Author: Kevin Madigan

On March 18, Senators Thom Tillis (R-NC) and Patrick Leahy (D-VT) introduced the SMART (Strengthening Measures to Advance Rights Technologies) Copyright Act of 2022. The bill makes amendments to existing section 512(i) and adds a new section—section 514—to the Copyright Act, which establishes a triennial public rulemaking process through which the Librarian of Congress will publicly designate certain technical measures (or designated technical measures, known as DTMs). A summary of the bill and the support it has garnered from the copyright community can be found in our earlier blog.

In response to the SMART Copyright Act, the usual group of anti-copyright organizations turned to the same playbook they’ve been using for more than a decade to oppose any efforts to help creators combat infringement or enforce their rights. The responses are as predictable as they are divorced from facts, and most of them rely on the rhetorical tactic that one cannot prove a negative. Outlandish predictions and scare tactics are substituted for good-faith debate, and the following is just a sample of their favorite plays:

Play 1: Insist that piracy is not a problem.

Most would admit that online piracy is an enduring problem, but there are some who absurdly try to claim that piracy does not and has never posed a real threat to creators. For example, the Library Copyright Alliance submitted comments in response to the Copyright Office’s Notice of Inquiry on Technical Measures asserting that “online infringement no longer poses an existential threat to the content industries, to the extent it ever did.” It’s a brash statement which is entirely contradicted by data-driven evidence revealing that piracy continues to inflict substantial harm on copyright owners and creators.

Recent reports show that despite the ever-increasing availability of legal content, online piracy remains rampant. While some forms of online infringement, such as peer-to-peer torrent downloading, may be decreasing, this is mainly because piracy has migrated to illegal streaming, which now dominates the piracy landscape and inflicts massive harm on copyright owners and the creative industries that create hundreds of thousands of jobs and contribute billions to the U.S. economy.

 A 2019 study on the impact of digital piracy found that digital video piracy causes lost domestic revenues of at least $29.2 billion and as much as $71.0 billion annually, and that it results in losses to the U.S. economy of between 230,000 and 560,000 jobs and between $47.5 billion and $115.3 billion in reduced gross domestic product (GDP) each year. These are staggering numbers, and yet they don’t capture the hard-to-measure impact on independent creators who often don’t have the resources to monitor for or report infringement. It’s baffling that some can continue to claim with a straight face that piracy isn’t a problem, and yet that’s exactly what organizations like the Library Copyright Alliance are doing.

Play 2:  Demand perfection in order to avoid doing anything at all.

Through mostly anecdotal “evidence,” copyright opponents attempt to poke holes in every new approach by predicting various, often extreme, hypothetical consequences as a way to claim that the new solution will never work. In their minds, unless a proposal is perfect, there’s no point in even considering it. It’s a rather hypocritical position when you consider that these same groups are big supporters of various laws and technologies that are far from perfect. Take the fair use exception in the Copyright Act, for example. Courts routinely get fair use cases wrong. Does that mean we should throw out the fair use doctrine because it’s not perfect? Of course not.

Specifically, technical measures currently employed by platforms like YouTube and Facebook do not work perfectly, but they implement these measures because it is in their interest to protect the rights of at least some creators. Provisions like the SMART Copyright Act strive to improve upon these measures, inviting all stakeholders to contribute to that end. But instead of sincere participation, these groups trot out a litany of hypothetical negative results, insist that we let the perfect be the enemy of the good, and pretend that they have given the matter serious consideration.

Play 3: Say we want compromise but never come to the table.

Tactics like the above are designed to sink proposals rather than negotiate in good faith. It is especially frustrating when we consider the time and effort that copyright owners have dedicated over the years to listening to the concerns of service providers and user communities and working towards compromises that ensure copyright reforms do not have unintended consequences. But the rhetoric employed by the critics intentionally obfuscates the truth about the legislative process.

For example, the SMART Copyright Act language presently contained in Section 514 was part of Section 512 in the initial drafts of the bill. When platforms, including Google and Amazon, complained that this would add a new requirement that could jeopardize their safe harbor protection, and requested that the rulemaking be altered so that failure to comply would not impact the safe harbor, their requests were accommodated. Yet, even after that compromise, the service provider community remains stubbornly opposed, moving the chess pieces and complaining that the bill does not address every possible concern—real or imagined—they choose to raise.  

We should remember that the SMART Copyright Act was introduced this year because for nearly a quarter century platforms and other stakeholders have refused to collaborate on standard technical measures, as Congress envisioned when the DMCA was drafted. This includes their unwillingness to participate meaningfully in the Copyright Office’s current technical measures consultations. As we noted in testimony before the Senate Subcommittee on Intellectual Property, organizations representing online service providers often talk about their willingness to work with stakeholders and Congress,  yet when copyright owners reach out to them to discuss possible approaches, they are always unresponsive.

Play 4: Repeat the slogan that Copyright enforcement is censorship.

The organization Re:Create released a statement just after the SMART Act’s introduction that claims the bill would “censor free expression online.” Predictably, Re:Create fails to explain how or why this is likely to happen. Going even further, the Electronic Frontier Foundation (EFF) claims in a recent blog that the SMART Act will result in the same censorship of the internet that occurs in China and Iran. Pretty scary stuff, huh? After all no wants to be subject to a regime as repressive as those in China or Iran. The message being sent here is clear: Don’t worry about the details just hurry up and tell your congressman you want them to oppose the SMART Act or anything like it!

It would be nice if Re:Create or EFF acknowledged that the SMART Copyright Act incorporates a number of safeguards that address potential abuses, including careful consideration by the Librarian of Congress of “the impact a technical measure may have on criticism, comment, news reporting, teaching, scholarship, research, increasing information sharing, or other relevant public interest considerations.” But that’s not in the playbook.

Play 5: Label efforts to improve copyright enforcement unconstitutional.

Unsatisfied by merely raising the specter of censorship, those who oppose copyright enforcement improvements typically invoke the Constitution in an attempt to derail legislative efforts. For example, in its statement on the SMART Copyright Act, Public Knowledge (PK) claims that the bill creates an “unconstitutional delegation of authority to a non-expert agency within the legislative branch.”  

This is not the first time that Public Knowledge and EFF have claimed that some aspect of copyright enforcement is unconstitutional. For example, they make similar claims about section 1201, the anti-circumvention provisions in the Digital Millennium Copyright Act (DMCA). But their constitutional challenges to section 1201 have been soundly rejected in court. In 2021, the U.S. District Court for the District of Columbia issued an opinion making clear that it is in the government’s interest to protect copyrighted works online and that section 1201 is “unrelated to the suppression of free expression.”

It is highly unlikely that a constitutional challenge to the triennial rulemaking process established by the SMART Act would fare any better, but the statements and blogs written by the SMART Copyright Act’s critics repeat the words censorship and unconstitutional and omit discussion of the bill’s following requirements:

• An open process for all stakeholders, including the public, to provide input and identify technological measures.
• Assessment of the impact a technical measure may have on competition among service providers, and the impact it may have on competition among copyright owners.
• Ample opportunity to affected service providers to challenge proposed technical measures or petition for the rescission or revision of a technical measure designation.
• The opportunity to appeal any decisions on technical measures to the DC circuit.
• Limits on service provider liability for good faith efforts to comply with the SMART Acts provisions.

Play 6: Insist that efforts to reform copyright law are driven by (and will only benefit) Hollywood and other large copyright owners.

For years, copyright detractors have resorted to the familiar refrain that copyright enforcement measures are something that only serves “Hollywood.” Recent articles with titles like “Senators Leahy & Tillis To Team Up To Suggest Destroying The Internet For Hollywood’s Sake” and “Wouldn’t It Be Great if Internet Services Had To License Technologies Selected by Hollywood?” are just a couple of examples of how these critics try to mislead the public and frame the issue as something it’s not.

These type of clickbait headlines suggest that movie industry companies wield tremendous power over Congress and can get them to do their bidding. What these articles choose not to mention is the massive amounts of money tech companies have dedicated in recent years to lobby Congress and fund the astroturf groups they control (like EFF, PK, and Re:Create). If you need proof, look no further than the reports about the big tech platforms spending $55 million on lobbying in 2021, by far the most of any industry—notably more than defense and pharmaceuticals.

Posing copyright reform as something only “Hollywood” wants and something that will only benefit large companies or corporate copyright owners is a false-flag tactic used again and again by copyright skeptics, no matter the issue. As we’ve said in the past, ad hominem attacks are favored by those who cannot or will not articulate a sound critique on the merits of a proposal. It is an especially absurd form of misdirection in the context of technical measures to protect against piracy, given that the larger copyright industry players already benefit from measures developed through voluntary agreements. It is the smaller players who stand to benefit the most from the SMART Copyright Act.

What articles like the ones mentioned above conveniently omit is that the SMART Copyright Act and other efforts to develop technical measures are based on an effort to provide access to these tools to individual creators and small copyright owners, who are not involved in and do not always benefit from voluntary measures negotiations. The truth is that individual creators have been at the forefront of advocacy for effective and available technical measures and provisions like the establishment of the Copyright Claims Board.

Play 7: Remind everyone that better copyright enforcement will break the internet—just like SOPA!

Perhaps the most outlandish argument that copyright skeptics make in opposition to updates to the law that would improve copyright enforcement is that any change will somehow “break the internet.” What exactly is meant by breaking the internet is never truly explained and instead is left up to the reader’s imagination.

Hyperbolic claims about the demise of the internet have been made in response to just about every copyright legislation introduced, including 2020’s Protecting Lawful Streaming Act (PLSA), which imposes accountability for large scale, commercial streaming piracy operations. But the PLSA has now been law for a year and a half, and the internet seems to be carrying on just fine.

The narrative peaked ten years ago when many of the same copyright detractors told people that the Stop Online Piracy Act (SOPA) and the Protect IP Act (PIPA) would “break the internet.” Since then, SOPA/PIPA fearmongering has had more sequels than the Rocky franchise. Organizations like the EFF never miss an opportunity to pat themselves on the back for their role in mobilizing people to oppose SOPA/PIPA and threatening that such-and-such bill is the second coming of SOPA/PIPA. So, it comes as no surprise that the EFF now claims the SMART Act is “almost as bad” as SOPA/PIPA.

Play 8: Tell everyone the Copyright Office is incapable of understanding technology.

Just about every statement made in opposition to changes to copyright enforcement includes a derogatory statement about the Copyright Office’s inability to administer or analyze any issue relating to technology. In the case of the SMART Copyright Act, copyright critics accuse the Office of not being able to administer technical measure rulemakings because it lacks technological expertise. The echo chamber of comments includes Re:Create’s warnings about “government lawyers without technical expertise” and “the Copyright Office’s history of ignoring serious cybersecurity concerns in its support of past proposals.” Public Knowledge claims the Copyright Office “has very little technical expertise and a known history of prioritizing corporate interests over the interests of internet users and individual creators.”

As to the lack of technical expertise, no one expects lawyers at the Copyright Office to understand the underlying technological workings of a measure at the same level as the experts who develop and employ them. Those who administer the section 1201 rulemaking aren’t computer engineers, and they rely on petitioners, copyright owners, and service providers to educate and inform them of the details of anti-circumvention measures and digital rights management technologies. They consider exemptions as part of an open process and make determinations based on whether the balance intended by the DMCA will be upheld.

The proposed designated technical rulemaking set forth in the SMART Copyright Act will not be much different. The Copyright Office will apply its expertise in the law—including on things like fair use and the First Amendment—to the proposed technical measures and make determinations as part of an open process where all stakeholders will have the opportunity to be heard. Furthermore, the SMART Copyright Act recognizes that consultation with other expert agencies may be needed and expressly requires the Librarian of Congress to consult with, report and comment on the views of the Director of the National Institute of Standards and Technology (NIST), the Assistant Secretary of Commerce for Communications and Information, the Attorney General, and “any relevant cybersecurity agency.” The Act also calls for the appointment of a Chief Technology Advisor at the Copyright Office “who shall advise the Register on technology issues related to copyright law, including by evaluating and providing advice on the factors in section 514.”

Conclusion

The immediate and vehement criticism of the SMART Copyright Act—repeating a pro forma list of grievances invoked to oppose every copyright enforcement proposal—is telling. First, it shows that rather than carefully consider each proposal on its own merits and think about how it might address recognized problems, these organizations flatly refuse to work cooperatively with copyright owners or offer any solutions of their own. Second, it shows that they realize that it best for them to resort to buzzwords and scare tactics because they have worked in the past and it allows them to avoid engaging in an honest and open discussion of how best to resolve the issues. Finally, it reveals the true colors of companies that will fight any change to the status quo tooth and nail to preserve business models that have allowed them to thrive while turning a blind eye to infringement.

It’s past time these groups are called out for what they’re doing as they go back to the same threadbare playbook in opposition of the SMART Copyright Act. Faux concern about internet users’ rights, censorship, and “breaking the internet” are nothing more than a means to an end, and they will continue to be employed to challenge any updates to the DMCA. Don’t believe me? Wait until the next copyright bill is proposed and have your checklist ready.

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2021 was a roller coaster of highs and lows in copyright litigation. A much-anticipated Supreme Court decision left many scratching their heads, while the Second and Ninth Circuits brought a welcome sense of reason back to fair use analyses. Copyright owners continued to challenge sovereign immunity in state courts, and a second Supreme Court copyright case in as many years focused on a significant registration question. Whether you agreed with the results or not, it was a year of notable developments in the courts that will impact copyright law in 2022 and beyond. 

Supreme Court Delivers a Confusing but Limited Decision in Google v. Oracle

On April 5, the Supreme Court handed down its long-awaited decision in Google v. Oracle, finding that Google’s use of parts of Oracle’s API software code (known as “declaring code”) qualifies as fair use. In a 6-2 decision delivered by Justice Breyer, the Court avoided the issue of the software code’s copyrightability entirely—instead assuming that “for argument’s sake” Oracle’s underlying code was copyrightable. As to the second issue at stake in the case—fair use—the Court surprisingly found that all four fair use factors favored Google as a matter of law.

