Sony data breach case stripped down but not gone

In re Sony Gaming Networks And Customer Data Security Breach Litigation, No. 11md2258, 2014 WL 223677 (S.D. Cal. Jan. 21, 2014)

Venkat Balasubramani’s take.  These consolidated cases arose from a criminal intrusion into Sony’s online gaming system. Plaintiffs alleged that Sony failed to provide reasonable network security, including utilizing industry-standard encryption, to safeguard the personal and financial information stored on Sony’s network.

Sony’s online services allow people to play games, and for a fee to access additional content, including games and movies; they can also access other services such as Netflix on their Sony PlayStations consoles.  Acessing the services required agreeing to Sony’s Terms of Service and providing Sony with personal identifying information, including names and credit card information.  Hackers accessed millions of customers’ data in April 2011, which Sony allegedly didn’t disclose for a while, though it took the network offline a few days later and kept it down for almost a month while it audited the system.  During that time, plaintiffs couldn’t use Sony’s online services, and many couldn’t access the third party services either.  Sony allegedly continued to misrepresent the circumstances of the breach and didn’t inform the public about the breach in one variant of its serices for roughly ten days.  Then it made a public statement that user personal information had been compromised, and encouraged those affected to “remain vigilant, to review [their] account statements[,] and to monitor [their] credit reports.”  Sony allegedly admitted that its failures “may have had a financial impact on our loyal customers. We are currently reviewing options and will update you when the service is restored.” Further, Sony conceded that some games couldn’t be played offline.  A week later, Sony took a different service offline and announced that it too might have been compromised.  Sony ultimately announced that it would provide US users with free identity theft protection services and certain free downloads and online services.

The named plaintiffs suffered service interruptions and some alleged that they bought credit monitoring services to protect themselves or suffered unauthorized credit card charges.

There are 51 counts in this multidistrict complaint; they can be grouped as: (1) negligence; (2) negligent misrepresentation; (3) breach of express warranty; (4) breach of implied warranty; (5) unjust enrichment; (6) violation of state consumer protection statutes; (7) violation of the California Database Breach Act; (8) violation of the federal Fair Credit Reporting Act; and (9) partial performance/breach of the covenant of good faith and fair dealing.

The court reaffirmed its holding that the plaintiffs had Article III standing: the dissemination of their sensitive personal information increased the risk of future harm. Clapper v. Amnesty International, 133 S.Ct. 1138 (2013), didn’t change that, although that case found that the plaintiffs there hadn’t alleged sufficient injury to challenge FISA surveillance because they hadn’t shown that targeting of their communications was “certainly impending” (subsequent revelations might affect one’s evaluation of this argument), and because the costly and burdensome measures they’d taken to protect confidentiality couldn’t themselves establish standing.  The court here found that Clapper didn’t impose a new requirement, just rejected “a speculative chain of possibilities based on potential future surveillance.”  Here, there was an alleged wrongful disclosure, which was enough for standing—plaintiffs alleged a “credible threat” of impending harm.

The negligence claims lost for various reasons.  For example, though plaintiffs alleged a brief delaby between the intrusion and Sony’s consumer notification, they failed to allege that their injuries—credit monitoring services, loss of use and value of the services, and/or diminished value of their game consoles—were proximately caused by the allegedly untimely delay.

The court found that commercial entities had a legal duty to safeguard a consumer’s confidential information entrusted to them using reasonable security measures, including industry-standard encryption, under California and Massachusetts law.  However, the economic loss doctrine precluded recovery; plaintiffs didn’t allege a “special relationship” with Sony beyond those envisioned in everyday consumer transactions, so they couldn’t avoid the economic loss doctrine.

As for negligent misrepresentation/innocent misrepresentation/negligent omission claims, they went down for various reasons (e.g., negligent misrepresentation is not available in Ohio for non-business-based claims), primarily because the misrepresentation claims were based on statements in user agreements/the privacy policy, which were presented to plaintiffs after they bought their consoles.  Thus, they couldn’t plausibly allege pecuniary loss as a result.

The user agreements required California law for the breach of warranty claims, which kicked out more causes of action based on the laws of various states; implied warranty claims also failed because of the existence of an express agreement disclaiming implied warranties, and because network services aren’t “goods” under the UCC.  The existence of a valid contract also doomed various unjust enrichment claims.

As for the consumer protection claims: Begin with California, and of course with standing, which requires injury in fact/economic injury caused by the unfair business practice or false advertising that is the gravamen of the claim.  The court found that plaintiffs adequately alleged harm stemming from Sony’s omissions at the point of purchase.  Though the network was free/plaintiffs registered after acquiring their consoles, plaintiffs alleged that access to the network, and internet access via their consoles, was a key feature of the consoles.  They further alleged that if Sony had disclosed that the network wasn’t reasonably secure, or that it didn’t use industry-standard encryption to secure their personal information, they wouldn’t have bought, or would have paid less for, the consoles.  Although plaintiffs couldn’t have reasonably relied on the post-purchase-disclosed user agreement/privacy policy, they could have relied on the alleged fraudulent omissions.

But did plaintiffs plead with particularity? While no reasonable consumer would believe that Sony promised to provide continued and uninterrupted access, plaintiffs suffficiently pled that Sony misrepresented that it would take “reasonable steps” to secure their personal information, and that Sony used industry-standard encryption “to prevent unauthorized access to sensitive financial information.”   Though Sony disclaimed perfect security, deceptiveness was a question of fact given Sony’s representations about industry-standard encryption.  The fraud-based omission claims were also sufficiently pled (relating to Sony’s failure to tell consumers it didn’t have adequate safeguards in place, failure to immediately notify consumers of the intrustion, and failure to disclose material facts about the security of its network).  Plaintiffs also sufficiently alleged a basis for restitution—Sony benefited financially from the sale of consoles based on fraudulent omissions.  However, UCL/FAL claims for injunctive relief failed for want of specificity.  Sony argued that the CLRA didn’t apply to registration for free network services, but omissions at the point of console purchase were a different matter.

