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Wednesday, July 24, 2013

Fox Broadcasting v. Dish Network - let's hop to the contract issues

The Ninth Circuit recently decided an interesting case involving video on demand – or is the Hopper a DVR?  That was one of the questions at the heart of Fox Broadcasting Company v. Dish Network. (Jeremy Telman had previously blogged about the case when the complaint was first filed a year ago).  At issue was the Dish Network’s PrimeTime Anytime service which only works with the Hopper, a set top box with digital video recorder and video on demand functionalities.  PrimeTime Anytime records Fox (and other) network shows and stores the recordings for a certain number of days (typically eight) on the Dish customer’s Hopper.  Dish does not offer video on demand from Fox (but see discussion below).  Dish started to offer a new feature called “AutoHop” that allows users to skip commercials on shows recorded on PrimeTime Anytime (although it doesn’t delete the commercials, the user can press a button to skip them).  Fox sued Dish for copyright infringement and breach of contract and sought a preliminary injunction.  The Ninth Circuit upheld the district court’s denial of the motion.  The copyright issues are interesting, but I’m going to skip over them using this blog’s virtual AutoHop feature and get right to the contract issues, which are much more interesting to readers of this blog. 

There were two agreements at issue here.  There was a 2002 license agreement and a subsequent 2010 letter agreement (there were others but these were the two relevant ones).  Pursuant to the 2002
agreement, Fox granted Dish a limited right to retransmit Fox’s broadcast signal to Dish’s subscribers.  It also contained several restrictions and conditions and prohibited video on demand.  A 2010 letter agreement, however, agreed to video on demand provided that Dish agreed to certain conditions, the primary one being that it couldn’t show the content without commercials. 

So the basic questions (overly simplified for blog purposes) were – did Dish distribute Fox video on demand content?   If so, did it comply with the terms of the 2010 letter?  (Okay, that’s not exactly how the court or the parties put it, but those were the issues stripped down to their essence).

Fox argued that Dish breached this provision of the 2002 contract:

“EchoStar acknowledges andagrees that it shall have no right to distribute all or any portion of the
programming contained in any Analog Signal on an interactive, time-delayed, video-on-demand
or similar basis; provided that Fox acknowledges that the foregoing shall not restrict EchoStar’s practice of connecting its Subscribers’ video replay equipment.”

The district court construed the word “distribute” as requiring a copyright work to “change hands” (analogous to under the Copyright Act).  Because the copies remained in users’ homes,they did not change hands and there was no distribution.  Fox challenged this construction and argued that the prohibition against distribution meant that Dish would not make Fox programming available to its subscribers on the aforementioned basis.  The Ninth Circuit found both Fox’s and the district court’s constructions plausible (yes I realize there’s a distinction between interpretation and construction but I don’t want to go there right now, although you may). 

The Ninth Circuit withheld judgment on which construction was better but stated that “in the proceedings below, the parties did not argue about the meaning of ‘distribute.’  We express no view on whether, after a fully developed record and arguments, the district court’s construction of ‘distribute’ will prove to be the correct one.”

The court did, however, express skepticism that PrimeTime Anytime was not “similar” to video-on- demand (remember, the 2002 contract prohibited “video-on-demand or similar basis”)(emphasis added by yours truly).  The “distribution” of that, therefore, would violate the 2002 contract. Dish argued that its service was not “identical” to VOD but, as the Ninth Circuit noted, did not explain why it was not “similar.”  (Note: I hope all you contracts profs are feeling ever more relevant!  And our students thought we were just making mountains out of molehills when we focused on the importance of contract language).  The addition of that word “similar” might just save Fox when the case goes to trial.  Especially since, as even the district court held, if PrimeTime Anytime is VOD, then Dish clearly breached the contract which prohibited skipping commercials. The district court, however, wasn’t convinced that it was VOD.  Rather, the district court concluded that it was a hybrid of DVR and VOD and “more akin” to DVR than VOD.

In other words, the district court’s analysis went along these lines – the 2002 contract was not breached because there was no distribution of VOD (or similar) content.  The 2010 contract was not breached because this was not VOD but DVR. In short, this was not VOD and there was no distribution of a VOD-like service.

Query if the 2010 amendment had adopted the “VOD or similar” language instead of just “VOD”; in other words, what if it permitted Dish to offer Fox’s programming as VOD or “similar” service?  My guess is that they specifically drafted it narrowly to include just “VOD” to limit the scope of the license – but that it ended up backfiring to exclude the conditions on “similar” services.  Funny how drafting rules of thumb can sometimes come back to bite you.  Note the problem was created because the definitions were not consistent in the 2002 and 2010 agreements – it created a gap regarding a service (a “VOD similar service”) which required judicial construction.  Distribution of VOD or similar services was prohibited under the 2002 contract but VOD was permitted under the 2010 provided commercials were not skipped.  And what happens to showing (not distributing) "similar services to VOD"?  Mind the gap!

 There was a final issue regarding a “good faith” in performance type clause.  The Ninth Circuit  concluded that there was no evidence that Dish launched PrimeTime Anytime “because it was unwilling to comply with the requirements to offer Fox’s licensed video on demand service, rather than because Dish lacked the technological capability to do so.”  Frankly, I’m not sure why this was not a bigger issue since it seems, at least to me, that Dish is trying to get around the “no commercial skipping” restriction in the 2010 agreement by using the Hopper.

 The Ninth Circuit noted a few times that it was applying a “deferential standard of review” given the request for a preliminary injunction so I don’t think Dish can rest easy just yet.  I think Fox’s case will eventually hinge upon how the contract issues are resolved.  What is the meaning of “distribute”? (I don’t know enough about how Dish technology works to determine whether distribution occurred.  Even under the district court’s definition, could it have occurred?  Does rebeaming signals constitute distribution?  Is the service analogous to a lease?  I think there’s room here).  Is the PrimeTime Anytime service VOD or not?  And isn’t that 2002 agreement relevant in determining what the meaning of VOD is under the 2010 amendment?  Finally, why did the court give the “good faith in performance of contract” such short shrift?

I didn't get to review the actual agreements, but I would look at what exactly is being licensed under the 2002 agreement.  Does it exclude the VOD-like service or include it?  The gap seems odd to me - it must be addressed in one of the agreements.  What exactly does Dish have the right to do?  That seems to me one of the keys to unlocking the "correct" interpretation of the contract - and help determine whether the obligation of good faith is being fulfilled.

The real hammer here is going to be contract renewal - if Dish pisses off Fox and the other networks then it may kiss its business goodbye if they don't renew their contracts.  (As I mentioned, I haven't seen the contracts so don't know what the terms are).

As the court notes, the parties probably didn’t contemplate a hybrid DVR and VOD (this is the old “anticipating the future and new technologies” problem that contract drafters have to which I’ve previously referred) I think the copyright issues weigh more heavily in favor of Dish whereas Fox has the better argument re the contract issues.  Of course, the much larger policy issue is how to strike the balance between contract and copyright – a recurring issue since the late eighties…Generally, it's been advantage contracts.

 [Nancy Kim]

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