Southern California IP Professors’ workshop 3

Wendy Gordon, Boston University, Fair Use Markets: On Weighing Potential License Fees

Fair use comes from a time when an abridgement didn’t invade the right. Now: courts say no pirate can escape condemnation by showing how much he didn’t copy. Creativity still hangs around as part of the fair use, which works sort of as a mirror of substantial similarity. Quantity of copying plays a smaller role in fair use than in substantial similarity, and defendant’s creativity plays a larger role. Fair use is as complex as copyright rights are. Unified by looking at why copyright works: bringing buyers and sellers together in the market. Where that doesn’t work, we have reason to look for fair use. Markets fail when transaction costs are high, when the wrong person has the initial rights, when there are benefits the defendant can’t internalize.

Transformativeness isn’t as helpful as it might be. May involve change in purpose or in content. It’s not transformative if the purpose is the same even with added words/etc. Empirical work confirms this. Dorling Kindersley invents the concept of fair use markets: use can be fair even if a license could have been purchased; the license fees the defendant could’ve paid aren’t counted in the fair use calculus.

Useful if (1) we separate the two effects of declaring a fair use market. It’s very different to say that fair use can coexist with a market than to say license fees are irrelevant. (2) Transformativity of purpose isn’t the best criterion. Licensing shouldn’t foreclose fair use by itself; there’s almost always some other reason why it might be worth considering defendant’s use fair. Consider Sony. People look at that and say it’s all about transaction costs; licensing right to make copies wouldn’t have worked. May be so, and is a perfectly good justification, but other factors like privacy of the home; kind of estoppel that the shows had been broadcast free; tapes were erased after a short time—all mattered to fair use. (3) When a nonmarket mode works better, presence of a licensing option shouldn’t foreclose fair use.

As for not counting license fees at all against the defendant, she tries to ID cases in which licensing would destroy creative communities or degrade quality, or when licensing would not give an effective message about the value of what the copyright owner set out to produce.

Lockean justification: what you’re permitted to keep depends on the purpose you attempted to serve. Rights of copyright owner, rooted in labor towards particular purpose expressing her will, and her rights should expire when those purposes don’t apply. Thus, for transformative use not interfering with those purposes, laborer should have no ground for complaint. Informative index to creative work, or concert photo to illustrate a biography of the band, or thumbnail used in search index, this kind of borrowing isn’t stepping on the personal stake that gave rise to the laborer’s right. Lost benefit is not a cognizable harm. New use could cause cognizable harm if it could erode the market for other merchandise the copyright owner did have in mind—e.g., the Seinfeld Aptitude Test. If it didn’t cause cognizable harm, you’d evaluate the other factors—commerciality, quantity and substantiality of what’s taken. But if we’ve already asserted the plaintiff had no rights outside original purpose and found that purposes wasn’t implicated, no reason to consider the other factors. History doesn’t match a sweeping approach to purpose.

Unforeseeable uses: Balganesh, Bohannon have argued that those are outside the copyright owner’s rights—she thinks unforeseeability should be one ground for finding fair use, but she doesn’t think it’s enough to block consideration of foregone license fees, because today’s rules affect tomorrow’s creators. Transformativeness is too broad and too narrow. There can be commercial transformations that should be licensed (too broad). Too narrow: privacy, estoppel, reliance, rights of self-defense. Locke’s proviso provides immense support for members of a public who relied on a work in forming their own world-view. Transformativity favors fair use for only one kind of unforeseeability, shift in purpose. But that’s not consistent with history or the Progress Clause.

In rejecting transformativity and suggesting use of broader factors for when licenses can coexist with fair use, doesn’t mean to turn her back on the First Amendment. Both copyright owners and the public should have rights on a moral basis. But the area of rights for both sets of parties are fairly narrow.

Commentator: Tony Reese, UC Irvine

Is the fair use analysis of markets descriptive or normative? Gordon takes the 2d Circuit as making a normative statement: even if a market develops, we won’t count it.

