212 F.3d 477 (9th Cir. 2000)

THREE BOYS MUSIC CORPORATION, Plaintiff-Appellee,
v.
MICHAEL BOLTON, individually and d/b/a MR. BOLTON'S MUSIC, INC.; ANDREW GOLDMARK; NON-PAREIL MUSIC, INC.; WARNER-CHAPPELL MUSIC LIMITED; WARNER TAMERLANE PUBLISHING CORP.; WB MUSIC CORP.; and SONY MUSIC ENTERTAINMENT, INC., Defendants-Appellants.

Nos. 97-55150, 97-55154

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted October 5, 1999
Filed May 9, 2000

[480] COUNSEL: Robert G. Sugarman, Weil, Gotshal & Manges, New York, New York, for the defendants-appellants.

Russell J. Frackman, Mitchell, Silberberg & Knupp, Los Angeles, California, for the defendant-appellant.

Pierce O'Donnell, O'Donnell & Shaeffer, Los Angeles, California, for the plaintiff-appellee.

John P. McNicholas, McNicholas & McNicholas, Los Angeles, California, for the plaintiff-appellee.

Louis Petrich, Leopold, Petrich, & Smith, Los Angeles, California, for amici, Recording Industry Association of America, Inc. and Motion Picture Association of America, Inc.

Appeals from the United States District Court for the Central District of California; Lourdes G. Baird, District Judge, Presiding. D.C. No. CV-92-01177 LGB

Before: Betty B. Fletcher, Dorothy W. Nelson, and Melvin Brunetti, Circuit

Judges.

OPINION

D.W. NELSON, Circuit Judge:

In 1994, a jury found that Michael Bolton's 1991 pop hit, "Love Is a Wonderful Thing," infringed on the copyright of a 1964 Isley Brothers' song of the same name. The district court denied Bolton's motion for a new trial and affirmed the jury's award of $5.4 million.

Bolton, his co-author, Andrew Goldmark, and their record companies ("Sony Music") appeal, arguing that the district court erred in finding that: (1) sufficient evidence supported the jury's finding that the appellants had access to the Isley Brothers' song; (2) sufficient evidence supported the jury's finding that the songs were substantially similar; (3) subject matter jurisdiction existed based on the Isley Brothers registering a complete copy of the song; (4) sufficient evidence supported the jury's attribution of profits to the infringing elements of the song; (5) Sony Music could not deduct its tax liability; and (6) the appellants' motion for a new trial based on newly discovered evidence was unwarranted.

We affirm.

I. BACKGROUND

The Isley Brothers, one of this country's most well-known rhythm and blues groups, have been inducted into the Rock and Roll Hall of Fame. They helped define the soul sound of the 1960s with songs such as "Shout," "Twist and Shout," and "This Old Heart of Mine," and they mastered the funky beats of the 1970s with songs such as "Who's That Lady, " "Fight the Power," and "It's Your Thing." In 1964, the Isley Brothers wrote and recorded "Love is a Wonderful Thing " for United Artists. The Isley Brothers received a copyright for "Love is a Wonderful Thing" from the Register of Copyrights on February 6, 1964. The following year, they switched to the famous Motown label and had three top-100 hits including "This Old Heart of Mine."

Hoping to benefit from the Isley Brothers' Motown success, United Artists released "Love is a Wonderful Thing" in 1966. The song was not released on an album, only on a 45record as a single. Several industry publications predicted that "Love is a Wonderful Thing" would be a hit -"Cash Box" on August 27, 1966, "Gavin Report" on August 26, 1966, and "Billboard" on September 10, 1966. On September 17, 1966, Billboard listed "Love is a Wonderful Thing" at number 110 in a chart titled "Bubbling Under the Hot 100. " The song was never listed on any other Top 100 charts. In 1991, the Isley Brothers' "Love is a Wonderful Thing" was released [481] on compact disc. See Isley Brothers, The Isley Brothers -The Complete UA Sessions, (EMI 1991).

Michael Bolton is a singer/songwriter who gained popularity in the late 1980s and early 1990s by reviving the soul sound of the 1960s. Bolton has orchestrated this soul-music revival in part by covering old songs such as Percy Sledge's "When a Man Love a Woman" and Otis Redding's"(Sittin' on the) Dock of the Bay." Bolton also has written his own hit songs. In early 1990, Bolton and Goldmark wrote a song called "Love Is a Wonderful Thing." Bolton released it as a single in April 1991, and as part of Bolton's album,"Time, Love and Tenderness." Bolton's "Love Is a Wonderful Thing" finished 1991 at number 49 on Billboard's year-end pop chart.