Florida (FDUTPA): Dismissed for want of actual damages, which means a difference in market value of service delivered versus market value in the condition in which it should have been delivered.  The Florida plaintiffs didn’t allege that they wouldn’t have bought their consoles but for Sony’s deceptive conduct, and they failed to allege that a reasonable person would’ve behaved differently at the point of purchase absent the challenged conduct; plaintiffs’ allegations were about the post-purchase user agreement and privacy policy. Consequential damages are unavailable in Florida, so what plaintiffs paid for third party services disrupted by the security problems was unrecoverable.  And disclosure of personal information wasn’t actual damage, since personal data doesn’t have an apparent monetary value that can be priced. However, the Florida claims for declaratory/injunctive relief survived, despite the privacy policy’s disclaimer of perfect security. Again, Sony allegedly warranted that it would take “reasonable” security measures and use industry-standard encryption, but didn’t; this created a factual issue.

Michican’s Consumer Protection Act: essentially the same result.  (This opinion is a bear, but the judge did not take any shortcuts; each state’s law is specifically considered, even though the results are pretty much in tandem.)

Missouri Merchandising Practices Act: Claim survived, for reasons similar to those offered for California.

New Hampshire Consumer Protection Act: Claim for statutory damages survived, as the NHCPA “does not require a showing of actual damages for the claimant to be awarded the statutory minimum and attorneys’ fees.” Literally true but misleading claims are actionable, and the necessary “rascality” was sufficiently alleged here; the New Hampshire Supreme Court has upheld a NHCPA claim when a defendant “made representations [ ] knowing that he lacked sufficient knowledge to substantiate them.”  However, statutory damages were disallowed in the absence of actual damages in the class action context. Plaintiffs failed to allege actual damages resulting from Sony’s alleged material misrepresentations, so the class action allegations were dismissed, but not claims for injunctive relief.

New York Deceptive Practices Act: Dismissed for lack of actual injury caused by Sony’s alleged material misrepresentations.  Lost privacy/value of personal information stemming from a data breach wasn’t enough, at least where the loss was unintentional rather than intended by the defendant.  See the Florida analysis for the court’s treatment of the rest of the claimed harms, which also led to dismissal of the Texas claims. Comment: despite differences in courts’ wording of the test, these states and many others have basically the same rules. This suggests that courts should be more willing to entertain multistate class actions, with some grouping when necessary.

Ohio consumer protection statutes: Because the “vast majority of federal courts and all lower state courts to address the issue have concluded that relief under the [Ohio Deceptive Trade Practices Act] is not available to consumers,” the court found that plaintiffs lacked standing.  As for the Ohio Consumer Sales Practices Act, consumer class actions require that the defendant’s alleged violation be “substantially similar to an act or practice previously declared to be deceptive” by the Ohio Attorney General or an Ohio state court, and plaintiffs couldn’t meet that standard.

The damage claims under the California Database Breach Act were dismissed (no damages caused by delay in notice) but not the injuctive relief claims.  Sony wasn’t a consumer reporting agency and therefore couldn’t violate the Federal Fair Credit Reporting Act.  Finally, the court allowed a claim for partial performance/breach of the covenant of good faith and fair dealing to go forward, based on allegations that Sony didn’t perform under a settlement agreement between the parties.

Digital Copyright book: discount offer from publisher

Description from the publisher:

NEW 4TH EDITION

Digital Copyright

Law and Practice

By Simon Stokes

 

The first edition of this book in 2002 was the first UK text to examine digital copyright together with related areas such as performers' rights, moral rights, database rights and competition law as a subject in its own right. Updated editions have included the UK implementation of the 2001 Information Society Directive and commentary on user-generated content and the development of Web 2.0 and beyond. Now in its fourth edition, the book has been updated and revised to take account of legal and policy developments in copyright law and related areas, in particular the increasing role of the Court of Justice of the European Union in shaping EU copyright law. 

 

The book helps put digital copyright law and policy into perspective and provides practical guidance for those creating or exploiting digital content or technology, whether in academia, the software, information, publishing and creative industries, and other areas of the economy. The focus is on the specifics of the law in this area together with practical aspects, including precedents and precedent checklists dealing with common digital copyright transactions. The latest edition has been expanded to include a discussion of Open Access, eBooks and app development and licensing. Both academics and practitioners will find the book an invaluable guide to this rapidly developing field of law.

 

The Author

Simon Stokes is a solicitor and a partner with Blake Lapthorn and a Visiting Research Fellow at Bournemouth Law School.

 

Published January 2014

310pp    Hbk   9781849464024

RSP: £45 / €58 / US$90 / CDN$90

Discount Price: £36 / €46.40 / US$72 / CDN$72

 

Order Online

UK, EU, ROW: If you would like to place an order you can do so through the Hart Publishing website (link below). To receive the discount please quote the reference ‘STOKES4’ in the voucher code field and click ‘apply’.

http://www.hartpub.co.uk/BookDetails.aspx?ISBN=9781849464024

 

US: If you would like to place an order you can do so through the Hart Publishing website (link below). To receive the discount please quote the reference ‘STOKES4’ in the special instructions field on the credit card screen.

http://www.hartpublishingusa.com/books/details.asp?ISBN=9781849464024

Harvard Law Review Symposium on Freedom of the Press

Copied from Balkinization.

