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The Misuse of Licensing Evidence in Fair Use Analysis: New Technologies, New Markets, and the
Courts
Author(s): Matthew Africa
Source:California Law Review, Vol. 88, No. 4 (Jul., 2000), pp. 1145-
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The Misuse of
Licensing
Evidence in
Fair Use
Analysis:
New
Technologies,
New
Markets,
and the Courts
Matthew
Africat
TABLEOFCONTENTS
Introduction
.............................................................................................
1147
I. The Role of MarketEffect and Licensing
Evidence
in FairUse A
nalysis.........................................................................
1150
A. Fair Use Maintains Copyright's
Constitutional
Balance
......................................................................................
1151
B. The Role of MarketEffect
in FairUse
Jurisprudence...............
1153
C. The Use of Licensing
Marketsas Evidence of
MarketE
ffect.............................................................................
II. The Circularity
of Licensing
Evidence: How Courts
Have Struggled
in
Assessing
New Markets
.....................................
1160
III. How MarketFailure Theory
Has Over-Simplified
Fair
Use Analysis...........
.............
.........................
1164
A. The Influenceof MarketFailure Theory
...................................
1164
B. The MarketFailure Theory
Fails to Account for
M any
Valuable
Uses...............................................................
C. MarketFailureand New Permission
Systems...........................
IV. The Current Analysis
Does Not
AdequatelyDistinguish
Between Those Uses That Should Be Paid for and Those
That Should Not
...............................................................................
1169
A. MarketFailure Analysis
of New MarketsIs Too
Sim
plistic...................................................................................
B.
Strategic
Behavior
Warps
Fair Use
Analysis
............................
1172
V. Proposals
to Reform Market Analysis
.............................................
1175
Copyright
?
2000 CaliforniaLaw Review, Inc. CaliforniaLaw Review, Incorporated(CLR)
is a
California nonprofit corporation.CLR and the authorsare solely responsible
for the content of their
publications.
t
J.D., University
of California, Berkeley,
School of Law (Boalt Hall), May
- I wish to
thank the following:
for his thoughtful
and meticulous comments on earlier drafts,Philip Tendler;
for
his encouragement
and suggestions,
Professor Mark Lemley;
for their diligent
editorial efforts,
Mike
DeVries,
Keith Garner,Jeff Homrig,
James Oleson,
Julie Pietrantoni,
and Sam Sankar;
for everything
else, my family.
1145
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2000]
MISUSEOFLICENSINGEVIDENCE 1147
The Misuse of
Licensing
Evidence in
Fair Use
Analysis:
New
Technologies,
New
Markets,
and the Courts
Matthew
Africa
When confronted
with new uses of copyrightedworks,
courts assess-
ing fair
use claims
face
a
difficultproblem
in examining
the fourthfair
use
factor,
the potential effect of
the infringing
use upon
the market for
the
copyrighted
work.A determinationthat the copyright
holder's interest has
been harmed implicitlyrequires
a finding
that there is a market for
the use,
and that the holder has a right
to prevent unpermitted
uses. Often,
the very
existence
of
such a market is at issue. In this context, a court's denial of
fair
use may
in effect
award a new market to the copyright
holder to ex-
ploit. Although
the determination of
whether a new marketshould belong
to a copyright
holder is integral
to preserving copyright's constitutionally
mandated balance between authors and the public,
neither the fair
use
statute nor
Supreme
Court precedentprovides
clear standards.As a result,
courts have had to strike out on their own. This Comment argues
that
courts, overly influenced by
the market failure theory of fair
use and mis-
led
by licensing
evidence, have failed
to distinguish
between uses that
should be paid for
and uses that
merely
can be paid for. Finally,
this
Comment suggests
several methods of reformingfair
use analysis of
the
market effectfactor
and concludes that, ultimately,Congressmay
be better
suited to preserving copyright's
constitutionalbalance than are the courts.
INTRODUCTION
Copyright protection
has traditionally grown
in
stuttering steps
to
protect
new uses and forms of
copyrighted
works. At times, Congress
has
explicitly
extended protections
to new media.' In the absence of congres-
sional action, each advance-the photograph,
the sound
recording,
the
- The first copyright
statute,the Copyright
Act of 1790, protectedonly books, maps and charts.
See Act of May
31, 1790, ch. 15, ?
1, 1 Stat. 124,
(repealed 1802).
Over time, the statute has
expanded
to protect
works of visual art, music, choreography,
architecture, sound recordings,
photography,film,
and computerprograms,among others. The statutenow protects
all "original
works
of authorship
fixed in any tangible
medium of expression, now known or later developed,
from which
they
can be perceived, reproduced,
or otherwise communicated, either directly
or with the aid of a
machineor device." 17 U.S.C.
?
102(a) (1994).
- See Burrow-Giles Lithographic
Co. v. Sarony,
U.S. 53, 58
(1884) (finding photograph
protectedby copyright).
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1148
CALIFORNIALAWREVIEW [Vol.
88:
motion picture4--has
forced courts to struggle
with the scope
of copyright
protection.
