IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks -- October 10, 2013

By Loeb & Loeb LLP

Oct 10, 2013

Table of Contents

United States v. Liu
In re AutoHop Litigation
16 Casa Duse, LLC v. Merkin

United States v. Liu, USCA, Ninth Circuit, October 1, 2013

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Ninth Circuit panel vacates defendant’s convictions for criminal copyright infringement and trafficking in counterfeit labels, holding that district court failed to properly instruct jury that, under 17 U.S.C. § 506(a), defendant needed to know he was committing an unlawful act, and that, under 18 U.S.C. § 2318(a)(1), defendant needed to know that trafficked labels were counterfeit.

Defendant Liu founded and was the CEO of a DVD-manufacturing company called Super DVD. After a private investigator noticed unlicensed copies of software bearing counterfeit labels in Super DVD’s warehouse, the government obtained a search warrant and executed a search. The government found thousands of CDs and DVDs, including copies of musical compilation CDs and the film Crouching Tiger, Hidden Dragon. Liu did not have authorization from the relevant copyright holders to replicate these works.

The government charged Liu with criminal copyright infringement under 17 U.S.C. §506(a)(1)(A) and 18 U.S.C. §2319(b)(1) and with criminal trafficking of counterfeit labels under 18 U.S.C. §2318(a). After a jury trial, Liu was convicted on all counts and sentenced to four years in prison. Liu appealed, arguing that the district court gave improper jury instructions as to the “willfulness” element of criminal copyright infringement and the “knowledge” element of trafficking in counterfeit labels. The Ninth Circuit agreed, vacating the convictions and remanding.

Surveying precedent and legislative history, the Ninth Circuit held that “willful” infringement, as that term is used in 17 U.S.C. §506(a), requires a voluntary, intentional violation of a known legal duty. The district court’s instruction omitted that specific knowledge component, allowing the jury to convict Liu without finding that he deliberately engaged in copyright infringement. The Ninth Circuit also held that 18 U.S.C. §2318(a)(1) requires proof that the defendant knew that the trafficked labels were, in fact, counterfeit. The district court’s instruction was ambiguous and deficient in failing to clarify what exactly Liu needed to know when he “knowingly trafficked in counterfeit labels.” Because Liu’s guilt under both statutes depended on the extent of his knowledge, and because he had proffered some evidence that, if credited by the jury, might have resulted in an acquittal under the proper instructions, the Ninth Circuit concluded that the errors were not harmless.

Additionally, Liu raised an ineffective assistance of counsel claim on appeal, asserting that his attorney had failed to raise objections to certain matters in the indictment that should have been subject to a statute of limitations defense. Although the panel noted that it normally would not entertain such challenges on direct appeal, the panel found that one of the counts (count two) against Liu was time-barred and that competent counsel would have raised an objection. Having already vacated all counts, the panel instructed the district court to dismiss count two on remand.

In re AutoHop Litigation, USDC, S.D.N.Y., October 1, 2013

Click here to download a PDF of the full decision.

District court denies ABC’s motion to preliminarily enjoin DISH from offering its PrimeTime Anytime video-recording and AutoHop commercial-skipping services, finding that ABC was unlikely to succeed on either its direct or vicarious copyright infringement claims and that ABC failed to demonstrate that it would suffer irreparable harm.

In this latest chapter of the ongoing “AutoHop” litigation between television broadcast networks ABC and CBS, and DISH Network, the court ruled on two motions: 1) ABC’s motion for a preliminary injunction seeking to prevent DISH from offering its PrimeTime Anytime (“PTAT”) and AutoHop services, pending a final ruling on the merits; and 2) DISH’s motion to dismiss CBS’s fraudulent concealment claim related to alleged fraudulent concealment of DISH’s new services during contract negotiations with CBS. The court denied both motions, concluding that ABC was unlikely to prevail on the merits and failed to show irreparable harm, and that CBS’s fraudulent concealment allegations were sufficient to survive a motion to dismiss, even under Rule 9(b)’s heightened pleading standard.

The court first found that ABC was unlikely to succeed on the merits of any of its claims. The court concluded that DISH was unlikely to be found liable for direct infringement, given that DISH’s subscribers, rather than DISH itself, actually initiated the copying of ABC’s television programs. Although DISH’s technology enabled the copying, the district court considered it settled law that “a person or entity cannot be found directly liable for copyright infringement without proof of some volitional act by the person that constitutes or causes the infringement.” As to vicarious infringement, the court found that, although DISH offers the relevant copying technology, it “has no control over whether its subscribers will enable that technology or what they will choose to copy.” The court also determined that the DISH subscribers’ copying for private, noncommercial home viewing constituted fair use. The court also examined the parties’ 2005 contract and concluded that the challenged PTAT and AutoHop features were more akin to digital video recorders (DVRs), which the relevant contract expressly permitted, rather than a video-on-demand (VOD) service.