In addition to punting on the copyrightability issue, Breyer’s opinion inexplicably addressed the fair use factors out of order, starting the analysis with the second fair use factor—the nature of the copyrighted work. Considering the nature of the copied declaring code, the Court found that it is “inextricably bound together with a general system, the division of computing tasks, that no one claims is a proper subject of copyright.”

Addressing the transformative purpose and character of Google’s use, the Court found that the creation of a new platform and new products “was consistent with that creative ‘progress’ that is the basic constitutional objective of copyright itself.” Focusing on the “new computing environment” in which Google implemented the code, the opinion failed to address the cogent arguments by Oracle and its amici that the use merely shifts between computing mediums or devices.

The decision presented a troubling misapplication of the fair use factors and a greater misunderstanding of the goals of the copyright system, but some relief came in the Court’s explanation that its determination is limited in scope to the specific code at issue in the case and does not “overturn or modify its earlier cases involving fair use.” Despite that clear declaration, proponents of an ever-expanding fair use doctrine insisted the decision should be applied broadly to unauthorized uses involving all types of copyright protected works. Defendants found liable for infringement in another high-profile case even went so far as to petition the Second Circuit for rehearing, claiming that its decision was now in conflict with Google v. Oracle. As discussed below, those arguments were soundly rejected.

Second Circuit Clarifies Transformative Fair Use in Warhol v. Goldsmith

Just over a week before the Supreme Court issued its Google v. Oracle decision, the Second Circuit Court of Appeals in The Andy Warhol Foundation v. Goldsmith held that Warhol’s mid-1980s silkscreen portraits of the artist Prince, which were based on an iconic photograph by Lynn Goldsmith, do not qualify as fair use. Reversing and remanding the district court’s finding, the opinion acknowledged that courts have misapplied the standard the Second Circuit set forth in Cariou v. Prince and by doing so have greatly diminished the derivative work right.

The decision was noteworthy for two main reasons:

• First, it provided needed guidance on how to analyze what constitutes a transformative use as opposed to a derivative use (falling under the derivative work right). This is a crucial clarification that corrects case law and commentary that have increasingly blurred the line between transformative use and derivative works in recent years as to nearly eliminate a copyright owner’s exclusive right to prepare derivative works. The court clearly sought to move away from the broad notions of transformativeness that it recognized have come to skew fair use analyses. Proposing a more rational dividing line for evaluating whether a work is sufficiently transformative or simply derivative, the Second Circuit confirmed that to be transformative enough to qualify as a fair use a secondary work must be “fundamentally different and new” and embody an “entirely different artistic purpose” so that it “stands apart from the raw material.”
• Second, it rejected a transformative use test based on one person’s subjective opinion in favor of an objective test that asks how a work “may reasonably be perceived.” This shift is a meaningful development, as it replaces the point of view of one judge or critic with a more impartial standard based on how the public perceives a work. As the opinion explains, “whether a work is transformative cannot turn merely on the stated or perceived intent of the artist or the meaning or impression that a critic – or for that matter, a judge – draws from the work.” Quoting Nimmer, the opinion warns that if the transformative determination was dependent on such an objective analysis, “the law may well ‘recogniz[e] any alteration as transformative.’”

The decision was a welcome response to misguided interpretations that in recent years have expanded the boundaries of fair use beyond reason, but it wasn’t long before the Andy Warhol Foundation (AWF)—emboldened by its misinterpretation the Google v. Oracle decision—challenged the ruling.

Second Circuit Rejects Broad Application of Google v. Oracle

Just two weeks after the Supreme Court’s decision, AWF filed a petition for rehearing, arguing that the Second Circuit was now in direct conflict with the high Court. But on August 24, the court issued an amended opinion “emphatically” rejecting petitioner’s claims and reenforcing the clearly limited applicability of Google v. Oracle.

AWF’s petition argued that the Second Circuit erred in adopting a transformative standard that asks “how the works may reasonably be perceived,” which it claimed conflicts with the Supreme Court’s focus on the purpose of the copying in Google v. Oracle. AWF and its supporting amici also claimed that the Second Circuit’s fourth factor market harm analysis conflicts with the Google opinion because the Supreme Court found that any market harm to the copyright owner must be weighed against the benefit of the unauthorized use to the public.

In its amended opinion, the Second Circuit left no doubt that it was entirely unpersuaded by the arguments of AWF and its amici. In an early footnote addressing AWF’s petition, the opinion states that “[a]part from its reliance on the Google opinion, the petition mostly recycles arguments already made and rejected, and requires little comment.” Addressing AWF’s and its amici’s argument that the Second Circuit’s fourth-factor analysis fails after Google v. Oracle for not giving appropriate weight to the public benefit of Warhol’s copying—or the alleged chilling effect a ruling against AWF would have on the creation of art—the court explained that nothing in its opinion stifles creation “that may reasonably be perceived as conveying a new meaning or message, and embodying a new purpose.”

As to the overall effect of the Google v. Oracle decision, the Second Circuit said that “we emphatically reject AWF’s assertion that Google ‘comprehensively refutes the panel’s reasoning.’” The amended opinion called out AWF for misreading both the Second Circuit’s earlier decision and Google v. Oracle, leading to a misinterpretation that both opinions adopt “hard and fast categorical rules of fair use.” Reinforcing the limited nature of the Google v. Oracle decision, the court reminded the parties that the Supreme Court “took pains to emphasize that the unusual context of that case” make its conclusions “less applicable to contexts such as ours” that involve artistic works that serve no utilitarian function.

In Unicolors v. H&M, SCOTUS Considers the Foundations of the Copyright Registration System

On November 8, the Supreme Court heard oral arguments in Unicolors v. H&M, a case centered around when a copyright owner’s mistake on a registration application is enough to result in invalidation of the registration. The Unicolors v. H&M saga began in 2016, and for a full recap of the events leading up to oral arguments, see this earlier post. The short story is that after Unicolors won an infringement action against H&M for unauthorized use of its fabric designs, H&M challenged Unicolors’ copyright registration for having known inaccuracies related to when the group of designs were made publicly available.

After a district court rejected H&M’s argument that a constructive knowledge standard should render Unicolors’ copyright registration invalid, H&M appealed the decision to the Ninth Circuit, which found that the district court erred and that the plain language of Section 411(b) of the Copyright Act does not require the copyright owner-registrant have an “intent-to-defraud” the Office in order to invalidate a copyright registration. The Ninth Circuit essentially held that mere generalized or “constructive” knowledge of an error in the registration application is enough to invalidate the registration. Then, in early 2021, Unicolors filed a petition for a writ of certiorari asking the Supreme Court to consider whether the Ninth Circuit broke with prior precedent in holding that Section 411 requires referral to the Copyright Office where there is no indicia of fraud or material error as to the work at issue in the subject copyright registration.

In considering this question, among others, the Justices were sympathetic to Unicolors’ position—which was supported by the Solicitor General—that honest mistakes of law on a registration application should not result in invalidation, and that H&M’s position would threaten the operation of a streamlined and predictable copyright system that incentivizes creators to register their works. As Unicolors’ counsel explained, in roughly one hundred years of common law cases, no court has ever done what H&M asks the Court to do and impose a standard that would invalidate a copyright registration based on general or constructive knowledge of an error. Moreover, he warned that a ruling for H&M would enable opportunistic infringers (who have no other defense) to get off the hook if there is any error in a registration.

As the Copyright Alliance amicus brief explains, copyright registration is intended to be a voluntary, easily accessible system used by hundreds of thousands of creators every year to register their works in a centralized database. Despite being designed to be accessible by non-lawyer creators, there are complexities inherent in the registration process and consequences that flow from invalidating a registration. At oral arguments, the Supreme Court seemed to appreciate that a rule that would allow registrations to be invalidated on a standard of constructive knowledge of an inaccuracy would undermine the interests and rights Congress intended the system to protect. A decision is expected by June 2022, and whatever the Court decides, it’s critical that alleged infringers are not able to transform Section 411(b) into a vehicle to defeat meritorious copyright suits and that creators remain incentivized to register their works.

Olive v. University of Houston Proves Copyright Owners Have No Recourse Against State Infringement

On June 18, the Texas Supreme Court held that a violation of copyright is not an unconstitutional taking of property. The decision stemmed from a years-long battle by Jim Olive to hold the University of Houston accountable for unauthorized use of one of his iconic photographs, and it is further proof that creators have no meaningful legal recourse when a state entity steals their work.

After discovering the infringement in 2012, rather than sue the University for copyright infringement under federal copyright law, Olive sued the University of Houston system and claimed an unlawful taking under the Texas Constitution because he knew the University would invoke sovereign immunity under the Eleventh Amendment to the Constitution and thus render any copyright infringement claims ineffective against the state. In 2019, the Court of Appeals for the First District of Texas held that although copyright is considered property, infringement by a state entity does not constitute a taking under either the U.S. or Texas constitution.

Olive petitioned the Texas Supreme Court for review, arguing that the court of appeals erred in failing to hold that the Takings Clause of the U.S. Constitution protects copyrights just as it does tangible forms of property. Addressing whether copyrights constitute property protected by the Fifth Amendment, the Texas Supreme Court cited Ruckelshaus v. Monsanto, a U.S. Supreme Court case that found trade secrets (and other forms of intellectual property) are protected. “Assuming for our purposes” that copyright is property protected by the Fifth Amendment, the Court then focused on whether a copyright infringement claim against a state entity also encompasses a “per se” takings claim under the federal and state constitutions.

Likening the University of Houston’s theft of Olive’s intellectual property to a “transitory common law trespass,” the Court found that the infringement did not rise to a level of unconstitutional taking for which sovereign immunity would be waived. It reasoned that “[a] compensable taking does not arise whenever state action adversely affects private property interests.” Going on to distinguish between a “per se” taking that involves the government’s physical occupation of a property, the Court explained that infringement of intellectual property requires an ad hoc analysis to determine whether there was a taking.

The Court then found there was never any possession or control, physical occupation, or confiscation of Olive’s copyright, and that at no time did he lose his ability to exclude others from using his work or to commercialize it through licensing. Addressing Olive’s argument that the University’s unauthorized reproduction and display of his work deprived him of his exclusive right to control his work, the Court focused on the “nonrivalrous” nature of copyright and found that Olive could still exclude third parties from using the work. Because Olive retained some key legal rights in the bundle of rights granted by copyright protection, the Court concluded no taking had occurred.

Despite the disappointing outcome for Olive and all copyright owners encountering state infringement, not long after the decision was handed down, the U.S. Supreme Court issued an opinion that may revive takings claims in copyright infringement cases. On June 23, in Cedar Point Nursery v. Hassid, the Supreme Court found that a California regulation granting labor organizations a “right to take access” to an agricultural employer’s property to solicit support for unionization constitutes a per se physical taking.

On November 15, Olive filed a petition for certiorari with the Supreme Court, arguing that the Texas Supreme Court would have decided differently in light of Cedar Point Nursery. Specifically, the petition claims that the “right to exclude” is the core property interest created by the Copyright Act and violated by acts of copyright infringement. Further, the petition explains that, as recognized in Cedar Point, whether a property owner retains additional rights to utilize the same property subject to the government’s interference should have no effect on a finding of a per se taking. The Supreme Court will decide whether to hear the case in early 2022, but regardless of its decision, Olive’s case is clear evidence that state law remedies for state infringement are non-existent and that abrogation of state sovereign immunity in copyright infringement cases is necessary.

EFF Suffers Another Defeat in its Challenge of the Constitutionality of Section 1201

On July 15, a Judge in the U.S. District Court for the District of Columbia issued an opinion

denying a motion for a preliminary injunction filed by the Electronic Frontier Foundation (EFF) in an attempt to stop the Department of Justice from enforcing section 1201’s anticircumvention provisions. The court’s denial was the latest loss for the EFF in a case it brought back in 2016 on behalf of computer scientists who sought to distribute decryption tools that can circumvent digital locks protecting access to copyrighted work.

Evaluating whether the government’s interest in enforcing section 1201 is substantial, and whether it relates to the censorship of free speech, the court found the government’s interest in protecting copyrighted works online with section 1201 is “unquestionably substantial” and “unrelated to the suppression of free expression.” The court also explained that “the government has met its burden to demonstrate that the anti-circumvention and anti-trafficking provisions . . . do not burden substantially more speech than is necessary to further the government’s interest.” As to the EFF’s claim that an injunction against enforcing section 1201 is in the public interest, the court was unequivocally clear that Congress intended to protect copyright owners from digital piracy and that “the government’s interest is the public interest.”

While the case isn’t over, the failure of the motion is a major setback that does not bode well for the EFF. In 2019, the court issued opinion in the case dismissing the EFF’s attempts to strike down section 1201 on its face, and the current denial is yet another sign of the court’s recognition of the EFF’s flawed First Amendment challenge and the need for copyright owners to utilize digital locks to protect their works.

Supreme Court Rejects Petition for Certiorari in Dr. Seuss v. ComicMix

Finally, on June 21, the Supreme Court rejected a petition appealing a late 2020 Ninth Circuit decision in Dr. Seuss Enterprises v. ComicMix, which found that ComicMix’s mashup of the famous Seuss work “Oh the Places You’ll Go” with characters and elements from the Star Trek franchise did not qualify as fair use. ComicMix’s petition asked the court to resolve (1) whether fair use is an affirmative defense or a “right of authors” and (2) whether the defendant bears the burden of production on the fourth fair use factor. The high Court chose not to address those questions or review the Ninth Circuit’s opinion, keeping in place an important clarification of the limits of transformative fair use. A few months after the rejection, on October 5, the parties reached a settlement agreement that included a permanent injunction against any sales or distribution of the book and a stipulation that ComicMix’s book constitutes infringement of Seuss’s work.  

Crossing Fingers In 2022

As mentioned before, the Supreme Court will issue its decision in the Unicolors v. H&M case early next summer. It’s difficult to predict how the Court would rule in any given case, but in the oral arguments the Justices seemed to understand the problematic implications of a constructive knowledge standard for creators simply looking to register their works. There’s also a chance we see the Supreme Court take on another copyright case in Olive v. University of Houston. As to fair use, we hope that the limited application of Google v. Oracle stays limited in 2022 and other courts follow the Second Circuit’s wise analysis in Warhol v. Goldsmith.

