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IP/Entertainment Case Law Updates

American Broadcasting Cos. Inc. v. Goodfriend

District court strikes streaming service’s affirmative defense in television networks’ copyright infringement lawsuit, holding that service did not fall under statutory exemption allowing nonprofit entities to retransmit broadcast signals without license and finding that user “donations” were actually payments that contributed to revenue that far exceeded costs.

Plaintiffs, television networks including ABC, NBC, CBS and Fox, brought suit against “free” streaming service Locast for copyright infringement. Locast captures broadcast signals—copyrighted transmissions from plaintiffs’ broadcast stations—and retransmits them over the internet, allowing viewers to watch live TV on their preferred devices. Locast users could choose a free service that features interruptions (requesting donations) every 15 minutes, or could pay $5 a month for an uninterrupted service. Locast did not pay a license fee to plaintiffs nor obtain plaintiffs’ consent to retransmit the signals. As an affirmative defense, Locast asserted that it fell under a statutory exemption from copyright infringement liability that allows nonprofit entities to retransmit broadcast signals. On plaintiffs’ partial summary judgment on Locast’s affirmative defense, the district court concluded that Locast was not entitled to the exemption.

The sole question at issue was whether Locast was covered by Section 111(a)(5) of the Copyright Act, which allows nonprofit entities to retransmit broadcast signals without consent or license and exempts them from copyright infringement liability. Locast argued that it meets the statutory requirement that its service be conducted “without charge to the recipients of the secondary transmission other than assessments necessary to defray the actual and reasonable costs of maintaining and operating the secondary transmission service.”

The court first dismissed Locast’s assertion that the user payments were donations, noting that they were “not merely a recurring gift to a charitable cause,” and finding it irrelevant that some users did not pay these fees. Locast’s revenue came mostly from user payments and significantly outweighed Locast’s costs; in 2020 Locast’s total revenue was $4.5 million, with $4.3 million stemming from user payments, while Locast’s total costs were $2.4 million. The court concluded that Locast made much more money from user charges than was necessary to defray its costs of maintaining and operating its service.

Locast also argued that it fell under the statutory exemption because user payments were reinvested in order to assist it in “maintaining and operating” the expansion of the service. The district court disagreed, finding that—under Section 111(a)(5)—income earned via user payments could only be used to defray the actual and reasonable costs of maintaining and operating the service, and could not be used to expand the service into new markets, because the latter was omitted from the statutory language.

Summary prepared by David Grossman and Alex Loh