Courts have had to make difficult normative judgments
about
which uses ought
to be
protectedby copyright
and which ought
to remain
in the handsof the public.
As new technologies
create new ways
to reproduce,manipulate,
and
distribute copyrightedworks,
courts applying
fair use analysis
in copyright
infringement
cases have struggled
with the properapplication
of the fourth
fair use factor: the potential
effect of the infringing
use upon
the market
for the copyrighted
work."It is clear that uses that create a marketsubsti-
tute weigh against
a finding
of fair use. It is less clear, however,
that evi-
dence of lost licensing
revenues
in a new
marketshould militate
against
a
finding
of fair use, because often the very
existence of such
a marketis at
issue. A determination that the owner's6 copyright
interest has been
harmed
implicitly requires
a finding
that there is a market,
and that she has
a right
to prevent
others from the unlicensed
use of her
copyrighted
work
in the new market.
In several recent cases,
courts have accepted
evidence of lost licens-
ing
revenues as an indication of harm to the market for the
copyrighted
work. However,
in these cases it was debatablewhether there was even a
marketfor the use of the copyrighted
work.' Influenced by
the marketfail-
ure theory
of fair use,
which posits
that the fair use defense should protect
only
those uses for which a
socially
beneficial transferof
rights
would not
occur absent a finding
of fair use, these courts have found against
fair use.
That is, the courts were persuaded
that the alleged infringer
could have
obtaineda license to use the work through
the open
market. Underlying
the
judicial
determinationof marketeffect is a substantial problem
of circular-
ity
in
assessing
the relevant market. As numerous commentators have
pointed out,
because courts engage
in fair use analysis only
after finding
an
infringement
of a
plaintiff's
copyright,
there is always
an act of copying
that,
at least in theory,
could have been licensed.8However,
it is a mistake
- See White-SmithMusic Publ'g Co. v. Apollo
Co., 209 U.S. 1, 18 (1908) (denying copyright
protectionto soundrecordingsin piano rolls).
- See Edison v. Lubin, 122 F. 240, 242 (3d Cir. 1903) (finding
motion picture protected by
copyright).
- The otherfactors are the purpose
and characterof the use, the natureof the copyrightedwork,
and the amountand substantiality
of the portion
used. See 17 U.S.C.
Throughout
this Comment,
I refer to parties
who control copyrights variously
as "owners,"
"copyrightholders,"
and "authors."It is necessary
to distinguish authorsfrom copyright owners and
holders because authors of copyrighted
material frequently
transfer rights
to other parties,
who may
assert legal claims of their own, and because portions
of this Commentdiscuss the incentive rationale
of copyright,
which concernsauthors only.
I use "copyright
owners"and "holders" interchangeably.
- See, e.g., American Geophysical
Union v. Texaco Inc., 60 F.3d 913 (2d Cir. 1994). This case
is discussed infra
in PartIL
- See, e.g., 4 MELVILLEB. NIMMER& DAVIDNIMMER,NIMMERON COPYRIGHT
? 13.05[A][4],
at 13-182 (1999) [hereinafter 4 NIMMER]("A danger
of circularity
is posed
here-a potential
market,
no matter how unlikely, has always been supplanted
in every
fair use case, to the extent that the
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1150 CALIFORNIA LAW
REVIEW [Vol.88:
materials
subsequent
authors needto fashionnew works.If consumersand
subsequent
authorsare deniedreasonableaccess to copyrightedmaterial,
society
does not fully
benefitfromthe work.
Maintaining
a
proper
balance
betweenthe
rights
of ownersandusersis essentialto guarantee
that copy-
right
serves its purpose
of both stirring
creationand encouragingpublic
enjoyment
of newworks.
ThisCommentwill
argue
thatfair use analysis
as currentlyemployed
fails to
preserve
this balancein its analysis
of new markets. Overly
influ-
enced by
marketfailure theory
andmisled by
evidenceof licensingprac-
tices, courtshavefailedto distinguish
betweenmarketsthatshould belong
to authorsand those that shouldnot. This Comment
argues
thatthe dis-
tinctionis a complexone,
andbecauseof the many policy
determinations
involvedin drawing
the distinction, Congressmay
be bettersuitedthanthe
courtsto decidewhichmarketsshouldandshouldnot belong
to authors.
PartI of this Commentaddressesthe purpose
of fair use andtherole
of licensing
evidence in fair use
analysis.
It shows that neither the
Copyright
Act nor Supreme
Court precedentprovides
clearstandardsfor
assessing
whetheror notnew markets belong
to authors.It further
explores
how the denialof a fair use can awardnew marketsto authors.PartII
examines the problem
of
circularity
in evidence of new marketsand
demonstrateshow courtshave
struggled
in assessing
new markets.PartIII
discussesthe prevailing
view of fair use,
the marketfailure theory,
which
suggests
an expansive
treatmentof owners' rights.
