Altered Mayor’s Photo on T-shirts was Transformative Fair Use and Not Infringement of Copyrighted Photo

In Michael Kienitz v. Sconnie Nation LLC and Underground Printing-Wisconsin, LLC, 766 F.3d 756 (7th Cir. 2014) (available here), Defendant Sconnie Nation made some t-shirts and tank tops displaying the image of Paul Soglin’s face, the Mayor of Madison, Wisconsin, and the phrase “Sorry for Partying.”  Mayor Soglin’s photographer, Michael Kienitz, brought suit against Sconnie Nation for copyright infringement because Kienitz dod not give Sconnie permission to use Mayor Soglin’s photo.

The U.S. Court of Appeals for the Seventh Circuit affirmed the District Court’s grant of summary judgment in favor of the Defendants, holding that Sconnie Nation made fair use of the Mayor’s photo.  Sconnie Nation altered the photo by posterizing it, removing the background, turning the Mayor’s face lime green and surrounding it with multi-colored writing.  Sconnie Nation put the altered photo on t-shirts for a 2012 Block Party in the college town of Madison, Wisconsin and sold 54 t-shirts.

In its analysis, the Seventh Circuit Court recited the law pertaining to the defense of fair use.  Fair use is a defense to infringement and the Copyright Act sets out four non-exclusive factors for the court to consider.  17 U.S.C. §107.  In determining whether the use made of a work in any particular case is a fair use the factors to be considered include – (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.

The Seventh Circuit acknowledged that in the case of Cariou v. Prince, the Second Circuit found that a “transformative use” is enough to bring a modified copy within the scope of §107.  However, the Seventh Circuit was skeptical of Cariou’s approach, because asking exclusively whether something is “transformative” not only replaces the list in §107, but also overrides another provision of the Copyright Act, 17 U.S.C. §106(2), which protects derivative works of the original artwork.  The Seventh Circuit failed to see how every “transformative use” can be “fair use” without extinguishing the author’s rights under §106(2).  

In analyzing the case under the fair use factors, the Seventh Circuit turned to the fourth factor and asked whether the contested use is a complement to the protected work (an allowed use of the copyrighted original work) rather than a substitute for it (a prohibited use of the original).  The Seventh Circuit found that a t-shirt or tank top is not substitute for the original photographic work.  In connection with the third factor, the Seventh Circuit found that Defendant Sconnie Nation removed so much material from the original that only the non-copyrightable outline of Mayor Soglin’s face remained.  Accordingly, Defendants use qualified as a fair use of the original photo under the Copyright Act.        

Use of Photograph, Transformed by Artist into Paintings and Collages, is Copyright Fair Use

In Cariou v. Prince et al., 714 F.3d 694 (2nd Cir. 2013) (Available Here), the U.S. Court of Appeals for the Second Circuit found that the Copyright Act does not require that the secondary or derivative use of an original work relate back, in a historical sense, to the original work or that the secondary work critically refer back to the original work in order for the secondary (derivative) work to be transformative.  Once the secondary work is transformative of the original work, the secondary work does not infringe the original author’s copyrights since the secondary work falls with the Copyright Act safe harbor – fair use provisions of the Act.

In 2000, plaintiff Patrick Cariou published Yes Rasta, a book of classical portraits and landscape photographs that he took over the course of six years spent living among Rastafarians in Jamaica. Defendant Richard Prince is a well-known appropriation artist.  Prince’s work, going back to the mid-1970s, involved taking photographs and other images that other original artists produced and incorporating the original art into paintings and collages.  Prince then presents, in a different context, his own paintings and collages which include the original artwork.

Prince altered and incorporated several of Cariou’s Yes Rasta photographs into a series of paintings and collages, called Canal Zone, that Prince exhibited in 2007 and 2008. The portions of Yes Rasta  photographs used, and the amount of each artwork that they constitute, vary significantly from piece to piece.  Cariou sued Prince alleging that the Canal Zone works and exhibition catalog infringed Cariou’s copyrights in the original Yes Rasta photographs.   The District Court granted summary judgment in favor of plaintiff Cariou and entered a permanent injunction against Defendant Prince.

On appeal, Prince contended that the Canal Zone work was transformative and constituted fair use of Cariou’s copyrighted photographs and that the district court imposed an incorrect legal standard.  Prince argued that the trial court incorrectly concluded that, in order to qualify for a copyright fair use defense, Prince’s work must comment on Cariou, or comment on Cariou’s Photos, or comment on aspects of popular culture that is closely associated with Cariou or the Photos.

The Second Circuit found that the Copyright Act imposes no requirement that a work comment on the original artwork or the original author in order to be considered transformative, and a secondary work may constitute a fair use under the Copyright Act even if it serves some purpose other than those (criticism, comment, news reporting, teaching, scholarship, and research) identified in the preamble of the Fair Use provisions of the Act. 17 U.S.C. sec. 107.  

The Second Circuit’s observation of Prince’s artworks themselves was convincing of the transformative nature of all but five of Prince’s secondary works. Prince’s composition, presentation, scale, color palette, and media are fundamentally different and new compared to Cariou’s photographs, as is the expressive nature of Prince’s work.  The focus of the Court’s infringement analysis was primarily on the Prince artworks themselves, and the Appeals Court saw twenty-five (25) of Prince’s secondary works as transformative as a matter of law.  

In twenty-five (25) of his artworks, Prince did not present the same material as Cariou in a different manner, but instead Prince added something new and presented images with a fundamentally different aesthetic compared to Cariou’s original artwork.  

The Second Circuit then went on to analyze the four fair use factors.  (17 U.S.C. sec. 107 factors: (1) The purpose and character of the use, including whether such use is of commercial nature or is for nonprofit educational purposes; (2) The nature of the copyrighted work; (3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) The effect of the use upon the potential market for, or value of, the copyrighted work).  

The Court found that although there is no question that Prince’s artworks were commercial in nature, the Court did not place much significance on the fact of commercialization due to the transformative nature of the work.  As for the fourth factor, the Court found that neither Prince nor the Canal Zone show usurped the market for Cariou’s photographs.  As for the nature of the work, the Court found that there was no dispute that Cariou’s work was creative and published, however, just as with the commercial character of Prince’s work, this factor is of limited usefulness where, as here, the creative work of art of Cariou was being used for a transformative purpose.   Prince used key portions of certain of Cariou’s photographs. In doing that, however, the Court determined that in twenty-five (25) of Prince’s artworks, Prince transformed Cariou’s photographs into something new and different and, as a result, this factor weighed heavily in Prince’s favor.  Accordingly, the Court found that all but five (5) of Prince’s artworks made fair use of Cariou’s photographs.

