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A company that offers subscribing customers an archive of recorded television programming failed to persuade the U.S. Court of Appeals for the Second Circuit that its actions represented a fair use of the content.

The company, TVEyes Inc., was sued by Fox News over its service that allowed customers to search through its recordings of the cable news network's programming, using the text from closed captioning as a way for users to search for specific keywords for corresponding clips

U.S. District Judge Alvin Hellerstein of the Southern District of New York offered a mixed opinion on TVEyes' services on fair use grounds in November 2015. Some of the company's services constituted fair use, Hellerstein found, namely its text-search service, the ability to review videos and the option to save the videos to the TVEyes servers. Downloading videos to personal computers, emailing videos to other people and the ability to find videos by specific times they aired were not covered, Hellerstein said. He granted an injunction to block those services.

On appeal, the panel of Circuit Judges Jon Newman and Dennis Jacobs, with U.S. District Judge Lewis Kaplan of the Southern District of New York, sitting by designation, only focused on the so-called “watch” service provided by TVEyes, as Fox did not raise the issue of the company's text-searchable database. The panel noted that the case shared features with its decision in Authors Guild v. Google, which held that the online company's searchable database of millions of books represented fair use because it held up to the “transformative” service test and had substantial protections for copyright holders.

TVEyes, however, failed to hold up to a similar test, the panel found.

“At bottom, TVEyes is unlawfully profiting off the work of others by commercially redistributing all of that work that a viewer wishes to use, without payment or license,” the panel said.

TVEyes' watch capabilities did represent a “somewhat transformative” function, the panel noted, as it enhances the efficiency for viewers looking for specific information during specific broadcasts in a way not available to regular Fox News viewers.

However, two factors weighed against TVEyes' fair use claims, the strongest of which was the potential harm to Fox News in the marketplace. The panel agreed with Fox's argument that TVEyes undercut its ability to profit from licensing its content to a similar outside service. TVEyes' success proved there's a viable market for such a service, the panel noted. TVEyes, then, “displaces potential Fox revenues when TVEyes allows its clients to watch Fox's copyrighted content without Fox's permission,” the panel stated.

“By providing Fox's content to TVEyes clients without payment to Fox, TVEyes is in effect depriving Fox of licensing revenues from TVEyes or from similar entities,” the panel said.

The access that TVEyes allows to Fox's content also goes beyond fair use, the panel found, as it represents a substantial amount of what users are looking for. Unlike the Google case, where only snippets of books were available, allowing for users to find the discrete information they wanted to know without handing over the bulk of the copyrighted work, “TVEyes makes available virtually the entirety of the Fox programming that TVEyes users want to see and hear,” the panel found.

In a concurring opinion, Kaplan agreed with the substance of the rest of the panel's thinking. However, Kaplan took specific issue with the panel's use of the “somewhat transformative” language, referring to it as “obitur dictum.” The term, Kaplan said, strayed from the definitive findings of either transformative or not that are critical in fair use case. Adding a previously unused version of the term had the ability to “contribute to confusion and uncertainty regarding this central concept in the law of fair use.”

That the issue of how transformative the watch function was failed to be a material concern in the outcome of the case only led Kaplan to argue that it wasn't, in fact, that transformative at all—and would have been better found as such.

“Even on the majority's view that TVEyes Watch function substantially improves the efficiency with which TVEyes customers can access Fox copyrighted broadcasts of possible interest, it does no more than repackage and deliver the original works,” Kaplan wrote. “It adds no new information, no new aesthetics and no new insights or understandings. I therefore doubt that it is transformative.”

Kirkland & Ellis partner Dale Cendali represented Fox on appeal. In a statement, Cendali called the decision a sweeping victory for the cable news channel, and one that will serve as notice to courts that “it is critical for a court to evaluate all of the fair use factors,” even when a service is deemed “modestly transformative.”

“We cannot emphasize enough the practical effect this win should have for content holders of all stripes in not being deprived of the benefit of monetizing content by those standing on fair use grounds,” she said.

Quinn Emanuel Urquhart & Sullivan name attorney Kathleen Sullivan represented TVEyes on appeal. She did not respond to a request for comment.