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82
CLMLR 1600
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1
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(Cite
as: 82 Colum. L. Rev. 1600)
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Columbia
Law Review
December,
1982
*1600
FAIR USE AS MARKET FAILURE: A STRUCTURAL AND ECONOMIC ANALYSIS OF THE
BETAMAX
CASE AND ITS PREDECESSORS
Wendy
J. Gordon [FNa1]
Copyright
© 1982 by
Wendy J. Gordon
In
the recent and much publicized Universal City Studios, Inc. v. Sony
Corp. of America (Betamax) case, [FN1]
the Court of Appeals for the Ninth Circuit held that persons who make
videotapes of copyrighted television programs in the privacy of their
homes should be considered to be copyright infringers. [FN2]
Basic to the court's reasoning was a misunderstanding of the "fair
use" doctrine. Called "the most troublesome doctrine in
the whole law of copyright," [FN3]
"fair use" renders noninfringing certain uses of
copyrighted material that might technically violate the statute, but
which do not violate the statute's basic purposes.
The
Ninth Circuit took the position that "fair use" could only
protect users who were productive second authors, and not persons who
were making ordinary or "intrinsic" use like the home
videotapers. [FN4]
In doing so, the circuit court rejected explicitly the economically
oriented approach to fair use adopted by the Court of Claims in
Williams & Wilkins Co. v. United States. [FN5]
In
its opinion in Williams & Wilkins, which was affirmed by an
equally divided Supreme Court in 1975, [FN6]
the Court of Claims held that massive photocopying efforts by
libraries could in some circumstances constitute fair use. [FN7]
The Supreme Court has recently granted certiorari in the Betamax
case, [FN8]
*1601 and may take this occasion to choose between the Court
of Claims's approach and the more restrictive doctrinal views of the
Ninth Circuit.
This Article suggests that the Court of Claims opinion in Williams &
Wilkins, while flawed in many of its aspects, [FN9]
did not err in seeking a base for fair use in structural and economic
considerations. Specifically, it will be argued that the fair use
doctrine, though sometimes called an "equitable rule of reason"
for which no definition is possible, [FN10]
has at bottom three straight-forward concerns. Where (1) defendant
could not appropriately purchase the desired use through the market;
[FN11]
(2) transferring control over the use to defendant would serve the
public interest; [FN12]
and (3) the copyright owner's incentives would not be substantially
impaired by allowing the user to proceed, [FN13]
courts have in the past considered, and should in the future
consider, defendant's use "fair." While other approaches to
fair use may legitimately be advanced, much of fair use depends on
the resolution of these concerns.
This Article will suggest that, contrary to the Ninth Circuit's view,
the "productive" status of a user is at best merely a
secondary indicator that these concerns may be satisfied. [FN14]
On a more fundamental level, the Article will illustrate how the
courts and Congress have employed fair use to permit uncompensated
transfers that are socially desirable but not capable of effectuation
through the market. [FN15]
The market approach will provide a guide both to ascertaining where
the public interest might lie in a given case, and to identifying
those occasions on which a court may appropriately substitute its
evaluation of the public interest for its usual refusal to
second-guess the copyright owner. Through analysis of the Williams &
Wilkins [FN16]
and Betamax [FN17]
cases, the Article will also indicate how a market approach can serve
as a means for applying fair use to newly emerging uses of
copyrighted works made possible *1602 by developing
technologies. Overall, by unifying the various traditional fair use
factors into one economic model, the Article aims to serve as an aid
to predicting fair use results and as a guide to future development
of the doctrine.
I.
COPYRIGHTS AND MARKETS
A.
Origins of the American Copyright System and the Doctrine of Fair Use
The
Constitution gives Congress power to grant to authors and inventors
exclusive rights over their works in order to "promote the
Progress of Science and useful Arts." [FN18]
Beginning in 1790, Congress passed a series of copyright statutes;
[FN19]
the general goal of these statutes has been to establish an incentive
for authors to create, by providing them an avenue for obtaining
remuneration. [FN20]
The ultimate goal is not author remuneration, however, but the
advancement and dissemination of culture and knowledge. [FN21]
In
most cases, the incentive and dissemination purposes of copyright
will not conflict. Authors will be encouraged to produce and
distribute new works because the copyright laws give authors the
means of being paid for their efforts. Madison foresaw exactly this
result when he advocated a congressional copyright and patent power
in The Federalist Papers: "The public good," he wrote,
"fully coincides . . . with the claims of individuals."
[FN22]
Nevertheless, tensions are possible, and over time various copyright
doctrines have evolved to guard against the possibility that the
author's right of control over his works could defeat rather than
serve the public interest in dissemination. "Fair use" is
recognized as one such doctrine; it seeks to accommodate the author's
need for remuneration and control while recognizing that in specific
instances the author's rights must give way before a social need for
access and use. [FN23]
In other words, the fair use doctrine allows an individual, in
certain circumstances, to make use of at least a part of an author's
work without obtaining that author's consent or recompensing the
author for that use.
Historically, it has been no simple matter to decide the appropriate
boundaries of an author's control. [FN24]
As noted above, the fair use doctrine in *1603 particular has
been called "the most troublesome in the whole law of
copyright," [FN25]
and has traced a quicksilver course of judicial development.
Congress, in codifying the fair use exception in the Copyright Act of
1976, refused to formulate a specific test for determining when a
particular use is fair use. Instead Congress gave statutory
recognition to a list of factors that courts have looked to in making
their fair use determinations. [FN26]
Four factors are enumerated in the statute:
(1) the purpose and character of the use, including whether such use
is of a commercial nature or is for non-profit 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 and value of the copyrighted work. [FN27]
Congress
recognized that even for the courts that had developed the criteria,
the factors were "in no case definitive or determinative"
but rather "provided some guage [sic] for balancing the
equities;" [FN28]
the statutory list is nonexhaustive. [FN29]
In addition, Congress encouraged further evolution of the fair use
doctrine in the courts. [FN30]
*1604 It is not clear how much weight should be given to any
one of the four factors, what additional factors should be
considered, or whether any one of the factors is a sine qua non for a
finding of fair use. [FN31]
Though the factors do implicitly direct courts to identify both the
social need for the use and the possible impact on the author's
economic expectations, the ambiguity of the fair use doctrine and its
statutory formulation obscure the underlying issues and make
consistency and predictability difficult to achieve. Some underlying
principles, more specific and thus more informative than the
identification of basic incentive/dissemination tensions, must be
divined beneath the factors to permit their coherent application.
An
economic analysis of the copyright system will serve to illuminate
these underlying principles. Since the copyright system creates
private property in creative works so that the market can
simultaneously provide economic incentives for authors and
disseminate authored works, it may be useful to begin--if not to
end--the fair use inquiry by using economic principles of market
failure to identify the situations in which these two goals are
likely to conflict. The same economic considerations that guide the
copyright system as a whole can also be used to suggest modes of
resolving the conflicts, providing a method of applying fair use both
to achieve desirable dissemination and to avoid the erosion of
incentives. This economic view of fair use can provide a *1605
coherent approach to application of the traditional factors and their
emerging companions.
B. An
Overview of the Market Model
Markets are systems for consensual exchange of owned goods. Private
ownership is, of course, only one of many ways in which persons can
be encouraged to make productive use of resources, [FN32]
and our legal, economic and social systems respond with other modes
of resource control when the markets fail to generate economically
desirable outcomes [FN33]
or when using the market process would threaten other social goals.
[FN34]
This Article will show that fair use should be interpreted as a mode
of judicial response to market failure in the copyright context, and
that the presence or absence of the indicia of market failure
provides a previously missing rationale for predicting the outcome of
fair use cases.
1.
The Market System. Economists in the tradition of Adam Smith defend
our society's primary dependence on markets by arguing that
individual transactions in the marketplace serve both social needs
and the needs of the individual persons participating. [FN35]
Among other contentions, they suggest that the monetary value a
person places on a resource will reflect the value that the person's
use of the resource will bring to society, so that voluntary
transfers between individuals will create a socially desirable
pattern of resource allocation. [FN36]
*1606 To understand this approach, consider the example of
movie producers who wish to purchase the motion picture rights to a
best-selling novel. Smithian economists would posit that each
producer's ability to raise funds from investors depends on the
amount of revenue that his or her moviemaking is expected to
generate. Among producers of varying levels of skill, the producer
best able to use the book to satisfy consumer tastes will be in a
position to raise the most funds and thus to offer the highest bid.
Similarly, the author or other owner of copyright in the novel will
sell the rights only if the revenues he could anticipate by
exploiting the work himself would be less than the purchaser's bid.
Control over the resource will therefore gravitate through consensual
transfers to the person in whose hands the resource can best be used
to satisfy consumer desires. [FN37]
In this way value, defined as "human satisfaction as measured by
aggregate consumer willingness to pay for goods and services,"
[FN38]
will be maximized.
*1607 Economists agree that several "conditions of
perfect competition" must be satisfied if individual market
transactions are to result in the maximization of value. When these
conditions are absent, reliance on consensual bargains to achieve
socially desirable results may be inappropriate. [FN39]
One such condition is that all costs and benefits must be "internal"
to the transactions that generate them, in the sense that the costs
or benefits must be borne by persons with decision-making power in a
given transaction and not by persons external to it. [FN40]
For example, if a resource user is in a field where much of the
social benefit produced by his activities does not translate into
compensation to him, then he may generate "external benefits"
not reflected in his income. In such a case, his willingness to pay
for the resource might understate his ability to use it in a way that
serves social needs. [FN41]
Perfect competition also requires perfect knowledge; [FN42]
for example, consumers must know the qualities and characteristics of
all available products, [FN43]
as well as the prices and locations of the various sellers. Consider
the impact of imperfect knowledge on the movie producer example
advanced earlier. If reviewers give consumers inadequate information
about the characteristics of movies produced, the money spent on
theater tickets may not reflect the choices that would in fact best
satisfy consumer tastes. [FN44]
As a result, a skillful producer might be unable to raise capital in
a way that would accurately *1608 reflect his ability to use
resources in satisfaction of consumer tastes, [FN45]
so that his ability to pay for the rights to a novel would understate
his ability to use the novel to serve public needs. In a perfect
market, his failure to outbid another producer would have been a
reliable indicator that the movie rights would be most valuable in
the other producer's hands. In a market where information is
incomplete or unreliable, however, a failure to outbid the other
producer may have no such significance.
Finally, then, perfect competition depends on the absence of
transaction costs. [FN46]
If all desirable transfers are to occur, it must be costless to
obtain knowledge, [FN47]
costless to locate all persons affected by a transaction, costless to
dicker with them over prices and terms, and costless to maintain an
enforcement mechanism to ensure that the bargain is adhered to.
[FN48]
This condition of perfect competition, like the others, is never
fully present; some transaction costs are inevitable. [FN49]
When the transaction costs outweigh the net benefits that the parties
would otherwise anticipate from a transfer, then the presence of the
transaction costs may block an otherwise desirable shift in resource
use. [FN50]
The
legal system acts in diverse ways to increase the probability that
these and other conditions for perfect competition will be present.
For example, to prevent consumer ignorance, truth-in-lending and
labeling disclosure laws may be enacted, [FN51]
and restrictions on truthful advertising may be struck down. [FN52]
Similarly, antitrust laws prevent any one buyer or seller from
gaining monopoly control that would distort competition. [FN53]
When the market does not work perfectly, "a decision will often
have to be made on whether market transactions or collective fiat is
most likely to bring us closer to the . . . result *1609 the
'perfect' market would reach." [FN54]
One possible response of the law might be the creation of
governmental agencies to make resource allocation decisions by
regulation. Another might be to set up incentives that encourage the
achievement of efficient results even in the absence of markets.
The
latter provides the conventional economic explanation for the
standard of reasonable care used in negligence law. [FN55]
In a market transaction, each party is forced to take account of the
other's demands through bargaining. In unintentional accidents, a
market bargain between the participants is obviously impossible, yet
it is desirable for them to take into account the effect of their
actions on each other. Negligence law gives a potential defendant the
incentive to consider the other person's possible injury. If the
costs of the precautions neglected by the defendant are less than the
discounted accident costs the precautions would have prevented,
[FN56]
the verdict will be for the plaintiff. [FN57]
If, on the other hand, the court views the defendant's pre-accident
behavior as cost-justified, the plaintiff's injuries will go
unrecompensed. [FN58]
A
defendant who deliberately bypasses the market is not likely to find
the court willing to act as a resource-allocating mechanism; the
market guarantees compensation to the owner, and usually provides a
less expensive and more reliable way to determine whether a use is
value-maximizing than does the deliberation of a judicial stranger to
the transaction. [FN59]
A court generally should engage in balancing costs and benefits only
if market failure has left it the only institution able to do so.
[FN60]
This is one reason why, for many intentional torts, the economic
desirability of defendant's action is irrelevant to *1610
determining liability; in such cases the defendant could have
identified, and thus bargained with, the plaintiff or class of
plaintiffs involved. [FN61]
2.
Markets in Copyright. Copyright and patent law create ownership
rights in intellectual property, with the primary goal of generating
monetary incentives for the production of creative works, thereby
"promot[ing] the Progress of Science and useful Arts."
[FN62]
If the creators of intellectual productions were given no rights to
control the use made of their works, they might receive few revenues
and thus would lack an appropriate level of incentive to create.
Fewer resources would be devoted to intellectual productions than
their social merit would warrant. [FN63]
Economists ordinarily characterize intellectual property law as an
effort to cure a form of market failure stemming from the presence of
"public goods" characteristics. [FN64]
A public good is often described as having two *1611 defining
traits. First, it is virtually inexhaustible once produced, in the
sense that supplying additional access to new users would not deplete
the supply available to others. Second, and more important for the
instant purposes, persons who have not paid for access cannot readily
be prevented from using a public good. [FN65]
Because it is difficult or expensive to prevent "free riders"
from using such goods, public goods usually will be under- produced
if left to the private market. [FN66]
A familiar example of a public good is national defense. [FN67]
Since it is not possible to use a radar early-warning network in a
way that discriminates between one person who has paid for defense
and his neighbor who has not, a less than optimal amount of national
defense will be produced if its purchase is left to the usual
consensual market mechanisms of voluntary purchase. Some sort of
compulsory payment, such as taxation, and central decision-making may
be necessary to eliminate free riders and obtain the socially
desirable amount of defense. [FN68]
Books and inventions exhibit certain public goods characteristics.
[FN69]
Once the literary work or the discovery embodied in the invention is
made available to the public, the sequence of words or the discovery
might be used by countless consumers without exhausting the supply.
Any number of persons can simultaneously use the newly invented
process or reprint the literature without physically depriving others
of its use. Physical control, therefore, does not offer its usual
potential as a mode of inexpensive enforcement for excluding free
riders. [FN70]
Though taxation and centralized purchasing might provide a
satisfactory solution for some public goods problems, such an
approach is inappropriate *1612 for much intellectual
property. A democratic society demands decentralized and diverse
creation in the intellectual sphere; freedom from state control is
essential lest freedom of expression be curtailed by fear of
governmental reprisal. [FN71]
Thus, for works of expression, the public goods problem is addressed
by another method. Statutes create special property rights for
authors; they can sell the physical copies of their works and at the
same time retain legal control over the reproduction and certain
other uses of the work embodied in those copies. [FN72]
In other words by the law provides a means for excluding
nonpurchasers. [FN73]
Copyright law therefore allows a market for intellectual property to
function.
In
addition, the copyright law makes it easy to proceed through
consensual market transfer. The requirement that a notice of
copyright be placed on all publicly distributed copies facilitates
identification of those works that are not in the public domain and
cannot be used without purchase of a copyright license, and also
facilitates identification of the works' owners. [FN74]
The registration of copyrights in the Copyright Office [FN75]
makes owners relatively easy to locate, and gives further information
on the validity and duration of the copyright claimed. To discourage
departure from the market system, Congress has made certain copyright
violations criminal, [FN76]
and has established statutory damages and other devices [FN77]
to lighten a plaintiff's enforcement task. The copyright statute thus
facilitates the functioning of the consensual *1613 market
[FN78]
in four ways: it creates property rights, lowers transaction costs,
provides valuable information, and contains mechanisms for
enforcement.
When the market functions, no finding that the defendant acted
"unreasonably" or against the public interest is requisite
for judging culpability for the tort of copyright infringement. Like
the intentional tortfeasors discussed in the preceding section,
[FN79]
copiers of creative works ordinarily can identify and bargain with
copyright owners. If copies are made without permission, the court
will not use a "reasonableness" test to second-guess
whether the copyist's production was in the public interest. In the
ordinary copyright case, the court assumes that the defendant could
have, and therefore should have, proceeded through the market. [FN80]
Copyright markets will not, however, always function adequately.
Though the copyright law has provided a means for excluding
nonpurchasers and thus has attempted to cure the public goods
problem, and though it has provided mechanisms to facilitate
consensual transfers, at times bargaining may be exceedingly
expensive or it may be impractical to obtain enforcement against
nonpurchasers, or other market flaws might preclude achievement of
desirable consensual exchanges. [FN81]
In those cases, the market cannot be relied on to mediate public
interests in dissemination and private interests in remuneration.
[FN82]
In extreme instances, Congress may correct for market distortions by
imposing a regulatory solution such as a compulsory licensing scheme.
[FN83]
Thus, to avoid threatened monopolistic control over the manufacture
of piano rolls and other mechanical recordings, Congress provided
that any person who wished could make and sell recordings of
copyrighted music, so long as he paid to the copyright owner an
amount determined under the statute. [FN84]
But the broad brush of this regulatory solution is too sweeping for
most cases.
*1614 Fair use is one label courts use when they approve a
user's departure from the market. A useful starting place for
analysis of when fair use is appropriate is therefore an
identification of when flaws in the market might make reliance on the
judiciary's own analysis of social benefit appropriate. [FN85]
By making such an identification, a measure of coherence can be
brought to the doctrine of fair use. As will be seen, there are
certain "conditions of perfect competition" [FN86]--or
assumptions about how a proper transactional setting should
look--whose failure is particularly likely to trigger in the courts
an unwillingness to rely on the owner's market right to achieve
dissemination. [FN87]
II.
THE THREE PART TEST FOR DETERMINING FAIR USE
Fair use should be awarded to the defendant in a copyright
infringement action when (1) market failure is present; (2) transfer
of the use to defendant is socially desirable; and (3) an award of
fair use would not cause substantial injury to the incentives of the
plaintiff copyright owner. The first element of this test ensures
that market bypass will not be approved without good cause. The
second element of the test ensures that the transfer of a license to
use from the copyright holder to the unauthorized user effects a net
gain in social value. [FN88]
The third element ensures that the grant of fair use will not
undermine the incentive-creating purpose of the copyright law. The
test will now be explored in detail.
A.
The First Element of the Test: Market Failure
Because courts in the copyright area ordinarily assume that reliance
on the market will serve social purposes, an economic judgment that
transfer of a use to defendant will bring a net social benefit should
not alone be sufficient *1615 to negate the tort of
infringement. If the work is socially more valuable in the buyer's
hands, then the economic model has suggested that he will be able to
raise sufficient funds to purchase permission from the owner. In
other words, to propose that fair use be imposed whenever the "social
value . . . outweighs any detriment to the artist," [FN89]
would be to propose depriving copyright owners of their right in the
property precisely when they encounter those users who could afford
to pay for it. Though a transfer to such user might be socially
desirable, there is no need to compel it through fair use. Such
transfer will in theory occur voluntarily, through purchase. Further,
if the parties could arrive at mutually agreeable terms for a
transfer, such an agreement would be a more reliable indicator of the
transfer's value-maximizing quality than would a court's distant
judgment. [FN90]
An
economic justification for depriving a copyright owner of his market
entitlement exists only when the possibility of consensual bargain
has broken down in some way. Only where the desired transfer of
resource use is unlikely to take place spontaneously, or where
special circumstances such as market flaws impair the market's
ordinary ability to serve as a measure of how resources should be
allocated, is there an economic need for allowing nonconsensual
transfer. Thus, one of the necessary preconditions for premising fair
use on economic grounds is that market failure must be present. Those
types of market failure that are revealed in the fair use cases and
statute will be discussed in a later section of this Article. [FN91]
B.
