The Sony Case
Most of the time. Sony was an important exception. In 1976, several major motion picture studios sued Sony, the maker of the Betamax video tape recorder (VTR), alleging that Sony was vicariously responsible for the way television audiences used the VTR (much as we use the videocassette recorder today). The movie studios alleged that audiences’ recording infringed the copyrights in their programs and that Sony was responsible for the infringement because it manufactured and sold the machine that made the copying possible. The majority found that Sony could be vicariously liable for television viewers’ copying only if the Betamax had no substantial non-infringing uses. It examined the way people used the VTR and found that recording a program to watch it at a later time (timeshifting) was a substantial non-infringing use because it was a fair use.
Justice Stevens delivered the majority’s opinion. He did not follow a narrow market failure rationale. In fact, a narrow market failure rationale would almost certainly have led to the opposite result, as Justice Blackmun argued in dissent. After all, if the Court had ruled that the use of the Betamax were not fair, the makers of VTRs could have gotten together with the easily located copyright owners and agreed to pay them a royalty for the privilege of manufacturing and selling a device that enabled massive copying of protected works. A ruling that such copying was an infringement and not excused by fair use would probably have brought about that result in short order (thus “curing” the market failure). But Sony found that massive copying of broadcast programming for convenience was a fair use. Glynn Lunney describes the Court’s fair use calculus:
In defining the balance between these competing public interests, Sony begins with a presumption in favor of fair use and a broad conception of the public interest that fair use protects. Merely increasing access to a work, even unauthorized access, represents a sufficient public interest to invoke the fair use doctrine. A transformative or “productive” use is not required. Once the fair use doctrine is invoked, Sony places the burden squarely on the copyright owner to justify recognition of her private ownership rights. Only where the copyright owner has demonstrated by the preponderance of the evidence that the net benefit to society will be greater if a use is prohibited, should a court conclude that a use is unfair.
In evaluating the critical fourth factor, the effect of the use on the value of or market for the work, the majority seemed to assume that the copyright owners needed a certain amount of income to ensure creation of their works, but that additional sources of income not currently in existence need not be created and funneled to them in order to achieve copyright’s goals. In other words, not all the income that might conceivably flow to the copyright owners had to flow to them. This is a classic statement of the limited monopoly rationale of copyright law. Courts following market failure reasoning based on high transaction costs never make this kind of assumption.
 Sony v.
 Glynn S. Lunney, Jr., Fair Use and Market Failure: Sony Revisited, 82 B. U. L. Rev. 975 (2002).
 Sony, pp. 450 - 451.
 See, for example the Texaco, Kinko’s, and MDS decisions, and the Sony dissent. The Sony majority simply did not cast the case in market failure terms. Had it done so, the use could not have been fair under the description set forth earlier in this paper. On the other hand, the use might have been fair if the Court considered the market failure existing at the time as a permanent or uncurable failure.