Video Pipeline, Inc. v. Buena Vista Home Entertainment, Inc.

Opinions of the United

2003 Decisions States Court of Appeals

for the Third Circuit

8-26-2003

Video Pipeline Inc v. Buena Vista Home

Precedential or Non-Precedential: Precedential

Docket No. 02-2497P

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PRECEDENTIAL

Filed August 26, 2003

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 02-2497

VIDEO PIPELINE, INC.

v.

BUENA VISTA HOME ENTERTAINMENT, INC.

BUENA VISTA HOME ENTERTAINMENT, INC.;

MIRAMAX FILM CORP.,

Counterclaim-Plaintiffs

v.

VIDEO PIPELINE, INC.,

Counterclaim-Defendant

Video Pipeline, Inc.,

Appellant

Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil Action No. 00-cv-05236)

District Judge: Honorable Jerome B. Simandle

Argued January 21, 2003

Before: BECKER,* NYGAARD, and AMBRO, Circuit Judges

(Opinion filed August 26, 2003)

* Judge Becker concluded his term as Chief Judge on May 4, 2003.

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Paul R. Fitzmaurice, Esquire

(Argued)

Lisa A. Sabatino, Esquire

Pelino & Lentz

1650 Market Street

One Liberty Place, 32nd Floor

Philadelphia, PA 19103

Attorneys for Appellant

Gary A. Rosen, Esquire (Argued)

Akin, Gump, Strauss, Hauer & Feld

2005 Market Street

One Commerce Square, Suite 2200

Philadelphia, PA 19103

Attorney for Appellee

Jon A. Baumgarten, Esquire

William M. Hart, Esquire

Proskauer Rose LLP

1585 Broadway

New York, NY 10036

Attorneys for Amicus Curiae

Motion Picture Association of

America, Inc.

OPINION OF THE COURT

AMBRO, Circuit Judge:

In this copyright case we review the District Court’s entry

of a preliminary injunction against Video Pipeline, Inc.’s

online display of “clip previews.” A “clip preview,” as we use

the term, is an approximately two-minute segment of a

movie, copied without authorization from the film’s

copyright holder, and used in the same way as an

authorized movie “trailer.” We reserve the term “trailer” for

previews created by the copyright holder of a particular

movie (or under the copyright holder’s authority).

Video Pipeline challenges the injunction on the ground

that its internet use of the clip previews is protected by the

fair use doctrine and, alternatively, that appellees Buena

3

Vista Home Entertainment, Inc. and Miramax Film Corp.1

may not receive the benefits of copyright protection because

they have engaged in copyright misuse. We reject both

arguments, and affirm.

BACKGROUND

Video Pipeline compiles movie trailers onto videotape for

home video retailers to display in their stores. To obtain the

right to distribute the trailers used in the compilations,

Video Pipeline enters into agreements with various

entertainment companies. It entered into such an

agreement, the Master Clip License Agreement (“License

Agreement”), with Disney in 1988, and Disney thereafter

provided Video Pipeline with over 500 trailers for its movies.

In 1997, Video Pipeline took its business to the web,

where it operates VideoPipeline.net and VideoDetective.com.

The company maintains a database accessible from

VideoPipeline.net, which contains movie trailers Video

Pipeline has received throughout the years. Video Pipeline’s

internet clients — retail web sites selling home videos —

use VideoPipeline.net to display trailers to site visitors. The

site visitors access trailers by clicking on a button labeled

“preview” for a particular motion picture. The requested

trailer is then “streamed” for the visitor to view (because it

is streamed the trailer cannot be downloaded to or stored

on the visitor’s computer). The operators of the web sites

from which the trailers are accessed — Video Pipeline’s

internet clients — pay a fee to have the trailers streamed

based on the number of megabytes shown to site visitors.

Video Pipeline has agreements to stream trailers with

approximately 25 online retailers, including Yahoo!,

Amazon, and Best Buy.

As noted, Video Pipeline also operates

VideoDetective.com. On this web site, visitors can search

1. Buena Vista holds an exclusive license to distribute Miramax and Walt

Disney Pictures and Television home videos. Buena Vista, Miramax, and

Walt Disney Pictures and Television are subsidiaries of The Walt Disney

Co. Because of this connection and for simplicity’s sake, we refer to the

appellees collectively and individually as “Disney.”

4

for movies by title, actor, scene, genre, etc. When a search

is entered, the site returns a list of movies and information

about them, and allows the user to stream trailers from

VideoPipeline.net. In addition to displaying trailers,

VideoDetective.com includes a “Shop Now” button to link

the user to a web site selling the requested video. Visitors

to VideoDetective.com can also win prizes by playing “Can

You Name that Movie?” after viewing a trailer on the site.

Video Pipeline included in its online database trailers it

received under the License Agreement from Disney.

Because the License Agreement did not permit this use,

Disney requested that Video Pipeline remove the trailers

from the database. It complied with that request.

On October 24, 2000, however, Video Pipeline filed a

complaint in the District Court for the District of New

Jersey seeking a declaratory judgment that its online use of

the trailers did not violate federal copyright law. Disney

shortly thereafter terminated the License Agreement.