The Second Element of the Test: Balancing Injury and Benefit
If
market failure is present, the court should determine if the use is
more valuable in the defendant's hands or in the hands of the
copyright owner. [FN92]
One way of accomplishing that goal is to simulate the market inquiry.
If, when the "market failure" were cured, the price that
the owner would demand is lower than the price that the user would
offer, a transfer to the user will increase social value. [FN93]
A
court may have difficulty in determining what price would have been
offered or demanded. For example, as will be shown, fair use is often
found where defendant's use of the work is noncommercial and yields
"external *1616 benefits," that is, benefits to
society that go uncompensated. [FN94]
In the presence of such market failure, the price that the defendant
user would offer for use of the work will often understate the real
social value of his use. The courts in fair use cases frequently make
intuitive estimates of social value. [FN95]
The
court's ability to estimate social value may have the assistance of
some objective measures. For example, plaintiff's minimum price may
depend on the loss he would experience from ceding control of the use
to defendant, and evidence of out-of-pocket losses or of interrupted
profits may be available. In addition, defendant's profits may
reflect profits the plaintiff could have earned but for the
unauthorized use. [FN96]
Where the injury suffered by plaintiff is small, it is likely that
the market price that he would have demanded is small, and that a
transfer to defendant would have taken place if there had been no
"failed market" conditions. Not surprisingly, courts are
much more likely to find fair use where the injury to plaintiffs is
small. [FN97]
When a court weighs plaintiff's loss against the benefit of
defendant's use, it is making a comparison similar to that made by
the participants in market transactions. [FN98]
It may be said, then, that fair use implies the consent of the
copyright owner by looking to whether the owner would have consented
under ideal market conditions. Dean Prosser notes that the locution
of "implied consent" is used in the law of intentional
torts even where "consent does *1617 not exist, and there
is no act which indicates it." [FN99]
As an example of such implied consent, Dean Prosser refers to the
plaintiff who undergoes an emergency operation while unconscious.
There the surgeon who operates to save the plaintiff's life is not
guilty of a battery because the plaintiff's consent to the operation
"is 'implied' under the circumstances." [FN100]
To justify imposing consent on the patient, Dean Prosser suggests the
following explanation: " T he defendant is privileged because he
is reasonably entitled to assume that, if the patient were competent
and understood the situation, he would consent . . . ." [FN101]
Thus, Dean Prosser has chosen a hypothetical condition relevant to
the ultimate issue of consent in the context of battery: what would
the patient consent to "if he were competent" rather than
unconscious?
Are
there any such hypothetical conditions relevant to the ultimate
issues in copyright law? This Article suggests that the perfect
market assumptions provide a guide to such conditions, because it is
only in a functioning market that consensual transfers will lead to
socially desirable resource use. [FN102]
Are there any exigencies--such as the imminence of an unconscious
patient's death--that will justify resort to hypothetical consent
instead of relying solely on a plaintiff's actual consent? This
Article suggests that market failure creates such an exigency
because, when market failure is present, it is impossible or
undesirable to make dissemination of creative works depend solely on
actual consent. Thus, where transfers will not occur because of
market failure, courts should ask what the copyright owner would have
consented to if he and the user had bargained in a functioning market
situation. It might be argued that the copyright owner should receive
compensation for the use in the same way that the patient receives
the benefit of the operation. However, implied consent here serves to
indicate that the social welfare is served, while in the example of
the medical patient it served to indicate that individual welfare is
*1618 served; further, implied consent is only the second
stage of a three-part inquiry. The third stage of the inquiry has a
direct concern with the economic welfare of the copyright owner.
[FN103]
C.
The Third Element of the Test: The Substantial Injury Hurdle
The
third and final part of the test is designed to maintain the
appropriate balance between the incentive and dissemination interests
discussed earlier. Fair use should be denied whenever a substantial
injury appears that will impair incentives.
1.
Complete Market Failure. When no incentive purpose would be served by
giving plaintiff protection, and where no disincentive would be
created by allowing defendant free use, logic suggests that the
courts should then allow fair use. [FN104]
Assume, for example, that prohibitively high transaction costs obtain
in a particular area of use, so that copyright owners and potential
users find that the costs of locating and bargaining with each other
exceed whatever profit they might expect to gain from the
transaction. Under such circumstances, no transactions will occur.
Therefore, enforcement of market entitlements would not benefit the
copyright owner, and would certainly harm the potential copyright
user who is denied access, as well as those who might benefit from
the use. Given the presence of a complete market failure here,
judicial refusal to enforce the owner's right of control may be the
only way to allow use of the work. [FN105]
And since a refusal to enforce in these circumstances would not
deprive the owner of any revenues he would otherwise receive, there
is no injury to incentives that might militate against a grant of
fair use.
2.
Intermediate Cases of Market Failure. In cases of complete market
failure, fair use appears to be justified upon satisfaction of the
first two parts of the fair use test, i.e., identification of market
failure and determination that there is a net social benefit from
allowing defendant's use. There may also be intermediate cases of
market failure, however, where the market cannot be relied upon to
generate all desirable exchanges, but where some such transactions
would be possible. In such instances, giving fair use to a class of
users would enable some persons who would otherwise purchase the use
to obtain that use for free. Thus fair use could cause some injury to
relevant incentives because, for some users, fair use would
substitute for purchase. [FN106]
The first two parts of the test would no longer serve to accommodate
the competing interests.
In
instances of intermediate market failure, both enforcement (a finding
of infringement) and nonenforcement (a finding of fair use) have
dangers. *1619 The danger from enforcement is that desirable
transfers may be prevented. The danger from giving fair use is that
incentives may be undermined. To resolve the conflict, the defendant
seeking fair use treatment should be required to surmount an
additional hurdle: fair use should be denied if it would leave the
plaintiff copyright owner facing substantial injury to his
incentives. [FN107]
The
third branch of the test diverges from the negligence model
summarized earlier. [FN108]
In negligence, the decision as to the wrongfulness of defendent's
conduct usually depends on a comparison of costs and benefits; if the
cost of defendant's precautions would have been greater than the
decrease in accident costs produced, then the defendant is not
negligent for having declined to take the precautions. [FN109]
The absolute level of damages caused by the accident under that kind
of analysis is irrelevant. [FN110]
Under the third part of this fair use test, however, fair use will be
denied if a substantial level of injury, judged on an absolute scale,
would be generated by defendant's use, even if the comparison of
injury and benefit showed that defendant's use would have created a
net social benefit.
The
substantial injury hurdle serves several functions. First, it
preserves the incentive system at the core of copyright. Second, it
reflects a recognition that judgments the courts make about whether a
defendant's use is value-maximizing are rough approximations. [FN111]
The substantial injury hurdle provides some additional protection for
copyright owners against the possibility of a bad estimation. [FN112]
Third, awarding copyright owners a veto whenever their injury is
substantial gives some guarantee that the fair use system will not
put them at an intolerable disadvantage. Even if authors are viewed
solely as instruments of social good, [FN113]
their demoralization as individuals will decrease the production of
valuable works. [FN114]
The substantial injury hurdle can also help courts avoid the danger
of making otherwise curable market failures permanent through the
grant of fair use. To explain this last function more fully, it is
necessary to look at the nature of the relevant injury.
*1620 Injury is relevant to both the second and third parts of
the fair use test, but different types of injury are relevant to each
part. On the question of balancing plaintiff's harm against
defendant's benefit, courts should look to the injury caused to the
copyright owner by the specific use made by defendant. The narrow
inquiry reveals whether transferring the use to the defendent gives
rise to a net social benefit. In order to prevent substantial injury
to incentives, however, the court should also inquire into the extent
of the losses likely to follow in the market as a whole from a grant
of fair use, [FN115]
both from this defendant and from other similarly situated persons.
When a determination is made that a certain kind or practice of use
is "fair," the practices of persons other than the specific
defendant may be affected. As the Senate Report to the 1976 Copyright
Act states, "Isolated instances of minor infringements, when
multiplied many times, become in the aggregate a major inroad on
copyright that must be prevented." [FN116]
Thus, the inquiry into substantial injury should include
consideration of cumulative harm. [FN117]
This inquiry should also include harm that has not yet occurred but
is likely to occur. [FN118]
Both the loss of revenues anticipated under the market structure
prevailing at the time of suit, and the loss of those revenues that
would be generated under whatever market structure would follow upon
a grant of infringement, should be relevant. [FN119]
For example, transaction costs to obtain permission to use certain
materials might be prohibitively high at one point in time, yet in
some circumstances a clearinghouse system might be set up to simplify
the process of purchasing permission and thus allow a market to
function. To award fair use without regard to the possibility of
imminent change in the market structure might be to make permanent an
otherwise curable market failure and thus potentially to insulate a
new and valuable use from the stimulus of consumer demand.
Whether a market failure is curable, and whether such a cure would
follow upon a finding of infringement and generate substantial
revenues, are difficult factual questions. They must, however, be
faced; the courts should limit their grants of fair use to those
occasions in which the market cannot be *1621 relied upon to
allow socially beneficial uses to occur. This point is particularly
important for new technologies, such as photocopying [FN120]
and videotaping. [FN121]
When a new use for copyrighted works becomes available to the public,
market mechanisms may take time to develop. At early stages of use,
the transaction costs that would be involved for a user to purchase
permission to use, or for the copyright owner to seek enforcement
against nonpaying users, might well exceed whatever gain the parties
might otherwise expect from the transaction. A custom therefore may
develop under which users proceed without permission. [FN122]
As
the quantity of use grows, the copyright owners may wish to set up
collection and enforcement mechanisms, including such market devices
as clearinghouses. [FN123]
In order to persuade users to proceed through the device, however,
the copyright owners might well need a judicial declaration that the
uncompensated use, previously minor and left unfettered, constituted
an infringement of copyright. Such owners would be able to make a
showing of substantial injury only if a court were willing to
consider whether substantial revenues would follow after a finding of
infringement.
The
risk from granting fair use without reference to such probable injury
should be obvious. New technologies will make certain copyrighted
works more valuable, as, for example, the invention of cinema
increased the value of those books suitable for adaptation to the
screen. If copyright protection is denied because of an otherwise
curable market failure, then the additional revenues that would have
flowed from the new technological use will not appear. If the
authors' revenues fail to reflect the additional value that new
technology gives to such works, then insufficient resources may be
drawn into their creation. To argue that copyright owners need
receive no compensation for additional uses of their works [FN124]
would overlook the possibility that such *1622 compensation
may change the patterns of production in a desirable way. Stimulation
of such response is, after all, a basic goal of copyright law.
D.
Alternatives to Fair Use
Although this Article has advocated the three-part test as a useful
approach for resolving the conflict between the incentive and
dissemination goals of copyright law, other market-oriented
approaches may also be useful in achieving this goal. For example,
when the cause of the market failure lies in high transaction costs,
economics does not dictate a choice solely between awarding fair use
or giving the copyright owner complete control through injunction and
damages. Instead, if the law permits, the court might choose to
refuse an injunction yet grant the copyright owner monetary relief.
[FN125]
A monetary remedy could largely obviate any threatened injury.
*1623 It may be costly to society to give an author injunctive
control over a work in a market failure situation since that might
completely prohibit a defendant's use. [FN126]
Enforcement limited to a damage remedy, award of profits, or
reasonable royalty [FN127]
might provide a mechanism for transferring revenues from user to
author while simultaneously allowing utilization of the work. Such a
court-dictated transfer might carry far less economic and social cost
than would rules that force a choice between forbidding all
involuntary transfers or leaving involuntary transferors without a
remedy. By imposing a "price" for the use, the court award
might itself "cure" market failure. [FN128]
It
may be asked, however, whether courts should abandon the traditional
all- or-nothing choice between enforcement and fair use bequeathed to
them by fair use precedent. There are limitations on judicial
expertise; whether the courts themselves are the appropriate
institutions to "cure" market failure by inventing methods
of compulsory transfer or by setting copyright prices is a very real
question. [FN129]
Further, an objectively determined "price" is always less
satisfactory to a property owner than a price of his own choosing and
is usually a less reliable indicator of value for society's purposes
as well. [FN130]
Were the courts to feel free to substitute one for the other, an
accelerating erosion of the market system could be triggered. From
the point of view of copyright owners (and thus from the point of
view of society's need to maintain overall incentives), a system that
permitted certain limited uncompensated takings to occur, as long as
they did not cause substantial injury, might be preferable to a
system in which compensation was guaranteed but only after the fact.
In
addition, copyright law has traditionally made compulsory licenses
(the equivalent of "reasonable royalty" determinations) a
matter for legislative action. [FN131]
Compulsory licenses have been hard-fought political issues, [FN132]
*1624 for whose resolution Congress would appear to provide
the most appropriate forum. Thus, although judicial regulation of
copyright markets is not unknown, [FN133]
and although Congress is often slow to act in this area, [FN134]
it may be unwise to advocate judicial adoption of an alternative to
fair use that asks courts essentially to restructure markets or to
set prices for the use of copyrighted material.
E.
Burden of Proof
Much debate today centers on whether the defendant or plaintiff
should have the burden of proving injury. [FN135]
The copyright statute does not state where the burden of proving
injury or any other fair use factor should be placed, and Congress
apparently preferred to leave this issue to the courts. [FN136]
*1625 A market approach can provide some insight into how the
burden of proof should be allocated.
As
discussed earlier, [FN137]
the copyright law appears to be premised on the assumption that
functioning markets exist for copyright works. When such markets
exist, injury will normally follow upon infringement and, even if the
precise dimensions of that injury are hard to prove, it makes sense
that lack of explicit proof of injury will be excused. [FN138]
The congressional decision to provide plaintiffs the option of
minimum statutory damages [FN139]
reflects this sentiment and suggests that the plaintiff should have
no initial burden of disproving fair use. [FN140]
Instead, the defendant should have the initial burden of proving that
market failure exists and that it will continue to exist even if a
judgment of liability were to be tendered. In addition, if his use
serves no social purpose, then he could not satisfy the second part
of the fair use test and further consideration of his fair use claim
would be unwarranted. Therefore, he also should be required to prove
that his use serves some social purpose, [FN141]
and to demonstrate the nature and extent of the public interest that
is served. [FN142]
*1626 When severe market failure is present, injury to the
copyright owner may not follow from infringement. [FN143]
If the proof of severe market failure offered by the defendant leads
the court to doubt that injury will be present, it is legitimate for
the court to demand evidence from the copyright owner that such
injury would indeed follow. The burden of going forward with proof of
injury should then shift to plaintiff. The harm he has suffered or
anticipates is an area that should be peculiarly within plaintiff's
knowledge. [FN144]
Fair use has been variously regarded as a "defense,"
[FN145]
as a "privilege," [FN146]
or as a use that is noninfringing. [FN147]
Given the ambiguous nature of fair use, it might be argued that the
court could appropriately demand some proof of injury from plaintiff
even in the first instance. [FN148]
This Article does not go so far; it suggests that, on a case-by-case
basis, a court should ask plaintiff to come forward with evidence of
probable harm when the court has drawn an inference, from defendant's
proof of market failure or from other sources, that no injury is
likely. Moreover, since it is defendant who seeks to show that the
conditions of his use are so unlike those contemplated by the
copyright scheme that fair use is warranted, the ultimate burden of
persuasion on this issue should rest with him.
F.
Summary
An
analysis of the economic functions served by copyright and of the
internal dynamics of the copyright statute has suggested a three-part
test for fair use: first, does a reason to mistrust the market
appear?; second, is the transfer to defendant value-maximizing, as
determined by weighing plaintiff's injury against defendant's social
contribution?; third, if both the first and second conditions are
satisfied, would a grant of fair use cause substantial injury? If it
would not, and if the prior conditions are satisfied, then fair use
should be awarded. Defendant user should prove the existence of
market failure and the social merit of his use. If defendant meets
these burdens and *1627 raises a significant doubt as to
whether harm is likely, then plaintiff should come forward with a
showing of injury.
If
the market failure in a given case is likely to be cured (and
substantial revenues generated) by the parties' own actions following
a finding of infringement, fair use should be denied. However, if the
only possible "cure" is through a complex, court-imposed
structure of monetary remedies and limited injunctive relief, both
fair use tradition and the inherent limitations of the judicial
process suggest that the court should hesitate before attempting such
a task. It may be appropriate to leave the responsibility for
restructuring the parties' economic relationships to the parties or
to Congress. Analytically, however, it should be recognized that the
market considerations underlying the three-part test could trigger a
damage remedy or market restructuring, rather than fair use, in a
court that is inclined to engage in such intervention.
The
three-part test proposed here, while not previously articulated in so
many words, reveals itself in many of the decisions reached by the
courts in the copyright area, and, as will be seen, serves to unify
the various factors that courts and the statute have made relevant to
fair use determinations. The remainder of this Article will explain
how this test finds expression in the cases and statute, will analyze
the Williams & Wilkins opinion, which gave the fullest expression
to the test, and will examine how the Betamax court could have
proceeded had it accepted these criteria.
III.
EVIDENCE OF A MARKET APPROACH IN EXISTING AUTHORITIES
This Article has suggested that a court will ordinarily not grant a
defendant fair use treatment unless the facts of the case give reason
to mistrust the market. [FN149]
This section will review cases and authorities in which recurring
patterns of such mistrust appear to have guided courts in the fair
use area. The discussion will show that courts and, in following
their lead, Congress, have at times grappled with a market approach,
that such an approach is reflected in the traditional fair use
factors, and that, were the courts to embrace the market approach
more fully, a more effective and consistent use of the traditional
factors would result.
A.
Inquiries Into Market Breakdown Under the Traditional Fair Use
Approach
1.
Market Barriers: New Technologies and Other Applications. As
previously discussed, the impossibility or difficulty of achieving a
market bargain is a factor that may justify a grant of fair use. The
relevance of market barriers to fair use is implicitly reflected in
the legislative history of section 107 of the Copyright Act. The
Senate Report to the new copyright act states that "[a] key,
though not necessarily determinative, factor in fair use is whether
or not the work is available to the potential user," [FN150]
so that the out-of-print status *1628 of a copyrighted work
may help to justify fair use. [FN151]
This is consistent with a market approach, since markets cannot form
where goods are unavailable. [FN152]
Similarly, the Guidelines for Educational Fair Use in the House
Report single out for fair use treatment instances of classroom
photocopying in which bargains are particularly unlikely to occur
because the teacher's use is spontaneous, individual and
unsystematic. [FN153]
One of the prerequisites for making multiple copies under the
Guidelines is that " t he inspiration and decision to use the
work and the moment of its use for maximum teaching effectiveness are
so close in time that it would be unreasonable to expect a timely
reply to a request for permission." [FN154]
A
particular type of market barrier is transaction costs. As long as
the cost of reaching and enforcing bargains is lower than anticipated
benefits from the bargains, markets will form. If transaction costs
exceed anticipated benefits, however, no transactions will occur.
[FN155]
Thus, the confluence of two variables is likely to produce a market
barrier: high transaction costs and low anticipated profits. New
technologies are likely to present both high transaction costs and,
where uses by individual scholars or in individual homes are at
issue, correspondingly low anticipated profits. This may explain why
the "personal," "individual" nature of copying
has been held relevant to fair use, [FN156]
and why "home use" may be relevant to the reach of
copyright law. [FN157]
Consider, for example, the impact of the photocopy machine or the
tape recorder. Each makes it possible for individuals to make use of
copyrighted works in new and potentially valuable ways. From the
point of view of the individual user, the anticipated "profit"
is likely to be small, so his use will be *1629 easily
discouraged by transaction costs. Also, the technology's novelty may
mean that the participants have no established market channels to
rely on, so that the purchase of permission is likely to be
cumbersome and expensive. High transaction costs and low
per-transaction profits will converge. From the point of view of the
copyright owner, the costs of enforcement against a diffuse group of
individuals might outweigh anticipated receipts. A custom of use
without payment will easily arise in such contexts unless the
transaction costs of seeking permission or of enforcement are in some
way reduced.