On February 24, 1992, Three Boys Music Corporation filed a copyright infringement action for damages against the appellants under 17 U.S.C. SS 101 et seq. (1988). The parties agreed to a trifurcated trial. On April 25, 1994, in the first phase, the jury determined that the appellants had infringed the Isley Brothers' copyright. At the end of second phase five days later, the jury decided that Bolton's "Love Is a Wonderful Thing" accounted for 28 percent of the profits from "Time, Love and Tenderness." The jury also found that 66 percent of the profits from commercial uses of the song could be attributed to the inclusion of infringing elements. On May 9, 1994, the district court entered judgment in favor of the Isley Brothers based on the first two phases.

The deadline for post-trial motions was May 25, 1994. On that day, the appellants filed a motion for judgment as a matter of law and a motion for new trial. The district court denied the motions on August 11, 1994. On June 8, 1994, the appellants filed a second motion for new trial based on newly discovered evidence on the issue of copyright ownership. The district court dismissed this motion as untimely.

On December 5, 1996, the district court adopted the findings of the Special Master's Amended Report about the allocation of damages (third phase). In the final judgment entered against the appellants, the district court ordered Sony Music to pay $4,218,838; Bolton to pay $932,924; Goldmark to pay $220,785; and their music publishing companies to pay $75,900. They timely appealed.

II. DISCUSSION

Proof of copyright infringement is often highly circumstantial, particularly in cases involving music. A copyright plaintiff must prove (1) ownership of the copyright; and (2) infringement -that the defendant copied protected elements of the plaintiff's work. See Smith v. Jackson , 84 F.3d 1213, 1218 (9th Cir. 1996) (citation omitted). Absent direct evidence of copying, proof of infringement involves fact-based showings that the defendant had "access" to the plaintiff's work and that the two works are "substantially similar." Id.

Given the difficulty of proving access and substantial similarity, appellate courts have been reluctant to reverse jury verdicts in music cases. See, e.g., id. at 1221 (affirming a jury's verdict for the defendants in a copyright infringement case involving Michael Jackson and other musicians); Gaste v. Kaiserman, 863 F.2d 1061, 1071 (2d Cir. 1988) (affirming a jury's damages award against a defendant in a music copyright infringement case). Judge Newman's opinion in Gaste nicely articulated the proper role for an appeals court in reviewing a jury verdict:

The guiding principle in deciding whether to overturn a jury verdict for insufficiency of the evidence is whether the evidence is such that, without weighing the credibility of the witnesses or otherwise considering the weight of the evidence, there can be but one conclusion as to the verdict that reasonable men could have reached.

Id. at 1066 (internal quotations omitted). In Arnstein v. Porter, the seminal case [482] about musical copyright infringement, Judge Jerome Frank wrote:

Each of these two issues - copying and improper appropriation - is an issue of fact. If there is a trial, the conclusions on those issues of the trier of the facts - of the judge if he sat without a jury, or of the jury if there was a jury trial - bind this court on appeal, provided the evidence supports those findings, regardless of whether we would ourselves have reached the same conclusions.

Arnstein v. Porter, 154 F.2d 464, 469 (2d Cir. 1946).

As a general matter, the standard for reviewing jury verdicts is whether they are supported by "substantial evidence" -that is, such relevant evidence as reasonable minds might accept as adequate to support a conclusion. See Poppell v. City of San Diego, 149 F.3d 951, 962 (9th Cir. 1998). The credibility of witnesses is an issue for the jury and is generally not subject to appellate review. See Gilbrook v. City of Westminster, 177 F.3d 839, 856 (9th Cir.), cert. denied, 120 S. Ct. 614 (1999).

We affirm the jury's verdict in this case in light of the standard of review and copyright law's "guiding principles." Although we will address each of the appellant's arguments in turn, we focus on access because it is the most difficult issue in this case. Our decision is predicated on judicial deference -finding that the law has been properly applied in this case, viewing the facts most favorably to the appellees, and not substituting our judgment for that of the jury.

A. Access

Proof of access requires "an opportunity to view or to copy plaintiff's work." Sid and Marty Krofft Television Prods., Inc. v. McDonald's Corp., 562 F.2d 1157, 1172 (9th Cir. 1977). This is often described as providing a "reasonable opportunity" or "reasonable possibility" of viewing the plaintiff's work. 4 Melville B. Nimmer & David Nimmer, Nimmer on Copyright, S 13.02[A], at 13-19 (1999); Jason v. Fonda, 526 F. Supp. 774, 775 (C.D. Cal. 1981), aff'd , 698 F.2d 966 (9th Cir. 1983). We have defined reasonable access as "more than a `bare possibility.' " Jason, 698 F.2d at 967. Nimmer has elaborated on our definition: "Of course, reasonable opportunity as here used, does not encompass any bare possibility in the sense that anything is possible. Access may not be inferred through mere speculation or conjecture. There must be a reasonable possibility of viewing the plaintiff's work -not a bare possibility." 4 Nimmer,S 13.02[A], at 1319. "At times, distinguishing a `bare' possibility from a `reasonable' possibility will present a close question. " Id. at 1320.