Video Pipeline decided to replace some of the trailers it

had removed at Disney’s request from its database. In order

to do so, it copied approximately two minutes from each of

at least 62 Disney movies to create its own clip previews of

the movies. (Again, to distinguish between the previews

created under the copyright holder’s authority and those

created by Video Pipeline, we call the former “trailers” and

the latter “clip previews” or “clips.” We use the term

“previews” generically.)

Video Pipeline stores the clip previews in its database and

displays them on the internet in the same way it had

displayed the Disney trailers. In content, however, the clip

previews differ from the trailers. Each clip preview opens

with a display of the Miramax or Disney trademark and the

title of the movie, then shows one or two scenes from the

first half of the movie, and closes with the title again.

Disney’s trailers, in contrast, are designed to entice sales

from a target market by using techniques such as voice-

over, narration, editing, and additional music. Video

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Pipeline’s clip previews use none of these marketing

techniques.2

Disney also makes its trailers available online. It displays

them on its own web sites in order to attract and to keep

users there (a concept called “stickiness”) and then takes

advantage of the users’ presence to advertise and sell other

products. Disney has also entered into agreements to link

its trailers with other businesses, and, for example, has

such a link with the Apple Computer home page.

Video Pipeline amended its complaint to seek a

declaratory judgment allowing it to use the clip previews.

Disney filed a counterclaim alleging copyright infringement.

The District Court entered a preliminary injunction, later

revised, prohibiting Video Pipeline from displaying clip

previews of Disney films on the internet. See Video Pipeline,

Inc. v. Buena Vista Home Entertainment, Inc., 192 F. Supp.

2d 321 (D.N.J. 2002). Video Pipeline appeals.3

2. We have reviewed as part of the record several of the clip previews and

trailers.

3. The District Court’s jurisdiction arose under 28 U.S.C. § 1331 and 28

U.S.C. § 1338. We have jurisdiction over this interlocutory appeal

pursuant to 28 U.S.C. § 1292(a)(1).

On August 7, 2003, the District Court entered summary judgment in

Disney’s favor as to various claims and counterclaims, some of which

overlap with what is before us. See Video Pipeline, Inc. v. Buena Vista

Home Entertainment, Inc., 2003 WL 21811891 (D.N.J. Aug. 7, 2003). The

obvious question is whether this appeal is moot. We have concluded,

however, that a live controversy remains because the District Court has

not entered a final judgment or a permanent injunction in place of the

preliminary one and has not otherwise revoked or altered the injunction

on appeal. See generally Grupo Mexicano de Desarrollo, S.A. v. Alliance

Bond Fund, Inc., 527 U.S. 308, 313-18 (1999).

We are troubled that the attorneys for neither side (the same counsel

that came before us) appear to have alerted the District Court to this

appeal and instead went forward with motions for summary judgment.

We are also concerned by the failure of counsel to notify this Court of

the District Court’s decision (they still have not done so). The attorneys

should have known that the August 7 decision raised a question whether

this appeal had become moot — a question for us, not counsel, to

decide. By continuing to litigate the case in the District Court after the

appeal was taken and by failing to inform either Court of the ongoing

actions of the other, counsel risked a needless waste of judicial

resources as well as the resources of their clients.

6

DISCUSSION

We review for an abuse of discretion the District Court’s

decision to grant Disney’s request for a preliminary

injunction. Adams v. Freedom Forge Corp., 204 F.3d 475,

484 (3d Cir. 2000). Under this standard, questions of law

receive de novo review, and questions of fact are reviewed

for clear error. Id.

To obtain a preliminary injunction, a party must show (1)

that it is “reasonably likely to succeed on the merits” of its

copyright infringement claim and (2) a likelihood that it will

suffer irreparable harm if the injunction is denied. Id. Other

issues to consider if relevant are (3) the likelihood of

irreparable harm to the non-moving party and (4) the

public interest. Id. Video Pipeline presents no arguments

for issues (3) and (4), so we shall not discuss them,

assuming instead that the District Court correctly held that

these factors favored issuing the injunction. We therefore

address the first two issues.

I. Likelihood of Success on the Merits

Subject to the fair use exception discussed below (and

other exceptions not relevant here), copyright owners have

the exclusive right (1) to reproduce the copyrighted work,

(2) to prepare derivative works, (3) to distribute copies, (4)

to perform publicly a copyrighted motion picture, and (5) to

display publicly the individual images of a copyrighted

motion picture. 17 U.S.C. §106. To make out a prima facie

case of copyright infringement for preliminary injunction

purposes, Disney needed to show that the display of the

clip previews likely violates any provision of § 106. See 17

U.S.C. §§ 501(a), (b).4 The District Court held that Video

Pipeline’s clip previews likely infringe Disney’s exclusive

rights under three of § 106’s provisions: subsection (2),

concerning derivative works; subsection (4), dealing with

public performance of motion pictures; and subsection (5),

relating to public display of individual images of a motion

picture.

4. There is no dispute as to Disney’s copyright ownership in the full-

length motion pictures at issue.