In
such situations, transaction costs are likely to prevent at least
some value-maximizing transfers from occurring [FN158]
if the copyright is enforced. At the extreme, enforcing the owner's
rights might eliminate the use, and thus bring no income to the owner
and deprive society of the benefit of the technology. For this
reason, new technologies may become the subject of fair use
treatment.
New
technologies do not always involve market barriers, however, and thus
do not always merit fair use consideration. In a case where a county
educational program was videotaping educational television programs,
the systematic and centralized nature of the copying and the various
market alternatives that were present made license and purchase
agreements quite possible. [FN159]
The court there denied fair use treatment at least in part because of
this possibility. [FN160]
Thus it is the absence of a market and the prospect that such a
market may form that is important, not the technological nature of
the use.
The
role of transaction costs also explains those cases that rely on the
copyright owner's apparent or likely consent in granting fair use.
[FN161]
Where a transfer is likely to be in the mutual interest of both owner
and user, the courts *1630 appear unwilling to deter such
transfers by imposing the costs of obtaining actual consent. [FN162]
2.
Externalities, Nonmonetizable Interest, and Noncommercial Activities.
An analysis of the limitations of markets can also illuminate the
special status that certain uses, such as scholarship, have in fair
use tradition. The costs and benefits of the parties contracting for
the uses often differ from the social costs and benefits at stake, so
that transactions leading to an increase in social benefit may not
occur. [FN163]
Thus, for example, a critic of the Warren Commission's investigation
of the Kennedy assassination might write a "serious, thoughtful
and impressive" [FN164]
book that will further public interest more than the revenues of his
book alone would indicate. One might say that publication of his book
gives an "external benefit" to persons who might gain
knowledge from the public debate sparked by the book without having
purchased the book itself. Similarly, teaching and scholarship may
yield significant "external benefits"; all of society
benefits from having an educated citizenry and from advances in
knowledge, yet teacher salaries and revenues from scholarly articles
are arguably smaller than such benefit would warrant. When a
defendant's works yield such "external benefits," the
market cannot be relied upon as a mechanism for facilitating socially
desirable transactions. [FN165]
*1631 In cases of externalities, then, the potential user may
wish to produce socially meritorious new works by using some of the
copyright owner's material, yet be unable to purchase permission
because the market structure prevents him from being able to
capitalize on the benefits to be realized. Though such inability
would not itself justify fair use, it may signal to the court that it
should investigate whether the social costs of relying on the market
are unacceptably high. It is therefore not surprising that section
107 of the Copyright Act, which addresses fair use, lists several
uses that potentially exhibit positive externalities, such as
"teaching," "scholarship," and "research,"
among the uses for which fair use may be given. [FN166]
Section 107 also directs the courts to consider "the purpose and
character of the use, including whether the use is of a commercial
nature or is for nonprofit educational purposes." [FN167]
Where the defendant does not seek to earn profits, it may be argued
that his willingness and ability to pay for the copyrighted resources
he uses will not provide an accurate measure of the public interest
served by his use. Distinctions between profit and nonprofit entities
or commercial and noncommercial uses must, however, be employed with
great caution. Henry Hansmann has suggested that nonprofit
organizations can be fully participating members of the market
process. [FN168]
Conversely, even commercial uses can face market failure. [FN169]
Distrust of the market may also be triggered when defendant's
activities involve social values that are not easily monetized. When
defendant's use contributes something of importance to public
knowledge, political debate, [FN170]
or human health, [FN171]
it may be difficult to state the social worth of that contribution as
a dollar figure. If the defendant's interest impinges on a first
amendment interest, relying upon the market may become particularly
inappropriate; constitutional values are rarely well paid in the
marketplace and, while the citizenry would no doubt be willing to pay
to avoid losing such values, it is awkward at best to try to put a
"price" on them. [FN172]
Not surprisingly, *1632 it has been suggested that fair use be
granted when first amendment issues are involved. [FN173]
While in all of the cases described in this section--those involving
external benefits, noncommercial uses, and nonmonetizable
values--reason exists to distrust the market, it may be particularly
difficult to determine whether the breakdown is substantial enough to
frustrate the purposes for enforcing copyrights. What one deals with
here may be not only traditional market failure, in the sense that
conditions of perfect competition have failed, but also a court's
perception that the criterion of economic "value" is itself
flawed. [FN174]
This concern is not illegitimate, but it should not be extended to
make the copyright law an instrument of income redistribution. The
courts should thus take care that they do not tax copyright owners to
subsidize impecunious but meritorious users under the guise of
maximizing value. [FN175]
Only when the public interest to be served is great, and the damage
to the owner small, does the need for this caution diminish.
3.
Anti-Dissemination Motives. Section 107 places first among the
purposes for which fair use is appropriate "criticism" and
"comment," uses that a copyright owner might be reluctant
to license. [FN176]
Similarly, the treatment of burlesques and satires, which can be
considered types of commentary, has been a volatile subject of fair
use law. These uses share a type of market failure that helps to
explain their fair use treatment and that is particularly important
in a field where advancement of knowledge is the ultimate goal. The
case law has tended to grant fair use treatment where copyright
owners seemed to be using their property right not for economic gain
but to control the flow of information.
The
usual economic assumption is that the owner of a resource will either
exploit that resource himself, or will sell it to someone else who
will. The *1633 owner of a copyright, however, may not be
willing to exploit all of the possible derivative works over which
his copyright would ordinarily give him control. Even if money were
offered, the owner of a play is unlikely to license a hostile review
or a parody [FN177]
of his own drama; a publicity- shy tycoon who owns the copyright on
magazine articles discussing his life is unlikely to license a
biographer to use these articles; [FN178]
a candidate for governor is unlikely to license his copyrighted
campaign music to be utilized in his opponent's televised
advertisement; [FN179]
and the publisher of a periodical is unlikely to license his
competitor to use his copyrighted magazine covers in comparative
advertising. [FN180]
Because the owner's antidissemination motives make licensing
unavailable in the consensual market, and because the free flow of
information is at stake, a strong case for fair use can be advanced
in these cases. [FN181]
Thus, it has often been suggested that burlesques and satires of
copyrighted works deserve generous fair use treatment, since the
copyright owners are unlikely to produce or license such work
themselves. [FN182]
It
might be argued that allowing fair use to criticisms, satires, and
other materials that are potentially hostile to the copyrighted work
will undermine incentives to produce original work. But while
criticisms and the like may indeed reduce an owner's receipts, the
goal of copyright is to generate incentives for the production of
works that satisfy consumer tastes. If a criticism reveals a work's
flaws, it is appropriate that demand for the work should decrease.
[FN183]
*1634 Criticism is valuable, inter alia, because the market
works to further the social good only when consumers have accurate
information about the goods available. As the Supreme Court has
written: "So long as we preserve a predominantly free enterprise
economy, the allocation of our resources in large measure will be
made through numerous private economic decisions. It is a matter of
public interest that those decisions, in the aggregate, be . . . well
informed." [FN184]
A similar public policy argument would encourage the taste-changing
functions of burlesque and satire. [FN185]
For these and other forms of criticism, fair use is particularly
appropriate when the owner's reluctance to license use of his work is
motivated by the desire to restrict the flow of information.
In
discussing instances where copyright owners' antidissemination
motives [FN186]
trigger a distrust of the market, however, it must be stressed that
refusals to grant permission to license should ordinarily be honored.
A refusal to license must not automatically justify a right to fair
use; markets can function only if owners have a right to say "no"
as well as "yes." [FN187]
When an owner refuses to license because he is concerned that
defendant's work will substitute for his own work or derivative
works, [FN188]
the owner is representing not only his own interest, but also the
interest of his potential customers and thus the public interest.
[FN189]
Market failure should be found only when the defendant can prove
[FN190]
that the copyright owner would refuse to license out of a desire
unrelated to the goals of copyright-- notably, a desire to keep
certain information from the public. [FN191]
Unfortunately, some courts seem to have viewed even some legitimate
refusals as justifying fair use treatment. [FN192]
A *1635 clearer focus on whether the nature of the reluctance
to license involved market failure could help avoid this problem.
Even though the presence of antidissemination motives signals a
reason to mistrust the market, a market breakdown is not always the
result. Where, for example, a potential satirist plans a remunerative
commercial use whose popularity will depend in part on the attractive
or dramatic qualities of the original being satirized, he may be
willing to offer a substantial payment for the right to use elements
of the copyrighted work in a satirical form. The copyright owner
might accept such payment in the expectation that it should more than
compensate him for any loss he might experience in his primary market
as a result of the satirical treatment. If a market bargain would be
possible, fair use should be denied [FN193]
unless the court perceives a danger that the owner might use his
market right to distort the satiric content.
Several factors already employed by the courts and Congress are
relevant to the inquiry into whether a bargain for a use could take
place. As mentioned, the commercial nature of the use is important,
[FN194]
as is substantiality. [FN195]
The more commercial the nature of the use, and the more the
defendant's work will compete with the copyrighted work, the greater
the impact of any given quantity of copying is likely to be. [FN196]
Also, anticipated profit--the incentive for a market bargain--is more
likely to be high where the taking is extensive. These criteria in
turn can have an impact upon the court's assessment of
substantiality. [FN197]
If despite the theoretical possibility of an anti-dissemination
motive the court feels that a market bargain could have been reached,
or that the defendant is operating in a realm that the copyright
owner himself might have been willing to exploit, [FN198]
fair use should be denied.
*1636
B. Assessment of Injury and Benefit
The
courts generally speak of "balancing" or "weighing"
in the fair use area without employing any coherent methodology for
determining how the various factors thrown into the pot--such as
public interest and injury to the copyright owner--should be
addressed. [FN199]
The fair use test presented here can clarify that process by
suggesting, first, that "public interest" cannot provide a
justification for fair use unless there is a reason to believe that
the market cannot be relied upon to serve that interest; and second,
that where the market cannot be relied upon, market measures for
comparing an owner's loss with a user's gain can provide some
objective guide to determining where the public interest lies. Since
the courts' amorphous handling of injury and benefit already reveals
patterns that are consistent with the fair use test advanced here,
the test in turn may serve to clarify the existing case law. It is
therefore worthwhile to explore further some aspects of how the
second part of the instant fair use testfinds expression in the
cases.
1.
Defendant's Interest. The fair use test presented here requires that
in order to warrant consideration for fair use protection the
defendant's use must have some positive social value. [FN200]
The cases do indicate that fair use will be denied where the court
perceives the defendant's use to be without value, as where the
defendant is using the copyrighted work for the purpose of achieving
a deception, e.g., falsely to indicate that the author of the
copyrighted *1637 work has endorsed the user's product.
[FN201]
If, on the other hand, the use has value, the courts will consider
its nature and measure its importance. [FN202]
It
may seem inconsistent that courts are willing to evaluate the public
interest or worthiness of defendant's work in the fair use context,
yet are unwilling, when granting protection in the first instance, to
investigate whether plaintiff's work is "worthy" of
copyright or, in the constitutional phrase, likely to "Promote
the Progress of Science." [FN203]
But, in light of the comparatively limited application of fair use
doctrine, the distinction is defensible. If authors were required to
prove the intellectual or aesthetic virtues of their works in order
to obtain copyright protection, the courts would be continually
embroiled in hard questions about artistic and other measures of
quality for which they are ill-equipped and for which the marketplace
criterion of consumer demand might be a more appropriate measure.
[FN204]
By contrast, the fair use inquiry into how greatly defendant's work
serves the public interest, and how significantly that interest would
be impaired if infringement were found, needs to be considered only
if market failure has been proven. [FN205]
Furthermore, the presence of market failure in fair use cases
suggests that consumer demand will not be appropriately reflected in
owner/user transactions, so that the court may be the only
institution capable of making the judgment. In addition, the
case-by-case flexibility of fair use allows the courts to weigh the
value criterion in defendant's favor only when they do feel equipped
to make such judgments. This judicial diffidence may explain why fair
use is often found in certain recurring categories, [FN206]
or in other instances where the public interest is quite obvious.
[FN207]
*1638 One unresolved question is whether defendant's work
serves the public interest if it is primarily entertainment. [FN208]
Some courts have suggested that entertainment has a social value,
[FN209]
while a recent opinion demanded that defendant show some additional
claim to serving the public. [FN210]
An economic *1639 analysis would consider entertainment to be
valuable, for it is an object of consumer preference like any other.
[FN211]
However, it is likely that an entertainment use will be able to pay
its own way through the market, [FN212]
so that market failure will less often appear in those contexts.
[FN213]
A commercial use like entertainment is also likely to cause more
injury than a noncommercial one. [FN214]
Thus, while entertainment uses, like commercial uses, may serve the
public welfare, [FN215]
where they are present the fair use test is unlikely to be satisfied
for other reasons.
2.
Plaintiff's Interest. Injury to the plaintiff's market has long been
considered the dominant factor in fair use adjudication. [FN216]
Injury most strikingly results when a defendant advertises his work
as a possible substitute for the copyrighted original. [FN217]
When a defendant uses plaintiff's copyrighted *1640 work in a
way that competes with that work, fair use is particularly unlikely.
[FN218]
Where the defendant's work reaches a market that the plaintiff has
not yet tapped, however, the injury is less apparent and the case
treatment has been disparate. [FN219]
The analysis presented here suggests that probable injury to those
derivative work markets that plaintiff might exploit is relevant to
determining whether or not a use is fair. [FN220]
The defendant himself may be one of the plaintiff's potential
customers, [FN221]
and computation of injury should include *1641 the amount that
the defendant would have paid for the work had he not bypassed the
market. If defendant utilizes the copyrighted work for sale in a new
market, those receipts provide some guide to what defendant might
have paid. [FN222]
Similarly, if the defendant realizes a cost savings in using
plaintiff's work as a building block for his project, the cost saved
[FN223]
may provide some guide to what defendant would have paid and
therefore to what plaintiff has lost.
3.
Balancing Under Consent Analysis. The role of consent has been the
subject of some discussion in traditional fair use commentary.
[FN224]
Several cases have found the copyright owner's apparent consent to
favor a fair use holding, [FN225]
or have indicated that a custom of permitted use (i.e., a pattern of
apparent consent among copyright owners) could favor fair use.
[FN226]
The important study that Professor Latman prepared for the Senate
Committee on the Judiciary presented the consent of the reasonable
copyright owner as a potential unifying principle, [FN227]
but other commentary has dismissed consent analyses as "fictional."
[FN228]
*1642 Economic analysis helps to explain why apparent consent
and custom may weigh in favor of fair use and also helps to delineate
the limits of their applicability. As intimated earlier, hypothetical
consent may serve as a useful model for balancing the injuries and
benefits of a given copyright use. Cases in which courts have
employed consent terminology provide implicit examples of such
balancing and illustrate related economic principles. [FN229]
A
court is likely to find fair use when a copyright owner's behavior
gave apparent consent to the use, even if that copyright owner never
actually intended to allow the specific use in question. [FN230]
In such cases, consent is inferred from the plaintiff's actions; this
inference is consistent with society's need to make its members
responsible for their actions. [FN231]
Since it is less expensive for persons whoown copyrights to avoid
misleading potential users than it is for users to seek explicit
permission from all owners whose behavior has implied permission to
use, [FN232]
a fair use holding in this context stimulates more economically
desirable behavior than would a finding of liability. [FN233]
*1643 Although apparent consent may provide an acceptable
basis for fair use, its absence should not trigger liability.
Instead, the absence of apparent consent should merely make the court
examine whether other justifications for market bypass may be
present. Thus, posting an explicit "do not copy" warning on
a book may negate a copyright owner's apparent consent. The "do
not copy" warning would not, however, prevent a court from
granting fair use of that work on grounds other than apparent
consent, so that the courts' freedom to grant fair use despite such a
warning does not render "fictional" the use of a consent
rationale in appropriate cases.
Just as judicial reluctance to stimulate needlessly expensive
behavior may be at the core of the apparent consent cases, so too it
may explain those cases in which the courts exhibit a sensitivity to
whether a challenged use is minor, [FN234]
or customary. [FN235]
Similarly, in instances where defendant's use is likely to yield the
owner himself a net benefit, [FN236]
such complements [FN237]
are likely to *1644 receive fair use treatment. [FN238]
In these cases, consent may be "implied" in the sense that
the typical or reasonable copyright owner would probably consent to
the use. [FN239]
The cost in time and money of obtaining consent can be high, both in
absolute terms (i.e., constituting a drain on resources) and in
relative terms (i.e., high enough to discourage the creation of new
works or socially desirable dissemination). [FN240]
The courts seem to be unwilling to require all users to undertake the
cost of obtaining permission from likely-consenting owners; they may
feel that such a price is too high to pay for the purpose of
protecting that unusual owner who would object to a customary, minor,
or beneficial use.
*1645 In all of these cases, apparent and expected consent act
as a substitute for an actual market transaction, indicating that
there is no social loss or injury to plaintiff from defendant's use.
If transaction costs would inhibit transfers where consent is likely,
fair use is an appropriate response. More specifically, in such
contexts the second part of the fair use test advocated in this
Article is satisfied.
C.
Substantial Injury Hurdle
Courts do not ordinarily separate the balancing and substantial
injury inquiries, although it would probably be agreed that "[h]arm
which 'imperils the existence of a publication' is more destructive
of a fair use defense than is harm which would 'limit profits."'
[FN241]
Several courts have demonstrated a sensitivity to the ultimate issue
of whether allowing defendant's use would erode incentives. [FN242]
For the reasons discussed above, [FN243]
it would be desirable for the two issues to be separately identified
and separately considered in the future.
The
economic analysis required by the substantial injury test can aid in
integrating the first two parts of the fair use test with traditional
fair use law. For example, incentive analysis can help to distinguish
between those cases in which a custom of uncompensated use indicates
the market can be safely bypassed and those instances in which
honoring a custom of such use would harm the copyright scheme. An
inquiry into potential market cures, as mandated by the substantial
injury hurdle, allows a court to determine whether the circumstances
that gave rise to the custom are subject to change, and whether the
copyright owners' apparent acquiescence indeed indicates they have no
objection to a given use. Without such an inquiry, reliance on custom
could bar copyright owners from obtaining needed remuneration,
especially for modes of use arising from newly-developed
technologies.
Similarly, the identification of market barriers for out-of-print
works should be supplemented by an incentive analysis. [FN244]
If allowing an uncompensated use would seriously prejudice a
developing reprint market in such books, fair use would be
inappropriate. Courts have recognized the market- impact dimension of
the out-of-print problem, without a clear focus on its market-*1646
failure aspect. [FN245]
Application of the third phase of the market test would serve to
reconcile solicitude for the copyright owners' economic interest in
out-of-print works with the Senate Report's apparent concern for
maintaining access to these materials.
A
model that demonstrates a unification of the three fair use concerns
presented here appears in the Agreement on Guidelines for Classroom
Copying in Non-For-Profit Educational Institutions. [FN246]
The Guidelines are simultaneously concerned with brevity,
spontaneity, and the cumulative market effect of copying. For
example, under the Guidelines, copying that is extensive in quantity
or involves "works intended to be 'consumable' in the course of
study or of teaching" would not be fair use even if spontaneous
and not capable of effectuation in the market. [FN247]
The Guidelines represent only "the minimum standards" for
fair use; the three-part test can serve to structure the fair use
inquiry concerning classroom use outside of the Guidelines'
parameters. [FN248]
Overall, the discussion in the preceding sections reveals that
incentive analysis can provide a useful addition to the framework for
the cases that have grappled with market-oriented approaches to fair
use. Now that the nature of the connection between the three-part
test and the statute and case law has been explored on a general
level, the discussion will turn to two particular scenarios to allow
for a more detailed explanation of fair-use analysis.
