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In a ruling that has broad implications for how movies are marketed on the Internet, a federal judge has enjoined Video Pipeline Inc. from continuing to provide online “streaming” of movie previews it produced itself after Disney and Miramax said it was not allowed to stream the studios’ own trailers. In Video Pipeline v. Buena Vista Home Entertainment Inc., U.S. District Judge Jerome B. Simandle of the District of New Jersey rejected Video Pipeline’s argument that the previews it produced were protected under both the “fair use” and “first sale” doctrines and therefore didn’t infringe on the movie studios’ copyrights. The ruling is a victory for attorneys Gary A. Rosen and Patrick M. Madamba Jr. of the Philadelphia office of Akin, Gump, Strauss, Hauer & Feld. They represented both Buena Vista and Miramax. The case is being closely watched by both the movie and video retailing industries. Friend-of-the-court briefs were filed by the Video Software Dealers Association and the National Association of Recording Merchandisers, in support of Video Pipeline, and by the Motion Picture Association of America, supporting Disney and Miramax. Video Pipeline, which is based in Haddonfield, N.J., was originally granted a license by Disney subsidiary Buena Vista to provide compilation tapes of movie trailers that could be played in video rental and retail stores. But in the late 1990s, when the market for Internet sales of home videos exploded, Video Pipeline began supplying online retailers like, Netflix and Yahoo!Shopping with a service that allowed its customers to watch the trailers online. Video Pipeline had agreements with 25 Internet retailers that allowed visitors to the retailers’ Web sites to click on a “preview” button that links them immediately to, which then streams the video to the customer. To the Internet surfer, however, the technological process is invisible, with no indication that the source of the streaming is Video Pipeline’s site. Under the agreements, Internet-based retailers pay Video Pipeline “per mega byte actually shown to consumers.” But in September 2000, Buena Vista told Video Pipeline that it did not have permission to use the studio-supplied trailers on the Internet, and that they were not cleared for online use. Video Pipeline responded by filing suit in U.S. District Court asking for a declaratory judgment that its use of such promotional materials did not violate copyright laws. Buena Vista responded to the suit by terminating the license agreement and demanding the return of the 80 previews it covered. Video Pipeline removed the studio-produced previews from the Internet but began to make its own “clip previews” from copies of videos owned by its retailer clients. Each clip preview created by Video Pipeline is about two minutes long and consists of an opening display of the Disney or Miramax trademark, the title of the motion picture being distributed by Buena Vista, and then two or more scenes from the motion picture, followed by another display of the title. Unlike the studios’ trailers, the clip previews have no voice-over, no editing, no use of additional music and no use of narration. Ultimately, Video Pipeline created 62 clip previews for movies, such as “Fantasia,” “Beauty and the Beast” and “Pretty Woman.” Simandle found that Internet users streamed Video Pipeline’s clip previews more than 30,000 times between November 2000 and April 2001. The case carries a double caption because Buena Vista and Miramax filed a second suit against Video Pipeline alleging copyright infringement that was later consolidated with Video Pipeline’s declaratory judgment action. In the second suit, Buena Vista argued that Video Pipeline’s creation and distribution of the clip previews violated � 106 of the Copyright Act. But Video Pipeline’s lawyers, Gary D. Fry and Paul R. Fitzmaurice of Pelino & Lentz in Philadelphia, argued that the clip previews are protected by both the first sale doctrine under � 109(a) of the Copyright Act, and the fair use doctrine under � 107 of the Copyright Act. Simandle concluded that each of the clip previews constitutes both a “derivative work” and a “public performance,” both of which are protected as exclusive rights under copyright law. Video Pipeline, Simandle found, is not entitled to protection under the first sale doctrine because it is not the actual retailer and legally cannot “stand in the shoes of its customers” to assert such a defense. “Video Pipeline provides no support for the argument that one in a license agreement is entitled to the protection of the first sale doctrine defense that may be afforded to the other party,” Simandle wrote. Under the first sale doctrine, Simandle said, the copyright owner cannot control the future transfer of a particular copy once its material ownership has been transferred. The U.S. Supreme Court, he said, explained that “the whole point of the first sale doctrine is that once the copyright owner places the copyrighted item in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.” Simandle found that the doctrine extends only to retailers who have