Circumstantial evidence of reasonable access is proven in one of two ways: (1) a particular chain of events is established between the plaintiff's work and the defendant's access to that work (such as through dealings with a publisher or record company), or (2) the plaintiff's work has been widely disseminated. See 4 Nimmer, S 13.02[A], at 13-20-13-21; 2 Paul Goldstein, Copyright: Principles, Law, and Practice S 8.3.1.1., at 90-91 (1989). Goldstein remarks that in music cases the "typically more successful route to proving access requires the plaintiff to show that its work was widely disseminated through sales of sheet music, records, and radio performances." 2 Goldstein, S 8.3.1.1, at 91. Nimmer, however, cautioned that "[c]oncrete cases will pose difficult judgments as to where along the access spectrum a given exploitation falls." 4 Nimmer, S 13.02[A], at 13-22.

Proof of widespread dissemination is sometimes accompanied by a theory that copyright infringement of a popular song was subconscious. Subconscious copying has been accepted since Learned Hand embraced it in a 1924 music infringement case: "Everything registers somewhere in our memories, and no one can tell what [483] may evoke it . . . . Once it appears that another has in fact used the copyright as the source of this production, he has invaded the author's rights. It is no excuse that in so doing his memory has played him a trick." Fred Fisher, Inc. v. Dillingham, 298 F. 145, 147-48 (S.D.N.Y. 1924). In Fred Fisher, Judge Hand found that the similarities between the songs "amount[ed] to identity" and that the infringement had occurred "probably unconsciously, what he had certainly often heard only a short time before." Id. at 147.

In modern cases, however, the theory of subconscious copying has been applied to songs that are more remote in time. ABKCO Music, Inc v. Harrisongs Music, Ltd., 722 F.2d 988 (2d Cir. 1983) is the most prominent example. In ABKCO, the Second Circuit affirmed a jury's verdict that former Beatle George Harrison, in writing the song "My Sweet Lord," subconsciously copied The Chiffons' "He's So Fine," which was released six years earlier. See id. at 997, 999. Harrison admitted hearing "He's So Fine" in 1963, when it was number one on the Billboard charts in the United States for five weeks and one of the top 30 hits in England for seven weeks. See id. at 998. The court found:"the evidence, standing alone, `by no means compels the conclusion that there was access . . . it does not compel the conclusion that there was not.' " Id. (quoting Heim v. Universal Pictures Co., 154 F.2d 480, 487 (2d Cir. 1946)). In ABKCO, however, the court found that "the similarity was so striking and where access was found, the remoteness of that access provides no basis for reversal." Id. Furthermore, "the mere lapse of a considerable period of time between the moment of access and the creation of defendant's work does not preclude a finding of copying." 4 Nimmer, S 13.02[A], at 13-20 (citing ABKCO, 722 F.2d at 997-98).

The Isley Brothers' access argument was based on a theory of widespread dissemination and subconscious copying. They presented evidence supporting four principal ways that Bolton and Goldmark could have had access to the Isley Brothers' "Love is a Wonderful Thing":

(1) Bolton grew up listening to groups such as the Isley Brothers and singing their songs. In 1966, Bolton and Goldmark were 13 and 15, respectively, growing up in Connecticut. Bolton testified that he had been listening to rhythm and blues music by black singers since he was 10 or 11,"appreciated a lot of Black singers," and as a youth was the lead singer in a band that performed "covers" of popular songs by black singers. Bolton also testified that his brother had a "pretty good record collection."

(2) Three disk jockeys testified that the Isley Brothers' song was widely disseminated on radio and television stations where Bolton and Goldmark grew up. First, Jerry Blavitt testified that the Isley Brothers' "Love is a Wonderful Thing" was played five or six times during a 13-week period on the television show, "The Discophonic Scene," which he said aired in Philadelphia, New York, and Hartford-New Haven. Blavitt also testified that he played the song two to three times a week as a disk jockey in Philadelphia and that the station is still playing the song today. Second, Earl Rodney Jones testified that he played the song a minimum of four times a day during an eight to 14 to 24 week period on WVON radio in Chicago, and that the station is still playing the song today. Finally, Jerry Bledsoe testified that he played the song on WUFO radio in Buffalo, and WWRL radio in New York was playing the song in New York in 1967 when he went there. Bledsoe also testified that he played the song twice on a television show, "Soul," which aired in New York and probably in New Haven, Connecticut, where Bolton lived.