IV.
CASE STUDIES FOR FAIR-USE ANALYSIS
Both of the cases that follow are relevant to the discussion because
they address instances in which the grant of fair use might be
favored by public opinion, but the grant is controversial when viewed
from a traditional fair use perspective. In Williams & Wilkins,
the first case studied, the court implicitly attempted to use a
market approach; in the second, the Betamax case, this market
approach was rejected. This reveals some confusion as to the role of
both the market approach and the traditional fair-use factors, which
might be alleviated if the inchoate doctrinal approach of the fair
use cases were reformulated as suggested here. The discussion that
follows will suggest how appropriately to apply a market-based test
to the Williams & Wilkins and Betamax situations.
*1647
A. Williams & Wilkins
In
Williams & Wilkins, an equally divided Supreme Court affirmed
without opinion a decision by the Court of Claims that extensive
library photocopying could constitute fair use. The Court of Claims
opinion [FN249]
implicitly made use of the approach recommended in this Article. It
will be useful to apply to that opinion--called "the leading
case in the application of the fair use doctrine to noncommercial
copying" [FN250]--the
three-part test described herein, both to illustrate the application
of that test and to understand the nature of the decision.
The
facts were these: Publisher Williams & Wilkins Company charged
that its copyrights in four medical journals were being infringed by
the photocopying efforts of two United States government libraries,
the technical library of the National Institutes of Health (NIH) and
the National Library of Medicine (NLM). The government conceded that
at least one photocopy had been made of eight articles published in
one or more of the journals, [FN251]
but the court's focus was not on those particular copies. Rather, it
viewed itself as passing judgment on the libraries' entire
photocopying practice. In 1970, NIH made approximately 93,000
photocopies of articles for supply to the NIH research staff. [FN252]
In 1968, a "representative year," [FN253]
NLM filled approximately 120,000 requests [FN254]
from other libraries, government agencies, and private or commercial
organizations [FN255]
seeking photocopies of articles. [FN256]
The *1648 Court of Claims held that this photocopying activity
was protected by fair use. [FN257]
Application of the three-part test first requires identification of
possible market failure. As discussed earlier, [FN258]
the existence of a noncommercial use may signal a potential market
failure, as may the presence of a value such as human health that is
not easily monetized. These elements were present in Williams &
Wilkins, for the court stressed that "scientific progress,
untainted by any commercial gain from the reproduction, is the
hallmark of the whole enterprise of duplication." [FN259]
Medicine is traditionally a well-paying field, however, and while
research may not be as lucrative as practice, the court did not
suggest that the photocopy users would fail to be rewarded monetarily
for the increase in their skills and accomplishments resulting from
their use of the copyrighted work. It is therefore best to look
elsewhere for evidence of market failure.
In
the Court of Claim's perception, no satisfactory market would form
for the valuable medical uses made possible by photocopying if
photocopying ceased. [FN260]
The court believed that the articles desired would not be available
for purchase [FN261]
or that the items desired would not be available except if tied to
the purchase of other, expensive items. [FN262]
But these availability problems become important only if no market
for paid photocopies would evolve. As a dissenting opinion pointed
out, [FN263]
it is unclear why the majority felt that photocopying itself would
cease being available if the plaintiff publisher were given the
judgment of liability it was seeking.
The
majority's assumption that photocopying would cease may rest on
another type of market defect: high transaction costs. [FN264]
If each person seeking *1649 a photocopy were required to
bargain with the copyright owner, the costs and inconvenience of
bargaining would prevent many of the uses from being made. [FN265]
Thus, if conventional modes of bargaining were the only tools
available with which to effect transfers, markets might fail to form,
and a holding of infringement might end photocopying.
Conventional one-on-one bargaining is not the only alternative,
however. Many commentators and plaintiffs themselves had suggested
that enforcing the plaintiff's copyright would not preclude a
continuation of photocopying. [FN266]
It was argued that a licensing royalty system or clearinghouse might
arise, [FN267]
reducing transaction costs to a bearable level, so that plaintiffs
could be paid and defendants could have use of the copyrighted
material. Chief Judge Cowen in dissent presented this position,
arguing that a market in photocopies would exist after a judgment of
liability, either by means of a reasonable royalty paid via license
or by means of clearinghouses, or a combination thereof. [FN268]
The
majority was unwilling to consider these possible market cures.
[FN269]
It doubted whether the licensing plan suggested by plaintiff would
have been "viable," [FN270]
"whether a . . . clearinghouse system can be developed without
legislation, and if so whether it would be desirable," [FN271]
and it declined to consider author willingness to license. [FN272]
The majority also felt that the 1909 *1650 Copyright Act
foreclosed a court from imposing a licensing system. [FN273]
This attitude contrasted with Chief Judge Cowen's dissent, which
considered it quite relevant that an award to plaintiff "may
very well lead to a satisfactory agreement between the parties for a
continuation of the photocopying by defendant upon payment of a
reasonable royalty to plaintiff." [FN274]
In
sum, the majority opinion in Williams & Wilkins premised its
holding on the questionable assumption that certain valuable uses
would have to cease if liability were imposed, or at least that there
was a high risk that no adequate market would evolve to disseminate
the copyrighted works and the socially valuable information they
contained to the desired extent. [FN275]
It was in the context of this assumption that the court made its
assessment of harms and benefits.
In
broad outline, the court's approach to costs and benefits followed
the pattern recommended here. The majority balanced the harm that
would be imposed on medical science by a decision in favor of
liability [FN276]
with the harm that would be imposed on the publisher by a finding of
fair use, [FN277]
and concluded that the "balance of risks" was on
defendant's side. [FN278]
This implicitly satisfied the second branch of the fair use test
described herein. [FN279]
The majority also concluded that the publisher would suffer no
"serious adverse impact," [FN280]
a conclusion that, if true, would satisfy the substantial injury
hurdle that is the third part of the fair use test. [FN281]
A closer look at the court's analysis, however, reveals flaws in its
approach.
*1651 The majority's opinion recognized that the first step in
the balancing process is the determination of whether defendant's use
serves public welfare. [FN282]
Given the nature of medical research, the court had no trouble with
this inquiry. The court then discussed how this interest would be
hurt (i.e., what benefits would be lost) if liability were imposed;
unfortunately, the court concentrated this discussion on an
examination of how medical science would be affected if photocopying
were ended. [FN283]
As seen above, however, it is not certain that an end to photocopying
would indeed have followed from a judgment of liability. The failure
to consider the possibility that photocopying might continue under
royalty arrangements overstated the amount at stake for medical
science.
The court's evaluation of harm to plaintiff is also questionable in
some respects. In particular, the court refused to include in its
assessment of plaintiff's injury the potential photocopy royalty
income that the plaintiff might have received if its copyright were
enforced. The court wrote:
It is wrong to measure the detriment to plaintiff by loss of presumed
royalty income--a standard which necessarily assumes that plaintiff
had a right to issue licenses. That would be true, of course, only if
it were first decided that the defendant's practices did not
constitute "fair use." In determining whether the company
has been sufficiently hurt to cause these practices to become
"unfair," one cannot assume at the start the merit of the
plaintiff's position . . . . [FN284]
By
contrast, the economic approach to fair use presented in this Article
begins with the premise that a copyright owner is ordinarily entitled
to revenue for all substantial uses of his work within the
statutorily protected categories. [FN285]
Both fairness to the copyright owner and economic efficiency demand
that the assessment of his injury include the loss of the revenues he
would receive in the market were his entitlement to be enforced. If
the market would not fail fully after a finding of liability, the
plaintiff would be able to serve the public interest by selling his
work at least to some extent. If such revenues were possible in
substantial amounts, then their presence or absence could have a
significant impact on the copyright owner's incentives and his
patterns of *1652 production. [FN286]
To deny consideration to such potential revenues would be to place
impossible burdens on most plaintiffs, [FN287]
rendering them incapable of demonstrating the substantial injury that
might follow from a grant of fair use.
Thus, although the Williams & Wilkins decision evidences a
concern with market failure similar to that discussed here, the
opinion suffers from a lack of an articulated and coherent rationale.
[FN288]
An explicit focus on the issues of market failure, balancing and
substantial injury would have eliminated some of the pitfalls
discussed above. Nevertheless, the debate between majority and
dissenters in Williams & Wilkins focused properly not on
formalistic questions, but on key issues such as whether or not
markets would form. In doing so, the judges of that court addressed
one of the central questions in the debate over whether copyright law
can be adapted to the new technologies.
B.
The Betamax Case: Intrinsic Uses
In
the Betamax case, the Ninth Circuit reversed a district court
judgment that home videorecording constituted fair use. [FN289]
In doing so, it strongly criticized the district court for using
"Williams & Wilkins Co.'s distortions of the fair use
rationale." [FN290]
The "distortion" that primarily disturbed the Ninth Circuit
was the Court of Claims's willingness to extend fair use treatment to
the use of a work "for its intrinsic purpose--to make what might
be called the 'ordinary' use of it." [FN291]
The Ninth Circuit relied heavily on Leon Seltzer's contrary view that
fair use generally should deal only with "'the use by a second
author of a first author's work."' [FN292]
It also intimated that it accepted Seltzer's belief that "ordinary"
use by photocopying and videorecording "'triggers questions of
reallocation of costs,"' [FN293]
that such questions should be dealt with in specific exemptions
rather than by fair use, and that they are thus "matters for
Congress, not the courts." [FN294]
Turning initially to the proposition that "ordinary" use is
not within the proper ambit of the fair use doctrine, one finds that
the copyright statute itself *1653 specifically embraces at
least one "ordinary" use among the examples for which fair
use is appropriate: "multiple copies for classroom use"
find explicit shelter under section 107. [FN295]
In addition to the explicit wording of section 107, legislative
history shows Congress treating photocopying and recording as
legitimate subjects for resolution under the fair use doctrine.
[FN296]
Similarly, the Ninth Circuit did not deny that home taping of sound
recordings, as "intrinsic," "ordinary,"
consumer-type use, long considered permissible, might constitute fair
use. [FN297]
It
is true that, historically, new authors were given fair use treatment
more often than ordinary users. The reason may simply be that most
markets are set up to serve ordinary consumers, and usually function
well in that context; market failure will arise more often in
circumstances where users seek to employ the work in unexpected ways
and fair use will thus tend to be awarded in such circumstances. In
addition, the public interests served by second authors are likely to
be stronger than the interests served by ordinary consumers [FN298]
and injury to incentives may be less severe when the user is a second
author, [FN299]
whose use is unlikely to be repeated by others, and whose work, by
being different from the copyrighted work, may not be competitive
with it for the same ultimate audience. But none of these functional
considerations *1654 suggest there should be a per se bar
against awarding fair use to ordinary users; on the contrary, in the
case where the transactions between copyright owner and ordinary user
exhibit the same characteristics of market failure, small injury, and
public interest, fair use may well be appropriate. [FN300]
The court of appeals stated that the inclusion of photocopying,
videorecording, and other "intrinsic" uses within fair use
would cause "a fundamental restructuring of the copyright system
not justified by the statutory scheme or traditional notions of fair
use." [FN301]
This Article, however, has shown that it is the user faced with
market failure, whether he is a second author or an "ordinary"
user, who is the traditional judicial and statutory object of fair
use solicitude.
In
light of the Ninth Circuit's reliance on Leon Seltzer's "intrinsic
use" terminology, it is important to note that Seltzer's own
underlying approach to fair use is arguably adaptable to a market
failure analysis. He suggests that "a more useful fair use
statute" [FN302]
than the one enacted by Congress would begin as follows: "Fair
use is use that is necessary for the furtherance of knowledge,
literature, and the arts AND does not deprive the creator of the work
of an appropriately expected economic reward." [FN303]
On the surface, Seltzer's prohibition against extending fair use to
"ordinary" uses would seem to follow quite logically from
his ideal statute's concern with appropriately expected economic
reward: the ordinary user is precisely the person from whom the
copyright owner expects remuneration, so that granting fair use to
such person would violate Seltzer's statute by "depriving the
creator . . . of an appropriately expected economic reward."
But, where there is market failure, enforcing the owner's rights may
not bring economic reward; more fundamentally, the author's normal
expectations will involve his evaluation of what kind of markets
exist for his work. In the presence of market failure, "ordinary"
users become extraordinary, and fair use can be granted without
deprivation of "appropriately expected" receipts. Thus,
ordinary users faced with market failure might have some claim to
fair use under the basic clause of Seltzer's proposed statute.
[FN304]
*1655 The Ninth Circuit's reliance on Seltzer's conclusions
regarding intrinsic use is also questionable since, as Seltzer
acknowledged, Congress did not follow his recommended pattern.
[FN305]
In particular, Congress did not adopt any strict conceptual
distinction between those uses properly treated by exemptions and
those properly treated by fair use. [FN306]
Seltzer argued that Congress erred in doing so; [FN307]
this Article argues that the legislation accurately reflected past
judicial developments. In any event, the open-ended nature of the
congressional approach to fair use suggests that endorsement of an
inflexible standard like "intrinsic use" would be
inappropriate.
A
market-oriented test would be more consistent with this flexible
congressional approach, and is capable of addressing the Betamax
problem. Under the proposed three-part test, the first issue would be
to identify whether market failure potentially appears in the home
videorecording context. It does, in two areas. Home users might well
find transaction costs prohibitively high if they were required to
bargain individually with copyright owners over the right to tape
each desired program. The mere task of identifying the copyright
owners in advance of broadcasts might present insurmountable
difficulties. Second, prohibitions against home taping might be
impossible to enforce; the potential loss of privacy might pose a
cost higher than the society would wish to bear, [FN308]
and the economic cost to the copyright owners of identifying
potential violators and bringing them to justice might be greater
than any profits likely to be generated by deterrence of unauthorized
taping. [FN309]
Bargains that cannot be enforced present a classic type of market
failure. [FN310]
Theoretically, it is possible that both aspects of the market failure
could be cured if the manufacturers of videorecorders and
videorecording tape are subjected to liability judgments. [FN311]
The court could potentially "award damages or a continuing
royalty," [FN312]
which would act as an incentive to the liable parties to set up a
workable collection system, or the court might itself take steps
toward such a system. [FN313]
Among the suggestions that have been discussed *1656 are
imposing royalty charges to be collected at the time of recorder or
tape purchases as an "add-on" to the price. [FN314]
Collection of the royalty fees and monitoring of the collection
process might thus be practicable, easing the enforcement burden. A
centralized agent might receive and distribute the royalty funds
proportionately to the owners of popular programs at a level of
transaction cost less than that which would be necessary if
individual bargains were to be required. [FN315]
Viewed from this perspective, the key questions are whether such
market cures will evolve, whether they will be practicable, and what
ought to be a court's role in achieving them. The Betamax case might
be decided either way under this analysis, depending on what
additional findings were made. If a market cure were achievable
through a finding of liability, and if a grant of fair use would
deprive the plaintiffs of substantial revenues from this potential
market, fair use would be inappropriate because the substantial
injury hurdle could not be surmounted. If, however, the court
determined that a market cure were not practicable, further inquiry
would follow. The court would then "weigh . . . the 'benefit' of
an extremely popular increase in access with the 'harm' to a
plaintiff." [FN316]
If the court found that the balance favored defendants, and if it
found that judgment for defendants would not substantially injure
plaintiffs' incentives, fair use would be granted; otherwise,
liability would be imposed.
Neither the district court nor the court of appeals adequately
addressed the question of market cure. The district court held that
even if home taping constituted copyright infringement, the
manufacturers would not have been liable. [FN317]
Under such a view, the possible market cure discussed above would be
unavailable. [FN318]
The court of appeals imposed liability on the manufacturers. [FN319]
If that court was correct in its approach to contributory liability,
such market cures are potentially in the hands of the courts.
However, the court declined to focus on the question. [FN320]
In fact, it rejected the notion that the practicability or
availability of relief (i.e., market cure) should be relevant to
*1657 the issue of liability versus fair use. [FN321]
It thereby imposed on society the deliberately unconsidered risk that
either access would cease, or that widespread and unredressed
copyright violations would bring the law into disrepute or ridicule.
Once the court of appeals rejected the district court's view of
contributory liability, it should have remanded the case for further
findings on the issue of market cure.
C.
Summary
The
Williams & Wilkins court seemed to focus primarily on the social
interests served by defendant's photocopying practices. The Betamax
court seemed to focus on the property owner's interests. It is hoped
that the three- part test presented here can unify both perspectives.
CONCLUSION
An
economic and structural analysis of the fair use doctrine and its
place in the copyright scheme reveals that fair use is ordinarily
granted when the market cannot be relied upon to allow socially
desirable access to, and use of, copyrighted works. This Article has
presented a three-part test for fair use that reflects this focus on
market failure, and has traced how this test could be incorporated
within the traditional approach to fair use. Moreover, the discussion
of the Williams & Wilkins opinion, which most closely applied the
three-part test, and of the Betamax case, demonstrated that the test
can provide a framework in which the courts can directly face the
underlying issues that should govern the application of fair use
doctrine to new technologies.
It
is important that a market failure approach to fair use not be
expanded into a justification for allowing court intervention
whenever the market fails to reach "perfect" results, for
no market is ever perfect. What emerges from the case law and the
copyright statute is a focus on individual types of transactions, not
a concern with restructuring an entire set of markets to reach ideal
goals, and an identification of those imperfections that will not be
tolerated because of their particular impact on dissemination and the
ultimate goals of copyright. That transactional emphasis is the
proper one. It allows particularly desirable transfers that are
blocked by market failure to go forward outside the market, but also
allows the courts to impose liability where widespread use of this
bypass would cause substantial injury to the copyright owner. This
Article has accordingly discussed not only the market failure grounds
for fair use, but also the limitations that should be placed on
employment of the doctrine. It is submitted that the three-part test
presented here is of assistance in analyzing fair use issues and
provides a helpful tool for predicting and guiding decisions in this
most difficult area of copyright law.
[FNa1].
Associate Professor of Law, Western New England College School of Law
(on leave of absence with Weil, Gotshal, & Manges for the
academic year 1982-83). A.B. 1971, Cornell University; J.D. 1975,
University of Pennsylvania Law School. The views expressed herein are
solely those of the author.
I
would like to thank Professors Bruce A. Ackerman of the Columbia
University School of Law, Robert A. Gorman of the University of
Pennsylvania Law School, and Warren F. Schwartz of the Georgetown
University Law Center for their helpful comments on earlier versions
of this Article. Responsibility for all errors, of course, rests with
me. The Article was prepared with the aid of a research grant from
Western New England College School of Law. Students Anne Cohen,
Patrick Lang and Charles Stephenson provided valuable research
assistance.
The
Article is dedicated to Norman W. Bernstein.
[FN1].
659
F.2d 963 (9th Cir.1981),
cert. granted, 102
S.Ct. 2926 (1982)
(No. 81-1687).
[FN2].
Id.
at 969.
[FN3].
Dellar
v. Samuel Goldwyn, Inc., 104 F.2d 661, 662 (2d Cir.1939)
(per curiam). The complexity of the issues underlying fair use has
been recognized since its inception. See, e.g., Folsom
v. Marsh, 9 F. Cas. 342, 344-45 (C.C.D.Mass.1841)
(No. 4901).
[FN4].
Universal
City Studios, 659 F.2d at 970;
see also id.
at 971
(new technology strains the fair use doctrine in removing control of
access from the author). The court relied there on a thoughtful work
by Leon Seltzer. Seltzer, Exemptions and Fair Use in Copyright: The
"Exclusive Rights" Tensions in the New Copyright Act, 24
Bull. Copyright Soc'y 215 (1977), reprinted in L. Seltzer, Exemptions
and Fair Use In Copyright (1978).