purchased the copyrighted work and need the freedom to display portions of the work to encourage sales. But even if Video Pipeline had standing to assert the first sale doctrine defense, Simandle found it still would not apply since Congress clearly excluded electronic transmissions from the doctrine’s protection. Section 106(5) of the Copyright Act states: “The display of a visual image of a copyrighted work would be an infringement if the image were transmitted by any method (by closed or open circuit television, for example, or by a computer system) from one place to members of the public located elsewhere.” NO ‘FAIR USE’ Simandle also found that Video Pipeline is not entitled to a fair use doctrine defense. Under � 107, Simandle said, courts consider four factors in analyzing a fair use claim: � The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; � the nature of the copyrighted work; � the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and � the effect of the use upon the potential market for or value for the copyrighted work. Simandle found that the first factor weighed against Video Pipeline because its clip previews lacked any “transformative character,” and because they were created by a for-profit business. “The previews Video Pipeline provided involved no new creative ingenuity, apart from the snipping and slicing that undoubtedly occurred in selecting the excerpts to be viewed, in order to excerpt about two minutes from a full-length motion picture,” Simandle wrote. The second factor also weighed against Video Pipeline, he said, because the copyrighted works are fictional. “Video Pipeline did not create a movie from a copyrighted story; rather, it used excerpts from the fictional motion pictures to create video trailers that in the end served the goal of advertising the movie for its client retailers. As the work here nevertheless involved creative, as opposed to factual, works, this second factor weighs against a finding of fair use,” Simandle wrote. The third factor also weighed against Video Pipeline, he said, even though its previews used only a small portion of the movies. “From a merely quantitative standpoint, the use of the small portions of the films weighs neither in favor of nor against a finding of a fair use defense. From a qualitative standpoint, however, because of [Video Pipeline's] reliance on the expressive value of its previews in providing a description of the copyrighted motion pictures to potential customers, Video Pipeline’s use of portions of the motion pictures weighs against a finding of the fair use defense,” Simandle wrote. The fourth factor was “neutral,” Simandle found, because Video Pipeline’s previews could arguably both enhance and harm the sales of Buena Vista’s videos. Since the studios have no control over the quality of the clip previews, Simandle found that “it is possible though far from certain that Video Pipeline’s use of the copyrighted work in an inferior clip preview will affect the potential market.” And since Buena Vista has its own Web site, where it competes with the Internet retailers, Simandle found that the Video Pipeline’s previews could detract from sales at the Buena Vista site. On the other hand, Simandle said, “the market for the copyrighted films may well be enhanced by Video Pipeline’s clip previews, because they tend to promote the films to a broadened market of potential customers who find their way to the retailers’ Web sites, and who might otherwise be unaware of, or unattracted to, the retail films.” As a result, Simandle found that the fourth factor was neutral because Video Pipeline’s previews “have a potentially detrimental effect upon the market for the copyrighted works, but they also have a potentially beneficial effect since they are geared to promote sales of the copyrighted works.” Weighing all the factors, Simandle concluded that Video Pipeline was not entitled to the fair use defense since the first and third factors weighed heavily against it, the second weighed slightly against it, and the fourth was a wash. In his final pages, Simandle found that an injunction against Video Pipeline would be in the public interest. Video Pipeline argued that the public interest weighed against an injunction because the major movie distributors, including Buena Vista and Disney, are trying to take over the retailing industry of their home videos. Simandle disagreed, saying “it is not this court’s duty to manage the course of the video retail market economy.” With the injunction in place, Simandle said, retailers may have “limited discretion” in creating advertising vehicles to promote its Buena Vista products since they will not be allowed to outsource video preview-making needs to companies like Video Pipeline. But that problem, he said, is not without a cure. “Retailers may have to rely solely on the trailers that Buena Vista may have provided to all similarly situated retailers, or retailers may have to resort to descriptive narrations of storylines on the Internet, especially if Buena Vista has not provided any trailers to any retailers,” Simandle wrote.

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