(3) Bolton confessed to being a huge fan of the Isley Brothers and a collector of their music. Ronald Isley testified that when Bolton saw Isley at the Lou Rawls United Negro College Fund Benefit concert in 1988, Bolton said,"I know this guy.[484] I go back with him. I have all his stuff. " Angela Winbush, Isley's wife, testified about that meeting that Bolton said, "This man needs no introduction. I know everything he's done."

(4) Bolton wondered if he and Goldmark were copying a song by another famous soul singer. Bolton produced a work tape attempting to show that he and Goldmark independently created their version of "Love Is a Wonderful Thing." On that tape of their recording session, Bolton asked Goldmark if the song they were composing was Marvin Gaye's "Some Kind of Wonderful."[1] The district court, in affirming the jury's verdict, wrote about Bolton's Marvin Gaye remark:

This statement suggests that Bolton was contemplating the possibility that the work he and Goldmark were creating, or at least a portion of it, belonged to someone else, but that Bolton wasn't sure who it belonged to. A reasonable jury can infer that Bolton mistakenly attributed the work to Marvin Gaye, when in reality Bolton was subconsciously drawing on Plaintiff's song.

The appellants contend that the Isley Brothers' theory of access amounts to a "twenty-five-years-after-the-factsubconscious copying claim." Indeed, this is a more attenuated case of reasonable access and subconscious copying than ABKCO. In this case, the appellants never admitted hearing the Isley Brothers' "Love is a Wonderful Thing. " That song never topped the Billboard charts or even made the top 100 for a single week. The song was not released on an album or compact disc until 1991, a year after Bolton and Goldmark wrote their song. Nor did the Isley Brothers ever claim that Bolton's and Goldmark's song is so "strikingly similar" to the Isley Brothers' that proof of access is presumed and need not be proven.

Despite the weaknesses of the Isley Brothers' theory of reasonable access, the appellants had a full opportunity to present their case to the jury. Three rhythm and blues experts (including legendary Motown songwriter Lamont Dozier of Holland-Dozier-Holland fame) testified that they never heard of the Isley Brothers' "Love is a Wonderful Thing." Furthermore, Bolton produced copies of "TV Guide" from 1966 suggesting that the television shows playing the song never aired in Connecticut. Bolton also pointed out that 129 songs called "Love is a Wonderful Thing" are registered with the Copyright Office, 85 of them before 1964.

The Isley Brothers' reasonable access arguments are not without merit. Teenagers are generally avid music listeners. It is entirely plausible that two Connecticut teenagers obsessed with rhythm and blues music could remember an Isley Brothers' song that was played on the radio and television for a few weeks, and subconsciously copy it twenty years later. Furthermore, Ronald Isley testified that when they met, Bolton said, "I have all his stuff." Finally, as the district court pointed out, Bolton's remark about Marvin Gaye and "Some Kind of Wonderful" indicates that Bolton believed he may have been copying someone else's song.

Finally, with regard to access, we are mindful of Judge Frank's words of caution in Arnstein v. Porter: "The judge characterized plaintiff's story as `fantastic'; and in the light of the references in his opinion to defendant's deposition, the judge obviously accepted the defendant's denial of access and copying . . . . [Y]et plaintiff's credibility, even as to those improbabilities, should be left to the jury." Arnstein, 154 F.2d at 469. In this case, Judge Baird heeded Judge Frank's admonition:

[T]his Court is not in a position to find that the only conclusion that a reasonable jury could have reached is that [485] Defendants did not have access to Plaintiff's song. One must remember that the issue this Court must address is not whether Plaintiff has proven access by a preponderance of evidence, but whether reasonable minds could find that Defendants had a reasonable opportunity to have heard Plaintiff's song before they created their own song.

Although we might not reach the same conclusion as the jury regarding access, we find that the jury's conclusion about access is supported by substantial evidence. We are not establishing a new standard for access in copyright cases; we are merely saying that we will not disturb the jury's factual and credibility determinations on this issue.