Copyrightability and Fair Use of the Google Android Operating System – Oracle v Google

In a lengthy decision covering historical computer copyright case law, the Court of Appeals for the Federal Circuit ruled on the copyright dispute over the Android smart phone operating system in Oracle America Inc. v. Google Inc., Fed. Cir. Case No. 2013-1021 (May 9, 2014) (available here).  The Court reversed the district court’s decision on the non-copyrightability of the Java code used by Google and remanded the matter for a new trial on the issue of fair use.

The copyright dispute involved 37 packages of computer source code. “The parties have often referred to these groups of computer programs, individually or collectively, as ‘application programming interfaces,’ or API packages, but it is their content, not their name, that matters.  Many software developers use the Java language, as well as Oracle’s API packages, to write applications (commonly referred to as ‘apps’) for desktop and laptop computers, tablets, smartphones, and other devices.”  opn. pg. 4.  Oracle alleged that Google’s Android mobile operating system infringed Oracle’s patents and copyrights.  The Federal Circuit handled the appeal due to the presence of a patent infringement claim but the appeal involved copyright infringement.  The Federal Circuit was therefore obliged to apply Ninth Circuit copyright law. The jury had found that Google did not infringe Oracle’s patents.

The parties agreed that the jury would decide infringement, fair use, and whether any copying was de minimis and the district judge would decide copyrightability and Google’s equitable defenses.  The jury found that Google infringed Oracle’s copyrights in the 37 Java packages and a specific computer routine called ‘rangeCheck,’ but returned a noninfringement verdict as to eight decompiled security files. The jury deadlocked on Google’s fair use defense.  After the trial, the district court granted Oracle’s motion for judgment as a matter of law (JMOL) and found that: (1) Google admitted to copying the eight files; and (2) no reasonable jury could find that the copying was de minimis.  Shortly thereafter, the district court issued its decision on copyrightability, finding that the replicated elements of the 37 API packages—including the declaring code and the structure, sequence, and organization—were not subject to copyright protection.

Oracle’s Java platform includes the Java development kit (JDK), javac compiler, tools and utilities, runtime programs, class libraries (API packages), and the Java virtual machine.  These packages, which are the application programming interfaces a issue in this appeal, allow programmers to use the prewritten code to build certain functions into their own programs, rather than write their own code to perform those functions from scratch. They are shortcuts.  Oracle offers three different licenses: a free, open source General Public License (users must contribute back innovations to the public), a specification license and a commercial license (for use of the entire code and to keep the code secret).  Oracle and Google could not agree on a license because Google wanted a ‘write once, run anywhere’ operating system. Google wanted other programmers to write apps for the Google Java-based smart phone.

“To achieve this ‘write once, run everywhere’ result, Google copied the declaring source code from the 37 Java API packages verbatim, inserting that code into parts of its Android software. In doing so, Google copied the elaborately organized taxonomy of all the names of methods, classes, interfaces, and packages — the ‘overall system of organized names—covering 37 packages, with over six hundred classes, with over six thousand methods.’” opn. pg. 10 – 11.

“Although [Google] acknowledged that the overall structure of Oracle’s API packages is creative, original, and resembles a taxonomy, the district court found that it is nevertheless a command structure, a system or method of operation — a long hierarchy of over six thousand commands to carry out pre-assigned functions — that is not entitled to copyright protection under Section 102(b) of the Copyright Act. In reaching this conclusion, the court emphasized that, [o]f the 166 Java packages, 129 were not violated in any way. And, of the 37 Java API packages at issue, ‘97 percent of the Android lines were new from Google and the remaining three percent were freely replicable under the merger and names doctrines. On these grounds, the court dismissed Oracle’s copyright claims, concluding that the particular elements replicated by Google were free for all to use under the Copyright Act.”  opn. pg. 14 (quotations and record citations omitted).

Per the Federal Circuit, “It is undisputed that Google copied 7,000 lines of declaring code and generally replicated the overall structure, sequence, and organization of Oracle’s 37 Java API packages.”  opn. pg. 15.

The Copyright Act provides protection to original works of authorship fixed in any tangible medium of expression, including literary works. 17 U.S.C. § 102(a). It is undisputed that computer programs —  defined in the Copyright Act as “a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result,” 17 U.S.C. § 101 — can be subject to copyright protection as literary works. See Atari Games Corp. v. Nintendo of Am., Inc., 975 F.2d 832, 838 (Fed. Cir. 1992).

Copyright protection extends only to the expression of an idea — not to the underlying idea itself. Mazer v. Stein, 347 U.S. 201, 217 (1954).  The idea/expression dichotomy traces back to the Supreme Court’s decision in Baker v. Selden, 101 U.S. 99, 101 (1879).

“It is well established that copyright protection can extend to both literal and non-literal elements of a computer program. … The non-literal components of a computer program include,
among other things, the program’s sequence, structure, and organization, as well as the program’s user interface.” opn. pg. 20.

“Although the parties agree that Oracle’s API packages meet the originality requirement under Section 102(a), they disagree as to the proper interpretation and application of Section 102(b). For its part, Google suggests that there is a two-step copyrightability analysis, wherein Section 102(a) grants copyright protection to original works, while Section 102(b) takes it away if the work has a functional component. To the contrary, however, Congress emphasized that Section 102(b) ‘in no way enlarges or contracts the scope of copyright protection’ and that its ‘purpose is to restate . . . that the basic dichotomy between expression and idea remains unchanged.’ Feist,
499 U.S. at 356″ opn. pg 22.

The Federal Circuit adopted the abstraction-filtration-comparison test.  “In the abstraction step, the court first breaks down the allegedly infringed program into its constituent structural parts. In the filtration step, the court sifts out all non-protectable material, including ideas and expression that is necessarily incidental to those ideas. In the final step, the court compares the remaining creative expression with the allegedly infringing program.”  opn. pg. 23 – 24 (quotes omitted).

“In all circuits, it is clear that the first step is part of the copyrightability analysis and that the third is an infringement question. It is at the second step of this analysis where the circuits are in less accord.”  opn pg. 24

“In the Ninth Circuit, while questions regarding originality are considered questions of copyrightability, concepts of merger and scenes a faire are affirmative defenses to claims of infringement. Ets-Hokin, 225 F.3d at 1082; Satava v. Lowry, 323 F.3d 805, 810 n.3 (9th Cir.
2003)” opn. pg. 25.

“Under the merger doctrine, a court will not protect a copyrighted work from infringement if the idea contained therein can be expressed in only one way. Satava v. Lowry, 323 F.3d 805, 812 n.5 (9th Cir. 2003).”

