. We are asked to do what the district court refused.

Napster tells us that "where great public injury would be worked by an injunction, the courts might . . . award damages or a continuing royalty instead of an injunction in such special circumstances." Abend v. MCA, Inc., 863 F.2d 1465, 1479 (9th Cir.1988) (quoting 3 Melville B. Nimmer & David Nimmer, Nimmer On Copyright § 14.06[B] (1988)), aff'd, 495 U.S. 207, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990). We are at a total loss to find any "special circumstances" simply because this case requires us to apply well-established doctrines of copyright law to a new technology. Neither do we agree with Napster that an injunction would cause "great public injury." Further, we narrowly construe any suggestion that compulsory royalties are appropriate in this context because Congress has arguably limited the application of compulsory royalties to specific circumstances, none of which are present here. See 17 U.S.C. § 115.

The Copyright Act provides for various sanctions for infringers. See, e.g., 17 U.S.C. §§ 502 (injunctions); 504 (damages); and 506 (criminal penalties); see also 18 U.S.C. § 2319A (criminal penalties for the unauthorized fixation of and trafficking in sound recordings and music videos of live musical performances). These statutory sanctions represent a more than adequate legislative solution to the problem created by copyright infringement.

Imposing a compulsory royalty payment schedule would give Napster an "easy out" of this case. If such royalties were imposed, [1029] Napster would avoid penalties for any future violation of an injunction, statutory copyright damages and any possible criminal penalties for continuing infringement. The royalty structure would also grant Napster the luxury of either choosing to continue and pay royalties or shut down. On the other hand, the wronged parties would be forced to do business with a company that profits from the wrongful use of intellectual properties. Plaintiffs would lose the power to control their intellectual property: they could not make a business decision not to license their property to Napster, and, in the event they planned to do business with Napster, compulsory royalties would take away the copyright holders' ability to negotiate the terms of any contractual arrangement.

X

We affirm in part, reverse in part and remand.

We direct that the preliminary injunction fashioned by the district court prior to this appeal shall remain stayed until it is modified by the district court to conform to the requirements of this opinion. We order a partial remand of this case on the date of the filing of this opinion for the limited purpose of permitting the district court to proceed with the settlement and entry of the modified preliminary injunction.

Even though the preliminary injunction requires modification, appellees have substantially and primarily prevailed on appeal. Appellees shall recover their statutory costs on appeal. See Fed. R.App. P. 39(a)(4) ("[i]f a judgment is affirmed in part, reversed in part, modified, or vacated, costs are taxed only as the court orders.").

AFFIRMED IN PART, REVERSED IN PART AND REMANDED.

[1] "To download means to receive information, typically a file, from another computer to yours via your modem. . . . The opposite term is upload, which means to send a file to another computer." United States v. Mohrbacher, 182 F.3d 1041, 1048 (9th Cir.1999) (quoting Robin Williams, Jargon, An Informal Dictionary of Computer Terms 170-71 (1993)).

[2] Secondary liability for copyright infringement does not exist in the absence of direct infringement by a third party. Religious Tech. Ctr. v. Netcom On-Line Communication Servs., Inc., 907 F.Supp. 1361, 1371 (N.D.Cal. 1995) ("[T]here can be no contributory infringement by a defendant without direct infringement by another."). It follows that Napster does not facilitate infringement of the copyright laws in the absence of direct infringement by its users.

[3] Napster asserts that because plaintiffs seek injunctive relief, they have the burden of showing a likelihood that they would prevail against any affirmative defenses raised by Napster, including its fair use defense under 17 U.S.C. § 107. See Atari Games Corp. v. Nintendo, 975 F.2d 832, 837 (Fed.Cir.1992) (following Ninth Circuit law, and stating that plaintiff must show likelihood of success on prima facie copyright infringement case and likelihood that it would overcome copyright misuse defense); see also Dr. Seuss Enters. v. Penguin Books USA, 924 F.Supp. 1559, 1562 (S.D.Cal.1996) ("The plaintiff's burden of showing a likelihood of success on the merits includes the burden of showing a likelihood that it would prevail against any affirmative defenses raised by the defendant."), aff'd, 109 F.3d 1394 (9th Cir.1997); Religious Tech. Ctr. v. Netcom On-Line Communication Servs., 923 F.Supp. 1231, 1242 n. 12 (1995) (same); 2 William W. Schwarzer et al., California Practice Guide, Federal Civil Procedure Before Trial ¶ 13:47 (2000) (advising that when a preliminary injunction is sought "plaintiff must demonstrate a likelihood of prevailing on any affirmative defense as well as on plaintiff's case in chief"). But see Fair Use of Copyrighted Works, H.R. Rep. 102-836 n.3 (criticizing a Northern District of New York case in which "the district court erroneously held that where the copyright owner seeks a preliminary injunction, the copyright owner bears the burden of disproving the [fair use] defense"); see also 1 William F. Patry, Copyright Law & Practice, 725, 725 n.27 (1994) (citing cases placing burden on defendant at preliminary injunction stage).

The district court stated that "defendant bears the burden of proving. . . affirmative defenses." Napster, 114 F.Supp.2d at 912. Plaintiffs assert that the district court did not err in placing the burden on Napster. We conclude that even if plaintiffs bear the burden of establishing that they would likely prevail against Napster's affirmative defenses at the preliminary injunction stage, the record supports the district court's conclusion that Napster users do not engage in fair use of the copyrighted materials.

[4] Napster counters that even if certain users engage in commercial use by downloading instead of purchasing the music, space-shifting and sampling are nevertheless non commercial in nature. We address this contention in our discussion of these specific uses, infra.

[5] The district court found actual knowledge because: (1) a document authored by Napster co-founder Sean Parker mentioned "the need to remain ignorant of users' real names and IP addresses `since they are exchanging pirated music'"; and (2) the Recording Industry Association of America ("RIAA") informed Napster of more than 12,000 infringing files, some of which are still available. 114 F.Supp.2d at 918. The district court found constructive knowledge because: (a) Napster executives have recording industry experience; (b) they have enforced intellectual property rights in other instances; (c) Napster executives have downloaded copyrighted songs from the system; and (d) they have promoted the site with "screen shots listing infringing files." Id. at 919.

[6] As stated by the district court:

Plaintiff[s] . . . demonstrate that defendant had actual notice of direct infringement because the RIAA informed it of more than 12,000 infringing files. See Creighton 12/3/99 Dec., Exh. D. Although Napster, Inc. purportedly terminated the users offering these files, the songs are still available using the Napster service, as are the copyrighted works which the record company plaintiffs identified in Schedules A and B of their complaint. See Creighton Supp. Dec. ¶¶ 3-4.

114 F.Supp.2d at 918.

[7] Napster additionally asserts that the district court improperly refused to allow additional discovery into affirmative defenses and also erroneously failed to hold an evidentiary hearing. The denial of an evidentiary hearing is reviewed for abuse of discretion, Kenneally v. Lungren, 967 F.2d 329, 335 (9th Cir.1992), as is the court's decision to deny further discovery. See Sablan v. Dep't of Finance, 856 F.2d 1317, 1321 (9th Cir.1988) (stating that decision to deny discovery will not be disturbed except upon a clear showing "that the denial of discovery results in actual and substantial prejudice"). We conclude that the court did not abuse its discretion in denying further discovery and refusing to conduct an evidentiary hearing.

[8] The district court correctly stated that "most of the cases" that recognize the affirmative defense of copyright misuse involve unduly restrictive licensing schemes. See Napster, 114 F.Supp.2d at 923; see also Lasercomb, 911 F.2d at 973 (stating that "a misuse of copyright defense is inherent in the law of copyright"). We have also suggested, however, that a unilateral refusal to license a copyright may constitute wrongful exclusionary conduct giving rise to a claim of misuse, but assume that the "desire to exclude others . . . is a presumptively valid business justification for any immediate harm to consumers." See Image Tech. Servs. v. Eastman Kodak Co., 125 F.3d 1195, 1218 (9th Cir.1997). But see Intergraph Corp. v. Intel Corp., 195 F.3d 1346, 1362 (Fed.Cir.1999) ("[M]arket power does not `impose on the intellectual property owner an obligation to license the use of that property to others.'") (quoting United States Dep't of Justice & Fed. Trade Comm'n, Antitrust Guidelines for the Licensing of Intellectual Property 4 (1995)).

[489] Paul D. Clement, with whom Jeffrey S. Bucholtz, Erin E. Murphy, King & Spalding, LLP, Timothy M. Reynolds, Eve G. Burton, Holme, Roberts & Owen, LLP, Matthew J. Oppenheim, and Jennifer L. Pariser were on brief, for plaintiffs-appellants.

Jeffrey Clair, with whom Tony West, Assistant Attorney General, Carmen Ortiz, United States Attorney, and Scott R. McIntosh were on brief, for the United States as plaintiff-appellant.

Charles R. Nesson and Jason Harrow for defendant-appellee. Julie A. Ahrens, with whom Anthony T. Falzone, Stanford Law School Center for Internet & Society, Michael Barclay, Corynne McSherry, Electronic Frontier Foundation, Jason M. Schultz, Samuelson Law, Technology & Public Policy Clinic, were on brief for Electronic Frontier Foundation, amicus curiae.

Before LYNCH, Chief Judge, TORRUELLA and THOMPSON, Circuit Judges.

LYNCH, Chief Judge.

Plaintiffs, the recording companies Sony BMG Music Entertainment, Warner Brothers Records Inc., Arista Records LLC, Atlantic Recording Corporation, and UMG Recordings, Inc. (together, “Sony”), brought this action for statutory damages and injunctive relief under the Copyright Act, 17 U.S.C. § 101 et seq. Sony argued that the defendant, Joel Tenenbaum, willfully infringed the copyrights of thirty music recordings by using file-sharing software to download and distribute those recordings without authorization from the copyright owners.

The district court entered judgment against Tenenbaum as to liability. The jury found that Tenenbaum's infringement of the copyrights at issue was willful and awarded Sony statutory damages of $22,500 for each infringed recording, an award within the statutory range of $750 to $150,000 per infringement that Congress established for willful conduct. See 17 U.S.C. § 504(c).

Upon Tenenbaum's motion for a new trial or remittitur, the district court skipped over the question of remittitur and reached a constitutional issue. It reduced the damage award by a factor of ten, reasoning that the award was excessive in violation of Tenenbaum's due process rights. See Sony BMG Music Entm't v. Tenenbaum, 721 F.Supp.2d 85 (D.Mass.2010).

The parties have cross-appealed. Sony argues the district court erred, for a number of reasons, in reducing the jury's award of damages and seeks reinstatement of the full award. It defends the liability and willfulness determinations.

Tenenbaum challenges both liability and damages. He challenges the Copyright Act's constitutionality and the applicability of the Copyright Act and its statutory damages provision to his conduct. Tenenbaum also argues that the district court committed various errors that require a new trial, and that a further reduction of the damage award is required by the due process clause.

The United States, intervening to defend the constitutionality of the Copyright Act, argues that the district court erred in bypassing the question of common law remittitur to reach a constitutional issue.

We reject all of Tenenbaum's arguments and affirm the denial of Tenenbaum's motion for a new trial or remittitur based on claims of error as to the application of the Copyright Act and error as to the jury instructions. However, the court erred [490] when it bypassed Tenenbaum's remittitur arguments based on excessiveness of the statutory damages award and reached the constitutional due process issue. We agree with the United States that the doctrine of constitutional avoidance requires consideration of common law remittitur before consideration of Tenenbaum's due process challenge to the jury's award. We reverse the reduction in damages, reinstate the original award, and remand for consideration of the common law remittitur question. We comment that this case raises concerns about application of the Copyright Act which Congress may wish to examine.