The court next examined the issue of irreparable harm. ABC argued that AutoHop’s efficient commercial-skipping feature would deprive ABC of advertising revenues and harm ABC’s relationships and negotiations with authorized licensees. The court found, however, that ABC had not proffered any evidence of actual and imminent injury, treating as speculative the argument that DISH’s services adversely affect ABC’s Nielson ratings. The court noted in particular that Nielsen’s C3 rating system does not distinguish between commercial-skipping using AutoHop and other pre-existing DVR technologies. Finding the first two factors lacking, the court denied ABC’s motion for preliminary injunction.

Finally, the court considered DISH’s motion to dismiss a fraudulent concealment counterclaim asserted by CBS. CBS alleged that during its negotiations with DISH leading up to a 2012 Retransmission Agreement defining the scope (and price) of DISH’s transmission of CBS programming, DISH deliberately concealed the full scope of its forthcoming PTAT and AutoHop services. CBS took the position that DISH held superior information, which CBS had no ability to discover, and that DISH failed to disclose that superior information – related to the imminent AutoHop launch – during the contract negotiations. Although the court noted that the pleading was subject to the heightened pleading standard imposed by Rule 9(b), since it alleged fraud by omission, the court concluded that CBS had satisfied its burden and pled sufficient facts that could plausibly support a claim for fraudulent concealment.

16 Casa Duse, LLC v. Merkin, USDC S.D.N.Y., September 30, 2013

Click here to download a PDF of the full decision.

In copyright dispute between production company and director hired to direct and edit short film, court found that director had no objectively reasonable basis for asserting and registering copyright, granted summary judgment in favor of producer, and awarded producer attorneys’ fees and costs, as well as sanctions against director’s attorney.

Plaintiff, a production company owned and operated by Robert Krakovski, financed and produced a short film titled “Heads Up,” purchased the screenplay from its author, assembled the film’s cast and crew, and eventually hired approximately 30 people, all of whom agreed to assign their rights in the film to plaintiff.

Krakovski approached Merkin in September 2010 to serve as the film’s director. The parties exchanged but never signed a director’s services agreement. Krakovski decided to proceed with filming without a signed agreement, and Merkin proceeded to direct the film. After filming concluded, Krakovski provided Merkin with a hard drive containing the film’s raw footage so that Merkin could prepare an initial edit of the film. Because the parties had not signed a director’s services agreement, they entered into a short media agreement to protect the footage. The agreement permitted Merkin to begin editing the footage but stipulated that “the footage would not be licensed, sold, copied, exhibited, or transferred without Plaintiff’s prior written consent.”

Merkin and Krakovski’s relationship deteriorated as they continued to negotiate the terms of both a director's services agreement and a revised media agreement. When negotiations foundered, Krakovski requested that Merkin return the hard drive storing the film’s raw footage. Plaintiff was beginning to speak to various film festivals about screening the film, but in the meantime, Merkin registered a copyright for the film with the United States Copyright Office, claiming to be the sole copyright claimant for the film.

While plaintiff was speaking to film festivals (including the New York Film Authority (NYFA)) about the film, Merkin’s attorney intervened and asserted ownership rights on behalf of Merkin. In light of the clouded title and Merkin’s threats to sue, the New York Film Authority declined to screen the film at its festival. Litigation ensued, with both parties asserting claims under federal copyright law and state common law.

Considering the cross-motions for summary judgment, the district court found that plaintiff at least shared in the authorship of the film by virtue of his work-for-hire agreements with every member of the cast and crew besides Merkin. Those agreements made plaintiff, as a matter of law, the author of any original contributions to the film by the cast and crew. As to Merkin’s purported claims to authorship, the court applied Second Circuit precedent concerning “joint author” scenarios, finding that there was a glaring absence of any “factual indicia” of Merkin’s ownership or authorship. As plaintiff was at least the dominant author, with no evidence that the rights were intended to be shared, the court granted plaintiff a declaratory judgment that Merkin held no ownership interest in the film. The court further ruled that plaintiff was entitled to summary judgment invalidating Merkin’s copyright registration.

The court also granted plaintiff’s motion for summary judgment on the return of the hard drive. The court further found that Merkin tortiously interfered with NYFA’s screening of the film. Because plaintiff suffered injury as a result of Merkin’s wrongful interference in its relationship with a film festival, the court granted summary judgment as to its tortious interference claim and found Merkin liable for $1,956.58, the full amount sought by plaintiff.

Finally, the court engaged in an analysis of attorneys’ fees, finding it “was objectively unreasonable for Merkin to assert the right to enjoin plaintiff from screening the film and to argue that plaintiff is liable for copyright infringement.” Beyond awarding costs and fees to plaintiff under Section 505 of the Copyright Act, the court took a critical look at the conduct of Merkin’s attorney during the litigation. The court concluded that Merkin’s attorney had acted in bad faith, maintaining positions that were patently unsupported by the law and refusing to concede points once their glaring deficiencies were apparent. The court awarded sanctions against him under 28 U.S.C. § 1927.

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