SONY CORP v. UNIVERSAL CITY STUDIOS

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ORAL ARGUMENT OF DEAN C. DUNLAVEY, ESQ. ON BEHALF OF PETITIONERS

Chief Justice Burger: Before we hear the arguments in Sony Corporation against Universal City Studios, in case counsel were not in the courtroom at 10:00 o'clock this morning, I'm authorized to announce that Mr. Justice Brennan is unavoidably absent, attending the funeral of a member of his family, and he will participate in these cases on the basis of the papers and the recording, the tape recording of the oral arguments.

[Laughter]

Mr. Dunlavey, you may proceed whenever you're ready.

Mr. Dunlavey: Mr. Chief Justice and may it please the Court:

The first issue presented by this case is whether a person who receives a free off the air television broadcast in his home by use of a video tape recorder, as distinguished from a television set, is thereby committing direct copyright infringement on the program that he is receiving.

Now, in this case no remedy is sought against any so called direct infringer, but the Ninth Circuit has answered the question yes, and if the Ninth Circuit is upheld then there are some five million plus video tape recorder owners who will be at the mercy of any copyright owner who seeks to take advantage of the situation.

The second issue before the Court is whether there has been contributory copyright infringement by the Petitioners in this case, and bear in mind that they are the manufacturer, the American distributor, and the American national advertiser of a video tape recorder whose brand name is Betamax.

Again, the Ninth Circuit has answered that question yes, and Universal has moved immediately to exploit the situation by filing a second action in the Ninth Circuit against some 50 additional VTR suppliers, and also has filed a second suit against the same Petitioners in this action alleging that, on information and belief, one or more video tape... one or more Betamax owners has copied every single production that Universal has put on television since genesis and must account for that in statutory damages.

Now, the pernicious point in the contributory infringement aspect is that Universal is seeking either an injunction... and they are dead serious about it... an injunction against the video tape recorder and/or statutory damages.

And when we talk statutory damages, it's $250 for every owner for every program, and that's the financial liability that they seek to assess upon the Petitioners.

So it only takes common sense to realize that the ultimate issue before the Court in this case is whether under the current law all Americans are going to be denied the benefit of time shift home television viewing because a few program owners object.

If there is to be time shift viewing, and by that I mean a viewing of a program at some time not too long after the broadcast, then manifestly there has to be a record of that program to exist between the time of the broadcast and the time of the viewing.

In this case that something is a video tape.

It, by definition of Congress at least, is a copy, and thereby comes the rub, because the copyright law says that only the copyright owner has the right to make a copy of his copyrighted work, unless of course he gives consent.

So the direct infringement question here is whether that copy that exists in the form of the videotape between the broadcast and the playback is an infringing copy or is it an example of fair use.

There is no problem with the playback.

The playback is authorized specifically by statute.

The problem lies with the copy.

The case has been presented by the Respondents through four individual owners.

Now, three of those owners really are atypical if you want to look at it from the standpoint of the American public.

One of them had 100 tapes, one of them had 170 tapes, one of them had 340 tapes... all this at a time when the norm was 30 tapes.

Amongst those four, however, there is a commonality that gives the issue to the Court this morning.

Whatever else they did, they copied 32 programs that belonged either to Universal or to Disney.

Nothing else; the issues to this case reside solely within those 32 copies.

Each of these persons made his copy at home.

There is no commercial aspect of it.

It never got out of his house.

It was only intended for his use and perhaps his friends in a couple of instances, and the usage was singularly of the kind we call time shift.

As the opinion states, it's the recording, the holding for a short period of time, then watching and then erasing, and the erasing is automatic as you record something else.

Because of the trial judge's wishes, there are surveys in the case.

They have to do with the use of the Betamax generally by the persons who were surveyed.

But it must be borne in mind that none of those surveys has anything to do with the particular works which have been infringed allegedly.

None of those surveys pertains to Respondents' work at all, neither those in issue nor of any other kind.

And again specifically, none of those surveys shows any librarying of Respondents' work.

Now, librarying is the other kind of home use that creeps into the case.

If a person keeps his tape for a prolonged period of time... and that's never been defined... and looks at it for a number of times... and the number has never been defined... then at least theoretically there becomes a time when he becomes saturated with that program.

But if that happens, it's outside of this case, because it is not a factor as to any of the 32 works that are in issue.

The trial judge's only comments, a summarization of his comments with respect to librarying, was simply that it has not been proven that many persons will library to any significant extent.

The trial judge also ruled out certain additional uses that can be made of these tapes if the owner is so inclined.

You can duplicate them, theoretically.

That is, once you've got one tape you can make a copy from it.

Or you can record from pay television.

Or, having made your copy, you can take it outside the home for one purpose or another.

Or you can swap.

All of those things are theoretically possible, but there is no evidence in this case that any of that was done with respect to any of the Respondents' works.

So the trial judge specifically said, there are problems inherent in modern technology that are not in this case and that this case does not purport to resolve.

Unidentified Justice: Mr. Dunlavey, you keep using the word "theoretically".

I suppose it's really possible, as opposed to just theoretically possible.

Mr. Dunlavey: It is possible, but it's not in the evidence.

Unidentified Justice: Would it not make any difference, Mr. Dunlavey, whether it was used once or 25 times under the Ninth Circuit's holding, the second run?

Mr. Dunlavey: No.

As far as the Ninth Circuit is concerned, the number of times it's run is immaterial.

The infringement occurs instantly that the copy is made.

Unidentified Justice: The first copy.

Mr. Dunlavey: The copy per se is the infringement.

Unidentified Justice: If the use was time shifting today, could it not be librarying tomorrow?

Mr. Dunlavey: Could it?

Unidentified Justice: Yes.

Mr. Dunlavey: Yes, it could.

Unidentified Justice: And how would one know, really?

Mr. Dunlavey: One can only find out what's going on with surveys.

The surveys... if you get outside the evidence, and I don't want to do that because my emphasis is to stay within the evidence.

If you get outside the evidence, librarying is on the decrease because these prerecorded copies are being made available, which are better and they serve the purpose.

Librarying also is something that the owner first thinks of when he buys his machine.

Here he's got a device for built in home entertainment.

But as a matter of fact it turns out to be very expensive, and even one or two of our owners in issue bought with the intent of librarying and then said specifically that they didn't.

So could it take place?

Yes, but in fact it's decreasing.

Now, looking at the Betamax... and realize there's only one public television game going on in this country, everybody has to abide by the same rules, so in trying to find out what kind of a machine is being sold, the District Court looked at evidence of a number of kinds of uses of this machine, which where clearly not infringement, or the owners of the copyright who might have otherwise said it was infringement instead said they consented to it.

Many program owners, in addition to the public in general, are in favor of Betamax, because many program owners would rather be seen as a second choice sometime later than to be missed entirely.

The trial judge said that this was a staple item of commerce, that it was suitable for a variety of non infringing uses, and in that finding, he had all kinds of backed up evidence, because we had specific owners of various kinds of programs, who said that they did not object to or consented to the recording.

Without wasting time on the details, they included sports program copyright owners, religious owners, childrens' programming owners, entertainment programming owners, and as an aside, the American Broadcasting Company right now is on the verge of broadcasting programs at night, or early in the morning, really, from 2 a.m. to 6 a.m., intended for reception with a VTR so somebody can watch them later on during waking hours.

And there were also educational programs.

And although Universal prevailed upon the court to find that there was no legitimate use for the Betamax... on the Ninth Circuit Court... Universal itself is a signatory to an agreement called Guidelines, which is a type of agreement between copyright owners and educators.

It has been given the dignity in the House Committee report and sanctioned by the Senate Committee, the Conference Committee report that followed it, that what they could agree upon would be deemed a fair use.

Unidentified Justice: Mr. Dunlavey, this was a finding of fact, was it, by the district court, that it was a staple of commerce?

Mr. Dunlavey: Yes, it was.

Unidentified Justice: And the Court of Appeals upset that finding of fact?

Mr. Dunlavey: The Court of Appeals rolled over it like it wasn't even there.

The Court of Appeals--

Unidentified Justice: So you must be saying that the Court of Appeals what, misapplied the clearly erroneous test?

Mr. Dunlavey: --The Court of Appeals really didn't apply the clearly erroneous test at all.

It ignored the findings.

It didn't take a single finding and say that this finding is wrong.

It simply substituted its own impressions in every respect.

Unidentified Justice: I certainly got the impression from reading Judge Kilkenny's opinion that the opinion said in effect this finding was wrong.

I realize, he didn't say in so many words it was "clearly erroneous".

Mr. Dunlavey: Judge Kilkenny said that the machine was not suitable for substantial non infringing use.

But to the extent that he gave any reason for it, it was that all broadcast programs now can be copyrighted, from the time they're broadcast at least, and since the Betamax is intended to record a television program, ergo it must follow that it was designed only to copy something that was copyrighted.

What the Ninth Circuit missed was that there are a lot of copyright owners, far more than those who object in fact, who consent to copying.

Yes, they may have copyrights, but they have agreed that the Betamax may copy it.

Also, there's another category of copyright owner, at least in the first instance, who might have had copyright protection, but before he can bring an infringement suit he has to register his work and thereby lay the groundwork for having an infringement suit to follow it.

No registration, no infringement.

And there are a number of stations around the country which don't go to the trouble of registering or copyrighting their programs.

They use their tape for one broadcast and then turn around and reuse it for another.

They have decided, apparently, that it's not worthwhile copyrighting it.

It is our contention that those people have knowingly forfeited their right to enjoin home recording, and that that kind of programming, even without their specific consent, is also a legitimate use.

Unidentified Justice: Mr. Dunlavey, what are the practical effects of finding that it's a staple item of commerce?

And that's a doctrine that was developed in the patent field.

Are there cases that have adapted it to the copyright area?

And as a practical matter what would be the effect of such a finding?

Mr. Dunlavey: The answer is yes, it has been alluded to in the copyright area, but it was a long time ago.

It was Justice Holmes in the Kalem case, and he was confronted with a motion picture which had been made without authority of a copyrighted book called "Ben Hur".

And nobody even questioned that the makers of the camera and the film were infringers, but there was a question as to whether the person who had made the film was a contributory infringer when the person he gave it to exhibited it... exhibited it.

And Justice Holmes made a very terse but pointed comment that there are a lot of things in society that when you sell them they might be useable for a wrongful purpose, and you set your mind to inquiring when the man makes and sells that product, does he really have cause to know that it's going to be used for a wrongful purpose?

So the staple item concept came up.

Justice Holmes said that if you have an indifferent supposition, that the buyer might be going to use your product for a wrongful purpose, that certainly does not suffice to make you a contributory infringer.

By the same token, if you're selling something that's a staple item of commerce... and by definition that is something that has got legitimate uses... then you as a manufacturer cannot have the buyer's motive imputed to you.

That's where the staple item is important.

Unidentified Justice: So in your view that would protect both the manufacturers and the retailers and wholesalers?

Mr. Dunlavey: And the distributor and the advertiser.

Unidentified Justice: Distributors.

Mr. Dunlavey: There are so many legitimate uses to which this machine can be put that it's grossly unfair to hold the manufacturer if somebody misapplies it, assuming that it is a misapplication.

Now, the other thing of course that the supplier--

Unidentified Justice: What would you say, Mr. Dunlavey, if every program that came over television was not only copyrighted, but the copyright owners didn't want their programs copied on a Betamax?

Let's just assume that.

Then what about the contributor?

What about the Betamax manufacturer?

Mr. Dunlavey: --If it were the case that no substantial number of copyright owners wanted their televised programs copied, then the argument that I have just made wouldn't have much weight to it.

Unidentified Justice: Yes.

