Friday, March 15, 2019

U.S. Court of Appeals for the Ninth Circuit, VHT, Inc., a Delaware Corporation, v. ZILLOW GROUP, Inc., a Washington Corporation, Docket No. 17-35587 17-35588, For Publication

Copyright Law
Internet Law
Copyright Infringement
Napster Case
Causation in Cases Involving Automated Systems
Automated- Service Provider’s Direct Liability for Copyright Infringement
Copyright Liability for Website Owners
Feed Providers
Evergreen Rights
Deciduous Rights
License Agreement
Fair Use
Search Engine Cases
Google Books Search Engine

Copyright infringement action brought by VHT, Inc., a real estate photography studio, against Zillow Group, Inc., and Zillow, Inc., an online real estate marketplace.
VHT alleged that Zillow’s use of photos on the “Listing Platform” and “Digs” parts of its website exceeded the scope of VHT’s licenses to brokers, agents, and listing services that provided those photos to Zillow.
Real estate brokers, listing services, and agents hire VHT to take professional photos of new listings for marketing purposes. A VHT photographer takes the photos and sends them to the company’s studio for touch-up, where they are saved to VHT’s electronic photo database, and then delivered to the client for use under license. Each license agreement between VHT and its clients differs slightly, but each contract generally grants the requesting client the right to use the photos in the sale or marketing of the featured property.
The heart of this dispute is Zillow’s copyright liability for use of VHT photos. VHT argues that Zillow directly infringed its copyrighted photos, both those on the Listing Platform and Digs. VHT also argues that Zillow indirectly infringed through use of the photos on Digs. These claims pertain to different images, focus on different features of Zillow’s website, and have different procedural postures, so we consider the various categories of photos separately.

