A Blip in the Transmission: Part 2

The second factor, whether there is a serious threat of irreparable harm, was, comparatively speaking, much more easily considered. While there is no assumption of harm for copyright claims in the 10th Circuit, the nature of a copyright claim does tend to make it easier for plaintiffs to prove this factor. Aereo argued that any financial damage they might have done to the plaintiffs were essentially insignificant, but the court found that appeal wanting, noting that one of the purposes of copyright is ensuring the exclusive control of the copyright material, so that the owner can ensure that the content’s value is not tainted or diluted by unauthorized use, such as the creation of inferior quality copies, or interference in potential business relationships based on the content. As a result, the court felt that this factor also weighed in favor of granting the injunction.

The third and fourth factors only merited truncated discussion. The court first examined the balance of harms and, although noting that Aereo did face a loss of business should the injunction be entered, in all likelihood, their entire business model was based on copyright infringement.  The loss of such a business was not grounds to prevent a preliminary injunction from being entered. The court then examined the public interest, noting that the public’s interest was in seeing the law of copyrights upheld. Our next post will deal with the scope of injunction, the bond, and Aereo’s attempt to transfer venue.

 

The Stream Runs Downhill: Part 3

Today we will conclude our overview of the court's four-part decision in the Hearst v. Aereo copyright infringement case. If you recall, last week we concluded with the court's denial of Hearst's final two claims.

The court then turned to the question of whether Hearst had adequately shown that irreparable harm would be caused absent an injunction, and found that it had not. Hearst first claimed that allowing Aereo to continue its streaming service would leave Hearst unable to maintain its negotiating position in regards to the sale of rebroadcasting rights and the pursuit of other streams of revenue. While the court conceded that Aereo’s service might, in time, weaken Hearst’s ability to negotiate with rebroadcasters, it also noted that because these contracts were only re-negotiated every few years, rather than constantly, that the irreparable harm would likely not occur before the litigation ran its course, making a preliminary injunction unnecessary for preventing this damage.

Hearst next claimed that there would be irreparable harm to its advertising revenue, as advertising rates were based on viewership ratings, and those ratings did not measure those viewers who used streaming services such as Aereo. The court noted that Nielsen, the foremost ratings agency, had recently begun to count online viewers as part of its ratings, and thus ruled that Hearst had not shown irreparable harm from that source either. Finally, the court ruled that Hearst’s claim that Aereo’s service would harm Hearst’s efforts to create its own online streaming service was defective as well, as Hearst’s plans for such a service were too inchoate to be irreparably harmed at this time.

Having failed the first two prongs of the preliminary injunction test, the final two factors were more perfunctory than dispositive. The court, in two paragraphs, noted that the balance of harm does not appear to clearly favor either party, and the public interest similarly “cuts both ways.” In the end, it found that neither factor did much to change its earlier conclusions, and so ruled that because Hearst had failed to show a likelihood of success on the merits, and failed to show irreparable harm, its request for a preliminary injunction was denied.

What does this case mean in a larger context? For one, it is clear that attempts to use decades-old law to regulate cutting edge technology are bound to create serious problems of interpretation. The Copyright Law regarding these issues as cited by the court comes from 1976, when cable television was still in its infancy, and has not truly evolved to keep up with the times. The court’s ruling can be interpreted in different ways. Some will argue that it allows emergent forms of technology to effectively flout copyright laws and profit off the protected material of others due to unforeseen loopholes in the law. Others will take the opposing view, that the courts are unwilling to force new forms of technology into an antiquated regime of law, and will instead allow them to innovate new forms of content distribution until some elected body makes the conscious decision to regulate these new technologies.

 

Kraft vs. Starbucks: The Beginning To The End (3)

In response, Starbucks argued that an injunction was unnecessary because Kraft failed to show that it would suffer irreparable harm in the absence of injunctive relief. Starbucks stated that it had the undisputed right to terminate the contract at any time because Kraft had materially breached the terms by failing to perform its obligations under the contract by “withholding sales presentations and other materials” and failing to improve Starbucks’ declining sales, thereby releasing Starbucks of its obligations under the contract. (Response, pp 6). Further, pursuant to the termination provision of the underlying contract, the damages that Kraft would suffer would be compensable by money damages based on Kraft’s alleged harm of losing the exclusive right to distribute a product through Starbucks. Kraft is the largest food company in North America, and revenues from Starbucks account for 1% of Kraft’s annual revenue. (Response, pp 16).

Is this numerical value significant enough to demonstrate irreparable harm to Kraft? Starbucks said no and cited the following cases. In Litho Prestige, Div. of Unimedia Group, Inc. v. News Am. Publ’g, Inc., 652 F. Supp. 804, 808 (S.D.N.Y. 1986), the court stated that an argument that a four percent business loss would cripple the plaintiff was “wholly unpersuasive”. In Reiter’s Beer Distribs., Inc. v. Christian Schmidt Brewing Co., No. 86 CS 534, 1986 WL 13950, at *11 (E.D.N.Y. Sept. 9, 1986), the court found no irreparable harm where sales of beers at issue constituted between 17% and 29% of distributor’s total sales. Based on these holdings, the potential 1% loss of Kraft’s annual revenue is far from demonstrating irreparable harm. 

Kraft vs. Starbucks: The Beginning To The End (2)

Two months after Kraft denied Starbucks’ offer, Starbucks accused Kraft of materially breaching the contract and informed Kraft that it would be terminating the contract effective March 1, 2011, unless Kraft “cured the alleged breaches within 30 days,” resulting in Kraft’s filing a complaint and motion for preliminary injunction. (Complaint, ¶ 58). In its complaint, Kraft alleged that Starbucks made misleading statements to the press, its investors and Kraft’s customers by “falsely maligning Kraft’s performance” in order to avoid the amount of money that Starbucks would be obligated to pay Kraft for its material breach of the business contract. (Complaint, ¶ 1).

Kraft argued that Starbucks’ breach allegations lacked merit because Kraft’s overall performance under the contract and its “effective in promoting Starbucks Products ha[d] been outstanding by any reasonable measure,” and that Starbucks’ attempt to terminate the contract without complying with its disputed resolution provisions was improper. (Complaint, ¶ 61, 67). Further, Kraft argued that Starbucks’ issuance of a press release impugning Kraft’s performance was misleading and caused an interference with Kraft’s customer relationships. (Complaint, ¶ 76).

Kraft’s argument that it would suffer irreparable harm if injunction was not granted was as follows: 1) Kraft would lose its right to arbitration, 2) Starbucks would continue to publicize the purported termination of its contract with Kraft thereby confusing the market, and 3) Kraft would have no adequate remedy at law, and “money simply [would] not be able to compensate Kraft for the damage that will ensue to its business and reputation.” (Complaint, ¶ 131).