7

On appeal, Video Pipeline challenges the District Court’s

holding that the clip previews likely violate § 106(2),

asserting that the clips cannot properly be classified as

derivative works. It does not contest the Court’s

determination as to subsections (4) and (5). Because proof

of a violation of any one subsection of § 106 states a case

of illegal infringement, the District Court’s decision that

Disney made a prima facie showing of infringement on the

basis of subsections (4) and (5) would not be affected by

any conclusion we might make as to whether the clip

previews are derivative in nature. As Video Pipeline’s

display of excerpts taken from the copyrighted movies

clearly comes within the prohibition on public display of

motion pictures, and images from a motion picture, we turn

to whether Video Pipeline’s use should nonetheless be

countenanced on the ground that it falls within the “fair

use” doctrine.

A. Fair Use

Congress’s constitutional power to provide for copyright

protection “is intended to motivate the creative activity of

authors . . . by the provision of a special reward, and to

allow the public access to the products of their genius after

the limited period of exclusive control has expired.” Sony

Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417,

429 (1984). At times, however, “rigid application of the

copyright statute . . . would stifle the very creativity which

that law is designed to foster.” Campbell v. Acuff-Rose

Music, Inc., 510 U.S. 569, 577 (1994). When that is the

case, the fair use doctrine may be implicated.

Congress codified the judicially created “fair use” defense

at §107 of the 1976 Copyright Act, which permits a “fair

use of a copyrighted work.” 17 U.S.C. § 107. A fair use,

although not specifically defined by the statute, is one

made “for purposes such as criticism, comment, news

reporting, teaching . . . , scholarship, or research.” Id. It is

an affirmative defense for which the alleged infringer bears

the burden of proof.

In judging the fairness of a particular use, courts must

take into account the following non-exhaustive list of

factors:

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(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.

Id. The four statutory factors “do not represent a score card

that promises victory to the winner of the majority.” Pierre

N. Leval, Toward a Fair Use Standard, 103 Harv. L. Rev.

1105, 1110 (1990). Rather, each factor is “to be explored,

and the results weighed together, in light of the purposes of

copyright.” Campbell, 510 U.S. at 578 (citations omitted).

Thus, as we apply copyright law, and the fair use doctrine

in particular, we bear in mind its purpose to encourage

“creative activity” for the public good. Sony Corp., 464 U.S.

at 429.

This focus on copyright’s purpose makes relevant a

comparison of the copy with the original: where the copier

uses none of his own creative activity to transform the

original work, holding the fair use doctrine inapplicable will

not likely interfere with copyright’s goal of encouraging

creativity. Thus, in the typical fair use case, the analysis

under each statutory factor concentrates on the copy and

the original work from which it derives. In this case,

however, our analysis of the four statutory factors will take

into account where relevant Disney’s original full-length

films and its trailers. We examine in this way the fairness

of the online display of the clip previews because, among

other things, the statute directs our attention under factor

four to the effect of the allegedly infringing uses on both the

potential market for any derivative works (the parties do not

dispute that Disney’s trailers qualify as derivative works)

and the potential market for the originals. See Campbell,

510 U.S. at 590.

1. Purpose and Character of the Use

Once again, the first factor requires that we consider “the

purpose and character of the use, including whether such

9

use is of a commercial nature or is for nonprofit

educational purposes.” § 107(1). The District Court

concluded that the purpose and character of Video

Pipeline’s clip previews weigh against finding fair use. We

agree.

If a new work is used commercially rather than for a

nonprofit purpose, its use will less likely qualify as fair.

Campbell, 510 U.S. at 585. As Video Pipeline charges a fee

to stream the clip previews, its use of the copies is

commercial (as the District Court found).

The commercial nature of the use does not by itself,

however, determine whether the purpose and character of

the use weigh for or against finding fair use. Id. at 583-84.

We look as well to any differences in character and purpose

between the new use and the original. We consider whether

the copy is “transformative” of the work it copied because

it “alter[ed] the first with new expression, meaning, or

message,” or instead “whether the new work merely

supersedes the objects of the original creation.” Id. at 579

(citations and alteration in original omitted).

Video Pipeline asserts that its use of the clip previews

substantially transforms the full-length films from which

they derive because the clips and the movies have different

purposes. According to Video Pipeline, the original works

have an aesthetic and entertainment purpose while the clip

previews serve only to provide information about the movies

to internet users or as advertisements for the company’s

retail web site clients.5 To the extent that the character and

5. We note that the clip previews do not constitute mere “information”

about the movies, as would, for example, a list of the names of the

actors starring in a film, or a statement of the rating it received. Were

Video Pipeline dealing only in this type of information, the fair use

doctrine might not be implicated at all because copyright protection does

not include facts and ideas, but only their expression. See Harper & Row

Publishers, Inc. v. Nation Enters., 471 U.S. 539, 547 (1985); 17 U.S.C.

§ 102(b). Regardless, the clips are part of — not information about —

Disney’s expressive creations. See id. at 569 (“Any copyright infringer

may claim to benefit the public by increasing public access to the

copyrighted work.”).

