The opinion of the court was delivered by: Simandle, District Judge.
This case involves the intersection of the motion picture and video retailing industries, and the emerging commercial enterprise of Internet sales. Motion pictures have traditionally been promoted through the use of "trailers," which are short previews of the movies, usually created by the film studios. The same is true of the promotion of home videos of such motion pictures. The motion pictures and the home videos enjoy generous protection under the copyright law. The rise of the Internet as an online location for market transactions has changed the traditional scheme of these exchanges and provides the backdrop for this case.
In the multi-billion dollar home video industry, an increasing amount of sales takes place over the Internet. This case examines the copyright issues that arise when an entity uses the copyrighted motion pictures to make short trailers, which are then made available for money to the entity's clients, which are video retailers, for the viewing by retail customers on the retailers' Internet websites, for the purpose of promoting sales of the copyrighted videos. In this case, the copyright owners seek a preliminary injunction against the entity which creates and sells the unauthorized trailers for their copyrighted home videos.
This matter comes before the Court upon motion by defendant Buena Vista Home Entertainment, Inc. (formerly known as Buena Vista Home Video), and counterclaim-plaintiff Miramax Film Corp. (hereinafter collectively "BVHE" or "defendants") for a preliminary injunction upon their amended counterclaim against plaintiff/counterclaim-defendant Video Pipeline, Inc. Plaintiff Video Pipeline originally brought suit against defendant Buena Vista Home Entertainment, Inc., for a declaratory judgment that plaintiff's use of trailers provided by BVHE in creating its own video clips to be commercially used by Internet video retailers does not constitute copyright infringement under the Copyright Act.
Defendant BVHE, a company that manufactures, distributes, and sells home video versions of copyrighted motion pictures, is the exclusive licensee of Walt Disney Pictures and Television ("Disney") in the home video market, and is the exclusive distributor for counterclaim-plaintiff Miramax Film Corp., in the home video market. Plaintiff Video Pipeline compiles, organizes, and provides previews of home video products to home video wholesalers and retailers. A Master Clip License Agreement entered into between Video Pipeline and BVHE as of November 7, 1988, granted license to Video Pipeline to exhibit certain videos provided by BVHE. After filing the above suit for a declaratory judgment, and after BVHE demanded return for its promotional materials, Video Pipeline began creating previews from movies owned by its customer retailers. Defendant BVHE moved for a preliminary injunction to enjoin Video Pipeline from continuing to create and distribute its own video clips of BVHE's movies.
After BVHE filed this motion for preliminary injunction, a voluntary injunction was put into place until resolution of this motion. This Court granted Video Software Dealers Association, the National Association of Recording Merchandisers, Inc., and the Motion Picture Association of America, Inc., leave to participate and submit briefs in this motion as amici curiae. A lengthy hearing was held, receiving evidence and arguments of counsel. For the reasons now discussed, the Court will grant defendant BVHE's motion for a preliminary injunction, pursuant to the following findings of fact and conclusions of law entered under Rules 52(a) and 65(d), Fed. R. Civ. P.
In this preliminary injunction motion, Buena Vista Home Entertainment, Inc. ("BVHE") seeks to enjoin Video Pipeline from streaming video previews it created out of motion pictures upon which BVHE owns the copyright. BVHE is a wholly-owned, indirect subsidiary of The Walt Disney Company, in the business of manufacturing, distributing, and selling home video versions of copyrighted motion pictures and other entertainment content. (McQueen Cert. ¶ 1.) Since 1987, BVHE has been the exclusive licensee of Walt Disney Pictures and Television for the distribution of its products in the home video market. (McQueen Cert. ¶ 2.) In addition, BVHE is the exclusive distributor for Miramax, also a wholly-owned, indirect subsidiary of The Walt Disney Company, in the home video market. (McQueen Cert. ¶ 3.) Video Pipeline is a company founded in 1985 that compiles and organizes promotional previews from entertainment companies into promotional videos which retailers display in their stores to promote retail sales and rentals. (Horovitz Aff. ¶ 5.) Since 1985, Video Pipeline had provided promotional videos to retailers for in-store use, at times editing the material sent by the movie studios, either because it contained sales and marketing information not intended for customer viewing or because Video Pipeline's retailer clients complained about certain inappropriate previews supplied by studios. (Horovitz Aff. ¶ 5, 6.)