“First, we agree that merger cannot bar copyright protection for any lines of declaring source code unless Sun/Oracle had only one way, or a limited number of ways, to write them. See Satava, 323 F.3d at 812 n.5 (‘Under the merger doctrine, courts will not protect a copyrighted work from infringement if the idea underlying the copyrighted work can be expressed in only one way, lest there be a monopoly on the underlying idea.’). The evidence showed that Oracle had ‘unlimited options as to the selection and arrangement of the 7000 lines Google copied.’ Appellant Br. 50.”

“The scenes a faire doctrine, which is related to the merger doctrine, operates to bar certain otherwise creative expression from copyright protection. Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1444 (9th Cir. 1994). It provides that ‘expressive elements of a work of authorship are not entitled to protection against infringement if they are standard, stock, or common to a topic, or if they necessarily follow from a common theme or setting.’ Mitel, 124 F.3d at 1374. Under this doctrine, ‘when certain commonplace expressions are indispensable and naturally associated with the treatment of a given idea, those expressions are treated like ideas and therefore [are] not protected by copyright.’ Swirsky v. Carey, 376 F.3d 841, 850 (9th Cir. 2004). In the computer context, ‘the scene a faire doctrine denies protection to program elements that are dictated by external factors such as ‘the mechanical specifications of the computer on which a particular program is intended to run’ or ‘widely accepted programming practices within the computer industry.’‘ Softel, 118 F.3d at 963 (citation omitted).”  opn pg. 35.

“Like merger, the focus of the scenes a faire doctrine is on the circumstances presented to the creator, not the copier. See Mitel, 124 F.3d at 1375 (finding error to the extent the trial court discussed ‘whether external factors such as market forces and efficiency considerations justified Iqtel’s copying of the command codes’). The court’s analytical focus must be upon the external factors that dictated Sun’s selection of classes, methods, and code—not upon what Google encountered at the time it chose to copy those groupings and that code.”  opn. pg. 37.

“[T]he trial court was correct to conclude that the scenes a faire doctrine does not affect the copyrightability of either the declaring code in, or the SSO [sequence, organization and structure] of, the Java API packages at issue.”  opn pg. 37.

“The district court found that the SSO [sequence, organization and structure] of the Java API packages is creative and original, but nevertheless held that it is a ‘system or method of operation . . . and, therefore, cannot be copyrighted’ under 17 U.S.C. § 102(b). Copyrightability Decision, 872 F. Supp. 2d at 976-77. In reaching this conclusion, the district court seems to have relied upon language contained in a First Circuit decision: Lotus Development Corp. v. Borland International, Inc., 49 F.3d 807 (1st Cir. 1995), aff’d without opinion by equally divided court, 516 U.S. 233 (1996).  In Lotus, it was undisputed that the defendant copied the menu command hierarchy and interface from Lotus 1- 2-3, a computer spreadsheet program ‘that enables users to perform accounting functions electronically on a computer.’ 49 F.3d at 809. The menu command hierarchy referred to a series of commands—such as ‘Copy,’ ‘Print,’ and ‘Quit’—which were arranged into more than 50 menus and submenus.”  opn. pg. 37 – 38.

“More importantly, however, the Ninth Circuit has not adopted the court’s ‘method of operation’ reasoning in Lotus, and we conclude that it is inconsistent with binding precedent. Specifically, we find that Lotus is inconsistent with Ninth Circuit case law recognizing that the structure, sequence, and organization of a computer program is eligible for copyright protection where it
qualifies as an expression of an idea, rather than the idea itself.”  opn. pg. 39 – 40.

“While it does not appear that the Ninth Circuit has addressed the precise issue, we conclude that a set of commands to instruct a computer to carry out desired operations may contain expression that is eligible for copyright protection.”  opn. pg. 42-43.

“Given the court’s findings that the SSO is original and creative, and that the declaring code could have been written and organized in any number of ways and still have achieved the same functions, we conclude that Section 102(b) does not bar the packages from copyright protection just because they also perform functions.” opn. pg. 45.

As for Google’s arguments that it does not infringe because the Google code’s interoperability with other Java apps, those arguments are directed to Google’s fair use analysis.  Interoperability is ‘irrelevant’ to the copyrightability analysis.  opn. pg. 45.  The district court concluded that Google took only what was necessary to achieve interoperability, and relied primarily on two Ninth Circuit decisions: Sega Enterprises v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992), and Sony Computer Entertainment, Inc. v. Connectix, Corp., 203 F.3d 596 (9th Cir. 2000).  “As noted, both cases were focused on fair use, not copyrightability.  In Sega, for example, the only question was whether Accolade’s intermediate copying was fair use. The court never addressed the question of whether Sega’s software code, which had functional elements, also contained separable creative expression entitled to protection. Likewise, although the court in Sony determined that Sony’s computer program had functional elements, it never addressed whether it also had expressive elements. Sega and Sony are also factually distinguishable because the defendants in those cases made intermediate copies to understand the functional aspects of the copyrighted works and then created new products. See Sony, 203 F.3d at 606-07; Sega, 977 F.2d at 1522-23.”  opn. pg. 47.

The jury was hung on the issue of whether Google’s use of the code was fair use and the district court refused to order a new trial. “‘Section 107 requires a case-by-case determination whether a particular use is fair, and the statute notes four nonexclusive factors to be considered.’ Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 549 (1985). Those factors are: (1) ‘the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;’ (2) ‘the nature of the copyrighted work;’ (3) ‘the amount and substantiality of the portion used in relation to the copyrighted work as a whole;’ and (4) ‘the effect of the use upon the potential market for or value of the copyrighted work.’ 17 U.S.C. § 107. The Supreme Court has explained that all of the statutory factors ‘are to be explored, and the results weighed together, in light of the purpose[] of copyright,’ which is ‘[t]o promote the Progress of Science and useful Arts.’ Campbell, 510 U.S. at 578, 575 (internal citations omitted).”  opn. pg. 53 – 54.

A use is transformative if it adds something new, with a further purpose or different character, altering the first with new expression, meaning or message.  “A work is not transformative where the user ‘makes no alteration to the expressive content or message of the original work.” opn. pg. 57.

The Federal Circuit remanded the case back to the district court on the fair use question and requested a new trial. “First, although it is undisputed that Google’s use of the API packages is commercial, the parties disagree on whether its use is ‘transformative.’ Google argues that it is, because it wrote its own implementing code, created its own virtual machine, and incorporated the packages into a smartphone platform. For its part, Oracle maintains that Google’s use is not transformative because: (1) ‘[t]he same code in Android . . . enables programmers to invoke the same pre-programmed functions in exactly the same way;’ and (2) Google’s use of the declaring code and packages does not serve a different function from Java. Appellant Reply Br. 47. While Google overstates what activities can be deemed transformative under a correct application of the law, we cannot say that there are no material facts in dispute on the question of whether Google’s use is ‘transformative,’ even under a correct reading of the law. As such, we are unable to resolve this issue on appeal.”  opn. pg. 60.