B. Substantial Similarity

Under our case law, substantial similarity is inextricably linked to the issue of access. In what is known as the "inverse ratio rule," we "require a lower standard of proof of substantial similarity when a high degree of access is shown." Smith, 84 F.3d at 1218 (citing Shaw v. Lindheim, 919 F.2d 1353, 1361-62 (9th Cir. 1990); Krofft, 562 F.2d at 1172). Furthermore, in the absence of any proof of access, a copyright plaintiff can still make out a case of infringement by showing that the songs were "strikingly similar." See Smith, 84 F.3d at 1220; Baxter v. MCA, Inc., 812 F.2d 421, 423, 424 n.2 (9th Cir. 1987).

Proof of the substantial similarity is satisfied by a twopart test of extrinsic similarity and intrinsic similarity. See Krofft, 562 F.2d at 1164. Initially, the extrinsic test requires that the plaintiff identify concrete elements based on objective criteria. See Smith, 84 F.3d at 1218; Shaw, 919 F.2d at 1356. The extrinsic test often requires analytical dissection of a work and expert testimony. See Apple Computer, Inc v. Microsoft Corp., 35 F.3d 1435, 1442 (9th Cir. 1994). Once the extrinsic test is satisfied, the factfinder applies the intrinsic test. The intrinsic test is subjective and asks "whether the ordinary, reasonable person would find the total concept and feel of the works to be substantially similar." Pasillas v. McDonald's Corp., 927 F.2d 440, 442 (9th Cir. 1991) (internal quotations omitted).

We will not second-guess the jury's application of the intrinsic test. See Krofft 562 F.3d at 1166 ("Since the intrinsic test for expression is uniquely suited for determination by the trier of fact, this court must be reluctant to reverse it.") (citations omitted). Furthermore, we will not reverse factual determinations regarding the extrinsic test absent a clearly erroneous application of the law. See id. It is well settled that a jury may find a combination of unprotectible elements to be protectible under the extrinsic test because " `the over-all impact and effect indicate substantial appropriation.' " Id. at 1169 (quoting Malkin v. Dubinsky, 146 F. Supp. 111, 114 (S.D.N.Y. 1956)).

1. Evidence of Substantial Similarity

Bolton and Goldmark argue that there was insufficient evidence of substantial similarity because the Isley Brothers' expert musicologist, Dr. Gerald Eskelin, failed to show that there was copying of a combination of unprotectible elements. On the contrary, Eskelin testified that the two songs shared a combination of five unprotectible elements: (1) the title hook phrase (including the lyric, rhythm, and pitch); (2) the shifted cadence; (3) the instrumental figures; (4) the verse/chorus relationship; and (5) the fade ending. Although the appellants presented testimony from their own expert musicologist, Anthony Ricigliano, he conceded that there were similarities between the two songs and that he had not found the combination of unprotectible elements in the Isley Brothers' song "anywhere in the prior art." The jury heard testimony from both of these experts and "found infringement based on a unique compilation of those elements." We refuse to interfere with the jury's credibility determination, nor do we find [486] that the jury's finding of substantial similarity was clearly erroneous.

2. Independent Creation

Bolton and Goldmark also contend that their witnesses rebutted the Isley Brothers' prima facie case of copyright infringement with evidence of independent creation. By establishing reasonable access and substantial similarity, a copyright plaintiff creates a presumption of copying. The burden shifts to the defendant to rebut that presumption through proof of independent creation. See Granite Music Corp. v. United Artists Corp., 532 F.2d 718, 721 (9th Cir. 1976).

The appellants' case of independent creation hinges on three factors: the work tape demonstrating how Bolton and Goldmark created their song, Bolton and Goldmark's history of songwriting, and testimony that their arranger, Walter Afanasieff, contributed two of five unprotectible elements that they allegedly copied. The jury, however, heard the testimony of Bolton, Goldmark, Afanasieff, and Ricigliano about independent creation. The work tape revealed evidence that Bolton may have subconsciously copied a song that he believed to be written by Marvin Gaye. Bolton and Goldmark's history of songwriting presents no direct evidence about this case. And Afanasieff's contributions to Bolton and Goldmark's song were described by the appellants' own expert as "very common." Once again, we refuse to disturb the jury's determination about independent creation. The substantial evidence of copying based on access and substantial similarity was such that a reasonable juror could reject this defense.

3. Inverse-Ratio Rule

Although this may be a weak case of access and a circumstantial case of substantial similarity, neither issue warrants reversal of the jury's verdict. An amicus brief on behalf of the recording and motion picture industries warns against watering down the requirements for musical copyright infringement. This case presents no such danger. The Ninth Circuit's inverse-ratio rule requires a lesser showing of substantial similarity if there is a strong showing of access. See Smith, 84 F.3d at 1218. In this case, there was a weak showing of access. We have never held, however, that the inverse ratio rule says a weak showing of access requires a stronger showing of substantial similarity. Nor are we redefining the test of substantial similarity here; we merely find that there was substantial evidence from which the jury could find access and substantial similarity in this case.