Gordon is convincing that merely considering lost license fees needn’t necessarily be circular in the sense of assuming the conclusion that the market will be harmed, if the defendant’s use will create a bunch of social benefit and the plaintiff’s loss is small. That raises the concern that, in actual application, it’s probably generally hard to measure in numbers the defendant’s contribution to progress, while it’s relatively easy to measure the cost of foregone licensing income. So even if courts aren’t formally circular, they may well be weighing lost licensing fees more heavily than they should because they’re easy to measure and because what we can count counts more.

So let’s think through the implications of the Second Circuit’s concept of fair use markets. The category means that the mere possibility of a license shouldn’t foreclose a finding of fair use. Gordon’s principal aim here is to counter those who argue that fair use should only be available where markets fail and voluntary deals aren’t possible. Reese suggests the claim could be pushed further. Given the Campbell court’s disavowal of bright line rules, we could argue that the fact that the defendant could have license should never foreclose fair use.

Her suggestions include where requiring payment would degrade quality of the product—for example, reviews. Or where the defendant’s use implicates/vindicates a nonmonetizable right or interest. Others of her examples seem harder to imagine courts getting a handle on for deciding a case—creativity in gift communities/creative environments in which markets might not be the most useful way to deal with creativity. Reese is concerned that courts may find understanding such markets difficult in determining fair use. (I’d note that the Copyright Office did a decent job with the DMCA exception for noncommercial remix.) Even with orthogonal uses (where the creator doesn’t get appropriate incentive messages from the use, as where a decorator uses sheet music as wallpaper for its visual impact), we may have to think about static v. dynamic orthoganality. If the use becomes popular, maybe composers will work on notating sheet music to increase its visual appeal.

Gordon: We may never have all the information we need; that’s the human condition. What’s driving her work on fair use isn’t fair use, but the problem of universal commodification. Assume we have a magic computer capable of tracing all the benefits and harms we do each other and can shift money around to track that. What would be so bad about that? A lot of her work has been about where markets should end. This paper is trying to feel its way to situations where we’re better off without markets. Fair use is almost a placeholder for that larger concern.

Barnett: Pure economic perspective: Suppose a licensing market exists or could exist, meaning transaction costs are low. Introduce fair use, which is a $0 royalty, and you have reallocated a profit stream to the benefit of the second movers. From an efficiency perspective, we’re indifferent at a static level. But we add litigation costs, which is inefficient, because the defendant may be willing to fight not to pay and it’s harder for copyright holders to walk into court and get an injunction. Also, from a perspective of maximizing output, we’re disincentivizing the first mover, injuring output with no distributive gain unless someone in the second mover class has a greater claim.

Gordon: in the real world, we do have transaction costs, and reallocation of rents is immensely important. Doesn’t understand why the purpose of copyright is to maximize return to the first mover.

Barnett: there’s nothing for the second mover to build on with the first mover; it’s a stylized example.

Gordon: but the second mover could start with something else. The causal chain works both ways. Brett Frischmann: when the second mover does additional work, if the first guy can enjoin the whole thing that’s also an inappropriate allocation.

Barnett: unless we have a distributional reason to favor the second mover, that transaction won’t be blocked—if Disney can make a profit by licensing out, it will do so. The absence of fair use doesn’t mean a transaction is blocked.

Gordon: that’s the temptation about universal commodification. Her response: sometimes we want people not to have to pay for speech. The initial question of where the entitlements are matters a lot.

Shiffrin: Gift community: how far do you want to take this? Sometimes it seems like you’re saying we shouldn’t grant the right if it would change the nature of the plaintiff’s community, and sometimes you seem to say we shouldn’t grant the right if it would change the nature of the defendant’s community. Or we could look at the overall effect on creativity. Is inability to pay sufficient? You say blanket licensing is one way to avoid content discrimination, but some critics may not be able to pay even a blanket license. Almost every community has some people who couldn’t pay. If they couldn’t pay, it wouldn’t affect the plaintiff anyway.