Harvard Law Review Symposium 2014: Freedom of the Press

A conference in celebration of the 50th anniversary of
New York Times Co. v. Sullivan, 376 U.S. 254 (1964).

February 15, 2014
Harvard Law School
Austin North

8:45 Breakfast

9:20 Introduction:

Mark Tushnet
Harvard Law School
“Reflections on the First Amendment and the Information Economy”

9:45 Panel 1:

Susan Crawford
Benjamin N. Cardozo School of Law
“First Amendment Common Sense”

Comments by Stuart Benjamin (Duke)

10:55 Panel 2:

Sonja R. West
University of Georgia School of Law
“Press Exceptionalism”

Comments by RonNell Andersen Jones (BYU) and by David Anderson (University of Texas)

12:10 Lunch

1:10 Panel 3:

Marvin Ammori
Fellow, New America Foundation
“Free Speech Lawyering in the Age of Google and Twitter”

Comments by Marjorie Heins (Free Expression Policy Project) and by Jonathan Zittrain (Harvard)

2:35 Panel 4:

Rebecca Tushnet
Georgetown University Law Center
“More than a Feeling: Emotion and the First Amendment”  (As it turns out, my paper is in the "one of these things is not like the others" category, but I hope it builds on Sullivan as well.)

Comments by Caroline Corbin (University of Miami)

3:45 Panel 5:

Jack Balkin
Yale Law School
Old School/New School Speech Regulation

Comments by Yochai Benkler (Harvard) and by Dawn Nunziato (George Washington University Law School)

5:00 Break

5:10 Open Panel

News for storage jars: the real scandal in Virginia is the supplement

So Slate says, citing the FDA's warning that the supplement the McDonnells helped tout is being unlawfully marketed.

9th Circuit makes trademark fair use even more confusing

Aaargh. A great case for Bill McGeveran’s claim that trademark defenses have grown so rococo that they can be detrimental to legitimate uses.

Experience Hendrix L.L.C. v. Hendrixlicensing.com Ltd, Nos. 11-35858 (9^th Cir. Jan. 29, 2014)

Defendant Pitsicalis, who licensed copyrights in some images of Hendrix, was found liable for trademark infringement for some Hendrix-related conduct.  (The court also upheld Washington’s right of publicity law that grants rights of publicity to everyone, domiciliaries or not, within Washington’s borders—another reason the Supreme Court should fix this metastasizing right, and quickly.)  On appeal, Pitsicalis challenged only the determination that the domain names hendrixlicensing.com  and  hendrixartwork.com infringed  Experience  Hendrix’s  trademark  “Hendrix.”   He argued that his use was nominative.  The district court found  that  Pitsicalis used “Hendrix”  in his  domain  names  to  refer,  not  to  Experience  Hendrix’s products  (as  the court of appeals said was  required  for  a  nominative  fair  use  defense),  but only  to  Pitsicalis’s  own  product  or  service,  licensing  and marketing  Hendrix-related  goods  (which  is  not  protected under  the  nominative  fair  use  defense).  “On appeal,  Pitsicalis does  not  argue  that  his  domain  names  refer  to  Experience Hendrix’s products.  Nor does he contend that Jimi Hendrix is  Experience  Hendrix’s  product.”    (Citing  Cairns  v.  Franklin Mint  Co.,  292  F.3d  1139  (9th  Cir.  2002).)  Pitsicalis didn’t raise a descriptive fair use defense (probably because it’s so messed up in the 9^th Circuit after the KP Permanent remand), which would deal with a use of a mark to describe only the defendant’s own goods.  Affirmed.

But this is nonsense: raising the nominative fair use defense inherently makes the point that Jimi Hendrix is both a fact-in-the-world and a trademark, just like the New Kids, just like Princess Diana.  In neither of those cases did defendants refer to the goods or services the plaintiff was selling under the mark; they used the names at issue to refer to the entities named, just as here.  Defendant’s service might have been licensing Hendrix-related goods, but the reference to Hendrix contained in his domain names was nominative: a reference to Jimi Hendrix the person, to whom the trademark also pointed.  This seems to be some weird “use as a mark” concept, not fully spelled out and therefore left around like a loaded gun to damage some other fair use.

Strict liability for misleading advertising in Europe

Interesting post from Lewis Silkin about the UK's ASA versus the EU Court of Justice: the former allowed an advertiser to rely on a third party's representations (I think that's a bit of a simplification--the third party was the complainant who objected to a characterization taken from its own website! I don't know that the ASA would allow reliance on a totally unconnected third party) while the latter didn't allow an advertiser to rely on claims that it was the exclusive provider of certain booking services despite having contracts that purported to make it the exclusive provider, when it turned out that some of its partners had ignored the exclusivity provision.  Due diligence, Lewis Silkin concludes, is likely to be insufficient if you're wrong.

This is the US result under the Lanham Act and most consumer protection statutes, too, though I would expect that concepts of standing would also play a big role here; it is extremely unlikely that a hotel would be able to challenge a hotel information site under the Lanham Act, though trade libel would be a possibility depending on the particular facts.  (The post points out that materiality would be an issue in Europe, as it would be here too--the ASA evaluated whether the claim that a hotel provided complimentary toiletries was misleading, which is maybe not the most significant of claims.)