A. District Court Proceedings

Sony brought this action against Tenenbaum in August 2007, seeking statutory damages and injunctive relief pursuant to the Copyright Act. Sony pursued copyright claims against Tenenbaum for only thirty copyrighted works, even though it presented evidence that Tenenbaum illegally downloaded and distributed thousands of copyrighted materials.

Sony's complaint elected to seek statutory, not actual damages, pursuant to 17 U.S.C. § 504(c). For each act of infringement, § 504(c) establishes an award range of $750 to $30,000 for non-willful infringements, and a range of $750 to $150,000 for willful infringements.

Tenenbaum filed several pre-trial motions, including a motion to dismiss Sony's complaint on the ground that the Copyright Act is unconstitutional.^[1] After the United States intervened to defend the constitutionality of the Act, the district court rejected Tenenbaum's motion without prejudice to allow Tenenbaum to challenge the constitutionality of any award ultimately issued by the jury. The district court also considered and rejected a fair use defense put forth by Tenenbaum.

A five-day jury trial was held from July 27 to July 31, 2009. Following the conclusion of testimony, the district court partially granted Sony's motion for judgment as a matter of law, holding that Sony owned the thirty copyrights at issue and that Tenenbaum infringed those copyrights through his downloading and distribution activities. The court left to the jury the questions of (1) whether Tenenbaum's infringement was willful and (2) the amount of statutory damages to be awarded. In instructing the jury, the court informed it of the statutory range Congress had established for willful and non-willful infringements and articulated a non-exhaustive list of factors it could consider in determining the damage award.

The jury found that Tenenbaum had willfully infringed each of Sony's thirty copyrighted works. The jury returned a damage award, within the statutory range, of $22,500 per infringement, which yielded a total award of $675,000.

Tenenbaum filed a post-trial motion seeking a new trial on various grounds^[2] or [491] a reduction of the jury's award. Tenenbaum argued that although the jury's award fell within the statutory range prescribed by Congress, (1) common law remittitur was both available to the court and appropriate in this case, and (2) the award was excessive such that it violated due process. The court rejected Tenenbaum's arguments for a new trial.

Regarding the size of the award, the court declined to decide the common law remittitur issue, based on its assumption that Sony would not agree to a reduction of the award and that remittitur would only necessitate a new trial on the issue of damages, and that even after a new trial the same issue of constitutional excessiveness would arise, so, in its view decision on the issue was inevitable. The court itself then found that the award violated due process, over objections that it utilized an impermissible standard, and reduced the award from $22,500 per infringement to $2,250 per infringement for a total award of $67,500.

B. Factual Background

We recite the underlying facts in the light most favorable to the jury's verdict. Analysis Grp., Inc. v. Cent. Fl. Invs., Inc., 629 F.3d 18, 20 (1st Cir.2010).

1. The Music Recording Industry and Peer–to–Peer Networks

Plaintiffs are several of the largest recording companies in the United States, and engage in discovering, developing, and marketing music recording artists and distributing the musical works those artists record. They hold exclusive rights to copy and distribute various music recordings under United States copyright law, including the thirty recordings at issue in this case, and their primary source of revenue is the sale of those recordings.

Plaintiffs only sell copies of their copyrighted recordings for profit. They never sell licenses to their copyrighted works that include rights to upload recordings to the internet for public consumption. The value of such a blanket license would be enormous, as the grant of such a license would deprive the companies of their source of income and profits and essentially drive them out of business.^[3]

In the late 1990s, copyrighted music recordings, including those held by the plaintiffs, began to appear on file-sharing software called “peer-to-peer networks” without the authorization of the copyright holders.

Peer-to-peer networks enable individuals both to make digital files stored on their own computers available to other network users and to download such files from the computers of others. Files shared between users of these networks do not pass through a central computer, but are instead exchanged directly from one user's computer to another. Through the use of these peer-to-peer networks, the unauthorized and illegal downloading and distribution of copyrighted materials—especially music recordings—became commonplace. See Metro–Goldwyn–Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 919–20, 923, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005) (describing operation of peer-to-peer networks and noting that [492] their advent has likely resulted in copyright infringement on a “staggering” scale). Because music recordings are loaded onto peer-to-peer networks in digital form, recordings downloaded from peer-to-peer networks are virtually indistinguishable from recordings purchased through lawful means, making enforcement difficult.

The proliferation of these networks from 1999 onward and the piracy they enable has had a significant negative impact on the recording industry. Between 1999 and 2008, the recording industry as a whole suffered a fifty percent drop in both sales and revenues, a figure plaintiffs attribute to the rise of illegal downloading. This reduction in revenues has, in turn, diminished recording companies' capacities to pursue, develop and market new recording artists. It also affected the companies' employees. The loss in revenues has resulted in a significant loss of industry jobs. Sony BMG Music Entertainment and Warner Music Group, for example, each have suffered a fifty percent reduction in workforce since 2000.

Shortly after peer-to-peer networks first appeared, plaintiffs acknowledged the threat they posed to their industry and initiated a broad campaign to address the illegal infringement of copyrighted materials. They started educating the public that downloading and distributing copyrighted songs over peer-to-peer networks constituted illegal copyright infringement. Plaintiffs also brought legal actions as part of their campaign, and initially targeted the proprietors of peer-to-peer networks, not the individuals who actually used those networks to illegally procure and distribute copyrighted materials. See, e.g., id. at 940, 125 S.Ct. 2764 (holding network may be held liable for copyright infringement undertaken by third party network users where network promotes such infringements even if network has other, legal uses). Although these litigation efforts succeeded at shutting down particular networks, individual infringers continued to engage in illegal conduct by finding new peer-to-peer networks through which to download copyrighted songs.

Consequently, record companies began to identify and pursue legal actions against individual infringers. The industry identified Internet Protocol (IP) addresses of users known to be engaged in a high volume of downloading and distributing copyrighted materials, and initiated lawsuits against those users. See Atl. Recording Corp. v. Heslep, No. 06–CV–132, 2007 WL 1435395 at *1–3 (N.D.Tex. May 16, 2007) (detailing recording industry's litigation efforts). These suits began in 2002 and were widely-publicized.^[4]

2. Tenenbaum's Conduct

Tenenbaum was an early and enthusiastic user of peer-to-peer networks to obtain and distribute copyrighted music recordings. He began downloading and distributing copyrighted works without authorization in 1999. In that year, he installed the Napster peer-to-peer network on his desktop computer at his family's home in Providence, Rhode Island. He used Napster both to download digital versions of copyrighted music recordings from other network users and to distribute to other users digital versions of copyrighted music recordings already saved on his own computer.

Because it enabled copyright infringement, see [493] A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir.2001), the Napster network was shut down in 2001. This did not stop Tenenbaum from downloading and distributing copyrighted works; he instead began using other peer-to-peer networks for the same illegal purposes. These networks included AudioGalaxy, iMesh, Morpheus, Kazaa, and Limewire. Tenenbaum shifted to these other networks after Napster's termination despite his knowledge that Napster was forced to close on account of a lawsuit brought against it for copyright infringement.

Tenenbaum continued to download and distribute copyrighted materials through at least 2007. During that time span he accessed a panoply of peer-to-peer networks for these illegal purposes from several computers. From 1999 until 2002, he primarily downloaded and distributed copyrighted works to and from his desktop computer at his family's home in Providence. He left home to attend Goucher College in Baltimore, Maryland, in 2002, at which point he began using a laptop to download and distribute copyrighted works. Following his graduation from Goucher in 2006, he began using a second laptop for these purposes in tandem with his other computers. Over the duration of Tenenbaum's conduct, he intentionally downloaded thousands of songs to his own computers from other network users. He also purposefully made thousands of songs available to other network users. He did this in the period after lawsuits were brought, and publicized, against individuals who downloaded and distributed music without authorization. At one point in time in 2004 alone, Tenenbaum had 1153 songs on his “shared-directory” on the Kazaa network. ^[5] Any of those files within Tenenbaum's shared directory could be easily downloaded by other Kazaa users. Although there was no way to determine the exact number of times other users had downloaded files from Tenenbaum's shared directory, it was frequent. Most of the networks Tenenbaum used had a “traffic tab” that informed him of the frequency with which other users were downloading his shared files. Tenenbaum regularly looked at the traffic tab, and he admitted it “definitely wasn't uncommon” for other users to be downloading materials from his computer.

Tenenbaum knew that his conduct, both his downloading and distribution, was illegal and received warnings the industry had started legal proceedings against individuals. He received several warnings regarding the potential liability his actions carried with them. While Tenenbaum was at Goucher College in 2002, his father, Dr. Arthur Tenenbaum, called him to warn him that his use of peer-to-peer networks to obtain and distribute music recordings was unlawful. Dr. Tenenbaum knew that his son was illegally downloading music because, prior to leaving for college, Tenenbaum had showed his father the array of songs that could be downloaded from the Kazaa network. After Dr. Tenenbaum became aware that lawsuits were being brought against individuals who used file-sharing programs to download and distribute music, he instructed Tenenbaum not to continue to engage in such conduct. Dr. Tenenbaum testified that, during their conversation, Tenenbaum did not appear [494] concerned about the consequences of his actions. Despite his father's request, Tenenbaum continued his illegal activity.

Tenenbaum also received direct warnings from Goucher College. Each year Tenenbaum received a Goucher student handbook warning that using the college's network to download and distribute copyrighted materials was illegal, but he did so anyway. The handbook also warned that illegally downloading and distributing music files could subject the copyright infringer to up to $150,000 of liability per infringement, alerting Tenenbaum to his potential exposure for violating the law. The Fall 2003 handbook issued to Tenenbaum at the start of his sophomore year cautioned:

To avoid the risk of potential lawsuits due to copyright infringement, the college is advising students to carefully restrict the use of file sharing applications to material that is legal to share.... Persons found to be infringed may be held liable for substantial damages and attorneys fees. The law entitles a plaintiff to seek statutory damages of $150,000 for each act of willful infringement.... In addition, if you violate copyright law by engaging in file sharing, you may be subject to discipline and other applicable college policy.

Tenenbaum received handbooks containing similar language during each of his four years at Goucher, but was unfazed and continued.

Tenenbaum also knew the college took this seriously and had itself acted to stop this illegal activity. By the end of his undergraduate studies at Goucher, the school had implemented so many technological restrictions on its network—which he knew were designed to prevent illegal downloading of music files—that peer-to-peer programs “wouldn't work at all.”

The Tenenbaums' internet service provider at home in Providence, Cox Communications, also warned against using the internet to illegally infringe copyrighted materials. In 2003, for example, the terms of service they offered to their customers prohibited customers from using the internet service “to post, copy, transmit or disseminate any content that infringes the patents, copyrights, trade secrets, trademarks or proprietary rights of any party.” It further provided that “Cox assumes no responsibility, and you assume all risks regarding the determination of whether material is in the public domain or may otherwise be used by you for such purposes.”

In a September 2005 letter, plaintiffs themselves informed Tenenbaum that he had been detected infringing copyrighted materials and notified him that his conduct was illegal. The letter stated: “We are writing in advance of filing suit against you in the event that you have an interest in resolving these claims.”^[6] The letter urged Tenenbaum to consult with an attorney immediately, and explained that the recording companies were prepared to initiate a legal action against Tenenbaum because of the severe impact of his actions on the industry:

Copyright theft is not a victimless crime. People spend countless hours working hard to create music—not just recording artists and songwriters, but also session players, backup singers, sound engineers and other technicians. In addition, the music industry employ thousands of other people, such as CD-plant workers, warehouse personnel, record store clerks and developers of legitimate online music services. They all depend [495] on sale of recordings to earn a living. So do record companies, which routinely invest millions of dollars to discover and sign promising artists, and then to produce and market their recordings. In addition, piracy eats away at the investment dollars available to fund new music and, in effect, erodes the future of music.