On November 8, the Supreme Court heard oral arguments in Unicolors v. H&M, a case centered around when a copyright owner’s mistake on a registration application is enough to result in invalidation of the registration. In considering this question, among others, the Justices appeared sympathetic to petitioner Unicolors’ position—which was supported by the Solicitor General—that honest mistakes of law on a registration application should not result in invalidation, and that H&M’s position would threaten the operation of a streamlined and predictable copyright system that incentivizes creators to register their works. While the Justices took issue with a discrepancy between the question presented in Unicolors petition for certiorari and that in its opening brief, the Court seemed unconvinced that it should apply a constructive knowledge standard to Section 411(b) of the Copyright Act that would allow opportunistic defendants to invalidate a copyright registration based on a good-faith error.

Background

The Unicolors v. H&M saga began in 2016, and for a full recap of the events leading up to oral arguments, see this earlier post. The short story is that after Unicolors won an infringement action against H&M for unauthorized use of its fabric designs, H&M challenged Unicolors’ copyright registration for having known inaccuracies related to when the group of designs were made publicly available. After a district court rejected H&M’s argument that a constructive knowledge standard should render Unicolors’ copyright registration invalid, H&M appealed the decision to the Ninth Circuit, which found that the district court erred and that the plain language of Section 411(b) of the Copyright Act does not require the copyright owner-registrant have an “intent-to-defraud” the Office in order to invalidate a copyright registration. The Ninth Circuit essentially held that mere generalized or “constructive” knowledge of an error in the registration application is enough to invalidate the registration. Then, in early 2021, Unicolors filed a petition for a writ of certiorari asking the Supreme Court to consider whether the Ninth Circuit broke with prior precedent in holding that Section 411 requires referral to the Copyright Office where there is no indicia of fraud or material error as to the work at issue in the subject copyright registration.

A Question of State of Mind Takes Center Stage

Appearing on behalf of Unicolors, Josh Rosenkranz opened oral arguments by explaining that the plain text of 411(b) and a presumption based on decades of case law confirm that to invalidate a registration due to an error, there must be a subjective awareness of a material inaccuracy—not simply a misunderstanding of the law or facts. While the Justices seemed to accept Rosenkranz’s framing of the standard, Justices Alito and Thomas expressed concern that the knowledge standard question in Unicolors’ brief was not what its petition for cert. asked the Court to consider, with Thomas going as far to suggest the case may have been improvidently granted. In response, Rosenkranz explained that both questions—whether 411 requires referral to the Copyright Office where there is no indicia of fraud and whether a knowledge element precludes a challenge to a registration—center on the basis of which referral to the Copyright Office was made, which is the state of mind of the registrant. Further, Rosenkranz invoked Rule 24.1, which provides that for briefs on the merits, “[t]he phrasing of the questions presented need not be identical with that in the petition for a writ of certiorari or the jurisdictional statement.”

Rosenkranz then argued that it cannot be presumed that Congress infused a hidden meaning within the word “knowledge” in Section 411 that would overturn a century of common law. This issue, which gets to the heart of the case, is that the copyright system was not designed to strip rights from a copyright owner for an error in an application based on a legal misunderstanding. In its brief, Unicolors cites a long line of cases that have excused the same type of registration errors that H&M insists must result in invalidation of the copyright registration. After all, as Rosenkranz made clear and as the Copyright Alliance’s amicus brief explains, Congress made a sensible decision to not impose harsh consequences on a layperson who does not have a full understanding of the sometimes complex legal questions involved in filling out a registration application.

It’s also worth noting, as Rosenkranz did, that H&M only argued the invalidity issue as a last resort—on the final day of trial when its other defenses had failed. It’s a telling fact that demonstrates the dangerous precedent a ruling for H&M could set. If alleged infringers were able to invalidate copyright registrations based on any good faith or unknowing error, it will be a tactic employed in countless cases where defendants have no legitimate defense.

Justices’ Attempt to “Talk about the Trolls” Falls Flat

Just as Rosenkranz was wrapping up his opening remarks, Justice Sotomayor chimed in to express her “concern about patent trolls,” which, as she sees it, are “sophisticated part[ies] with the capacity to confer with lawyers” but nonetheless “make[] a mistake that they could have easily checked.” Addressing this idea of willful blindness on the part of registrant, Rosenkranz explained that nothing stopped H&M from presenting evidence of bad faith willful blindness—they simply had none. Furthermore, he said that the more general constructive knowledge standard that H&M is advocating for may help address problems of the bad faith behavior of sophisticated parties, but it cannot be applied across the range of all applicants.

Attempting to understand whether Unicolors behavior was truly bad-faith opportunistic behavior, Justice Alito asked whether and how Unicolors would benefit by attempting to register all of the designs on one application as opposed to using a separate application for each design. Rosenkranz said that besides a meager amount of money saved by not filing an additional application, there was no discernable advantage gained by Unicolors in litigation or otherwise.

In response to later questions from Justice Breyer about whether copyright trolls were especially likely to make mistakes on a registration, Rosenkranz argued that the case has nothing to do with disciplining trolls and that H&M has no evidence that trolls are especially likely to make mistakes on an application. Breyer agreed that trolls are more likely to “stay abreast of everything” on the legal side in attempt to game the system, and so it’s less likely they would make the kind of innocent mistake that 411(b) is meant to excuse. Ultimately, the Justices seemed unconvinced that, regardless of the parade of horribles presented by some of H&M’s amici, a decision for Unicolors would somehow incentivize bad actors to abuse the registration system.    

Solicitor General Warns of Unprecedented Ninth Circuit Opinion

Appearing in support of Unicolors on behalf of the government, Assistant to the Solicitor General Melissa Patterson explained that the Ninth Circuit’s holding was unprecedented in that it set forth a rule that would jeopardize many thousands of copyright registrations “under conditions never before thought to give rise to a risk of invalidation.” In the government’s view, Congress set out a default rule under 411(b) that preserves the validity of copyright registrations even if they contain inaccurate information. Patterson discussed three reasons why the standard for invalidation must be actual knowledge, rather than constructive:

• The plain text of 411(b) simply uses the word “knowledge” without any signal of a constructive standard.
• In the text of the rest of Title 17, when a constructive knowledge standard is imposed, Congress did so by carefully using phrases such as “known or should have known” and “had reasonable grounds to know.”
• If Congress had wanted to impose a constructive knowledge standard, it would have used similar language in 411(b).

Patterson went on to explain that never before “could a court invalidate your registration…because they thought you should have known the law…when you were filling out and checking boxes about publication—published or unpublished, derivative work, not derivative work, works for hire, not works for hire.” Discussing the practical importance of rejecting a constructive knowledge standard, Patterson said that our copyright system should not turn copyright owners away from the courthouse because they got a complicated legal concept wrong on their registration. After all she explained, defendants would still have the opportunity to rebut certain errors during litigation.

H&M’s Counsel Faces Tough Questions

Arguing on behalf of H&M, Peter Stris began his remarks by claiming that Section 411(b) does not excuse mistakes of law, because if it did, it would remove the incentive for copyright registrants to “engage diligently” with the Copyright Office. Justice Breyer, raising a hypothetical involving the misidentification of a bird that flies into the courtroom, challenged Stris on whether it really matters whether we categorize something as a mistake of law or not. Breyer posited that if he mistakenly identified the bird, it could be because (1) he either thought he saw a yellow bird when it was in fact red, or (2) he saw a red bird but did not understand the correct way to label it. Applying the bird hypothetical to the registration questions at hand, Breyer said in the former case you would bring in an ornithologist to resolve the issue and in the latter a lawyer or judge. He then asked “why should the fact that we call the latter thing a question of law but not the former thing make any difference whatsoever to the proper solution to this case?”

Arguing that this distinction does in fact matter, Stris cited the Court’s finding in Jerman v. Carlisle, which held that ignorance of the law does not count as a good faith mistake. But after recognizing that ignorance of the law is no defense is a principle that applies in certain areas, Justice Kavanaugh explained that the concept has much less force in regulatory law.

Following an attempt by Stris to distinguish cases cited by Unicolors from the current case, Justice Gorsuch said that he saw cases such as Rehaif v. United States as involving nearly identical knowledge standard questions as Unicolors. In Rehaif, the Court found that even absent an explicit scienter requirement in the criminal statute, that “Congress intend[ed] to require a defendant to possess a culpable mental state regarding each of the statutory elements that criminalize otherwise innocent conduct.” Gorsuch expressed skepticism over the imposition of a heightened clarity requirement for the Copyright Act.

Kavanaugh then challenged Stris on the real-world implications of H&M’s position, chiefly that a copyright owner would lose the ability to sue for infringement and recover damages simply because there was an honest confusion as to legal requirements. Stris again claimed that Congress intended a constructive knowledge standard because it incentivizes “diligence and full candor” and that there are serious harms that flow from material inaccurate registrations. He then made a curious connection between money the Copyright Office would lose as the result of fewer registrations and a chilling effect on creators. While no explanation was offered as to that interrelation, any standard that allows alleged infringers to invalidate copyright registrations (and thereby escape liability) for good faith registrations errors represents the only true chilling effect. Creators would be forced to consult legal experts for every registration, and there would almost certainly be a large contingent of creators who would be discouraged from registering at all. Justice Roberts picked up on this potential harm, explaining that the copyright registration system is designed to be accessible to laypeople and should not require the hiring of a law firm.

Unicolors’ Rebuttal Puts the Case in Perspective

In a brief rebuttal before the hearing ended, Rosenkranz raised a point that H&M tried to sidestep in its briefing and oral arguments: in roughly one hundred years of common law cases, no court has ever done what H&M asks the Court to do here and impose a subjective knowledge standard. He warned of the windfall a ruling for H&M would be for opportunistic infringers who have no other defense but would suddenly be able to get off the hook if there is any error in a registration. Finally, Rosenkranz noted that a ruling for Unicolors would not have any effect on an alleged infringers’ ability to challenge meritless infringement claims brought by so called trolls, as defendants retain every tool they would need to challenge a registration and be awarded attorney’s fees if successful.  

As the Copyright Alliance amicus brief explains, copyright registration is intended to be a voluntary, easily accessible system used by hundreds of thousands of creators every year to build a centralized database of works claimed to be copyrighted. Despite being designed to be accessible by non-lawyer creators, there are complexities inherent in the registration process and consequences that flow from invalidating a registration. At oral arguments, the Supreme Court seemed to appreciate that a rule that would allow registrations to be invalidated on a standard of constructive knowledge of an inaccuracy would undermine the interests and rights Congress intended the system to protect. Whatever the Court decides, it’s critical that alleged infringers are not able to transform Section 411(b) into a vehicle to defeat meritorious copyright suits and that creators remain incentivized to register their works. 

Leading up to the Supreme Court’s Google v. Oracle decision in April, some were hoping for a game-changing outcome that would alter the course of copyright’s fair use doctrine. But then came Justice Breyer’s opinion, and with it a good amount of head scratching. While it was no doubt a victory for Google, the extremely limited nature of the Court’s fair use analysis did little to advance copyright law or reshape the parameters of the four-factor test outside of a very specific type of software code. As a result, what might have been a very important fair use case now looks more like a footnote in the history of copyright.

Regardless of the Supreme Court’s narrow interpretation, supporters of ever-expanding fair use boundaries celebrated the decision, insisting it should be applied broadly to unauthorized uses involving all types of copyright protected works. The first test of this illusory theory came within a couple weeks of Google, when the Andy Warhol Foundation (AWF) filed a petition for rehearing of a Second Circuit decision finding that Warhol’s unauthorized use of photographs of Prince did not qualify as fair use. The petition, and supporting amicus briefs, went all in on the Supreme Court’s transformative fair use determination, arguing that the Second Circuit was now in direct conflict with the high Court. But on August 24, the Second Circuit issued an amended opinion “emphatically” rejecting petitioner’s claims and reenforcing the clearly limited applicability of Google v. Oracle.

Google v. Oracle is a Misguided but Ultimately Limited Decision

It’s probably safe to say that very few predicted how the Supreme Court would approach the questions of copyrightability and fair use at the heart of the software infringement dispute in Google v. Oracle. Justice Breyer’s opinion inexplicably addressed the fair use factors out of order, starting its analysis with the second factor—the nature of the copyrighted work. Finding right off the bat that the underlying declaring code at issue served a “functional purpose” for which copyright protection is “thin,” Breyer set the stage for an inevitable fair use holding. Added to this skewed start were equally perplexing analyses of the third and fourth fair use factors, as well as a problematic factor-one transformative use analysis that excused Google’s copying even though it merely shifted use between computing mediums or devices.

While Breyer’s opinion presented a troubling misapplication of the fair use factors and a greater misunderstanding of the goals of the copyright system, one saving grace is that Breyer made abundantly clear that the Court’s decision would have very limited applicability. As we explained just after the decision, the Court clearly states that the decision “does not overturn or modify its earlier cases involving fair use.” Numerous times throughout the opinion, Breyer says that the fair use analysis is limited to the case at hand and only applies to software, and more specifically to declaring code. So despite arriving at questionable fair use conclusions, the Court’s approach is unambiguously confined to a very specific subset of software code and should not be applied outside of those distinct works.

Warhol Foundation and Amici Try to Turn Google v. Oracle into Something it’s Not

In Warhol Foundation v. Goldsmith, the Second Circuit reversed and remanded a district court’s fair use holding, finding that courts have misapplied the standard it set forth in Cariou v. Prince and by doing so have greatly diminished the copyright owner’s right to control the creation of derivative works. At issue in Warhol was a series of 15 silkscreen prints and pencil illustrations that the late appropriation artist based, without authorization, on a photographic portrait of Prince taken by Goldsmith in 1981. Rejecting the district court’s transformative use analysis, the Second Circuit found that to be transformative enough to qualify as fair use a secondary work must be “fundamentally different and new” and embody an “entirely different artistic purpose” so that it “stands apart from the raw material”—all of which the Warhol prints failed to do. The opinion provided welcome guidance on how to analyze what constitutes transformative use as opposed to derivative use (falling under the derivate work right), a crucial clarification that corrected case law and commentary that have increasingly blurred the line between transformative use and derivative works in recent years, all but eliminating a copyright owner’s exclusive right to prepare derivative works.