Nontransformative, commercial use of earnings call was fair

Swatch Group Management Services Ltd. v. Bloomberg L.P., No. 12-2412 (2d Cir. Jan. 27, 2014)

Swatch sued over Bloomberg’s 2011 posting of the recording of a conference call at which Swatch executives discussed the company’s recently released earnings report with invited investment analysts.  “Swiss law permits public companies to hold this kind of earnings call with a limited group of analysts, provided that the company does not disclose non-public, significantly price-sensitive facts during the call.”  About 132 of 333 invited financial analysts joined the call, and a vendor recorded the entire call, while an operator affiliated with the vendor welcomed the analysts to the call and told them, “This call must not be recorded for publication or broadcast.”  The Swatch executives “provided commentary about the company’s financial performance and answered questions posed by fifteen of the analysts.”  The call lasted 132 minutes, and the executives spoke for 106 of them.

Bloomberg, though not invited, obtained a sound recording and written transcript of the call and made them available online, without alteration or editorial commentary, to subscribers to its online financial research service, Bloomberg Professional. Bloomberg touts Bloomberg Professional as “[a] massive data stream” with “rich content” that is “unparalleled in scope and depth” and is “delivered to your desktop in real time,” as well as “access to all the news, analytics, communications, charts, liquidity, functionalities and execution services that you need to put knowledge into action.”  

Swatch sued for infringement, then applied for registration for the sound recording of the earnings call; after discussion with the Copyright Office, registration was granted only for statements made by Swatch executives, not statements by the operator or questions from the analyst.  Swatch’s infringement claim went only to the sound recording, not the transcript, pursuant to 17 U.S.C. § 114(b), under which only actual sounds fixed in the recording are protected by the sound recording copyright; Swatch apparently conceded that the transcript was outside its right to prepare derivative works (or to control reproductions).

The court of appeals upheld summary judgment for Bloomberg on fair use grounds.  Factor one favored fair use because Bloomberg’s news reporting served an important public interest.  Swatch argued that Bloomberg wasn’t engaged in news reporting, just conveying “data,” and that discovery was needed on the issue (as well as others about Bloomberg’s state of mind and whether Bloomberg’s subscribers actually listen to recordings or just read transcripts). 

“[W]hether one describes Bloomberg’s activities as ‘news reporting,’ ‘data delivery,’ or any other turn of phrase, there can be no doubt that Bloomberg’s purpose in obtaining and disseminating the recording at issue was to make important financial information about Swatch Group available to American investors and analysts.”  This information “is of critical importance to American securities markets.”  The SEC mandates that, when American companies disclose this kind of material nonpublic information, they have to make it available to the public immediately. Though Swatch is exempt from the SEC’s rule, that doesn’t change the public interest in this information, which remains highly relevant to American markets.  “At a minimum, a use of copyrighted material that serves this public purpose is very closely analogous to ‘news reporting,’ which is indicative of fair use.”  This important public purpose overwhelmed the weight otherwise given to “Bloomberg’s clandestine methods and the commercial, nontransformative nature of its use.”  (When a work fits the §107 preamble, there’s a strong presumption that factor one favors the defendant, but given the factual disputes, the court assumed that Bloomberg’s use wasn’t within the “core notion” of “news reporting,” so it didn’t apply the presumption.) 

True, Bloomberg was a commercial enterprise, but so are many fair users, and the link between the copying and commercial gain was attenuated—Bloomberg Professional “is a multifaceted research service, of which disseminating sound recordings of earnings calls is but one small part. Moreover, it would strain credulity to suggest that providing access to Swatch Group’s earnings call more than trivially affected the value of that service.”  So commerciality had reduced weight here.

So did Bloomberg’s lack of good faith, which in general contributes little to fair use analysis.  Assuming, for summary judgment purposes, that Bloomberg was fully aware of Swatch’s directive, its overriding purpose was not to “scoop[]” Swatch or “supplant the copyright holder’s commercially valuable right of first publication,” “but rather simply to deliver newsworthy financial information to American investors and analysts. That kind of activity, whose protection lies at the core of the First Amendment, would be crippled if the news media and similar organizations were limited to authorized sources of information.”  (Citing the Pentagon Papers case!)

Transformativeness is important, but not necessary; some core examples of fair use, like multiple copies for classroom use, “involve no transformation whatsoever.”  (Yay!  It’s nice to see “multiple copies for classroom use,” which is in the statute, be recognized as core fair use, rather than edited out, as has happened in other cases.)  In the context of news reporting and similar activities, “the need to convey information to the public accurately may in some instances make it desirable and consonant with copyright law for a defendant to faithfully reproduce an original work rather than transform it.”  In those kinds of cases, courts often find transformation in the altered purpose or context of the work, as shown by surrounding commentary or criticism.  But additional commentary or analysis was absent here.  Still, by disseminating the call, “Bloomberg was able to convey with precision not only what Swatch Group’s executives said, but also how they said it. This latter type of information may be just as valuable to investors and analysts as the former, since a speaker’s demeanor, tone, and cadence can often elucidate his or her true beliefs far beyond what a stale transcript or summary can show.”  Courts have often noted that a “cold transcript” isn’t as good as a more physical presentation.  Also, it doesn’t matter how many Bloomberg subscribers took advantage of this extra information; it remains independently valuable.

