For our second entry this week, we are excited to feature Kevin Smith, Director of Copyright and Scholarly Communication in the Office of Copyright and Scholarly Communication at Duke University.

Fair Use, Fixation, and the Problem of Legal Fictions

The Second Circuit Court of Appeals handed down a decision at the end of January that is simultaneously important and bizarre.  Bizarre because of the nature of the issue, which actually involved a debate over whether or not a work was “fixed” (a prerequisite for copyright protection).  And important because of the stance the Second Circuit took on fair use and the implications of its position for the Georgia State appeal, a decision that is still pending as I write.  Hat tip to attorney Zick Rubin for pointing the case out to me and suggesting its implications.

The case is Swatch Group Management Services v. Bloomberg, which the Second Circuit heard on cross appeals from a decision by the District Court in the Southern District of New York that found that Bloomberg had made a fair use of a recording of a telephone conference call that Swatch held with selected investors and analysts.  Swatch appealed the decision in favor of Bloomberg, while Bloomberg apparently appealed because it did not like the grounds on which it had won.

Briefly, someone working for Bloomberg managed to join the conference call and make a recording, which was then distributed to its list of “Bloomberg Professional” subscribers.  Swatch objected, registered a copyright in its own recording of the call, and sued Bloomberg for infringement.  Bloomberg argued that it had not copied Swatch’s recording but had made its own, lawful recording of a “live news event.”  More about that argument later on, but first let’s look at the fair use analysis.

Both the District Court and the Second Circuit found that Bloomberg had made a fair use of the recording of this conference call, and the reasoning the latter court applied is very telling.  They held that the use had not been transformative, but that that didn’t matter.  In fact, they suggest that the lack of transformation was a good thing.  First, in this part of the discussion, the Court cites the remark from the Supreme Court in Campbell v. Accuff-Rose Music, the case which really established the importance of the transformative analysis, that not all fair use must be transformative, citing the paradigmatic example of “multiple copies for classroom use.”  Then the Second Circuit goes on to say that the purpose of Bloomberg’s recording of the Swatch conference call was “to make important financial information… available to American investors” and that that intent is “closely analogous” to news reporting and therefore is a favored purpose in the fair use analysis.  In light of this purpose, the Court reasons, the goal of the copying and distribution is accuracy of the information, so it is sensible that no transformation took place, and that lack does not undermine fair use.

I see a couple of ways that this analysis of the purpose of Bloomberg’s use of the recorded phone call can shed light on the arguments being reviewed by the Eleventh Circuit in the GSU copyright case.

First, the Second Circuit held that Bloomberg’s admittedly commercial purpose did not defeat the fair use argument.  The public purpose, analogous to news reporting, remember, was enough to reduce the weight that a commercial purpose would normally have in countering a fair use claim.  This was the case even though the use was held not to be transformative.  All this reflects on the argument made by the GSU plaintiff publishers that without some transformation, GSU should not get the benefit, on the first fair use factor, of claiming that it has a non-profit educational purpose.  In the Swatch case, the Second Circuit affirms that even a commercial, yet publicly beneficial, purpose can favor fair use in spite of not being transformative.  This seems to completely undermine the argument being made in Atlanta; a non-profit, educational purpose is of great public benefit, and it can and should weigh in favor of fair use even if the Eleventh Circuit upholds the finding that there was no transformation.

Second, in the Swatch case the Second Circuit did not require that the material on the recording be subjected to criticism and comment in order for its “re-use” to be considered fair.  They said that the need for precision in the delivery of information was enough.  As Mr. Rubin pointed out when he alerted me to the case, there seems to be a clear analogy here to those electronic reserves at issue in the GSU case.  In order for the non-profit educational purpose to be fulfilled, students need to become acquainted with small parts of the thinking of different scholars; this is best accomplished by reproducing accurately short excerpts from a variety of different works.  Commentary is not required, at least as part of the reserves system – it is provided by the teacher in the classroom.  What is vital is that these excerpts reflect precisely what the author said and thought.  Really, this is just an added justification for the conclusion in the Swatch case that transformation was not required.