Direct infringement
VHT’s key claim is that Zillow is directly liable for infringing VHT’s copyright on photos that were posted on the Listing Platform and Digs. To prevail on a claim of direct copyright infringement, VHT must establish “ownership of the allegedly infringed material” and that Zillow “violated at least one exclusive right granted to” VHT under 17 U.S.C. § 106. A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir. 2001). It is undisputed that VHT is the copyright holder of the allegedly infringed photos and therefore has the exclusive right to reproduce, adapt, and display them. 17 U.S.C. § 106.
VHT must also establish causation, which is commonly referred to as the “volitional-conduct requirement.” See Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657, 666 (9th Cir. 2017). As we set out in Giganews—decided on the first day of the VHT/Zillow trial and the closest circuit precedent on point—“volition in this context does not really mean an act of willing or choosing or an act of deciding”; rather, “it simply stands for the unremarkable proposition that proximate causation historically underlines copyright infringement liability no less than other torts.” Id. Stated differently, “direct liability must be premised on conduct that can reasonably be described as the direct cause of the infringement.” Id. This prerequisite takes on greater importance in cases involving automated systems, like the Zillow website.
In addressing this concept, Justice Scalia noted that “every Court of Appeals to have considered an automated- service provider’s direct liability for copyright infringement has adopted the volitional-conduct rule.” Am. Broad. Cos., Inc. v. Aereo, Inc., 573 U.S. 431, 453 (2014) (Scalia, J., dissenting). He went on to explain that while “most direct- infringement cases” do not present this issue, “it comes right to the fore when a direct-infringement claim is lodged against a defendant who does nothing more than operate an automated, user-controlled system. . . . Most of the time that issue will come down to who selects the copyrighted content: the defendant or its customers.” Id. at 454–55.
Giganews, Aereo, and out-of-circuit precedent counsel that direct copyright liability for website owners arises when they are actively involved in the infringement. “‘The distinction between active and passive participation’” in the alleged infringement is “‘central’” to the legal analysis. Giganews, 847 F.3d at 667 (quoting Fox Broad. Co. v. Dish Network LLC, 160 F. Supp. 3d 1139, 1160 (C.D. Cal. 2015)).
In other words, to demonstrate volitional conduct, a party like VHT must provide some “evidence showing the alleged infringer exercised control (other than by general operation of its website); selected any material for upload, download, transmission, or storage; or instigated any copying, storage, or distribution” of its photos. VHT failed to satisfy that burden with respect to either the photos on the Listing Platform or on Digs.
Zillow has agreements with its feed providers granting it an express license to use, copy, distribute, publicly display, and create derivative works from the feed data on its websites. Feed providers represent that they “have all necessary rights and authority to enter into” the agreements, and that “Zillow’s exercise of the rights granted thereunder will not violate the intellectual property rights, or any other rights of any third party.”
These agreements provide Zillow with either “evergreen” or “deciduous” rights in the photos provided through the feeds. An evergreen right permits use of a photo without any time restriction, “on and in connection with the operation, marketing and promotion of the web sites and other properties, owned, operated or powered by Zillow or its authorized licensees.” By contrast, a deciduous right is temporally limited: Zillow may use the photo when the real estate listing for its corresponding property is active, but once the listing is removed (for example, when the property sells), the photo must be taken down from Zillow’s websites. To treat each photo consistently with its deciduous or evergreen designation, Zillow developed automated “trumping” rules to determine which photos to display on the Listing Platform.
VHT argues that Zillow “designed its system to . . . cause the reproduction, display, and adaptation of VHT photographs post-sale on the Listing Platform,” and “chose to simply ignore VHT’s notices that post-sale use was beyond the scope of VHT’s licenses.” The district court granted summary judgment to Zillow, concluding that it did not engage in volitional conduct and therefore did not directly infringe VHT’s copyrights in 54,257 photos by displaying them on the Listing Platform after a real estate property was sold.
Zillow did not engage in volitional conduct necessary to support a finding of direct liability. The content of the Listing Platform is populated with data submitted by third- party sources that attested to the permissible use of that data, and Zillow’s system for managing photos on the Listing Platform was constructed in a copyright-protective way. The feed providers themselves select and upload every photo, along with the evergreen or deciduous designations, that wind up on the Listing Platform. As a result, the photos on the Listing Platform were not “selected” by Zillow. See Giganews, 847 F.3d at 670. Nor did Zillow “exercise control” over these photos beyond the “general operation of its website.” Id. Zillow required feed providers to certify the extent of their rights to use each photo. Consistent with these designations, Zillow’s system classified each photo as deciduous or evergreen and programmed its automated systems to treat each photo consistently with that scope of use certified to by the third party.
Further, when multiple versions of the same photo were submitted through the various feeds, Zillow invoked its copyright-protective “trumping” rules. For example, one rule might prefer a photo provided by an agent over one provided by a multiple listing service, and another might prefer a local broker to an international one. Zillow used a rule that gave preference to photos with evergreen rights over photos with deciduous rights in the same image. As the district court recognized, “trumping” is a reasonable way to design a system to manage multiple versions of the same photo when the authorized use varies across versions. These rules, along with other features of the system, facilitate keeping the photos with evergreen rights on the website and removing the photos with deciduous rights once a property has sold. Thus, Zillow actively designed its system to avoid and eliminate copyright infringement.
(…) Courts have analogized online facilities, like Internet service providers, to a copy machine owner, who is not liable “when a customer duplicates an infringing work.” CoStar, 373 F.3d at 550.

Fair Use Defense
Protection of copyrighted works is not absolute. “The fair use defense permits the use of copyrighted works without the copyright owner’s consent under certain situations.” Amazon, 508 F.3d at 1163. Fair use both fosters innovation and encourages iteration on others’ ideas, “thus providing a necessary counterbalance to the copyright law’s goal of protecting creators’ work product.” Id.; see Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 575–76 (1994). Fair use also aligns with copyright’s larger purpose “‘to promote the Progress of Science and useful Arts,’ . . . and to serve ‘the welfare of the public.’” Amazon, 508 F.3d at 1163 (quoting U.S. Const. art. I, § 8, cl. 8, and Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 n.10 (1984)).
(…) The focus of the parties’ debate here is whether Zillow’s tagging of 3,921 VHT photos for searchable functionality on Digs was transformative and thus supported a finding of fair use. The purpose of Digs is to permit users to search for certain attributes or features, such as a marble countertop or hardwood floor, and view photos of rooms with those attributes or features. These photos are either uploaded by users to Digs, or selected manually or electronically by Zillow. Zillow then tags the photos to make them searchable. Of course, tagging makes it possible for a user’s keyword search to produce relevant results. Zillow refers to these tagged photos as “searchable images” or components of the “searchable set.” VHT’s 3,921 photos are in the searchable set.
Zillow contends that Digs is effectively a search engine, which makes its use of VHT’s photos transformative, and therefore fair use. VHT responds that this is not fair use because Digs is not a search engine and the tagging for searchable functionality is not transformative. Dueling “search engine” characterizations do not resolve fair use here. Instead, we step back and assess the question holistically, as we have been instructed to do by the statute and the Supreme Court. We consider the reality of what is happening rather than resorting to labels. To do that, it is helpful to recount the history of the search engine cases.