It showshow the mar-
ket failure theory
fails to accountfor many
valuableuses of
copyrighted
works.PartIV demonstrates that,as applied
to licensing,
themarketfailure
theory grants
too broada monopoly
to owners. It furthershows that,
becauseevidenceof licensing activity
is often
warpedby strategic
behav-
ior,
courtsare unableto weed out fair uses fromthose that infringe
the
copyright
holder's
propertyright.
Finally,
PartV articulatessome proposals
for better assessing
the
rights
of ownersandthe rights
of the public
in new markets. Ultimately,
it
argues
that because of the difficulty
of the normative judgments
involved,
courts should exercise restraint, deferring
to
Congress
where a denial of
fair use would allow the author to exploit
the copyrighted
work in a non-
traditionalmedium. This Part concludes that doing
so is feasible and
may
best retain the constitutionally
mandated balance between the
rights
of
creatorsof copyrighted
works and the rights
of the
public.
I
THE ROLE OF
MARKET EFFECTAND LICENSINGEVIDENCEIN FAIR USE
ANALYSIS
Before addressing
the narrowerissue of
licensing,
it is essentialto
begin
withan
understanding
of fair use's place
in copyright
law. ThisPart
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2000]
MISUSEOF LICENSINGEVIDENCE 1151
first
explains
how the fairuse defensemaintains
copyright's
constitutional
balance.It thendiscussestherole thatthe marketeffectfactor plays
in fair
use
analysis. Lastly,
it shows how the
scope
of market effect
recognized
underthe statuteis ill-defined. It argues
that the fair use statuteand
Supreme
Court precedent
fail to advance any
clear standardsfor deter-
mining
the scope
of anauthor's rights
in potential
markets.
A. Fair Use Maintains Copyright's
ConstitutionalBalance
The
purpose
of
copyright
law is to
encourage
the creation and dis-
seminationof worksto the public.
It does so by creating
an incentivefor
authorsto createanddistributeworks. Copyright
createsthis incentive by
granting
authorsthe exclusive
right
to do or authorizea numberof
things: reproduce,
distribute, publiclyperform,
and display
the work.' It
also
provides
the authorwitha zone of
expansion
aroundthe work
by giv-
ing
the authorthe exclusive right
to prepare
or authorizederivative
works,'
Orthose based upon
the work in "any...
form in which a work
may
be recast, transformed,
or
adapted."•"
Between the owner's right
of
reproduction
and right
to create derivativeworks, the copyright
owner pre-
sumptively
has broad rights
in new media.
Like real
property
law, copyright grants
the author broad
rights
to
exclude the public
from the use of her property.
With certain exceptions,'
a copyright
owner can set whatever price
she wishes for the use of any
of
these exclusive
rights,
even if that price
is high enough
to prevent
distribu-
tion to the public altogether.17 In exchange
for these rights
the public
13. See 17 U.S.C.
?
14. Seeid.
15. 17 U.S.C.
?
- The Copyright
Act of 1976 provides for compulsory licenses in a number of
settings: recording and distribution of nondramatic musical works, see 17 U.S.C.
?
reproduction
of visual artworks in noncommercial broadcasting,
see 17 U.S.C.
?
and
retransmission by superstations
and network stations for private
home viewing.
See 17 U.S.C.
?
In each case,
the rate for the use is determined by the Copyright
Office. Each of these
exceptions to the general
rule of copyright
owner autonomy represents
an example
either of
congressional
intentto ease transactioncosts associated with use of a copyrighted
work or to prevent
a
monopoly
on valuable uses. See H.R. REP.NO. 94-1476,
at 89 (1976) ("[I]t would be impractical
and
burdensometo requireevery cable system to negotiate with every copyright
owner whose work was
retransmitted by
cable system.");
see also 2 MELVILLEB. NIMMER& DAVIDNIMMER,NIMMERON
COPYRIGHT
?
8.04[A],
at 8- (1999) [hereinafterNIMMER](claiming
that the compulsory
license for
nondramaticmusical works was created to prevent
the "emergence
of 'a great
musical
monopoly'").
Implicit
in Congress's provision
for a compulsory
license is a determinationthat, while the copyright
owner should not be able to control certain uses of
a copyrighted work, she should nonetheless be
compensatedfor those uses.
Copyright
owners have attempted
to use copyright
to censor informationwith mixed results.
Compare Salinger v. Random House, Inc., 811 F.2d 90 (2d
Cir. 1987),
cert. denied,
484 U.S. 890
(denying
fair use of quotations
from unpublished
letters in a biography),
with Rosemont Enters.
v. Random House, Inc., 366 F.2d 303 (2d
Cir.
- (finding
fair use of copyrighted articles in
biography
of Howard Hughes).
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2000] MISUSEOFLICENSINGEVIDENCE 1153
of an owner,butratheras a use thatdoes not belong
to the ownerto begin
with.
The
preamble
to the fair use statute describes several prototypical
examples
of fair use: "the fair use of a copyrighted
work..,.
for purposes
such as criticism, comment,
news reporting,teaching (including multiple
copies
for classroom use), scholarship,
or research,
is not an
infringement."
A use for any
of these purposes
is not automaticallyfair,
as demonstrated by
the use of the qualifier
"fair"in the sentence,
but
they
do represent commonly accepted exceptions
to the
rights
of copyright
holders.