The letter also instructed Tenenbaum to preserve any relevant evidence including “the entire library of recordings that you have made available for distribution as well as any recordings you have downloaded....”^[7]

The letter from Sony resulted in a conversation between Tenenbaum and his mother regarding his use of peer-to-peer networks. During that conversation, Tenenbaum claimed that it was “impossible ... to know” who was responsible for the infringements referenced in Sony's letter.

Despite these warnings and his knowledge that he was and had been engaging in illegal activity which could subject him to liability of up to $150,000 per infringement, Tenenbaum continued the illegal downloading and distribution of copyrighted materials until at least 2007—a full two years after receiving the letter from Sony. He stopped his activity only after this lawsuit was filed against him.

[Strong evidence established that Tenenbaum lied in the course of these legal proceedings in a number of ways. In his initial responses to Sony's discovery requests, Tenenbaum represented he “had no knowledge or recollection of online media distribution systems used or any dates” of such use. He also denied creating or using the “sublimeguy 14@ kazaa” account name that he had used to access various peer-to-peer networks, and he denied any knowledge of whether a peer-to-peer network had been installed on his computer.]

At trial, however, Tenenbaum admitted that each of these statements he had made was false. He made numerous admissions in his testimony as to the scope of his conduct from 1999 until 2007. He admitted to installing peer-to-peer networks on his computer, including Kazaa, Limewire, Audio Galaxy, iMesh, and Morpheus, so that he could download and upload music with “the least amount of wasted effort.” He admitted that he created the “sublimeguy 14@ kazaa” user account, downloaded songs from the networks using that account, and placed materials in shared folders on those networks so that other users could download the materials onto their own computers. On some occasions, he believed he was the first person to upload a particular music recording onto the network. He testified that he placed between 600 and 5,000 songs on the Goucher College peer-to-peer network for others to download. He further testified that he also copied illegally downloaded songs onto CDs and USB drives, both for personal use and to give to other individuals. He also explicitly admitted liability for downloading and distributing the thirty sound recordings at issue in the case.

Before the trial, Tenenbaum also attempted to shift responsibility for his conduct to other individuals by claiming they could have used his computer in order to illegally download and distribute the copyrighted works. These individuals included a foster child living in his family's home, burglars who had broken into the home, [496] his family's house guest, and his own sisters. His sisters and others he blamed testified that they had never illegally downloaded music and had no knowledge of who installed the file sharing software on Tenenbaum's computer.

Finally, when asked at trial about his efforts to attribute the blame for his actions to others, Tenenbaum admitted his own responsibility: “I used the computer, I uploaded, I downloaded music, this is what I did, that's how it is, I did it.”

Tenenbaum presents three arguments that he is not subject to the Copyright Act. First, Tenenbaum argues that the Copyright Act is unconstitutional under Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340, 118 S.Ct. 1279, 140 L.Ed.2d 438 (1998). Feltner held that the Seventh Amendment entitles a defendant to have a jury determine the amount of statutory damages under § 504(c), although Congress had provided that judges, not juries, would render statutory damage awards. He argues that Feltner somehow renders the statutory damages provision unconstitutional until Congress chooses to amend the statute.

Second, Tenenbaum argues that Congress did not intend the Act to impose either liability or statutory damages where the copyright infringements at issue amount to what he calls “consumer copying.”

Third, Tenenbaum argues that statutory damages are unavailable to Sony because, in his view, statutory damages, as a matter of Congressional intent, cannot be awarded absent a showing of actual harm, and he claims there was no harm.

We review such legal and constitutional questions de novo. United States v. S. Union Co., 630 F.3d 17, 24 (1st Cir.2010). None of these arguments has merit.

A. Constitutionality of the Copyright Act After Feltner

Tenenbaum did not clearly make the argument that Feltner renders 504(c) unconstitutional to the district court, and so it is waived. See Dillon v. Select Portfolio Servicing, 630 F.3d 75, 82 (1st Cir.2011).

Even were the argument not waived, it is both wrong and foreclosed by our circuit precedent. In Segrets, Inc. v. Gillman Knitwear Co., 207 F.3d 56 (1st Cir.2000), we considered Feltner's impact on a claim for statutory damages under § 504(c). We held that Feltner required remand to the district court so that a jury could determine both whether the infringements at issue were willful and the proper measure of statutory damages, necessarily rejecting any notion that statutory damages under § 504(c) were no longer available after Feltner. Id. at 63. We followed the same reasoning in Venegas–Hernandez v. Sonolux Records, 370 F.3d 183, 191–94 (1st Cir.2004) (interpreting and applying § 504(c) after Feltner).

Our sister circuits have likewise concluded that Feltner did not render § 504(c) unconstitutional. See, e.g., BMG Music v. Gonzalez, 430 F.3d 888, 892–93 (7th Cir.2005) (upholding statutory damages award under § 504(c) despite claim that Feltner rendered such an award unconstitutional); Columbia Pictures Television, Inc. v. Krypton Broad. of Birmingham, Inc., 259 F.3d 1186, 1192 (9th Cir.2001) (rejecting argument that Feltner rendered “statutory damages provision of the Copyright Act ... unconstitutional in its entirety” and concluding Feltner “in no way implies that [497] copyright plaintiffs are no longer able to seek statutory damages under the Copyright Act”).

This conclusion is also required by Supreme Court precedent. Where the Court has found a particular federal statute to deprive defendants of jury rights in violation of the Seventh Amendment,^[8] the Court has deemed the offending portions of the statute inoperative while leaving the statute otherwise intact. See, e.g., Tull v. United States, 481 U.S. 412, 417 n. 3, 107 S.Ct. 1831, 95 L.Ed.2d 365 (1987) (upholding enforceability of Clean Water Act even though “[n]othing in the language of the ... Act or its legislative history implies any congressional intent to grant defendants the right to a jury trial” and the Seventh Amendment required that defendants be given such a jury trial right).

B. The Copyright Act and “Consumer–Copier” and Publisher–Copier Copyright Infringement

Tenenbaum argues to us that Congress never intended for the Copyright Act to impose liability or statutory damages against what he calls “consumer copiers.” That argument was not presented to the district court and is waived.^[9]

Even were the argument not waived, it must fail. We start with the inaccuracy of the labels that Tenenbaum's argument uses. Tenenbaum is not a “consumer-copier,” a term he never clearly defines. He is not a consumer whose infringement was merely that he failed to pay for copies of music recordings which he downloaded for his own personal use. Rather, he widely and repeatedly copied works belonging to Sony and then illegally distributed those works to others, who also did not pay Sony. Further, he received, in turn, other copyrighted works for which he did not pay. Nor can Tenenbaum assert that his was merely a “non-commercial” use and distribution of copyrighted works as those terms are used elsewhere in the Act.^[10] His use and distribution was for private gain and involved repeated and exploitative copying.

[498] Our analysis begins with the language of the Act, which we “construe ... in its context and in light of the terms surrounding it.” Succar v. Ashcroft, 394 F.3d 8, 23 (1st Cir.2005) (quoting Leocal v. Ashcroft, 543 U.S. 1, 9, 125 S.Ct. 377, 160 L.Ed.2d 271 (2004)) (internal quotation marks omitted). “It is well established that, when the statutory language is plain, we must enforce it according to its terms.” Jimenez v. Quarterman, 555 U.S. 113, 118, 129 S.Ct. 681, 172 L.Ed.2d 475 (2009).

In addition to the factual inaccuracy of his labels, Tenenbaum's argument that the Copyright Act immunizes his conduct from liability is contradicted by the plain language of the statute. The Copyright Act does not make the distinctions he urges between “consumer” and “non-consumer” infringement of copyrighted materials by copying and distribution. Instead, the Act renders those, like Tenenbaum, who use or distribute a copyrighted work without authorization liable in copyright. Indeed, the Act does not use the term “consumer” at all, much less as a term excluded from the category of infringers. Rather, the statute refers to “anyone” as potential infringers. 17 U.S.C. § 501(a).

The Act explicitly grants owners of “works of authorship”^[11] exclusive rights to, inter alia, “reproduce the copyrighted work in copies or phonorecords” and “distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” 17 U.S.C. § 106. By the plain language of § 106, copyright owners, like Sony, have the exclusive right to reproduce copyrighted works in copies or phonorecords and to distribute those copies or phonorecords.

The Copyright Act contains no provision that could be interpreted as precluding a copyright owner from bringing an action against an infringer solely because the infringer was a consumer of the infringed products or acted with a so-called noncommercial purpose in his distribution of the works to others. Apart from the reality that the facts of record support neither characterization, 17 U.S.C. § 501(a) provides that “ anyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 122 ... is an infringer of the copyright.” (Emphasis added). Further, under 17 U.S.C. § 501(b), “the legal or beneficial owner of an exclusive right under a copyright is entitled ... to institute an action for any infringement of that particular right committed while he or she is the owner of it.” (Emphasis added). Had Congress intended to limit copyright actions against so-called “consumer infringers” as Tenenbaum hypothesizes, it easily could have done so. See Ali v. Fed. Bureau of Prisons, 552 U.S. 214, 227–28, 128 S.Ct. 831, 169 L.Ed.2d 680 (2008). Instead, subject to exceptions not relevant here, it extended liability to “ anyone ” who violates a copyright owner's exclusive rights and allowed those owners to pursue actions against “ any infringement.” 17 U.S.C. § 501 (emphasis added).

Moving from liability to damages, Tenenbaum's argument that statutory damages [499] are not available here is also refuted by the plain statutory language. Section 504 provides that “ an infringer of copyright is liable for either ... the copyright owner's actual damages and any additional profits of the infringer ... or statutory damages.” (Emphasis added). The statute does not condition the availability of either set of damage calculations on whether the offending use was by a consumer or for commercial purposes or not.

Congress drew distinctions in the Copyright Act where it meant to do so. For example, it distinguished between willful and non-willful infringements, subjecting willful infringers to a higher cap on statutory damage awards. See 17 U.S.C. § 504(c).

Where Congress wanted the Act to draw distinctions based on the nature of the use it also did so explicitly, such as with the fair use defense. See 17 U.S.C. § 107 (providing for fair use limitation on owner's exclusive rights and identifying the “purpose and character of the use” including “whether such use is of a commercial nature or is for nonprofit educational purposes” as a factor to consider in determining applicability of fair use limitation).^[12]

Further, where Congress intended to create other exceptions for solely personal or non-commercial use, it did so expressly. In two amendments which do not apply here, it drew such distinctions: (1) the Sound Recording Act of 1971, Pub. L. No. 92–140, 85 Stat. 391, which fully extended federal copyright protections to sound recordings but exempted certain reproductions of sound recordings made for personal use, and (2) the Audio Home Recording Act of 1992 (AHRA), Pub. L. No. 102–563, 106 Stat. 4237, codified at 17 U.S.C. § 1001 et seq., which provided some exemptions in other situations from copyright liability for infringements “based on the noncommercial use by a consumer.”^[13] 17 U.S.C. § 1008.^[14] These statutes refute Tenenbaum's argument.

Because Congress has enumerated a set of express exceptions, rules of statutory interpretation instruct that Congress intended to make no other exceptions than those specified. See Tenn. Valley Auth. v. Hill, 437 U.S. 153, 188, 98 S.Ct. 2279, 57 L.Ed.2d 117 (1978) (finding under maxim expressio unius est exclusio alterius that enumerated exceptions are the sole exceptions intended within the Endangered Species Act); see also Russello v. United States, 464 U.S. 16, 23, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983) (“[W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.”) (quoting United States v. Wong Kim Bo, 472 F.2d 720, 722 (5th Cir.1972)) (internal quotation marks omitted).