News reporting can’t excuse all copying.  “But here, in light of the independent informational value inherent in a faithful recording of the earnings call, the fact that Bloomberg did not transform Swatch’s work through additional commentary or analysis does not preclude a finding that the ‘purpose and character’ of Bloomberg’s use favors fair use.”  Other news cases finding no fair use were not to the contrary.  Translating from one language to another; reporting the conclusions from research reports; and copying information compiled by a competing financial publisher were all different.  In those cases, the defendants “appropriated works in which the copyright owner had transformed raw financial information by compiling it from multiple sources or by mixing it with their own commentary and analysis.”  Here, though, the sound recording—including the executives’ modes of expression—“were themselves pieces of financial information.”  The other cases were about secondary sources; this case is about a primary source, and that makes a difference.  (This is sounding a lot like Barclays Capital v. Theflyonthewall.com, 650 F.3d 876 (2d Cir.2011).)  Swatch’s desired discovery couldn’t change any of this.

Nature of the work: there’s a thin copyright, because the conference call was “manifestly factual,” even with quirks of expression by the executives.  “[W]hile we assume without deciding in this appeal that the call contained sufficient original expression—in the form of the executives’ tone, cadence, accents, and particular choice of words—to be copyrightable, the purpose of the call was not in any sense to showcase those forms of expression. Rather, the call’s sole purpose was to convey financial information about the company to investors and analysts.”  This placed it “at the very edge” of copyright’s protections.

Also, the work was published before Bloomberg’s use.  Publication, for fair use purposes, is not “publication” as specifically defined by the Copyright Act in §101; statutory publication didn’t occur here.  That technical definition serves many channeling purposes (e.g., triggering the deposit requirement), but it doesn’t serve the purposes of fair use.  The common-law nature of fair use justifies a different, more functional understanding of publication.  The court would not “blind [itself] to the fact that Swatch Group invited over three hundred investment analysts from around the globe to the earnings call, out of which over a hundred actually attended.”  Swatch wasn’t deprived of the ability to control the first public appearance of its expression. Courts “commonly look past the statutory definition when considering this issue,” and even in Harper & Row the Supreme Court suggested that “even substantial quotations might qualify as fair use in a review of a published work or a news account of a speech that had been delivered to the public or disseminated to the press.”

Amount used: this factor can’t favor Bloomberg, but it is neutral.  Given the public interest in the information, copying the whole call was reasonable in light of Bloomberg’s purpose, regardles of how many Bloomberg subscribers took advantage of the value added by the recording over the transcript.

Market effect: None.  The relevant effect is that caused by Bloomberg’s use of the expressive elements of the work, and there was no evidence of any possible market effect.  Swatch didn’t presently seek to profit from publication of earnings calls.  What about a potential market?  “While the loss of a potential yet untapped market can be cognizable under the fourth fair use factor, the potential market here is defined so narrowly that it begins to partake of circular reasoning…. The hypothesized market for audio recordings of earnings calls convened by foreign companies that are exempt from [SEC publication requirements]” was not traditional, reasonable, or likely to be developed.

And, even if a financial news or research organization might be willing to pay for access, copyright’s ultimate aim is to stimulate creativity for the general good.  “Here, the possibility of receiving licensing royalties played no role in stimulating the creation of the earnings call.” Swatch actually argued that it didn’t even know whether there was a potential market for this kind of recording.  The call’s purpose was to let Swatch executives disseminate information about the company in a way they believed would be favorable—that’s the incentive for earnings calls, not copyright.  “By making the recording available to analysts who did not or could not participate in the call initially, Bloomberg simply widened the audience of the call, which is consistent with Swatch Group’s initial purpose.”  Swatch’s interest in “know[ing] and control[ling] precisely who heard the call” wasn’t weighty enough compared to the public interest in the dissemination of important financial information. (And here is the Barclays cite.)

Balancing the factors led to a fair use finding.

The court denied Bloomberg’s cross-appeal on the copyrightability of the sound recording as not properly before it; Bloomberg wasn’t aggrieved by the ruling, given its victory on other grounds, and it didn’t jump through the right procedural hoops for a separate appeal.

UK Court of Appeals rejects survey evidence in TM case, again

Marks & Clerk report on this latest instance, noting the effect of deprecating surveys on limiting the costs of litigation, which is extremely important in a loser-pays system.  High court opinion in Zee v. Zeebox; IPKat discussion of appeal; I haven't been able to find the full court of appeal opinion.

House fair use hearing

Hearing on Fair Use, House Judiciary Committee Subcommittee on Internet/IP

Rep. Coble (subcommittee chair): Fair use is important.  North Carolina universities rely on copyright law and on fair use.  Fair use’s strength is its ambiguity/freedom for courts, but also its greatest weakness in the digital era.  Congress could provide guidance on what it did/didn’t intend to be fair use.

Rep. Conyers: Fair use is generally working as intended—a limited exception to creator’s property rights when certain public interests conflict with those rights.  Current law attempts delicate balance between public interest and creator’s ability to earn a living. Creators should be able to tell new stories by using copyrighted material as historical artifacts, depict real world scenes and events. Historians, biographers, filmmakers use these work for meaning and insights about historical events.  Essential to discuss historical events, critical to news organizations/public broadcasters. Current law, while not perfect, provides reliable guidance to copyright owners. We must continue to monitor this area, vigilant in safeguarding rights of creators. Calls for expansion of fair use: due partly to the fact that specific statutory limitations haven’t kept pace with emerging technologies? Content owners should continue to develop best practices.  Interest in maintaining fair use’s historical role as flexible doctrine should continue in broad range of context; we should reexamine application of transformative use, which has become all things to all people.  Fair use impacts all industries, including education and journalism; should develop best practices.

Rep. Goodlatte (committee chair): Fair use was codified only in 1976 but part of copyright law before that; changed a bit in 1992 for unpublished works but unchanged otherwise.  Flexibility has encouraged new business models.  Certainty is also beneficial, both for copyright owners and users. Not every dispute should require judicial interpretation—wants to know how statute has succeeded—too specific? Not specific enough? Are the factors appropriate and appropriately defined? Key question: How does one define what is transformative.  Several witnesses note that transformativeness is viewed by judges as of primary importance.