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purpose of the clip previews and the original full-length

films diverge, however, the clips share the same character

and purpose as Disney’s derivative trailers. Whatever

informational or promotional character and purpose the

trailers possess, so do the clip previews. Consequently, the

clips are likely to “supersede the objects of” Disney’s

derivatives. Campbell, 510 U.S. at 579 (citations omitted).6

Although the clips are copied from Disney’s original rather

than its derivative works, it is highly relevant to our inquiry

here that the clips will likely serve as substitutes for those

derivatives.

Video Pipeline also urges us to take into account the

functional character and purpose of the database in which

it stores trailers and clip previews, apparently hoping we

will discern no significant difference between its database

and the internet search engine used in Kelly v. Arriba Soft

Corp., 336 F.3d 811 (9th Cir. 2003).7 In Kelly, Arriba Soft

Corp.’s search engine located images on other web sites in

response to a user’s request and displayed the results in

Additionally, it is not clear to us that the use of a copy — not

accompanied by any creative expression on the part of the copier — as

an advertisement for the original would qualify as a type of use intended

to be recognized by the fair use doctrine. See Campbell, 510 U.S. at 578-

79 (“The enquiry [under the first factor] may be guided by the examples

given in the preamble to § 107, looking to whether the use is for

criticism, or comment, or news reporting, and the like . . . .”); id. at 585

(“The use, for example, of a copyrighted work to advertise a product,

even in a parody, will be entitled to less indulgence under the first factor

of the fair use enquiry than the sale of a parody for its own sake, let

alone one performed a single time by students in school.”).

We need not resolve these issues, however, because (as we conclude in

the text) the purpose and character of the use of the clip previews and

that of Disney’s derivative works — its trailers — are the same.

6. We see little significance in whether the trailers use marketing

techniques that the clip previews do not.

7. A database is a discrete collection of data (here, previews) set up for

efficient retrieval. By comparison, a search engine refers to a system that

locates data (or images, etc.) from other web sites; thus, a search engine

will retrieve data that is not in the engine operator’s control.

VideoPipeline.net is a database, not a search engine.

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thumbnail-size pictures, with a link that would take the

user to the web site on which the image was found. Id. at

815. The Court held that the display of the thumbnail

images was a fair use. Id.

Video Pipeline’s database does not, however, serve the

same function as did Arriba Soft’s search engine. As used

with retailers’ web sites, VideoPipeline.net does not improve

access to authorized previews located on other web sites.

Rather, it indexes and displays unauthorized copies of

copyrighted works. VideoDetective.com does permit viewers

to link to legitimate retailers’ web sites, but a link to a

legitimate seller of authorized copies does not here, if it ever

would, make prima facie infringement a fair use.

Finally, we note that Video Pipeline’s clip previews — to

reiterate, approximately two-minute excerpts of full-length

films with movie title and company trademark shown — do

not add significantly to Disney’s original expression. Video

Pipeline itself asserts, and the District Court found, 192 F.

Supp. at 337, that the clip previews “involved no new

creative ingenuity.” The Court did recognize that deciding

which scene or scenes to include in a clip preview requires

some creative choice. Id. But as Video Pipeline disclaims

the use of any creative ingenuity, we have no difficulty

viewing those decisions as involving creativity only in a

theoretical, and most narrow, sense. Hence, it is dubious

what “new expression, meaning, or message” Video Pipeline

has brought to its copies. Campbell, 510 U.S. at 579.

It is useful to compare the clip previews with a movie

review, which might also display two-minute segments

copied from a film. The movie reviewer does not simply

display a scene from the movie under review but as well

provides his or her own commentary and criticism. In so

doing, the critic may add to the copy sufficient “new

expression, message, or meaning” to render the use fair. Id.

Here, in contrast, the fact that “a substantial portion,”

indeed almost all, “of the infringing work was copied

verbatim from the copyrighted work” with no additional

creative activity “reveal[s] a dearth of transformative

character or purpose.” Id. at 587. Consequently, rejecting

the fair use defense in this case will not likely “stifle the

12

very creativity” that the Copyright Clause “is designed to

foster.” Id. at 577.

With this context, the District Court correctly concluded

that Video Pipeline’s clip previews lack any significant

transformative quality. Thus, the commercial nature of the

clip previews weighs more strongly against Video Pipeline’s

use. Campbell, 510 U.S. at 580 (If “the alleged infringer

merely uses [the original work] to get attention or to avoid

the drudgery in working up something fresh, the claim to

fairness in borrowing from another’s work diminishes

accordingly (if it does not vanish), and other factors, like

the extent of its commerciality, loom larger.”). Given the

shared character and purpose of the clip previews and the

trailers (so that the clips will likely serve as a substitute for

the trailers) and the absence of creative ingenuity in the

creation of the clips, the first factor strongly weighs against

fair use in this case.

2. Nature of the Copyrighted Work

The second statutory fair use factor directs courts to

consider “the nature of the copyrighted work.” § 107(2).

“This factor calls for recognition 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, 510

U.S. at 586. Fictional, creative works come closer to this

core than do primarily factual works. Harper & Row

Publishers, Inc. v. Nation Enters., 471 U.S. 539, 563 (1985).