Implicit
in the binary
structureof the fair use inquiry
is the
policy
that
society
benefits when some uses of
copyrighted
works require
neither per-
mission from nor payment
to an author: there are certainmarketsthat the
copyright
owner should not be allowed to control
by denying
use or
by
charging
others for licenses to use the
copyrighted
work. The next section
explores
the role the marketeffect factor plays
in courts' determinationsof
whether a given
use of a copyrighted
work requires
the sanction of the
copyright
holder.
B. TheRole of
Market Effect
in Fair Use Jurisprudence
The Copyright
statutesets forth four factors that courts must consider
in
making
a fair use determination. Although
the statute does not assign
weight
to the four factors,
courts have often given
the last of these, the
market factor, disproportionate weight
in fair use analysis.
In Harper
&
Row Publishers, Inc. v. Nation Enterprises,
the Supreme
Court went so
far as to state that "[t]his
last factor is
undoubtedly
the
single
most
important
element of fair use.'"8Until
Campbell
v. Acuff-Rose Music,
- "The uses that are mentioned as examples
of fair use in the statute are... simply
uses that,
for one reason or another,
we do not regard
as clearly within the author's right."Weinreb,supra
note
at 1301. But see Ginsburg,supra note 10, at 12 ("[P]rivatecopying
is not so much a 'right'
as an
activity
toleratedin the absence of effective enforcement.").
24. 17 U.S.C.
?
- See Princeton Univ. Press v. Michigan Document Servs., 99 F.3d 1381, 1385 n.1 (6th Cir.
- (en banc).
- The statutereads:
In determining whether the use made of any
work in any particular
case is a fair use the
factorsto be consideredshall
include---
(1) the purpose
and characterof the use, including
whether such use is of a commercial
natureor is for nonprofit
educational purposes;
the natureof the copyrighted
work;
(3) the amountand substantiality
of the portion
used in relationto the copyrightedwork as a
whole; and
(4) the effect of the use upon
the potential
marketfor or the value of the copyrighted
work.
17 U.S.C.
?
27. 471 U.S. 539
- Id. at 566 (citing
NIMMER
?
13.05[A], at 13-76).
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1154 CALIFORNIALAWREVIEW [Vol. 88:
Inc.,29many lower
courtsfollowed this pronouncementrigidly
and dili-
gently.
The
Campbell
decision represents
a watershedin fair use jurispru-
dence.In thatcase, the copyright
holderof the Roy
Orbison composition
"Pretty
Woman"suedthe musical group
2 Live Crew,
whichhad recorded
a rap
versionof the
song.
Thedistrictcourt granted
2 Live Crew summary
judgment, holding
thatits song
was a parody
that madefair use of the
original song."3'
The appellate
court reversed;
its holding
seemed
largely
driven by
its findingsregarding
the commerciality
of the 2 Live Crew
recording
and a
resultingpresumption
of harmto the copyright
holder's
market.32In
upholding
2 Live Crew's uncompensated
use as fair,
the Court
rejected
the Sixth Circuit's heavy emphasis
on the
commerciality
of the
new recordingand, implicitly,
the court'srelianceon the marketeffect
factor.33TheCourt pointedly
omitted
any
referenceto thedominanceof the
fourthfactor. The Courtinsteadextolledtransformativeuse-the notion
thata fair use shouldcreatesome improvement
thatfurtherbenefitsthe
public.
The Campbellopinion
has been
warmly
received by
commenta-
tors.
However, despite Campbell's implicit
diminutionof the marketeffect
factor,
its influence
persists
in many
decisions. One circuithas subse-
quently
treatedit as first among equals."
Othercourts continue to cite the
Harper language
without qualification.
Othercourtsalludeto the Harper
29. 510 U.S. 569
- See Pierre N. Leval, Nimmer Lecture: Fair Use Rescued, 44 UCLA L. REV. 1449,
(1997) ("Thisobservationwas dictum;it played
no role in the justification
of the holding. But dictum
utteredby a high
courtis followed as if it had been a holding.").
- See Acuff-Rose Music,
Inc. v. Campbell,
F.Supp. 1150, 1158-59 (M.D. Tenn. 1991).
- See Acuff-Rose Music, Inc. v. Campbell,
972 F.2d 1429, 1436-37, 1438- (6th
Cir. 1992).
- See Campbell,
510 U.S. at 591.
- See Castle Rock Entertainment,Inc. v. Carol Publ'g Group,Inc.,
150 F.3d 132,
(2d Cir.
(noting
that "[t]he Supreme
Courthas recently
retreatedfrom its earliercases suggesting
that the
fourth statutory
factoris the most important
element of fair use").
- "Thecentral purpose
of this investigationis to see, in Justice Story's words,
whetherthe new
work 'merely supersede[s]
the objects'
of the original
creation or instead adds something new,
with a
further purpose
or different character,altering
the first with new expression, meaning
or message."