[500] The clarity of the statutory text compels the rejection of Tenenbaum's arguments. When a statute speaks with clarity to an issue, “judicial inquiry into the statute's meaning, in all but the most extraordinary circumstance, is finished.” Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 475, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992). It is not within the province of the courts to rewrite Congressional statutes: that task is “for Congress to accomplish by further legislation.” United States v. Harriss, 347 U.S. 612, 620, 74 S.Ct. 808, 98 L.Ed. 989 (1954); see also Logan v. United States, 552 U.S. 23, 26–27, 128 S.Ct. 475, 169 L.Ed.2d 432 (2007) (refusing to stray from statutory text).

Asking us to ignore the text and the plain meaning of the statute, Tenenbaum argues Congress was unaware that suits like this could be brought and so could not have intended the statute to apply here. The argument is wrong both on the law and on the facts.

Congress did contemplate that suits like this were within the Act. Congress last amended the Copyright Act in 1999 to increase the minimum and maximum awards available under § 504(c). See Digital Theft Deterrence and Copyright Damages Improvement Act of 1999, Pub. L. No. 106–160, 113 Stat. 1774. At the time, Congress specifically acknowledged that consumer-based, noncommercial use of copyrighted materials constituted actionable copyright infringement. Congress found that “copyright piracy of intellectual property flourishes, assisted in large part by today's world of advanced technologies,” and cautioned that “the potential for this problem to worsen is great.” H.R. Rep. No. 106–216, at 3 (1999), 1999 WL 446444, at *2. Indeed, the legislative history directly addresses this concern:

By the turn of the century the Internet is projected to have more than 200 million users, and the development of new technology will create additional incentive for copyright thieves to steal protected works. The advent of digital video discs, for example, will enable individuals to store far more material than on conventional discs and, at the same time, produce perfect secondhand copies.... Many computer users are either ignorant that copyright laws apply to Internet activity, or they simply believe that they will not be caught or prosecuted for their conduct. Also, many infringers do not consider the current copyright infringement penalties a real threat and continue infringing, even after a copyright owner puts them on notice that their actions constitute infringement and that they should stop the activity or face legal action. In light of this disturbing trend, it is manifest that Congress respond appropriately with updated penalties to dissuade such conduct. H.R. 1761 increases copyright penalties to have a significant deterrent effect on copyright infringement.

Id.^[15]

Even earlier, in 1997, Congress had explicitly amended the criminal component of [501] the Copyright Act to make clear that criminal liability for copyright infringement can be imposed even if an infringer's use of a copyrighted material is noncommercial. See No Electronic Theft Act (NET Act), Pub. L. No. 105–147, 111 Stat. 2678. The NET Act was enacted in response to United States v. LaMacchia, 871 F.Supp. 535 (D.Mass.1994), in which a court had barred prosecution of a student charged with wire fraud because even though he enabled others to download copyrighted software applications at no cost, he received no commercial gain from his activities and the criminal statute precluded prosecution where there was no commercial benefit conferred.

Congress made clear that it enacted the NET Act to “criminalize[ ] computer theft of copyrighted works, whether or not the defendant derives a direct financial benefit from the act(s) of misappropriation, thereby preventing such willful conduct from destroying businesses, especially small businesses, that depend on licensing agreements and royalties for survival.” H.R. Rep. 105–339, at 5 (1997), 1997 WL 664424, at *5.

Tenenbaum's argument that we may ignore the plain language of the statute and Congressional intent because relatively few lawsuits were brought against those in his position also goes nowhere. Again, both the factual and legal contentions are wrong.

Even if we assume that copyright owners have historically chosen first to litigate against the providers of new technologies of reproduction and dissemination rather than the users of those new technologies, see Tussey, Technology Matters: The Courts, Media Neutrality, and New Technologies, 12 J. Intell. Prop. L. 427 (2005), that may best be explained by the owners using a cost-benefit analysis, and says nothing about Congressional intent. Historically, the costs of prosecuting infringement actions against individual users could be thought by owners to have exceeded the benefits. That the copyright owners have turned to litigation against individual infringers only underscores that the balance of the copyright holder's cost-benefit analysis has been altered as peer-to-peer networks and digital media become more prevalent.

In any event, the argument is legally irrelevant. The Supreme Court has expressly instructed that courts apply the Copyright Act to new technologies. In Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984), the Court instructed that courts must “[a]pply[ ] the copyright statute, as it now reads, to the facts as they have been developed” even though Congress might ultimately “take a fresh look at this new technology, just as it so often has examined other innovations in the past.” Id. at 456, 104 S.Ct. 774.

The Supreme Court has made clear that it is particularly important for courts to take this tack when faced with novel Copyright Act issues. “[F]rom its beginning, the law of copyright has developed in response to significant changes in technology,” and as “new developments have occurred in this country, it has been the Congress that has fashioned the new rules that new technology made necessary.” Id.at 430–31, 104 S.Ct. 774. We reject Tenenbaum's invitation to usurp Congress's legislative authority and to disregard binding Supreme Court precedent.

[502] C. Statutory Damages under 17 U.S.C. § 504 and Actual Harm

Tenenbaum next argues that the statutory damages provision is nonetheless inapplicable because, in his view, as a matter of law there can be no statutory damages where “harm caused by a particular defendant has not been proved.” Again, he is wrong both as a matter of law and on the facts of record.

The district court properly rejected Tenenbaum's proffered interpretation of § 504. Section 504 clearly sets forth two alternative damage calculations a plaintiff can elect: actual damages and statutory damages. See 17 U.S.C. § 504(a) (providing that “an infringer of copyright is liable for either ... the copyright owner's actual damages and any additional profits of the infringer ... or statutory damages”) (emphasis added).

Under § 504(b), a plaintiff may elect to receive “the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.”

Alternatively, under § 504(c), “the copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work.” (Emphasis added). The statute makes clear that statutory damages are an independent and alternative remedy that a plaintiff may elect “instead of actual damages.”

Section 504's text reflects Congress's intent “to give the owner of a copyright some recompense for injury done him, in a case where the rules of law render difficult or impossible proof of damages or discovery of profits.” Douglas v. Cunningham, 294 U.S. 207, 209, 55 S.Ct. 365, 79 L.Ed. 862 (1935). The Supreme Court explained that before statutory damages were available, plaintiffs, “though proving infringement,” would often be able to recover only nominal damages and the “ineffectiveness of the remedy encouraged willful and deliberate infringement.” Id. The Supreme Court has since reaffirmed that “[e]ven for uninjurious and unprofitable invasions of copyright the court may, if it deems it just, impose a liability within statutory limits to sanction and vindicate the statutory policy.” F.W. Woolworth Co. v. Contemporary Arts, 344 U.S. 228, 233, 73 S.Ct. 222, 97 L.Ed. 276 (1952) (upholding statutory damage award of $5,000 for infringement even when actual damages of only $900 were demonstrated); see also L.A. Westermann Co. v. Dispatch Printing Co., 249 U.S. 100, 106, 39 S.Ct. 194, 63 L.Ed. 499 (1919) (finding the language chosen by Congress “shows that something other than actual damages is intended—that another measure is to be applied in making the assessment”).^[16]

Tenenbaum's argument also rests on the faulty assertion that Sony did not offer evidence of the harm it suffered as a result of Tenenbaum's conduct. Tenenbaum downloaded the thirty copyrighted works at issue and distributed those works to innumerable network users. Sony presented extensive testimony regarding the loss in value of the copyrights at issue that resulted from Tenenbaum's conduct, and the harm of Tenenbaum's actions to itself and the recording industry, including reduced [503] income and profits, and consequent job loss to employees.

Tenenbaum challenges the district court's jury instructions on several grounds, all but one of which were not preserved for appeal, and all of which fail.

We review preserved challenges to jury instructions de novo, and “look to the challenged instructions in relation to the charge as a whole, ‘asking whether the charge in its entirety—and in the context of the evidence—presented the relevant issues to the jury fairly and adequately.’ ” Kennedy v. Town of Billerica, 617 F.3d 520, 529 (1st Cir.2010) (quoting Goodman v. Bowdoin Coll., 380 F.3d 33, 47 (1st Cir.2004)). Even if the instructions were erroneous, we reverse only if the error “is determined to have been prejudicial based on a review of the record as a whole.” Mass. Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 552 F.3d 47, 72 (1st Cir.2009).

Absent adequate objections to the instructions, our review is for plain error, which requires that Tenenbaum show (1) that there was error, (2) that it was plain, (3) that it likely altered the outcome, and (4) that it was sufficiently fundamental to threaten the fairness, integrity or public reputation of the judicial proceedings. Gray v. Genlyte Grp., Inc., 289 F.3d 128, 134 (1st Cir.2002); Estate of Keatinge v. Biddle, 316 F.3d 7, 16 (1st Cir.2002). “The standard is high, and ‘it is rare indeed for a panel to find plain error in a civil case.’ ” Diaz–Fonseca v. Puerto Rico, 451 F.3d 13, 36 (1st Cir.2006) (quoting Chestnut v. City of Lowell, 305 F.3d 18, 20 (1st Cir.2002) (en banc) (per curiam)).

A. Tenenbaum's Preserved Challenge to the District Court's Instruction as to the Statutory Damage Range Under § 504(c)

Tenenbaum's only preserved instructional challenge is that the district court erred by instructing the jury about the range of statutory damages available to Sony under § 504(c).^[17] The district court instructed the jury that “[t]he Copyright Act entitles a plaintiff to a sum of not less than $750 and not more than $30,000 per act of infringement (that is, per sound recording downloaded or distributed without license) as you consider just.” The court further instructed: “If you find that the defendant's infringement of a copyrighted work was willful, the Copyright Act entitles a plaintiff to a sum of not less than $750 and not more than $150,000 per act of infringement (that is, per sound recording downloaded or distributed without license), as you consider just.” The court then instructed as to a set of non-exhaustive factors that the jury might wish to consider in issuing its award, including:

the nature of the infringement; the defendant's purpose and intent, the profit that the defendant reaped, if any, and/or the expense that the defendant saved; the revenue lost by the plaintiff as a result of the infringement; the value of the copyright; the duration of the infringement; [504] the defendant's continuation of infringement after notice or knowledge of copyright claims; and the need to deter this defendant and other potential infringers.Tenenbaum does not object to that portion of the instructions.

Tenenbaum argues that the statutory damage range should not have been disclosed to the jury and that the instructions presented the statutory damage range “unmoored from the overall statutory scheme and the context of other cases.” Tenenbaum proposes that instead the district court should only have instructed the jury to return an award the jury deemed “just” and then the court should have adjusted the award to fall within the statutory range after the jury made its determination. This argument is, of course, at considerable tension with Tenenbaum's argument that damages within the statutory range are unconstitutional.

The instruction given as to the statutory damage range was an accurate statement of the law and clearly informed the jury of the range of damages it could award under § 504(c). As such there was no error. See United States v. Mardirosian, 602 F.3d 1, 10 (1st Cir.2010) (upholding jury instructions because they “provided a clear, accurate description of the substantive law”).