The Disney movies at issue — including, for example,

Beauty and the Beast, Fantasia, Pretty Woman, and Dead

Poet’s Society — are paradigms of creative, non-factual

expression. And Disney’s trailers share imaginative aspects

with the originals.

Video Pipeline argues that this factor nonetheless weighs

in its favor because Disney released to the public its

movies, if not all of its trailers, prior to Video Pipeline’s

display of the clip previews.8 It is true that Disney would

have a stronger case against fair use had it not yet made its

8. The record does suggest that Video Pipeline streamed over the internet

clip previews of some Disney movies not yet released to the public.

13

movies available for the public’s viewing pleasure. See id. at

554 (“[T]he unpublished nature of a work is a key . . . factor

tending to negate a defense of fair use.”) (quoting S. Rep.

No. 94-473 at 64 (1975)) (alteration and quotation marks in

original omitted).

But the second statutory factor does not necessarily

weigh in favor of finding fair use simply because the public

already has access to the original work. Rather, that

Disney’s movies and trailers contain mainly creative

expression, not factual material, suggests that the use is

not fair regardless of the published or unpublished status

of the original. See e.g., Campbell, 510 U.S. at 586 (holding

that the song Pretty Woman fit “within the core of the

copyright’s protective purposes” because of its creative

expression, without considering that the original had

already been made available to the public). The District

Court therefore properly relied on the creative, non-factual

expression involved in Disney’s movies and trailers to hold

that this factor weighs against the fair use defense.

3. Amount and Substantiality of the Work Copied

The third factor requires an analysis of “the amount and

substantiality of the portion used in relation to the

copyrighted work as a whole.” § 107(3). The District Court

determined that this factor also weighed in Disney’s favor.

192 F. Supp. 2d at 340.

As Video Pipeline points out, its previews excerpt only

about two minutes from movies that last one and a half to

two hours. Quantitatively then, the portion taken is quite

small.

But the third factor “calls for thought not only about the

quantity of the materials used, but about their quality and

importance, too.” Campbell, 510 U.S. at 587. The District

Court found that the clip previews, “for the most part, were

used to provide the potential customer with some idea of

the plot of each motion picture, its overall tone, and a

glimpse of its leading characters.” 192 F. Supp. 2d at 339.

Although the plot, tone, and leading characters are, of

course, significant aspects of the films, the two-minute

“glimpse” provided by the clips is made up only of scenes

taken from the first half of the Disney films. Disney has not

14

claimed, for instance, that any of the clips “give away” the

ending of a movie, or ruin other intended surprises for

viewers of the full-length films. Moreover, as

advertisements, the clip previews are meant to whet the

customer’s appetite, not to sate it; accordingly, they are not

designed to reveal the “heart” of the movies. Simply put, we

have no reason to believe that the two-minute clips manage

in so brief a time, or even intend, to appropriate the “heart”

of the movies. Compare Harper & Row, 471 U.S. at 564-55

(weighing this factor against finding fair use because the

alleged infringer “took what was essentially the heart of the

book”).

Because the clip previews copy a relatively small amount

of the original full-length films and do not go to the “heart”

of the movies, this factor, contrary to the District Court’s

determination, weighs in favor of finding fair Video

Pipeline’s display of its clips.

4. Effect on Potential Market or Value

Finally, courts should evaluate “the effect of the use upon

the potential market for or value of the copyrighted work.”

§ 107(4). The District Court considered the question to be

whether Video Pipeline’s “use of the copyrighted work

affects or materially impairs the marketability of the

copyrighted motion pictures,” and, finding the evidence

equivocal, concluded that the fourth factor weighed neither

for nor against finding a likelihood of fair use. 192 F. Supp.

2d at 340, 343.

As mentioned above, this final factor “must take [into]

account not only . . . harm to the original but also . . .

harm to the market for derivative works.” Campbell, 510

U.S. at 590. Because the issues pertaining to the potential

harm to the market for Disney’s derivative trailers are more

straightforward, we focus our analysis on this area and do

not review the District Court’s conclusion as to harm to the

market for the original full-length films.9 It is in this context

9. The District Court declined to consider the potential harm to the

market for derivatives on the ground that Disney had not argued the

issue. Disney did, however, so argue in both its briefs in support of its

motion for a preliminary injunction, and it submitted evidence to

support those arguments. Video Pipeline also responded in the District

Court to the merits of Disney’s arguments concerning potential harm to

the market for its derivative works. Consequently, Video Pipeline suffers

no harm by our addressing this issue.

15

that we conclude that the fourth factor weighs in Disney’s

favor.

Video Pipeline argued in the District Court that no

market exists, or could exist, for movie previews because no

one “ever paid or will ever pay any money merely to see

trailers.” But in fact retail websites are paying Video

Pipeline to display both trailers and clip previews.