Evolution of Search Engine Cases
Over the past two decades, search engines have emerged as a significant technology that may qualify as a transformative fair use, making images and information that would otherwise be protected by copyright searchable on the web. See Amazon, 508 F.3d at 1166–67; Kelly, 336 F.3d at 818–22. In assessing fair use in the context of search engines, courts have relied heavily on the first fair use factor, and in particular “whether and to what extent the new work is transformative.” Campbell, 510 U.S. at 579; see also Amazon, 508 F.3d at 1164 (explaining the Kelly court relied “primarily” on the first fair use factor when conducting its analysis); Authors Guild v. Google, Inc., 804 F.3d 202, 220–221, 223 (2d Cir. 2015) (offering a relatively abbreviated consideration of the remaining three fair use factors, all of which were informed by its analysis of the first factor).
In an early opinion applying fair use principles in the digital age, we held that the now-defunct search engine Arriba’s creation and use of thumbnail versions of a professional photographer’s copyrighted images was fair use because the “smaller, lower-resolution images . . . served an entirely different function than the original images.” Kelly, 336 F.3d at 815, 818. The original images served an artistic or aesthetic purpose. Id. at 819. By contrast, the thumbnail images, which were provided in response to a user’s search query, were incorporated into the search engine’s overall function “to help index and improve access to images on the internet and their related web sites.” Id. at 818. Investing the images with a new purpose made Arriba’s use transformative, not superseding. Indeed, the thumbnail versions could not supersede the original use because the thumbnails were grainy and low-resolution when enlarged. Id. Additionally, Arriba’s use of the thumbnail images “promoted the goals of the Copyright Act and the fair use exception” because they “benefited the public by enhancing information-gathering techniques on the internet.” Id. at 820. Just as Campbell had drawn out the principle of transformation from the first statutory factor, we drew out the principle of public benefit.
Building on our reasoning in Kelly, in Amazon we held that Google’s use of thumbnail images in its search engine is “highly transformative” and thus fair use. 508 F.3d at 1163–65. As in Kelly, we concluded that “a search engine provides social benefit by incorporating an original work into a new work, namely, an electronic reference tool.” Id. at 1165. On a scale much greater than the search engine at issue in Kelly, Google “improves access to images on the internet and their related web sites” by “indexing” the internet and linking to the original source image generated in the search results. Kelly, 336 F.3d at 815–16, 818. By using the thumbnail images in service of the search engine, Google “transforms the image,” which might have been created for an “entertainment, aesthetic, or informative function,” “into a pointer directing a user to a source of information.” Amazon, 508 F.3d at 1165. As a result of the new function that the image serves, Google’s use of the entire image in its search engine results “does not diminish the transformative nature of its use.” Id. And, further developing the public benefit principle from Kelly, we emphasized that Google’s search engine both “promotes the purposes of copyright and serves the interests of the public,” which significantly outweighed the superseding or commercial uses of the search engine, and strongly supported finding fair use. Id. at 1166.
More recently, the Second Circuit considered whether fair use protected the Google Books search engine, which employs digital, machine-readable copies of millions of copyright-protected books scanned by Google. Authors Guild, 804 F.3d at 207–08. The Google Books search engine enables a full text search, which makes possible searching for a specific term, and then provides “snippets,” or a part of a page, for users to read. Id. at 208–09, 216–17. The court held that both functions involve a “highly transformative purpose of identifying books of interest to the searcher.” Id. at 218. The search function “augments public knowledge by making available information about Plaintiffs’ books without providing the public with a substantial substitute.” Id. at 207. And the search engine makes possible a new type of research known as “text mining” or “data mining,” whereby users can search across the corpus of books to determine the frequency of specified terms across time. Id. at 209, 217. Additionally, the “snippet” view provides context for users to assess if a book is relevant to them, without providing so much context as to supersede the original. Id. at 218. To boot, Google often provides a link to a page where the entire book can be found at a library or purchased. Id. at 209. Concluding that Google’s commercial motivation did not significantly outweigh these transformative uses, the court held that the first factor strongly supported a finding of fair use. Id. at 219.
What we divine from these cases is that the label “search engine” is not a talismanic term that serves as an on-off switch as to fair use. Rather, these cases teach the importance of considering the details and function of a website’s operation in making a fair use determination.
Unlike the internet-wide search engines considered in Amazon and Kelly, Digs is a closed-universe search engine that does not “crawl” the web. Users can run searches on the “searchable set” of images within Digs’ walled garden, which includes VHT photos. The search results do not direct users to the original sources of the photos, such as VHT’s website. Rather, they link to other pages within Zillow’s website and, in some cases, to third-party merchants that sell items similar to those featured in the photo.
That Digs makes these images searchable does not fundamentally change their original purpose when produced by VHT: to artfully depict rooms and properties. Additionally, Digs displays the entire VHT image, not merely a thumbnail. Unlike in Amazon, the new image does not serve a “different function” than the old one. Amazon, 508 F.3d at 1165. Zillow’s use preserves the photos’ “inherent character.” Monge, 688 F.3d at 1176. And Zillow “simply supersedes VHT’s purpose” in creating the images in the first place. Kelly, 336 F.3d at 819–20; see Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 550–51 (1985) (holding that if a new work “supersedes the use of the original,” it is probably not a fair use).
These features, in conjunction with other creative aspects of Google Books, result in a categorically more transformative use than Zillow’s simple tagging and query system that displays full-size copyrighted images serving the same purpose as the originals, with no option to opt out of the display, and with few, if any, transformative qualities. Any transformation by Zillow pales in comparison to the uses upheld in prior search engine cases. Such use also does nothing to further the use of copyrighted works for the socially valuable purposes identified in the Copyright Act itself, like “criticism, comment, news reporting, teaching . . . , scholarship, or research.” 17 U.S.C. § 107; see also NIMMER ON COPYRIGHT § 13.05[A]. The lack of transformation is especially significant because, as Kelly teaches, “the more transformative the new work, the less important the other factors, including commercialism, become.” 336 F.3d at 818 (citing Campbell, 510 U.S. at 579).