It is commonplace for courts to explicitly instruct juries of the maximum and minimum statutory damage awards permitted under § 504(c). See, e.g., In re Frye, No. 08–1055, 2008 WL 8444822, at *3 (B.A.P. 9th Cir. Aug. 19, 2008) (noting jury awarded the statutory maximum under § 504(c)); Yurman Design, Inc. v. PAJ, Inc., 93 F.Supp.2d 449, 462 (S.D.N.Y.2000) (noting plaintiff elected to seek statutory damages, “and the jury was provided instructions concerning such damages”), rev'd in part on other grounds, 262 F.3d 101 (2d Cir.2001). Several model federal jury instructions also explicitly enumerate the range of statutory damages under 504(c). See, e.g., 3B K. O'Malley, J. Grenig & W. Lee, Federal Jury Practice and Instructions—Civil § 160.93 (5th ed. 2011) (including within model the instruction that “plaintiff ... has elected to recover ‘statutory damages' instead of plaintiff's actual damages and profits” and that “[u]nder the Copyright Act, plaintiff ... is entitled to a sum of not less than $750 or more than $30,000 as you consider just”); Ninth Circuit Manual of Model Civil Jury Instructions § 17.25 (including within model the instruction that the “amount you may award as statutory damages is not less than $750, nor more than $30,000 for each work you conclude was infringed”); Holbrook & Harris, ABA Model Jury Instructions: Copyright, Trademark, and Trade Dress Litigation § 1.7.7 (2008) (same). Each set of model jury instructions also notes that the maximum statutory damage award under § 504(c) is increased if the defendant's copyright infringement is determined to be willful. Cf. Fraser v. Major League Soccer, L.L.C., 284 F.3d 47, 62 (1st Cir.2002) (noting that district court's instructions tracked ABA model jury instructions in rejecting objection to instructions).

There is no viable argument that the instruction violated Congressional intent. Where Congress has sought to prevent juries from knowing that their awards will be reduced to be within statutory caps, it has explicitly said so in the relevant statute. See, e.g., 42 U.S.C. § 1981a(c)(2) (providing that “the court shall not inform the jury of the limitations” on awards of damages in intentional employment discrimination cases under Title VII). There is no such prohibition here.

Tenenbaum nonetheless argues that because Congress initially enacted the statute on the understanding that judges, not juries, would award statutory damages, it [505] must be error to tell the jury what the limits are.^[18] He also argues that the Supreme Court “failed to provide any structure for guiding the jury's use of the wide power shifted to it” within its holding in Feltner that the Seventh Amendment entitles a defendant to have a jury determine the amount of § 504(c) damages. Feltner, however, raises no objection to a jury's being informed of the statutory range. In any case, this argument is simply a variant of Tenenbaum's claim that Feltner somehow renders § 504(c) inoperable, which we have already rejected.

Moreover, after Feltner, had Congress wished to prevent juries from being informed of the bottom and top ranges of permissible statutory damages, it easily could have done so. Instead, Congress amended the statute after Feltner to expand the range of damages, and did so without placing any limitation as to how courts should instruct juries in such cases. See Digital Theft Deterrence and Copyright Damages Improvement Act of 1999, Pub. L. No. 106–160, 113 Stat. 1774.

The district court's instructions on the range of statutory damages were not erroneous, let alone prejudicial.

B. Tenenbaum's Remaining Challenges to the Jury Instructions

Tenenbaum raises a series of unpreserved additional objections to the jury instructions which we review for plain error.

1. The Unpreserved Challenge that the District Court Should Have First Determined then Instructed the Jury on the Court's Assessment of Constitutional Limits on the Award

Tenenbaum argues that the district court erred by only instructing the jury as to the statutory boundaries for the damages award and failing, sua sponte, to inform the jury of the constitutional boundaries for the award. Tenenbaum asked for no such instruction, and the argument is waived. Even had the argument not been waived, there was no error.

Inherent in his argument is the proposition that before a case goes to the jury, the trial court must make its own assessment of the constitutional limits on damages and so instruct the jury. That is exactly backwards. See St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 66–67, 40 S.Ct. 71, 64 L.Ed. 139 (1919) (considering constitutional limits on statutory damage award after jury issued award). Tenenbaum's proposal itself could raise Seventh Amendment concerns about judicial usurpation of the jury's function. There was no error.

2. The Unpreserved Argument that the District Court Was Required to Instruct the Jury Not to Consider Injury Suffered by Other Recording Companies or Injuries Caused by Copyright Infringers Other Than Tenenbaum

The district court properly instructed the jury on Tenenbaum's conduct and the plaintiffs' harms the jury could consider in making its determination. It specifically listed the nature of Tenenbaum's infringement, Tenenbaum's purpose and intent, the “revenue lost by the plaintiff as a result of the infringement,” the duration of the infringement, and the defendant's continuation of infringement after learning of the copyright claims.

Tenenbaum argues that the district court sua sponte should have provided additional [506] instruction to focus the jury. Again, the argument is waived. Even were it not waived, the court did not err. Tenenbaum appears to be arguing that the jury also had to be told it could not consider damages resulting from the illegal downloading and distribution of copyrighted materials suffered by other recording companies besides the named plaintiffs or from other unrelated filesharing by others.^[19] This is a hypothetical concern, not a real one in this case.

Tenenbaum purports to rely on language in Philip Morris USA v. Williams, 549 U.S. 346, 357, 127 S.Ct. 1057, 166 L.Ed.2d 940 (2007), that where there is a significant risk that the jury might take into account harm caused to non-party victims by the defendant, “a court, upon request, must protect against that risk.” (Emphasis added). Tenenbaum made no such request to the trial court.^[20] Nor does he point to any authority that requires a court to provide a Philip Morris-type instruction sua sponte.

Philip Morris does not help him, in any event. There was not a substantial risk of the jury's going astray. The court's entirely correct instruction foreclosed that risk. The jury was never urged to consider damages (1) caused by other copyright infringers or (2) suffered by other recording companies. Indeed, in his closing argument, Tenenbaum's counsel made clear that “it's what Joel did that is here in issue and [the question is] what's appropriate in response to what Joel did,” and Sony's counsel likewise stated that applying damages for “what Joel did” was “exactly what we want you to do.” The court's jury instructions as a whole focused exclusively on Tenenbaum's actions and the resulting harm to the plaintiffs.

3. The Unpreserved Argument that the District Court Was Sua Sponte Required to Additionally Instruct that Statutory Damages Could Not Be Awarded Unless They Were Related to Actual Damages

The district court did instruct the jury to issue an award within the statutory range that it deemed to be just, and highlighted a number of factors it could use for guidance. Tenenbaum argues that the district court erred by failing, sua sponte, to add an additional instruction that as a matter of law statutory damages cannot be awarded unless reasonably related to actual damages.

[507] Tenenbaum's argument fails the first step of the plain error analysis. His proposed instruction itself would have been error. In § 504, Congress drew a plain distinction between actual and statutory damages, making it clear that the availability of statutory damages is not contingent on the demonstration of actual damages. See 17 U.S.C. § 504. Statutory damages are available even for “uninjurious and unprofitable invasions of copyright.” F.W. Woolworth Co., 344 U.S. at 233, 73 S.Ct. 222.

We join our sister circuits, who have rejected similar objections to jury instructions. See New Form, Inc. v. Tekila Films, Inc., 357 Fed.Appx. 10, 11–12 (9th Cir.2009) (“There is no required nexus between actual and statutory damages under 17 U.S.C. § 504(c).”); Superior Form Builders, Inc. v. Dan Chase Taxidermy Supply Co., 74 F.3d 488, 496–97 (4th Cir.1996); see also Lowry's Reports, Inc. v. Legg Mason, Inc., 302 F.Supp.2d 455, 460 (D.Md.2004) (rejecting argument that court should have instructed the jury “that the amount of statutory damages should bear a reasonable relationship to actual damages”).

4. The Unpreserved Argument that the District Court Erred in Instructing the Jury that Finding Willful Infringement Under § 504 Only Requires a Finding that a Defendant Knowingly Infringed Copyrighted Materials

Finally, Tenenbaum challenges the district court's instruction that “willful infringement” “means that a defendant had knowledge that his actions constituted copyright infringement or acted with reckless disregard for the copyright holder's rights.” The argument is wrong and is based on a misreading of the statute.

Tenenbaum argues that, as used in § 504, a “willful infringement” must require more than a showing that the defendant had knowledge his actions constituted copyright infringement. He argues this must be so because non-willful infringement itself requires the defendant to have had such knowledge. As a result, merely requiring that an infringement be “knowing” to be “willful” would eliminate the distinction between non-willful and willful infringements that Congress sought to create in enacting § 504.

Tenenbaum's argument rests on the false premise that knowledge is an element of non-willful copyright infringement under the Copyright Act. To the contrary, the Act contains no requirement that a particular violation of copyright be knowing to constitute a non-willful infringement.^[21] See 17 U.S.C. § 501; see also Fitzgerald Publ'g Co. v. Baylor Publ'g Co., 807 F.2d 1110, 1113 (2d Cir.1986) (“Under § 501(a) intent or knowledge is not an element of infringement.”).

We join our sister circuits who have unanimously and routinely found that an infringement is willful under § 504 if it is “knowing.” See, e.g., [508] Bridgeport Music, Inc. v. UMG Recordings, Inc., 585 F.3d 267, 278 (6th Cir.2009) (rejecting challenge to jury instruction that, under § 504(c), “[a]n infringement is willful when a defendant engaged in acts that infringed a copyright and knew that those actions may infringe the copyright”) (alteration in original); Zomba Enters., Inc. v. Panorama Records, Inc., 491 F.3d 574, 584 (6th Cir.2007); Lyons P'ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 799–800 (4th Cir.2001). Cf. Yurman Design, Inc., 262 F.3d at 111 (finding plaintiff is “not required to show that the defendant had knowledge that its actions constitute[d] an infringement” for infringement to be willful under § 504(c) so long as defendant recklessly disregarded the risk of infringement) (citation omitted) (internal quotation marks omitted).

The district court correctly instructed the jury. There was no error as to the finding of liability against Tenenbaum.

After handling the trial with great skill, the district court committed reversible error when, after the jury awarded statutory damages, it bypassed the issue of common law remittitur, and instead resolved a disputed question of whether the jury's award of $22,500 per infringement violated due process, and decided itself to reduce the award. The court declined to adhere to the doctrine of constitutional avoidance on the ground that it felt resolution of a constitutional due process question was inevitable in the case before it. A decision on a constitutional due process question was not necessary, was not inevitable, had considerable impermissible consequences, and contravened the rule of constitutional avoidance. That rule had more than its usual import in this case because there were a number of difficult constitutional issues which should have been avoided but were engaged.

Facing the constitutional question of whether the award violated due process was not inevitable. The district court should first have considered the non-constitutional issue of remittitur, which may have obviated any constitutional due process issue and attendant issues. Had the court ordered remittitur of a particular amount, Sony would have then had a choice. It could have accepted the reduced award. Or, it could have rejected the remittitur, in which case a new trial would have ensued. See 11 Wright, Miller & Kane, Federal Practice and Procedure § 2815, at 160 (2d ed. 1995).

In reaching and deciding that due process constitutional question, the district court also unnecessarily decided several related constitutional issues. The court determined that the statutory damage award was effectively a punitive damage award for due process purposes and applied the factors set forth in BMW v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996), to assess its constitutionality. The court declined to apply the Williams standard the Supreme Court had previously applied to statutory damage awards. See Tenenbaum, 721 F.Supp.2d at 103. The district court's tack also led to unnecessary resolution of Seventh Amendment issues. The decision to reduce the jury's award without offering Sony a new trial implicitly presupposed that, in reducing a statutory damage award issued by a jury, a court need not offer plaintiffs the option of a new jury trial in order to comport with the Seventh Amendment.