Moreover, Video Pipeline takes too narrow a view of the

harm contemplated by this fourth factor. The statute

directs us to consider “the effect of the use upon the . . .

value of the copyrighted work,” not only the effect upon the

“market,” however narrowly that term is defined. § 107(4);

see also Worldwide Church of God v. Philadelphia Church of

God, Inc., 227 F.3d 1110, 1119 (9th Cir. 2000) (drawing

such a distinction). And the value “need not be limited to

monetary rewards; compensation may take a variety of

forms.” Id.; see also Sony Corp., 464 U.S. at 447 n.28

(stating in a different context that the “copyright law does

not require a copyright owner to charge a fee for the use of

his works, and . . . the owner of a copyright may well have

economic or noneconomic reasons for permitting certain

kinds of copying to occur without receiving direct

compensation from the copier”).

Disney introduced evidence that it has entered an

agreement to cross-link its trailers with the Apple

Computer home page and that it uses on its own websites

“the draw of the availability of authentic trailers to

advertise, cross-market and cross-sell other products, and

to obtain valuable marketing information from visitors who

chose [sic] to register at the site or make a purchase there.”

App. 945; see also Kelly, 336 F.3d at 821 (“Kelly’s images

are related to several potential markets. One purpose of the

photographs is to attract internet users to his web site,

where he sells advertising space as well as books and travel

packages. In addition, Kelly could sell or license his

photographs to other web sites or to a stock photo

database, which then could offer the images to its

customers.”). In light of Video Pipeline’s commercial use of

the clip previews and Disney’s use of its trailers as

described by the record evidence, we easily conclude that

there is a sufficient market for, or other value in, movie

16

previews such that the use of an infringing work could have

a harmful effect cognizable under the fourth factor.

We have already determined that the clip previews lack

transformative quality and that, though the clips are copies

taken directly from the original full-length films rather than

from the trailers, display of the clip previews would

substitute for the derivative works. As a result, the clips, if

Video Pipeline continues to stream them over the internet,

will “serve[ ] as a market replacement” for the trailers,

“making it likely that cognizable market harm to the

[derivatives] will occur.” Campbell, 510 U.S. at 591. For

instance, web sites wishing to show previews of Disney

movies may choose to enter licensing agreements with

Video Pipeline rather than Disney, as at least 25 have

already done. And internet users searching for previews of

Disney films may be drawn by the clip previews to web sites

other than Disney’s, depriving Disney of the opportunity to

advertise and sell other products to those users.10

Consequently, “ ‘unrestricted and widespread conduct of

the sort engaged in by [Video Pipeline] . . . would result in

a substantially adverse impact on the potential market’ for

the [derivative works].” Id. at 590 (quoting 3 M. Nimmer &

D. Nimmer, Nimmer on Copyright § 13.05(A)(4) (1993)). We

therefore hold that the District Court should have weighed

this factor against recognizing the fair use defense in this

case.

* * * * *

Three of the four statutory factors indicate that Video

Pipeline’s internet display of the clip previews will not

qualify as a fair use. From our consideration of each of

those factors, we cannot conclude that Video Pipeline’s

online display of its clip previews does anything but

“infringe[ ] a work for personal profit.” Harper & Row, 471

U.S. at 563. The District Court therefore correctly held that

Video Pipeline has failed to show that it will likely prevail

on its fair use defense.

10. Record evidence indicates that clip previews were streamed over the

internet more than 30,000 times between November 2000 and April

2001.

17

B. Copyright Misuse

Video Pipeline further contends that Disney has misused

its copyright and, as a result, should not receive the

protection of copyright law. Video Pipeline points to certain

licensing agreements that Disney has entered into with

three companies and sought to enter into with a number of

other companies operating web sites.11 Each of these

licensing agreements provides that Disney, the licensor, will

deliver trailers by way of hyperlinks12 for display on the

licensee’s web site. The Agreements further state:

The Website in which the Trailers are used may not be

derogatory to or critical of the entertainment industry

or of [Disney] (and its officers, directors, agents,

employees, affiliates, divisions and subsidiaries) or of

any motion picture produced or distributed by [Disney]

. . . [or] of the materials from which the Trailers were

taken or of any person involved with the production of

the Underlying Works. Any breach of this paragraph

will render this license null and void and Licensee will

be liable to all parties concerned for defamation and

copyright infringement, as well as breach of contract

. . . .

As Video Pipeline sees it, such licensing agreements seek to

use copyright law to suppress criticism and, in so doing,

misuse those laws, triggering the copyright misuse doctrine.

Neither the Supreme Court nor this Court has

affirmatively recognized the copyright misuse doctrine. See

Dun & Bradstreet Software Servs., Inc. v. Grace Consulting,

Inc., 307 F.3d 197, 221 (3d Cir. 2002). There is, however,

a well-established patent misuse doctrine, see, e.g., Morton

Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942); W.L.

Gore & Assocs., Inc. v. Carlisle Corp., 529 F.2d 614 (3d Cir.

1976), and, as noted below, other courts of appeals have

extended the doctrine to the copyright context.

11. The record contains three signed licensing agreements and numerous

letters sent by Disney to other companies asking them to sign the same

agreement.