Just over a week after Google v. Oracle was decided, the Andy Warhol Foundation (AWF) filed a petition for rehearing claiming that the Second Circuit’s transformative fair use determination was overruled by Google. Specifically, the petition argues the Second Circuit’s decision denies transformative status to any work in which copyright protected source material is recognizable, which it claimed cannot be squared with the Supreme Court’s holding that verbatim copying of software code qualified as a transformative use. But AWF conveniently ignores the Supreme Court’s repeated explanations that its approach in Google is confined to very distinct forms of computer code that incorporates functional elements. The “thin” protection Breyer speaks of has never and should never apply to works of pure creative expression, and the broad transformative use standard adopted in Google cannot be applied to any work outside of declaring code.

Supporting AWF’s petition for rehearing was a group of 60 law professors who filed an amicus brief that also argued the Second Circuit’s opinion conflicts with the Supreme Court’s holding of transformative purpose fair use. The brief argues that the Second Circuit erred in adopting a transformative standard that asks: “how the works may reasonably be perceived,” which the professors claim conflicts with the Supreme Court’s reliance on Google’s intent and the understanding of third parties to evaluate the purpose of the use. But the brief doesn’t acknowledge that intent and purpose of a use is much more easily evaluated in a case involving the appropriation of a semi-functional computer code to develop software and smart phone technology. When considering more traditional works of creative expression, like works of visual art, relying on the stated intent of the secondary user—or any other subjective evaluation—cannot be the determining factor in a fair use analysis. If it was, any accused infringer could escape liability by simply claiming their work was meant to change the underlying meaning or message of the source material—even when no one else recognizes said transformative purpose.    

Both AWF and the law professors also claim the Second Circuit’s fourth factor market harm analysis conflicts with Google because the Supreme Court found that any market harm to the copyright owner must be weighed against the benefit of the unauthorized use to the public. AWF and its amici attempt to apply the Supreme Court’s public benefit analysis to the Warhol silkscreen prints is completely misguided, as it ignores the drastic differences between types of copyright protected works at issue and distinctions made by the Supreme Court. Discussing the need to balance the public benefit of Google’s copying with the market harm to Oracle, Breyer’s opinion could not be clearer: “We do not say that these questions are always relevant to the application of fair use, not even in the world of computer programs.”

Second Circuit Unequivocally Rejects the Broad Application of Google v. Oracle

In its amended opinion, the Second Circuit leaves no doubt that it is entirely unpersuaded by the arguments of AWF and its amici. In an early footnote addressing AWF’s petition, the opinion states that “[a]part from its reliance on the Google opinion, the petition mostly recycles arguments already made and rejected, and requires little comment.” Before addressing Google, the opinion reiterates the court’s reliance on a transformative standard that considers how the secondary work may “reasonably be perceived.” It also makes clear that any “overly liberal” standard of transformative use risks eliminating protections for derivative works—such as film adaptations of a novel—which often add “new expression, meaning, or message.”

Turning to the effect of Google, the Second Circuit says that “we emphatically reject AWF’s assertion that Google ‘comprehensively refutes the panel’s reasoning.’” The amended opinion calls out AWF for misreading both the Second Circuit’s earlier decision and Google v. Oracle, leading to a misinterpretation that both opinions adopt “hard and fast categorical rules of fair use.” Addressing the limited nature of the Google v. Oracle, the opinion reminds the parties that the Supreme Court “took pains to emphasize that the unusual context of that case” make its conclusions “less applicable to contexts such as ours” that involve artistic works that serve no utilitarian function.

Rather than “effectively outlawing” an entire genre of art, as AWF accuses it of doing, the Second Circuit offers the following explanation:

We merely insist that, just as artists must pay for their paint, canvas, neon tubes, marble, film, or digital cameras, if they choose to incorporate the existing copyrighted expression of other artists in ways that draw their purpose and character from that work (as by using a copyrighted portrait of a person to create another portrait of the same person, recognizably derived from the copyrighted portrait, so that someone seeking a portrait of that person might interchangeably use either one), they must pay for that material as well.

Addressing AWF’s and its amici’s argument that the Second Circuit’s fourth-factor analysis fails after Google for not giving appropriate weight to the public benefit of Warhol’s copying—or the alleged chilling effect a ruling against AWF would have on the creation of art—the court explains that nothing in its opinion stifles creation “that may reasonably be perceived as conveying a new meaning or message, and embodying a new purpose.”

Importantly, the Second Circuit focuses on the harm to potential derivative markets and the effect unauthorized uses would have if they became widespread. The harm to potential markets, which is expressly laid out in factor four of the fair use doctrine, is a critical part of the factor-four analysis that the Supreme Court mistakenly disregarded in Google v. Oracle. The Second Circuit doesn’t miss the opportunity to highlight the cognizable (if only potential) harm caused by Warhol’s misappropriation, ultimately finding “the public benefit of the copying at issue in this case does not outweigh the harm identified by Goldsmith.”

Context is key in all fair use cases, and the Second Circuit concludes that “[l]ike the Supreme Court in Google,” it applied the four-factor test to the specific facts before it. The amended opinion makes clear that because “the principles enunciated in Google are fully consistent with our original opinion,” AWF’s fair use defense fails as a matter of law. 

Conclusion

From the day Breyer’s opinion was handed down, we’ve maintained that the decision is limited to specific forms of declaring code software, and thus should not be applicable to any other types of copyrighted works. Thankfully, the Second Circuit agrees and had no problem recognizing the limits Breyer’s opinion expressly imposes on its fair use analysis. Warhol v. Goldsmith is only the first of what will likely be many tests of the boundaries of Google v. Oracle, but it’s an important initial proclamation that reinforces a sensible approach to transformative fair use that protects the integrity of the derivative use right.

Imagine you’re an author, photographer, or songwriter who creates a website where you begin to post short stories, photos, or songs. You have a general familiarity with copyright law, have registered works in the past, and understand the benefits of doing so. A few months after launching the website, you register the posted works with the Copyright Office. You later discover that someone is copying and selling your copyrighted works without your permission. After the person refuses to cease the infringing activity, you hire a lawyer and file a complaint in what seems like an open and shut case.

Months into the litigation, after you’ve spent a considerable amount on legal fees and a tremendous amount of time preparing for litigation—time you could have spent creating new works and taking care of other business responsibilities—the infringer challenges the validity of your registration based on an error that appears in the registration. The error was an honest mistake on your part as to the legal interpretation of the date of publication. Even though the defendant clearly infringed your work, they found a loophole and they were able to invalidate your registration on a technicality. The scenario may sound far-fetched and unfair, but it’s what the Supreme Court could open the door to if it rules in favor of a similarly opportunistic defendant in Unicolors v. H&M.

Background

The Unicolors v. H&M saga began in 2016 when Unicolors, a company that creates textile and garment designs, sued fashion brand Hennes & Mauritz (H&M) for copyright infringement related to unauthorized use of Unicolors’ copyrighted geometric design on H&M garments. In 2017, a jury in the Central District of California found for Unicolors, concluding that H&M had indeed infringed Unicolors’ copyright by selling garments bearing a copy of its design. In response, H&M filed a motion alleging that Unicolors included known inaccuracies in its copyright registration application for the designs at issue. The challenge to the registration was based on the allegation that several designs covered in the single (group) registration were not made publicly available at the same time as others, meaning they didn’t constitute a “a single unit of publication” as required by Copyright Office’s registration rules in order to register the designs on a group registration form.

After the district court rejected H&M’s argument, H&M appealed the decision to the Ninth Circuit, which found that the district court erred in denying H&M’s motion. The Ninth Circuit found that the plain language of Section 411(b) of the Copyright Act does not require the copyright owner-registrant have an “intent-to-defraud” the Office in order to invalidate a copyright registration, essentially holding that mere generalized or “constructive” knowledge of an error in the registration application is enough to invalidate the registration. Having an intent to defraud is fundamentally the same standard as having actual knowledge because a registrant who has actual knowledge that they’ve included erroneous information in a registration would be considered to have intentionally defrauded the Copyright Office by including a known misstatement. In settling on a lower constructive knowledge standard, the Ninth Circuit cited its decision in Gold Value v. Sanctuary Clothing, which itself shifted away from the actual knowledge of inaccuracy standard supported by years of case law and legislative history. 

In early 2021, Unicolors filed a petition for a writ of certiorari asking the Supreme Court to take the case. The Court granted the petition and will hear the case in the upcoming fall term. The question the court will consider is:

Did the Ninth Circuit err in breaking with its own prior precedent and the findings of other circuits and the Copyright Office in holding that 17 U.S.C. § 411 requires referral to the Copyright Office where there is no indicia of fraud or material error as to the work at issue in the subject copyright registration?

The question acknowledges the important point that the Ninth Circuit broke from its own precedent and those of other circuits in its ruling, which should prompt the Supreme Court to carefully analyze the consequences—including those to copyright owners, alleged infringers, and the copyright registration system—of a finding for H&M. In doing so, it’s critical that the Court recognize the foundational goals of the registration system and the severe consequences a ruling for H&M would have for copyright owners and the way copyright cases are litigated.

The Copyright Registration System Contemplates Unknowing Errors

Copyright registration is a voluntary process that Congress intended to be easily accessible to creators without the assistance of a lawyer or extensive knowledge of copyright law. The purpose of the system is not as much about scrutinizing copyright validity as it is about creating a centralized database of works claimed to be copyrighted as well as a collection of deposit copies in the Library of Congress. Copyright law incentivizes creators to register by conferring a number of benefits—including the ability to seek statutory damages or recover attorneys’ fees as a remedy for infringement—on a copyright owner who timely registers their work with Copyright Office. These incentives embolden hundreds of thousands of creators to register their works every year—leading to more deposits for the Library of Congress collections. In most cases, these registrations are completed without having to hire an attorney.

While the registrations system is designed to be streamlined and straightforward, there is potential for good-faith errors on the part of individual copyright owners and small businesses especially when completing registration information that may require analyses of sometimes unsettled legal concepts. For example, the operative date of publication for online works is subject to conflicting interpretations, as evidenced by an ongoing Copyright Office study to establish a clear rule. Other questions that can trip up registrants are whether something is a work made for hire and the nature of the underlying work. Moreover, copyright law and the Copyright Office rules are not always intuitive or sensical, which increases the potential for unknowing errors made by applicants. This is especially true for certain creators, like photographers and musicians, who register a large volume of works per year and run the risk of making a mistake, whether its factual or legal.

Because of these pitfalls, it’s long been recognized that actual knowledge of a material error, which rises to an intent to defraud, is required to invalidate a registration. In 2008, Congress passed the Prioritizing Resources and Organization for Intellectual Property Act, known as the PRO IP Act, which amended Section 411 of the Copyright Act to codify the doctrine of fraud on the Copyright Office in the registration process. In doing so, the Act confirmed the long-held understanding that unknowing errors in copyright registrations are not grounds for invalidation.

Decades of case law before the PRO IP Act established a common law rule that actual knowledge is required for invalidation, and nothing in the language of Section 411(b)(1)(A) displaces the rule. 411(b)(1)(A) provides that a registration satisfies the prerequisites of copyright law even if it contains inaccurate information, unless “the inaccurate information was included on the application for copyright registration with knowledge that it was inaccurate.” This means that an applicant must intentionally include an error in the registration in order for that registration to be invalidated. It follows that if an applicant  sincerely believes the information in the registration is accurate, she cannot be culpable of knowingly including inaccurate information in a registration. It’s an important distinction and one that must be preserved to protect the thousands of individual creators and small businesses that register works on their own.

Lowering the Knowledge Standard Would Undermine the Rights of Copyright Owners

Allowing defendants in copyright infringement cases to invalidate registrations based on a registrant’s general knowledge of an error would upend both the copyright registration system and overall litigation practice. First of all, if defendants are able to challenge and invalidate a registration on the basis of an alleged error made without actual knowledge, they would be able to substantially delay copyright litigation in a way that may be prohibitively expensive for an individual copyright owner. Second, plaintiffs could be denied vital remedies such as statutory damages and attorneys’ fees. In fact, defendants may be able to recover attorneys’ fees against plaintiffs, which could in turn cause small copyright owners not to pursue infringement claims out of fear of being forced to pay for their opponent’s win on a technicality. Relatedly, creators may choose not to register their works at all if they are discouraged from bringing infringement suits, which would result in a massive cultural loss due to fewer deposit copies. Finally, defendants may even succeed in having the case dismissed, leaving the copyright owner without the ability to refile a timely suit.

Any or all of these results would be possible even in instances of blatant or willful infringement when no meritorious defenses exist. It’s easy to see how lowering the preexisting knowledge standard would result in abuse of the system, as it would incentivize any accused infringer to challenge a registration based on a simple mistake in the application. Indeed, the legislative history of the PRO IP Act specifically expresses concern with defendants pressing for a lowering of the knowledge standard in order to use registration challenges as a tactic for delaying or denying relief to copyright owners. Conversely, denying defendants the ability to invalidate registrations based on an unknowing error would not disadvantage anyone who has legitimate grounds to challenge a copyright’s validity or to raise substantial merits defenses.  

Conclusion

In an amicus brief recently filed by the Copyright Alliance in support of Unicolors, we explain that nothing in Section 411(b) suggests that the knowledge inquiry centers on what a registrant should have known, and that nothing in the PRO IP act indicates that Congress meant to lower the mental-state requirement standard. It’s clear that Congress and numerous other circuit courts understand the harm to copyright owners that would result from the Ninth Circuit’s anomalous determination, and the Supreme Court should reverse the judgment to ensure 411(b) does not become a get-out-of-jail-free card for culpable defendants. Doing so would reinforce a streamlined and predictable system that incentivizes copyright owners of all types to voluntarily register their works with the Copyright Office.