Campbell,
510 U.S. at 579 (internal
citations omitted). The term "transformativeuse" is generally
creditedto Judge
PierreN. Leval,
who advancedhis ideas in a thoughtfuland influential piece,
Toward
a Fair Use Standard.See generally Leval, supra
note 8. Although
the doctrine of transformativeuse
seems to reign currently,
at least one author has arguedthat the application
of transformativeuse fails
to provide any
clear or predictable
results. See generally Diane Leenheer Zimmerman, The More
Things Change
the Less They Seem "Transformed":Some Reflections
on Fair Use,
46 J.
COPYRIGHT
SOC'Y
U.S.A. 251
See, e.g., Leval, supra note 30, at 1464 ([Campbellis]
"the finest opinion
ever writtenon the
subjectof fair use").
See PrincetonUniv. Press v. Michigan
Document Servs.,
99 F. 3d 1381, 1385 (6th Cir. 1996)
(en banc) ("We
take it thatthis factor..
. is at least primus
inter pares.").
See, e.g., Sundeman v. Seajay Soc'y, Inc.,
142 F.3d 194,
(4th Cir. 1998); Triad Sys.
Corp.
v. Southeastern ExpressCo.,
U.S.P.Q.2d 1239, 1245 (N.D. Cal. 1994).
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1156 CALIFORNIA LAW
REVIEW [Vol.88:
with certainty
that future harm will result. What is necessary
is a
showing by
a preponderance
of the evidence that some meaningful
likelihood of futureharmexists.
While this test demonstratesthat copyrightprotects
certainmarketsthat an
owner has not yet entered,
it does not tell us which harmsshould be recog-
nized. Does "potential
market"embrace any
market subsequently
discov-
ered or simply
those that the author has or had an expectation
of
exploiting?
It is helpful
to enumerate types
of marketsin an attempt
to dis-
tinguish
those that typically belong
to the authorand those in which fair
use would likely
be upheld.
In the
simplest
case,
a defendant's use of an owner's
copyrighted
material provides
a marketsubstitutefor the work or a licensed derivative.
In this instance,
harm to the owner's marketis obvious because the use is
piracy,
and no serious claim of fair use can be made. Thus if I make copies
of your
film and begin distributing
it in competition
with you,
I have
infringed your rights
of
reproduction
and distribution.This use could not
legitimately
be called fair.
The problem
is slightly
less one-sided where a defendant appropriates
copyrighted
materialbut adds significant
value. The defendant's creation
may supersede
the owner's,
but it is less a naked substitute than an
improvement.Despite
this, it is also likely
an infringement
of the copyright
holder's right
to prepare
derivative works, among others.
Suppose
I
prepare
and sell a book of trivia questions
based on your popular
television
show.45 While I may
have added substantially
to the value of the new work
throughmy
selection and arrangement
of your
charactersor plot elements,
or by creating
new materialsuch as wrong answers,
I have infringedyour
right
to prepare
and distribute derivative works. If
my
use is
"transformative" enough
underthe rubricof
Campbell,
I
may
evade liabil-
ity through
a
finding
of fair use. However, a court may
also conclude that I
am a free-riderfor
attempting
to proceed
withouta license.
It is more difficult to determine whether a copyright
holder should
control the new market where the
alleged infringer
uses
copyrighted
expression
in a marketthat the
copyright
holder might
not enter. The court
must determine prospectively
whetherthe copyright
holder should control
the marketand if so, whether requiring
a license is appropriate.
As noted
above, Campbell
clarified this market analysis
somewhat by pronouncing
that "[t]he
market for potential
derivative uses includes
only
those that
creators of original
works would in
general develop
or license others to
- Id. at 451.
- See generally Lemley, supra
note 22 (explaining
and criticizing
the allocation of rights
in
derivativeworks under copyright).
- The facts I suggest
are based on Castle Rock Entertainmentv. Carol Publ'g Group,Inc., 150
F.3d 132 (2d
Cir.
- (holding
that the use of charactersand plot
elements in defendant's Seinfeld
Aptitude
Testwas not fair).
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MISUSEOF LICENSINGEVIDENCE 1157
develop."
In the context of Campbell
this distinctionmade sense because
Campbell
concerneda parody: parody
is an
existing
marketthat owners
typically
do not try
to enter or license,
and thus the Court'sstatement
clearly
excludes it.47However, when it is less evident whether a copyright
holder would or would not enter the new market,
the Campbell
formulation
is somewhatincoherent.
While defining
the owner's marketas uses that she "would in general
develop
or license others to develop" clearly
extends copyright protection
to common or foreseeable derivative uses,
it creates a rather vague
stan-
dardfor thosethatareless so. Does the
phrase
"wouldin
generaldevelop
or licenseothers to develop"imply
thatthe Courtwas referring
to uses an
ownerwould generally
marketor solicit?For example,
a letterto theeditor
is seldom developed
or licensedfor development
as an opera,
so authors
don't
generallytry
to licensethemin thatfashion.Whatof marketsa copy-
right
holder does not wish to pursue?
At least one court has read a
copyright
holder'slack of interestin entering
a marketto
imply
thatthe
userdidnotharmtheholder.
