Networked Private Video Recorders – the next Sony Betamax case? Finnish Lawmakers and Case Law Shed Light on Copyright Issues in Next Generation Entertainment Solution

Through the reform, a system combining extended collective licensing and individual contracting was introduced for nPVR solutions. The renewed regulation is an attempt by Finnish lawmakers to remove the legal uncertainty surrounding these solutions as well as to tackle related copyright issues. The legal reform came into force just before the District Court of Helsinki in September 2015 gave its decision in a criminal case concerning the nPVR solution TVkaista. In this long-awaited but not yet final decision, the Court concluded that the solution TVKaista amounted to copyright infringement and held that it was not covered by the private copying exception under the Finnish Copyright Act.

Cloudification of television – background

nPVR solutions, which are widely available both on the global market and in Finland, have given rise to various legal issues. nPVR solutions, illustrating one aspect of the ”cloudification of television”, allow consumers to store broadcast content recordings in the operators’ servers, allowing for the time- and/or place-shifting of content, i.e. the ability to view broadcast content at will instead of being tied to the broadcast schedule – just as in traditional recording devices or set-top boxes. In practice, this means that the end-user can choose to watch certain broadcast content at any time (and, in some cases, via multiple devices) without recording the content onto a device at their physical location.

The technical implementation and bundled solutions offered varies immensely between the different nPVR solutions available on the market. For example, nPVR solutions can be divided into user-initiated and non-user initiated solutions. In user-initiated solutions, the user initiates a recording of a broadcast, which is then only accessible to this specific user. In 2008, the US Court of Appeals for the Second Circuit held in its well-known Cablevision decision that the user-initiated Cablevision service did not constitute a copyright infringement, as there was no public performance of the content as each viewer made a separate copy of the content for individual use. On the other hand, in non-user initiated solutions, all content on specific channels is captured centrally by the solution provider and end-users can then access the programs on demand.

All nPVR solutions seem to be implemented in a manner where the broadcasting signal is received and recorded on the solution provider’s receiver and the broadcast content is recorded on the solution provider’s server. nPVR solution providers are independent players from the broadcasters, e.g. operators or IPTV companies.

Uncertainty as to the Legality of nPVR Solutions 

The largely debated question is whether nPVR solutions infringe copyright or not. The general view of solution providers is that nPVR solutions are to be considered as no different as in-home, hard-drive based set-top boxes and thus considered falling under the copyright exemption on private copying. On the other hand are the content owners, whose opinion, not surprisingly, is that nPVR solutions operating without an appropriate license constitute a copyright infringement.

Courts around the world, for example in the UK, US and Germany, have been or are at the moment debating this issue, with results typically in favor of the right holders. The US Supreme Court held in its Aereo ruling in 2014 that the Aereo service, where each user had two tiny individual antennae located at the solution provider’s data center, amounted to copyright infringement. The court determined that Aereo’s services were no different to those of a cable TV company and that it performed the petitioners’ works publicly. A significant difference between the Aereo service and the aforementioned Cablevision service was Aereo’s failure to pay any license fees for re-broadcasting or to obtain permission from the broadcasters.

Meanwhile, in the UK, the High Court found that TV Catchup’s mobile services infringed the broadcasters’ copyright. Under UK law, copyright is not infringed to the extent that the broadcast is received and immediately retransmitted by ”cable”. The High Court held that the meaning of the term “cable” did not extend to streaming services to mobile devices over mobile networks, meaning that TV broadcasters can prohibit the retransmission of their content by another company via the internet. This ruling resulted in a second referral to the Court of Justice of the European Union in 2015. The question referred concerns the definition of ”cable” and whether it includes transmission via internet.

Specific legislation on nPVR solutions still seems to be quite unusual within the EU, although several countries are currently involved in discussions on how to regulate such solutions through legislation. For example, the European Commission has announced that it will, within the scope of the Digital Single Market strategy, consider measures in the area of new forms of online distribution of copyright-protected works and assess if measures are needed for defining the rights of ”communication to the public” and of ”making available”.

The Finnish Way: Introduction of Extended Collective Licensing for nPVR Solutions

Prior to the recent legal reform, nPVR solutions in Finland were arguably considered to fall within the scope of the copyright exemption on private copying. As a result, nPVR solution providers were using copyrighted works without the permission of the copyright holders and, consequently, no compensation was paid to the copyright holders. The uncertain legal landscape might also have hampered attempts to negotiate on the issue.

In order to clarify the law, section 25 l was included in the Finnish Copyright Act (404/1961, as amended). Pursuant to the new section, by entering into a collective license with the authorized collective management organizations, the nPVR solution provider will have the right to record broadcast content and make it available to the public by transmission in such a way that members of the public can access the content from a place and at a time individually chosen by them. It is worth noting that the collective license also covers content owned by parties that are not members of any collective management organization, including content such as TV series and movies, which is owned by foreign studios and global entertainment players.