12. A hyperlink allows an internet user to connect to another web site.

18

The misuse doctrine extends from the equitable principle

that courts “may appropriately withhold their aid where the

plaintiff is using the right asserted contrary to the public

interest.” Morton Salt, 314 U.S. at 492. Misuse is not cause

to invalidate the copyright or patent, but instead “precludes

its enforcement during the period of misuse.” Practice

Management Info. Corp. v. American Med. Assoc., 121 F.3d

516, 520 n.9 (9th Cir. 1997) (citing Lasercomb America, Inc.

v. Reynolds, 911 F.2d 970, 979 n.22 (4th Cir. 1990)). To

defend on misuse grounds, the alleged infringer need not be

subject to the purported misuse. Morton Salt, 314 U.S. at

494 (“It is the adverse effect upon the public interest of a

successful infringement suit in conjunction with the

patentee’s course of conduct which disqualifies him to

maintain the suit, regardless of whether the particular

defendant has suffered from the misuse of the patent.”);

Lasercomb, 911 F.2d at 979 (“[T]he fact that appellants here

were not parties to one of Lasercomb’s standard license

agreements is inapposite to their copyright misuse defense.

The question is whether Lasercomb is using its copyright in

a manner contrary to public policy, which question we have

answered in the affirmative.”).

Misuse often exists where the patent or copyright holder

has engaged in some form of anti-competitive behavior. See,

e.g., Morton Salt, 314 U.S. at 492 (explaining that public

policy “forbids the use of the patent to secure an exclusive

right or limited monopoly not granted by the Patent Office”);

Practice Management, 121 F.3d at 521 (finding copyright

misuse where license to use copyrighted good prohibited

licensee from using competing goods); Lasercomb, 911 F.2d

at 979 (holding the copyright holder misused its copyright

by including in licensing agreements a provision that

neither the licensee company nor its officers, employees, et

al., could develop competing goods for the term of the

agreement, ninety-nine years). More on point, however, is

the underlying policy rationale for the misuse doctrine set

out in the Constitution’s Copyright and Patent Clause: “to

promote the Progress of Science and useful Arts.” Const.

Art. I, § 8, cl. 8; see also Morton Salt, 314 U.S. at 494 (“The

patentee, like these other holders of an exclusive privilege

granted in furtherance of a public policy [trademark and

copyright holders], may not claim protection of his grant by

19

the courts where it is being used to subvert that policy.”);

Lasercomb, 911 F.2d at 978 (“The question is . . . whether

the copyright is being used in a manner violative of the

public policy embodied in the grant of a copyright.”). The

“ultimate aim” of copyright law is “to stimulate artistic

creativity for the general public good.” Sony Corp., 464 U.S.

at 432; see also Eldred v. Ashcroft, 123 S. Ct. 769, 787

(2003) (“[C]opyright’s purpose is to promote the creation and

publication of free expression.”) (emphasis in original). Put

simply, our Constitution emphasizes the purpose and value

of copyrights and patents. Harm caused by their misuse

undermines their usefulness.

Anti-competitive licensing agreements may conflict with

the purpose behind a copyright’s protection by depriving

the public of the would-be competitor’s creativity. The fair

use doctrine and the refusal to copyright facts and ideas

also address applications of copyright protection that would

otherwise conflict with a copyright’s constitutional goal. See

Eldred, 123 S. Ct. at 789; Campbell, 510 U.S. at 575 & n.5.

But it is possible that a copyright holder could leverage its

copyright to restrain the creative expression of another

without engaging in anti-competitive behavior or

implicating the fair use and idea/expression doctrines.13

For instance, the concurring opinion, written for a

13. See Note, Clarifying the Copyright Misuse Defense: The Role of

Antitrust Standards and First Amendment Values, 104 Harv. L. Rev.

1289, 1304-06 (1991) (advocating application of the copyright misuse

defense where “the plaintiff has improperly used its copyright power to

restrain free trade in ideas,” and explaining: “The copyright misuse

defense provides a necessary complement to the idea/expression

dichotomy [under which an author’s expression may be copyrighted, but

an idea may not] and fair use doctrine in vindicating the public interest

in the dissemination of ideas. The idea/expression limitation merely

restricts the scope of the particular copyright being sued upon, and

absent a claim of misuse, it cannot be brought to bear on improper

licensing restrictions or other misconduct. As with the misuse defense,

fair use doctrine excuses copying that would otherwise be infringement

in order to vindicate the copyright policy promoting the diffusion of

ideas. Unlike misuse doctrine, however, the fair use inquiry directs

courts’ attention to the social value of the defendant’s conduct rather

than the social harm caused by the plaintiff’s use of its copyright.”).

20

majority of the judges, in Rosemont Enters., Inc. v. Random

House, Inc., 366 F.2d 303 (2d Cir. 1966), concluded that

pursuant to the unclean hands doctrine the District Court

should not have entered a preliminary injunction against

an alleged copyright infringer where the copyright holder

sought to use his copyright “to restrict the dissemination of

information.” Id. at 311 (Lumbard, C.J., concurring). In

Rosemont Enters., a corporation acting for the publicity-shy

Howard Hughes purchased the copyright to an article about

Hughes solely to bring an infringement suit to enjoin the

publication of a forthcoming biography on Hughes. Id. at

313. The concurring opinion reasoned:

The spirit of the First Amendment applies to the

copyright laws at least to the extent that the courts

should not tolerate any attempted interference with the

public’s right to be informed regarding matters of

general interest when anyone seeks to use the

copyright statute which was designed to protect

interests of quite a different nature.