And so you think in this record there's enough evidence to support the notion that a majority of the programs on the air will not cause the Betamax user any trouble?

Mr. Dunlavey: That's right, that's right.

As a matter of fact, at the time of the trial the only two people in the whole country who had ever brought an action to try and prevent the use of the VTR were the two Respondents today, and that's still the fact.

Unidentified Justice: What about these cassettes that are rented?

People don't want to pay a babysitter, so they rent a cassette and have a movie at home.

Are those generally copyrighted, so that this doctrine would apply to them?

Mr. Dunlavey: Those are copyrighted.

This doctrine really doesn't reach that point because one of the facets of the VTR in home reception off the air is its aspect to record a program being broadcast.

Mr. Chief Justice, you have surmised that the man was given a copy with the consent of the copyright owner to begin with, and that takes us out of the field of this case.

Now, the other aspects of contributory--

Unidentified Justice: There is evidence in this record, isn't there, particularly about the early advertising on the part of Sony that indicated that, copyright or not, this machine could produce this for use and the like?

In other words, there is some evidence against your position.

Mr. Dunlavey: --Not with respect to the particular alleged infringements in issue.

There were advertisements.

They did get into evidence.

But nobody who made any of the recordings in issue saw or was influenced by them.

So whatever those advertisements were, they are not germane to the infringement in issue.

And needless to say, once the litigation started Sony's advertisements were toned down markedly so that they didn't induce somebody into the wrong kind of usages.

Now, the other half of contribution, or contributory infringement, is did you induce or cause somebody to do the direct infringement, and the district court said, no, there was no evidence in this case that the ads or statements by any of the Petitioners in any way induced or caused the copying that took place.

The district court also held the obvious, that there is no right, no ability on the part of the Petitioners to control the use of the Betamax once it's bought and taken home.

On the other hand, the Ninth Circuit did the same thing that it did throughout.

It simply said ipse dixit that there is "no doubt" that Petitioners induced or caused this direct infringement.

It also said that Petitioners are sufficiently engaged in the enterprise to be held accountable.

No explanation.

As a side matter on this inducement, Sony has put in every Betamax carton a printed warning to the buyer that the unauthorized recording of copyright programs may be contrary to copyright laws.

Unidentified Justice: Didn't the district court make a finding that the package was delivered to the purchaser with that thing wrapped up inside so he'd never see it until after he got it home?

Mr. Dunlavey: That's true, he does not see it 'til he's unwrapped it.

But he does see it before he uses it, if he reads it.

Unidentified Justice: And when was this program instituted?

After the litigation began?

Mr. Dunlavey: No.

That kind of warning has been in Betamax from day one, from before the litigation.

And I mention it because there's an analogy in the Copyright Act, Section 108(f), which says that if libraries will give that kind of a warning to their patrons when they enjoy unsupervised use of the library Xerox machine then the library will not have contributory liability.

Now, as we tell these consumers to be careful, the Respondents are coming right along behind us and telling the public that they don't ever have to worry about being sued, at least not by Universal and Disney.

So as fast as we tell them to be careful, Respondents in effect are telling them that they'll never have any trouble directly from Respondents.

The gist of the Ninth Circuit opinion is that each Petitioner is contributorily liable for each instance where a Betamax owner makes a copyright... makes a copy of a copyrighted program where the owner objects, as a matter of law.

Unidentified Justice: Mr. Dunlavey, what findings did the district court make that you think protects Sony from being held a contributory infringer?

Mr. Dunlavey: That the article is a staple item--

Unidentified Justice: That's the first one.

What's the next one?

Mr. Dunlavey: --And that we didn't do a single thing to affirmatively induce the copying of Respondents' programs, unless you want to count the bare act of making the machine.

There was nothing between any of the Petitioners and the Respondents--

Unidentified Justice: Well, what if the rule... is it the rule that if you know the machine is going to be used for an infringing use and you sell it, is that enough?

Mr. Dunlavey: --If you know that the machine is going to be used and know that the use is to be infringing, that is a facet of a contributory infringement test.

Unidentified Justice: What did the district court... did the district court make any findings in that regard?

Mr. Dunlavey: The district court goes back to the point that there is so much material where it's acceptable to copy that you don't have to anticipate a particular wrongful use.

Unidentified Justice: I see.

So he couldn't have... he couldn't have... there was so much non copyrighted material or so much material whose owners didn't really care that Sony couldn't have known?

Mr. Dunlavey: Is not charged with enough knowledge to make it a contributory infringer, yes.

As Holmes, Justice Holmes, said, an indifferent supposition doesn't do it.

Unidentified Justice: What did the... did the Court of Appeals take issue with this particular part of the court's finding--

Mr. Dunlavey: The Court of Appeals--

Unidentified Justice: --Or just ignored it?

Mr. Dunlavey: --The latter.

The Court of Appeals didn't take issue with any finding of the district judge per se.

It simply substituted its own findings, like there had been a whole new trial in absentia in the Ninth Circuit and it had reached its own conclusions.

Unidentified Justice: Mr. Dunlavey, may I ask you a question about this staple article of commerce issue, which of course is mainly a patent problem normally in the cases.

But under your view, what are the non infringing uses?

Obviously, when material is not copyrighted it wouldn't be.

And the second are copyrighted materials where the copyright owner doesn't care.

And thirdly there are copyrighted materials where the copyright owner might care but is not a party to this case.

And then fourthly are Universal and Disney copyrights.

Now, which of those four should we count as non infringing uses within this argument?

Mr. Dunlavey: You should... I would urge you to consider, Justice Stevens, as non infringing uses the cases where the copyright owner consents; the case where the copyright owner has forfeited his right to an infringement action by putting it beyond his power any longer to register his work; also, the work which is not copyrightable from the outset, and that includes, for example, government produced matters; and there are also matters where copyright has expired.

Unidentified Justice: But as to those copyrights where if he were asked the copyright owner would say, no, I don't want you to make copies, you'd say that would not be a noninfringing use within the meaning of this doctrine?

Mr. Dunlavey: If he says--

Unidentified Justice: You're not saying it's limited to Universal and Disney copyrights?

Mr. Dunlavey: --That's a very interesting point, Justice Stevens, and you're getting now to where public policy mixes with the copyright owner's rights.

I would say that if the copyright owner says, I'd rather you didn't do it but I don't care enough to sue you about it, then I would say that the public's interest in having access to the information should take precedence over his--

Unidentified Justice: You see, if you take that legal position, then I suppose 99 percent of the stuff is non infringing.

Mr. Dunlavey: --And that's about where this case is right now.

Unidentified Justice: But you haven't taken that position before, I don't think.

Mr. Dunlavey: We have taken the position that if it hasn't been challenged, if it hasn't been challenged with a suit to stop it, that it's been free for unchallenged recording.

That's been our language.

Unidentified Justice: If you have mentioned the figure I missed it.

What proportion, if it is known, of all the programs that are broadcast are not copyrighted or not copyrightable?

Mr. Dunlavey: I'm sorry, Mr. Chief Justice.

I cannot give you a--

Unidentified Justice: I should know, but I don't, for example, whether National Geographic Society programs are copyrighted by them.

Since they're educational, I would take a wild guess that they'd have no objection to their being copied for private use.

Mr. Dunlavey: --I don't disagree with that, and the--

Unidentified Justice: But they are copyrightable, aren't they?

Mr. Dunlavey: --They would be copyrightable, yes.

Unidentified Justice: But not copyrighted, but perhaps not copyrighted?

Mr. Dunlavey: Perhaps not.

And then the stations that produce their programming and don't bother to copyright it.

We know that there is some 27 hours a week coming out of the average local station that fits that description.

What proportion is I don't know, but that's the ratio... that's the absolute.

Unidentified Justice: What about a station that produces a show but doesn't copyright the show, but in the show is a musical composition that's copyrighted?

Mr. Dunlavey: The copyright within the copyright presents a problem.

I think we'd have to say that the copyright owner of the broadcast program--

Unidentified Justice: I see there are amicus briefs filed here by--

Mr. Dunlavey: --Yes.

Unidentified Justice: --composers.

Mr. Dunlavey: Those people have come out of the weeds in just the last couple of weeks.

[Laughter]

I'm sorry.

But we didn't have that to contend with at trial.

There is the problem of copyrighted work within copyrighted works.

Unidentified Justice: All right, thank you.

Mr. Dunlavey: In the limited time I have left: As far as fair use is concerned--

Chief Justice Burger: You realize you're into your rebuttal time now.

Mr. Dunlavey: --Yes, I realize and I'm afraid I'm going to have to expend it.

As to fair use itself, there was one point that the district court emphasized and that we emphasized, that the direct... that the copying itself should not be direct infringement, and that is that these people have put their programs on television intentionally, with the purpose that anybody who has the means of doing it can receive it, and that's all that's happened.

Now, those people by definition have given their implied consent to reception.

Unidentified Justice: Well, that's like saying a publisher puts his book in a bookstore and so, no, he should have no objection to people making a lot of Xerox copies of the book.

Mr. Dunlavey: It's more like the publisher, Justice Rehnquist, who, having put his book in the bookstore, knows that whoever buys it can then read it, give it to a friend.

He knows what's going to happen to it.

But when you broadcast you know that everybody within reach of that station's signal has got the right to receive that signal.

Unidentified Justice: But what if a book publisher publishes a book, I buy it as an individual, I make three Xerox copies because I've got an office, a house here in Washington, and maybe a summer cabin, I want to have a copy in each place.

Am I guilty of infringement?

Mr. Dunlavey: I do not know, and I don't think there was ever a case until now that would answer that question.

Personal use has been urged by the Solicitor General back in the Fortnightly-Teleprompter area, that personal use, copying for personal use should be permitted, that it was never intended to be within the gamut of the copyright statute.

Now, the other half of the coin fair use, the Ninth Circuit said that fair use by definition has to be a productive use.

Unless you are creating a second work by relying upon the first, by definition you can't have fair use.

And that is manifestly wrong, because Universal, having agreed to this educational off the air recording, has agreed that 100 percent copying for the same kind of use that the film was intended for is fair use.

The points that I'm not going to reach, and I'll have to pay the price for it: legislative history has been covered in the brief, and argument I feel can add nothing to it.

The compulsory royalty, that's something that is not provided by the statute.

Thank you.

Chief Justice Burger: Mr. Kroft.

ORAL ARGUMENT OF STEPHEN A. KROFT, ESQ. ON BEHALF OF RESPONDENTS

Mr. Kroft: Thank you.

Mr. Chief Justice and may it please the Court:

Although the technology involved in this case makes the case more interesting than the normal copyright case, all that the case really involves is unauthorized and uncompensated copying of entire motion pictures, and that's something that's never been permitted by the Copyright Act.

Neither Congress nor any court has ever permitted such copying, merely because it takes place in the home rather than someplace else, or because the copy is taken from the television air waves rather than from some other source.

Unidentified Justice: Has anybody ever tried to stop it when it's done in the home?

Mr. Kroft: No, Your Honor, I don't think it's ever come up before this case.

Unidentified Justice: Do you think there's never been a case where there has been a copying in the home before of a motion picture?

Mr. Kroft: I am not aware of any case where there's been copying in the home before this case, Your Honor.

And I have diligently searched.

I hope I have been diligent enough.

Unidentified Justice: You use the term "case" in terms of a litigated case?

Mr. Kroft: A litigated case or to my knowledge an unlitigated situation.

Before Betamax came on the market, while there were some aborted attempts to try to sell home video recorders, Sony executives in the trial below all admitted that they failed.

So as far as I'm aware, the only home video recorder that came to market and stayed here for more than a fleeting moment was Betamax.

Unidentified Justice: What about other copyrighted works that are reproduced in the home for personal use?