Our decisions in Amazon and Kelly provide a roadmap for analyzing the second factor, which focuses on the nature of the copyrighted work. In those cases, we held that photographers’ images are creative, especially when they are created for public viewing. Amazon, 508 F.3d at 1167; Kelly, 336 F.3d at 820. “Works that are creative in nature are ‘closer to the core of intended copyright protection’ than are more fact-based works.” Napster, 239 F.3d at 1016 (quoting Campbell, 510 U.S. at 586).
The third factor evaluates the amount and substantiality of the copyrighted work that was used.
Finally, the fourth factor considers “the effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. § 107(4). To defeat a fair use defense, “one need only show that if the challenged use should become widespread, it would adversely affect the potential market for the copyrighted work.” Harper & Row Publishers, 471 U.S. at 568.
Taken together, the nature of Zillow’s use, when integrated with the four factors, cuts against finding fair use by Zillow. We affirm the district court’s grant of summary judgment to VHT with respect to fair use.

Vicarious Liability
Our conclusion is consistent with earlier dicta that “the vicarious liability standard applied in Napster can be met by merely having the general ability to locate infringing material and terminate users’ access.” UMG Recordings, Inc. v. Shelter Capital Partners LLC, 718 F.3d 1006, 1030 (9th Cir. 2013). Once VHT photos were uploaded to the Listing Platform with appropriate certification of rights, ferreting out claimed infringement through use on Digs was beyond hunting for a needle in a haystack. As the district court concluded, “the trial record lacks substantial evidence of a practical ability to limit direct infringement for the same reasons it lacks substantial evidence of simple measures to remove infringing material.” And linking a claimed infringement to a feed provider was even more of an impossibility.
We affirm the district court’s judgment notwithstanding the verdict concluding that substantial evidence did not support the claim that Zillow secondarily infringed VHT’s exclusive rights in its photos.

Secondary sources: NIMMER ON COPYRIGHT.

(U.S. Court of Appeals for the Ninth Circuit, March 15, 2019, VHT, Inc., a Delaware Corporation, v. ZILLOW GROUP, Inc., a Washington Corporation, Docket No. 17-35587 17-35588, Judge McKeown, For Publication)

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