The United States, concerned with defending the constitutionality of the Copyright Act and its statutory damage provision, [509] argues that the district court erred by unnecessarily reaching Tenenbaum's constitutional challenge to the award and bypassing the question of common law remittitur.^[22] The United States alternatively argues that, if the due process issue were reached, the district court was required to apply the Williams due process standard. The United States points out an inferior federal court may not displace the Supreme Court's on point holding. The United States also raises Seventh Amendment concerns.

We agree with the position of the United States that the district court erred when it prematurely reached a constitutional question of whether the jury's award was excessive so as to violate due process. We reverse the reduction of the award, reinstate the original jury verdict and award, and remand for consideration of the common law remittitur question.

A. District Court Damages Proceedings

We provide a more detailed review of the relevant district court proceedings.

After the jury verdict awarding Sony $22,500 per infringement, Tenenbaum filed a motion for a new trial or remittitur pursuant to Federal Rule of Civil Procedure 59. Absent a grant of a new trial, he sought remittitur to the statutory minimum. Tenenbaum argued the court should use the standard that remittitur is appropriate where the result of the award is “grossly excessive, inordinate, shocking to the conscience of the court, or so high that it would be a denial of justice to permit it to stand.” Correa v. Hosp. S.F., 69 F.3d 1184, 1197 (1st Cir.1995) (quoting Segal v. Gilbert Color Sys., Inc., 746 F.2d 78, 81 (1st Cir.1984)) (internal quotation marks omitted). Tenenbaum separately argued the award was unconstitutionally excessive under the standard for reviewing punitive damage awards articulated in Gore.

Sony opposed, arguing there was no factual basis for a remittitur given both the evidence and that the evidence had to be taken in the light most favorable to the prevailing party. See E. Mountain Platform Tennis, Inc. v. Sherwin–Williams Co., 40 F.3d 492, 502 (1st Cir.1994). It also argued that the district court lacked authority to displace a jury verdict which was in the statutory range set by Congress and that to hold otherwise would violate the Seventh Amendment. With regard to Tenenbaum's due process arguments, Sony argued that Williams set forth the proper standard, and not Gore. Sony also argued that under either the Williams or Gore standards, the award was not unconstitutionally excessive.

The United States took a different approach. It took no position on whether Tenenbaum had met the standard for remittitur (or a new trial). Rather, the United States stated that the canon of constitutional avoidance required the district court to first consider the question of common law remittitur, regardless of whether the award merited remittitur or not. If the court did address the constitutional question, the United States argued that the standard set forth in Williams was appropriate [510] and that the court should reject the Gore guideposts for assessing punitive damages because punitive damages are a distinct remedy from statutory damages. The United States also took the position that an award within the Copyright Act's statutory damage range comported with due process.

At the hearing on Tenenbaum's motion, the court asked counsel for plaintiffs to hypothesize as to what his clients' position would be if the court were to order a reduction or remittitur of the award. Understandably, plaintiffs' counsel did not take a firm position; he said his clients would have to consider the amount and other factors but thought it unlikely such a remittitur would be acceptable. If there were a remittitur, then, he said, the court could not reach the due process question of an excessive award because to do so would deprive plaintiffs of their Seventh Amendment right to a jury trial. Plaintiffs also argued that on the evidence, there was no basis for remittitur.

At that hearing, the United States repeated its position that the court was required to decide the remittitur question first in order to avoid any constitutional issues and that if plaintiffs rejected remittitur, the remedy was a new trial; the court could not go on to decide a constitutional due process issue as to the award. If the court did decide a constitutional due process issue as to the excessiveness of the award, the government argued, it was required to apply Williams, which had not been overruled.

Rejecting the position of the United States, the court bypassed remittitur, reached a constitutional due process issue, and ruled the award excessive under Gore. It reduced the award from $675,000 to $67,500 and did not give plaintiffs the option of a new trial.

The court stated its reason for bypassing the decision on common law remittitur. It treated plaintiffs' statements at the hearing as foreclosing any possibility of plaintiffs accepting remittitur, regardless of what amount the court might set for the award and despite plaintiffs' stated and careful reservations on the point. See Tenenbaum, 721 F.Supp.2d at 88. From this, the court reasoned that a new trial was inevitable; it then assumed that a jury would inevitably award a damages sum which would lead Tenenbaum to again raise a constitutional excessiveness challenge, and that the court which heard the new trial would then have to consider those and other objections again.^[23] Id. From these assumptions, the court reasoned it might as well decide those issues then and there.^[24] Id.

B. The District Court Erred by Unnecessarily Reaching and Deciding the Question of Whether the Jury's Award Was Unconstitutionally Excessive

The principle of constitutional avoidance, rooted in Article III as well as in principles of judicial restraint, and in this case implicating the Due Process Clause and [511] the Seventh Amendment right to jury trial, governs both this court and the district court and requires that we vacate and remand.

It is bedrock that the “long-standing principle of judicial restraint requires that courts avoid reaching constitutional questions in advance of the necessity of deciding them.” Lyng v. Nw. Indian Cemetery Protective Ass'n, 485 U.S. 439, 445, 108 S.Ct. 1319, 99 L.Ed.2d 534 (1988); see also Camreta v. Greene, ––– U.S. ––––, 131 S.Ct. 2020, 2031, 179 L.Ed.2d 1118 (2011) (noting rule that courts must avoid resolving constitutional questions unnecessarily). “[P]rior to reaching any constitutional questions, federal courts must consider nonconstitutional grounds for decision.” Buchanan v. Maine, 469 F.3d 158, 172 (1st Cir.2006) (quoting Gulf Oil Co. v. Bernard, 452 U.S. 89, 99, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981)) (internal quotation marks omitted). No valid reason justified abandonment of this doctrine in this case. The abandonment of the rule instead thrust the case into a thicket of constitutional issues it was not necessary to enter.

It was not necessary for the district court to reach the constitutional question of whether the jury's award of $22,500 per infringement was so excessive as to violate due process. If the district court had ordered remittitur, there would have been a number of possible outcomes that would have eliminated the constitutional due process issue altogether, or at the very least materially reshaped that issue.

The issue of whether the award violated due process and the Seventh Amendment issue would both have been eliminated if remittitur had been ordered and Sony had accepted the remitted award. Alternatively, if remittitur had been ordered but Sony had declined the remitted award, a new trial would have ensued. The jury could have issued an award that would not have led Tenenbaum to again seek a reduction on either common law remittitur or due process grounds.

Even if Sony had declined any remitted award given and opted for a new trial, even if a different jury issued a comparable award, and even if Tenenbaum once again moved to reduce the award on constitutional grounds, it was still premature for the court to reach the constitutional question before that process had been carried out. A new trial could have materially reshaped the nature of the constitutional issue by altering the amount of the award at issue or even the evidence on which to evaluate whether a particular award was excessive.

In this way, reaching the constitutional question before ordering remittitur not only contravened the doctrine of constitutional avoidance, it also led the court to address questions that had not yet been fully developed. Federal courts do not answer such hypothetical questions. See Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241, 57 S.Ct. 461, 81 L.Ed. 617 (1937) (Under Article III, judicial power is constrained to “real and substantial controvers[ies] admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts”); see also Bisbal–Ramos v. City of Mayaguez, 467 F.3d 16, 27 (1st Cir.2006) (vacating district court's reduction of compensatory damages, remanding so that court may issue remittitur, and refusing to address constitutionality of punitive damage award because, upon remand, plaintiff might opt for a new trial and “it would be premature ... to approve a punitive damages award based on the compensatory award from the first trial”).

[512] The path the court chose unnecessarily embroiled it in several issues of a constitutional dimension. The first was whether the due process standard for statutory damage awards articulated by the Supreme Court in Williams was applicable. The next was whether, if there was leeway and reason to bypass the Williams standard, the Gore standard, some combination of Williams and Gore, or some other standard should be used to evaluate whether the statutory damage award violated due process. We briefly describe the two due process standards to demonstrate the nature of the question to be avoided.

In Williams, the Supreme Court considered a challenge to an Arkansas statute that subjected railroads to penalties of “not less than fifty dollars, nor more than three hundred dollars and costs of suit,” for each offense of charging passengers fares that exceeded legal limits. See Williams, 251 U.S. at 64, 40 S.Ct. 71 (quoting Act April 4, 1887 (Laws 1887, p. 227; Kirby's Digest, 1904, § 6620); Act March 4, 1915 (Laws 1915, p. 365; Kirby & Castle's Digest, 1916, § 8094)) (internal quotation marks omitted). After the St. Louis, I.M. & S. Railroad collected a fare from two passengers of 66 cents more than the law allowed, the passengers brought suit pursuant to the statute. Id. at 63, 40 S.Ct. 71. Each passenger obtained a judgment of 75 dollars plus fees—an award, like the jury's award at issue here, well within the statutory range. Id. The railroad challenged the statutory award as unconstitutionally excessive under the Due Process Clause. Id.

The Court acknowledged that the Due Process Clause “places a limitation upon the power of the states to prescribe penalties for violations of their laws,” but noted that “States still possess a wide latitude of discretion in the matter.” Id. at 66, 40 S.Ct. 71. This is so, the court reasoned, because “the power of the State to impose fines and penalties for a violation of its statutory requirements is coeval with government; and the mode in which they shall be enforced, whether at the suit of a private party, or at the suit of the public, and what disposition shall be made of the amounts collected, are merely matters of legislative discretion.” Id. (quoting Mo. Pac. Ry. Co. v. Humes, 115 U.S. 512, 523, 6 S.Ct. 110, 29 L.Ed. 463 (1885)) (internal quotation marks omitted).

Given the latitude conferred upon legislatures to impose statutory penalties, the Court rejected the railroad's due process argument. The Court articulated that a statutory damage award violates due process only “where the penalty prescribed is so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.” Id. at 66–67, 40 S.Ct. 71.

Gore and its progeny address the related but distinct issue of when a jury's punitive damage award is so excessive as to violate due process. See Gore, 517 U.S. at 574, 116 S.Ct. 1589. The Court, animated by the principle that due process requires that civil defendants receive fair notice of the severity of the penalties their conduct might subject them to, id., identified three factors to guide a court's consideration of whether a punitive damage award is so excessive as to deprive a defendant of due process: (1) the degree of reprehensibility of the defendant's conduct, id. at 575–80, 116 S.Ct. 1589, (2) the ratio of the punitive award to the actual or potential harm suffered by the plaintiff, id. at 580–83, 116 S.Ct. 1589, and (3) the disparity between the punitive award issued by the jury and the civil or criminal penalties authorized in comparable cases, id. at 583–85, 116 S.Ct. 1589.

In Copyright Act award cases, there are many questions regarding the relationship [513] between Gore's guideposts for reviewing punitive damage awards and the Williams standard for reviewing statutory damage awards. One is the relationship between the purposes of statutory damages under the Copyright Act as opposed to the purpose of punitive damages. Another concerns the limits or contours of possible ranges of awards under the different standards. Further, both Williams and Gore concerned limitations on state-authorized awards of damages, and did not concern Congressionally set awards of damages, which Congress is authorized to do under its Article I powers. This fact in turn raises concerns about intrusion into Congress's power under Article 1, Section 8 of the Constitution.

We note that in Gore, the Supreme Court did not overrule Williams. See Rivers v. Roadway Express, Inc., 511 U.S. 298, 312, 114 S.Ct. 1510, 128 L.Ed.2d 274 (1994) (hierarchical relationship of Supreme Court to lower courts mandates that where “the Court has spoken, it is the duty of other courts to respect that understanding of the governing rule of law”). Nor has the Supreme Court to date suggested that the Gore guideposts should extend to constitutional review of statutory damage awards. The concerns regarding fair notice to the parties of the range of possible punitive damage awards present in Gore are simply not present in a statutory damages case where the statute itself provides notice of the scope of the potential award. And the only circuit court of which we are aware to directly address the issue declined to apply Gore in this context and instead applied the Williams test. See Zomba Enters., Inc. v. Panorama Records, Inc., 491 F.3d 574, 587 (6th Cir.2007). Cf. Parker v. Time Warner Entm't Co., 331 F.3d 13, 22 (2d Cir.2003) (suggesting, in dicta, that Gore might govern due process review of statutory damage awards).