BVHE and Video Pipeline entered into a Master Clip Agreement dated November 7, 1988, by which BVHE granted Video Pipeline permission to use certain videotape promotional previews ("trailers") in compilations to be exhibited in video stores to promote home video sales and rentals. (McQueen Cert. ¶ 4.) Beginning in 1995, home video retailers began using the Internet as a means of marketing home video products. (Horovitz Aff. ¶ 17.) In 1997, Video Pipeline began making the promotional previews available to home video retailers' Internet websites by means of an Internet service comprised of "VideoPipeline.net" to promote sales and rentals of the home video products. (Horovitz Aff. ¶ 17; McQueen Cert. ¶ 4.) VideoPipeline.net is not a website, but is the network through which retailers' customers can access and stream the previews. (Horovitz Aff. ¶ 18.) These previews can be viewed but cannot be downloaded by Internet users. (Horovitz Aff. ¶ 22.)
In general, retail customers can view the previews while on the retailers' websites by clicking on the "preview" buttons for a particular motion picture, which links them immediately to VideoPipeline.net, which then "streams" the video to the customer. (Hearing Tr. at 102.) "Video Pipeline.com" is Video Pipeline's corporate website that provides information about Video Pipeline's online promotional services for retailers, and no previews are actually shown via that site itself. (Horovitz Aff. 19.) "VideoDetective.com" is another website that uses VideoPipeline.net to allow Internet users to access previews and to link to retail websites by means of a "Shop Now" button. (Horovitz Aff. ¶ 20.) Video Pipeline has approximately 25 agreements with certain retailers, including Yahoo!Shopping, Netflix, TLA, and IMDB/Amazon to provide these services. (Horovitz Aff. ¶ 23.) In providing these services to Internet-based retailers, Video Pipeline charges the retailers "per Mega Byte actually shown to consumers." (Horovitz Aff. ¶ 26.) Thus, Video Pipeline receives its income for this service from the retailers it serves, based upon the units of time that a retailer's customer is viewing the Video Pipeline previews.
On September 13, 2000, BVHE advised Video Pipeline that it did not have permission to use the studio-supplied trailers on the Internet, nor were they cleared for online use, and requested that the previews of BVHE's motion pictures be removed from the website immediately. (McQueen Cert. ¶ 5.) On October 24, 2000, Video Pipeline filed suit in this Court against BVHE, seeking a declaratory judgment that its use of promotional materials provided by BVHE to Video Pipeline did not violate any of BVHE's rights under federal copyright law or any other law. (McQueen Cert. ¶ 6; Original Compl. at 1.) BVHE subsequently terminated the Master Clip License Agreement and demanded return of all trailers previously provided to Video Pipeline. (McQueen Cert. ¶ 6.) On December 21, 2000, Video Pipeline returned to BVHE 80 promotional previews subject to the Master Clip License Agreement. (Horovitz Aff. ¶ 29; McQueen Cert. ¶ 6.)
Video Pipeline removed the previews subject to the agreement from the Internet at BVHE's request, but continued to make its own previews (hereinafter "clip previews") from copies of videos of BVHE's copyrighted motion pictures owned by its retailer clients, with the exception of one clip preview of the Belgian movie "Everybody Famous," which was made from material provided directly by BVHE. (Horovitz Aff. ¶ 30.) Each clip preview created by Video Pipeline is approximately 120 seconds in length and consist of an opening display of the Disney or Miramax trademark, the title of the motion picture being distributed by BVHE, then two or more scenes from the motion picture, followed by another display of the title. (McQueen Cert. ¶ 11; Horovitz Aff. ¶ 32.) In addition, Video Pipeline's clip previews have no voice over, no editing, no use of additional music, and no use or narration or other types of marketing techniques often found in studio-produced trailers. (Hearing Tr. at 19.) At issue are 62 clip previews, including those for movies such as Fantasia, Beauty and the Beast, and Pretty Woman, for purposes of this preliminary injunction. (Hearing Tr. at 87; McQueen Cert. Ex. H.) It is estimated that Internet users have streamed Video Pipeline's clip previews over 30,000 times between November 3, 2000, and April 3, 2001. (McQueen Cert. ¶ 10.)
