Warner Bros. Entertainment, Inc. v. WTV Systems, Inc.

District court grants plaintiff motion picture studios’ motion for preliminary injunction against operators of online video service, finding that plaintiffs had established likelihood of success on claims that service violated their exclusive rights to publicly perform their copyrighted works and caused irreparable harm, including loss of revenue and interference with licensing agreements.

Plaintiffs, motion picture studios, brought a copyright action against defendants, operators of Zediva, an online service that enables its customers to watch movies, including those in which plaintiffs own the copyrights. The court granted plaintiffs a preliminary injunction, finding that the plaintiffs had established likelihood of success on the merits of their copyright claims and that they would suffer irreparable harm absent a preliminary injunction.

Defendants, who were not licensed or authorized to distribute the plaintiffs’ copyrighted movies, purchased copies of plaintiffs’ copyrighted movies on DVD and played those DVDs using players that they owned, located in a data center they lease. When a customer requested to view a particular movie, defendants, through their Zediva service, initiated the play process on a particular DVD player holding the requested movie, converted the analog video signal from the DVD player into a digital signal using a video adapter, fed the digital signal into a DVD control server that converted the digital signal to a form suitable for streaming across the internet and that could be viewed in the player created by defendants and used on their website, and transmitted the performance to the customer over the internet, to be viewed by the customer with a custom viewer provided by the defendants.

Noting that defendants did not dispute the validity of plaintiffs’ copyrights in the movies at issue, the court found that defendants were violating plaintiffs' exclusive right under Section 106 of the Copyright Act to publicly perform their copyrighted works by transmitting those works to the public through their Zediva service over the internet, without either a license or plaintiffs' permission. The court rejected defendants’ argument that their service offered “DVD rentals" rather than transmissions of performances, an argument that had been likewise unsuccessful in On Command Video Corporation v. Columbia Pictures Industries, 777 F.Supp. 787 (N.D. Cal. 1991), a case involving transmission of videotaped movies to hotel rooms. As with the transmission of videotaped movies in On Command Video, the court concluded that the transmission through the Zediva service fell directly within the language of Section 106. The service "communicates" the "images and sounds" of plaintiffs' copyrighted movies through the use of a "device or process" — defendants’ equipment, including various servers, and the internet — from a central bank of DVD players to the individual customer's computers, where the images and sounds are received "beyond the place from which they are sent."

The court also found that defendants' transmissions fit within the meaning of "to the public" under Section 101(2), the "transmit" clause of the Act, because the relationship between defendants, as the transmitter of the performance, and the audience, their customers, is a commercial, "public" relationship. The fact that customers view the movies on their computers, in a non-public place, has no bearing on whether they constitute "the public" under the transmit clause. Likewise, that the customers view the transmissions at different times and in different places is also immaterial, since Section 101 of the Copyright Act explicitly states that a performance can still be public "whether the members of the public ... receive it in the same place or in separate places and at the same time or at different times."

Plaintiffs also demonstrated that they would suffer irreparable harm in the absence of the preliminary injunction. Defendants’ continued operation of Zediva would jeopardize plaintiffs’ right to decide when, where, to whom, and for how much they will authorize transmission of their copyrighted works, not only interfering with negotiated grants of exclusivity to licensees, but also impacting plaintiffs' ability to negotiate similar agreements in the future, as well as plaintiffs' business relationships, including the goodwill developed with their licensees. The court also noted that since defendants transmitted the works without a licensing agreement, plaintiffs would lose the control they otherwise would have through those agreements to require licensees to provide a high-quality movie-watching experience for their customers, and to have in place necessary security measures to protect the works from piracy and other forms of illegal copying. Defendants’ transmission of the plaintiffs' works without paying the normal licensing fees deprived plaintiffs of revenue and also jeopardized the continued existence of the licensees' businesses, significantly decreasing the amount of revenue received by plaintiffs and their licensees. In addition, because defendants admitted that the technology they use to provide their service would support millions of customers, the already significant loss of revenue to plaintiffs and their licensees would continue to increase. Defendants' service also threatened the development of a successful and lawful video-on-demand market, in particular, the growing internet-based market, by damaging the public’s perception of the quality, service and price associated with the lawful, licensed transmission of plaintiffs’ works.

The court concluded its analysis by finding that the balance of the hardships tipped sharply in favor of plaintiffs – rejecting defendants’ claim, unsupported by any evidence, that an injunction would significantly harm or destroy their business – and that public interest would be served by upholding copyright protections and preventing the misappropriation of skills, creative energies, and resources invested in copyrighted works.