A steady stream of new study requests from Congress over the last few months, combined with approaching deadlines for ongoing studies and CASE Act implementation activities, means a busy summer (and rest of 2021) for the Copyright Office. With the recent announcement that General Counsel and Associate Register of Copyrights Regan Smith is leaving the Office for the private sector, it’s sure to be all hands on deck for studies, rulemakings, and other activities spanning a variety of important issues. And like many of the Office’s undertakings, the recommendations made to Congress and rules established will have a lasting impact on the rights of creators and copyright owners. 

State Sovereign Immunity

On August 31, the Copyright Office will issue its report on the extent to which copyright owners are experiencing infringement by state entities without adequate remedies under state law. The study was initiated in response to a letter from Senators Thom Tillis (R-NC) and Patrick Leahy (D-VT) sent to the Office on April 28, 2020. As the letter explains, the Supreme Court’s 2020 ruling in Allen v. Cooper left creators without a remedy when a state infringes their copyright and claims sovereign immunity under the Eleventh Amendment. Both the Copyright Office and the Patent and Trademark Office were asked by the Senators to conduct a study “to determine whether there is sufficient basis for federal legislation abrogating state sovereign immunity when states infringe.”

In response to a Copyright Office Notice of Inquiry asking for public input on the extent to which state infringement is a problem, the Copyright Alliance submitted comments (and reply comments) that include survey results and creator stories that highlight the frequency and harm of state infringement. Since the Office’s comment period closed, there’s been further proof that alternative state remedies, such as takings claims, fail to provide copyright owners meaningful recourse against state infringement. Based on the evidence compiled in our comments and from recent court cases, we continue to strongly urge the Copyright Office to recommend that Congress enact legislation that holds states accountable for infringement.

CASE Act Rulemakings

Passed in late 2020, the Copyright Alternative in Small Claims Enforcement (CASE) Act establishes a small claims tribunal within the Copyright Office that will provide a low cost and streamlined alternative to federal court. The Copyright Office has been hard at work hiring the officers and attorneys who will oversee the Copyright Claims Board (CCB), and it’s been issuing notices of inquiry (NOIs) and notices of proposed rulemakings (NPRMs) related to CASE Act implementation.

In response to an initial Notice of Inquiry, the Copyright Alliance submitted comments (and reply comments) stressing the need for the procedures adopted by the Office to be objectively simple, easy to understand, and designed to meet the needs of those who cannot afford to hire an attorney or litigate in federal court. After a Notice of Proposed Rulemaking on a new expedited registration option and a conforming amendment to the Office’s Freedom of Information Act regulations under the CASE Act, the Copyright Alliance submitted comments mostly in support of the Office’s proposed regulations.

The Copyright Office will continue to publish NPRMs throughout the summer and fall in preparation for the expected launch of the Copyright Claims Board in December. The Office is expected to publish several NPRMs on specific topics (like the expedited registration and FOIA NPRM) rather than one comprehensive NPRM.

Ancillary Copyright Protection for Press Publishers

In testimony before the Senate IP Subcommittee last year, many witnesses expressed support for the advancement of additional rights for press publishers whose content is often aggregated and distributed without authorization by online platforms. These “ancillary” or “neighboring” rights have been adopted in some EU Member states, including France, which just fined Google over half a billion euros for breaching an order to negotiate in good faith with French publishers to renumerate them for displaying portions of news content.

On May 3, Senators Thom Tillis (R-NC), Chris Coons (D-DE), John Cornyn (R-TX), Mazie Hirono (D-HI), Patrick Leahy (D-VT), and Amy Klobuchar (D-MN) sent a letter to Register of Copyrights Shira Perlmutter requesting a Copyright Office study on the viability of adding ancillary protections to U.S. copyright law that would require platform aggregators to pay publishers for excerpts of content they provide for others to view. Specifically, the letter asks that the Office “analyze what the appropriate scope of such a right should be and how that would coincide with existing rights such as those of underlying writers or visual artists as well as any existing rights held by publishers.” The letter also requests that the study include a discussion of how exceptions such as fair use would be accounted for and how an ancillary right would affect international treaty obligations.

Copyright Examination and Registration

In a May 24 letter to the Copyright Office, Senator Tillis requested that the Copyright Office undertake studies on the following issues related to the modernization of registration and examination procedures.

• Digital Deposits and Best Edition

The letter first asks the Copyright Office to conduct a study on the practicality of decoupling the deposit requirements found in Sections 407 and 408 of the Copyright Act. Section 407 currently requires the submission of two complete copies or phonorecords of the “best edition” of a work for the use or disposition of the Library of Congress, while Section 408 requires an applicant to deposit two best editions to the Copyright Office for purposes of registration. In response to calls to remove the best edition requirement from Section 408, the letter asks the Copyright Office to examine whether such a removal could help improve registrations requirement by allowing for low resolution digital deposits. The letter also advises that the study should be conducted in consultation with the Library of Congress to “assess the Office’s legal review needs while also addressing the Library’s separate need to grow its collection.”

• Deferred Examination

Requested in the same letter is a study examining the “feasibility, benefits, and costs of creating an option for deferring examination of an application.” The study request comes after the Supreme Court’s Fourth Estate v. Wall-Street.com decision, which held that a copyright registration application be, rather than just submitted, approved or denied by the Office before a copyright owner can file an infringement lawsuit. The concern among copyright owners is that on average it takes at least six months for a registration to be approved or denied, and during that time an applicant is powerless to stop infringement.

In an attempt to find a workable solution to this problem, the Copyright Office has been asked to consider adding an option for registering a work for which the registrant could obtain an “effective date of registration” upon submission of an application and deposit. The registrant could then defer examination until the registrant makes an examination request. The letter also advises the Copyright Office to address any statutory changes that might be necessary to enable registrants who take advantage of the effective date option to commence civil lawsuits.

• Definition of Publication

Finally, Senator Tillis’ May 24 letter asks that the Copyright Office’s ongoing study on the statutory definition of publication, which is meant to provide guidance on what the definition should be in the modern context, be completed no later than December 1, 2021. On December 4, 2019, the Copyright Office issued an initial Notice of Inquiry asking for public input on “issues relating to online publication, including whether and how to amend its registration regulations and other considerations relevant to ensuring continued thorough assistance to Congress.” The Copyright Alliance filed comments (and reply comments) in response to the notice which address a variety of questions related online publication and ultimately caution against any statutory amendment of the definition of publication. 

E-book Compulsory Licensing by States

In response to troubling state legislative activity that would require e-book publishers to license their works to specific parties by government mandate, Senator Tillis sent a letter to the Copyright Office on May 26 asking it to review a number of state bills that appear to preempt federal copyright law. The letter raises concerns that, in addition to being preempted by federal law, these state compulsory licensing efforts “remove from the copyright owner the decision as to whether, in what format, and on what terms works will be made available.” Calling the state bills an “unprecedented government intrusion into the copyright marketplace for creative literary works,” Senator Tillis’ letter asks for the Office’s immediate attention on the matter.

As Terrica Carrington wrote in a recent blog, national uniformity in copyright protection is essential given the technological progress that constantly changes the way works are disseminated. Without it, copyright owners and users of their works would have to navigate a confusing patchwork of state laws that all apply their own nuances and special interests. Varying state laws, especially those that impose vague and impractical compulsory licensing mandates, would strip copyright owners of their exclusive right to distribute their works and thereby threaten incentives to invest in future works.

Standard Technical Measures

Most recently, on June 24, Senators Leahy and Tillis sent a letter to Register Perlmutter asking the Copyright Office to convene a working group of stakeholders “in order to identify and implement standard technical measures and recommend other necessary steps to stop online copyright theft and improve the digital ecosystem for creators, content owners, and lawful internet users.” Over the course of many hearings on reforming and updating copyright law in the digital age, the Senate IP Subcommittee heard testimonies that “clearly demonstrate” that piracy is on the rise and better protection measures are needed.

Despite the Digital Millennium Copyright Act’s aim to have copyright owners and online service providers work together to establish standard technical measures (STMs) that would help identify and protect copyrighted works, the letter points out that no STMs have been agreed upon or implemented. Copyright Alliance CEO Keith Kupferschmid testified at a Subcommittee hearing in late 2020, titled The Role of Private Agreements and Existing Technology in Curbing Online Piracy, that OSPs have been unwilling to cooperate with copyright owners and creators to establish STMs, even though there is existing technology that could be adopted. He urged the Copyright Office to take lead in facilitating discussions amongst stakeholders toward the development of STMs and to recognize existing STMs that have been developed in the marketplace.

As the Copyright Office continues to work closely with Congress on a myriad of studies and follow-up actions, it will certainly make for a busy period for everyone involved. And we’ll keep you apprised as things continue to unfold.

On June 18, the Texas Supreme Court held that a violation of copyright is not an unconstitutional taking of property. The decision stems from a years-long battle by Jim Olive to hold the University of Houston accountable for unauthorized use of one of his iconic photographs, and it is further proof that creators have no meaningful legal recourse when a state entity steals their work. The ruling comes at a time when the U.S. Copyright Office and Congress are studying whether there are adequate remedies for copyright infringement by state entities. Olive’s case unequivocally confirms that:

• Infringement by state entities is an ongoing problem;
• State law claims have failed to hold states accountable for theft of copyrighted works;
• Copyright owners have no meaningful recourse against state copyright violations;
• States now have even less of an incentive to comply with copyright law; and
• Congress must act to abrogate state sovereign immunity

A Photographer’s Fight for Justice

Jim Olive is a Houston-based photographer who has been involved in professional photography for over 50 years. Describing photography as both his “profession and passion,” Olive specializes in capturing breathtaking aerial images as he hangs outside of hovering helicopters. It’s a technique that requires nerves of steel and great photography skills—not to mention a considerable amount of money to rent the helicopter. Olive’s images of the Houston skyline are recognized for their unmatched perspective and beauty, and many organizations enter into licenses with Olive’s company for use of the photos online and in print materials.

In 2012, one of his most impressive and difficult-to-capture images of the Houston skyline was used without permission by the University of Houston on its website to promote the University’s College of Business. After discovering the unauthorized use, rather than sue the University for copyright infringement under federal copyright law, he sued the University of Houston system and claimed an unlawful taking under the Texas Constitution because he knew the University would invoke sovereign immunity and thus render any copyright infringement claims ineffective.

The University of Houston argued that Olive’s takings claims were unenforceable, and on appeal, the Court of Appeals for the First District of Texas held that although copyright is considered property, infringement by a state entity does not constitute a taking under either the U.S. or Texas constitution. The appeals court reasoned that the University’s use of the work was not a taking because it did not take away Olive’s right to use, license, or dispose of the underlying creative work. Not ready to let the fight end there, Olive sought review by the Texas Supreme Court.

Texas Supreme Court Leaves Olive Wronged and without a Remedy

Central to Olive’s petition for review was his argument that the court of appeals erred in failing to hold that the Takings Clause protects copyrights just as it does tangible forms of property. Addressing whether copyrights constitute property protected by the Fifth Amendment, the Texas Supreme Court cited Ruckelshaus v. Monsanto, a U.S. Supreme Court case that found trade secrets (and other forms of intellectual property) are protected. “Assuming for our purposes” that copyright is property protected by the Fifth Amendment, the Court then focused on whether a copyright infringement claim against a state entity also encompasses a “per se” takings claim under the federal and state constitutions.

Likening the University of Houston’s theft of Olive’s intellectual property to a “transitory common law trespass,” the court found that the infringement did not rise to a level of unconstitutional taking for which sovereign immunity would be waived. It reasoned that “[a] compensable taking does not arise whenever state action adversely affects private property interests.” Going on to distinguish between a “per se” taking that involves the government’s physical occupation of a property, the Court explained that infringement of intellectual property requires an ad hoc analysis to determine whether there was a taking.

The Court then found there was never any possession or control, physical occupation, or confiscation of Olive’s copyright, and that at no time did he lose his ability to exclude others from using his work or to commercialize it through licensing. Addressing Olive’s argument that the University’s unauthorized reproduction and display of his work deprived him of his exclusive right to control his work, the Court focused on the “nonrivalrous” nature of copyright and found that Olive could still exclude third parties from using the work. Because Olive retained some key legal rights in the bundle of rights granted by copyright protection, the Court concluded no taking had occurred.

Concurring with the majority opinion, a group of justices pointed out that the Texas constitution provides more expansive taking protections than its federal counterpart. Specifically, it provides that “[n]o person’s property shall be taken, damaged, or destroyed for or applied to public use without adequate compensation.” The concurrence explains that Olive failed to allege these violations via a regulatory takings claim and therefor his per se takings claim cannot succeed.

Going on to discuss the meanings of “damaged” and “destroyed,” the concurrence suggests that they can be applied to a broader range of harms to property, and that “it is possible that a government entity’s violation of a private author’s rights in a copyrighted work could in some circumstances require compensation” under the Texas constitution. But the significance of this distinction remains unclear, as a state’s infringement would presumably have to damage or destroy the underlying work beyond the copyright owner’s ability to salvage any exclusive rights in the copyright bundle. Moreover, the untested theory provides no help to the many creators and copyright owners encountering infringement in other states.

Copyright Office and Congress Must Recognize the Inadequacy of Alternative Claims

The Copyright Office’s Notice of Inquiry and Request for Public Comment for its Sovereign Immunity Study asked what remedies are available to copyright owners when states infringe their works and whether those remedies are adequate. In response to this and other questions, the Copyright Alliance submitted comments outlining the limited nature of state remedies, that while theoretically available, rarely make aggrieved parties whole from the damage done by infringement. In the comments, we noted that the experiences of creators such as Jim Olive has shown that state courts have been unwilling to find copyright infringement an unconstitutional taking of property because takings jurisprudence often only allow claims in instances in which an owner is deprived of virtually all of the property’s value.

Unfortunately, the Texas Supreme Court confirmed that takings claims are bound to fail if a copyright owner retains any portion, no matter how small, of their bundle of rights. It’s difficult to imagine a scenario in which an instance of infringement would strip a copyright owner of all conceivable rights in a work, and therefore it would be impossible for a takings claim to succeed.