BVHE alleges that Video Pipeline's creation, distribution, and provision of online streaming of clip previews to video retailers in this fashion violates § 106 of the Copyright Act. Video Pipeline alleges that its clip previews do not infringe the copyrights on the underlying motion pictures, and that they are in any event protected by the "first sale" doctrine under § 109(a) of the Copyright Act and by the "fair use" doctrine under § 107 of the Copyright Act.
I. Preliminary Injunction Standard
Defendant BVHE moves for a preliminary injunction against Video Pipeline. The standard for injunctive relief in the Third Circuit is well established. In determining whether preliminary injunctive relief is proper, a court considers the following factors: (1) the likelihood of success on the merits; (2) whether the moving party will be irreparably harmed absent such relief; (3) the likelihood of irreparable harm to the nonmoving party; and (4) whether the injunction serves the public interest. See Adams v. Freedom Forge Corp., 204 F.3d 475, 485 (3d Cir. 2000) (citing AT & T v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994)); see also Educational Testing Servs. v. Katzman, 793 F.2d 533, 538 (3d Cir. 1986), cert. denied, 514 U.S. 1103 (1995). Here, where defendant BVHE alleges that plaintiff Video Pipeline's acts of creating, distributing, and providing online streaming of clip previews of full-length feature films provided by BVHE, according to their Master Clip License Agreement, constituted a violation of the Copyright Act, the Court considers the likelihood of success on the merits of BVHE's claim for copyright infringement.
A. Likelihood of Success on the Merits
BVHE's Amended Counterclaim alleges in part that Video Pipeline engaged in conduct that constitutes copyright infringement under § 106 of the Copyright Act, 17 U.S.C. § 106. Copyright infringement will be established if the plaintiff proves two elements: (1) the plaintiff owns the copyrighted material; and (2) the defendant has engaged in unauthorized "copying" within the meaning of § 106 of the Copyright Act. Ford Motor Co. v. Summit Motor Prod., Inc., 930 F.2d 277, 290-91 (3d Cir.) (citing Masquerade Novelty, Inc. v. Unique Indus., Inc., 912 F.2d 663, 667 (3d Cir. 1990), cert. denied, 502 U.S. 939 (!991); Whelan Assocs. v. Jaslow Dental Lab., 797 F.2d 1222, 1231 (3d Cir. 1986)); see also Educational Testing Servs. v. Katzman, 793 F.3d at 538. Here, it is uncontested that Disney, BVHE's licensor, owns the copyright of the full-length motion pictures on which Video Pipeline's clip previews are based, as well as the trademarks of the logos of Disney, Buena Vista, Hollywood Pictures, and Touchstone, shown at the beginning of the clip previews. See McQueen Cert. ¶¶ 21, 22. To BVHE is thus conferred the exclusive rights reserved as copyright owner under § 106 of the Copyright Act.
1. Exclusive Rights Under § 106 of the Copyright Act
BVHE argues that Video Pipeline's reproduction of the video clips provided by BVHE infringes all five of the exclusive rights that are reserved to it as owner of the copyright at issue under § 106. See 17 U.S.C. § 501(a) ("Anyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 121 . . . is an infringer of the copyright or right of the author."). Section 106 of the Copyright Act provides that the owner of the copyright, subject to sections 107 through 121, 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 by sale or other transfer of ownership, or by rental, lease, or lending;
(4) in the case of . . . motion pictures and other audiovisual works, to perform the copyrighted work publicly;
(5) in the case of . . . pictorial . . . works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; . . . . 17 U.S.C. § 106.
Video Pipeline's creation of video clips is most likely a derivative work under § 106(2). See, e.g., Lamb v. Starks, 949 F. Supp. 753, 756 (N.D. Cal. 1996) (holding that defendant infringed copyright by copying trailer consisting of parts of scenes from plaintiff's movie). Though not binding, the Lamb court's analysis of trailers, or movie previews, as a derivative work under § 106 is instructive in this case, which deals specifically with video clips of full-length copyrighted movies. In Lamb, defendant copied plaintiff's trailer of his full-length movie without consent and specially formatted it with other trailers on a compilation video tape to demonstrate on defendant's "3-D" system. The court held that "[t]he trailer clearly is a derivative of the full-length copyrighted movie," relying on the definition of "derivative work" under § 101, which states:
A "derivative work" is a work based upon one or more pre-existing 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.
This case similarly deals with clip previews consisting exclusively of scenes taken from full-length copyrighted feature films. Previously, Video Pipeline had received ready-made trailers of Disney movies that it was then authorized to exhibit in retailer's video stores to promote home video rentals and sales. Here, however, after Video Pipeline returned the studio-made trailers to BVHE due to their disagreement over their Internet display, Video Pipeline then compiled and organized its own clip previews from the copyrighted motion pictures owned by its retailer clients. *fn1 Video Pipeline provided these previews for a fee to retailers as an online service, so that customers viewing the retailer's website could click on an icon, which would then seamlessly take them to Video Pipeline's website where the clip would be shown. As in the Lamb case, the video clips here are based exclusively on the copyrighted motion picture, and its scenes come entirely from BVHE's movies. Plaintiff failing to argue to the contrary, and because the clip previews consist entirely of scenes excerpted from defendant's copyrighted films, the Court finds that plaintiff's clip previews for this Internet use constitute "derivative works" under § 106(2).
The Court finds that Video Pipeline's clip previews also constitute a public performance under § 106(4). The Third Circuit has explained that § 106(4) confers upon the copyright owner the exclusive right to perform a copyrighted work publicly and to authorize such performances. See Columbia Pictures Indus., Inc. v. Aveco, Inc., 800 F.2d 59, 61-62 (3d Cir. 1986) (holding that video cassette business's rental of rooms for viewing of movies for fee constituted "public performance" under 106(4)). To "perform" a work means "in the case of a motion picture . . . , to show its images in any sequence of to make the sounds accompanying it audible." 17 U.S.C. § 101. An individual is performing a work "whenever he does anything by which the work is transmitted, repeated, or made to recur." Aveco, 800 F.2d at 62. To 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. 17 U.S.C. § 101.
Customers of plaintiff's retailer clients can access the clip previews provided by plaintiff on the Internet. As each clip preview is accessed, scenes from the copyrighted motion picture are transmitted to the individual computer screens, actual points-of-sale in this case, and this replaying of selected scenes from the movie recurs when another of retailer's customers clicks on the appropriate icon. Because transmission of the clip previews to individual computers occurs when any member of the public selects an icon that redirects him or her to Video Pipeline's website, from which the video clips are then shown, such actions by Video Pipeline constitute a "public performance" under § 106(4). See also Columbia Picture Indus., Inc. v. Redd Horne, Inc., 749 F.2d 154, 158 (3d Cir. 1984) (holding that video store's exhibition of movie videos to patrons for fee in private booths constituted "public performance").
In addition, the Court finds that Video Pipeline's service of providing clip previews online constitutes a "public display" that violates the copyright owner's exclusive right "to display the copyrighted work publicly." 17 U.S.C. § 106(5). To "display" a work means "in the case of a motion picture . . . , to show individual images nonsequentially." 15 U.S.C. § 101. Internet transmission of copyrighted photographs constituted a "public display" even though it was limited to subscribers. See Playboy Enters., Inc. v. Frena, 839 F. Supp. 1552, 1557 (M.D. Fla. 1993), overruled by statute on other grounds as stated in ALS Scan, Inc. v. Remarg Cmtys., Inc., 238 F.3d 619, 623 (4th Cir. 2001) (holding that website display of copyrighted photographs to internet subscribers was "public display"). Here, Video Pipeline allowed transmission of images of non-sequential scenes from a motion picture to occur over the internet and be made available to all members of the public, not just subscribers as in Playboy Enterprises. Thus, Video Pipeline's use of the copyrighted motion pictures allowed the display of its images to occur over the Internet in public and satisfies the definition of "public display."
The Court finds that because Video Pipeline's actions violate the exclusive rights of the copyright owner BVHE, plaintiff has infringed on BVHE's copyright. See 17 U.S.C. § 501. The next point of discussion concerns Video Pipeline's contention that, notwithstanding its violations of § 106, it ...