[FN5].
487
F.2d 1345 (Ct. Cl. 1973),
aff'd by an equally divided court, 420
U.S. 376 (1975)
(per curiam).
[FN6].
420
U.S. 376 (1975)
(per curiam).
[FN7].
The Williams & Wilkins opinion is discussed infra notes 249-88
and accompanying text.
[FN8].
Sony
Corp. of America v. Universal City Studios, Inc., 102 S.Ct. 2926
(1982)
(No. 81-1687.
[FN9].
This Article will analyze critically certain aspects of the Court of
Claims's opinion, see infra notes 260-88 and accompanying text. Other
aspects of the opinion have been the subject of much analysis. See,
e.g., Nimmer, Photocopying and Record Piracy: Of Dred Scott and Alice
in Wonderland, 22 U.C.L.A.L.Rev. 1052 (1975).
[FN10].
"[S]ince the doctrine is an equitable rule of reason, no
generally applicable definition is possible, and each case raising
the question must be decided on its own facts." H.R.Rep. No.
1476, 94th Cong., 2d Sess. 65 (1976) [hereinafter cited as House
Report], reprinted in 1976 U.S. Code Cong. & Ad. News 5659, 5679.
In
1961, the then Register of Copyrights described fair use as follows:
"'[F]air use' . . . eludes precise definition; broadly speaking,
it means that a reasonable portion of a copyrighted work may be
reproduced without permission when necessary for a legitimate purpose
which is not competitive with the copyright owner's market for his
work." Staff of House Comm. on the Judiciary, 87th Cong., 1st
Sess., Copyright Law Revision, Report of the Register of Copyrights
on the General Revision of the U.S. Copyright Law 24 (Comm. Print
1961). Another often quoted definition is that fair use is a
"privilege in others than the owner of a copyright to use the
copyrighted material in a reasonable manner without his consent,
notwithstanding the monopoly granted to the owner." H. Ball, The
Law of Copyright and Literary Property 260 (1944).
[FN11].
See infra text accompanying notes 89-91 & 150-98.
[FN12].
See infra text accompanying notes 92-103 & 199-240.
[FN13].
See infra text accompanying notes 104-24 & 241-47.
[FN14].
See infra text accompanying notes 295-307.
[FN15].
See infra notes 150-240 & 295-97 and accompanying text.
[FN16].
See infra text accompanying notes 249-88.
[FN17].
See infra text accompanying notes 289-322.
[FN18].
U.S.
Const. art. I, § 8, cl. 8.
[FN19].
For an overview of copyright history, see B. Kaplan, An Unhurried
View of Copyright 1-38 (1967); A. Latman & R. Gorman, Copyright
for the Eighties 1-10 (1981).
[FN20].
See, e.g., Mazer
v. Stein, 347 U.S. 201, 219 (1954).
[FN21].
See, e.g., Rosemont
Enter., Inc. v. Random House, Inc., 366 F.2d 303, 307 (2d Cir.1966),
cert. denied, 385
U.S. 1009 (1967).
The current debates on fair use do not attack this general principle,
but center on the extent to which the incentive purpose requires
enforcement of the author's right "to control the cost of and
access to" his production in varying circumstances. Universal
City Studios v. Sony Corp. of America, 659 F.2d 963, 965 (9th
Cir.1981),
cert. granted, 102
S.Ct. 2926 (1982)
(No. 81-1687).
[FN22].
The Federalist No. 43, at 272 (J. Madison) (C. Rossiter ed. 1961).
[FN23].
See, e.g., Rosemont
Enter., Inc. v. Random House, Inc., 366 F.2d 303, 306-07 (2d
Cir.1966),
cert. denied, 385
U.S. 1009 (1967);
Triangle
Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171,
1173-75 (5th Cir.1980).
[FN24].
See generally B. Kaplan, supra note 19.
[FN25].
Universal
City Studios v. Sony Corp. of America, 659 F.2d 963, 969 (9th
Cir.1981)
(quoting Dellar
v. Samuel Goldwyn, Inc., 104 F.2d 661 (2d Cir.1939)),
cert. granted, 102
S.Ct. 2926 (1982)
(No. 81-1687).
[FN26].
The doctrine of fair use was first accorded statutory recognition in
the 1976 revision of the Copyright Act. The statute provides:
§
107. Limitations on exclusive rights: Fair use
Notwithstanding the provisions of section 106, the fair use of a
copyrighted work, including such use by reproduction in copies or
phonorecords or by any other means specified by that section, for
purposes such as criticism, comment, news reporting, teaching
(including multiple copies for classroom use), scholarship, or
research, is not an infringement of copyright. In determining whether
the use made of a work in any particular case is a fair use the
factors to be considered shall 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.
17
U.S.C. § 107 (1976).
The
legislative history of §
107
of the 1976 Copyright Act indicates that, despite the statutory
recognition accorded fair use, the nature of the doctrine remains to
be defined by case law: "The bill endorses the purpose and
general scope of the judicial doctrine of fair use, but there is no
disposition to freeze the doctrine in the statute . . . ." House
Report, supra note 10, at 66, reprinted in 1976 U.S. Code Cong. &
Ad. News at 5680. See also S.Rep. No. 473, 94th Cong., 1st Sess. 62
(1975) [hereinafter cited as Senate Report]. The courts have
recognized their freedom to continue the development of fair use
doctrine. See, e.g., Triangle
Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171,
1174 (5th Cir.1980)
("Congress made clear that it in no way intended to depart from
Court-created principles or to short- circuit further judicial
development . . . .").
[FN27].
17
U.S.C. § 107 (1976).
[FN28].
House Report, supra note 10, at 65, reprinted in 1976 U.S. Code Cong.
& Ad. News at 5679.
[FN29].
The 1976 Copyright Act provides that "[i]n determining whether
the use . . . is a fair use the factors to be considered shall
include" those factors listed in the text. 17
U.S.C. § 107 (1976).
The Act provides that the term "including" is "illustrative
and not limitative." Id. § 101. See also House Report,
supra note 10, at 66, reprinted in 1976 U.S. Code Cong. & Ad.
News at 5681-83 ("Beyond a very broad statutory explanation of
what fair use is and some of the criteria applicable to it, the
courts must be free to adapt the doctrine to particular situations on
a case-by-case basis."). The Fifth Circuit recognized the
open-ended nature of the statute, but also indicated that "normally
these four factors would govern the analysis." Triangle
Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171,
1175 n.10 (5th Cir.1980).
[FN30].
See supra note 26.
[FN31].
The courts have reached varying results on these questions. The Fifth
Circuit, for example, recognized that "[t]he statute does not
indicate how much weight is to be accorded each factor" but
considered "the fourth factor, the effect of the use upon the
potential market for or the value of the copyrighted work" to be
the most important. Triangle
Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171,
1175 (5th Cir.1980).
Other courts have placed much emphasis on the amount and
substantiality of the portion copied (the third factor). The Triangle
opinion stated that "the idea that the copying of an entire
copyrighted work can never be fair use 'is an overbroad
generalization, unsupported by the decisions and rejected by years of
accepted practice."' Id.
at 1177 n.15
(quoting Williams
& Wilkins Co. v. United States, 487 F.2d 1345, 1353, 203 Ct.Cl.
74 (1973),
aff'd by an equally divided court, 420
U.S. 376 (1975)
(per curiam) (citing cases)) (reproduction of copyrighted magazine
covers in competitor's comparative advertisements held to be fair
use). The district court in the Betamax case took a similar position,
in its functional approach to substantiality. See Universal
City Studios, Inc. v. Sony Corp. of America, 480 F.Supp. 429, 454- 56
(C.D.Cal. 1979),
rev'd in part and remanded 659
F.2d 963 (9th Cir.1981),
cert. granted, 102
S.Ct. 2926 (1982)
(No. 81-1687). See also the "Agreement on Guidelines for
Classroom Copying in Not-For-Profit Educational Institutions."
House Report, supra note 10, at 68-70, reprinted in 1976 U.S. Code
Cong. & Ad. News at 5681-83 (copying of "complete poem,"
"complete article, story, or essay" will be fair use if
other conditions are met). By contrast, the Ninth Circuit intimated
that it weighed the quantity of copying quite heavily, regardless of
its functional impact. Universal
City Studios, Inc. v. Sony Corp. of America, 659 F.2d 963, 973 (9th
Cir.1981),
cert. granted, 102
S.Ct. 2926 (1982)
(No. 81-1687).
Congress took the position that, "[T]he endless variety of
situations and combinations of circumstances that can rise [sic] in
particular cases precludes the formulation of exact rules in the
statute." House Report, supra note 10, at 65-66, reprinted in
1976 U.S. Code Cong. & Ad. News at 5675-80.
[FN32].
Thomas C. Schelling has written:
A
good part of social organization--of what we call society--consists
of institutional arrangements to overcome . . . divergences between
perceived individual interest and some larger collective bargain.
Some of it is market- oriented--ownership, contracts, damage suits,
patents and copyrights, promissory notes, rental agreements, and a
variety of communications and information systems. Some have to do
with government--taxes to cover public services, protection of
persons, a weather bureau if weather information is not otherwise
marketable, one-way streets, laws against littering, wrecking crews
to clear away that car in the southbound lane and policemen to wave
us on in the northbound lane. More selective groupings--the union,
the club, the neighborhood--can organize incentive systems or
regulations to try to help people do what individually they wouldn't
but collectively they may wish to do. Our morals can substitute for
markets and regulations, in getting us sometimes to do from
conscience the things that in the long run we might elect to do only
if assured of reciprocation.
T.
Schelling, Micromotives and Macrobehavior 127-28 (1978).
[FN33].
See generally R. Posner, Economic Analysis of Law 11-12 (2d ed.
1977). Market failure, its effect on economic efficiency, and the
variety of available cures are recurrent themes in Judge Posner's
text. Some significant forms of allocative inefficiency are reviewed
in Markovitz, The Causes and Policy Significance of Pareto Resource
Misallocation: A Checklist for Micro- Economic Policy Analysis, 28
Stan.L.Rev. 1 (1975).
[FN34].
See, e.g., G. Calabresi & P. Bobbitt, Tragic Choices 31-34
(1978).
[FN35].
See generally R. Heilbroner, The Worldly Philosophers 49-72 (5th ed.
1980); A. Smith, Wealth of Nations (E. Canaan ed. 1937). Some argue
that a market economy also helps to protect and nurture political
freedoms. See, e.g., M. Friedman, Capitalism and Freedom 7-36 (1962).
[FN36].
In the examples that follow, "value" will be explored
predominantly in terms of how a resource user can serve consumer
desires. It should not be forgotten, however, that serving one's own
needs also has value in the economic sense. A person's willingness to
pay to use an item for personal consumption reflects "social
benefit" since each person is a member of society. Also,
"value," as defined in connection with willingness to pay,
see infra text accompanying note 38, is of course dependent, inter
alia, on distribution of income, and is at best only an indirect
measure of desire and benefit. While an exploration of the
limitations and virtues of the "value" criterion is beyond
the scope of this Article, it should be noted that courts sometimes
use intuitive noneconomic measures of social benefit. See infra note
95 and accompanying text.
[FN37].
Judge Posner explains this process by using the following example:
Let Farmer A own a piece of land which he anticipates will yield him
$100 a year, in excess of labor and other costs, indefinitely. Just
as the price of a share of common stock expresses the present value
of the anticipated earnings to which the shareholder will be
entitled, so the present value of a parcel of land that is expected
to yield an annual net income of $100 can be calculated and is the
minimum price that A will accept in exchange for his property right.
Suppose Farmer B believes that he can use A's land more productively
than A, i.e., that he could net more than $100 a year from working
A's land. The present value of B's higher expected earnings stream
will, of course, exceed the present value calculated by A. Suppose
the present value calculated by A is $1000 and by B $1500. At a price
of $1250, for example, A will receive $250 more than the land is
worth to him and B will pay $250 less than the land is worth to him.
Thus, there are strong incentives for the parties voluntarily to
exchange A's land for B's money, and if B is as he believes a better
farmer than A, the transfer will result in an increase in the
productivity of the land. Through a succession of such transfers,
resources are shifted to their most valuable uses and efficiency in
the use of economic resources is thereby maximized.
R.
Posner, supra note 33, at 29 (footnotes omitted).
[FN38].
Id. at 10 (emphasis omitted). Judge Posner defines "efficiency"
as the maximization of "value" so measured. Id. Note that
under this definition, it is "efficient" to take resources
from a person in whose hands they have less "value" and
give them to another person in whose hands they have more "value,"
even if the loser is not compensated for the transfer. Even aside
from the general questions that can be raised concerning any
quasi-utilitarian measure, the adequacy of Judge Posner's "value"
as a test of public welfare has been often questioned. See, e.g.,
Leff, Economic Analysis of Law: Some Realism About Nominalism, 60
Va.L.Rev. 451, 477-82 (1974); Polinsky, Economic Analysis As a
Potentially Defective Product: A Buyer's Guide to Posner's Economic
Analysis of Law, 87
Harv.L.Rev. 1655, 1665, 1679-81 (1974).
This Article does not argue that maximizing value is a sufficient
justification for all instances of fair use; it argues that the
copyright owner must be compensated if denying him control over a
contested use of his work would cause him substantial injury. See
infra text accompanying notes 104-24. See also generally Michelman,
Property, Utility, and Fairness: Comments on the Ethical Foundations
of "Just Compensation" Law, 80
Harv.L.Rev. 1165 (1967)
(evaluating "efficiency" and other criteria in the
identification of which of the losses occasioned by governmental
activity should be noncompensable and which should be entitled to
"just compensation").
The
traditional criterion that welfare economics has used for "judging
whether resource use is efficient" is the Pareto Condition in
which "no reallocation can yield improvement for some without
injury to others." D. Orr, Property, Markets and Government
Intervention 100 (1976). See infra note 54. See also J. Hadar,
Elementary Theory of Microeconomic Behavior 319-45 (2d ed. 1974); N.
Singer, Public Microeconomics: An Introduction to Government Finance
81-85 (2d ed. 1976). However, the Pareto Condition, when interpreted
strictly, has only limited usefulness as a criterion because
"virtually all policies will harm someone." Markovitz,
supra note 33, at 2 n.2. Thus, a Posnerian use of an aggregate
measure to define efficiency is common among legal scholars. See id.
at 2. ("[O]nly rarely does a policy actually move the economy to
a Pareto- preferred position. Accordingly, I find it more useful to
focus on whether a policy seems likely to give its beneficiaries the
equivalent of more dollars than it seems likely to take away from its
victims.") (footnotes omitted). See also Calabresi
& Melamed, Property Rules, Liability Rules, and Inalienability:
One View of the Cathedral, 85 Harv.L.Rev. 1089, 1094 (1972)
( "[E]conomic efficiency . . . asks for that form of property,
private or communal, which leads to the highest product for the
effort of producing.").
[FN39].
There may also be occasions in which it is normatively inappropriate
to use even a perfectly functioning market. Similarly, enforcement of
an author's market right is arguably inappropriate when such
enforcement would threaten nonmonetizable first amendment interests.
See infra text accompanying notes 170-73. Some commentators have
suggested a separate first amendment exception to copyright, while
others have suggested recognition of a first amendment dimension to
fair use. For valuable introductions to this literature, see
Denicola, Copyright and Free Speech: Constitutional Limitations on
the Protection of Expression, 67 Calif.L.Rev. 283 (1979); Goldstein,
Copyright and the First Amendment, 70 Colum.L.Rev. 983 (1970).
[FN40].
See D. Orr, supra note 38, at ch. 15 ("Externalities and Public
Goods"); Markovitz, supra note 33, at 2. In the absence of
transaction costs, this condition will automatically be met, because
persons affected by transactions can "bribe" participants
within the transactions to take actions in accordance with their
interest. See generally Coase, The Problem of Social Cost, 3 J.L. &
Econ. 293 (1970). See R. Posner, supra note 33. See also Markovitz,
supra note 33, at 7 n.14.
[FN41].
See infra text accompanying notes 170-76, 182.
[FN42].
See Markovitz, supra note 33, at 2, 3, 7; Polinsky, supra note 38, at
1667. See also J. Hadar, supra note 38, at § 13.4 ("Behavior
Under Uncertainty").
[FN43].
See Polinsky, supra note 38, at 1667.
[FN44].
See infra text accompanying note 183, which suggests that reviews and
criticisms may be appropriate subjects for fair use treatment in
order to protect the availability of such information.
[FN45].
See supra note 37.
[FN46].
Transaction costs are "the costs of effecting a transfer of
rights." R. Posner, supra note 33, at 30. Where transaction
costs are "prohibitive . . . exclusivity of property rights may
. . . reduce rather than increase the efficiency of resource use."
Id.
[FN47].
The condition of perfect knowledge is thus an aspect of the condition
of no transaction costs, but the two are usefully stated separately.
[FN48].
If bargains are unenforceable, markets are highly unlikely to form.
See R. Posner, supra note 33, at 65-67 (economic rules of contract
law). See also Demsetz, The Private Production of Public Goods, 13 J.
L. & Econ. 293, 306 (1970) (when nonpurchasers cannot be excluded
from using a public good at a reasonable cost, a system of private
production "does not seem to be practical"). This aspect of
transaction costs becomes important for the discussion of the Betamax
case, infra notes 289-322 and accompanying text.
[FN49].
If transaction costs were totally absent, all costs and benefits
would necessarily be internalized, and value-maximizing transfers
would always take place. See generally Coase, supra note 40; see also
Calabresi & Melamed, supra note 38, at 1094-95 & n.12.
However, transaction costs are inevitable in the real world of
economics, and the nature and impact of those transaction costs may
be crucial to a determination of legal rights. See id. at 1096.
[FN50].
Id. at 1095. Relative as well as absolute levels of transaction costs
can be important to market evaluations, as can the issue of who bears
those costs. If nonparticipating third parties (e.g., taxpayers) bear
the transaction costs, that will insulate the bargaining parties from
the impact of those costs.
[FN51].
E.g., Truth in Lending Act, 15
U.S.C.A. § § 1601-1667e
(West 1974 & Supp.1982);
Fair Packaging and Labeling Act, 15
U.S.C. § § 1451-61
(1976).
[FN52].
See Virginia
State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc.,
425 U.S. 748, 770 (1976).
[FN53].
See, e.g., R. Posner, supra note 33, at 212-13.
[FN54].
Calabresi & Melamed, supra note 38, at 1097 (footnote omitted)
(referring to the perfect market result as Pareto optimal). The
authors define Pareto optimality as "the set of entitlements
which would lead to that allocation of resources which could not be
improved in the sense that a further change would not so improve the
condition of those who gained by it that they could compensate those
who lost from it and still be better off than before." Id. at
1094.
[FN55].
See, e.g., R. Posner, supra note 33, at 122, 125. However, both the
comparative negligence doctrine and the contributory negligence
doctrine inadequately resolve the problem of how to set up incentives
when the plaintiff is also negligent. Id. at 123-24. Perhaps the best
introduction to the economic analysis of accident law is G.
Calabresi, The Costs of Accidents (1970), which ranges far beyond
conventional negligence law. See Calabresi's analyses of incentives
and market deterrence, id. at 68-94.
[FN56].
Costs must be discounted by the probability of their occurrence. See
R. Posner, supra note 33, at 122-23.
[FN57].
See United
States v. Carroll Towing Co., 159 F.2d 169, 173 (2d Cir.1947).
See generally R. Posner, supra note 33, at 119-59.
[FN58].
Whether the prevailing negligence/contributory negligence pattern in
fact provides desirable incentives is of course a matter of much
debate. See, e.g., R. Posner, supra note 33, at 122-24; note 55.
[FN59].
See Michelman, supra note 38, at 1180 (discussing "the inability
of outside observers to appraise . . . efficiency of proposed social
measures"). Cf. Hayek, The Use of Knowledge in Society, 35
Am.Econ.Rev. 519, 524-25 (1945) (arguing that decentralized
decisionmaking can often utilize knowledge better than can central
planning). See also Calabresi & Melamed, supra note 38, at 1108,
1115-24 (discussing the "likelihood of error" in assessing
costs and benefits under various liability rules); id. at 1125
("liability rules represent only an approximation of the value
of the object to the original owner").
[FN60].
While the focus of this fair use discussion is necessarily on
judicial rules of decision, other institutions can also perform the
balancing function, and the nature of the institution may affect the
appropriate rules or principles to be applied. See Michelman, supra
note 38, at 1245-57.
[FN61].
See Calabresi & Melamed, supra note 38, at 1124-27 (discussing
criminal sanctions).
[FN62].
U.S.
Const. art. I, § 8, cl. 8.
[FN63].
The Supreme Court has accepted this premise in several contexts. See,
e.g., Mazer
v. Stein, 347 U.S. 201, 219 (1954):
The economic philosophy behind the clause empowering Congress to
grant patents and copyrights is the conviction that encouragement of
individual effort by personal gain is the best way to advance public
welfare through the talents of authors and inventors in "Science
and useful Arts." Sacrificial days devoted to such creative
activities deserve rewards commensurate with the services rendered.
United
States v. Paramount Pictures, Inc., 334 U.S. 131, 158 (1948):
The copyright law, like the patent statutes, makes reward to the
owner a secondary consideration. In Fox
Film Corp. v. Doyal, 286 U.S. 123, 127,
Chief Justice Hughes spoke as follows respecting the copyright
monopoly granted by Congress, "The sole interest of the United
States and the primary object in conferring the monopoly lie in the
general benefits derived by the public from the labors of authors."
It is said that reward to the author or artist serves to induce
release to the public of the products of his creative genius.
The
role of copyright law in the maintenance of economic incentives has
been a matter of significant debate. See, e.g., Breyer, Copyright: A
Rejoinder, 20 U.C.L.A.L.Rev. 75 (1972); Breyer, The Uneasy Case for
Copyright: A Study of Copyright in Books, Photocopies, and Computer
Programs, 84
Harv.L.Rev. 281, 291-323 (1970)
[hereinafter cited as Breyer, The Uneasy Case for Copyright]; Hurt &
Schuchman, The Economic Rationale of Copyright, 56 Am.Econ.Rev. 421
(1966) (1965 Papers & Proceedings of Am. Econ. Ass'n); Plant, The
Economic Aspects of Copyright in Books, 1 Economica 167 (new series
1934); Tyerman, The Economic Rationale for Copyright Protection for
Published Books: A Reply to Professor Breyer, 18 U.C.L.A.L.Rev. 1100
(1971). There is also debate about the extent to which the copyright
and patent laws serve purposes other than providing incentives. For
example, barring potential users from copying encourages them to do
their own work. See Gorman,
Copyright Protection for the Collection and Representation of Facts,
76 Harv.L.Rev. 1569, 1599 (1963).
Intellectual property laws can help structure production to increase
the output from resources used for technological innovation. See
Kitch, The Nature and Function of the Patent System, 20 J.L. &
Econ. 265 (1977). Copyright may also function to protect the author's
own interests in, e.g., the integrity of his work. See Breyer, The
Uneasy Case for Copyright, supra,
at 284-91;
Comment, An Author's Artistic Reputation Under the Copyright Act of
1976, 92
Harv.L.Rev. 1490, 1491 (1979).
Nevertheless, it generally is agreed that American law gives
copyright and patent protection to the producers of intangible
products primarily because of the legislative judgment that such
systems are necessary if producers of intellectual property are to
receive a large enough monetary return for their labors and
investments to insure continued production. See Zacchini
v. Scripps-Howard Broadcasting Co., 433 U.S. 562, 576 (1977).
[FN64].
Cf. Liebowitz, Copyright and Photocopying: Alternative Institutional
Arrangements 3-5 (Feb. 1981) (unpublished manuscript, on file at
Columbia Law Review). How the production of public goods should be
organized has been the subject of much economic debate. See, e.g.,
Demsetz, supra note 48 (arguing that under certain circumstances
private producers can produce public goods efficiently).
[FN65].
See, e.g., E. Mansfield, Principles of Microeconomics 70 (1974); D.
Orr, supra note 38, at 285-311.
"A
common, collective, or public good is here defined as any good such
that, if any person Xi in a group X1, . . . , Xi . . . , Xn consumes
it, it cannot feasibly be withheld from others in the group." M.
Olson, The Logic of Collective Action: Public Goods and the Theory of
Groups 14 (1971). Although Olson focuses on this characteristic, he
notes that another element in the "traditional understanding of
public goods" is "'jointness of supply.' A good has
'jointness' if making it available to one individual means that it
can be easily or freely supplied to others as well." Id. at 14
n.21.
Professor Demsetz distinguishes
between the public good concept . . . which states that it is
possible at no cost for additional persons to enjoy the same unit of
a public good, and a different concept, that might be identified as a
collective good, which imposes the stronger condition that it is
impossible to exclude nonpurchasers from consuming the good.
Demsetz,
supra note 48, at 295. Under this view, national defense, which is
the example used in text, see text accompanying notes 66-68, "might
be termed an 'approximate collective good."' Demsetz, supra note
48, at 295.
[FN66].
See, e.g., E. Mansfield, supra note 65, at 70, 74-75. See also
Markovitz, supra note 33.
[FN67].
See supra note 65.
[FN68].
See, e.g., sources cited supra note 65.
[FN69].
See, e.g., sources cited supra notes 63-65.
[FN70].
Cf. Final Report of the National Commission on New Technological Uses
of Copyrighted Works [CONTU] 10 (1978) (discussing computer
programs):
[I]f the cost of duplicating information is small, then it is simple
for a less than scrupulous person to duplicate it. This means that
legal as well as physical protection is a necessary incentive if such
information is to be created and disseminated.
This principle is the underlying principle of copyright . . . .
See
also Liebowitz, supra note 64, at 4-5.
Prior to the 1976 Copyright Act, protection of unpublished literary
work was left primarily to state law. This so-called "common
law" copyright has been argued to have been essentially a right
of privacy, see Warren & Brandeis, The Right To Privacy, 4
Harv.L.Rev. 193, 198-213 (1890), and bears some similarity to state
trade secret protection for undisclosed discoveries and inventions.
Secret manuscripts are not "public goods"; physical control
is sufficient to exclude the unwelcome user.
Common law copyright for expression that is fixed in a tangible
medium was abolished by 17
U.S.C. § 301 (1976).
See House Report, supra note 10, at 129-33, reprinted in 1976 U.S.
Code Cong. & Ad. News at 5745-49.
[FN71].
See Tyerman, supra note 63, at 1117 (exploring the dangers of relying
on government subsidies).
[FN72].
See 17
U.S.C. § 106 (1976)
(exclusive rights in copyrighted works); sources cited supra notes
63-65.
[FN73].
Demsetz argues that if nonpurchasers can be excluded efficiency is
potentially attainable in a market for public goods. See generally
Demsetz, supra note 48.
[FN74].
Generally speaking, the notice on copies must show that copyright is
claimed by including three elements: "(c)" (or "copyright"
or "copr."), the year of first publication, and the name of
the copyright owner. 17
U.S.C. § 401 (Supp. IV 1980).
Under some circumstances omitted or defective notice may be forgiven.
Id. § § 405-06 (Supp. IV 1980). Note that some uses (e.g.,
private reading and performance) are not within the scope of the
copyright owner's exclusive rights.
[FN75].
Id. § 408 (1976). Like the notice requirement, see supra note
74, the copyright registration requirement is not absolute. See id.
Registration is, however, a prerequisite to bringing most
infringement actions, id. § 411,and to certain remedies for
infringement, id. § 412.
[FN76].
Id. § 506.
[FN77].
See, e.g., id. § 504(c) (1976) (statutory damages); id. §
501 (prima facie proof of infringement, standing); id. § §
502-505 (injunctive relief, impoundment, damages, attorneys' fees).
Copyright plaintiffs may find it easier to obtain fee awards than
defendants. A. Latman & R. Gorman, supra note 19, at 538.
[FN78].
Note, however, that the copyright law also uses compulsory licensing
for some specified classes of works and uses. See, e.g., 17
U.S.C. § 111(c)- (d) (1976)
(cable television retransmission of copyrighted material); id. §
115 (phonorecords of nondramatic musical works); id. § 116
('jukebox' performances).
[FN79].
See supra text accompanying notes 59-61.
[FN80].
See generally Calabresi & Melamed, supra note 38, at 1125-27
(discussing criminal sanctions for intentional market bypass).
Compare the discussion of intentional torts, supra notes 59-61 and
accompanying text.
[FN81].
As will be seen, the focus is on whether granting fair use to an
individual transaction would further the goals of the copyright
scheme more than would imposing liability. See generally infra text
accompanying notes 92- 124. The transactional, case-by-case approach
recommended herein does not require identification of any "optimal"
level of overall production. Whether excluding nonpurchasers can
allow a market in public goods to achieve optimality is itself a
matter of debate. Compare Demsetz, supra note 48 (efficiency
achievable if nonpurchasers can be excluded from use), with, e.g.,
Perlman & Rhinelander, Williams & Wilkins Co. v. United
States: Photocopying, Copyright, and the Judicial Process, 1975
Sup.Ct.Rev. 355, 373-79 (criticizing economic analyses of copyright
and fair use). It appears that the copyright law treats the outcome
of the ordinary copyright transaction as normatively equivalent to an
"optimal" result. This Article seeks to identify what
distinguishes an ordinary transactional setting from these settings
in which the courts are unwilling to trust markets.
[FN82].
Of course, all of the interests are part of society's interests.
Compare Michelman, supra note 38, at 1194 (analyzing the nature of
balancing tests). At issue also is the public interest is the public
interest in preserving incentives.
[FN83].
See infra notes 84 & 131.
[FN84].
Studies prepared for the Subcomm. on Patents, Trademarks and
Copyrights of the Senate Comm. on the Judiciary, 86th Cong., 1st
Sess., The Compulsory License Provisions of the U.S. Copyright Law
(Study No. 5) 11 (Comm. Print 1960) (H. Henn). It has been suggested
that some of the fears of monopoly may have been unwarranted. See id.
at 3 n.20, 11 n.44.
The
provisions governing this compulsory license appeared at § 1(e)
of the Copyright Act of 1909, 35 Stat. 1075 (codified and reenacted
1947, amended 1976), and appear at § 115 of the 1976 Act. 17
U.S.C. § 115 (1976).
The provisions are not triggered until the copyright owner has
himself taken some action to avail himself of the possibility of
making mechanical recordings.
Compulsory licenses are a likely compromise when new rights are
granted. See, e.g., Second Supplementary Report of the Register of
Copyrights of the General Revision of U.S. Copyright Law: 1975
Revision Bill (Draft, October-December 1975) at VII 18-20 (fears
expressed that extending copyright to typefaces would allow a "few
big manufacturers . . . to enforce tying arrangements between their
machines and fonts" or "might lead to suits to enjoin
publication of printed matter;" "mandatory licensing"
discussed as a possible solution). See also 17
U.S.C. § 111 (1976)
(cable television retransmission of copyrighted material).
[FN85].
This Article does not purport to present an exhaustive list of the
reasons why a court might refuse to enforce a copyright owner's
market right. It is submitted, however, that in all cases where
protected subject matter has been appropriated, the courts should
give consideration to whether there is a good reason--founded in
economics or otherwise--to depart from the market.
[FN86].
See infra notes 149-98 and accompanying text.
[FN87].
This Article will be using economics to identify certain market
defects that are particularly salient, and that appear to cause
courts to doubt the appropriateness of enforcing a copyright owner's
market right.
[FN88].
These first two considerations are closely analogous to those at work
in the negligence model discussed supra in text accompanying notes
55-58
[FN89].
Note, Parody and Copyright Infringement, 56 Colum.L.Rev. 585, 595
(1956) ("Fair use . . . can be defined as a use which will not
seriously discourage progress by artists or as a use whose social
value greatly outweighs any detriment to the artist whose work is
borrowed.") (footnote omitted). See also Marsh, Betamax and Fair
Use: A Shotgun Marriage, 21 Santa Clara L.Rev. 49, 58 (1981).
[FN90].
See supra note 59.
[FN91].
See infra notes 149-98 and accompanying text.
[FN92].
See supra notes 37-38 and accompanying text. The second part of the
test inquires into the minimum price plaintiff would accept in a
hypothetical market to recompense him for the injury caused by the
defendant's specific use. The broader issue of real-world injury to
the market as a whole is the subject of the third part of the test.
See infra notes 115-17 and accompanying text.
[FN93].
See R. Posner, supra note 33, at 10-12 (voluntary transactions result
in a net increase in value).
[FN94].
See infra notes 163-75 and accompanying text.
[FN95].
See generally Meeropol
v. Nizer, 560 F.2d 1061, 1069-71 (2d Cir.1977)
(discussing purpose and necessity of use), cert. denied, 434
U.S. 1013 (1978);
Williams
& Wilkins Co. v. United States, 487 F.2d 1345 (Ct.Cl. 1973)
(value of medical research) (discussed supra notes 249-88 and
accompanying text), aff'd by an equally divided Court, 420
U.S. 376 (1975)
(per curiam); Elsmere
Music, Inc. v. NBC, 482 F.Supp. 741, 745-47 (S.D.N.Y.)
(discussing valid parody as fair use), aff'd, 623
F.2d 252 (2d Cir.1980);
Time,
Inc. v. Bernard Geis Assocs., 293 F.Supp. 130, 145-46 (S.D.N.Y. 1968)
(finding "a public interest in having the fullest information
available on the murder of President Kennedy").
Intuitive estimates may often be required because of overall
imperfections in the market structure, see infra note 96, though
reference to prices may provide useful constraints for this
intuition.
[FN96].
The 1976 Copyright Act reflects both these elements in its damages
provision: "The copyright owner is entitled to recover the
actual damages suffered by him or her as a result of the
infringement, and any profits of the infringer that are attributable
to the infringement and are not taken into account in computing the
actual damages." 17
U.S.C. § 504(b) (1976).
See also cases cited supra note 95.
Note, however, that insofar as the overall market remains imperfect,
actual prices and profits might not accurately reflect social
desirability, even if that desirability is measured solely in
economic terms. See E. Mansfield, supra note 65, at 334 (discussing
"theory of the second best"). Therefore, although such
criteria can provide a court with usefully objective guides for its
inquiry into public interest, they might not be determinative.
[FN97].
See, e.g., Triangle
Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171,
1177-78 (5th Cir.1980);
Williams
& Wilkins Co. v. United States, 487 F.2d 1345, 1357-59, 1362-63
(Ct.Cl. 1973),
aff'd by an equally divided Court, 420
U.S. 376 (1975)
(per curiam); Time,
Inc. v. Bernard Geis Assocs., 293 F.Supp. 130, 146 (S.D.N.Y. 1968).
See also 17
U.S.C. § 107 (1976)
("In determining whether the use made of a work in any
particular case is a fair use the factors to be considered shall
include-- . . . (4) the effect of the use upon the potential market
for or value of the copyrighted work."). Nimmer calls market
effect the "central fair use factor." 3 M. Nimmer, Nimmer
on Copyright § 13.05[A][4], at 13-64 (1982) (footnote omitted).
[FN98].
See R. Posner, supra note 33, at 3-12.
[FN99].
W. Prosser, Handbook of the Law of Torts § 18, at 103 (4th ed.
1971) (footnote omitted).
[FN100].
Id. at 103.
[FN101].
Id.
[FN102].
If one would consent to a situation, it is arguably "fair"
to impose that situation when obtaining actual consent is costly or
impossible. As a member of society, the copyright owner shares in the
cost savings effected by eliminating the need for actual consent in
certain situations. See, e.g., Michelman, supra note 38, at 1176-81
("to insist on full compensation to every interest which is
disproportionately burdened by a social measure dictated by
efficiency would be to call a halt to the collective pursuit of
efficiency"). Moreover, since an additional branch of the fair
use test protects against substantial injury, see infra notes 104-24
and accompanying text, the copyright owner has some protection
against the possibility that he will be harmed more than benefited in
the long run.
Consider the relation between procedure, fairness, and substantive
result discussed in J. Rawls, A Theory of Justice (1971),
particularly in chapters 1- 3 (considering what principles persons
under certain hypothetical conditions would consent to adopt). For an
excellent discussion of the many meanings that "consent"
can take in political analysis, see Pitkin, Obligation and Consent-
1, 59 Am.Pol.Sci.Rev. 990 (1965), and Pitkin, Obligation and
Consent-II, 60 Am.Pol.Sci.Rev. 39 (1966).
"Consent" has had a role in fair use commentary. See, e.g.,
Studies Prepared for the Subcomm. on Patents, Trademarks and
Copyrights of the Senate Comm. on the Judiciary, Fair Use of
Copyrighted Works 15, 86th Cong., 2d Sess., (Study No. 14) (Comm.
Print 1960) [hereinafter cited as Latman Study].
[FN103].
The impact on aggregate value caused by the immediate transfer is
only part of the relevant inquiry.
[FN104].
See also Comment, Photocopying and Fair Use: An Examination of the
Economic Factor in Fair Use, 26 Emory L.J. 849, 865-71 (1977).
[FN105].
In appropriate cases, awarding the plaintiff a damage remedy may also
allow the user continued access to the work. See infra notes 125-34
and accompanying text.
[FN106].
Damage by substitution is of course the damage to which the fair use
criteria are most sensitive. See, e.g., M. Nimmer, supra note 97, §
13.05 [B], at 13-65 to 13-72.
[FN107].
This hurdle serves not only to protect the individual copyright owner
from substantial loss but to protect society as a whole from erosion
of the copyright system. Compare the function of the "just
compensation" guarantee as discussed in Michelman, supra note
38.
[FN108].
See supra notes 55-58 and accompanying text.
[FN109].
Id.
[FN110].
Broader economic views of accident law might, however, take a
different view. See G. Calabresi, supra note 55, at 39-67 (exploring
modes of spreading heavy losses).
[FN111].
See Calabresi & Melamed, supra note 38, at 1106-10.
[FN112].
Where Congress has elected to give copyright owners a property right
in the first instance, doubts should be resolved in the owner's
favor.
[FN113].
Although the dominant view is clearly that authors receive their
property right for a larger social purpose, Congress has shown
special solicitude for the welfare of individual authors, even as
opposed to publishers and other potential owners of copyright. See 17
U.S.C. § § 203,
304(c)
(1976)
(termination rights); House Report, supra note 10, at 140, reprinted
in 1976 U.S. Code Cong. & Ad. News at 5756 ("the author, who
is the fundamental beneficiary of copyright under the Constitution,"
is given the right to terminate grants that he may have made to
publishers and other assignees; made-for-hire works not terminable).
[FN114].
See also Michelman, supra note 38, at 1177-80, 1208-24 (discussing
demoralization costs).
[FN115].
See also M. Nimmer, supra note 97, § 13.05[A][4], at 13-64 to
13- 65 (effect of the use upon the [plaintiff's] potential market
"poses the issue of whether unrestricted and widespread conduct
of the sort engaged in by the defendant . . . would result in a
substantially adverse impact on the potential market for or value of
the plaintiff's work"); id. § 13.05[E][4][c], at 13-84.
[FN116].
Senate Report, supra note 26, at 65.
[FN117].
See supra note 115.
[FN118].