Do you know of any cases that have involved that situation?

Mr. Kroft: I think that there is no such case, no litigated case where that's come up, Justice White.

Not that I'm aware of--

Unidentified Justice: And in spite of the fact that it happens a good deal in connection with a lot of copyrighted work?

Mr. Kroft: --Your Honor, I'm not prepared to say whether it happens a good deal or not.

But I would say that if other copyright owners have sat on their rights, we've been diligent and we shouldn't be penalized because they have sat on their rights.

We haven't.

Both Congress and the courts have recognized that there are property rights involved here with these copyrighted motion pictures.

We're not talking about something of no value.

Congress recognized this value as far back as 1912 and it continued to emphasize this value when it passed the new copyright statute in 1976.

Now, before I get into the legal issues I'd like to emphasize three overriding facts that pervade this case and I think they must be brought out early.

First, it's got to be emphasized that if the Ninth Circuit is affirmed it is not true that absolutely all future sales of video tape recorders will be banned from this country forever.

As we've stated in our briefs, there are several alternate remedies that are available, and I think are even likely when the district court finally gets to the remedy issue on remand.

One such remedy, for example, would be the continuing royalty suggested by the Ninth Circuit.

It could be accomplished by withholding a permanent injunction on the condition that Sony and the Petitioners pay a license fee to the Respondents for the continued use of their works.

In fact, this is something that Sony's own president advocated six years ago, shortly after this lawsuit--

Unidentified Justice: How does the manufacturer know that it is going to be so used, and if so how frequently?

How would you measure that?

Mr. Kroft: --Your Honor, I think that would be a matter of proof put before the district court in the form of surveys and other evidence.

Unidentified Justice: Can you hypothesize any kind of proof that would give you any rational measure?

Mr. Kroft: Yes, Your Honor.

There are surveys in this record, although they weren't taken or devised for the purpose of getting at this issue, which show the types of programs that are being copied.

They didn't ask about them by title, but they showed, for example, that over 80 percent of what's being copied are entertainment programs.

Now, I suppose all you need to do is ask another question which says, give us the titles of what you've copied.

Then you'd know exactly how many Universal and Disney motion pictures have been--

Unidentified Justice: How many samples out of the millions of machines were there in evidence?

Mr. Kroft: --There were two samples... excuse me.

Before the lawsuit was filed Sony did its own marketing survey, which consisted of just a few hundred people and showed, for example, substantial librarying and deletion of commercials from broadcasts.

After the litigation was filed, there were two surveys taken by the parties at the district court's request, each of which was based basically on a 1,000 sample each.

Now, they were random samples, so I believe they were probably different samples.

Unidentified Justice: May I ask on your continuing royalty, that would be a royalty paid to Universal and Disney; is that what you're suggesting?

Mr. Kroft: That's what I'm suggesting.

Unidentified Justice: Would it not be true that all other copyright owners who have programs that go over the TV would also be entitled to a similar royalty.

And you're a very small portion of the total copyright owners, aren't you?

Mr. Kroft: We may be a small portion ourselves, Your Honor, but we are not a small portion of those who have taken a position as to whether they object or don't object to off the air recording.

Unidentified Justice: Well, I would suppose there'd be quite a few people who would decide they want to object if you prevail, wouldn't they?

Mr. Kroft: Well, there are quite a few people who have already objected, Your Honor, yes.

Unidentified Justice: Well, I mean, I'm really trying to understand.

It is your suggestion that all copyright owners would be entitled to a royalty from the manufacturer of Betamax because it's sold primarily, as you suggest, for infringing use.

Mr. Kroft: I think if we get that royalty and this Court affirms the Ninth Circuit and the royalty is affirmed, as I believe it would be and should be, I think I have to say yes, Your Honor, that's true.

Unidentified Justice: Mr. Kroft, was the district court finding that the items were staple items of commerce a finding of fact?

Mr. Kroft: Your Honor, it may have been a finding of fact, but it was an incomplete finding if it was a finding of fact.

Because if you analogize to the patent statute, which we strenuously resist here, the patent statute requires that not only must the product be a so called staple article of commerce, but it must be suitable for substantial non infringing uses.

And the cases have put a gloss on that requirement and said that that may not just be a theoretical non infringing use, but these substantial non infringing uses must also be actual non infringing uses, actual uses found of the product.

The district court very pointedly did not find that Betamax is suitable for substantial non infringing use.

And I think if you'll at Petitioner's appendix at page 97, you will see that the district court said that it was going to be applying its staple article of commerce rationale whether or not there was a substantial amount of non infringing use of this machine.

And at page 116, I believe it is, of Petitioners' appendix, he said, whatever the percentage of legal versus nonlegal recording may be, he would still apply his standard.

So while calling this Betamax a staple article may or may not be a finding of fact, it just doesn't go far enough.

Unidentified Justice: Well, if it isn't a finding of fact then it's a mixed question of law and fact, I suppose?

Mr. Kroft: I think whether something is a "staple", a word that's not defined anywhere in the law that I'm aware of, must be a mixed question of fact and law.

Unidentified Justice: Did the Court of Appeals characterize it or not?

Mr. Kroft: The Court of Appeals did not characterize it, but the Court of Appeals said that because everything on television is protected in the first... not everything, excuse me.

Virtually everything that's on television is protected in the first instance from copying, that there was not a sufficient showing that the amount of that material that might be legally copied, if any, was a substantial enough amount to make this a staple article of commerce to the level or sufficient to say that the patent doctrine, for example, would apply.

Unidentified Justice: Well, that's a finding that the district court didn't make, isn't it?

Mr. Kroft: The district court made no finding on that issue.

Unidentified Justice: Yeah, one way or another.

Mr. Kroft: Correct.

Unidentified Justice: And if the Court of Appeals thought that kind of a finding was relevant, I take it, why, I would have thought it might have remanded to the district court to... if the district court used the wrong standard or didn't make the findings that it should have, why did the Court of Appeals make its findings?

Mr. Kroft: Your Honor, because there's a doctrine under the clearly erroneous standard that says, if the evidence below only permits one conclusion of fact then there is no need to remand.

That of course was articulated by this Court last term in the Pullman versus Swint case.

The Defendants, the Petitioners here, had the burden of coming forward and showing, if they were going to rely on the staple article doctrine, that there was a substantial amount of non infringing material.

The reason the district court did not make that finding was because it couldn't make that finding on the evidence, and therefore there was no need for the Court of Appeals to return the case after it decided it.

Unidentified Justice: If a copying machine, Xerox, IBM or whatever, advertised that this was a good way to make copies of books for private use, taking the hypothetical that Justice Rehnquist suggested to you, is there any analogy to this situation there?

Mr. Kroft: If your hypothetical existed, Mr. Chief Justice, I would say the analogy would be that the seller of a photocopying machine which is advertised and manufactured for the purpose of having people make copies of copyrighted works in their home or anywhere else would be liable.

But those aren't the facts concerning Xerox.

Unidentified Justice: Now take the hypothesis that they do not advertise it.

Is there any literate person in the United States who doesn't know that you can make copies of books on a Xerox or an IBM or any other copier, without being told in ads that that's so?

Mr. Kroft: Well, by now Xerox's entire advertising and marketing campaign over the years that it's been in the market has been such that it has made the public aware of that, Your Honor, yes.

But Xerox has never from the beginning advertised or promoted or marketed its equipment for the purpose of recording or making copies of copyrighted material.

That's the way Betamax started out.

Betamax has done a very good job of it.

Everybody in this country I think, most literate people anyway, probably know that.

And so the mere fact that Sony has now changed its advertisements, it's too late.

They have infected this country with the knowledge that causes copyright infringement, and I think at that point it really doesn't matter any more exactly what the ads say.

I might say that under the standard in the trademark area, articulated by this Court in the Inwood case last term, it was suggested by the Court that if a product is sold merely with the implication that it can be used for copyright... for infringing purposes, trademark infringing purposes in that case, that's sufficient for contributory infringement, at least in the trademark infringement area.

I think it's also important to emphasize to the Court that what we're talking about here is an end result after all these machines are used that is no different than the end result of commercial piracy.

Now, I'm not suggesting to the Court that an individual Betamax owner in his home is the same as a commercial pirate.

But we're not talking in this case about a single individual Betamax owner.

We're talking about millions of Betamax owners.

And when they get done making their copies, they end up with millions of copies of Respondents' copyrighted works.

It just makes no difference that the millions of copies end up in their hands because they make them individually, without seeing or hearing each other, rather than buying them from a film pirate.

The end result is exactly the same.

And the 1976 copyright statute under which we're now operating was specifically designed to protect copyright owners from mass copying activities in all contexts.

I think we've quoted for the Court a provision from the legislative history that I will take a chance at quoting now because I think it's important.

Congress said at least three times in the course of the legislative history that isolated instances of minor infringements, when multiplied many times, become in the aggregate a major inroad on copyright that must be prevented.

Unidentified Justice: Mr. Kroft, what affect does the mere delayed viewing, as opposed to librarying use, the mere effect of delayed viewing have on the value of the copyrighted work?

I mean, presumably the copyright owner has made arrangements to have the program put out over the air waves for people to see.

And the mere delayed viewing of the copyrighted work, how does that affect the market?

Mr. Kroft: I believe, Your Honor, that has several effects, both under existing markets and as yet untapped but emerging markets.

First, many of the motion pictures that are shown on television are also available for sale or rental on video cassettes or video discs which are licensed by the copyright owners.

They're available for rental, which means generally a person would just want to see it once and then return it.

The time shift recording, which I think is what you're referring to, would serve exactly the same purpose.

ABC, referred to by Mr. Dunlavey, is now exploring the use of technology that would permit the copyright owner to license home owners the right to record copyrighted works off the air for a fee, which of course is a right within the exclusive control of the copyright owner.

That's a market that doesn't exist yet, but with Sony's cooperation modifying its circuitry so that you couldn't record off a scrambled signal, for example, off the air without permission, that's a market that could be available to copyright owners.

So the time shifting type of recording that exists now would destroy that kind of market, because people don't have to pay for it now; they certainly aren't going to want to pay for it in the future.

There's an additional area, Your Honor, that we haven't really touched on in our briefs.

When a television series or a motion picture goes off network and goes to the local stations around the country in the syndication market, it's typically licensed for six runs.

I don't think there could be much dispute that a syndicated station will not want to take six runs in a license if it knows that people have already been seeing this product many times before it reaches the local station.

Unidentified Justice: Six runs means six times through from beginning to end of the series?

Mr. Kroft: Yes, the entire series would be shown six times, that's what it means.

And motion pictures are generally offered for syndication licenses anywhere from three to eight runs per picture.

I think it's also very important to emphasize here what the economics are of what's going on.

Just as in commercial piracy, here somebody else is being paid for unauthorized copies of copyright owners' works.

Betamax purchasers are paying enormous sums to the Petitioners for the right to make their off the air recordings.

They're not getting these copies for free.

Anybody that thinks that is just laboring under a misconception.

They're paying Petitioners and they're paying them very handsomely.

Yet Petitioners are not sharing any of their revenues with the copyright owners whose product, whose television motion pictures, make Betamax such an attractive consumer device.

The economic reality is certainly that if these machines couldn't be used to record motion pictures and other type of copyrighted entertainment programming owned by the Respondents and the amici who have filed briefs here, there would be a very substantially reduced demand for that product.

Unidentified Justice: Well, there'd be a very substantially reduced demand for television sets if there weren't any network television, too.

Mr. Kroft: I suppose that's true, Justice Rehnquist.

But you know, Sony had an opportunity here to work with the copyright owners to devise a jamming system that would prevent copying only of the works owned by the Respondents and others who might object.

They abhorred that possibility.

They've run from it.

Now, to me that proves that they think that our product is the most important product to people that buy Betamax in terms of what they want to record.

Unidentified Justice: How is the householder to know, how is it going to find out, if he has one of these gadgets and wants to make a copy?

Let's say it's a National Geographic or a Smithsonian, and assume for the moment that they have no objection to being copied, or whether it's something where your clients would object.

How are they going to find out?

Must they assume that everything is copyrighted and that copying is forbidden unless some announcement is made that it's open to copy?

Mr. Kroft: I think that's the presumption of the copyright law, Your Honor.

Once a product is protected by copyright, under the lower court cases... and this Court has never reached that issue... there is a presumption that unauthorized use is prohibited.

And I think it may be appropriate at this point to talk a little bit about what's copyrighted and what's protected on the air and what is not.

Unidentified Justice: Well, isn't there some requirement that copyrighted material must be identified as such in order to have its protection?

Mr. Kroft: No, Your Honor, that is not correct.

Under the current Copyright Act, a work which is fixed in a tangible form becomes immediately protected by copyright at the moment of its creation.

That's unlike the old scheme that we operated under up until 1976, where you had to have publication with notice.

That's no longer required.

As soon as there's creation of the copyrighted work, it's protected by copyright.

That copyright protection subsists even if there's never even registration, for example.

Unidentified Justice: Doesn't that... does that go beyond the time when the copyright may be applied for?

Mr. Kroft: Well, the... Your Honor, I think you... Mr. Justice, Chief Justice, you're talking about, when you say "applied for", you're talking about registering the copyrighted work with the Copyright Office.

Registration only affects certain remedies that a copyright owner may have.

It does not affect the substance or the existence of the copyright.

For example, you must register the work before you can bring suit on it.

But your inability to bring suit doesn't mean that you lose your copyright and it doesn't mean you lose your ability to object, to tell somebody, for example, that you don't want them copying your product.

So I think Petitioner's counsel is laboring under a bit of a misconception when he says that because some local stations with some of their material erase the only copies that they keep of their local television programming and therefore don't register it... that doesn't mean there's no copyright protection.

That copyright protection continues.

And in answer to your... in further answer to your question, Mr. Chief Justice, I think it would be incumbent on Sony, who is selling a machine that's used primarily, by their own admission, to record television programming, and by their own admission the majority of which would be copyrighted material, to let the public who's going to buy this machine know what can be copied.

That shouldn't be the burden of the copyright owner; it should be the burden on the parties creating this problem.

I want to emphasize something else.

We've been talk... I've heard some discussion earlier about the findings below and what did the Ninth Circuit do with them.

As I read the Ninth Circuit's opinion... and I feel very comfortable in telling the Court this... every thing in the Ninth Circuit's opinion is based either on a specific finding of the lower court, even though maybe not referenced as such in the Court of Appeals' opinion, or on admissions by the Petitioners.

I have seen no reversal or upsetting of a specific finding of fact in the trial court by the Court of Appeals which is at all relevant to this proceeding or which exists at all.

Now, probably--

Unidentified Justice: Well, as long as you don't call the staple article finding a finding of fact.

Mr. Kroft: --As long as I don't call staple article a finding of fact, although as I said, Mr. Justice White, I believe that it really doesn't matter whether it is or it isn't, because you have to have the further finding.

Unidentified Justice: But it did disagree on that.

Mr. Kroft: It did disagree with the analysis.

But actually, Mr. Justice White, what it said was the staple article doctrine doesn't remotely raise copyright problems.

The Ninth Circuit didn't go on in very great detail to tell us what it meant by that, but it might have meant that there was no finding of substantial non infringing use and therefore it really didn't matter whether you call it a staple article or not.

With respect to the fair use question, this issue has to be examined in the context of the overall statutory scheme.

As we've discussed in our briefs... and I'm not going to take the Court through chapter and verse now... Congress gave greater protection to motion pictures than to any other works.

It did not explicitly state either in the legislative history or in the statute itself that home recording of motion pictures was permitted.

Given this special attention to motion pictures and the absence of any statement that home recording is permitted, we submit that any suggestion that Congress nevertheless intended a home video recording fair use exemption is just impossible to accept.

Unidentified Justice: Mr. Kroft, may I ask you a question here.

Do you think the legal issue would be different if instead of it being video tape recorder it were just tape recording of music programs, say, strictly sound?

Mr. Kroft: The fair use issue, Mr. Justice Stevens?

Unidentified Justice: Yes, just in the infringement, forgetting the contributory infringement, which would be quite different, I think.

Mr. Kroft: I think that the analysis would be different because we're faced with some rather loose language that occurred in 1971 with respect to audio tape recordings.

I don't think that issue need be reached in this Court, but I can make an argument, and I think probably very persuasively, that audio tape recording is an infringement under the new Act.

But whether it is or it isn't, it's our position that makes no difference to the issues in this case.

Unidentified Justice: Well, I just was trying to find out whether you thought the issue was different.

I understand what your view would be on the merits of the issue.

Mr. Kroft: The issue--

Unidentified Justice: Applying the statutory language in the fair use section, wouldn't it apply the same as to the infringement itself?

Mr. Kroft: --Yes, and the music interests have very forcefully argued that that should be so.

They do have to contend with that language in 1971, which we don't believe we have to contend with in the video area.

Unidentified Justice: Let me ask you this, then.

On the first of the four statutory requirements of fair use, do you think that, just confining it to that for a moment, that the private copying within the home is of a commercial nature within the meaning of the statute, for time shift purposes?

Mr. Kroft: I suppose if I wanted to get philosophical with you, Mr. Justice--

Unidentified Justice: I understand it can have commercial ramifications.

Mr. Kroft: --Right.

Unidentified Justice: I understand the economics of it.

But do you think within the meaning of the statute it would be regarded as commercial?

Mr. Kroft: It probably wouldn't.

But in that statute it also wouldn't be determined to be noncommercial educational purposes, which is the counterbalance to the commercial.

Unidentified Justice: I understand.

Mr. Kroft: But I don't think in general you'd call it commercial, Mr. Justice.

Unidentified Justice: May I ask you one other question, about the fourth prong of the statute.

Do the findings answer the question on this record whether the... what the effect on the potential market for your copyrighted materials is?

Is it plus or minus?

Mr. Kroft: I think the findings establish that there will be an adverse effect.

The findings are the following, Justice Stevens:

One, the district court repeatedly found that Betamax recordings will compete with licensed versions of Respondents' works in many markets, particularly the emerging market for the sale and rental of cassettes and disks.

I don't think we gave complete transcript references in our brief.

They're found at pages 78, 107, 112, and 116.

Now, obviously the Respondents are not going to always prevail in that competition, and I think that finding itself is sufficient to show an adverse effect.

The district court also expressly found that Betamax copies serve the same function as the original, and we have a doctrine of law in the fair use cases that when a copy and the original serve the same function then there is a detrimental, a potential detrimental effect established for fair use purposes.

That's not just a mechanical sort of made up rule.

It's based on common sense.

Unidentified Justice: I understand.

There are arguments why you would be harmed and there are also arguments to the contrary.

And what I am really asking is, do you think that one can read the district court's opinion as saying what the net result is one way or the other?

Mr. Kroft: I don't believe so.

Unidentified Justice: I couldn't myself and I just was wondering what your view was.

Mr. Kroft: I don't believe so.

I believe that what happened was the district court reversed the burden of proof, which is quite clearly under established case law on the Petitioners, put it on the Respondents and said the Respondents didn't meet that burden.

But if he had looked at what the Petitioners' proof was, because he said it's so speculative in his mind as to what's going to happen in the future, he couldn't have found the Petitioners carried their burden, either.

Unidentified Justice: Mr. Kroft, may I ask a hypothetical.

Assume that a film is copied solely for use in a drama class at college.

Would that be a fair use?

Mr. Kroft: There are certain guidelines, Your Honor, that Mr. Dunlavey alluded to, which are a subject of agreement between copyright owners and educators, which give the copyright owners the kind of control they're entitled to under the Copyright Act, that might or might not permit that activity.

I'm sorry, I'm not familiar enough with those guidelines.

Unidentified Justice: Would that be close to Williams against Wilkins?

Mr. Kroft: I don't think so, Your Honor.

I don't believe--

Unidentified Justice: The copying there was for a scientific use.

Would it really be different for use in a drama class in a college, for educational use?

Mr. Kroft: --I don't think it would be different in the sense that it would be for a salutary purpose of furthering education, science, research.

Medical research was the example in Williams and Wilkins.

But those are far different than this case--

Unidentified Justice: Right.

Mr. Kroft: --where all we have is copying for home entertainment.

Unidentified Justice: I'll ask you the easy one.

I have the same film for use at my clerks reunion.

Would that be fair use?

Mr. Kroft: Your Honor, I don't think it is a fair use.

[Laughter]

When's the reunion?

[Laughter]

With respect to the staple article of commerce--

Unidentified Justice: Let me ask you, while we've got you stopped: I can see the point of some conceivable damage, the injury, where it is libraried, in this verbalizing, verbing, making a verb out of that noun, "librarying".

But you're going to be out for dinner at 7:00 o'clock when there's a program on and then you want to see it when you get home at 11:00 or 12:00 or the next evening.

Where's the injury and how do you measure it?

Mr. Kroft: --Mr. Chief Justice, as I said, many--

Unidentified Justice: If there is an injury.

Mr. Kroft: --many motion pictures that are on television are available for rental in cassette form.

The injury is you wouldn't be... Respondents wouldn't be--

Unidentified Justice: Not all, though.

Mr. Kroft: --Not all.

Respondents wouldn't be able to rent those pictures.

As I also mentioned a moment ago, there appears to be an emerging market, which the Registrar of Copyrights said may be even more important than existing markets when you examine this aspect of the fair use defense, and that is the opportunity of the copyright owner to license the home owner who's out for dinner the right to copy the Respondent's work off the air, by using the proper technology for a fee.

And what's being interfered with here is the opportunity to ever get to that point because now people are doing it for no fee.

I'm running out of time.

There are a couple of things I would like to mention very quickly.

With respect to this argument that there is consent by certain people to record off the air, Mr. Justice White alluded to the fact that a motion picture doesn't just spring out of the air.

It's based on a lot of underlying material: the music, which is copyrighted; written work, such as books and plays, which are copyrighted.

And unless you... and they're all separately copyrighted.

And unless the Petitioner or the copier has the permission of the owners of all of the works that are embodied in that motion picture, there is no valid consent to the recording of that material.

But even if there were consent to some material, I think it's very important to emphasize, as the Ninth Circuit did, that just because some copyright owners don't choose to enforce their rights doesn't mean that other copyright owners who choose to enforce theirs cannot do so.

And when you look at how much is supposedly consented to, you find out it's almost nothing compared to what isn't.

Petitioners' own survey showed that less than nine percent of all recordings consist of sports, religious and educational programming, and that's all sports, religious and educational programming, not just the programming owned by the few witnesses that were brought to the trial by the Petitioners.

In contrast, over 80 percent of all the recordings are of entertainment programming, which was defined in Petitioners' own survey to mean motion pictures, television series and game shows.

Unidentified Justice: Well, a lot of sports programs are copyrighted.

At least they announce that they are.

Mr. Kroft: They are copyrighted, Mr. Justice Rehnquist, and you can't copy those programs, based on the evidence that the Petitioners brought to the trial.

Because if you watched the Redskins game on Saturday and you heard the little announcement, it said that there could be no use made of that broadcast without the permission of the Washington Redskins and the National Football League.