Peter Jaszi: Fair use helps guarantee the continued international primacy of the US as a site of innovation. After a rocky start, courts are now doing an excellent job.  Could use legislative support—exempt noncommercial derivative work from onerous statutory damages; amend §301 on preemption to bar some or all contractual waivers of the fair use right.  Written testimony describes current unified field theory of fair use that informs decisions—keyed to the notion that uses that advance transformative ends, repurposing and adding value to copyrighted material, are favored.  2d Circuit yesterday provided example: Bloomberg posted a transcript of Swatch conference call.  In context of news reporting, conveying info to the public accurately allows faithful reproduction of original work.  Transformation comes from altered purpose or context, even when the entire work is being used, in light of purpose.  Bloomberg served public interest in access to info without great harm to competing private interest.

SCt has stressed the intimate connection between fair use and the First Amendment. Past 20 years, we’ve seen fair use as an important positive right by many—teachers, artists, scholars, librarians, providers of disability services, etc.—contributing to progress. Not everyone likes every fair use decision, but we all benefit from general pro-innovation trend.  Pattern of decisions articulate no a priori limits on the range of situations to which the doctrine is applicable, and given copyright’s goal—which isn’t to favor any particular form, but to promote the dissemination of knowledge—there’s no reason such limits would be desirable. Those who would limit it have a heavy burden of persuasion. Flexibility and dynamism allow adaptation to new social and technological situations.  Sec. 108, 110, 121 are also good for particular user groups as safe harbors, but never comprehensive and often not up to date. These provisions don’t supplant fair use but are supplemented by it.

One common critique is flexibility = uncertainty. Recent scholarship shows patterns and predictability.  Lawyers can forecast likely outcomes where there are analogous precedents.  Contributing to predictability is fair use best practices.  Greatest credit for healthy fair use belongs to users, large and small, who invest thought and time in making fair use decisions, furthering the constitutional objective of copyright in expressive flourishing.  AU has been involved in developing fair use best practices across a wide range of different professions, from documentary filmmakers to College Art Association.

June Besek: In early 2008, Columbia sponsored a symposium: Fair use: incredibly shrinking or expanding? Answer: expanding. Until recently copying a whole work couldn’t be fair use.  Now copying millions of works can be fair use.  Fair use is essential, but not carte blanche for unlimited use of others’ work even for social benefit.  Principal reason for expansion has been significance of transformative use.  Campbell v. Acuff-Rose: commercial use wasn’t dispositive; using a work in a way that adds something new, with new expression, meaning or message.  Other cases involved productive uses—to annotate, analyze, parody. Post-Campbell cases expanded to how the work was used—functional transformation. They began to apply transformative label to new uses without creating new works—uprooted from original context, enabling new business models rather than new works of authorship. Troubling consequence is that if court finds transformativeness because it reaches new markets, can usurp author’s derivative work rights in potential new markets.  Tends to find that the use doesn’t compete with the author’s market.  Authors’ rights depend on race to market.

Fair use has sometimes strayed too far in one direction or another—commerciality dispositive; Campbell stepped in. But the pendulum has gone too far; transformativeness has become too important.  But fair use remains a rule whose application is best made by judges. Legislative intervention may be appropriate when judges go too far. Current swing reflects concern for mass digitization; Congress could address that, which is skewing the law/could reduce pressure that risks turning fair use into a protection for new business models instead of authors.

Naomi Novik: Creator and artist whose work is deeply affected by fair use.  Published author of 10 novels, including NYT bestselling novels, optioned by Peter Jackson. Worked on computer games, graphic novels, open and proprietary software. Would have done none of it without fan fiction. Discovered fan community: wrote fan fiction, software, made remix videos. Found enthusiastic community. We weren’t trying to make money; gathering around a campfire and singing songs/telling stories.  Bigger because of the internet; not Robin Hood but Captain Picard—fair use gave us the right. We felt fair: we watched Star Trek religiously, we bought the DVDs and T-shirts. We had our own new ideas about the characters, universe—we are imaginative creatures—and we wanted to share. I learned to explore ideas in the remix community. Eventually that led to my own characters and universe.  Now other people get ideas from Temeraire.  I hope that fans will go on to write their own bestsellers/games, perhaps with an idea from me. We all build on the ideas of those who come before us. There’s no hard line—original work is at the end of a spectrum of transformation, and fair use protects the spectrum. It allows us to share and learn by doing.

Licensing isn’t a practical alternative. We don’t have the time, money, access, or knowledge. I wrote my first story as a college student working a part time job; if I’d had a complicated process I might never have done it.  Imagine if kids who played Lone Ranger in the back yard needed a license before doing that—today the internet is the back yard.

Copyright owners: most of us aren’t large with media/licensing departments. I don’t want the difficulty/expense of licensing everyone who wants to use my works.  Licensing also invariably stifles transformative works—tie-ins always have stringent requirements. The point of licensing is almost always to avoid transformation, avoid leaving copyright owner’s vision. 

Ask Congress to help developing artists to exercise fair use rights.  Most people don’t have resources to defend themselves.  Incubators could be supported by make it less frightening: good faith should limit damages; limited automated screening tools and allow claim fair use; exemption for noncommercial transformative works like libraries and teachers have.  Don’t narrow fair use; protect innovators.  Innovation starts with asking “what if?”  What if you crossed a computer with a music player? Makes US strong.