Had the district court ordered remittitur and not reached the constitutional question, it would not have needed to consider these issues or determine the relevant standard for assessing the constitutionality of a Copyright Act statutory damage award.

A decision based on remittitur, under which a new trial must be granted if plaintiffs do not accept the remitted award, also would have avoided another complicated constitutional question, which we describe briefly.

That issue arises under the Seventh Amendment, and is whether a statutory damage award under the Copyright Act may be reduced without offering the plaintiffs a new trial.^[25] Neither this court nor the Supreme Court has directly addressed the issue, but the Court's Feltner decision must be taken into account.

The usual rule for a general damage award is that a court may not reduce a jury's verdict and effectively impose a remittitur without affording a plaintiff “the option of a new trial when it enter[s] judgment for the reduced damages.” Hetzel v. Prince William Cnty., 523 U.S. 208, 211, 118 S.Ct. 1210, 140 L.Ed.2d 336 (1998); see also Dimick v. Schiedt, 293 U.S. 474, 486–87, 55 S.Ct. 296, 79 L.Ed. 603 (1935) (affirming remittitur power of courts but noting that where a verdict is set aside, the parties retain their right to have a jury determine the measure of damages); Kennon v. Gilmer, 131 U.S. 22, 29, 9 S.Ct. 696, 33 L.Ed. 110 (1889) (finding that under the [514] Seventh Amendment a court has no authority to reexamine facts determined by a jury, or to enter “according to its own estimate of the amount of damages which the plaintiff ought to have recovered ... an absolute judgment for any other sum than that assessed by the jury”). Citing Hetzel, we have held a trial court's reduction in compensatory damages must, to avoid Seventh Amendment error, allow the plaintiff a new trial. Bisbal–Ramos, 467 F.3d at 26 (reversing and remanding for consideration of remittitur where trial court had reduced compensatory damages without offering plaintiffs new trial).

By contrast, there is law indicating that a punitive damage award may be reduced on due process grounds (without offering plaintiffs a new trial) without running afoul of the Seventh Amendment. The Supreme Court's punitive damages jurisprudence suggests as much, but the question has not been directly addressed by the Court. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003) (finding punitive damage award violated due process); Gore, 517 U.S. 559, 116 S.Ct. 1589 (same). Some circuits, including our own, have found that “a court may reduce an excessive award of punitive damages without giving the plaintiff the option of a new trial.” Bisbal–Ramos, 467 F.3d at 27 (collecting cases); see also Mendez–Matos v. Municipality of Guaynabo, 557 F.3d 36, 52 (1st Cir.2009) ( “If we find an award ‘grossly excessive,’ we may ascertain the amount of punitive award that is appropriate and order the district court to enter judgment in such amount.”). But neither Bisbal–Ramos nor Mendez–Matos decided the question as to a statutory damages award.^[26]

In bypassing remittitur and reducing the jury's award without offering Sony a new trial, the district court assumed that statutory damage awards should be treated largely as punitive, not compensatory, awards for Seventh Amendment purposes. But statutory damages, unlike punitive damages, have both a compensatory and punitive element. See 17 U.S.C. § 504(c); Feltner, 523 U.S. at 352, 118 S.Ct. 1279 (“[A]n award of statutory damages [under § 504(c) ] may serve purposes traditionally associated with legal relief, such as compensation and punishment.”); F.W. Woolworth Co., 344 U.S. at 233, 73 S.Ct. 222 (“The statutory rule, formulated after long experience, not merely compels restitution of profit and reparation for injury but also is designed to discourage wrongful conduct.”).

Further, the Supreme Court's analysis of a different Seventh Amendment issue in Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 437, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001) suggests that punitive damage awards do not implicate the Seventh Amendment for reasons that do not apply to statutory damage awards. In Cooper, the Court observed that the Seventh Amendment provides only that “no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law,” U.S. Const. amend. VII (emphasis added), and reasoned that “the level of punitive damages is not really a ‘fact’ ‘tried’ by the jury,” Cooper Indus., 532 U.S. at 437, 121 S.Ct. 1678 (quoting Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 459, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996) (Scalia, J., dissenting)) (internal quotation mark omitted). But statutory damage awards are different. In Feltner, [515] the Supreme Court determined that “the Seventh Amendment provides a right to a jury trial on all issues pertinent to an award of statutory damages under § 504(c) of the Copyright Act, including the amount itself.” Feltner, 523 U.S. at 355, 118 S.Ct. 1279.

The point here is not for us to decide these issues, but merely to describe them to show the importance of adherence to the doctrine of constitutional avoidance. The courts of appeals are likewise bound by that doctrine, and we are required to apply it here.^[27]

This was a difficult and contentious case and the parties received a fair trial from an admirably patient and able district judge.

We affirm the finding of liability against Tenenbaum and in favor of plaintiffs. We affirm the injunctive relief. We have, inter alia, rejected Tenenbaum's arguments that the Copyright Act is unconstitutional under Feltner, 523 U.S. 340, 118 S.Ct. 1279, that the Act exempts so-called “consumer copying” infringement from liability and damages, that statutory damages under the Act are unavailable without a showing of actual harm, that the jury's instructions were in error, and his various trial error claims.

We vacate the district court's due process damages ruling and reverse the reduction of the jury's statutory damages award. We reinstate the jury's award of damages and remand for consideration of defendant's motion for common law remittitur based on excessiveness.^[28]

If, on remand, the court allows any reduction through remittitur, then plaintiffs must be given the choice of a new trial or acceptance of remittitur.

So ordered.

Costs are awarded to plaintiffs.

[1] Tenenbaum argued that the statutory damages available under 17 U.S.C. § 504(c) are excessive so as to violate due process, and that the Copyright Act effectively creates an unconstitutional delegation of prosecutorial functions by creating a private right of action to enforce copyright protections. The second argument is not made on appeal.

[2] He argued a new trial should be granted on the grounds that the court had erred in rejecting Tenenbaum's fair use defense; that the court erred in its evidentiary ruling to exclude portions of a November 2005 letter from Tenenbaum in which he offered to destroy any illegally downloaded files as part of settlement negotiations; that the court's jury instructions were improper, primarily because they informed the jury of the statutory range for damages; and that statutory damages should not be available to Sony because Sony never offered evidence that they suffered more than nominal damages.

[3] A representative of Universal Music Group testified, “If the suggestion is that we could somehow give these [recordings] to people and tell them, do with them what you will, we lose complete control over our assets, we cannot make money off those assets, and that defeats the whole purpose of our existence.”

[4] We are aware of only one other action against an individual that has proceeded to trial. See Capitol Records, Inc. v. Thomas–Rasset, No. 06–1497, 799 F.Supp.2d 999, 2011 WL 3211362 (D.Minn. July 22, 2011).

[5] MediaSentry, the third party firm that Sony retained to identify individuals engaged in the illegal downloading and distribution of copyrighted recordings, discovered the 1153 songs in Tenenbaum's Kazaa shared-directory on August 10, 2004. MediaSentry then downloaded portions of 1148 of the 1153 files and verified that the files were the actual songs identified in each file's title, and that Tenenbaum had actually made copyrighted materials available for unauthorized copying.

[6] Tenenbaum contacted Sony as a result of the letter. While there were some settlement discussions, the parties were unable to resolve the matter.

[7] After receiving this letter, Tenenbaum nonetheless took his laptop computer for repairs and had its operating system reinstalled and its hard drive reformatted. At trial, Tenenbaum maintained that he only had work done on the computer because “the thing wouldn't run,” and that he instructed the computer repairman not to tamper with the music files stored on his computer.

[8] It is also clear that Congress continues to intend that the Copyright Act be fully operational as to statutory damages after Feltner. Congress amended § 504(c) after the Supreme Court had decided Feltner. See Digital Theft Deterrence and Copyright Damages Improvement Act of 1999, Pub. L. No. 106–160, 113 Stat. 1774 (amendment increasing the statutory damage boundaries). “Congress is presumed to be aware of ... [a] judicial interpretation of a statute and to adopt that interpretation if it re-enacts a statute without change.” Forest Grove Sch. Dist. v. T.A., 557 U.S. 230, 129 S.Ct. 2484, 2492, 174 L.Ed.2d 168 (2009) (quoting Lorillard v. Pons, 434 U.S. 575, 580, 98 S.Ct. 866, 55 L.Ed.2d 40 (1978)).

[9] Although in the district court Tenenbaum raised the argument that the Copyright Act does not extend to consumer conduct as a reason why the jury's statutory damage award should be reduced, he did not present the argument, as he does here, as a basis to exempt his actions from liability altogether.

[10] In the criminal infringement context, Congress has extended liability to, inter alia, those who infringe “for purposes of commercial advantage or private financial gain.” 17 U.S.C. § 506. Congress has made it clear, however, that this designation applies even absent direct monetary profit. See 17 U.S.C. § 101. It has defined “financial gain” to include “receipt, or expectation of receipt, of anything of value, including the receipt of other copyrighted works.” Id.

Under the “fair use” exception, which is not available to Tenenbaum, what constitutes a commercial use has also been interpreted broadly. See A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1015 (9th Cir.2001) ( “Direct economic benefit is not required to demonstrate a commercial use. Rather, repeated and exploitative copying of copyrighted works, even if the copies are not offered for sale, may constitute a commercial use.”).

[11] Sound recordings constitute “works of authorship” that receive copyright protection. See17 U.S.C. § 102(a)(7).

Tenenbaum implies that digital media should be treated differently than conventional music recordings. However, 17 U.S.C. § 102(a) makes no such distinction, and in fact explicitly provides that copyright protection exists “in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” (Emphasis added).

[12] Tenenbaum does not claim on appeal that his conduct falls under the fair use doctrine.

[13] See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 430 n. 11, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984) (declining to express an opinion on scope of 1971 Act's exceptions for noncommercial uses).

[14] To take the point further, although the AHRA created immunity for some unauthorized, noncommercial uses of copyrighted materials, Congress explicitly declined to extend immunity to individuals who use home computers to copy copyrighted materials. See 17 U.S.C. § 1001(3); see also Recording Indus. Ass'n of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1078 (9th Cir.1999) (“Under the plain meaning of the [AHRA's] definition of digital audio recording devices, computers (and their hard drives) are not digital audio recording devices because their ‘primary purpose’ is not to make digital audio copied recordings.”).

[15] Tenenbaum argues that the 1999 Amendment pre-dated the widespread use of peer-to-peer networking sites, and observes that the 1999 Digital Theft Deterrence Act was first introduced in May 1999, a full month before the launch of Napster's file sharing network. Again, the factual premise is wrong. The Act was not signed into law until December 1999, at which point Napster was itself operational.

Moreover, Congress had in 1997 already acknowledged the advent of “audio-compression” technologies that “permit[ ] infringers to transmit large volumes of CD-quality music over the internet” in enacting the No Electronic Theft Act, Pub. L. No. 105–147, 111 Stat. 2678. See H.R.Rep. No. 105–339, at 4 (1997), 1997 WL 664424, at *4.

[16] The statute at issue in L.A. Westermann Co. v. Dispatch Printing Co., 249 U.S. 100, 39 S.Ct. 194, 63 L.Ed. 499 (1919), contained the phrase “in lieu of actual damages.” By contrast, 17 U.S.C. § 504(c) provides that statutory damages are available “instead of actual damages and profits.” The point is the same.

[17] The statutory damage range was also set forth on the jury verdict form. “District courts have ‘considerable discretion about the formulation, nature, and scope of the issues' on a special verdict form.” Uphoff Figueroa v. Alejandro, 597 F.3d 423, 434 (1st Cir.2010) (quoting 9B Wright, Miller & Kane, Federal Practice and Procedure § 2506, at 119 (2d ed.1995)). Because we conclude that the district court did not err in instructing the jury of the statutory damage range under § 504(c), Tenenbaum's like challenge to the jury verdict form also fails.

[18] Citing psychological studies but not law, Tenenbaum argues that informing the jury of the statutory damage range was reasonably likely to have had an “anchoring effect” that erroneously skewed the jury's award determination.

[19] He argues that because Sony offered testimony regarding the harmful effects all filesharing, not just Tenenbaum's infringements, has had on the recording industry at large, and not only the named plaintiffs, the court was required to instruct the jury sua sponte to “consider only harms by the named defendant that flowed to the named plaintiffs.”

[20] Tenenbaum has twice waived this argument. First, we reject his assertion that he preserved it by offering the following proposed jury instructions: “While there may be evidence relating to other downloading and sharing, the only issue of infringement or fair use that is before you concerns these ... songs.... [Y]ou may only award damages, if any, as to those ... songs.” This did not inform the court that Tenenbaum sought an instruction regarding harm done by other infringers or suffered by other recording companies given that Tenenbaum engaged in other downloading and sharing beyond the thirty songs at issue. See Linn v. Andover Newton Theological Sch., Inc., 874 F.2d 1, 5 (1st Cir.1989) (“If there is a problem with the instructions, the judge must be told preciselywhat the problem is, and as importantly, what the attorney would consider a satisfactory cure.”)

Moreover, after the court gave the jury its instructions, Tenenbaum raised no objection on these grounds whatsoever. “[E]ven if the initial request is made in detail, the party who seeks but did not get the instruction must object again after the instructions are given but before the jury retires for deliberations.” Gray v. Genlyte Grp., Inc., 289 F.3d 128, 134 (1st Cir.2002).

[21] 17 U.S.C. § 504(c)(2)'s so-called “innocent infringement” provision does not lend support to Tenenbaum's theory that knowledge is an element for non-willful infringement under the Act. A defendant cannot prove that he or she qualifies for a reduction of damages under § 504(c)(2) merely by showing that he or she lacked knowledge that his or her actions constituted copyright infringement. Rather, a plaintiff may still recover the full measure of statutory damages available for non-willful infringement even against an unknowing infringer if the infringer had “ reason to believe that his or her acts constituted an infringement of copyright.” 17 U.S.C. § 504(c)(2) (emphasis added).

[22] On appeal, both Tenenbaum and Sony argue error, but neither challenges the district court's decision to bypass the question of common law remittitur. They instead focus on whether the court chose the correct due process standard to evaluate whether the award was so excessive as to violate the constitution. Tenenbaum argues the Gore factors provide the correct due process analysis and that even the reduced award violates due process under that standard. Sony argues that the Williams due process standard must apply, that under it the original award issued by the jury never violated due process, and that the district court erred in reducing the award.

[23] These reasons are based on assumptions, not facts. Sony could not have decided its course of action if remittitur were allowed unless it knew the amount. Further, if Sony chose a new trial on damages, no one knows what sum a new jury would award, or whether that award would be challenged as excessive.

[24] The district court also attempted to justify its decision to bypass remittitur by making certain rulings on the merits of the constitutional issue. For example, the district court reasoned that the “differences between the [Gore and Williams ] approaches are, in practice, minimal[,]” a disputed issue. Sony BMG Music Entm't v. Tenenbaum, 721 F.Supp.2d 85, 101 (D.Mass.2010).

[25] The Seventh Amendment provides that, “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.” U.S. Const. amend. VII.

[26] Additionally, some courts have suggested that even under Gore, a court must give plaintiff the option of a new trial when it reduces a punitive damages award on due process grounds. See S. Union Co. v. Irvin, 563 F.3d 788, 790 (9th Cir.2009); Lee v. Edwards, 101 F.3d 805, 813 (2d Cir.1996).

[27] Sony rather weakly asserts remittitur is not available where, as here, an award falls within a prescribed statutory range. We do not take as given the questionable proposition that in enacting the Copyright Act, Congress intended to eliminate the common law power of the courts to consider remittitur. Common law remittitur has roots deep in English and American jurisprudence. See Honda Motor Co. v. Oberg, 512 U.S. 415, 424–26, 114 S.Ct. 2331, 129 L.Ed.2d 336 (1994); Dimick v. Schiedt, 293 U.S. 474, 482–83, 55 S.Ct. 296, 79 L.Ed. 603 (1935) (citing Blunt v. Little,Fed.Cas. No. 1,578, 3 Mason 102 (1822) (Story, J.)). We see no reason to think Congress meant to override this aspect of the common law.

In the post-Feltner amendment of the Copyright Act, Congress said nothing evidencing an intent to eliminate remittitur. See Digital Theft Deterrence and Copyright Damages Improvement Act of 1999, Pub. L. No. 106–1060, 113 Stat. 1774. Congress is presumed to legislate incorporating background principles of common law unless it indicates to the contrary. See Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., ––– U.S. ––––, 131 S.Ct. 2188, 2196, 180 L.Ed.2d 1 (2011) (rejecting statutory interpretation that conflicts with “two centuries of patent law”); Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 109, 111 S.Ct. 2166, 115 L.Ed.2d 96 (1991) (“Congress is understood to legislate against a background of common-law adjudicatory principles.”). Further, the principle of remittitur is embodied in Federal Rule of Civil Procedure 59. Thus, the district court's decision not to consider remittitur as requested appears to be contrary to Congressional intent.

[28] If the district court determines that the jury's award does not merit common law remittitur, the court and the parties will have to address the relationship between the remittitur standard and the due process standard for statutory damage awards, should the issue continue to be raised.

Richard Stephen Mandel, Jonathan Zachary King, and Robert William Clarida of Cowan, Liebowitz & Latmant P.C., New York, NY, for Plaintiff.

Gary Philip Adelman of Davis Shapiro Lewit & Hayes LLP, New York, NY, for Defendant.

Memorandum and Order

RICHARD J. SULLIVAN, District Judge.

Capitol Records, LLC (Capitol), the recording label for such classic vinyls as [645] Frank Sinatra's Come Fly With Me and The Beatles' Yellow Submarine, brings this action against ReDigi Inc. (ReDigi), a twenty-first century technology company that touts itself as a virtual marketplace for pre-owned digital music. What has ensued in a fundamental clash over culture, policy, and copyright law, with Capitol alleging that ReDigi's web-based service amounts to copyright infringement in violation of the Copyright Act of 1976 (the Copyright Act), 17 U.S.C. 101 et seq. Now before the Court are Capitol's motion for partial summary judgment and ReDigi's motion for summary judgment, both filed pursuant to Federal Rule of Civil Procedure 56. Because this is a court of law and not a congressional subcommittee or technology blog, the issues are narrow, technical, and purely legal. Thus, for the reasons that follow, Capitol's motion is granted and ReDigi's motion is denied.

I. Background

A. Facts

ReDigi markets itself as the world's first and only online marketplace for digital used music. ^[1] (Capitol 56.1 Stmt., Doc. No. 50 (Cap. 56.1), 6.) Launched on October 13, 2011, ReDigi's website invites users to sell their legally acquired digital music files, and buy used digital music from others at a fraction of the price currently available on iTunes. ( Id. 6, 9.) Thus, much like used record stores, ReDigi permits its users to recoup value on their unwanted music. Unlike used record stores, however, ReDigi's sales take place entirely in the digital domain. ( See ReDigi Reply 56.1 Stmt., Doc. No. 83 (RD Rep. 56.1), 4 16.)

To sell music on ReDigi's website, a user must first download ReDigi's Media Manager to his computer. (ReDigi 56.1 Stmt., Doc. No. 56 (RD 56.1), 8.) Once installed, Media Manager analyzes the user's computer to build a list of digital music files eligible for sale. ( Id.) A file is eligible only if it was purchased on iTunes or from another ReDigi user; music downloaded from a CD or other file-sharing website is ineligible for sale. ( Id.) After this validation process, Media Manager continually runs on the user's computer and attached devices to ensure that the user has not retained music that has been sold or uploaded for sale. ( Id. 10.) However, Media Manager cannot detect copies stored in other locations. (Cap. 56.1 5961, 63; see Capitol Reply 56.1 Stmt., Doc. No. 78 (Cap. Rep. 56.1), 10.) If a copy is detected, Media Manager prompts the user to delete the file. (Cap. 56.1 64.) The file is not deleted automatically or involuntarily, though ReDigi's policy is to suspend the accounts of users who refuse to comply. ( Id.)

After the list is built, a user may upload any of his eligible files to ReDigi's Cloud Locker, an ethereal moniker for what is, in fact, merely a remote server in Arizona. (RD 56.1 9, 11; Cap. 56.1 22.) ReDigi's upload process is a source of contention between the parties. ( See RD 56.1 1423; Cap. Rep. 56.1 1423.) ReDigi asserts that the process involves migrating a user's file, packet by packetanalogous to a trainfrom the user's computer to the Cloud Locker so that data does not exist in two places at any one time.^[2] (RD 56.1 14, 36.) Capitol asserts [646] that, semantics aside, ReDigi's upload process necessarily involves copying a file from the user's computer to the Cloud Locker. (Cap. Rep. 56.1 14.) Regardless, at the end of the process, the digital music file is located in the Cloud Locker and not on the user's computer. (RD 56.1 21.) Moreover, Media Manager deletes any additional copies of the file on the user's computer and connected devices. ( Id. 38.)

Once uploaded, a digital music file undergoes a second analysis to verify eligibility. (Cap. 56.1 3132.) If ReDigi determines that the file has not been tampered with or offered for sale by another user, the file is stored in the Cloud Locker, and the user is given the option of simply storing and streaming the file for personal use or offering it for sale in ReDigi's marketplace. ( Id. 3337.) If a user chooses to sell his digital music file, his access to the file is terminated and transferred to the new owner at the time of purchase. ( Id. 49.) Thereafter, the new owner can store the file in the Cloud Locker, stream it, sell it, or download it to her computer and other devices. ( Id. 50.) No money changes hands in these transactions. (RD Rep. 56.15 18.) Instead, users buy music with credits they either purchased from ReDigi or acquired from other sales. ( Id.) ReDigi credits, once acquired, cannot be exchanged for money. ( Id.) Instead, they can only be used to purchase additional music. ( Id.)

To encourage activity in its marketplace, ReDigi initially permitted users to preview thirty-second clips and view album cover art of songs posted for sale pursuant to a licensing agreement with a third party. ( See RD 56.1 7378.) However, shortly after its launch, ReDigi lost the licenses. ( Id.) Accordingly, ReDigi now sends users to either YouTube or iTunes to listen to and view this promotional material. ( Id. 77, 79.) ReDigi also offers its users a number of incentives. (Cap. 56.1 39.) For instance, ReDigi gives twenty-cent credits to users who post files for sale and enters active sellers into contests for prizes. ( Id. 39, 42.) ReDigi also encourages sales by advising new users via email that they can [c]ash in their music on the website, tracking and posting the titles of sought after songs on its website and in its newsletter, notifying users when they are low on credits and advising them to either purchase more credits or sell songs, and connecting users who are seeking unavailable songs with potential sellers. ( Id. 3948.)