Only the National Football League's Office of the Commissioner gave any testimony on this issue, and the records show that they didn't discuss this issue with any of the individual teams, for example the Washington Redskins.

So there's not enough consent to allow even that kind of copying in this record.

I think we should leave the staple article of commerce and the contributory infringement issue with this thought: I think that Petitioners conceded in their brief, and I believe it very clearly to be the law, that if there's knowing contribution to the direct infringement involved here, you don't ever have to reach the staple article of commerce argument.

That was an approach that was approved by this Court in the Kalem Brothers case.

It's exactly the approach that is followed in Section 271 of the patent statute, where very specifically the patent statute says that when a defendant causes, furthers, or urges the use of his product, which might otherwise be a staple, in an infringing way then he is liable for patent infringement under Section 271(b) even if you call that product a staple article.

Unidentified Justice: Mr. Kroft, let me ask, suppose it were perfectly clear that 50 percent of the material was not copyrighted or copyrightable that was coming over the air and 50 percent was, and that all the 50 percent of the owners of the copyright would object.

Now, suppose that that were the case.

Mr. Kroft: If that were the case, Your Honor, I would submit that under the test laid down in the Inwood case Sony would be selling this product with knowledge or reason to know that it would be used to record copyrighted works at least sometimes and would therefore be--

Unidentified Justice: You think that would satisfy the requirements of showing a contributory infringement, if you just knew that it was possible?

Mr. Kroft: --If you just thought that there were a few unscrupulous people out there that couldn't resist the temptation, no, I don't think that would be enough, Justice White.

But if you knew as a matter of belief and encouragement and instruction in your instruction manuals that that would happen, I think it would be enough.

Unidentified Justice: When you use the term "unscrupulous", do you include the time shift users?

You're perfectly free, because I don't have one of these things.

[Laughter]

Is that an unscrupulous user?

Mr. Kroft: I don't label home owners in this context as unscrupulous.

I think they've been duped by the Petitioners into believing that what they're doing is legal.

Unidentified Justice: They think they've paid for it, too.

Mr. Kroft: And they haven't paid the copyright owner, Mr. Justice White.

Thank you.

Chief Justice Burger: Thank you, gentlemen.

The case is submitted.

Print this transcript Transcript: 

IN THE SUPREME COURT OF THE UNITED STATES

SONY CORPORATION OF AMERICA, ET AL., Petitioners, v. UNIVERSAL CITY STUDIOS, INC. and WALT DISNEY PRODUCTIONS, Respondents

No. 81-1687

October 3, 1983

The above-entitled matter came on for oral argument before the Supreme Court of the United States at 10:51 a.m.

APPEARANCES:

DEAN C. DUNLAVEY, Esq., Los Angeles, Cal.; on behalf of Petitioners.

STEPHEN A. KROFT, Esq., Beverly Hills, Cal.; on behalf of Respondents.

PROCEEDINGS

CHIEF JUSTICE BURGER: Mr. Dunlavey, you may proceed whenever you're ready.

ORAL ARGUMENT OF DEAN C. DUNLAVEY, ESQ., ON BEHALF OF PETITIONERS

MR. DUNLAVEY: Mr. Chief Justice and may it please the Court:

Since the advent of free off-the-air television in the United States in about 1948, it has become what is undoubtedly today's most important communication medium. There has been a lot of technical progress since all of that time, which most of us lived through. The small screen has gone to the large screen, black and white has gone to color, tubes have gone to transistors, and live broadcasting has gone to delayed broadcasting using pretty much the same VTR that we're concerned about here this morning.

The Court can remember that the early television shows all had to be broadcast live because there was no means of recording them. As a matter of fact, in 1976 Sony got an Emmy from the National Academy of Television Arts and Sciences for the VTR, which had enabled delayed broadcast of an earlier recorded show.

And now progress has continued. That same VTR has been put in the hands of the public so that, instead of a necessary live viewing, there can be a delayed viewing. And the question this morning is: Can the copyright owners or a few of them who are profiting by exploiting their product on free television arrest this latest progress of science?

For the Court's information, by the end of this year there are expected to be something like 9-1/2 million video tape recorders in television households. That is at or near at or past the ten percent mark of television households in America.

Now, this case has left us with three issues that I would like to address this morning. The first, of course, is does the homeowner commit a direct infringement when he records the program at home with his VTR? In short, when he makes the tape has he committed a direct infringement?

The answer to that lies in the fair use section. That's Section 107 of the Copyright Act, and that's a discretion-type statute which tells the court that you can apply common sense to any instance where there seems to be literal infringement and if it's not a fair result then it doesn't have to be treated as infringement.

The Ninth Circuit subdivided that into two questions. First of all, it said that fair use has to be a productive use, like the first author using a second author's works -- a second author using a first author's works in creating something new. The converse of that is called intrinsic, where you're using a copyrighted article in much the same way or exactly the same way as you would have used the original. The Ninth Circuit says it has to be productive as a matter of law.

It also left us with a factual question as to what is the effect vis a vis the copyright owner of the home recording, because if you're testing for fair use the effect on the copyright owner is probably the most important.

The third test, assuming, just assuming that home recording is direct infringement, the question is has there been contributory infringement by the VTR suppliers, manufacturers and suppliers, for having done nothing more than to make the machine available.

Now, taking those three ad seriatim, the productive test is best answered if you could find some indication on the part of Congress that a productive use was in fact contemplated among the variety of fair uses.

QUESTION: Well, Mr. Dunlavey, would you agree that Congress when it kind of codified the fair use doctrine intended to keep that doctrine pretty much as it had been developed by the courts?

MR. DUNLAVEY: It said it. The answer is yes, but they did not intend that it should go rigidly along the lines that it had been going. They said we're not intending to change it, but they also indicated that common sense has been the rule in the past and should continue to be in the future. So the fair uses in the future don't have to be the same things that have been found to be fair use in the past.

QUESTION: Isn't it accurate to say, with respect to the law at the time Congress codified it, that fair use required some sort of a productive use, like one author -- a book reviewer quoting a text in a book review or something like that?

MR. DUNLAVEY: I submit, Justice Rehnquist, that that was most definitely not Congress' intention, and I have three examples to put before Your Honor to support that.

First of all, remember the Williams & Wilkins case had been an intrinsic kind of usage, where medical articles were Xeroxed and distributed to doctors in lieu of originals. That was an intrinsic use.

QUESTION: It was affirmed by an equally divided Court here.

MR. DUNLAVEY: Which left it the law of the land, at least in the Court of Claims. So it was a very well known case of intrinsic use just at the time Congress was passing the new Act, and Congress made no indication that it disapproved of the outcome of that case. So arguably Williams & Wilkins was in Congress' mind and they accepted the intrinsic use.

But I can do better than that. In the 1975 Senate report at pages 65 and '6, it talked about the school whose classroom schedule does not synchronize with a broadcaster's television schedule. It means that the time the broadcaster is putting out an educational program that the students want to see, the students aren't in class.

That specific example was in the Senate report and it said that that school could record off the air the broadcast for delayed viewing at a time when class was in session and that would be an example of fair use. And there we've killed four birds with one stone because, first of all, that's an intrinsic use and Congress is approving it.

Secondly, it's the copying of an entire work and Congress is approving that.

Thirdly, the purpose is time shift and Congress is approving that.

And lastly, it's for convenience, the very same reason that the homeowner is doing it. He can't see the show when it's broadcast, so he records it for later.

But that still isn't the end of it, because in the 1976 Conference Committee report they acknowledge that the educators and the copyright owners had negotiated and would continue to negotiate on what were called guidelines, and those were to be examples of fair use. And the conference report said that whatever these people agree upon will be regarded as part of the conferees' understanding of fair use.

QUESTION: Do you think that involves any problem of unlawful delegation?

MR. DUNLAVEY: That's occurred to me and I can't answer it. But fortunately, Universal has come along and agreed to guidelines, and therefore Universal, of all people, is not in a position to claim that there are not of validity.

In 1981 guidelines were adopted for off the air recording for educational purposes. They encompassed any broadcast that was for the use of the general public without charge. You could copy it, show it twice within the next ten days, either in the classroom or at home, and then you were supposed to erase it after 45 days.

Very clear Congressional precursor of the time shift concept. So it's a reinforcement of the intrinsic use, the entire work, time shift and convenience. And who agreed to it? Wouldn't you know, it was Universal and a large share of their amici who were on the amici brief saying they now protest. So they are all on record as having agreed to these standards as satisfying fair use.

So I would submit that the Ninth Circuit by one of those three, two of them or all three of those has erred because it has said productive is a sine qua non. It obviously is not.

QUESTION: Mr. Dunlavey, I suppose of course the Court doesn't have to resolve this question in order to resolve the contributory infringement question. The Court could resolve it as a means of getting to the contributory infringement question, but does it have to?

MR. DUNLAVEY: Justice O'Connor, that's precisely right. There are two roads to Rome. You can say that there is direct infringement but nevertheless there was no contributory infringement or, as you have just suggested, you can say, whether or not there was direct infringement, and we bypass that question, there clearly was nothing that constitutes contributory infringement. So Your Honor is correct, you can resolve this case without resolving whether home use is infringement.

Now, if you're going to make the conventional fair use test, assuming that it can be fair use, the question is whether it is, the most important test of all by common sense and by general acknowledgment is what's the effect on the copyright owner. Because I don't think anybody has trouble with the concept that you really shouldn't be using the copyright owner's works against him, all other things being equal.

So the question is, recognizing that the copyright owner for some reason doesn't want you to do it -- you have to assume infringement -- but recognizing that there may be other reasons why he should have to put up with it, the test is first of all let's see what is the effect on him.

Now, the Ninth Circuit with no explanation simply says, it seems clear that home recording does tend to diminish the potential market for the Universal-Disney works. No explanation, just ipse dixit.

Conversely, the district court had said several things. Firstly, it said that Universal-Disney admit there's been no harm to date. That's a fact. There's no argument about that. At the time of the trial, which was several years after most of the recordings, there wasn't a vestige of harm.

Then the question comes about predicting the future, and the district court listened to the witnesses and the surveys and came to the conclusion that there was no likelihood of prospective harm and there was no reduction in the potential market for Universal's and Disney's.

Now, the district court did that after hearing four general kinds of complaints by Universal-Disney. First of all, Universal-Disney said, the money that we get for putting our shows on television is determined by the ratings systems, and the bigger the audience the more we make. And if the VTR owner joins the audience but the ratings system doesn't pick him up, then we don't get paid, so we've been hurt.

The district court listened to a ratings expert and concluded that the VTR owners will be measured as part of the broadcast audience by the ratings services, and he was dead right. Nielson counts the VTR set in a household just the same as it counts a TV set, so the audience of the VTR owners is measured.

Secondly --

QUESTION: Can I interrupt there? You're telling me that's done now or was that done at the time of trial?

MR. DUNLAVEY: It was either being done at the time of trial or was just on the verge. It is being done now.

QUESTION: Well, let me put it differently. Did the district court find that it was being done?

MR. DUNLAVEY: I think the district court said that it is being done. It said they had the capability of doing it, and then at another point I believe it said that they were doing it.

QUESTION: I thought he said that they could do it. I didn't think he said they did it. In fact, I don't see how they could have made the argument that they made if they were doing it. They were saying they were losing the benefit of these counts because it wasn't being done, I thought. They were losing the benefit, you know, in their ratings of the people who heard it only on a time shift basis because the time shifts weren't being considered by Nielson and similar people.

Didn't they argue that?

MR. DUNLAVEY: Then argued it then and they still argue it.

QUESTION: Well, if they make that argument then doesn't the record have to have indicated that as of the time of trial -- I don't know what's happening now -- the record did not support what you just said?