Whatof a new or speculative
market? Suppose
I posted
a copyrighted
news articleto a websitefor discussionwith visitorsto the site;
the news-
paper
fromwhichI took the article mightpublish
an on-line version,but
arguablymy
version servesa differentmarketthanthe newspaper's
does.
Althoughnewspapersgenerallyprovide
a forum for discussing
issues
raised by
theirnews coverage,
lettersto the editor,
thatforumis
qualita-
tively
different.Whereas
newspapers
often appeal
to a generalreadership,
a website
might
attracta narrower following
thatis likely
to sharea set of
Campbell,
510 U.S. at 592.
- Of course,
this formulationleaves plenty of room for argument
about whethera given
use is
actually
a parody,
which mocks the original
work and thus must borrow from it, or satire, which
utilizes the original work merely to lampoon
some other object. Compare Campbell,
510 U.S. at 569,
with Dr. Seuss Enters., L.P. v. Penguin
Books USA, Inc.,
109 F.3d 1394 (9th
Cir.
- (denying fair
use of The Cat in the Hat in morbidchildren'sbook version of the O.J. Simpson story). For perhaps
the
funniest parodycase,
see Lyons Partnership,
L.P. v. Giannoulas, 14 F. Supp.
2d 947 (N.D.
Tex.
(upholding
fair use of Barney
characterin abusive performance by
the Famous Chicken).
See Lewis Galoob Toys,
Inc. v. Nintendo of Am., Inc., 964 F.2d 965,
(9th
Cir.
(holding
that displays
created by
defendant'sGame Genie device constituteda fair use of copyrighted
material). This situation may
even engender
a kind of reverse free-riding
where a user discovers a
valuablecollateralmarketthat the copyright
holderlater decides to exploit. See, for example, Ty, Inc.
v.
West Highland Publ'g, Inc.,
No. 98 C 4091, 1998
WL
698922 (N.D. Ill. Oct. 5, 1998), in which the
maker of copyrighted Beanie Baby toys
did not seek to restrainthe reproduction
of the toys
in The
Beanie Baby Handbookuntil it became perhaps
too successful.
- The facts I suggest
are similarto those in a dispute between two newspapers,
the Washington
Post and the Los Angeles Times,and the host of a Web
service called Free Republic.
See Pam Mendels,
Newspaper Suit Raises Fair Use Issues, CYBERTIMES--N.Y.
TIMES WEB
(Oct. 2, 1998)
http:l//www.nytimes.com/libraryltech/98/10O/cyber/articles/02papers.html.
For a discussion of the
dispute
and the First Amendment concerns involved, see Benkler, supra
note 18 at 357. See also
Chicago
School ReformBd. of Trustees v. Substance, Inc., 79 F. Supp.
2d 919 (N.D.
Ill.
for a
case in which the reproduction
of copyrighted
works to stir debatewas denied a fair use finding.
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MISUSEOF LICENSINGEVIDENCE 1159
Courtaddressed photocopying,
the Courtdeadlockedandthuslet standa
Courtof Claimsdecision
upholding
librarycopyingas fair use."
Although
a private organization,
the Copyright
Clearance Center (the "CCC"),had
attempted
to license photocopy rights,
it had only marginal
success before
courts began
to impose liability
on those engaged
in photocopying.
How-
ever,
afterthe BasicBooksdecisionandotherslike it,
theCCC may
have
finally
obtainedthe criticalmass necessary
to administera functioning
market through
thethreatof judicial enforcement.
The fairuse defense recognizes
thatthe ownerof a copyrighted
work
does not have the
right
to
compensation
for or controlof every
use of that
work.Wherea court blindlyaccepts
evidenceof harmto a licensing
mar-
ket withoutfirst considering
whether copyright
shouldallowthe ownerto
exploit
the
licensing
marketin the first place,
the court may
allow the
ownerto foreclose competition
in all markets,even thoseto which copy-
right protection
should not extend. Neitherthe Copyright
Act nor the
Supreme
Court's jurisprudenceprovidesany
clear criteriafor
assessing
new markets. Accordingly,
courtshavehadto strikeouton theirown.
Beyond
the vagueness
of the statuteand fair use jurisprudence,
the
examinationof licensing
evidenceis further complicatedby
the allocation
of the burdenof proof
in fairuse analysis.
Becausefairuse is an affirma-
tive defense,the
useris
charged
with proving
thata use has no effect on
the market for a copyrighted
work.57What evidence can a user possibly
enterto showthatthereis no marketfor the infringing
use?A usercannot
prevailby asserting
thata use has raisedthe valueof the copyrighted
work,
See Williams & Wilkins Co. v. United States, 487 F.2d 1345, 1347 (Ct.
C1.
aff'd by
an
equally dividedcourt, 420 U.S. 376 (1975).
- See KennethD. Crews, Copyright
at a Turning
Point: CorporateResponses
to the Changing
Environment,
3 J. INTELL.PROP.L. 277
(1996) (documenting
the history
of the CCC and the response
of for-profitcompanies
to recentdecisions such as Texaco).