One other point from the Second Circuit is also worth a moment of our time.  In Swatch v. Bloomberg, the Court recognized that the entire phone call had been recorded and distributed.  But they held, consistently with other Circuits, that using this much of the copyrighted work was necessary in light of the favored purpose (even though it was not transformative) and therefore that the third fair use factor was neutral – it did not either favor or weigh against fair use.  In the GSU case, the Eleventh Circuit worried during oral arguments that the trial court had applied a numerical standard in its evaluation of the third factor and that the plaintiff publishers were asking the Appellate Court to apply a different, lesser standard, but a hard numerical line nonetheless.  In light of what the Second Circuit has said, maybe the best course for the panel hearing the GSU appeal is to reject both numerical standards and ask if the length of each reading is appropriate to the favored non-profit educational purpose.  The best judges of this, of course, are the instructors, who determine whether a short excerpt is appropriate or if students should, where possible, purchase the books.  So within some reasonable and flexible limit, the Court should defer to the decision of the individual instructors as too how much of a work is necessary to fulfill their clearly favored purpose.

In short, if the Eleventh Circuit panel upholds the trial court, or even creates more space for fair use in its ruling, they will be joining a growing consensus among the Circuit Courts of Appeal.  If, on the other hand, they decided to deviate from this body of precedent, they will be inviting further review.

The fact that the Swatch case was decided based on fair use had an additional, instructive effect, which we can take as a warning against using copyright law to prop up specific businesses or business models.  Bloomberg’s primary defense against the charge that they infringed copyright was that there was no copyright to infringe, since they made a recording from a live event.  The problem they faced, however, was that part of the definition of “fixed” includes this line: “A work consisting of sounds, images or both, that are being transmitted, is ‘fixed’ for purposes of this title if a fixation of the work is being made simultaneously with its transmission.”  As David Kluft explains in this blog post about the case, this sentence appears to create a “legal fiction” that anyone recording the live event is actually copying the “official” recording that is being made simultaneously with the live event.  This rule was inserted to protect professional sports leagues from recordings made from live broadcasts, but Swatch was apparently able to use it to defeat Bloomberg’s claim that there was no copyright in the unfixed, live phone call from which they, Bloomberg, made their recording.  I say apparently because the Court simply ruled in Bloomberg’s favor based on fair use; that would appear to assume that a copyright did exist – based on this legal fiction – without actually telling us that the court was applying this provision from section 101 of the copyright law.

The reason I bring this up is because I fear that this sentence intended to assist professional sports leagues might well encompass too much in the sweep of the fictional situation it creates.  As attorney Kluft asks, does this mean that a parent who videotapes a live high school sporting event might infringe the copyright created by some official recording of the same event, made simultaneously, even though the parent made her video from live action?  What if two different people make such recordings; do they infringe each other?  The problem is that the sentence does not provide details, including whose recording creates this fiction, or if any/all do.  The line was inserted without sufficient thought to solve a putative problem raised, I would guess, by lobbyists for a single industry.  But changing the law is much too blunt an instrument to protect one business or one business model; such changes will nearly always have unintended consequences that do more harm than the supposed good they were aimed at.  Whenever lobbyists for a particular industry, including the publishing industry, offer to help “solve” a problem that they themselves have identified, Congress should take great care.  In many cases, and the simultaneous fixation of a live broadcast may be one of them, those solutions prove more problematic than the situation they were supposed to address.  This warning is especially important as Congress is talking about a revision of the copyright law, since such talk will bring out special interests in droves, and many will have such “problems” that they want solved.

Kevin Smith is Director of the Office of Copyright and Scholarly Communications and is both a librarian and an attorney experienced in copyright and technology law. He also serves as a nationally recognized resource on local and national policy in order to help the Duke community stay informed and involved with the changing landscape of scholarly publication. You can read his regular blog here.