MR. DUNLAVEY: No, the fact that they make the argument today certainly does not indicate that the record stood in their favor at the time of trial. The fact -- I'm sorry, I don't want to take a position and have bitten off a little bit more than I can chew.

I know that the district court said that they have the ability to do it.

QUESTION: Right.

MR. DUNLAVEY: I think the district court may have said they are doing it. But if not, the fact is that they're doing it now, so that the district court's conclusion was right.

QUESTION: But I take it you would also argue that the mere fact that they have the ability to do it should be an adequate answer to the argument?

MR. DUNLAVEY: It should be an adequate answer. The better argument, of course, is that they are doing it.

QUESTION: If we know that.

MR. DUNLAVEY: Another complaint that they made was that, by virtue of having recorded something at home, you'll take a man out of the potential market for buying that same work if it's ever put in a prerecorded cassette. The district court at that point said, Universal-Disney stands ready to make prerecorded tapes available. At that point they said they weren't doing it because they weren't going to help a technology that they were fighting.

But the fact of the matter is, and it's common knowledge and judicial notice today, that the prerecorded movie is available across the country, has become very popular. In fact, the use of the home VTR now constitutes 30 percent of the primary reason why people are using video tape recorders, 30 percent.

They still complain of librarying, Justice Stevens. But the fact of the matter was at the time of the trial there was no evidence of any librarying of their works. The district court said specifically that there'll be no librarying to any significant extent. And today, the current use of the VTR, 60 percent is primarily for the purpose of time shift. So that squeezes librarying down into what's left of 60 plus 30 or 90 percent, the difference between that and 100 percent.

So, although they still argue librarying, the fact was then and the fact is now that it just isn't taking place and they're not being hurt by it.

Finally, they complained that there would be a decrease in the future audiences of their television product and their motion picture product. In fact, Mr. Sheinberg, who was the President of Universal, took the stand and in all seriousness said this will be the ruination of the movie industry.

The district court there said that there was in fact no likelihood of a decrease in the movie or television audience. Once again, the district court is dead right. MCA has just reported its highest six months revenue in history.

And right after Mr. Sheinberg came Mr. Wasserman, who's the head of MCA and Universal, and gave his testimony, often quoted, that forecasts of doom in the entertainment industry had historically been wrong.

So the summary on the effect test is that no one is viewing the home recordings off the air except members within the intended audience at the time of the broadcast and Universal has been amply paid for that audience. There is no sense in wandering off into a hypothetical assumption of horribles as to what might be done with the tapes. The fact of the matter is that they're staying within the household, only people within the intended audience are seeing them and then they're being erased, and absolutely no harm is being done.

QUESTION: Could all of the horribles that are postulated that you've just referred to be corrected or dealt with by Congress? If the parade of horribles came to be true, could Congress deal with that?

MR. DUNLAVEY: Yes, I suppose Congress could deal with any of these problems. But having given the courts the fair use statute, the courts can deal with this one equally one, perhaps better.

The prerecorded cassette has been a bonanza in the hand of the studios. The net effect on the studios of the VTR has been a substantial benefit, certainly no detriment. So the effect test does not weigh in the copyright owner's favor at all and the public policy of letting people copy what they can off the air and thereby enhance their ability to get information certainly should prevail.

And that brings us to the third of the questions, the staple item of commerce. That is a transplant to a great extent from the copyright law, but it's also founded in common sense. If you make something that people can use for legitimate purposes, there is no legal justification in holding you responsible if somebody somewhere uses it for an improper purpose.

Now, I'm not conceding by any means --

QUESTION: If we agreed with you on that we wouldn't need to reach the questions you've been talking about, is that it?

MR. DUNLAVEY: That has crossed my mind, Justice White. But let's look at the fairness.

QUESTION: Well, isn't that right? You say it's crossed your mind. I'm wondering, do we have to reach the questions you've been discussing if we agreed with you that this is a staple article of commerce and that there's no contributory infringement?

MR. DUNLAVEY: If you agreed with me you would think this case would be over.

QUESTION: Yes. But we wouldn't have to talk about fair use at all, would we?

MR. DUNLAVEY: Then may I review the innocent uses, because --

QUESTION: Well, we wouldn't have to talk about fair use at all, would we, if we agreed with you that this is a staple article of commerce?

MR. DUNLAVEY: Justice White, that's correct.

QUESTION: Has any court ever so held so far as the copyright is concerned?

MR. DUNLAVEY: On the staple items theory? Nobody to my knowledge who has made a product has ever been held as a contributory copyright infringer for having made and sold that product.

QUESTION: That isn't my question. My question was, has the staple article of commerce patent law principle ever been applied in a copyright context?

MR. DUNLAVEY: By direct analogy, I suppose the answer is no. But I think back to Justice Holmes in the Kalem case, where he was using the very same reasoning and the very same words and the very same conclusion.

Now, if there are non-infringing uses they certainly are not going to have the VTR available to pursue those non-infringing uses if the manufacturer has to make good for somebody who uses it improperly. No manufacturer can stand that kind of risk.

For non-infringing uses we have the guidelines and the Senate report. We also have Universal's publicly taken position that they will never sue a VTR owner, no matter what he copies. Now, that has to have some impact on their position, Justice White. They simply should not be allowed to tell the public that they can copy at random and we'll hold Sony responsible for it. That isn't equitable.

And the district court, adding to those, referred to the considerable testimony at trial about the legitimate copyings -- that is, I shouldn't say legitimate because that implies some isn't -- about the unchallenged copying. We had 18 witnesses at that trial. We had 482 pages of reporter's transcript, which was 67 percent of our case in chief, that had to do with unchallenged consent-type uses of the VTR.

So the Ninth Circuit has erred when it says that the VTR is not suitable for substantial non-infringing use. It most certainly is.

But even more than that, at the last argument we got into a consideration of, supposing we took a poll of copyright owners and 50 percent approved and 50 percent didn't, or more than 50 or less than 50. On reflection, I would like to submit to the Court that it's not up to the copyright owners to decide for the American public whether we're going to have delayed television viewing.

If you want to play football, you've got to give up your personal rights against assault and battery. That's just the rule of the game. By the same token, if you want to make money off the public television you should have to bend with respect to your copyrights, and the copyright owners should not be able to tell the American public what they can or cannot do when it comes to progress in the television science.

Now, if I may, Mr. Chief Justice, if there are no further questions I'll reserve the balance of my time for rebuttal.

CHIEF JUSTICE BURGER: Very well.

Mr. Kroft.

ORAL ARGUMENT OF STEPHEN A. KROFT, ESQ., ON BEHALF OF RESPONDENTS

MR. KROFT: Mr. Chief Justice and may it please the Court:

Underneath all the legal arguments and legal labels that we've thrown around in this case, the case is really very simple and straightforward. Petitioners have created a billion dollar industry based entirely on the taking of somebody else's property, in this case copyrighted motion pictures, each of which represents a huge investment by the copyright owners.

And contrary to what Petitioners would have this Court believe, Respondents are not the only copyright owners who have raised express objections to these activities. The Court has before it amicus briefs raising such objections from over 70 copyright owners, including such people as the CBS television network, the producers of approximately 90 percent of the programs on prime time network viewing, and many, many producers of educational and cultural programs, such as the Children's Television Workshop, the Lincoln Center for the Performing Arts, and the producers of the National Geographic series and the Smithsonian Institute specials.

Despite what Petitioners again would have this Court believe, the record establishes beyond question that the Petitioners are selling and know that they're selling an instrument for use in infringement. They recognized the legal problem in 1965. They continued to wrestle with it up until -- and they're still wrestling with it up until today.

QUESTION: Suppose the evidence in the case put on by witnesses that your friend referred to indicated, just suppose it indicated, that about ten percent of all programming could be copied without any interference by the producer or whoever owned the program. Suppose that there was at least ten percent that a homeowner could copy without violating anybody's copyright.

Would you think that would make any difference in this case?

MR. KROFT: I don't think that would make any difference. I think ten percent is too small of an amount.

QUESTION: Well, what about 50?

MR. KROFT: I'll go you one better, Justice White. If there was only one show on the air that were copyrighted and which could not be copied without objection, if the Petitioners sold this device with knowledge that it would be used to copy that show, under the Inwood test laid down by this Court in the trademark area I believe the Petitioners would be liable.

However, I would concede that I think it might be very difficult for us to prove if there was only one show.

QUESTION: Well, let's take 50 percent. You certainly would argue that Sony would be liable if it sold this machine knowing that homeowners would copy a good many of the 50 percent that are copyrighted, in which there would be an infringement.

MR. KROFT: Yes, I would, and the reason I would --

QUESTION: And you don't -- is this because you say the staple article of commerce doctrine doesn't apply at all, or that this is just the way it should be applied?

MR. KROFT: No, I'm saying it doesn't apply at all and it doesn't apply at all for a number of reasons. The first reason it doesn't apply is because when the Petitioner sells this product with knowledge or reason to know, under the cases decided by this Court, that it will be used in an infringing manner -- and with the 50 percent test that would be certain knowledge -- then the Petitioners are held liable.

They're also held liable, even if they don't have that knowledge, if they sell the product and suggest even by implication that the product be used for an infringing purpose.

QUESTION: Well, what if on every set they have -- the owner's manual has it at the top and at the bottom and on each margin: Do not use this to record copyrighted works.

MR. KROFT: I think that that would be a very disingenuous way by the Petitioners to try to avoid liability, and I expect if the Court rules in our favor they'll try to do that. And the reason I think it's disingenuous is because that kind of a warning doesn't come anywhere close to telling the homeowner what in the world he can do with this product. The homeowner's not going to know when he sees that, that kind of a warning.

The real way for Sony to have avoided this problem would have been to cooperate with the copyright owners in devising technology which would allow the broadcaster to jam the video recorder from copying the kind of material that is owned by people who object. That's the only real surefire way to do it, because these warnings aren't going to be understood by the normal homeowner.

QUESTION: Mr. Kroft, can I ask you a question about the staple article of commerce test? We don't have any precedent in the copyright field for what the test of that problem is. You rely on a precedent from the trademark field, and of course there is an analogy to the patent law.

Do you think we should look to one of those two fields for precedent, and if so would you not look to the patent law? Why not?

MR. KROFT: I do not think you should look to the patent law in this particular case because the patent law is a statute which was designed specifically to meet years of history in this Court dealing with certain patent problems, that is misuse and contributory infringement.

And it also deals, Justice Stevens, with the very peculiar attributes of patents. Patents are made up of a series of components which together, taken as a whole, end up being something that's protected as an invention. And that's not the case with copyrights.

In addition to that, I might add that the staple article of commerce doctrine in the patent field was developed to protect the sale of ordinary items, like paper and ink, dry ice, salt tablets. Those are the products that came out of the cases of this Court. But it was not designed to protect the sale of items designed specifically for infringement when the manufacturer and seller of that machine knew or had reason to know it would be used for infringement.

QUESTION: Well, specifically for copying purposes. Under your test, supposing somebody tells the Xerox people that there are people who are making illegal copies with their machine and they know it. Must they -- what are they supposed to do?

MR. KROFT: I think that probably now puts the cart before the horse, Justice Stevens. That wasn't happening when Xerox began selling its machine. Xerox first started selling the machine for business applications. We can all remember what they looked like. You'd have to put one page in. You couldn't run through pages and pages and pages like you can today.

And over the years I suppose people have come to use Xerox for different reasons. Xerox has tried to protect itself -- and I don't know if it's doing it adequately or not -- by giving every Xerox renter -- and I believe most of these machines are rented -- a little list of do's and don't's. And one of the don't's is don't copy copyrighted material.

QUESTION: But you just said that wouldn't protect Sony.