See, e.g.,
American GeophysicalUnion v. Texaco Inc., 60 F.3d 913 (2d Cir. 1994) (discussed
in Part II, infra).
- See Crews, supra
note 54,
at 278 ("The
Texacodecision has been a high-profile alarm;
for-
profit companies
in many
industries throughout
the countrymay
now be compelled
to reexaminetheir
habits, practices, assumptions,
and policies in light of that decision."). Professor Gordon was perhaps
prophetic
when she wrote:
At early stages
of use, the transactioncosts 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
underwhich users proceed
without permission.
As the quantity
of use grows,
the copyright owners may wish to set up collection and
enforcement mechanisms, including
such market devices as clearinghouses.
In order to
persuade
users to proceed through
the device, however, the copyright owners might
well
need a judicial
declarationthat the uncompensateduse, previously
minor and left unfettered,
constitutedan infringement
of copyright.
Gordon,supra note 10, at 1621 (internal
citations omitted).
- See Campbell
v. Acuff-Rose Music, Inc., 510 U.S. 569,
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1160 CALIFORNIALAWREVIEW [Vol.88:
say by increasing
demand for it.58By
contrast, courts have allowed copy-
right plaintiffs
to demonstratethe existence of marketsbased on bare alle-
gations
of intent or
willingness
to license their
works."
While
proving
a
negative
is difficult under any
circumstances, it is virtually impossible
where licensing
is concerned,as the next Partdescribes.
II
THE CIRCULARITYOFLICENSINGEVIDENCE:
HOW
COURTSHAVE
STRUGGLEDIN ASSESSINGNEW MARKETS
Faced with little guidance
from Congress,
courts have struggled
in
assessing
new markets. Consider
Ringgold
v. Black Entertainment
Television,
Inc.
In that case, artist Faith Ringgold brought
suit against
a
television network that used a poster
of her work entitled "ChurchPicnic
Story Quilt"
in an episode
of the television show ROC. Although
the work
appearedonly briefly,
in the background
and out of focus,
the districtcourt
determined that the use could have
infringed Ringgold's right
of
reproduction.
The defendants then asserted the fair use defense.
Accordingly, they
had the burdenof proving,
inter alia,
that there was no
harmto the potential
marketfor the work.
The defendants
argued
that the use had not harmed the market for
Ringgold's
work and, if anything,might help
her poster
sales. The district
court was persuaded
of this, noting
that the use did not create a market
substituteand would
probably
not affect her sales of the poster
or her abil-
ity
to license reproductions
of the work in other forms.62The finding
was
furtherbolstered by
two cases upholding
the reproduction
of artworkon
television and film. Accordingly,
the court granted
BET's motion for
summaryjudgment.
Ringgold responded by claiming
that she was often asked to license
her work to films and television and that in 1992 she was asked to license
- See id. at 590 n. ("Even
favorable evidence,
without more, is no guaranteeof fairness.
Judge
Leval gives
the example
of the film producer's appropriation
of a composer's previously
unknown song that turns the song
into a commercial success; the boon to the song
does not make the
film's simple copying fair.")(citationomitted).
See infra
Part II.
- 126 F.3d 70 (2d Cir. 1997).
- See id. at 77.
- See Ringgold
v. Black EntertainmentTelevision, Inc.,
No. 96 Civ. 0290,
1996 WL
at
(S.D.N.Y. Sept.
- See Amsinck v. ColumbiaPictures Indus., Inc.,
862 F.
Supp.
(S.D.N.Y. 1994) (finding
that display
of copyrighted
artworkon a mobile in a film did not infringe
and was fair use);
Mura v.
Columbia Broad. Sys., Inc.,
245 F.
Supp.
(S.D.N.Y. 1965) (finding
that reproduction of a
copyrightedpuppet
on a television program
did not infringe copyright);Jacksonv. WarnerBros., Inc.,
993 F.
Supp.
(E.D.
Mich.
- (finding
fair use in depiction
of copyrightedlithographson wall of
set in film).
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1162 CALIFORNIALAWREVIEW [Vol.88:
should only
be entitledto exploit"traditional,reasonable,
or likely
to be
developed markets,"'"
they
clashed
over whether
a marketfor individual
copies
of scholarly
articleseven existed.The majority
believedthatexist-
ing
clearancemechanisms provided
sucha
market.
The majority
citedthe
availability
of licenses
through
the CCCand pointed
to evidencethatnu-
merous large corporations
subscribedto the clearance service.72Even so, it
concededthat "the participation
of for-profit
institutionsthat engage
in
photocopying
has been limited.'"73Persuaded
of the existenceof a market,
the majority
saw the mechanismsas strong
evidencethatthe contesteduse
shouldhavebeenlicensed.
The dissent
questioned
these
conclusions,"75stressing
the
speculative
natureof the potential
marketforlicensed copies:
"Thereis a circularity
to
the problem:
themarketwill not crystallize
unlesscourts reject
thefairuse
argument... but,
underthe statutorytest,
we cannotdeclarea use to be an
infringement unless..,.
thereis a marketto be harmed."