David Lowery: Mathematician, lawyer, musician, etc. Rise of internet has led to attention to fair use as excuse for trumping rights of authors.  Technology companies, commentators, lobbyists, and some artists. Not concerned with parody, commentary, criticism, documentaries—but concerned with copy that masquerades as fair use.  These interpretations of fair use that pass off versions of my work indistinguishable from my work as fair use—licensing is better.  Remix/sampling: there has been a push for expanded fair use; defies logic because there’s no urgency. Robust market-based mechanisms for licensing exist; hip hop is most popular on planet without fair use.  Don’t fix it if it isn’t broke.

Song lyrics: sites that reprint song lyrics with annotations/meanings are not fair use. Has experienced unauthorized use of lyrics on RapGenius.  Researched lyrics sites and identified undesirable ones.  After he ID’d RapGenius as #1, one principal began annotating his song “Low,” but the annotations were just popup links—not different from other lyrics sites; competes with licensed sites.  Reprinting entire book with occasional links to defined words would be the same. RapGenius took a license.  What’s so hard about asking permission? I only expect to be treated as I treat other artists.  Doing unto others = foundation of civilization. Rightsholders can be easily identified—look up song owners on public database.  Review practical history to see fair use is working as intended. No expansion/intervention is needed at this time.

Kurt Wimmer:  Newspapers start important conversations, often continuing online on platforms we own and elsewhere. Scope of fair use is important to the industry. Spend $5 billion/year gathering info; investing in mobile platforms; larger audiences than ever more; circulation revenue grew 5% in 2012, and online circulation revenue grew 275%.  But much ground to make up because of disruption of digital—print advertising collapsed and digital didn’t make up; competition is fierce online.  Need to compete with other creative companies but also companies that build themselves on our backs—Google News, etc. These can result in some limited traffic to newspaper sites, but not meaningful revenue. Those companies monetize their readership. Some of these uses are fair, others clearly not. This is an issue that can be remedied by courts, not Congress. Fair use currently strikes the right balance, allowing courts to respond to changes in technology. 

Recent example: SDNY’s AP v. Meltwater case. Meltwater scraped AP articles and delivered excerpts to paying subscribers. Court found this was a substitute for original articles, judging by clickthrough rates. Without additional commentary, this wasn’t fair use. Focus on commercial ventures that take/resell our content may be necessary. Not all fair use decisions are right, such as undue weight for transformativeness in some recent decisions; shouldn’t subsume other factors, but we hope/expect this imbalance will change over time. Also, licensing is fixing the problem. Many participants—including innovative startups—would prefer licensing over questionable business models. Licensing allows distribution on new platforms and support journalism.  Our goal is consistent with our longstanding mission: appropriate balance of enforcement, licensing, and our own platforms, including relying on fair use.

Conyers: what is transformative and what isn’t?

Wimmer: very fact-based.  Allowed secondary uses in straightforward manner shouldn’t be fair use—Grateful Dead case, in which publisher just put Grateful Dead posters in chronological order—court found that transformative, which he thinks is wrong.  (RT: This is a misdescription of what the publisher did.)  Bloomberg case, though, is right.

Lowery: reprinting of my lyrics on a site without licensing isn’t transformative even if it’s annotated with popup explanations.  There are market based mechanisms, agencies that license lyrics.

Conyers: should we codify a definition of transformative?

Jaszi: don’t arrest judicial development that is well underway. We’ve resisted codification of fair use over time, and the results have been enormously productive for social and technological innovation. Narrow transformativeness would be a grave error.

Conyers: are there recent fair use decisions with which you disagree and why?

Besek: A number, but one is use within a law firm of scientific articles. The argument for transformation was that the law firm needed to submit the articles to the PTO as evidence of prior art.  But the articles are published to understand new scientific developments; the law firm is reading the articles for substance. That’s not transformative, though it may be excused on other grounds.

Novik: I’m not a lawyer, but transformativeness is “you know it when you see it”—the Grateful Dead case, the book presented the posters in thumbnail form in a way that, for me as a reader, I found new information and no replacement of the original (a big poster on the wall)—showed the evolution of the style of the Grateful Dead.  So far, I feel courts have generally been making interpretations that, for me as a creator, make sense.

Rep. Chu: Creators simply want to make a living from their works, but face barriers.  For Lowery: Remixes/illegal lyrics—what’s the right way to sample music?  Permission, Lowery says, is possible—why do some choose not to do it the right way when markets exist?  Lowery conducted a study on lyrics infringement—how serious and prevalent is this problem?

Lowery: Lyrics are an interesting case, because there was no market before the digital age; it’s a success story for the internet—relatively obscure artists can get some small revenue from lyrics.  Generally, lyric websites do license.  About ½, slight majority of traffic is to licensed sites.  Backsliding and a push for fair use based around annotations/meanings.  Directly competitive with the market with established price, uses.  On hip-hop, he often hears there’s been some sort of decrease in innovation.  The market disagrees; hip-hop is now more popular than it ever was, so restricting uses didn’t affect popularity.  People tend to do what copyright intended when they can’t obtain a license for a song—they create a new loop to take the place of the sample, as the Founding Fathers intended.

Chu for Besek: Some people are pushing to export our common law of fair use. What are the potential consequences?

Besek: this is an interesting idea, but it’s not the time to do it, because we have enough uncertainty here that we shouldn’t be sending it to other countries.  (Good enough for us, not for you!)  We have so many cases in the US where fair use has switched from district court to court of appeals; can’t assume other countries would apply it like we do.  Other countries don’t have blanket exceptions, but specific ones; for us to impose fair use wouldn’t sit very well.  (Unlike all the other requirements we impose ….)