In its decision, the Texas Supreme Court highlights that fact that Olive also retained the right to seek injunctive relief against a state official under the Ex parte Young doctrine. But while injunctions are available to copyright owners to stop specific instances of infringement, they represent a limited and incomplete remedy that, standing alone, is inadequate. As our comments to the Copyright Office explain in detail, getting an injunction is prohibitively time consuming and expensive, with court costs and attorney’s fees often outweighing the limited remedy. Further, injunctions provide no remuneration for lost market share or lost licensing opportunities, and they require ongoing monitoring to ensure compliance. Simply put, injunctions do not make copyright owners whole for the damage done by infringement. To provide true relief, injunctions must be coupled with all remedies otherwise provided for under the Copyright Act.

While the outcome of Olive’s case is tremendously disappointing for him and other creators, the silver lining here may be that this proves beyond a shadow of a doubt that state law remedies for state infringement are non-existent and that federal legislation that abrogates state sovereign immunity is necessary. By striking takings claims off the list of potential ways copyright owners could arrive at a remedy for infringement, it’s now clearer than ever that they have no meaningful recourse when faced with state copyright theft. The Texas Supreme Court’s decisions has strengthened states’ ability to avoid consequences for infringement, and they now have even less of an incentive to play by the rules. As the Copyright Office finalizes its sovereign immunity study in the coming months, we hope that the Office takes into account the Olive case and strongly recommend that Congress enact legislation that holds states accountable for infringement.

Next week, sections of the American Law Institute’s (ALI) Copyright Restatement will be offered for approval for the first time at the ALI’s annual membership meeting. If approved by the full membership, these sections will be made publicly available and may then be cited by attorneys in briefs and used by judges to help decide copyright cases. The problem is that the Restatement project has been plagued from the start with a myriad of substantive and procedural deficiencies that remain unaddressed. These shortcomings include:

• An overall lack of procedural transparency
• Manufactured “black letter” law that does not track the applicable provisions of the Copyright Act
• Inaccurate and incomplete representations of foundational legal concepts and case law
• The creation of fictitious legal standards with no basis in the Copyright Act or case law
• Pervasive bias that results in a limiting overview of the scope of copyright protection

These and other criticisms have been repeatedly raised by the U.S. Copyright Office, the U.S. Patent and Trademark Office (USPTO), members of Congress, the American Bar Association (ABA), federal judges, copyright scholars, and many of the project’s Advisers and Liaisons. While minor adjustments have been made over time, the Restatement continues to suffer from significant procedural and substantive flaws that will result in a Copyright Restatement that is more likely to confuse and befuddle readers than to clarify the law.

The Copyright Restatement is Unprecedented and Unnecessary

Founded almost one hundred years ago, the ALI is an independent organization with a mission to produce “scholarly work to clarify, modernize, and improve the law.” It brings together lawyers, judges, and academics to develop Restatements, the purpose of which are to advance uniformity in fundamental state common law principles. But the current copyright project diverges from traditional ALI Restatements by attempting to tackle a settled body of positive federal law, causing concern that the goal is not to restate the law but rather to create an alternative description of the law already established by the Copyright Act.

Members of Congress have repeatedly expressed concerns surrounding the ALI’s approach to the project and the Reporters’—those doing the actual drafting—attempt to try to rewrite an area of law that is based on a federal statute. Two letters sent to ALI Director Richard Revesz in late 2019 and early 2020 from a bipartisan group of members of Congress, including then-Chairman of the Senate Judiciary Subcommittee on Intellectual Property, Thom Tillis, spoke of the significant risks associated with a Copyright Restatement that aims to address an area of law based almost entirely on a federal statute. Their view, which is shared by the Copyright Office and USPTO, is that copyright law is ill-suited for treatment in a Restatement “because such laws already have been articulated by Congress in both the statute and ample legislative history.” In response to the ALI’s assurance that other projects have undertaken efforts to clarify areas of law where there are federal statutes, the second letter points out that those previous Restatements address areas of law where the federal statute is only one component of a larger body of law and that copyright law is “encompassed almost exclusively within the federal statute.” Warning that this unprecedented approach to a Restatement carries great risk of politicization, the lawmakers point to statements by the lead Reporter, Christopher Sprigman, that express a desire to circumvent Congress in an effort to “shape” and “reform” the law, rather than clarify it. 

Concerns Raised by Project Participants have been Routinely Ignored

From the start of the project in 2015, copyright scholars and judges who serve as Advisers and Liaisons to the project have raised various substantive and procedural concerns with the Reporters’ approach to the Restatement. While some of these have been addressed over time, many have not. These issues were recently presented by Advisers Shyam Balganesh and Peter Menell in a thorough law review article published in Columbia Law School’s Journal of Law and the Arts. The article focuses on enduring problems with the Reporters’ approach to the Restatement, including a lack of methodology and departure from ALI practice by attempting to rewrite federal statutory law as “black letter” law.

The article describes how the ALI Council initially established a group to evaluate their proposals, but Balganesh and Menell were never given an opportunity to present their views, the group met “in secret with little external input,” and ultimately no format changes were recommended. Despite Balganesh’s and Menell’s constructive suggestions on ways the Reporters and ALI leadership could reframe the project to address its shortcomings, the Reporters have chosen to simply disregard the recommendations and plow ahead.

Adding to Balganesh’s and Menell’s concerns are other academics who have directed their criticism towards apparent bias, lack of methodology, and a number of substantive deficiencies in the drafts. In a 2019 letter to members of Congress, Professor Jane Ginsburg, an Adviser, and Professor June Besek, a Liaison, expressed serious concern with bias in the drafts, stating that “the drafts as a whole manifest a belittling perspective on copyright protection.” As Ginsburg and Besek have made clear in their comments, the Reporters have largely ignored their critiques, and instead offered minor revisions while moving ahead with drafts that endanger long-standing and well-recognized legal concepts. These concerns are not unique to Professors Balganesh, Menell, Ginsburg and Besek, but are shared by many other judges, scholars and others who participate as Advisors and Liaisons.  

Members of academia not directly involved in the project have also been critical of the missteps of the Reporters. Earlier this year, Professor Justin Hughes published an article scrutinizing a section the Restatement and identifying the project as one “still mired in controversy.” Focusing on the Restatement’s handling of copyright law’s originality requirement, Hughes explains that the Reporters have deliberately narrowed the minimal creativity requirements related to selection and arrangement in a way that is not an accurate account of copyright law, saying: “This intent to limit selection, coordination, and arrangement as bases for minimal creativity to the category of ‘compilation’ works is not an accurate reflection of the case law. It is not even an accurate reflection of Supreme Court jurisprudence.”

Hughes recognizes that the project’s Reporters have been perceived as trying to shape the law in favor of a more limited scope of copyright protection, and he warns that if these sections on originality are not fixed, “the ALI would promulgate a Restatement that is not a wholly accurate account of American copyright law.”

Expert Government Entities and Legal Associations Object to the Project

The government entity responsible for administering U.S. copyright law—the U.S. Copyright Office –has consistently questioned the approach taken by the Reporters and their mischaracterizations of statutory and case law. In a 2018 letter to the ALI from former Register Karyn Temple, the Office expressed significant concern with the Restatement, concluding that an attempt to restate positive federal law was “misguided” and recommending that the Council suspend the project. In its series of comments on subsequent Restatement drafts, the Copyright Office repeatedly urged the Reporters to make changes intended to retain the terms used in the statute and to avoid conflicts between the Restatement and the Office’s rules and regulatory guidance. Again, these recommendations mostly fell on deaf ears.

Echoing the concerns of her predecessors, current Register of Copyrights Shira Perlmutter recently sent letter to the ALI notifying its leaders that she is stepping down from her role as an Adviser to the Copyright Restatement project. In the letter, Register Perlmutter expressed concerns with many procedural and substantive issues that have compromised the Restatement’s legitimacy. Joining critics of the Reporters’ manufactured “black letter” law, Register Perlmutter strongly recommends that each section begin with the text of the statute, and, where the plain language is ambiguous, the Reporters should include the relevant portions of the legislative history. She also urges that the Restatement afford appropriate deference to the regulations and guidance issued by the Copyright Office, which to date the Reporters have only chosen to do when it suits their interpretation of the law.

Importantly, the letter also calls for enhanced transparency in the treatment of comments submitted by project participants. Recognizing the consistent grievances of Advisers and Liaisons, Register Perlmutter writes that “the Restatement process to date has been perceived by onlookers, including some Advisers, as inadequately documented, leading to questions being raised about the possible influence of the normative views of the Reporters.” This overall unwillingness of the Reporters to provide insight into their process and methodology has frustrated many and led to widespread criticism surrounding a lack of responsiveness to comments and questions. Moving forward, Perlmutter advises the ALI to provide the public with a better understanding of what advice is given to the Reporters, how it is considered, and the criteria under which it is accepted or rejected. The ALI can accomplish this, she says, by disclosing records of written comments submitted by Advisors and records of any ALI meetings where the project was discussed.

Joining the Copyright Office in questioning the Copyright Restatement project’s viability and framework, the U.S. Patent and Trademark Office (USPTO) sent a letter to the ALI in 2018 expressing a “fundamental concern about the process and format” of the project. Then-Director of the USPTO, Andrei Iancu, warned that attempting to provide an alternative black letter law for the prescriptive provisions of the Copyright Act would only lead to “confusion and ambiguity” and that the meaning of the federal statute would be “clouded or altered.” The letter recommended adapting the project’s format to accommodate the specific characteristics of the Copyright Act by beginning each section’s black letter with the clear language of the statute, lest the Restatement undermine Congressional authority.

Finally, In a 2019 letter to the ALI, the American Bar Association (ABA) questioned the direction of the project and the Reporters’ lack of response to numerous commentators’ concerns about the substance of earlier drafts. Noting that many portions of the Restatement remain “vigorously disputed,” the letter explains that “[u]nless the drafting process undergoes a course correction, we fear that the Copyright Restatement, rather than clarifying the law, will sow confusion and contribute to polarization in the field.” Focusing on the Restatement’s failure to justify the differences between the black letter as drafted by the Reporters and the text of the copyright statute, the ABA warned that a “Restatement that focuses not on existing law but on the law as the Reporters would like to see it will be of dubious value and is inconsistent with the restatements that ALI has produced historically.” Perhaps not surprisingly, the ABA’s recommended “course correction” has not come to fruition, as the Reporters have not adjusted their approach to the black letter and other controversial portions of the Restatement.

The Restatement Invents Legal Standards with No Basis in the Law

One of the most troubling parts of the Restatement has been the Reporters introduction of entirely new legal standards that have no basis in the Copyright Act or case law. For example, the Reporters manufacture a new temporal requirement for “fixation” – which is one of the required elements of copyrightability – in place of the language in the statute. The Restatement repeatedly says that fixation can be understood as an embodiment that “lasts long enough to allow enjoyment or exploitation or other non-fleeting use of the work’s expressive content after the embodiment is initially made.” But that “enjoyment or exploitation” interpretation appears nowhere in the statute, the legislative history, or in any judicial precedent, and there is nothing in the legislation or case law to “suggest” that it is what Congress intended.  

Several Advisers and Liaisons have pointed out (over the course of many drafts) that this phrase has been created by the Reporters out of the blue and should be deleted from the draft. But rather than acknowledge that this is a controversial and evolving area of the law and remove the fictitious standard, the Reporters have largely ignored the recommendations of the project participants and instead insisted on including a standard of their own creation that shrinks the scope of the copyright owner’s rights.

Unfortunately, that is not the only instance where the Reporters attempt to change the law by introducing unfounded standards. The Restatement “takes positions” on a number of unsettled issues, and always in a way that reduces the scope of copyright protection or shortchanges copyright owners. And by taking these positions, rather than explain that the issues are subject to debate, the Reporters no doubt seek to influence judges, lawyers, or any others who may use the Restatement in the future. It’s not hard to see why concerns over impartiality have accompanied the project from day one. If the ALI does not make profound changes to remedy the lack of transparency and underlying biases of the Restatement, these concerns will only become more pronounced and in turn create a record of opposition that will taint any eventual final product. 

Conclusion

The ALI’s Copyright Restatement project as a whole has been marred by controversy over procedural problems and the Reporters’ evident bias, casting the credibility and utility of the Restatement in serious doubt. Concerns voiced by Liaisons, Advisers, ALI members, judges, lawmakers, academics, the American Bar Association, the U.S. Patent and Trademark Office, and the U.S. Copyright Office have been routinely ignored as the Reporters have persisted in their effort to create an influential resource that promotes their unique interpretation of copyright law—one that is inconsistent with the copyright statute and case law. The Restatement mischaracterizes the law, attempts to establish fictitious legal standards, and includes biased and negative views on foundational principles of copyright. It’s past time that the ALI reconsider the project as a whole, and that begins with an outright rejection of all sections offered for approval at the upcoming membership meeting.

On April 5, the Supreme Court handed down its long-awaited decision in Google v. Oracle, finding that Google’s use of parts of Oracle’s API software code (referred to as “declaring code”) qualifies as fair use. In a 6-2 decision delivered by Justice Breyer, the Court avoided the issue of the software code’s copyrightability entirely—instead assuming that “for argument’s sake” Oracle’s underlying code was copyrightable. As to the second issue at stake in the case—fair use—the Court surprisingly found that all four fair use factors favored Google as a matter of law.

The decision presents a troubling misapplication of the fair use factors and a greater misunderstanding of the goals of the copyright system, but some relief comes in the Court’s explanation that its determination is limited in scope to the specific code at issue in the case and does not “overturn or modify its earlier cases involving fair use.” Despite numerous statements throughout the Court’s decision limiting the applicability of its ruling and analysis to the software code at issue, there is a risk that lower courts will ignore those warnings and wrongly apply this ruling to other types of works, thereby unduly broadening the fair use doctrine more than the Court intended. But we are hopeful that lower courts and commentators will recognize that:

• The Court’s ruling is an unusual application of the fair use doctrine to a unique form of software code and cannot and should not be applied outside of those specific boundaries.
• Beginning a fair use examination with factor two distorts the analysis and should not be repeated in future cases, whether they involve computer software code or any other copyright protected work.
• Merely shifting software code from use in one type of device to another does not constitute a different purpose or character under the first fair use factor, and the opinion wrongly concludes that Google’s use was transformative because the code was used to develop smartphones, rather than desktops or laptops.
• By focusing on how much of Oracle’s computer code Google didn’t copy, the Court promotes an unsound factor three analysis that is inconsistent with decades of fair use precedent.
• The Court presents a flawed factor four analysis that disregards the importance of potential markets and would punish copyright owners who don’t quickly and successfully enter into every conceivable market.