MR. KROFT: I don't believe it would, and that's why I say I'm not sure --

QUESTION: Does it protect Xerox?

MR. KROFT: That's why I just said I'm not sure if it does.

QUESTION: But your view of the law is that as long as Xerox knows that there's some illegal copying going on, Xerox is a contributory infringer?

MR. KROFT: To be consistent, Your Honor, I'd have to say yes.

QUESTION: A rather extreme position.

MR. KROFT: Justice Stevens, the reason I say that I think Xerox may be different is Xerox didn't start out as a machine sold --

QUESTION: But isn't it true that you've told eight or nine million people that as of now -- we're not concerned with what's happened in the past --

MR. KROFT: We have told eight or nine million people that we are very concerned about what's happened in the past, but we're --

QUESTION: But you do not seek to recover damages from them.

MR. KROFT: But we seek to recover our damages not against them, but against the propagators of this problem, the manufacturers and sellers of the article. And of course, under standard contributory infringement doctrine we're allowed to do that. So all we've said is we're going to be exercising our legal rights. We haven't told the homeowners that what they're doing is okay or permitted.

QUESTION: Well, is it okay?

MR. KROFT: Excuse me, Your Honor?

QUESTION: Is it okay for the people to continue to copy?

MR. KROFT: As a matter of law or as a matter of consent?

QUESTION: Either. Well, as a matter of consent, which would then determine the legal consequence.

MR. KROFT: Of course. As a matter of law, I do not believe it would be. As a matter of consent, it most certainly is not. We have not consented to off the air recording of our works, except with respect to the guidelines that Mr. Dunlavey mentions.

QUESTION: Well, do you speak for the other 90 percent who you represent? The amici join you. Do they also consent to copying?

MR. KROFT: Universal does not consent to copying in the home use context. Let me make that clear. The guidelines that Mr. Dunlavey referred to are guidelines with respect to educational copying. With respect to your question --

QUESTION: No, I was referring to the statement by the president of your company that's quoted in your adversary's brief. It says that, we've won this case but we're not going to try and interfere with any copying by people who now have VTR's. As I understand, they said something like that.

MR. KROFT: It said we would seek our remedy from the contributory infringer, which has joint and several liability, and which we're entitled to do. That's what the statement was intended to mean.

But I don't want to leave your last question unanswered. I don't represent amici, no. I am not authorized to speak for them today.

But they have spoken on their own behalf by filing their amicus briefs.

QUESTION: Well, is it their position, or do we know, that the homeowner who copies tonight may incur some liability?

MR. KROFT: I'm sorry, there was a cough.

QUESTION: The homeowner who copies tonight, not your program but the 90 percent that the amici represent, does that homeowner risk any liability?

MR. KROFT: I believe so. But I don't believe --

QUESTION: Do you think he's going to get rid of his machine?

MR. KROFT: Excuse me, Justice?

QUESTION: Do you think the homeowner is going to get rid of his machine and throw it away? If so, dream on.

(Laughter.)

MR. KROFT: Justice Marshall, I don't believe that a copyright owner, after seven years of litigation here, is going to sue the homeowner. I think that by not doing it they've implied they won't.

I think that the remedy here, though, can be that a continuing royalty be granted against the Petitioners and in favor of the Respondents, which would require the Petitioners, who are reaping all the economic benefit from this machine, to share some of it with the copyright owners whose product made this machine such an attractive consumer device in the first place, and in that way the homeowner would not be disturbed, Justice Marshall.

Now, it must be emphasized that we're not talking about one or two individuals here, one or two copies. We're talking about millions of copies. The estimates are that by the end of the decade there will be something like 40 or 50 million of these machines in homes. And it only takes common sense and a brief examination of the district court's findings to realize that the economic loss to Respondents from these millions of copies will be enormous.

We believe this harm will manifest itself in a number of ways, but I think only an examination of three of them is necessary to illustrate the point.

QUESTION: Mr. Kroft, the district court found no harm, present, past or prospective, did it?

MR. KROFT: I don't believe that's correct, Justice O'Connor. The district court found that we did not put on proof of past damages, and the reason for that is we elected to recover statutory damages, which we had the absolute right to do.

The district court found -- its language sounded like it was talking in the present. It said there is no reduction because we didn't put on any evidence of present harm. But remember, at that time there were only something like 130,000 Betamax and less than a million total VTR's in the marketplace, compared to something like 75 million television homes at that time.

But he did not say there will be no future harm, and that's the insidious problem with Petitioner's characterization of the district court's opinion. The burden of proving -- let me back up.

In copyright law, once there's been proof of infringement there is a presumption that there will be future harm. That's established by all of the cases. And at that point it falls on the Petitioners, the Defendants, to prove that there will not be, and the district court must find that there will not be, future harm.

The district court did not make that finding. The district court made the mistake of reversing the burden of proof and requiring the Respondents, in addition to the presumption, proving that there will be harm. And all the district court said was that the Respondents did not meet a burden that they didn't have in the first place.

Now, the first area in which this harm is apparent, and which the district court didn't consider at all but the Ninth Circuit did, is that off the air recording is going to -- uncompensated off the air recording is going to interfere with the copyright owner's ability to license off the air recording of its copyrighted works for a fee, whether that's recording done for time shift purposes or library purposes.

The district court did repeatedly recognize that off the air recordings have value to homeowners, thereby indicating, I think implicitly, that they would be willing to pay for it. And in fact, of course, they are paying substantially for it, but right now they're not paying the copyright owner.

And as I explained at the last argument, AEC is about to commence a service to exploit this value by beaming scrambled signals between 2:00 and 6:00 a.m. in the morning to owners of special equipment furnished to them. They will be paying a license fee for it, and they'll be able then to unscramble the signal and watch it after it's been recorded.

What's interesting about this service, I now realize and didn't explain to the Court last time we were here, is that Sony has manufactured and will be furnishing the equipment for receiving and recording and descrambling that scrambled signal. And furthermore, as I understand the technology, the scrambled tape will only be viewable for a month and after a month it will become indecipherable. And I can't explain the technology because it's beyond me, but that's what I understand will happen.

Now, these attributes make it very clear to me that Sony realizes that there's a big business in time shifting, even in time shifting, for the copyright owner. ABC currently projects that by 1990, when there's about 40 million of these machines in households and there's only been about 15 percent penetration of this scrambled service, that it will generate over $500 million annually in revenues.

Much of that will be going to the copyright owners if they agree to do this with ABC, because they will be furnishing the material that will be recorded. They'll be getting paid for this off the air recording. And it doesn't take much imagination to realize that if people can continue to do this off the air for free during the rest of the broadcast day -- that is, between 6:00 a.m. in the morning and 2:00 a.m. the following morning -- that they're not going to be willing to pay for it. They're simply not going to want to pay for something that they now get and have been getting for quite a long time for nothing.

QUESTION: May I ask one other question. If the effect of this time shifting -- and I know you dispute the reading of the findings, but if the effect were to enlarge the size of the audience for your first transmission, would you then be able to establish harm?

MR. KROFT: Yes, I believe so, Justice Stevens. First of all, the cases have said that merely because there might be a speculated increase in one market --

QUESTION: No, no. Assume there was proof and you took it as a fact -- I know you don't -- that there were, that the time shifting actually enlarges the size of the audience. Assume that's a fact. Then could you possibly show harm?

MR. KROFT: Yes. There are two answers to that, Justice Stevens, one legal and one factual.

The legal answer is that the cases have held that just because there may be an increase in one market -- and let's assume under your hypothetical that there is -- that does not destroy the copyright owner's rights to enforce his copyright under the fair use doctrine if there are going to be harms in other markets, because it's up to the copyright owner to determine how and in what manner and in what markets and in what progression he will exploit his product.

The factual answer to your question is that the so-called increase in audience depends on who's in that increased audience. The name of the game here is advertiser support. They pay for the audiences and the broadcasters in turn then pay the suppliers of the product.

If that increased audience, for example, included people whom the advertiser of a particular program wasn't interested in reaching -- for example, a truck driver who doesn't buy the family detergent, likes to record soap operas for some reason or another, and the advertiser now picks him up as a viewer at night because he watches his time shift recording -- the advertiser's not going to be willing to pay for him.

To allude to a question you asked earlier, although the district court in fact did find that the ratings services at the time of trial were measuring recordings, they were not -- and the district court also found this -- they were not measuring playbacks, neither when it was played back nor who it was played back for.

Another example of why your hypothetical would not necessarily increase revenues or cause the fair use defense to come into play is because it depends when the advertisement is watched. If a Christmas advertisement is broadcast the week before Christmas and it's watched the day after New Year's, it's of no value to the advertiser and he's not going to pay for it.

Now, another area, the second area where off the air recording is going to cause substantial form to copyright owners is in the market for the sale and rental of prerecorded cassettes. And it must be borne in mind that this market doesn't depend on the sale of machines that can record off the air. At the time of trial -- and this is in the record -- Sony was selling machines that had no off the air recording capability. They were just players like an ordinary record player. And those players can play back these prerecorded tapes and cassettes.

So it's quite misleading to suggest that we only have that market because off the air recorders are out there. That's not at all the case.

The district court expressly found that off the air recordings, both time -- and he didn't differentiate in this finding between time shift and library copies -- will compete with the sale and rental of those devices. It doesn't take much imagination to realize that that competition is going to reduce the income to the Respondents from the sale and rental of their copyrighted motion pictures.

This is probably best illustrated by the fact that this year the Electronics Industry Association has estimated that there will be a sale of approximately 55 million blank cassettes in this country as opposed to only 8 million prerecorded cassettes. Now, the reason people are buying so many more blank tapes than they are prerecorded tapes seems obviously to me to be that they're just not willing to pay the extra price to buy a copyrighted motion picture when they can take it off the air for the mere price of a blank cassette.

QUESTION: Could I ask you, do you think under the present Act there can be -- that just sound recording is a violation of the copyright?

MR. KROFT: I believe it is, Justice White. I believe it is.

QUESTION: You think this present Act changed the law?

MR. KROFT: I don't believe that there was ever a law necessarily that permitted home recording of audio. But I'm giving you my off the cuff response.

QUESTION: But if there was such a law before, you think that is no longer the law?

MR. KROFT: Well, maybe I should be a little bit more prudent and say I think there's a good chance that it is no longer the law, because the legislative history of the 1976 statute specifically said with respect to sound recordings that recapturing those sound recordings off the air is a violation, and when it said that it did not repeat the home recording exemption that had been mentioned in 1971.

Mr. Justice Stevens, one further answer to your question about increasing the audience. I was assuming in my answer to you that all these commercials would be watched. In fact, most people that are recording off the air are taking the commercials out, so that the commercials aren't even reaching --

QUESTION: Except they can't do that unless they're watching the program at the time.

MR. KROFT: Well, that's not entirely true. They can take them out of the recording if they're watching them at the time.

QUESTION: But they get them on the tape in the first place unless they're watching it at the time.

MR. KROFT: That's correct.

QUESTION: Then they can fast forward when they watch it.

MR. KROFT: You understand the technology quite well. That's right.

(Laughter.)

MR. KROFT: There are devices coming on the market, however --

QUESTION: May I ask, since you went back to that question, you pointed out that the audience, people in the audience are not all alike. Some people might not want to buy the thing that's advertised with the soap opera and so forth.

But do the ratings take that into account, or do they treat all viewers alike?

MR. KROFT: The ratings are not one integrated thing. The ratings are done in a variety of ways. You have the metered ratings which just tell you if the set's turned on or not; doesn't tell you who's watching. And then you also have diaries that tell you who's watching at the time that the television set is turned on.