Cf. Williams
& Wilkins Co. v. United States, 487 F.2d 1345, 1359 (Ct.Cl. 1973)
(finding, interalia, large-scale library photocopying was not proven
to be detrimental to the circulation and future commercial value of
plaintiff's medical journals), aff'd by an equally divided Court, 420
U.S. 376 (1975)
(per curiam); Time,
Inc. v. Bernard Geis Assocs., 293 F.Supp. 130, 146 (S.D.N.Y. 1968)
(finding no significant potential for future injury to the value of
the Zapruder films of the Kennedy assassination caused by the
unlicensed publication of sketches of the key frames in a book
advancing a novel theory about the assassination); M. Nimmer, supra
note 97, § 13.05[A][4], at 13-65 (courts should look at conduct
regardless of "whether in fact engaged in by defendant or
others"); id. § 13.05[E][4][c], at 13-84 ("all
potential defendants").
[FN119].
Discussion about what market structure would follow from a judgment
of liability will necessarily involve a judgment of probabilities.
[FN120].
Photocopying was at issue in Williams
& Wilkins Co. v. United States, 487 F.2d 1345 (Ct.Cl. 1973),
aff'd by an equally divided Court, 420
U.S. 376 (1975)
(per curiam), discussed infra text accompanying notes 249-88.
Williams & Wilkins Co. has evoked substantial scholarly comment.
See, e.g., M. Nimmer, supra note 97, § 13.05[E][4][c]-[e], at
13-82 to 13-92; Perlman & Rhinelander, supra note 81.
[FN121].
Home videotaping of on-the-air television programs is of course the
issue in the Betamax case, Universal
City Studios, Inc. v. Sony Corp. of America, 480 F.Supp. 429, 435
(C.D.Cal. 1979),
rev'd in part and remanded, 659
F.2d 963 (9th Cir.1981),
cert. granted, 102
S.Ct. 2926 (1982)
(No. 81-1687), discussed infra text accompanying notes 289-322. The
district court decision in the case has been extensively discussed.
See, e.g., Note, Universal City Studios, Inc. v. Sony Corp.: "Fair
Use" Looks Different on Videotape, 66 Va.L.Rev. 1005 (1980);
Note, The Betamax Case: Accommodating Public Access and Economic
Incentive in Copyright Law, 31 Stan.L.Rev. 243 (1979) [hereinafter
cited as Stanford Note].
[FN122].
Compare the view of custom presented herein with Rosenfield,
Customary Use as "Fair Use" in Copyright Law, 25
Buff.L.Rev. 119 (1975).
[FN123].
See, e.g., the discussion of the form and function of clearinghouses
in Hampton, Clearing House as Optimum Solution to Copyright Problems
Affecting Communication of Educational and Scientific Information, in
Reprography and Copyright Law 189 (L. Hattery & G. Bush eds.
1964).
[FN124].
Rosenfield argues that in the context of fair use, a copyright owner
should be prevented "from seeking a greater monopoly than he
would have had with the earlier systems of reproducing copies."
Rosenfield, supra note 122, at 122.
Rosenfield also argues that the custom of nonpayment, see infra notes
224-33 and accompanying text, is an independent justification for
fair use, because, inter alia, "the law loses credibility with
the public" if "a teacher, researcher or scholar may
lawfully copy for his private, non-profit use only under conditions
of maximum inefficiency in the use of technology, time and
resources." Id. at 136 (footnote omitted) (discussing
photocopying). There is some merit in Rosenfield's credibility
argument. United States Representative Stanford Parris of Virginia,
for one, has termed the Ninth Circuit's Betamax decision as "the
latest example of idiocy in the federal judiciary," Fortune,
Feb. 1982, at 126, and humorists have poked considerable fun at the
image of persons being arrested in their homes for misusing their
living-room videorecorders. However, arguments premised on custom and
expectation can easily be drawn too far. Among other things, the
circumstances that gave rise to the custom can be changed; the
ridicule that the Betamax result has occasionally drawn in the
popular press might have been avoided if the Ninth Circuit Court of
Appeals had focused on whether the courts could so change the
economic arrangements that enforcement would not necessitate
impractical court actions against each individual user. Of course,
this might be implicit in the posture of the case. The only
individual home user who was named as a defendant in the Betamax was
not a real target of that litigation; rather he was "a client of
plaintiffs' law firm" who "consented to being a defendant,"
and against whom plaintiffs had "waived any claim for damages or
costs." Universal
City Studios, Inc. v. Sony Corp. of America, 480 F.Supp. 429, 437
(C.D.Cal. 1979),
rev'd in part and remanded, 659
F.2d 963 (9th Cir.1981),
cert. granted, 102
S.Ct. 2926 (1982)
(No. 81-1687). Nevertheless, the popular perception of the case was
probably quite influenced by the Ninth Circuit's refusal to make
consideration of relief (i.e., whether changes in the technology or
market structure would occur to make user fees easy to collect in a
nonintrusive manner) part of its consideration of liability. See
generally the discussion of the Betamax case infra text accompanying
notes 289-322.
[FN125].
Calabresi and Melamed, in their seminal article, Property Rules,
Liability Rules, and Inalienability: One View of the Cathedral, supra
note 38, made it clear that the law has many choices, not only as to
who should possess an entitlement, but also as to how such an
entitlement should be protected. The modes of protection include
"property rules" such as injunctive remedies, and
"liability rules" such as damage remedies. When the owner's
entitlement is protected by property rules, he may sell his right at
a price of his choosing, or may refuse to sell. But when his
entitlement is protected by liability rules, the owner may not
prevent an involuntary transfer; rather he will be permitted to
collect a court determined price (i.e., damages) for the value of the
rights he has lost. Calabresi and Melamed write:
An entitlement is protected by a property rule to the extent that
someone who wishes to remove the entitlement from its holder must buy
it from him in a voluntary transaction in which the value of the
entitlement is agreed upon by the seller. . . . [O]nce the original
entitlement is decided upon, the state does not try to decide its
value. . . .
Whenever someone may destroy the initial entitlement if he is willing
to pay an objectively determined value for it, an entitlement is
protected by a liability rule.
Id.
at 1092 (footnote omitted). The grant of monetary relief in place of
an injunction for copyright infringement would be an example of a
liability rule. Whether the copyright law permits the substitution of
a liability rule for a property rule is a matter of debate. See,
e.g., Nimmer, copyright liability for Audio Home Recording:
Dispelling the Betamax Myth, 68
Va.L.Rev. 1505, 1530- 31 (1982)
(arguing in favor of court-imposed royalty).
[FN126].
Although a bargain can often be struck in which enjoined parties pay
those holding the injunction to let them proceed, market failure may
make this impossible in a given case. See Calabresi & Melamed,
supra note 38, at 1118-19.
[FN127].
Such alternatives have been widely discussed. See, e.g., M. Nimmer,
supra note 97, § 13.05[E], at 13-91 to 13-92; Timberg, A
Modernized Fair Use Code for the Electronic as Well as the Gutenberg
Age, 75 NW.U.L.Rev. 193, 233-44 (1980); Stanford Note, supra note
121, at 257-62.
[FN128].
See supra notes 125-27.
[FN129].
The Williams & Wilkins court questioned the judiciary's abilities
and authority in this regard. See infra notes 271 & 273.
[FN130].
See sources cited supra note 59.
[FN131].
Compulsory licenses appear at, e.g., 17
U.S.C. § § 111(d) (Supp. IV 1980)
(cable television), id. §
115
(phonorecords), id. § 116 (jukeboxes). A Copyright Royalty
Tribunal has been created, inter alia, to review and adjust statutory
royalty rates. Id. § 801. The courts' role in reviewing such
rates is limited. Id. § 810 (judicial review). An exception to
this general approach appears in the 1976 Copyright Act in regard to
innocent infringements that may be traced to the copyright holder's
omission of a notice of copyright. The omission of notice may itself
cause market failure, for a potential user would not know copyright
is claimed. See supra text accompanying note 74. Congress has given
the courts in that context the power to impose a reasonable license
fee as a condition to continued use of the copyrighted materials. Id.
§ 405(b).
[FN132].
See, e.g., Staff of Senate Comm. on the Judiciary, 86th Cong., 1st
Sess., Copyright Law Revision Studies pts. 5-6 (Comm. Print 1960).
See also House Report, supra note 10, at 175-78 (compulsory licensing
provisions for cable television).
[FN133].
See A. Latman & R. Gorman, supra note 19, at 455-58 (discussion
of the protracted antitrust litigation, brought by the government and
CBS against the licensing practices of ASCAP and BMI). The result of
these judicial proceedings has been a series of consent decrees. Id.
[FN134].
The 1909 Copyright Act survived with only piecemeal revisions until
1976. A draft bill for the comprehensive revision that became the
1976 Act was first introduced in both houses in 1964. See House
Report, supra note 10, at 47-50. However, it should be noted that
Congress may act more quickly in response to the Betamax controversy;
bills have been submitted and hearings have been held. See, e.g., 24
Pat. Trademark & Copyright J. (BNA) 577-78 (Oct. 7, 1982).
[FN135].
There is a substantial disagreement among the scholars about the
nature and allocation of the burden of proving injury in fair use
litigation. See, e.g., M. Nimmer, supra note 97, §
13.05[E][4][c], at 13-82 to 13-86; Comment, supra note 104, at
869-84.
The
courts also disagree about the character of this burden. In Williams
& Wilkins for instance, the court wrote:
To us it is very important that plaintiff has failed to prove its
assumption of economic detriment, in the past or potentially for the
future. One of the factors always considered with respect to "fair
use," . . . is the effect of the use on the owner's potential
market for the work. This record simply does not show a serious
adverse impact, either on plaintiff or on medical publishers
generally, from the photocopying practices of the type of NIH
[National Institutes of Health] and NLM [National Library of
Medicine]. In the face of this record, we cannot mechanically assume
such an effect, or hold that the amount of photoduplication proved
here "must" lead to financial or economic harm. This is a
matter of proof and plaintiff has not transformed its hypothetical
assumption, by evidence, into a proven fact.
Williams
& Wilkins Co. v. United States, 487 F.2d 1345, 1359 (Ct.Cl.
1973),
aff'd by an equally divided Court, 420
U.S. 376 (1975)
(per curiam).
Similarly, the district court in the Betamax case noted that
"plaintiffs ask the court to find harm." Universal
City Studios, Inc. v. Sony Corp. of America, 480 F.Supp. 429, 451
(C.D.Cal. 1979),
rev'd in part and remanded, 659
F.2d 963 (9th Cir.1981),
cert. granted, 102
S.Ct. 2926 (1982)
(No. 81-1687). By contrast, the Ninth Circuit rejected this approach
to allocating the burden: "[Proof of actual damages] is simply
too great a burden to impose on copyright plaintiffs." Universal
City Studios, Inc. v. Sony Corp. of America, 659 F.2d 963, 974 (9th
Cir.1981),
cert. granted, 102
S.Ct. 2926 (1982)
(No. 81-1687). See also Encyclopedia
Britannica Educational Corp. v. Crooks, 447 F.Supp. 243, 251
(W.D.N.Y. 1978)
("[T]he burden of establishing fair use is on the defendant and
. . . the plaintiff in a copyright case is presumed to suffer
irreparable injury.").
[FN136].
The 1965 copyright revision bill had a fair use section that
provided, in its entirety, that "the fair use of a copyrighted
work is not an infringement of copyright." Although this early
version of §
107
more than quadrupled in length on its way to enactment in 1976, the
basic characterization did not change. 17
U.S.C. § 107 (Supp. IV 1980).
The Register of Copyrights said about the early §
107:
The author-publisher interests have suggested that fair use should be
treated as a defense, with the statute placing the burden of proof on
the user. The educational group has urged just the opposite, that the
statute should provide that any nonprofit use for educational
purposes is presumed to be a fair use, with the copyright owner
having the burden of proving otherwise. We believe it would be
undesirable to adopt a special rule placing the burden of proof on
one side or the other. When the facts as to what use was made of the
work have been presented, the issue as to whether it is a "fair
use" is a question of law. Statutory presumptions or
burden-of-proof provisions could work a radical change in the meaning
and effect of the doctrine of fair use. The intention of section
107
is to give statutory affirmation to the present judicial doctrine,
not to change it.
Register
of Copyrights, 89th Cong., 1st Sess., Supplementary Report of the
Register of Copyrights on the General Revision of the U.S. Copyright
Law: 1965 Revision Bill 28 (Comm. Print 1965).
[FN137].
See supra notes 62-87 and accompanying text.
[FN138].
See Nimmer, supra note 9, at 1053.
[FN139].
Section
504(c) of 17 U.S.C. (Supp. IV 1980)
provides plaintiffs the option of electing statutory damages in lieu
of proving actual damages in an infringement action. The election of
statutory damages may be made at any time before judgment is entered.
Id. By electing statutory damages, the copyright owner may recover
between $250 and $10,000 for any one infringement by any one
infringer, the sum to be determined by the court. Id. §
504(c)(1).
Greater or lesser amounts may be awarded in certain circumstances.
Id. § 501(c)(2). According to Nimmer, this statutory damage
option is made available because "[i]t is inherently difficult
in copyright infringement actions for a plaintiff to prove actual
damages as against a given defendant." Nimmer, supra note 9, at
1053.
[FN140].
See Nimmer, supra note 9.
[FN141].
Since defendant is a member of society, ordinarily his use will have
some social value. This will not always be true, however. One case in
which the defendant's use had no apparent social value is Amana
Refrigeration, Inc. v. Consumers Union, Inc. 431 F.Supp. 324 (N.D.
Iowa 1977).
Amana, in an effort to counteract a critical Consumer Reports
appraisal of its microwave ovens, had published a brochure featuring
a full paragraph from an earlier, more favorable, Consumer Reports
evaluation. Consumers Union requested that Amana withdraw the
brochure and Amana responded by bringing an unfair trade practice
claim. Consumers Union defended on the ground that the brochure was
deceptive, and counterclaimed that Amana had violated the Consumer
Reports copyright. Finding that in publishing the brochure Amana "was
attempting to convey the impression that [Consumers Union] approved
of [Amana's] microwave oven as of 1973 when the exact opposite was
true," id.
at 326,
the court dismissed Amana's defense of fair use to the counterclaim
and issued in injunction barring any further distribution of the
brochure. Id.
at 327.
[FN142].
Even when defendant's use has some social value, that value must be
significant enough to outweigh plaintiff's injury. See supra notes
92-103 and accompanying text.
[FN143].
See infra note 221 (relation between types of injury and fair use).
[FN144].
A particular party's access to proof on an issue is, of course, often
advanced as a reason for putting the burden as to that issue on him.
See, e.g., Comment, supra note 104, at 869.
[FN145].
See, e.g., Meeropol
v. Nizer, 417 F.Supp. 1201, 1213 (S.D.N.Y. 1976),
rev'd on other grounds, 560
F.2d 1061 (2d Cir.1977),
cert. denied, 434
U.S. 1013 (1978).
[FN146].
See, e.g., Rosemont
Enters., Inc. v. Random House, Inc., 366 F.2d 303, 304, 306-07 (2d
Cir.1966),
cert. denied, 385
U.S. 1009 (1967).
See also Cohen, Fair Use in the Law of Copyright, 6 ASCAP Copyright
L. Symp. 43, 45-48 (1955).
[FN147].
See Cohen, supra note 146; Comment, supra note 104, at 871-75.
Section
107
provides that fair use "is not an infringement of copyright."
17
U.S.C. § 107 (Supp. IV 1980).
See supra note 136.
[FN148].
In a suit for unintentional torts, the plaintiff has to show that
defendant's acts were wrongful and that he (plaintiff) was injured.
It can be argued that fair use acts as a repository for these
elements of a plaintiff's cause of action when market failure calls
into question whether the user justifiably bypassed the market and
whether injury occurred. See supra text accompanying notes 55-61.
See
also Comment, supra note 104, at 869, which argues that harm from
photocopying is improbable and courts should therefore require
plaintiffs to prove economic injury in the photocopying context.
[FN149].
See supra text accompanying notes 89-91.
[FN150].
Senate Report, supra note 26, at 64.
[FN151].
Id. In a given case, the out-of-print status of a work can trigger
market failure, yet fair use would be inappropriate because allowing
uncompensated use would injure the copyright owner's future market
for a second printing. Recognizing the separability of the two issues
to which out-of-print status can be relevant--the issue of market
failure--can clarify some of the current ambiguity over the matter.
Compare Senate Report, supra note 26, at 64, with, e.g., Mceropol
v. Nizer, 560 F.2d 1061, 1070 (2d Cir.1977)
("The fact that the Rosenberg letters have been out of print for
20 years does not necessarily mean they have no future market which
can be injured."), cert. denied, 434
U.S. 1013 (1978).
[FN152].
See Triangle
Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171,
1176 n.14 (5th Cir.1980)
("If the copyrighted work is out of print and cannot be
purchased, a use may be more likely to prevail on a fair use
defense.") (emphasis added) (citing Senate Report, supra note
26, at 64 ("Availability of the work")).
[FN153].
See House Report, supra note 10, at 68-69.
[FN154].
Id. at 69.
[FN155].
Of course, if an outside party like the government bears the
transaction costs, the parties will not be prevented from achieving
their bargain, but an inordinate amount of transaction costs might
then be imposed on society. While shifting the burden of transaction
costs may be appropriate in some circumstances, the focus here
instead should be on reducing these costs.
[FN156].
See, e.g., Williams
& Wilkins Co. v. United States, 487 F.2d 1345, 1355 (Ct.Cl. 1973)
("personal, individual focus" of the photocopy), aff'd by
an equally divided Court, 420
U.S. 376 (1975)
(per curiam). See also Twentieth
Century Music Corp. v. Aiken, 422 U.S. 151 (1975)
(small commercial establishment using home radio receiver to bring
music to customers held not to be "performing" and thus not
liable for copyright infringement).
[FN157].
The home use of audio tape recorders has been referred to as "fair
use." See remarks of Rep. Kastenmeier quoted in Universal
City Studios v. Sony Corp. of America. 480 F.Supp. 429, 446 (C.D.Cal.
1979),
rev'd in part and remanded, 659
F.2d 963 (9th Cir.1981),
cert. granted, 102
S.Ct. 2926
(1982)
(No. 81-1687).
[FN158].
See, e.g., Breyer, The Uneasy Case for Copyright, supra note 63, at
316-18 ("[S]ome potential users, willing to pay royalties but
unwilling to pay the transactions' costs, will not obtain the
copyrighted item."). The discussion in text relates to a common
point made by lawyer-economists. A market works to transfer resources
to their highest-valued resources. R. Posner, supra note 33, at 1-13,
27-31. Professor Coase has argued that when transaction costs are
absent, it does not matter where the legal system assigns rights to
the resources. Where transactions can be conducted costlessly,
resources will gravitate naturally to those willing to pay the most
for them, through a series of consensual exchanges. Coase, supra note
40. When transaction costs are high, on the other hand, some
economists argue that rights should be assigned so as to promote the
allocation of resources to their highest valued use. See R. Posner,
supra note 33, at 34-39. Where transaction costs may be quite high in
relation to the gain to be anticipated from transfers, fair use
operates to make sure that certain uses are placed (without need of
purchase) in the hands of those who value them most.
[FN159].
Encyclopaedia
Britannica Educational Corp. v. Crooks, 542 F.Supp. 1156, 1177-78
(W.D.N.Y. 1982).
[FN160].
The availability of the copyrighted works was one of the key grounds
used by the court to distinguish Williams & Wilkins. Id.
at 1177.
See also the court's prior opinion in granting a preliminary
injunction, 447
F.Supp. 243, 251-52 (W.D.N.Y. 1978).
[FN161].
These cases are discussed infra notes 224-40 and accompanying text.
Note that the focus in such cases is on whether a copyright owner is
likely to have actual reasons for being willing to allow the use, or
on whether he has manifested such a willingness; in such cases, the
defendant "can justify himself upon some principle consistent
with the entirety of ownership which the author has in his
copyright." Reed
v. Holliday, 19 F. 325, 327 (W.D.Pa. 1884).
Likely consent reflects not just a measure of social welfare but also
the fact that the copyright owner will not be injured.
[FN162].