C. Sufficiency of the Deposit Copy

The appellants argue that the district court did not have jurisdiction over this case because the Isley Brothers failed to register a complete copy of the song upon which the lawsuit was based. Although the 1909 Copyright Act requires the owner to deposit a "complete copy" of the work with the copyright office, our definition of a "complete copy" is broad and deferential: "Absent intent to defraud and prejudice, inaccuracies in copyright registrations do not bar actions for infringement." Harris v. Emus Records Corp. , 734 F.2d 1329, 1335 (9th Cir. 1984) (citations omitted).

Bolton and Goldmark argue that in 1964 the Isley Brothers deposited sheet music ("deposit copy") of "Love is a Wonderful Thing" that differed from the recorded version of the song. Furthermore, they claimed that the deposit copy does not include the majority of the musical elements that were part of the infringement claim. At trial, the Isley Brothers' expert, Dr. Eskelin, testified that the deposit copy included all of the song's essential elements such as the title hook, chorus, and pitches. Dr. Eskelin even played the deposit copy for the jury on the keyboard. We refuse to disturb the jury's finding that the Isley Brothers deposited a "complete copy " because (1) there was no intent to defraud and prejudice and (2) any inaccuracies [487] in the deposit copy were minor and do not bar the infringement action.

D. Attribution of Profits

Sony Music claims that the district court improperly applied an assumption that all profits from Bolton and Goldmark's song go to the Isley Brothers, and that no evidence supported the jury's apportionment of profits. A successful copyright plaintiff is allowed to recover only those profits that are "attributable to infringement." 17 U.S.C.S 504(b) (1994). "In establishing the infringer's profits, the copyright owner is required to present proof only of the infringer's gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work." Id. See also Cream Records, Inc. v. Jos. Schlitz Brewing Co., 754 F.2d 826, 828 (9th Cir. 1985) (holding that when all profits do not clearly derive from the infringing material, the copyright owner is not entitled to recover all of the profits); Gaste , 863 F.2d at 1070 (finding that where there is "imprecision in the computation of expenses, a court should err on the side of guaranteeing the plaintiff a full recovery"). Thus, the statutory burden of proof lies with Sony Music to prove what percentage of their profits were not attributable to copying the Isley Brothers'"Love is a Wonderful Thing."

Sony Music presented evidence that Bolton's "Love Is a Wonderful Thing" produced only 5-10% of the profits from his album, "Time, Love and Tenderness," and that the song's infringing elements resulted in only 10-15% of the profits from the song. The Isley Brothers, however, attacked the credibility of one of Sony Music's experts. Furthermore, they presented evidence that Bolton's infringing song was the album's lead single, that it was released 19 days before the album, and that Bolton engaged in telephone promotion of the song. The jury found that 28% of the album's profits derived from the song, and that 66% of the song's profits resulted from infringing elements.

We affirm the jury's apportionment of the profits for several reasons. First, the jury instructions adequately conveyed the burden of proof. Second, the burden of proof was on Sony Music, and the jury chose not to believe Sony Music's experts. Finally, a jury verdict apportioning less than 100% of the profits but more than the percentage estimates of Sony Music's experts does not represent clear error.

E. Deduction of Tax Liability

Sony Music also argues that the district court erred in allowing Bolton and Goldmark, but not Sony Music, to deduct income taxes due to profits from the album. Whether income taxes are considered "deductible expenses " under S 504(b) is an issue of first impression in this circuit. The Supreme Court held that willful infringers could not deduct income taxes, but it left open the possibility that non-willful infringers could deduct their income taxes from the infringing profits. See L.P. Larson, Jr., Co. v. Wm. Wrigley, Jr., Co., 277 U.S. 97, 99-100 (1928). The circuits are split over whether non-willful infringers such as Bolton, Goldmark, and Sony Music can deduct income taxes from their infringing profits. Compare In Design v. K-Mart Apparel Corp., 13 F.3d 559, 567 (2d Cir. 1994) (allowing the deduction of income taxes) with Schnadig Corp. v. Gaines Mfg. Co., Inc., 620 F.2d 1166, 1169-70 (6th Cir. 1980) (not allowing the deduction of income taxes).