Id. at 311; see also Eldred, 123 S. Ct. at 790 n.24 (“[I]t is

appropriate to construe copyright’s internal safeguards to

accommodate First Amendment concerns.”).

Although Rosemont Enters. did not concern an

anti-competitive licensing agreement as in the typical

misuse case, it focused — as do the misuse cases — on the

copyright holder’s attempt to disrupt a copyright’s goal to

increase the store of creative expression for the public good.

366 F.2d at 311 (“It would be contrary to the public interest

to permit any man to buy up the copyright to anything

written about himself and to use his copyright ownership to

restrain other[s] from publishing biographical material

concerning him.”); Lasercomb, 911 F.2d at 978 (“[T]he

company is required to forego utilization of the creative

abilities of all its officers, directors and employees in the

area of [computer assisted design and computer assisted

manufacture] die-making software. Of yet greater concern,

these creative abilities are withdrawn from the public.”). A

copyright holder’s attempt to restrict expression that is

critical of it (or of its copyrighted good, or the industry in

which it operates, etc.) may, in context, subvert — as do

anti-competitive restrictions — a copyright’s policy goal to

21

encourage the creation and dissemination to the public of

creative activity.

The licensing agreements in this case do seek to restrict

expression by licensing the Disney trailers for use on the

internet only so long as the web sites on which the trailers

will appear do not derogate Disney, the entertainment

industry, etc. But we nonetheless cannot conclude on this

record that the agreements are likely to interfere with

creative expression to such a degree that they affect in any

significant way the policy interest in increasing the public

store of creative activity. The licensing agreements do not,

for instance, interfere with the licensee’s opportunity to

express such criticism on other web sites or elsewhere.

There is no evidence that the public will find it any more

difficult to obtain criticism of Disney and its interests, or

even that the public is considerably less likely to come

across this criticism, if it is not displayed on the same site

as the trailers. Moreover, if a critic wishes to comment on

Disney’s works, the fair use doctrine may be implicated

regardless of the existence of the licensing agreements.

Finally, copyright law, and the misuse doctrine in

particular, should not be interpreted to require Disney, if it

licenses its trailers for display on any web sites but its own,

to do so willy-nilly regardless of the content displayed with

its copyrighted works. Indeed such an application of the

misuse doctrine would likely decrease the public’s access to

Disney’s works because it might as a result refuse to

license at all online display of its works.

Thus, while we extend the patent misuse doctrine to

copyright, and recognize that it might operate beyond its

traditional anti-competition context, we hold it inapplicable

here. On this record Disney’s licensing agreements do not

interfere significantly with copyright policy (while holding to

the contrary might, in fact, do so). The District Court

therefore correctly held that Video Pipeline will not likely

succeed on its copyright misuse defense.

II. Irreparable Harm

On the basis of Disney’s prima facie infringement case

and its likelihood of success against Video Pipeline’s

asserted defenses, the District Court presumed Disney

22

would suffer irreparable injury if a preliminary injunction

did not issue. Generally, “a showing of a prima facie case of

copyright infringement or reasonable likelihood of success

on the merits raises a presumption of irreparable harm.”

Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d

1240, 1254 (3d Cir. 1983).

When, however, “material peripheral to the [copyright

holder’s] business has been infringed,” we “require a

stronger showing of irreparable harm as the [copyright

holder’s] likelihood of success on the merits wanes.” Marco

v. Accent Publ’g Co., 969 F.2d 1547, 1553 (3d Cir. 1992).

Video Pipeline has likely infringed Disney’s movies, which

are certainly more than peripheral to its business. Even if

we were to consider here (as we did under the fourth fair

use factor) that the likely market harm will be to the

derivative market for trailers rather than to the market for

the full-length features, and that the trailer market may be

only peripheral to Disney’s business, Disney has shown a

strong likelihood of success on the merits, and so need not

make a particularly strong showing of irreparable harm.

Regardless, the record indicates that Disney will likely

incur incalculable losses from the clip previews’ competition

with the trailers — especially in terms of internet users’

attraction to (and the “stickiness” of) Disney’s and others’

web sites and the concomitant opportunities for sales and

marketing on those sites. Disney will therefore likely suffer

irreparable harm if Video Pipeline is not enjoined. Moreover,

given the verbatim copying, lack of creative ingenuity, and

profit-driven purpose of the clip previews, we have no

concern that this case is one in which the creative and

expressive goals of copyright law would be served better by

denying an injunction. See Campbell, 510 U.S. at 578 n.10.

CONCLUSION

The District Court correctly held that Disney will likely

succeed on the merits of its copyright infringement case,

given its prima facie showing and that Video Pipeline’s

attempts to defend on fair use and copyright misuse

grounds will likely fail. The Court’s conclusion as to

irreparable harm was also correct. We therefore affirm the

23

entry of the preliminary injunction prohibiting Video

Pipeline from displaying its clip previews on the internet.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit