974 659 FEDERAL REPORTER, 24 SERIES Our sentiments are the same as those of one of the dissenters in Williams & Wilkins Co. who stated, "Although the court states that it rejects the trial determinations as to both actual and potential damage to plaintiff, I think the opinion shows that the court's conclusion is based primarily on its finding that plaintiff failed to prove actual damages" 487 F 2d at 1367 (Cowen, C. J., dissenting). [Emphasis added.] That is simply too great a burden to impose on copyright plaintiffs. Nimmer has suggested that "the central question in the determination of fair use is whether the infringing work tends to diminish or prejudice the potential sale of plaintiff's work." 3 Nimmer, supra, § 13.05[E][4][c] at 13-84. [Emphasis added] [Footnote omitted.] Under this sort of standard, it seems clear that appellants should have prevailed. Since the copies made by home videorecording are used for the same purpose as the original, a finding of fair use is not justified. The district court seems to recognize, on several occasions, that appellants will have to take affirmative steps to compete with the appropriated versions of their work. That such competition is necessary supports appellants' allegations of harm; at the least, it makes clear that the "infringing" activity tends to prejudice the potential sale of appellants' work. It is clear that home users assign economic value to their ability to have control over access to copyrighted works. The copyright laws would seem to require that the copyright owner be given the opportunity to exploit this market. Second, we do not believe that the district court paid sufficient attention to the fact that it is extremely difficult for a copyright plaintiff to prove harm from the activities of specific defendants. 3 Nimmer, supra, lees did not establish with any degree of cer tainty that such harm was not likely to occur. 12. The Second Circuit has used this approach. Meeropol v. Nizer, 560 F.2d 1061, 1070 (C.A.2 1977). 13. Put another way, because the copies serve the same function as the onginal, the "functional test" suggests that fair use is not availabie. 3 Nimmer, supra, § 13.05(B); MetroGoldwyn-Mayer, Inc. v. Showcase Atlanta Co § 13.05[E][4][c]. As Nimmer states. "Far from this justifying a defense of fair use. failure to prove damages will in the usual case give rise to a minimum statutory damages liability. It is only when the general dissemination of an allegedly infringing work by all potential defendants, and without limitation as to the number of reproductions, and volume of users would still not adversely affect the plaintiff's potential market that a conclusion of fair use may be justified." Id. at 13-84.14 The district court quoted, in what seemed to be an approving manner, similar sentiments from one of Nimmer's law review articles, but the court clearly did not use this rationale in deciding the fair use question. The court, in analyzing the fourth fair use factor, did not pay sufficient attention to the cumulative effect of mass reproduction of copyrighted works made possible by videorecorders. It seems clear that absent an inquiry which takes into consideration the full scope of the “infringing" practice, copyright plaintiffs, in cases of this sort, would face insuperable obstacles to the protection of their rights. And, where one looks at the full scope of the activity in question, it seems clear that it tends to diminish the potential market for appellants' works. II. LIABILITY OF CORPORATE [3, 4] We disagree with the district court's conclusion that even if it were to hold that home-use copying was an infringement under the Old and the New Acts and was not fair use, the court could not find the appellees Sonam, Sony, DDBI and the four retail stores liable for this type of infringement. 480 F.Supp. at 457. operative Productions, Inc.. +79 F.Supp. 351 (N.D.Ga. 1979). 14. Senate Report 94473 seems to express a somewhat similar concern about mass prouferation of minor infringements: "Isolated instances of minor infringements, when muluplied many times, become in the aggregate a major inroad on copynght that must be prevented." Id. at 65. UNIVERSAL CITY STUDIOS v. SONY CORP. OF AMERICA At the outset, it is necessary to make a couple of observations about the district court's analysis. The court relied heavily on a "staple item of commerce" is theory in rejecting appellants' claims. The district court stated that "Selling of a staple article of commerce e g., a typewriter, a recorder, a camera, a photocopying machinetechnically contributes to any infringing use subsequently made thereof, but this kind of contribution,' if deemed sufficient as a basis for liability, would expand the theory beyond precedent and arguably be yond judicial management." 480 F.Supp. at 461 This reliance on the "staple article of commerce" theory was inappropriate. Appeilees' analogy of videotape records to cameras or photocopying machines may have substantial benefit for some purposes, but does not even remotely raise copyright problems. Videotape recorders are manufactured, advertised, and sold for the pri mary purpose of reproducing television programming. Virtually all television programming is copyrighted material.1 Therefore, videotape recorders are not "suitable for substantial noninfringing use." See 3 Nimmer supra, § 1204[A] at 12-39, 12-40. That some copyright owners choose, for one reason or another, not to enforce their rights does not preclude those who legitimately choose to do so from protecting theirs. A second observation about the district court's analysis is in order. The court found that the corporate appellees' knowledge was insufficient to make them contributory infringers. This was based, in part, on the court's assertion that "defendants here could not know what copyright law required. Before this lawsuit, that issue had not been determined." 480 F.Supp. at 460. It is not necessary that an alleged contributory infringer have actual knowedge that activity which he makes possible 13. See 35 U.S.C. § 271(c) (defining contributory infringement in patent context and providing for exception for "a staple article or commodity of commerce suitable for substantial noninfringing use""): Aro Mfg. Co. v. Convertible Top Ca.. 377 U.S. 476. 488-89, 84 S.CL 1526, 153334. 12 LEd.2d 457 (1964). 975 constitutes a copyright infringement. A We First, the knowledge element is clearly satisfied. The corporate appellees "know" that the Betamax will be used to reproduce copyrighted materials. In fact, that is the most conspicuous use of the product. That use is intended, expected, encouraged, and the source of the product's consumer appeal. The record establishes that appellees knew and expected that Betamax's major use would be to record copyrighted programs off-the-air. Second, there is no doubt that appellees have met the other 16. For examples, see Nimmer, supra, § 12.04(A) at 12-39-40. 17. 3 Nimmer, supra, § 13.08. This discussion of "liability" obviously only pertains to civil. not criminal, liability. 976 659 FEDERAL REPORTER, 2d SERIES Because we have found that home vid eorecording constitutes copyright infringe ment and that appellees are liable for such use, the district court's judgment must be reversed and the case remanded for a consideration of the appropriate relief. The relief question is exceedingly complex, and the difficulty in fashioning relief may well have influenced the district court's evaluation of the liability issue. The difficulty of fashioning relief cannot, however, dissuade the federal courts from affording appropriate relief to those whose rights have been infringed. Appellants stated at oral argument that they were seeking a remand to the district court so that the district court could fashion the appropriate relief. This approach makes a good deal of sense; a district court is in a better position to resolve, in an appropriate fashion, the relief question. There are a number of possibilities that the district court may want to consider. Because of the difficulty of proving the precise nature of the harm to appellants, statutory damages may be appropriate. 17 U.S.C. § 504(c). The district court also has a broad range of equitable remedies from which to choose. Section 502(a) provides that the court "may grant temporary 18. "Ordinarily it would be improper, and even an abuse of discretion for a court to deny a permanent injunction where liability and a threat of conunuing infringement have both been established. But if one looks to other areas of property law it is clear that a property owner may be denied a permanent injunction against further violations of his property night where such an injunction would work a substanual injury to the public interest as well as to that of the particular defendant. and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." The district court determined that an injunction would not be an appropriate remedy. 480 F.Supp. 463-69. The court should reconsider this action. We note that, as a general rule, a copyright plaintiff is entitled to a permanent injunction when liability has been estab lished and there is a threat of continuing violations. Indeed. Nimmer states that "Generally, it would appear to be an abuse of discretion to deny a permanent injunction where liability has been established and there is a threat of continuing infringement." 3 Nimmer, supra, § 14.06[B] at 14-53-14-54. In discussing the analogous photocopying area. Nimmer suggests that when great public injury would result from an injunction, a court could award damages or a continuing royalty. This may very well be an acceptable resolution in this context. In fashioning relief, the district court should not be overly concerned with the prospective harm to appellees. A defendant has no right to expect a return on investment from activities which violate the copyright laws. Once a determination has been made that an infringement is .nvoived, the continued profitability of appellees' businesses is of secondary concern. IV. RETAIL STORE USE We find no error with the district court's discussion of the fair use question in regard to the retail store use. Therefore, we affirm that portion of the decision. In such circumstances the property owner may be awarded, in lieu of an injunction, a reasonable royalty for the further use of his property. The courts might well conclude that photocopying practices for private use. particularly in the area of scientific writings. involve just such a public interest, so that a judicially created compulsory license as a substitute for injunctive relief could be found appropriate." 3 Nimmer, supra. § 13.05[E][4][e] at 13-91. (Emphasis added.] UNIVERSAL CITY STUDIOS v. SONY CORP. OF AMERICA V. UNFAIR COMPETITION CLAIMS In light of our previous discussion, we have decided to vacate the district court's earlier disposition of the unfair competition claims and remand for reconsideration. We express no view on the merits of these claims. VI. CROSS-APPEAL The appellees below have cross-appealed because of the district court's failure to receive evidence on three affirmative defenses: (1) laches and estoppel, (2) copyright invalidity, and (3) unclean hands/copyright enforceability. On this appeal, we reverse and remand. The district court should give appellees an opportunity to establish these defenses. CONCLUSION We find no Congressional intent to create a blanket home use exception to copyright protection and that home videorecording does not constitute fair use. In addition, the appeilees are legally responsible for the infringing activity. The district court's decision must be reversed and the case remanded for appropriate proceedings. The court should consider the unfair competition claims and the affirmative defenses. If appellants prevail on the defenses, the district court should fashion appropriate relief. The judgment of the district court is reversed in part, affirmed in part, and the case remanded for appropriate proceedings. IT IS SO ORDERED. LEY NUMBER SYSTEM 977 |