Sony Corp v. Universal City Studios - Oral Reargument

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.)