After beginning the decision with lines from the Copyright Clause of the U.S. Constitution, Breyer’s opinion takes a strange twist when it says that “[c]opyright encourages the production of works that others might cheaply reproduce.” It’s unclear where Breyer draws this theory from, as no one has ever even remotely suggested that the purpose of copyright is to incentivize the creation of works so that others can cheaply copy them. As if that wasn’t strange enough, Breyer makes no attempt to hide his hostility towards what he considers to be the “negative consequences” of copyright protection likening a copyright owner’s rights to a monopoly and tax. This skewed approach to copyright protection is the prelude to the Court’s fair use analysis, and it’s clear that Breyer’s long history of software copyright skepticism, along with the Court’s general disdain for the Federal Circuit, permeates the entire decision. If not for COVID, this case would have been decided while Ruth Bader Ginsburg was still on the Court. One has to wonder, if she had been, whether Breyer’s software copyright vendetta would have been tolerated.

Factor Two Elevated to Center Stage

In addition to punting on the copyrightability issue, Breyer inexplicably addresses the fair use factors out of order, starting the analysis with the second fair use factor—the nature of the copyrighted work. Many courts have focused on the importance of the first or fourth fair use factors, but this may be the first time any court has ever begun with the second factor first in a way that it controls the entire fair use analysis. Considering the nature of the copied declaring code, the Court found that it is “inextricably bound together with a general system, the division of computing tasks, that no one claims is a proper subject of copyright.”

By beginning the four-factor analysis out of order and finding that the nature of the copied code is similar to other copyrightable materials that serve “functional purposes” and for which protection is “thin,” Breyer digs the Court into a hole out of which a finding of fair use is inevitable. Unlike some recent fair use cases that have seen factors two, three, and four swallowed by transformative determinations under factor one, Breyer’s approach moves the spotlight to the nature of the underlying work, and his assessment that the underlying code is inherently bound to parts of a computer program “that no one claims is a proper subject of copyright” infects the rest of the opinion.

The factor two analysis is also confusing when it says that fair use “can play an important role in determining the lawful scope of a computer program copyright.” In order for a fair use defense to arise, (1) a work must already be determined to be protected by copyright and (2) there must be infringement. While the Court says that it considers Oracle’s code to be protected by copyright for the “sake of argument,” Breyer’s factor two analysis implies that it should not be, and as a result it is never conceded that Google’s use was infringing. It’s a roundabout application of the fair use doctrine that takes on the question of copyrightability, even though the Court claims not to address it.

Continuing with its factor two analysis, the court choses to return to a number of analogies that did not seem to garner any better understanding of the declaring code amongst the Justices during oral argument. Breyer likens the code to “a gas pedal in a car that tells the car to move faster” and also clings to the QWERTY keyboard analogy that he repeatedly raised during oral arguments. But these analogies fail to account for the underlying expressive elements that both sides agree make up the declaring code. The underlying elements of a keyboard—the letters—are not expressive works of authorship, and even if they were, there are a number of different ways a keyboard could be arranged, and copyright protection would not allow the copyright owner to control all alternate keyboard variations.  

The opinion recognizes that Congress specified that computer programs are protectable by copyright, but then goes on to make distinctions based on the perceived “creativity” of the underlying code. The Court finds that the declaring code “embodies a different kind of creativity” than the “creativity” that Google supposedly employed to implement the software in smartphones rather than desktop or laptop computers. It’s a troubling comparison that wades into value judgments of different kinds or levels of creativity—which Congress likely sought to avoid when it amended the Copyright Act to grant protection to computer programs—and it previews the factor one analysis that follows.

Purpose and Character of the Use Found to be Transformative

The opinion then moves into its factor one analysis, admitting that Google precisely copied entire portions of the underlying code “in part for the same reason” they were created. But in considering the transformative purpose and character of Google’s use, the Court finds that the creation of a new platform and new products “was consistent with that creative ‘progress’ that is the basic constitutional objective of copyright itself.” Focusing on the “new computing environment” in which Google implemented the code, the opinion completely fails to address the cogent arguments by Oracle and its amici that the use merely shifts between computing mediums or devices. In fact, it’s astounding that almost nowhere in the opinion does Breyer address the specific arguments made by Oracle and its amici, choosing instead to either take aim at what he sees as errors by the Federal Circuit or to simply explain why he believes Google’s arguments are right. This departure from established judicial practice is striking, and it results in a decidedly one-sided opinion.

As if there were any question given Breyer’s discussion leading up to this, he then finds that Google’s use is a transformative “reimplementation,” which he says furthers the development of computer programs and innovation generally. And yet he makes no mention of the companies that recognized the value of the underlying code and licensed it so that they could build upon it, or the companies that innovated around the Oracle’s code and developed competing platforms and devices of their own. These points were raised repeatedly by different Justices at oral arguments, and by Justices Thomas and Alito in their shrewd dissent, but the only “progress” Breyer’s opinion seems concerned with is Google’s. 

A Flawed Factor Three Analysis

In its factor three analysis, which considers the amount and substantiality of the portion used, the opinion says that the amount of code copied “must be viewed as one small part of the considerably greater whole.” It even goes as far to say that “the better way to look at the numbers is to take into account the several million lines that Google did not copy.” But this approach to factor three invites lower courts to look at how much the infringer didn’t copy –an approach that has been soundly rejected in the past by numerous courts and is wholly inconsistent with decades of fair use precedent.

The opinion goes on to say that Google copied the code because programmers had already learned JAVA’s API system and that it would have been “difficult” to attract programmers to build its system without it. Again, the opinion fails to mention that other companies didn’t need to copy Oracle’s code when they spent an enormous amount of time and resources developing their own code. Instead, Breyer focuses on the popularity and familiarity of the API amongst programmers and the convenience of copying the code, and by doing so effectively penalizes Oracle for the success and popularity of JAVA.

While the majority opinion does not use the word “merger” once, it seems that the Court believes that things like popularity, familiarity, convenience, and attractiveness to users should result in either weakened copyright protection or a more liberal fair use application. These theories have been rightly rejected in the past, and the Supreme Court giving them credence here threatens to create a copyright system in which creating a work that becomes popular and attractive to consumers is punished by weakened copyright protection.

Missing the Mark on Market Effects

The very first line of the fourth factor discussion reproduces language from Section 107 of the Copyright Act, saying that “[t]he fourth statutory factor focuses upon the ‘effect’ of the copying in the ‘market for or value of the copyrighted work.’” But this quote from the statute conspicuously leaves out the word “potential” before “market.” It’s a particularly troubling omission, and likely not a mistake, as the following analysis discounts the potential markets that Sun (or Oracle) could have entered into down the road.

The Court focuses its fourth factor analysis on the public benefit of Google’s use and the “uncertain nature of Sun’s ability to compete in Android’s marketplace.” Apparently, Breyer believes that difficultly entering into a market or an unsuccessful attempt to enter a market means that market no longer exists for the copyright owner and they can’t be harmed by infringers entering into it. He also conveniently glosses over the fact that a licensing market existed and that Google initially sought a license but then abandoned the effort when it didn’t like the terms.

The opinion states that “the record showed that Google’s new smartphone platform is not a market substitute for Java SE.” But that is not what the fourth factor asks. Section 107 clearly states that a fourth factor analysis considers “the effect of the use upon the potential market for or value of the copyrighted work.” The word potential makes all the difference, and yet the majority opinion pays it little attention. To Breyer and the majority, the fact that Sun had difficulty entering into the smartphone market was enough to determine that there was no market effect. It’s a confounding conclusion, and it’s one that would reward an infringer with the resources to race into a market before the actual copyright owner.

While the opinion is limited to a specific type of computer program, it should still be cause for concern among individual creators and small business that own copyrighted works but do not have the resources to enter all possible markets immediately. It is imperative that courts understand that simply because a copyright owner hasn’t successfully exploited a distinct market for a work, it does not mean there isn’t substantial harm done if another comes along, takes your work, and uses it to dominate that market.

Decision is Limited to Specific Forms of Software, But Who Wins?

While this is one of the most perplexing Supreme Court decisions in recent memory—not necessarily because of the result—because of Breyer’s erroneous and poor analysis, the one saving grace is that the decision seems to have very limited applicability. Throughout the opinion, the Court clearly states that the decision “does not overturn or modify its earlier cases involving fair use.” Breyer states numerous times that the decision is limited to the case at hand and only applies to software, and more specifically to declaring code. For example, the opinion says that its conclusion is based on “[a]pplying the principles of the Court’s precedents and Congress’ codification of the fair use doctrine to the distinct copyrighted work here” (emphasis added). The Court repeatedly stresses that the nature of the declaring code is unique, explaining that “this code is different from many other types of code” and “embodies a different kind of creativity.” So despite making distinctions among different types of software—something Thomas’s dissent warns against—and arriving at questionable conclusions in its fair use application, it’s clear that that the Court’s approach is confined to a very specific subset of API code and should not be applied outside of those distinct works.

The limited applicability of the fair use analysis, combined with the Court’s sidestepping around the copyrightability issue, begs the question: What is the long-term value of the decision? Or perhaps more directly, who comes out a winner? Obviously, Oracle and any other companies that own copyrighted software that includes these specific types of declaring code are hurt by the decision. Additionally, the disordered fair use analysis, even if confined to declaring code, is likely to confuse lower courts and non-copyright experts. Also a loser is copyright policy and the public’s understanding of the goals of our copyright system, as Breyer’s focus on only one side of the purpose of copyright misinforms the general public.

The obvious (and only conceivable) winner in this case is Google or similar tech behemoths that have the audacity to build entire platforms on infringement, beat other less powerful and less resourceful companies to a specific market, and spend years (and tremendous amounts of money) defending their actions in court. Some have claimed that this is a win for the software industry as a whole, but it’s not. It’s specific to one company and one company’s particular actions surrounding a very distinct type of copyrighted work. Many who supported Google’s case in amicus briefs and articles wanted the Court to find that the declaring code was not subject to copyright protection, but the Court didn’t do that. Moreover, because the decision reinforces the established principle that fair use is doctrine applied on a case-by-case basis and that its analysis is limited to the specific work and facts at hand, it provides little guidance on fair use generally. The next company that comes along and infringes copyright protected software and claims fair use will probably have to engage in a prolonged legal battle, unless the facts were identical to those in this case. And there aren’t many companies with the resources to do that.

A Sensible Standard of Review

The lone bright spot in the majority decision is the Court’s rejection of Google’s claim that the Federal Circuit’s de novo review of a jury’s fair use finding violates the Seventh Amendment. The question arose after the Federal Circuit reversed a jury’s fair use verdict in favor of Google, and the Court seemed eager to weigh in on the issue, both by requesting supplemental letter briefs by the parties and by devoting significant time to the appropriate standard of review during oral arguments. Google argued that allowing a court to review a jury’s decision de novo, meaning without deference to the jury’s finding, violates its rights under the Seventh Amendment’s Reexamination Clause, which guarantees that “the right of trial by jury . . . be preserved” and forbids courts to reexamine any “fact tried by a jury.”

Rejecting this argument, the Court explains that because fair use is a mixed question of fact and law, and the ultimate question at hand is one of law, “it does not violate the Reexamination Clause for a court to determine the controlling law in resolving a challenge to a jury verdict.” The opinion reminds the parties that this type of review “happens any time a court resolves a motion for judgment as a matter of law,” which is a fact Oracle stressed in its brief and the Assistant Solicitor General raised at oral arguments. The Justices understood that accepting Google’s argument would have upset long-standing motion practice, and the opinion makes clear that “the ‘right of trial by jury’ does not include the right to have a jury resolve a fair use defense.”

Thomas’s Dissent Challenges Majority Opinion

Justice Thomas’s dissent, which was joined by Justice Alito, is highly critical of the majority decision, finding unequivocally that (1) Oracle’s code is copyrightable, and (2) “Google’s use of that copyrighted code was anything but fair.” Thomas explains that declaring code is clearly covered the Copyright Act’s express protection for computer programs as “a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.” He rebukes the majority’s “wrongful sidestep[ping]” of the copyrightability issue and calls out the opinion for attempting to make a categorical distinction between declaring and implementing code. Importantly, Thomas addresses the merger question, explaining that merger doesn’t apply because there were “innumerable” ways Oracle could have written the declaring code and because other companies such as Apple and Microsoft created their own.

The dissent goes on to question the majority’s distorted fair use analysis, saying that it mistakenly places the nature of the underlying work at the forefront of the analysis in a way that “taints” the entire opinion. Thomas takes particular issue with the majority’s factor four market effects analysis, explaining that Google “ruined Oracle’s potential market” by eliminating the reason manufacturers were originally willing to license or pay for using the code and interfering with Oracle’s ability to license the code for the development of smartphones. He asserts that the majority wrongly focused on the presumed “lock-in” effect Oracle enforcing its copyright might have on the public by possibly limiting future creativity. Once again, Thomas notes that other companies created highly successful mobile operating systems without copying Oracle’s declaring code, and he says that Oracle always made its code freely available to programmers and there is no reason to believe that it would change its practice.

Challenging the majority opinion’s conjecture, Thomas says “[i]f the majority is going to speculate about what Oracle might do, it at least should consider what Google has done.” To Thomas, the Court should be less concerned with a hypothetical situation in which Oracle hinders innovation and more concerned with Google’s recent attempts to monopolize markets and its violations of antitrust laws. Thomas recognizes Google’s unauthorized use as its gateway to market dominance and tens of billions of dollars of revenue, and he warns that [i]f the majority is worried about monopolization, it ought to consider whether Google is the greater threat.”