Without fair use, the necessity of obtaining consent might wastefully
apply even to those defendants whose activities would have been
objected to by no one. The reason for this potential waste is that
the availability of injunctive relief and statutory damages provides
a motive for objecting, once a use has been made, even to those
copyright owners who would have been inclined to consent ab ante.
Once an injunction is obtained, the owner controls not merely the use
of his own work, but also all aspects of defendant's work that are
intertwined with it. See 17
U.S.C. § 502 (1976)
(injunctions); id. § 503 (impounding and disposition of
infringing articles). A great deal will then be at risk for the
defendant, who might be willing to settle at high cost in order to
lift the injunction and proceed with his enterprise. Also, the
statutory damage provisions will ordinarily give a neglected
copyright owner from $250 to $10,000, see id. §
504(c),
and there is a potential for costs and attorneys' fees. See id. §
505. Thus, even a copyright owner who would have been willing to
consent to a use if his permission were sought before the use
commenced might bring suit if the use had begun without that
permission. Potential users would be unable to distinguish between
those likely-consenting owners who would later object and those who
would not. This possibility could in turn compel potential users to
expend resources in negotiating for consent even from the willing. To
award fair use where a typical copyright owner would be likely to
consent breaks this circle.
Consider by analogy the hold-out problem that sometimes arises when a
builder needs to purchase many individually owned tracts of land in
order to accomplish a planned project. The problems caused by
strategic hold-out behavior have been cited as justification for
granting the government power to condemn property via eminent domain.
See Calabresi & Melamed, supra note 38, at 1089. The injunctive
and other modes of relief just discussed may give a copyright owner
hold-out power over a defendant's work, and this may provide some
justification for granting defendants the power to make use of the
copyright owner's property via fair use. But see Demsetz, supra note
48, at 300 ("[S]o long as firms are free to compete for the
trade of buyers, this [hold out] issue will reduce to a problem of
wealth distribution and not to a problem of efficiency.").
[FN163].
See supra notes 32-87 and accompanying text.
[FN164].
See Time
Inc. v. Bernard Geis Assocs., 293 F.Supp. 130 (S.D.N.Y. 1968).
[FN165].
For more thorough explanations of externalities, see, e.g., R.
Posner, supra note 33, at 48-52; N. Singer, supra note 38, at 107-15;
E. Mansfield, supra note 65, at 70-71, 74-75, 336-37.
[FN166].
17
U.S.C. § 107 (1976).
[FN167].
Id.
[FN168].
See Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835
(1980).
[FN169].
See WXIA-TV
v. Duncan, 8 Med.L.Rptr. 2075, 2078-79 (N.D.Ga. 1982)
(need to maintain impartiality may preclude copyright owner from
selling films of its news stories to subjects of such stories).
[FN170].
See, e.g., Keep
Thomson Governor Comm. v. Citizens for Gallen Comm., 457 F.Supp. 957,
959-60 (D.N.H. 1978)
(portion of political opponent's campaign music incorporated into
political advertisement); Time,
Inc. v. Bernard Geis Assocs., 293 F.Supp. 130, 146 (S.D.N.Y. 1968)
(theory concerning Kennedy assassination). Note that in the latter
case defendants had "offer[ed] to surrender to [the copyright
owner] all profits of [the defendants] from the Book as royalty
payment for a license to use the copyrighted Zapruder frames [of the
Kennedy assassination], id.
at 146,
thereby further underlining the nonmonetizable nature of the concerns
at stake.
[FN171].
Consider in this regard the solicitude shown by the Court of Claims
for medicine and science in Williams & Wilkins, discussed infra
text accompanying notes 249-88.
[FN172].
Since a society may hold conflicting values, it may be incapable of
weighing the importance of its various goals by any constant measure.
See generally G. Calabresi & P. Bobbit, supra note 34.
[FN173].
Several commentators and courts have discussed the possibility that
the first amendment may place a limitation on enforcement of the
copyright owner's market rights or that fair use may embody some
first amendment principles. See, e.g., Keep
Thomson Governor Comm. v. Citizens for Gallen Comm., 457 F.Supp. 957,
959-60 (D.N.H. 1978);
Denicola, supra note 39. Note that the copyright law itself provides
that "[i]n no case does copyright protection extend to any
idea," 17
U.S.C. § 102(b) (1976),
a principle that operates regardless of injury to the copyright
owner.
At
least one district court has held that the first amendment could
defeat an infringement suit. Triangle
Publications, Inc. v. Knight-Ridder Newspapers, Inc., 445 F.Supp. 875
(S.D.Fla. 1978),
aff'd on grounds of fair use without reaching first amendment issue,
626
F.2d 1171 (5th Cir.1980).
More common is the position that, while cases demanding the adoption
of an express first amendment limitation on copyright may
theoretically or eventually arise, "[c]onflicts between
interests protected by the first amendment and the copyright laws
thus far have been resolved by application of the fair use doctrine."
Wainwright
Securities, Inc. v. Wall Street Transcript Corp., 558 F.2d 91, 95 (2d
Cir.1977)
(citations omitted), cert. denied, 434
U.S. 1014 (1978).
See generally A. Latman & R. Gorman, supra note 19, at 473-74
(discussing, inter alia, those cases that have rejected first
amendment defenses).
[FN174].
See supra note 36.
[FN175].
This may be the nature of Seltzer's concern when he warns the courts
against engaging in reallocation of costs. See L. Seltzer, supra note
4, at 38.
[FN176].
17
U.S.C. § 107 (1976).
[FN177].
"It has been held that an author is entitled to more extensive
use of another's copyrighted work in creating a parody than in
creating other fictional or dramatic works . . . ." Elsmere
Music, Inc. v. NBC, 482 F.Supp. 741, 745 (S.D.N.Y. 1980),
aff'd, 623
F.2d 252 (2d Cir.1980)
(citations omitted).
[FN178].
In Rosemont
Enters., Inc. v. Random House, Inc., 366 F.2d 303, 311 (2d Cir.1966),
cert. denied, 385
U.S. 1009 (1967),
Howard Hughes, having purchased through the Rosemont corporation the
copyright on articles concerning his life, sought to restrain a
biographer's use of the articles. "[I]t appears that the fair
use defense was upheld in Rosemont at least in part because the court
found that the plaintiff there was acting in bad faith seeking to
prevent the publication of a legitimate biography of Howard Hughes."
Meeropol
v. Nizer, 560 F.2d 1061, 1069 (2d Cir.1977)
(footnote omitted), cert. denied, 434
U.S. 1013 (1978).
[FN179].
See Keep
Thomson Governor Comm. v. Citizens for Gallen Comm., 457 F.Supp. 957
(D.N.H. 1978)
(fair use granted to political opponent's use of copyrighted
material).
[FN180].
In Triangle
Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171
(5th Cir.1980),
the publishers of the Miami Herald had shown old TV Guide covers as
part of advertisements comparing TV Guide with the Herald's
television supplement. TV Guide's motivation for refusing permission
to use these covers would seem to be related not to a desire to
exploit those covers' aesthetic qualities, but rather to a desire to
prevent consumers from being persuaded by the ads. When TV Guide
brought suit, fair use was found.
[FN181].
See cases and statute cited supra notes 176-80.
[FN182].
See, e.g., A. Latman & R. Gorman, supra note 19, at 484-85; M.
Nimmer, Comments and Views Submitted to the Copyright Office on Fair
Use of Copyrighted Works, appended to Latman Study, supra note 102,
at 42, 43. Sheldon Light valuably put this argument into an explicit
economic framework. Light, Parody, Burlesque and the Economic
Rationale for Copyright, 11 Conn.L.Rev. 615 (1979).
[FN183].
Of course, an injury to a copyright owner arising out of increased
consumer knowledge would not be injury relevant to the second or
third parts of the test. Copyright law seeks to guard against
decreased demand for the copyright owner's product arising out of
substitution; when decreased demand arises out of changed consumer
preferences, that should be reflected in decreased revenues. See A.
Latman & R. Gorman, supra note 19, at 485 (raising a similar
issue).
[FN184].
Virginia
Pharmacy Bd. v. Virginia Consumer Council, Inc., 425 U.S. 748, 765
(1976).
[FN185].
Economics seeks to satisfy consumer tastes, however they may evolve,
and assumes "that man is a rational maximizer of his ends in
life." R. Posner, supra note 33, at 3.
[FN186].
Such motives might in an extreme case be termed "bad faith,"
reflecting on the equitable origins of the fair use doctrine. See
Meeropol
v. Nizer, 560 F.2d 1061, 1069 (2d Cir.1977),
cert. denied, 434
U.S. 1013 (1978).
[FN187].
See Roy
Export Co. Estab. of Vaduz v. CBS, 503 F.Supp. 1137, 1147 n.6
(S.D.N.Y. 1980),
aff'd, 672
F.2d 1095 (2d Cir.1982).
[FN188].
See Metro-Goldwyn-Mayer,
Inc. v. Showcase Atlanta Coop. Prods., Inc., 479 F.Supp. 351, 360-61
(N.D.Ga.1979)
("The Court first recognizes that a non-parodic or non-satiric
stage version of [plaintiff's work] Gone With the Wind is a protected
derivative use of the original works which only the holders of the
valid, existing copyrights in such works have a right to exploit. . .
. [Defendant's play] 'Scarlett Fever' could harm a potential market
for or value of a stage version of Gone With the Wind.").
[FN189].
But see Goldstein, supra note 39, at 1056 ("The infringer is . .
. the sole proponent of the generalized interest in access . . . .").
[FN190].
On the allocation of the burden of proof, see supra text accompanying
notes 135-148.
[FN191].
It should also be noted, however, that while fair use may be
appropriate when copyrights in published works are improperly used
for the purpose of manipulating public debate, fair use should not be
used to force disclosure of works that the author has heretofore kept
secret. The right to privacy that found expression in the "right
of first publication" in common-law copyright, see Warren &
Brandeis, supra note 70, should still be honored, at least for truly
private works such as undisclosed diaries and the like. See Senate
Report, supra note 26, at 64 ("The applicability of the fair use
doctrine to unpublished works is narrowly limited . . . ."). But
see M. Nimmer, supra note 97, § 13.05 n.2, at 13-54.
[FN192].
In New
York Times Co. v. Roxbury Data Interface, Inc., 434 F.Supp. 217
(D.N.J. 1977),
the court refused, on fair use grounds, to enjoin defendants from
producing an index that the copyright owners had declined to publish.
The court was influenced by the plaintiff's unwillingness to publish
a work like that produced by defendants, even though the plaintiff's
unwillingness may have stemmed from a desire to protect its own
derivative works. Cf. Roy
Export Co. Estab. of Vaduz v. CBS, 503 F.Supp. 1137, 1146 n.5
(S.D.N.Y. 1980),
("[I]f the Roxbury court did consider harm to the potential
market of derivative work to be irrelevant to a determination of the
availability of the fair use defense, . . . we disagree . . . ."),
aff'd, 672
F.2d 1095 (2d Cir.1982).
Similarly, in Time,
Inc. v. Bernard Geis Assocs., 293 F.Supp. 130 (S.D.N.Y. 1968),
the owner of copyright in the Zapruder photographs of the Kennedy
assassination denied permission to use the pictures. The denial did
not come out of any antidissemination motive (e.g., to restrain
criticism of the Warren Commission), but rather out of a desire to
exploit the photographs economically. While there may have been some
impropriety in plaintiff's plans for "monopolizing" the
films, see Goldstein, supra note 39, at 986-88, 1035-55, it is
preferable to view the market failure in Geis as not involving an
antidissemination motive. The case is better viewed as involving an
externality or nonmonetizable interest. See infra text accompanying
notes 163-75.
[FN193].
This is what appeared to occur in the Benny case. See infra notes 221
& 223.
[FN194].
See 17
U.S.C. § 107(1) (Supp. IV 1980).
[FN195].
See id. §
107(3).
[FN196].
See id. §
107(4).
[FN197].
See Loew's,
Inc. v. CBS, 131 F.Supp. 165, 184-85 (S.D.Cal. 1955),
aff'd sub. nom. Benny
v. Loew's, Inc. 239 F.2d 532 (9th Cir.1956),
aff'd per curiam by an equally divided Court sub nom. CBS
v. Loew's, Inc., 356 U.S. 43 (1958).
[FN198].
See also WXIA-TV
v. Duncan, 8 Med.L.Rptr. 2075, 2079 n.9 (N.D.Ga. 1982)
(issue of whether "plaintiff[] [television station's] copyright
market inherently excludes" use in question held relevant to
market impact factor of fair use).
[FN199].
Often the balancing concept employed in the cases is more diffuse
than that applied in the second part of the fair use test set forth
here. This Second Circuit statement is fairly typical: "The fair
use doctrine offers a means of balancing the exclusive rights of a
copyright holder with the public's interest in dissemination of
information affecting areas of universal concern, such as art,
science and industry." Wainwright
Securities Inc. v. Wall Street Transcript Corp., 558 F.2d 91, 94 (2d
Cir.1977).
For examples of the courts' assessments of injury and benefit see
Meeropol
v. Nizer, 560 F.2d 1061 (2d Cir.1977),
cert. denied, 434
U.S. 1013 (1978);
Rosemont
Enters., Inc. v. Random House, Inc., 366 F.2d 303 (2d Cir.1966),
cert. denied, 385
U.S.
1009 (1967).
Some cases do directly weigh the copyright owner's loss against the
public benefit, but even there it is unclear at what stage weighing
becomes relevant. See, e.g., Time,
Inc. v. Bernard Geis Assocs., 293 F.Supp. 130 (S.D.N.Y. 1968),
discussed supra note 192.
[FN200].
Only the social value of those parts of defendant's work that need to
use plaintiff's work is relevant here. It is necessary to evaluate
not just the value of defendant's work, but also whether he needed to
use plaintiff's work to achieve that value. See Roy
Export Co. Estab. of Vaduz v. CBS, 503 F.Supp. 1137, 1144 (S.D.N.Y.
1980)
(in assessing the purpose and character of defendant CBS's use,
"[t]he jury could reasonably have concluded that if . . . it was
essential to proper coverage of [Charlie] Chaplin's death that some
film clips be shown, the showing of excerpts from films in the public
domain would have been sufficient, and that CBS's decision to
broadcast the offending version was motivated by commercial rather
than educational considerations"), aff'd, 672
F.2d 1095, 1100 (2d Cir.1982)
(assessing defendant's claim of a first amendment privilege in the
copyright field) ("The showing of copyrighted [Chaplin] films
was not essential to CBS's news report of Charlie Chaplin's death or
to its assessment of his place in history; public domain films were
available for the purpose, and the public is already generally
familiar with his work."). See also Walt
Disney Prods. v. Air Pirates, 581 F.2d 751, 756- 59 (9th Cir.1978)
(evaluation of "necessity" in parody situations), cert.
denied, 493
U.S. 1132 (1979);
Meeropol
v. Nizer, 560 F.2d 1061, 1071 n.14 (2d Cir.1977)
("necessity for verbatim copying"), cert. denied, 434
U.S. 1013 (1978).
See also Denicola, supra note 39, at 306-13 (necessity in the first
amendment context).
[FN201].
In Martin
Luther King, Jr. Center for Social Change, Inc. v. American Heritage
Prods., 508 F.Supp. 854 (N.D.Ga. 1981),
defendant corporation had marketed plastic busts of Dr. King, using
the name of the Center for Social Change and using excerpts from Dr.
King's copyrighted speeches in its advertisements and other
materials. In rejecting the defendant's claim of fair use, the court
noted that there was no "public interest consideration . . .
present in this case. . . . Defendants' use of substantial passages
from Dr. King's creative works was purely to induce consumers to buy
the plastic busts and to convey the [false] impression that the
Center approved of the product. This is not a 'fair use."' Id.
at 861.
See also Amana
Refrigeration, Inc. v. Consumers Union of the United States, Inc.,
431 F.Supp. 324, 326 (N.D. Iowa 1977)
(deceptive use of quotations), discussed supra note 141.
This consideration may also help to explain the court's decision in
Walt
Disney Prods. v. Air Pirates, 581 F.2d 751 (9th Cir.1978),
cert. denied, 493
U.S.
1132 (1979),
for the value of the defendants' depiction of "counter-
cultural" lifestyle's may have been difficult for the court to
perceive. This illustrates one danger of relying on a court's
subjective measures of value.
[FN202].
See generally A. Latman & R. Gorman, supra note 19, at 473-75
(suggesting that a "'public interest' factor outweighing all
others" may be developing that is "arguably bubbling under
the surface of cases involving new technology").
[FN203].
See Bleistein
v. Donaldson Lithographing Co., 188 U.S. 239 (1903).
In Bleistein, Justice Holmes wrote: "It would be a dangerous
undertaking for persons trained only to the law to constitute
themselves final judges of the worth of pictorial illustrations,
outside of the narrowest and most obvious limits." Id. at 251.
See also Light, supra note 182, at 635-36 (a test for fair use should
not allow a court to make literary evaluations of parodies and
satires).
[FN204].
See Bleistein
v. Donaldson Lithographing Co., 188 U.S. 239, 251- 52 (1903).
[FN205].
See supra text accompanying notes 89-92.
[FN206].
Whether the privilege [of fair use] may justifiably be applied to
particular materials turns initially on the nature of the materials,
e.g., whether their distribution would serve the public interest in
the free dissemination of information and whether their preparation
requires some use of prior materials dealing with the same subject
matter. Consequently, the privilege has been applied to works in the
fields of science, law, medicine, history and biography.
Rosemont
Enters., Inc. v. Random House, Inc., 366 F.2d 303, 307 (2d Cir.1966)
(citation omitted), cert. denied, 385
U.S. 1009 (1967).
[FN207].
See, e.g., Time,
Inc. v. Bernard Geis Assocs., 293 F.Supp. 130, 146 (S.D.N.Y. 1968)
("There is a public interest in having the fullest information
available on the murder of President Kennedy. [Defendant] Thompson
did serious work on the subject and has a theory entitled to public
consideration."). See also supra notes 170-73 and accompanying
text.
[FN208].
It can be argued that entertainment has a social value as worthy of
protection pro tanto as any other--which is the position taken by
this Article--or that entertainment uses have no value entitled to
fair use protection, see infra note 210, or that its value is not
susceptible to judicial appraisal, Universal
City Studios, Inc. v. Sony Corp. of America, 480 F.Supp. 429, 452
(C.D.Cal. 1979)
(refusing to disqualify copyrighted "New Mickey Mouse Club"
episodes from fair use treatment despite an unwillingness to evaluate
their social merit), rev'd in part and remanded, 659
F.2d 963 (9th Cir.1981),
cert. granted, 102
S.Ct. 2926 (1982).
Cf. Stanley
v. Georgia, 394 U.S. 557, 566 (1969)
(for first amendment purposes, "[t]he line between the
transmission of ideas and mere entertainment is much too elusive for
this Court to draw, if indeed such a line can be drawn at all").
[FN209].
Thus, the Second Circuit has seen social value in humor. See
Elsemere
Music, Inc. v. NBC, 623 F.2d 252, 253 & n.1 (2d Cir.1980)
(per curiam) (emphasis added):
[I]n today's world of often unrelieved solemnity, copyright law
should be hospitable to the humor of parody . . . . A parody is
entitled at least to 'conjure up' the original. Even more extensive
use would still be fair use, provided the parody builds upon the
original, using the original as a known element of modern culture and
contributing something new for humorous effect or commentary.
In
the Betamax case, the Court of Appeals for the Ninth Circuit refused
to base its holding of no fair use on the mere fact that the
challenged uses served entertainment purposes. Although the Ninth
Circuit noted that "there seems to be some indication that the
scope of fair use is greater when informational type works, as
opposed to more creative products, are involved," and that "[i]f
a work is more appropriately characterized as entertainment, it is
less likely that a claim of fair use will be accepted,"
Universal
City Studios, Inc. v. Sony Corp. of America, 659 F.2d 963, 972 (9th
Cir.1981)
(footnot