The Second Circuit allowed the deduction of income taxes because if infringers are liable for pre-tax profits, they may end up paying more money than they ever received. See In Design, 13 F.3d at 567. Under the Second Circuit's rule, the infringer receives a windfall by (1) paying a smaller damages award and (2) deducting the entire, pre-tax award from gross income on a subsequent tax return. The Sixth Circuit rejected the deduction of income taxes because the increased pre-tax [488] profits paid to the copyright holder will be balanced out by an eventual tax refund based on the pre-tax award. See Schnadig, 620 F.2d at 1169-70. Under the Sixth Circuit's rule, the copyright holder receives a windfall by receiving a larger, pre-tax award.

During the third phase of this trial, the district court adopted the findings of the special master's report regarding the deduction of income taxes. The district court followed the Second Circuit rule and allowed Bolton and Goldmark, as non-willful infringers, to deduct the income taxes and management fees that they paid relating to the infringing song. The district court, however, refused to allow Sony Music to deduct its Net Operating Loss Carry-forward (NOL) because the NOL did not have a "concrete financial impact."

We uphold the district court's decision to allow non-willful infringers to deduct income taxes, but not NOL. In this case, Bolton and Goldmark actually paid income taxes and management fees on the infringing profits. Sony Music, however, never actually paid income taxes on its infringing profits. Rather, Sony Music claimed it offset nearly $1.7 million in taxes on the infringing profits against its parent company's NOL. No court has ever found that NOL is a deductible expense under S 504(b). Furthermore, we find that the district court's distinctions between taxes actually paid and taxes not actually paid was a fair one. Thus, we affirm the district court's calculation of a $4,218,838 damages award against Sony Music.

F. Second New Trial Motion

Finally, Bolton and Goldmark claim that the district court erred in rejecting their second motion for new trial. The district court's denial of a motion for a new trial pursuant to Federal Rule of Civil Procedure 60(b) is reviewed for an abuse of discretion. See Browning-Ferris Indus. v. Kelco Disposal, Inc., 492 U.S. 257, 278 (1989); Scott v. Ross, 140 F.3d 1275, 1281 (9th Cir. 1998). The abuse of discretion standard applies particularly when the district court's denial is based on the motion's untimeliness. See E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1294-96 (9th Cir. 1992).

Bolton and Goldmark's second motion for a new trial was based on the discovery of new evidence that disputed the Isley Brothers' claim of authorship. A day before the deadline for post-trial motions, the appellees discovered evidence alleging that the Turkcords, a group that played with the Isley Brothers in the mid-1960s, claimed to have written the 1964 song, "Love is a Wonderful Thing." Bolton and Goldmark did not immediately notify the district court of this new evidence. Instead, fourteen days after the deadline for post-trial motions had passed, they filed an additional motion for new trial. The district court rejected the second motion for new trial as untimely filed.

We affirm the district court's denial of the second motion for new trial because the evidence, if true, goes at most to the weight and credibility of the evidence before the jury. At trial, Ronald Isley claimed to have written the song with the deceased guitar legend, Jimi Hendrix. (As a young man, Hendrix played in the Isley Brothers' band.) The Turkcords' claims of authorship are dubious for several reasons. The Turkcords knew about the re-release of "Love is a Wonderful Thing" by United Artists in 1991, yet they claimed that the Isley Brothers had agreed to share the song's royalties with them only after hearing about the damages award in this case on "Inside Edition." Furthermore, Bolton and Goldmark knew about this new evidence before the deadline for the post-trial motions, yet they did not immediately notify the district court.

Even if the Turkcords' claims of authorship are true, a new trial is not warranted in the interests of justice because the Isley Brothers' copyright ownership is not jeopardized. Registration is [489] prima facie evidence of the validity of a copyright. See 17 U.S.C. S 410(c) (1994). This presumption can be rebutted by the defendant's showing that the plaintiff's work is not original. See North Coast Indus. v. Jason Maxwell, Inc., 972 F.2d 1031, 1033 (9th Cir. 1992). North Coast 's definition of originality is broad: " `All that is needed to satisfy both the Constitution and the statute is that the "author " contributed something more than a "merely trivial" variation, something recognizably "his own." Originality in this context means "little more than a prohibition of actual copying." ' " Id. (quoting Krofft, 562 F.2d at 1163 n.5 (quoting Alfred Bell & Co. v. Catalda Fine Arts, 191 F.2d 99, 102-03 (2d Cir. 1951))). See also Kamar Int'l Inc. v. Russ Berrie and Co., 657 F.2d 1059, 1061 (9th Cir. 1981) (employing a broad definition of originality relating to toy stuffed animals).