Faced witha dif-
ficult set of facts, the Texaco majority
and dissent were responding
to dif-
ferent concerns. In effect,
the majority asked,
"Canthe use be paid
for?"
By contrast,
the dissent asked,
"Shouldthe use be paid
for?"
The dissent was skeptical
about evidence even of those large compa-
nies that did participate
in CCC's licensing
mechanism: "Untilthis case is
decided, companies
have had little choice but to become licensees
or
defendants."77The dissent was wise to question
the motives of participants
in entering
into CCC licenses. As discussed below,
the fact that a use is
sometimes
paid
for does not necessarily
mean
it should be: a party may
seekto license questionable
or noninfringing
usesoutof fearof liability.
78
- American Geophysical
Union, 60 F.3d at 930 (majority);
see also id. at 936 (dissent).
- See id. at 930 ("[S]ince
there currently
exists a viable marketfor licensing
these rights
for
individual journal articles,
it is appropriate
that potential licensing
revenues for photocopying
be
consideredin a fair use analysis.").
- See id.
- Id. at 929 n.16.
- See id. at 931. The majority
observed:
[I]t
is sensible that a particular
unauthorizeduse should be considered"morefair" when there
is no ready
marketor means to pay for the use, while such an unauthorizeduse should be
considered "less fair" when there is a ready
marketor means to pay
for the use. The vice of
circularreasoningarises only
if the availability
of payment
is conclusive against
fair use.
Id.
- See id. at 938 (Jacobs,
J.,
dissenting).Judge
Jacobsremarked:
The majority finds it 'sensible' that a use 'should be considered "less fair" when there is a
ready
marketor means to pay
for the use.' That view is sensible only
to a point.
There is no
technological
or commercial impediment
to imposing
a fee for use of a work in a parody,
or
for the quotation
of a paragraph
in a review or biography.Many publishers
could probably
unite to fund a bureaucracy
that would collect such fees.
Id.
- Id. at 937 (Jacobs,
J.,
dissenting).
- Id. at 938 (Jacobs,
J.,
dissenting).
- See infra
PartIV.B.
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MISUSEOFLICENSINGEVIDENCE 1163
The evidence of the efficacy
of the CCC was particularly
troublesome
because a license from the CCC provided
the user with no guarantee
that
the use
was
authorized."
Although
the CCC represented
numerous pub-
lishers, only thirtypercent
of the marketfor journals
was covered by
CCC
licenses. Furthermore,
since some of the articles in journals
were not
protected
by copyright,
the license arguably
allowed the CCC to collect
royalties
for works that were not covered by copyright."
These royalties
represent
a windfall
to CCC, rather
than a benefit to either authorsor the
public.
The court's recognition
of a marketon these facts raises many ques-
tions about permission systems.
Is the user obliged
to pay
into any
avail-
able scheme for licensing?
What if multiple
schemes exist? What if a user
pays
into a clearancemechanismthat does not cover the challenged use?
What of later-developed
schemes?
The Texaco
majority
seemed
unwilling
to entertainTexaco's very legitimate
doubtsaboutthe viability
of the CCC.
This failure to scrutinize the available means of marketclearance led to a
decision that may
be held against
those who photocopy
and perhaps
those
who engage
in analogous
uses.
Further, the denial of fair use may
not only legitimize
a licensing
market,
it may
create market power.
For example,
in the Texaco case,
the
court cited the services of the CCC as evidence of a market,
in effect
placing
the governmentimprimatur
on CCC's services. As discussed
above,relatively
few who photocopy
had adopted
CCC's licensing
service
beforethe Texacodecision.83Sincethenuse has
likelyburgeoned.
Would
it not be better to let a market develop organically?
Does a court capri-
ciously
create a monopoly
when it endorses a given service?
It seems
likely
that other services that subsequently
enter the market are at a
- As Judge Jacobs observed in dissent, "no CCC license can assure a scientist that
photocopying any given
article is legal."
American Geophysical
Union, 60 F.3d at 937 (Jacobs, J.,
dissenting).
- See id.
See
id.
- For a proposed
solution to the circularity
of photocopy licensinrg,
see Brian T. Ster, Note,
Photocopyingand Fair Use: Exploring
the Market for Scientific
JournalArticles, 30 IND.L. REV. 607
(1997) (arguing
that a user should be subject
to liability
for infringementonly
where a copyright
owner
participates
in a clearance mechanism).
- See supra
note 54 and accompanying
text.
- See supra
note 56
and accompanyingtext.
Generally
in situations in which the government
creates a monopoly (for example, public
utilities), the monopoly is legislatively created, highly regulated,
and overseen by
administrative
agencies
to prevent
abuse of consumers. A judicially created monopoly would have none of these
checks. The majorperformancerights societies, ASCAP and BMI, serve a similarclearancefunctionin
the marketfor musical compositions, as discussed in Part IV.A infra.
These organizations
have been
the subject
of numerousantitrustcases and several consent decrees. See generally Cohen, supra note
at 500-01.
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