Articles Copied Without Authorization In Patent Applications Is Copyright Fair Use

A Magistrate Judge for the District Court of Minnesota recommended that the District Court grant a defendant’s motion for summary judgment, finding that the defendant was entitled to fair use protection under the Copyright Act for using portions of scientific articles in patent applications.  American Institute of Physics, et al. v. Schwegman Lundberg & Woessner, P.A., et al., Case No. 12-528 (RHK/JJK) (D. Minn., July 30, 2013) (available here).  Plaintiffs American Institute of Physics (“AIP”) produce and distribute scientific journals containing scholarly articles.  Defendant Schwegman Lundberg & Woessner, P.A. (“Schwegman”) is a law firm specializing in prosecuting patent applications.  Schwegman copied 18 of AIP’s articles from the United States Patent and Trademark Office (“USPTO”) and other sources.  AIP sued, alleging copyright infringement asserting that Schwegman’s downloading, storing, making internal copies of, and distributing AIP articles by email constituted infringement.  Schwegman and the USPTO argued that its copying of the articles constituted fair use under the Copyright Act and moved for summary judgment.  The District Court requested a report and recommendation from the Magistrate Judge.  The Judge concluded that Schwegman established its fair use defense and recommended that the District Court grant Schwegman’s motion for summary judgment.

The Judge began by stating that Schwegman’s use of the articles was directly connected to Schwegman’s practice as a patent prosecution law firm.  Thus, the patent application process and the USPTO requirements are relevant.  The USPTO requires a patent application to disclose all known information that may affect the patentability of an invention, which is known as “prior art.”  If a patent application is filed along with a disclosure statement, that lists the prior art, that statement must include a copy of each publication.  “Thus, when a patent applicant files a disclosure statement, the USPTO’s regulations require the applicant to submit copies of publications, in whole or in part, that are material to the applicant’s claims of patentability for her inventions.”  American Institute of Physics, Slip Op. P. 7.  Schwegman provided copies of the articles to the USPTO in order to comply with this duty to disclose the prior art.

Next, the Judge considered the intended audience for the articles.  AIP publishes its articles to inform their readers, which include academics, researchers, and the general public.  Thus, AIP argues that patent attorneys and investors should be within AIP’s target audience.  AIP had issued nine licenses to various law firms to allow these firms to copy AIP’s articles.  Schwegman argued that the academic journals were a two-way market: authors submit their articles in hopes of being published, and readers benefit from the content.  Schwegman’s expert witness, economist Dr. Jean-Pierre Dubé, testified that patent attorneys read these articles for a different purpose than AIP’s target audience; patent attorneys read the articles to determine whether they should be disclosed as prior art.  As such, Schwegman argued, patent attorneys are not within the target audience.

Schwegman obtained 11 of the 18 articles by downloading them from the USPTO’s website.  The remaining 7 articles were obtained different ways, such as from an email attachment or a university website.  Schwegman kept copies of the articles on its electronic file management system.  This system allows the attorneys at Schwegman to access documents stored on the firm’s server.  The system does not place restrictions on who can see the articles, or how the articles can be used, but it does not allow people to search the text of the articles.  AIP argued that this electronic file management system is essentially an electronic library.

Schwegman moved for summary judgment, arguing that its use of AIP’s articles was fair use. There are four non-exclusive factors for courts to consider when analyzing a fair use defense: “(1) The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) The nature of the copyrighted work; (3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) The effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. § 107.

First, the purpose and character of Schwegman’s use of the articles was to comply with the legal requirement to provide prior art to the USPTO.  Schwegman provided a copy of each article and cited to each article in each of its patent applications.  Thus, Schwegman’s use was different than AIP’s use.  Even though Schwegman’s use of the articles was not transformative, because the articles were copied and not changed, the first factor still weighs in favor of Schwegman.  “[R]eproduction of an original without any change can still qualify as a fair use when the use’s purpose and character differs from the object of the original, such as photocopying for use in a classroom.” American Institute of Physics, Slip Op. Pp.  24-25.  Thus, the first factor weighs in favor of Schwegman.

Second, the Judge considered the last factor of the effect on the potential market for the articles, because it is related to the first factor involving the purpose and character of the use.  If Schwegman’s use of the articles does not usurp the market for the articles, then the fourth factor weighs in favor of fair use.  “[AIP] present[ed] no evidence that the patent lawyers’ use of the scientific Articles to meet their obligations to disclose prior art to the PTO adversely affects the traditional target market for these Articles, i.e., academics, physical scientists and researchers, engineers, educators, students, and members of the general public who want to read peer-reviewed scholarly, highly specialized articles about the physical sciences and other scientific disciplines.”  American Institute of Physics, Slip Op. P. 31.  Further, AIP presented no evidence to counter Dr. Dubé’s testimony that Schwegman was outside of AIP’s target market.  The only evidence AIP presented was that it lost revenues from patent attorneys who did not pay the licensing fee to obtain copies of the articles.  “But this is not the sort of negative effect on the market that weighs heavily against a finding of fair use. If it were, then the market factor would always weigh in favor of the copyright holder and render the analysis of this factor meaningless.”  American Institute of Physics, Slip Op. P. 32.  Therefore, the fourth factor weighs in favor of Schwegman.

Third, the nature of the articles was considered.  Generally, a “creative” work receives more copyright protection.  The Judge concluded that the nature of AIP’s articles weighs slightly in favor of Schwegman because the articles “are factual or informational,” primarily communicating very technical information about the results of scientific research.

Fourth, the Judge examined the amount and substantiality of the articles used by Schwegman.  Copying a work in its entirety does not prevent a defendant from claiming fair use protection.  The amount of the copying is related to how the copying furthered the purpose and character of the use.  Schwegman copied the articles in their entirety.  However, this copying was necessary for Schwegman’s purpose to disclose prior art on patent applications.  This purpose was different than AIP’s purpose in publishing the articles.  Thus, “Schwegman’s copying is consistent with the purpose and character of Schwegman’s new and different use of the Articles,” and therefore weighs in favor of fair use.  American Institute of Physics, Slip Op. P. 38.

AIP also argued that a finding of fair use was inappropriate because Schwegman did not have an authorized or licensed copy of the articles.  The Court found no legal authority supports this contention.  Further, there was no evidence presented that Schwegman acted in bad faith in copying the articles.  As such, the Judge concluded that Schwegman was entitled to the fair use defense.