QUESTION: Let me put it this way. The ratings that are used to fix the rates that the copyright owner charges for his programs, do they distinguish between different kinds of viewers?

MR. KROFT: They do, because the diaries tell the advertisers what are the demographics of the audience that are watching the shows at the particular time the television is turned on. So in that way the advertiser knows.

But with respect to video recording, we're never going to know against what program a particular recording is viewed, if it's viewed at all, when it's viewed. Because all you have to do is think about it for a moment and you can realize that a diary is never going to be able to tell you if the recording made today is watched in a month or a month and a half. There's not going to be a diary that can be put together that can do that.

I would like to talk about the staple article of commerce argument for a moment. But before I do, I'd like to leave what I've been generally talking about in this area, the harm issue, with this one thought.

Fair use was a very narrow doctrine designed for very limited application, for use in the creation of scholarly or research works or works for contemporary comment or news reporting purposes, and only then when a small amount was taken. Off the air recording for home entertainment purposes doesn't even come anywhere close to fitting that definition. It takes the whole thing, which traditionally under the cases has required an exclusion of the fair use defense. And it's not for the purpose of encouraging and advancing creativity of new intellectual works.

I believe that Petitioner's counsel errs when he suggests that, because an off the air recording in Alaska, which is what the Senate report referred to, which has six time zones, for educational purposes may be allowed, that that means that off the air recording in all circumstances, not involving education, not involving a salutary purpose like research or contemporary comment, can somehow be fair use.

And with respect to the Williams & Wilkins case, I should point out to the Court that even though that case talked about it being okay to record entire copyrighted works, in fact what it was talking about was only one article in an entire copyrighted journal. And then when the Senate got to Williams & Wilkins, at page 71 of the Senate report, it said that Williams & Wilkins failed to significantly illuminate the application of the fair use doctrine and gave little guidance to Congress on the application of the doctrine.

Now, when you realize that this can't be a fair use use because it doesn't advance one of the traditional purposes and it takes too much of the copyrighted work, then you realize that you never have to get to the fourth factor, the prospective harm factor, because you don't have fair use in the first place. You don't just get into this issue by invoking the words "fair use," and if it's not a fair use case then you don't have to look at harm, and that's the case here.

In addition to that, as I said, harm is presumed in a copyright case unless the defendant proves it won't occur in the future and the district court makes that finding. The Petitioner didn't prove that here and the district court most assuredly did not make that finding.

QUESTION: Mr. Kroft, did you say Alaska within itself had six different time zones?

MR. KROFT: I did say that. I may have erred in the amount, but the reference in the House report did talk about the fact that Alaska, being so large, did encompass several time zones, and that was the reason that the House report in that unusual example indicated that off the air copying for educational purposes there might be allowed.

But the House report also went on to make very clear that, even in the educational context, the fair use doctrine had to be very narrowly circumscribed with respect to motion pictures and generally should be applied only to the use of excerpts.

With respect to the staple article of commerce doctrine, I've explained, I believe, that it's not really designed for the sale of things other than salt tablets and dry ice and things of that nature. But in addition to that, if we're going to analogize to the patent statute, the patent statute also has a section that says that when the seller of an article, even a staple article, sells it with encouragement, urging or inducement of some sort that it be used in an infringing way, and it is used in that way, then the seller of that article cannot escape liability even though the article may be a staple and even if he can prove the separate and second test.

It has to be a staple and it has to be suitable for substantial non-infringing use. Even if he could prove those two things, if he sells it with inducement and encouragement that it be used in an infringing way then he'll be held liable.

And in this case the evidence shows beyond dispute, and the district court did not find otherwise, that Sony is selling this machine for the primary purpose of recording copyrighted works off the air, including copyrighted works owned by the Respondents; and that the advertising and selling activities, as well as the instruction manuals, which give very detailed instructions as to how to record television programs off the air, exhort and contribute to this copying.

In fact, in recognition of what this machine could and would do, Sony gave its advertising agency a written indemnity agreement against any liability for advertising Betamax because, in the words of the agreement, "our legal counsels were concerned about the risks of advertising a video recording product that can be used to record copyrighted material."

Now, given those facts, you don't ever have to reach the staple article of commerce doctrine. And I might add that even if the Court were to try to avoid the fair use issue by reaching the contributory infringement issue here, we still have other theories of liability that weren't addressed by the Ninth Circuit below on which we also hold the Petitioners responsible.

But even if the Court did reach the staple article doctrine here, Petitioners have the burden of proving that the Betamax is available and suitable for substantial actual non-infringing uses, and the district court very pointedly refused to find on the evidence brought before the court by Petitioners that that was enough to allow the district court to find that Betamax was suitable for substantial and actual non-fringing use.

QUESTION: What do you have to put on? What do your clients have to put on on your side of the case?

MR. KROFT: We have to put on, Justice White, that Sony sold this product with knowledge or reason to know that it would be used in an infringing way, which we did through the admissions of Sony's executive; or in the alternative, that it was sold with the suggestion, even by implication, that it be used in an infringing way, which again we did, through the advertisements, the brochures, and the instruction manuals.

QUESTION: Well, what about -- do you think, assuming the staple article of commerce notion applies in the copyright field, do you think it's an affirmative defense?

MR. KROFT: Absolutely, Justice White.

QUESTION: Is it in the patent field, or is it part of the plaintiff's case?

MR. KROFT: In the only case that I can think of where it was extensively discussed, which is the Fifth Circuit case of Bromberg versus Thornhill, although the court didn't discuss whose burden it was, the entire tenor of that whole decision was that the burden was on the defendant, that it was an affirmative defense.

QUESTION: Well then, there isn't much authority, then, on who's got the burden in connection with the staple article of commerce notion. Just one case and that by inference?

MR. KROFT: That case by inference. Again, it did not arise in the -- it hasn't arisen to my knowledge in the copyright field, and I believe -- and I'm not an expert on the patent statute in its entirety. But in the cases I've seen, that's the one that comes to mind.

Petitioners only put on evidence from a few educational, sports and religious people that claimed that they owned their copyrights, and as we pointed out in our brief we think that proof was deficient. But even if you took the notion that all sports, educational and religious programming could be copied with impunity -- and that's not the record here, because we do have objections from other educational and religious copyright owners -- all that the Petitioners' survey shows is that the use of the Betamax is to copy -- it is used 9 percent of the time to copy that kind of material, as opposed to 80 percent of the time to copy the type of entertainment programming owned by the Respondents and the amici that have come to this Court.

Based on those figures, the district court was entirely correct in ducking the substantial non-infringing use issue. On those numbers and on the evidence before the trial court, it never could have made a finding that Betamax was suitable, the off the air recording aspect was suitable, for substantial non-fringing use.

Thank you.

CHIEF JUSTICE BURGER: Very well.

Do you have anything further, Mr. Dunlavey?

REBUTTAL ARGUMENT OF DEAN C. DUNLAVEY, ESQ., ON BEHALF OF PETITIONERS

MR. DUNLAVEY: Justice Marshall, when Mr. Kroft says that he wants the manufacturer of Betamax to be enjoined, he could not be more serious. When we were down in the district court, the court was asking him at the time he had finished his case and before the defense started -- and I'm reading now. It says:

"You are not asking that Sony be enjoined from further manufacture of the Betamax, or are you?

And Mr. Kroft says: "Yes, I am."

To be sure there was no misunderstanding, a little bit later the Judge said: "Let's get back to the relief you are actually seeking. You say, one, you want an order prohibiting Sony from manufacturing Betamax?"

And Mr. Kroft says: "That is where we start." Then he went on and he said: "We want to get all the Betamaxes that have been out on the market and we want to recall them and disembowel them so that they can no longer record off the air."

And he's not kidding. He wants that relief, which I suppose is within the injunctive power of the Court, and/or he wants $250 per infringement every time a homeowner copies one of his programs. There's no manufacturer in the world that can stand up to that kind of relief.

Now, it would be nice if there were a way of distinguishing in free off the air television what programs are free for copying without objection and what programs are not. But for the moment there isn't. The VTR is inanimate. It can't tell.

The question of jamming is an interesting scientific theory, but that, as the district court said requires the cooperation of the FCC and the broadcasters and the VTR manufacturers, and that is something that is wholly beyond Sony's power.

So the question really becomes, can the movie studios take the VTR out of the hands of the public, or, if we're going to look at the big picture, can they exact some kind of a royalty in another forum for the privilege of their use?

Remember that these movie studios have not contributed a thing to the genesis of television. Television had to get along in its earlier years without any help from the movie studios because they were afraid of it. They saw competition with the theaters and they weren't about to supply their product to it, and they didn't.

So television got started and came a long way before the movie studios realized that it was a place where the could exploit their product. And they got into it as a matter of profit, and they're still into it as a matter of profit.

QUESTION: Well, you're not suggesting Sony isn't into it as a matter of profit?

(Laughter.)

MR. DUNLAVEY: I am not, and I'm not suggesting that the television receiver makers are not in it for profit. But when you're in it for profit you've got to yield to the public benefit. And I submit to you, Justice Rehnquist, that the chance for a man who works at night and has no opportunity to see prime time television when it's being broadcast live should not be foreclosed from seeing it the next morning if the technology makes it possible for him to do so.

I have to work during the daytime and quite often in the evening. Why should I be deprived of seeing something that's going on in the afternoon, perhaps a presidential address to the nation that takes place at 4:00 o'clock out in California? Why can't we see those?

QUESTION: Why shouldn't you pay for it?

MR. DUNLAVEY: Because the television audience is a free audience historically. The pay is being made. It's simply being made at the front end. The man who makes the because is being paid, and he's being paid with the understanding that anybody who's got the technology of receiving that broadcast has the right to do it. In fact, that's one of the things this Court has said in previous cases.

The prerecorded market that these people are benefiting so handsomely from does require an off the air capability in the product. These people make a video disc player which is a playback only type of device. It has never sold well because the public doesn't want it.

It's only when you combine the playback and the record capabilities together that you have something the public wants, and it's that device, made by the electronic industry, which is benefiting the movie studios so handsomely.

QUESTION: The only thing the public wants is copyrighted material?

MR. DUNLAVEY: May I ask you to repeat that, Justice Marshall?

QUESTION: Is your position that the only thing the public wants is copyrighted material? Is that your position?

MR. DUNLAVEY: No, not in the way you express it, Justice Marshall. It so happens that under the copyright statute as it's now written anything that is broadcast either from a tape or recorded onto a tape is automatically copyrighted in the first instance. So the public can't help it that the broadcast is subject to copyright.

Later on comes the time when you have to register it if you want to sue and, as we covered at the last argument, there's a lot of programming that is not registered because the people don't care enough to do it. Manifestly, that's a bill for free copying.

But it's not a question of the public wanting copyrighted material. It's just a fact that whatever goes to the public over free off the air television now is technically copyrighted at the time of the broadcast.

We conclude this case just where we started it many years ago. The fact of the matter is that the VTR is only being used by people in the intended audience, for whom the movie studios have been adequately and handsomely paid once. I would submit to this Court, as I did to the district court, that there is no reason in the world why a man who has to see Monday night football on Tuesday morning should have to pay for the privilege.

If something is done that is improper with the tape once it's made, the courts can deal with those improper instances, and they have. Taking a tape to Fiji, putting a tape in the theater -- those things have been encountered and stopped.

But to use it at home a short time after the broadcast, to see nothing more than your neighbor or the rest of your family saw a few hours earlier for free, there is no reason in common sense why you should have to pay for that. The studios have been paid once. There is no reason why they should have to be paid twice.

Thank you.

CHIEF JUSTICE BURGER: Thank you, gentlemen.

The case is submitted.

(Whereupon, at 11:52 a.m., the case in the above-entitled matter was submitted.)