The collective license does not, however, apply to content to which the broadcasting company has acquired the nPVR rights from the right holders. In these cases, the nPVR solution provider must enter into an agreement directly with the broadcasting company regarding the recording and publication of such content in the nPVR solution. Furthermore, due to the separate signal rights held by broadcasters, the nPVR provider must in any event enter into a separate agreement on the use of the broadcasting company’s signal when relying on the collective licensing scheme.

Finally, the Copyright Act enables any producer holding all rights relevant for nPVR activity in the relevant broadcast content to opt out from the collective licensing scheme; specifically, such producers or production companies can effectively prohibit the application of the collective license to such content. The right to opt out was introduced by the Parliament at a late stage of the preparation of the new legislation. The Parliament held that the exclusion of the producer’s right, as first suggested by the Government, would most likely lead to various shut-down claims and litigation against the nPVR solution providers, which would in turn cause harm to consumers. It remains to be seen how common the use of the opt-out right will be in practice.

Private Copying Exception Not Applicable to the nPVR solution TVkaista

In September 2015, only a couple of months after the entering into force of the new legislation, the District Court of Helsinki gave its decision in a criminal matter concerning nPVR solutions. The nPVR solution offered by TVkaista had been technically implemented in such a way that TVkaista – independently from its subscribers’ actions – produced a master copy of the television broadcast signal. The master copy was subsequently converted into copies in several other file formats, which were distributed to the subscribers. The subscribers did not have personal recording devices and all the copies were stored on TVkaista’s servers. No licenses had been acquired from copyright holders or television channels.

The defendants claimed that licenses were not required, as the nPVR solution was covered by the private copying exception of the Finnish Copyright Act. However, the court reasoned that the private copying exception of the Copyright Act could not be applied, as TVkaista had independently manufactured the copies of the television broadcasts without any contribution from its subscribers. The main defendants, TVkaista’s directors, were sentenced to 11 and 7 months of conditional imprisonment. Additionally, they were prohibited from infringing the right holders’ copyrights and were ordered to pay, in addition to litigation costs, approximately EUR 270,000 to the right holders as compensation for damage. The judgment has been appealed to Helsinki Court of Appeals, and is therefore not final.

The judgement implies that a user-specific recording device or other involvement of the end-user would be required for the private copying exception to apply. This interpretation seems to be in line with the preparatory works of the new legislation, in which it is implied that when using an nPVR solution, the solution provider takes care of the recording on behalf of the consumer, and for that reason the private copying exception is not applicable.

The Finnish ruling in TVkaista is in line with the decisions of the German Federal Supreme Court (”BGH”) regarding the nPVR solutions Save.TV and Shift.TV, to the extent that the BHG held that copyright is not infringed if (i) the recording is initiated by the user and the operator does not interfere manually with the recording process; and (ii) no master copy is stored centrally. However, it is to be noted that BHG’s decision is not final, as the case was referred back to the Courts of Appeal. 

Concluding remarks

As a result of the introduction of section 25 l in the Finnish Copyright Act, it is expected that nPVR solution providers will in most cases negotiate agreements with, first, the collective management organizations as regards the content rights necessary for nPVR solutions and, secondly, with the TV broadcasting companies as regards the use of (a) the signal, and (b) broadcast content not covered by the collective license, if any. nPVR solution providers that do not implement their solution in a manner compatible with the private copying exemption should thus carefully review their current practices (and agreements) to ensure they have obtained sufficient rights to distribute content through nPVR solutions and that they incorporate the new rules.

The recent reform and case law in Finland shed some light on the question of whether nPVR solutions may be covered by the private copying exception or not and what conditions need to examined in such assessment. It nevertheless remains to be seen whether the Finnish solution based on a combination of extended collective licensing and private copying for nPVR solutions is in practice successful in eliminating the legal uncertainties relating to nPVR solutions, while still allowing for the further development of nPVR solutions, a quickly growing business.

Although courts around the world have assessed various copyright issues related to nPVR solutions, these rulings have often focused more on technological details instead of actually clarifying the legal position of nPVR services. However, in general, user-initiated solutions that make the recording as a separate copy seem to be less likely to be considered copyright infringement than non-user initiated solutions. In any case, pending clarification from lawmakers, new nPVR solutions and technologies will continue to challenge the law and give rise to litigation around the globe. Who knows, maybe nPVR solutions will even trigger the next Sony Betamax case – enabling technology to move forward without being hindered by the law.

Mikko Manner
Partner

Åsa Henriksson
Associate

Roschier, Attorneys Ltd.