Guggenheim Imposter Loses Default Appeal

The Second Circuit Court of Appeals in New York affirmed a default judgment against a defendant who used the famous Guggenheim family name for his own personal benefit.  Guggenheim Capital LLC v. Birnbaum, Case No. 11-3276-cv (2nd Cir. July 15, 2013) (available here).  Birnbaum solicited investors by representing himself as “David Guggenheim.”  Plaintiff Guggenheim Capital owns the rights and licenses to registered trademarks bearing the “Guggenheim” name.  Guggenheim sued Birnbaum for trademark infringement but Birnbaum never answered the complaint.  Birnbaum also failed to comply with the lower court’s discovery orders, disrupted his own deposition, and violated a preliminary injunction twice.  The trial court entered a default judgment against Birnbaum and he appealed. On appeal, the Second Circuit Court affirmed the default judgment.

Guggenheim is affiliated with the famous Guggenheim family and provides global investment services.  Guggenheim owns the common law rights and the registered trademarks for various “Guggenheim” marks, and licenses them to co-Plaintiff Guggenheim Partners, LLC (“Partners”).  Birnbaum has sought investors for investment opportunities since the 1970s by presenting himself as “David Guggenheim” but provided no evidence that he was related to the Guggenheim family,  Birnbaum also used counterfeit marks similar to Guggenheim’s famous marks.

On appeal, Birnbaum argued that the lower court abused its discretion by granting the default judgment against him.  First, the Second Circuit determined that the default judgment was a final judgment in the lower action, noting that the Plaintiffs had not pursued any action in the case since the default judgment, and that both parties agreed that the default judgment was a final judgment on the merits.  Second, the Second Circuit found that under Federal Rule of Civil Procedure 37, the lower court did not abuse its discretion by entering the default judgment.  Rule 37 states “if a party . . . fails to obey an order to provide or permit discovery,” the district court may impose sanctions, including “rendering a default judgment against the disobedient party.” Fed. R. Civ. P. 37(b)(2)(A)(vi).  “The [lower] court found that Birnbaum’s intransigence spanned months, and that less serious sanctions would have been futile. Birnbaum raises no legitimate challenge to these findings, and we find no error in these conclusions or findings of fact, particularly in light of his failure to answer the complaint or oppose the motion for default judgment.”  Guggenheim Capital, Slip Op. P. 17.  Birnbaum’s behavior was willful, and the Second Circuit found that the lower court’s warnings to Birnbaum were sufficient.

Birnbaum then argued that the lower court abused its discretion (1) by denying him civil counsel for a hearing; (2) sanctioning him for invoking the Fifth Amendment privilege; and (3) denying a stay of the civil case pending resolution of a related criminal charge.  The Second Circuit found that (a) Birnbaum was represented for most of the lower court proceedings and was not entitled to an attorney, since the case was a civil one and not criminal; (b) the lower court did not bar Birnbaum from asserting the Fifth Amendment right against self-incrimination, it simply stated that he would have to cite case law justifying invoking the privilege; and (c) Birnbaum was not substantially prejudiced by the denial of the stay.

The Second Circuit concluded that the default judgment against Birnbaum was also proper under Federal Rule of Civil Procedure 55, which states that a party defaults when he “has failed to plead or otherwise defend” the case at hand.  Fed. R. Civ. P. 55(a).  The Second Circuit noted that Birnbaum’s failure to plead or defend himself in the case was willful and therefore there was no good cause supporting Birnbaum’s actions.  As a result, the default judgment was proper.
Birnbaum alleged that his use of the Guggenheim name was fair use and that the lower court erred in not specifically addressing this defense.  However, the Second Circuit held that even if the lower court erred, Birnbaum had clearly failed to satisfy the elements of the fair use defense.  Birnbaum would have to show that his use of the Guggenheim name was not “use as a mark,” that his use of the mark was descriptive, and that his use was in good faith.  Birnbaum used counterfeit marks to solicit investors, and he offered services that were nearly identical to those offered by Guggenheim. Therefore, Birnbaum did not act in good faith.  Further, Birnbaum offered no evidence that he was related to the Guggenheim family.  As a result, the Second Circuit affirmed the default judgment.

Oprah’s OWN Network Powerless To Defend "Own Your Power" Trademark

The Second Circuit Court of Appeals has held that Oprah Winfrey’s use of the phrase “Own Your Power” is not protected by the fair use defense.  Kelly-Brown and Own Your Power Communications, Inc., v. Oprah Winfrey, et al., Case No. 12-1207-cv (2d Cir. May 31, 2013) (available here).  Plaintiff Simone Kelly-Brown (“KB”) owns the motivational services business called “Own Your Power Communications, Inc.”  KB has a federally registered service mark in “Own Your Power,” and sued Defendants for the Defendants’ use of the phrase “Own Your Power.”  The lower court granted the Defendants’ motion to dismiss, finding that the use constituted fair use and that KB failed to show use as a mark.  On appeal, the Second Circuit vacated the lower court’s holding regarding KB’s trademark infringement, false designation of origin, and reverse confusion claims.  However, the Second Circuit affirmed the dismissal of KB’s counterfeiting, vicarious infringement, and contributory infringement claims.

Defendants Oprah Winfrey (“Oprah”), Harpo, Inc., and Harpo Productions, Inc. (collectively, “Harpo”), and Hearst Corp. and Hearst Communications, Inc. (collectively, “Hearst”) were involved in the use of the phrase “Own Your Power.”  KB sued for trademark infringement, false designation of origin, reverse confusion, and counterfeiting.  Defendants Wells Fargo & Co. (“Wells Fargo”), Clinique Laboratories, LLC (“Clinique”), Estee Lauder Cos., Inc. (“Estee Lauder”), and Chico’s FAS, Inc. (“Chico’s”) were corporate sponsors of the “Own Your Power” event.  KB sued them for vicarious and contributory infringement.

In conjunction with her company, KB hosts a radio show, holds conferences and retreats, and writes a blog on how to “own” one’s power.  Her federally registered service mark has a distinctive font, is light blue in color and was registered in 2008.  Around the same time that KB was seeking registration of her mark, Defendants sought to register “OWN” in connection with the Oprah Winfrey Network.  Defendants also arranged a transfer of the trademark “OWN ONYX WOMAN NETWORK” from its original owner to Harpo to avoid infringement.  Thus, Defendants were likely aware of KB’s pending registration for “Own Your Power.”  Defendants used the identical phrase “Own Your Power” on the cover of Oprah’s magazine (the “Magazine”), then held an “Own Your Power” event to offer motivational advice (the “Event”).  Following the event, the Harpo website (the “Website”) displayed video clips from the Event and “Own Your Power” banners.  KB received several inquiries from people who confused KB’s services with Oprah’s Event, Website, and Magazine.