The dissent also addresses the majority’s flawed transformative analysis, pointing out it “wrongly conflates transformative use with derivative use.” Thomas explains that Google’s use “simply serves the same purpose in a new context,” which is a clear derivative use and not transformative. He reprimands the majority for attempting to create a new definition of transformative, specific to computer programs, that considers whether the use will help others “create new products.” Thomas rightly declares that this type of definition “eviscerates copyright” by implying that someone can get away with pirating the next version of Microsoft Word “simply because he can use it to create new manuscripts.” Quoting from the Court’s Harper decision, Thomas says that rather than transform Oracle’s work, Google “profit[ed] from exploitation of the copyrighted material without paying the customary price.”

Conclusion

In its opinion, the Court reproduces the following line from its 1984 Sony v. Universal decision: “When technological change has rendered its literal terms ambiguous, the Copyright Act must be construed in light of its basic purpose.” To Breyer, the Copyright Act’s purpose lands disproportionally on the side of the secondary user who infringes, so long as there is a perceived public benefit. But access and the public good is only one side of the coin, and the opinion glosses over the critical role copyright protection plays in the commercialization of existing works and the incentivization of the creation of new ones. In doing so, the Court essentially validates Google’s business model of making unauthorized use of other’s intellectual property to build and then solidify its own market dominance. It’s an unfortunate development for a Supreme Court that so rarely takes on fair use, and it’s one that could wreak havoc on the fair use doctrine if applied by lower courts outside of the specific confines of software declaring code. 

On March 26, 2021, the Second Circuit Court of Appeals in The Andy Warhol Foundation v Goldsmith held that Warhol’s mid-1980s silkscreen portraits of the artist Prince, which were based on an iconic photograph by Lynn Goldsmith, do not qualify as fair use. Reversing and remanding the district court’s finding, the opinion acknowledges that courts have misapplied the standard the Second Circuit set forth in Cariou v. Prince and by doing so have greatly diminished the derivate work right. The decision is a significant one in that the court seeks to mitigate an overreliance on broad notions of transformativeness in fair use jurisprudence by proposing a more rational dividing line when evaluating whether a work is sufficiently transformative or simply derivative. Confirming that to be transformative enough to qualify as fair use a secondary work must be “fundamentally different and new” and embody an “entirely different artistic purpose” so that it “stands apart from the raw material,” the decision is a welcome response to misguided interpretations that in recent years have expanded the boundaries of fair use beyond reason.

Background

The works in question are a series of 15 silkscreen prints and pencil illustrations that Warhol based on a photographic portrait of Prince taken by Goldsmith in 1981. While Goldsmith initially licensed the photograph to Vanity Fair in 1984 for use as an artist reference for a work it commissioned Warhol to create, Warhol created the additional series without authorization. Goldsmith did not become aware of the series until Prince’s death in 2016. She then contacted the Andy Warhol Foundation (AWF) about the infringement, and AWF sought and won a declaratory judgement in which the U.S. District Court for the Southern District of New York found that Warhol’s works qualified as fair use. Goldsmith then appealed the Second Circuit, arguing that the district court erred in its application of the four fair use factors, specifically that the district court’s conclusion that the Prince Series works are transformative under factor one was based on “a subjective evaluation of the underlying artistic message of the works rather than an objective assessment of their purpose and character.”

Purpose and Character, Cariou, and Derivative Works

The opinion’s approach to transformative fair use is remarkable for two key reasons.

• First, it provides needed guidance on how to analyze what constitutes transformative use as opposed to derivative use (falling under the derivate work right). This is a crucial clarification that corrects case law and commentary that have increasingly blurred the line between transformative use and derivative works in recent years as to nearly eliminate a copyright owner’s exclusive right to prepare derivative works.
• Second, it rejects a transformative use test based on one person’s subjective opinion in favor of an objective test that asks how a work “may reasonably be perceived.” This shift is a meaningful development, as it replaces the point of view of one judge or critic with a more impartial standard based on how the public perceives a work. As the opinion explains, “whether a work is transformative cannot turn merely on the stated or perceived intent of the artist or the meaning or impression that a critic – or for that matter, a judge – draws from the work.” Going on to quote Nimmer, the opinion warns that if the transformative determination was dependent on such an objective analysis, “the law may well ‘recogniz[e] any alteration as transformative.’”

The first fair use factor requires consideration of the purpose and character of the alleged infringing work, and it essentially asks how the party claiming fair use is using the underlying work. Courts ask whether the use is of a commercial nature or is for nonprofit educational purposes, with the latter being more likely to qualify as a fair use. Whether a work is transformative, meaning that it adds something new, with a further purpose or different character than the underlying work, is also an important consideration in deciding factor one. To truly qualify as transformative, the Supreme Court has made clear that rather than merely superseding the objects of the original creation, the secondary work must alter the original “with new expression, meaning, or message.”

After reiterating these principles, the court moves into a discussion of its often-cited 2013 decision in Cariou v. Prince, which found certain works by appropriation artist Richard Prince that incorporated a number of black-and-white photographic portraits taken by Patrick Cariou to be fair use. The court’s fair use finding was based on its conclusion that 25 of the 30 works at issue distorted the human forms and settings of the underlying photographs, added color, and significantly resized the images, resulting in “crude and jarring” works that transformed Cariou’s serene and composed portraits. While some disagreed with the court’s transformative analysis and argued it expanded the boundaries of fair use in a way that harmed copyright owners, the Second Circuit explains that the district court and others have mistakenly interpreted Cariou as creating a bright-line rule that a secondary work that adds a new aesthetic or new expression to its source material always weighs in favor of fair use under factor one. The court acknowledges the criticisms surrounding Cariou, going out of its way to remind the parties that the decision represents the “high-water mark of our court’s recognition of transformative works.”

The opinion draws attention to Richard Prince’s 5 works that were not found to be fair use despite adding to Cariou’s works a “new aesthetic.” Discussing these examples of works that add new expression but are not sufficiently transformative, the court explains that they are simply derivative works. The opinion states that “there exists an entire class of secondary works that add ‘new expression, meaning, or message’ to their source material but are nonetheless specifically excluded from the scope of fair use: derivative works.” While it’s unclear whether the court means to say a derivative works can never qualify as fair use, there’s no question that it believes that “an overly liberal standard of transformativeness, such as that embraced by the district court in this case, risks crowding out statutory protections for derivative works.” Using the example of a book being adapted for a screenplay, the court stresses that while these adaptations often add quite a bit to the source material, they are unequivocal instances of works that implicate a copyright owners exclusive right to make derivative works.

In the instant case, the court explains that because the overarching purpose of the underlying and unauthorized works are the same—to serve as works of visual art—it must focus its inquiry on the transformative nature of the Warhol prints. Contrasting Warhol’s works with those at issue in a case involving another appropriation artist, Jeff Koons, the court pointed to Koons’s reproduction of a photograph alongside several other photographs with changes in color, size, and background elements that obstructed the underlying work. This transformation resulted in an “entirely different type of art,” which drew from numerous sources rather than merely recasting the original with a different aesthetic.

Considering the transformative nature of Warhol’s prints, the district court found that they qualified as fair use because they “can reasonably be perceived to have transformed Prince from a vulnerable, uncomfortable person to an iconic, larger-than-life figure.” According to the Second Circuit, this is an entirely subjective determination that is based on the opinion of one critic or judge. To rely on such determinations of the perceived intent of an artist could result in nearly any alteration, no matter how insignificant, being deemed transformative, and therefor the court rejected it as an unworkable standard. The court makes clear that it intends to employ a more objective standard based on how the work “may reasonably be perceived.”

In addition to adopting the objective “reasonably perceived” standard, the opinion stresses that a judge must consider whether the secondary work is “fundamentally different and new” in purpose and character when compared to the source material. At the very least, a secondary work must comprise something more than simply imposing another artist’s style on the underlying work “such that the secondary work remains both recognizably deriving from, and retaining the essential elements of, its source material.” Applying these concepts to the Warhol works, it’s clear that while they incorporate Warhol’s recognizable artistic style, the court concluded that those changes were not substantial enough to constitute transformative fair use. Considering the non-transformative purpose of the visual art portraits alongside the lack of transformation in nature and character of the underlying work, the court found first fair use factor weighs clearly in favor of Goldsmith.

The Nature of the Underlying Work and Amount Used

Moving to the second fair use factor, which asks whether the underlying work is more creative or factual and whether it is published or unpublished, the decision explains that the district court erred in finding that it did not weigh in favor of either party. While the district court found that Goldsmith had licensed the photograph for use by Vanity Fair and that Warhol’s use was transformative, the Second Circuit says that neither should result in factor two neutrality. The opinion clarifies that Goldsmith only made the photograph available for a single use on limited terms, which does not change its status as unpublished. Importantly, the court notes that such activity does not diminish the law’s protection of her choice of “when to make a work public and whether to withhold a work to shore up demand.” Because the district court erred in its transformative and unpublished analysis, the Second Circuit found the second factor should be afforded more weight and favor Goldsmith.

The third fair use factor considers the amount and substantially of the underlying work that was used in the secondary work, and the district court found the factor favored AWF because Warhol had “removed nearly all of [the underlying works] protectable elements.” And while the Second Circuit acknowledges that Goldsmith cannot be granted copyright in Prince’s face, the court asserts that AWF’s argument misses the mark. The opinion explains that what copyright protects is the “cumulative manifestation” that results from choices involving lighting, posing of the subject, and selection of film and camera—all things that create a “particular expression” of the idea in the underlying photograph. To hold otherwise would rob creators of copyright protection for any number of works that incorporate creative expression simply because the underlying subject could be considered “an idea.” Think of a nature photograph that an artist goes to great lengths to capture. While the artist will never be granted copyright in the idea of a flower or animal featured in the photo, the resulting photograph that combines expressive elements with those underlying subjects is protectable. 

Additionally, the opinion finds that Warhol borrowed significantly from Goldsmith’s photograph, both in quality and quantity. While Warhol cropped and flattened the photograph, the resulting image is still readily identifiable as being derived from the Goldsmith work. Rather than using the photograph as a reference point for a work that added something new, the court explains that the similarities between the two works are undeniable, and in fact Warhol’s works amplify, rather than minimize, certain recognizable aspects of Goldsmith’s photograph. Because the court concluded that Warhol’s work did not merely reproduce unprotected elements to create a transformative work, the third factor was found to also favor Goldsmith.

The Effect of the Use on the Market for the Original

The fourth factor asks whether the unauthorized use will adversely affect the potential market for or value of the copyrighted work, and once again the Second Circuit found that the district court failed to apply the standard correctly. The district court erred by shifting the burden to Goldsmith to prove actual market harm caused by Warhol’s use, and the Second Circuit makes clear that it has never held that the copyright owner bears this burden:

“Fair use is an affirmative defense; as such, the ultimate burden of proving that the secondary use does not compete in the relevant market is appropriately borne by the party asserting the defense: the secondary user.”

The district court also found, and the Second Circuit agreed, that the primary market for sales of the Goldsmith photograph and the Warhol works are distinct and do not meaningfully overlap. But the district court then fell into a common trap that has unfortunately tripped up other courts when conducting fair use analysis: it gave little consideration to potential derivative use licensing markets. Simply because Goldsmith had not entered into a market does not mean that unauthorized uses like Warhol’s couldn’t have adversely affected a potential market. Indeed, the fact that AWF licensed the unauthorized prints to Conde Nast after Prince’s death shows the existence of a market for derivative uses. The Second Circuit goes on to point out that if the sort of copying that Warhol engaged in became widespread, it would have a devastating impact on a proven existing market to license works for stylized derivative uses. This would devalue existing works and disincentivize artists from creating new ones, which the opinion describes as “the precise evil against which copyright law is designed to guard.”

The court goes on to explain that there is no material dispute that both Goldsmith and AWF have sought to license (and successfully licensed) both works to print magazines to accompany articles about Prince. Because Goldsmith identified a relevant market, and AWF failed to present evidence that the Warhol series poses no harm to actual or potential markets, the court found the fourth factor weighs heavily against fair use.  

Substantial Similarity

AWF asked the Second Circuit to affirm the district court’s determination on the alternate grounds that Warhol’s works cannot be infringing because they are not substantially similar to Goldsmith’s photograph. In support of this argument, AWF contends that rather than using an “average lay observer” test that asks whether such a person would recognize the alleged copy as having been appropriated from the copyrighted work, the Second Circuit should apply a “more discerning observer” standard because the works contain both protectable and unprotectable elements.

Rejecting this proposal, the Second Circuit explains that almost any copyright protected work (including “quintessentially expressive” works like paintings or books) contain unprotectable ideas or concepts. The opinion makes clear that the “more discerning observer” test is reserved for works of “thinner” copyright protection—those that are more likely to include higher portions of non-copyrightable elements. Because photographs are not generally classified as works subject to “thin” protection, the court found the alternate test is improper.

After acknowledging that substantial similarity is often for a jury to decided, the court explains that it may be decided as a matter of law when access to the underlying work is conceded and a when works are so similar that a reasonable jury could not find otherwise. Here, it’s undisputed that Goldsmith’s photograph was the “raw material” on which the Warhol series was based. Warhol created the series by copying Goldsmith’s photograph, and in the court’s opinion, copying “Goldsmith’s particular expression of that idea.” Ultimately, the court concluded that because of the degree to which Goldsmith’s work remains recognizable in Warhol’s, there can be no reasonable claim that the works are not substantially similar.

Conclusion

While the Second Circuit explicitly recognizes that it is bound by its decision in Cariou, it dedicates significant time to clarifying its reasoning, addressing the misguided ideas that Cariou may have inadvertently spawned, and laying out a new approach to transformative use that reinforces the derivative use right. As the concurring Judges note, transformative use has become the dominant focus in fair use analyses, and when something is found to be transformative, a finding a fair use is a near certainty. Rather than surrendering to a system in which first factor transformative use swallows all other factors, the court here returns to a more balanced fair use analysis in which factor four plays an equal role—specifically with regard to potential derivative markets. It’s a welcome development not only for photographers who so often encounter infringement in the digital age, but for all copyright owners who rely on a sensible application of the fair use doctrine.