Rep. Marino for Jaszi: where do you draw the line on fair use? Lyrics, poetry?

Jaszi: the line is properly though not easily drawn between uses that are genuine value-added uses which do infuse commentary and critique.

Marino: so everything is fair game?

Jaszi: I don’t think so.  There may be sites in which the added value or repurposing is pretextual rather than real.

Marino: hear constantly from musicians and artists who are waiting tables in restaurants and see their music on the internet and receive nothing for that—do you have a problem with that? Their music makes a lot of money, but pirates use it.

Jaszi: I don’t believe anyone defends piracy as fair use. It lacks transformativeness, repurposing, addition of value, which the courts have identified over the last 20 years.

Marino: so you don’t have a problem with the courts making a determination about these sites?

Jaszi: that’s how we should proceed.

Marino: what would your position be if your employer videotapes your lecture and then fires you so it can rerun your lectures instead.

Jaszi: they do that already, and somehow I’ve survived. This is a contractual issue.

Marino: but many people in the entertainment industry aren’t surviving.  (I don’t see how this is fair use’s fault, but rather a contractual problem.)

Jaszi: the problem here is not a copyright problem.  My contract defends me in my workplace. The essential problem relating from the return from the market is a problem of contract.

Marino: why not TM? Why not patent?

Jaszi: we do have a vital doctrine of fair use in TM. Patent law is far shorter, but also subject to a number of public interest exceptions.

Marino: patent is far more stringent.

Rep. Lofgren: put into record fair use principles for user-generated content. 

Marino: is there consistency in courts’ opinions?

Wimmer: there was until the late 1990s, when transformative use ascended. Now transformative use has unsettled the marketplace. But the rest of the factors have been consistent.

Besek: where you find inconsistencies is when there’s a genuinely new use and courts split.  Sony: district court goes one way, court of appeals reverses, SCt reverses them. 

Jaszi: there’s a lot more consistency in the current pattern of decisions than he would have necessarily expected for only 20 years.  Now we’re seeing a convergence of the most important 2 circuits, the 2nd and the 9^th.  One can agree or disagree with the emerging unified field theory, but it’s remarkably consistent even though it can sometimes be unclear how it applies.

Marino: as a prosecutor, used to inconsistency.

Rep. Goodlatte: For Novik/Lowery, see lots of remix.  If they exploit it themselves, the original artist whose work has been altered doesn’t benefit.  Thoughts on that?

Novik: I do noncommercial transformative work—talk to 16 year olds who are writing their own Harry Potter stories where they write themselves in; it’s noncommercial.

Goodlatte: should they need a license?

Novik: a court could decide—part of the decision would be how transformative it was. Most remix artists understand that and don’t want to exploit work commercially. 

Lowery: often, I find that although these are noncommercial works, they’re distributed on commercial platforms.  Fanfiction.com (he means ff.net) has advertising.  The problem isn’t with those who create, the problem is these large intermediaries who disseminate the work who make a profit and encourage their users to make remixes, which may be fair use or not when they’re noncommercial, but they become commercial when vacuumed up and monetized.  Have some examples.

Novik: that doesn’t change what the artist is doing.

Lowery: don’t put it on that website. 

Goodlatte: Jaszi says fair use is working.  Is it working for everyone, or only for specific groups?

Besek: Fair use is working for some, but not for all users and not for all rightholders. Recent cases that deal with one party exploiting lots of works at the same time distorts fair use. End is a good one (indexing all works) but the question is how you get there—means to the end.  By trying to shoehorn it into fair use, disservice to copyright.

Wimmer: Generally working. We look at fair use both from offensive and defensive side. Newspapers need fair use to report on others’ work. But commercial appropriation of mass amounts is different. Transformative trend is concerning, but it’s a short term trend and we think courts will get it right.

Novik: generally working, but individual artists can be at a substantial disadvantage to large conglomerates or automated systems.

Lowery: working for music. Photographers have been abused.  Business model has been wrecked.

Goodlatte: should Congress distinguish between music, photography, books?

Lowery: can’t really answer that.

Goodlatte: could submit answers in writing.

Jaszi: there are creators struggling in the current market, but that’s not attributable to fair use.  Besek’s example of mass digitization is an excellent example of the doctrine fulfilling its function—the material is being dramatically repurposed for nonsuperseding uses; the public interest is enormous; no existing licensing structures are available to enable those uses.  Instead of thinking about mass digitization and its benefits (including the print disabled) as a problem, I see it as a success story.

Rep. Deutch: We have 100 years of precedent. Troubled by the idea of just inserting “fair use” into trade deals, without our precedents. While trade agreements allow flexibilities to adopt fair use style exceptions, mandating it would just provide a loophole for other countries to ignore IP.  Besek says fair use could put us out of compliance with treaty obligations (interestingly, her testimony cites a finding that sec. 110 was out of compliance, and we have yet to come into compliance after nearly 15 years; funny that people purport to care now).

Besek: some similarities, but different cultural factors give no reason to think it would track our fair use law. We attempt to accommodate 1A concerns, and other countries don’t.  Tradition of more explicit separate exceptions; wouldn’t necessarily do what we did.

Deutch: their exceptions could fill a volume too.

Besek: sure, and often track what fair use does.

Deutch: concern is it becomes a loophole. Important balance to be struck in our trade deals, and the words “fair use” don’t do anything.

Wimmer: right.  He’s done legal work in 20 different countries—common law and civil law are different.  Civil law—judges don’t have the same tradition of working to create precedent, and they really can’t cope with these types of common law doctrines.