In order for Defendants’ use of “Own Your Power” to constitute fair use, the Defendants must show that the use was made “(1) other than as a mark, (2) in a descriptive sense, and (3) in good faith.” JA Apparel Corp. v. Abboud, 568 F.3d 390, 400 (2d Cir. 2009).  The lower court determined that the Defendants’ use was non-trademark use because it was used as a headline for the Magazine.  The lower court also concluded that KB had not presented any evidence that Defendants acted in bad faith.  Because KB’s primary trademark infringement claims were dismissed, the lower court dismissed the vicarious and contributory infringement claims.

On appeal, the Defendants’ main argument was that their use is protected by the doctrine of fair use.  Defendants challenged KB’s trademark infringement claim by arguing that if Defendants did not use the “Own Your Power” “as a mark” (that is, as a trademark), then KB’s infringement claims fail.

The Second Circuit disagreed.  “A plaintiff [KB] is not required to demonstrate that a defendant made use of the mark in any particular way to satisfy the ‘use in commerce’ requirement. The element is satisfied if the mark is affixed to the goods in any manner.”  Kelly-Brown, Slip Op. P. 13.  Here, the question is not whether the Defendants used the mark in commerce, which they clearly did, but whether the used “Own Your Power” as a symbol to attract public attention.

For the first element of the fair use defense, KB alleged four specific instances of Defendants’ use of “Own Your Power” to show that Defendants used the phrase as a mark: (1) the Magazine cover; (2) the Event; (3) the social medial promotions of the Event; and (4) the Website.  Therefore, the Second Circuit inferred a pattern of use.  For instance, each use was slightly different in nature in an apparently attempt to build on Oprah’s media empire.  The Event was advertised as the “first-ever” of its kind, leading to the thought that it was not directly tied to the Magazine cover.  “Courts are more likely to treat recurring themes or devices as entitled to protection as a mark, even where a single iteration might not enjoy such protection. . . Repetition is important because it forges an association in the minds of consumers between a marketing device and a product.”  Kelly-Brown, Slip Op. Pp. 19-20.  Here, the Defendants attempted to create an association between the phrase “Own Your Power” and Oprah.

The second fair use element requires a showing that the disputed use was in a descriptive sense.  Defendants argued that their use of the phrase “Own Your Power” described the relevant publications to which the phrase was attached, and that the later uses at the Event and Website relate back to the original Magazine use.  The Second Circuit noted that the phrase “Own Your Power” is not typically the type of phrase courts find to be used descriptively.  The phrase does not describe the contents of the Magazine, for example the Table of Contents offers no article with that phrase in the title.  Therefore, the Defendants did not meet their burden of showing that the use was descriptive.

The last requirement is that the Defendants used the phrase in good faith.  The Second Circuit had to determine whether the Defendants intended to trade on the good will of KB by creating confusion.  Defendants’ argument appeared to be: someone as popular as Oprah would not attempt to trade on the goodwill of KB, relatively unknown.  However, prior to using “Own Your Power,” Defendants purchased the rights to the acronym “OWN.”  This suggests that the Defendants had conduced a trademark registration search, which would have also turned up KB’s pending registration for “Own Your Power.”  The Second Circuit concluded that even if Defendants did not intend to trade on the good will of KB, this does not preclude a finding of bad faith.  As a result, the Second Circuit vacated the lower court’s dismissal of KB’s trademark infringement claims.

Regarding KB’s vicarious and contributory liability of trademark infringement, the Second Circuit affirmed the dismissal of these claims.  The Second Circuit also affirmed the dismissal of KB’s counterfeit claim, finding that her mark and the Defendants’ phrase were different.

Transformative Work Need Not Include Commentary To Be Classified As Transformative Under Copyright Act’s Fair Use Provisions

The Second Circuit Court of Appeals in New York (2nd Circuit) reversed a lower court ruling which applied the wrong standard for determining whether a work was transformative under the Copyright Act’s fair use statute, 17 U.S.C. § 107.  Cariou v. Prince, Case No. 11-1197-cv (2d Cir. April 25, 2013) (available here).  Defendant Prince appealed the decision of the lower court, which found that his artworks did infringe on Plaintiff Cariou’s registered copyrights in certain photographs.  On appeal, the 2nd Circuit held that the lower court had applied the wrong standard and, in applying the correct standard, the Appeals Circuit found that all but five of Prince’s works fell under fair use protection.

In 2002, Plaintiff Cariou published a book of classical portraits and landscape photographs.  In 2007 and 2008, Defendant Prince took several of Cariou’s photographs, altered them, and included them into a series of paintings and collages that he exhibited in Saint Barthelemy (“St. Barth’s”) and at New York’s Gagosian Gallery.  At the Gagosian exhibit, an exhibition catalog containing reproductions of Prince’s paintings was sold.  Prince used Cariou’s photographs in several works, and the amount of each of Cariou’s photographs used varied from work to work.  Cariou sued Prince and Gagosian for copyright infringement and the defendants claimed fair use.  The lower court found in favor of Cariou and entered a permanent injunction against Prince and Gagosian.  On appeal, Prince and Gagosian argued that Prince’s work was transformative and therefore fell under the fair use protection.

Under the Copyright Act, there are several non-exclusive factors to consider in determining whether use of a copyrighted work constitutes fair use.  Per Section 107, the court should consider: “(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and ( 4) the effect of the use upon the potential market for the value of the copyrighted work.”  17 U.S.C. § 107.

The purpose and character factor includes consideration of the the transformative nature of defendant’s use.  The lower court said that Prince’s work would be transformative if it commented on Cariou, his photographs, or aspects of popular culture closely associated with Cariou or his photographs.  The 2nd Circuit disagreed with respect to the commentary component. “Here, our observation of Prince’s artworks themselves convinces us of the transformative nature of all but five, which we discuss separately below. These twenty-five of Prince’s artworks manifest an entirely different aesthetic from Cariou’s photographs. Where Cariou’s serene and deliberately composed portraits and landscape photographs depict the natural beauty of Rastafarians and their surrounding environs, Prince’s crude and jarring works, on the other hand, are hectic and provocative.”  Prince, Slip Op. P. 12.

The transformative nature of Prince’s works turns on how his works appear to the reasonable observer.  When comparing Prince’s works with Cariou’s photographs, the 2nd Circuit concluded that 25 of the 30 works were transformative.  However, the Appeals Court noted that cosmetic changes to photographs does not always constitute fair use, because a secondary work can modify an original without being transformative.  Even though Prince’s works were commercial in nature, the 2nd Circuit did not place much significance on that fact because the 25 works were so transformative compared to Cariou’s photos.