Gordon: problem of arbitrage—how do you sort people who can’t afford to pay (sick people impoverished nations) from those who can? What if it gets resold? If not for that, of course she’d say give it to them for free. Subsidies can help—public schools give out textbooks. In some cases, more drastic remedies are necessary. Hardest question for her: plaintiff community v. defendant community. She has privileged the defendant community. Bob Dylan sitting around writing a song, and into it creeps a bunch of lines from a translation of a novel. To hold Bob Dylan liable, if it will affect his behavior in the future, is a problem. He’d start taking notes, have his lawyers look over his shoulder—can’t imagine any outcome of making him liable that would be salutary for society or for him. Easier when plaintiffs and defendants are part of the same community, as with societies of poets who quote each other. Could look to relative harms.

Merges: Where plaintiff and defendant are part of the same community, why can’t you just rely on voluntary waiver?

Gordon: Bridgeport. The jury found against fair use in one of these sampling cases. Sampling involves everyone borrowing from everyone else. Fair use might be away to secure that community’s existence through norms. You might ask, why not CC licenses or the like? But people who don’t make that kind of music aren’t likely to enter into those formal kinds of deals.

Nimmer: Your question might be whether we could make a formal condition of share and share alike a condition of entry into the community.

Merges: but maybe the market is segregated—top 40 artists whose labels now do engage in sampling transactions on a regular basis, and then an open source community using CC licenses to encourage sampling. Maybe fair use isn’t necessary. (This makes it impossible to transition into the pro ranks using one’s amateur style, which seems odd coming from a person who wants to encourage entry into the pro creator ranks.)

Gordon: this requires organizing a community, but until that happens fair use is a good response. Also there’s a problem of opportunism—violating reciprocity. People change their minds and demand control.

Merges: estoppel and reliance would be good tools.

Q: would the existence of an open community really eliminate the need for fair use?

Gordon: no, but it might eliminate the need in that group.

My question 1: Is Dorling Kindersley wrongly decided by Gordon’s standard? Does it mean that no coffee-table publishers have to pay for concert posters or the like? (Note that they will probably continue to pay in most cases to avoid the hassle.)

Gordon: DK did surprise her; it’s really a copyright misuse case and not a traditional fair use case. But she does want to defend the principle that factual uses should be fair. SCt gave us a ridiculous ontological account of why facts aren’t copyrightable (they’re discovered, not created)—but even in Feist the facts were created; someone came up with the names of the towns and the people, and the numbers were created by the phone company. The number of windows in this room is a fact created by people. Facts are not just found. We don’t protect them for other, communicative reasons. DK is about enhancing people’s factual knowledge of the environment in which the Grateful Dead performed, and that’s why fair use is plausible in this case.

My question 2: What’s the relevance of tolerated use, such as YouTube where the copyright owner decides to run ads against the content instead of taking down the content, or when the MPAA promises to give media studies professors access to any clips for a zero license fee—that’s not even a foregone licensing fee.

Q: if all that was necessary was a last-minute phone call that really worked no matter what movie you wanted to use, she might be inclined to say no fair use; dignity of the user community might not be enough, but she doesn’t think this would be a real option (and in fact that isn’t).

Q: but of course they don’t really want a zero licensing fee and a phone call; they want the right to stop you when they change their minds.

Gordon: privacy also comes in—you may not want to share your syllabus with the world.

Netanel: this is about uses outside the market. Toleration is waiver. Conceptual question: is toleration enough to justify commodification?

Gordon: commodification involves alienation, reselling.

(I don’t think this proposal to offer media studies profs a free license is true commodification; this is the insistence on licensing something that is outside the actual monetary market. It’s troubling in the way that saying consensual sex is commodified because sex is also available for sale on the market; there’s a sense in which that’s partially true but a larger sense in which it isn’t.)

Gordon: there’s reason to be distrustful of a promise to respect your rights without any actual right. Systematic and completely predictable nonenforcement of copyright is hard to believe in.

Rothman: you seem to offer economic and noneconomic justifications for fair use markets. Gift economy = a kind of economic relation, but not a market relation. Rights-based uses seem to be of a different ilk.

Gordon: In the debate about whether licensing always counts against fair use, transformativity gives a human basis for saying “you’ve gone too far in claiming rights.” It’s a way to fight back against “if value, then right.” A market based on copyright owners’ decisions can fail to serve the public interest, sometimes because of transaction costs and sometimes for other reasons, including free speech—in that case, the entitlement just belongs in the other party, especially when interests are nonmonetizable.