As for the effect upon the potential market for Cariou’s photos, the lower court concluded that because a gallery owner decided not to host Cariou’s book at her gallery once she learned of Prince’s exhibit at the Gagosian, that Cariou’s market was adversely effected.  “Contrary to the district court’s conclusion, the application of this factor does not focus principally on the question of damage to Cariou’s derivative market.”  Prince, Slip Op. P. 16.  The focus is whether the secondary use by Prince usurps the market of the original work for Cariou’s photos.  “Prince’s audience is very different from Cariou’s, and there is no evidence that Prince’s work ever touched – much less usurped – either the primary or derivative market for Cariou’s work. There is nothing in the record to suggest that Cariou would ever develop or license secondary uses of his work in the vein of Prince’s artworks. Nor does anything in the record suggest that Prince’s artworks had any impact on the marketing of the photographs.”  Prince, Slip Op. P. 17.

As for the nature of Cariou’s copyrighted works, the 2nd Circuit noted that the photographs were creative and published.  This factor weighed against a finding of fair use, but this “nature of the work” factor was given little weight since Prince’s use was extremely transformative.

As for “the amount and substantiality” factor, that is, the amount and substantiality of Cariou’s works used by Prince in relation to Cariou’s works as a whole, many of Prince’s works used Cariou’s photographs in whole or substantial part.  Sometimes Prince barely altered the original photo but at other times Prince heavily obscuring the copyrighted photo.  However, in 25 of Prince’s works, he transformed Cariou’s photographs into something new and different, thereby weighing the final factor in favor of Prince.  Prince’s use of the photos in these 25 works constituted fair use and non-infringement, and therefore the Gagosian gallery was not liable as a vicarious or contributory infringer.

Per the 2nd Circuit, the remaining 5 artworks did not sufficiently differ from Cariou’s photographs, therefore the Appeals Court remanded the issue back to the trial court stating: “Although the minimal alterations that Prince made in those instances moved the work in a different direction from Cariou’ s classical portraiture and landscape photos, we can not say with certainty at this point whether those artworks present a new expression, meaning, or message.”  Prince, Slip Op. P. 20.  As a result, these 5 works go back to trial.  If the lower court finds that the works fall under the fair use defense, Prince and the Gagosian gallery are not liable.

Righthaven Loses…Again

The Righthaven train took another derailment recently, after being handed a substantial loss in the Ninth Circuit. The Court held that a bare assignment of the “right to sue” for copyright infringement was not enough to confer standing without the transfer or assignment of an exclusive right under the Copyright Act.  Righthaven LLC v. Hoehn, Case No. 11-16751 (9th Cir. May 9, 2013) (pdf available here).  Plaintiff Righthaven sued Wayne Hoehn for posting articles from the “Las Vegas Review-Journal” (“LVRJ”) online without permission.  Hoehn is represented by Marc Randazza of the Randazza Legal Group in Las Vegas, NV. The district court determined that Righthaven had no standing to sue for copyright infringement because it did not own any of the exclusive rights under the Copyright Act (for example, the right to copy, the right to distribute, etc.)  The lower court also determined that Hoehn was protected by fair use, and granted summary judgment on that ground.  The Ninth Circuit affirmed the motions to dismiss, agreeing with the lower court that Righthaven lacked standing to sue.  However, the Ninth Circuit vacated the summary judgment order on fair use.

Righthaven identifies copyright infringements on behalf of third parties (in this case, LVRJ) and receives “limited, revocable assignments” of those copyrights to sue the infringers.  Hoehn had copied an opinion piece from the LVRJ into one of his comments on a discussion board website.  Stephens Media LLC is the copyright owner for the LVRJ.  After Hoehn posted the article, but before Righthaven filed suit, Stephens Media executed an assignment to Righthaven that granted Righthaven “all copyrights requisite to have Righthaven recognized as the copyright owner of the Work for purposes of Righthaven being able to claim ownership as well as the right to seek redress for past, present, and future infringements of the copyright[.]”  Prior to this, Righthaven and Stephens Media had executed a Strategic Alliance Agreement (“SAA”), which controlled what Righthaven could do with any copyrights assigned to it. Essentially, the assignment was useless and Randazza helped to uncover the scheme being perpetuated by Righthaven.

The Copyright Act confers standing upon the legal or beneficial owners of an exclusive right.  17 U.S.C. § 501(b).  The Copyright Act’s list of exclusive rights does not include the right to sue for copyright infringement.  As such, “the assignment of the bare right to sue for infringement, without the transfer of an associated exclusive right, is impermissible under the
Copyright Act and does not confer standing to sue.”  Righthaven, Slip Op. P. 7.  Righthaven argued that its contract with Stephens Media was sufficient to confer standing.  The Ninth Circuit disagreed after reviewing the contract.  For example, the SSA contract language placed limits on what Righthaven could do with the copyrights.

“The SAA clearly delineated the respective rights of Righthaven and Stephens Media in any assigned works. Moreover, the contract evinced not just an intent that Righthaven receive whatever rights were necessary for it to sue, but also an intent that Stephens Media retained complete control over all exclusive rights. The problem is not that the [lower] court did not read the contract in accordance with the parties’ intent; the problem is that what the parties intended was invalid under the Copyright Act.”  Righthaven, Slip Op. P. 10.  The amended SSA was entered into after suit was filed.  The court stated that since the intellectual property interest was acquired after filing suit, this was not sufficient to support standing to bring suit.

Turning to the defense of fair use, the Ninth Circuit found that if the plaintiff lacks standing to sue, a court does not have subject matter jurisdiction over the case.  Thus, the Ninth Circuit vacated the lower court’s summary judgment of fair use.

Facebook’s Timeline May Be Running Out

A District Court denied Facebook’s motion for summary judgment, finding that Facebook had failed to prove that Plaintiff’s trademarks for the term “timeline” were invalid.  Timelines, Inc. v. Facebook, Inc., Case No. 11-cv-6867 (N. D. Ill. April 1, 2013) (available here).  Plaintiff Timelines (“T”) sued Defendant Facebook (“FB”) for reverse and direct trademark infringement.  FB counterclaimed seeking a declaration of non-infringement and cancellation of Plaintiff’s registered marks.  Reverse trademark infringement occurs when a more powerful company, here FB, uses the trademark of a smaller and less powerful senior user, T, resulting in consumers confusing the senior user’s mark as belonging to the more powerful but junior user.

T operates a website wherein users can document events and connect them to other related events to create a larger understanding of what occurred at a particular place and time.  The events can be personal, such as a birthday, or historical, such as a presidential inauguration.  Other users can add additional or new content for that event document.  T’s other website, Lifesnapz.com, allows families to share and record events.  Lifesnapz.com has a timeline feature and the term “timeline” is used in a generic sense.  T owns federally registered trademarks for “Timelines,” “Timelines.com,” and “Timelines” Design.

The term “timeline” has been used generically by many third parties, and witnesses for these third parties state that their companies would be at a disadvantage if they were no longer able to use the term “timeline” to identify their goods or services.  T claimed that its use was different because the timelines on T’s websites were not static, and the term was used for web-based goods or services, not software-based like the third parties.  FB claimed that T’s use was generic or merely descriptive, and that FB’s use of the term “timeline” was fair use.

FB’s website includes a “Timeline” feature, which summarizes a user’s life based on the user’s updates to his or her Facebook profile.  FB knew of T before announcing the Facebook Timeline, and refers to the Facebook Timeline as a product.  FB owns the federally registered trademarks for “WALL,” “POKE,” “LIKE,” “FACEBOOK,” and “FACE.”  FB has successfully protected its marks from other parties filing applications of similar marks.  People familiar with T believed that T and FB had entered into an agreement, and that T’s website was related to the Facebook Timeline.

Generic terms cannot become trademarks.  However, since T has a registered trademark for “Timelines,” the validity of the mark is presumed.  FB has the burden of proving that the mark is invalid.  “However, the classification of Plaintiff’s [T] marks is a question of fact, and not appropriate for a summary judgment ruling, unless Defendant [FB] can demonstrate that the evidence as to Plaintiff’s [T] marks is so obvious that there is no doubt as to how the question of classification of the mark should be answered.”  Facebook, Inc., Slip Op. Pp. 16-17.  FB argued that T’s mark “Timelines” is generic, however FB failed to show that T’s repeated and regular use of the term “timeline(s)” rendered the term generic.  FB then argued that third parties used the term in a generic manner, and that the U.S. Trademark and Patent Office (“PTO”) was aware of this generic use before issuing T’s trademarks.  However, this hurts FB’s argument because the PTO was aware of generic third party use but still registered T’s marks for “Timelines,” therefore the PTO must have felt that T’s mark was more than generic.  As a result, FB did not prove that T’s marks were generic.

FB argued that T’s marks are merely descriptive without a secondary meaning.  “Plaintiff [T] had more than nominal sales and over one-thousand active users on its website, Timelines.com. At this stage in the proceedings, it is not unreasonable to conclude that as to this group of users, ‘’timeline( s )’ had acquired a specific meaning associated with Plaintiff [T].”  Facebook, Inc., Slip Op. P. 21.  FB’s last argument was that its use of the term “timeline” constituted fair use, and therefore non-infringement.  However, the evidence suggested that FB intended to use “Timeline” as a trademark, which takes it out of the fair use defense.  Therefore, FB had failed to show that T’s marks were merely descriptive and failed to show that its use was fair use.  The Court denied FB’s motion for summary judgment.

Resale Of Legal Digital Music Downloads Not Covered Under First Sale Copyright Doctrine

The U.S. District Court for the Southern District of New York held that digital music files lawfully made and purchased cannot be resold under the first sale doctrine of the Copyright Act.  Capitol Records, LLC v. ReDigi Inc., Case No. 12 Civ. 95 (RJS) (S.D. N.Y., March 30, 2013) (available here).  Capitol Records (“Capitol”) sued ReDigi, a virtual marketplace for pre-owned digital music, for copyright infringement.  The Court granted Capitol’s motion for partial summary judgment on the claims that ReDigi directly and secondarily infringed Capitol’s reproduction and distribution rights under the Copyright Act, 17 U.S.C. § 106

ReDigi’s website is the first of its kind, offering a market place for used digital music.  The website allows users to buy and sell legally downloaded music online.  ReDigi’s software analyzes the user’s computer and compiles a list of digital music files eligible for sale based on where the music file original source.  ReDigi’s software constantly runs on the user’s computer to ensure that the user does not retain a copy of a music file previously sold or uploaded for sale.  While the software cannot detect copies stored elsewhere, if a copy is detected, the software prompts the user to delete the file.  If the user does not delete the file, the user’s account is suspended.  ReDigi sends its users to YouTube or iTunes to listen and view promotional material of the songs.  ReDigi also has several incentives to encourage marketplace activity, such as offering credits for users who post files.  ReDigi earns 60% of from each digital music file sale on its website.

Under the Copyright Act, 17 U.S.C. § 106, the owner of a copyright has the exclusive right to reproduce and distribute copies of the copyrighted work.  However, these rights are limited by the “first sale doctrine” of § 109, which states that “the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled,
without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.”  17 U.S.C. § 109.

“Because the reproduction right is necessarily implicated when a copyrighted work is embodied in a new material object, and because digital music files must be embodied in a new material object following their transfer over the Internet, the Court determines that the embodiment of a digital music file on a new hard disk is a reproduction within the meaning of the Copyright Act.”  ReDigi, Slip Op. P. 6.  As a result, the Court concluded that ReDigi’s services infringed on Capitol’s right to reproduction because the process of moving the digital music file from a seller’s computer to ReDigi’s virtual storage locker, and then to the buyer’s computer, constitutes two instances of reproduction.

Capitol also has the exclusive right “to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership.” 17 U. S. C. § 106(3).  ReDigi did not dispute that sales (distribution) occurred on its website.  ReDigi’s argument was that the distribution falls under the fair use and first sale defenses of the Copyright Act.  The Court concluded that ReDigi’s website infringed Capitol’s exclusive right to distribution.

ReDigi argued that its use fell under the first sale doctrine of the Copyright Act.  Under the first sale defense, “once the copyright owner places a copyrighted item [here, a phonorecord] in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution.”  ReDigi, Slip Op. P. 11 (internal citations removed).  The Court held that ReDigi’s distribution of Capitol’s copyrighted works was not protected by the first sale doctrine because the distribution was not “lawfully made” under the Copyright Act.  Further, the first sale doctrine only protects the owner of a particular copy’s distribution of that copy.  “Here, a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk. But to sell that song on ReDigi, she must produce a new phonorecord on the ReDigi server. Because it is therefore impossible for the user to sell her ‘particular’ phonorecord on ReDigi, the first sale statute cannot provide a defense.”  ReDigi, Slip Op. P. 12.  The Court rejected ReDigi’s contention that the first sale doctrine was ambiguous given the changes in technology since its enactment, stating that the term “phonorecord” cannot, by definition, be uploaded and sold on ReDigi’s website.