In this case, the Isley Brothers undoubtedly contributed something original to "Love is a Wonderful Thing. " Their proteges, the Turkcords, purportedly wrote the song, then gave the Isley Brothers' permission to record it after the voice of the Turkcords' lead singer allegedly "cracked. " Members of the Turkcords allegedly sang back-up on the record. Yet the Turkcords never copyrighted their song. They relied on the Isley Brothers' alleged promise to share the royalties with them.

The district court did not abuse its discretion in rejecting Bolton and Goldmark's second motion for a new trial based on this evidence. The Turkcords' claims of authorship would not have affected the outcome of the case and at most go to the weight and credibility of the evidence. Bolton and Goldmark's second motion was a last-ditch attempt to discredit the jury's verdict. The district court heard all of the evidence in this case, instructed the jury on the applicable law, yet refused to reverse the jury's verdict pursuant to motion for a judgment as a matter of law. Having found that the law was properly applied in this case, we leave the district court's decisions and the jury's credibility determinations undisturbed.

AFFIRMED.

[1] Marvin Gaye also referred to the song's chorus, "She's some kind of wonderful," in his song, "Too Busy Thinking About My Baby." See Marvin Gaye, Too Busy Thinking About My Baby, on MPG, (Motown 1969). 

In 1945, author Cornell Woolrich agreed to assign the motion picture rights to several of his stories, including the one at issue, to petitioners' predecessor in interest. He also agreed to renew the copyrights in the stories at the appropriate time and to assign the same motion picture rights to the predecessor in interest for the 28-year renewal term provided by the Copyright Act of 1909. The film version of the story in question was produced and distributed in 1954. Woolrich died in 1968 without a surviving spouse or child and before he could obtain the rights in the renewal term for petitioners as promised. In 1969, his executor renewed the copyright in the story and assigned the renewal rights to respondent Abend. Apparently in reliance on Rohauer v. Killiam Shows, Inc., 551 F.2d 484 (CA2)—which held that the owner of the copyright in a derivative work may continue to use the existing derivative work according to the original grant from the author of the pre-existing work even if the grant of rights in the pre-existing work lapsed—petitioners subsequently re-released and publicly exhibited the film. Abend filed suit, alleging, among other things, that the re-release infringed his copyright in the story because petitioners' right to use the story during the renewal term lapsed when Woolrich died. The District Court granted petitioners' motions for summary judgment based on Rohauer and the "fair use" defense. The Court of Appeals reversed, rejecting the reasoning of Rohauer. Relying on Miller Music Corp. v. Charles N. Daniels, Inc., 362 U.S. 373, 80 S.Ct. 792, 4 L.Ed.2d 804—which held that assignment of renewal rights by an author before the time for renewal arrives cannot defeat the right of the author's statutory successor to the renewal rights if the author dies before the right to renewal accrues—the court concluded that petitioners received from Woolrich only an expectancy in the renewal rights that never matured, and that his executor, as his statutory successor, was entitled to renew the copyright and to assign it to Abend. The court also determined that petitioners' use of Woolrich's story in their film was not fair use.

Held:

1. The distribution and publication of a derivative work during the copyright renewal term of a pre-existing work incorporated into the-[208] derivative work infringes the rights of the owner of the pre-existing work where the author of that work agreed to assign the rights in the renewal term to the derivative work's owner but died before the commencement of the renewal period and the statutory successor does not assign the right to use the pre-existing work to the owner of the derivative work. Pp. 216-236.

(a) The renewal provisions of the 1909 and 1976 Copyright Acts, their legislative history, and the case law interpreting them establish that they were intended both to give the author a second chance to obtain fair remuneration for his creative efforts and to provide his family, or his executors absent surviving family, with a "new estate" if he died before the renewal period arrived. Under Miller Music, although the author may assign all of his exclusive rights in the copyrighted work by assigning the renewal copyright without limitation, the assignee holds nothing if the author dies before commencement of the renewal period. This being the rule with respect to all of the renewal rights, it follows, a fortiori, that assignees such as petitioners of the right to produce a derivative work or some other portion of the renewal rights also hold nothing but an unfulfilled and unenforceable expectancy if the author dies before the renewal period, unless the assignees secure a transfer of the renewal rights from the author's statutory successor. Pp. 216-221.

(b) Petitioners' contention that any right the owner of rights in the pre-existing work might have had to sue for infringement that occurs during the renewal term is extinguished by creation of the new work is not supported by any express provision of the Act nor by the rationale as to the scope of protection achieved in a derivative work, and is contrary to the axiomatic principle that a person may exploit only such copyrighted literary material as he either owns or is licensed to use. Section 7 of the 1909 Act and § 103(b) of the 1976 Act made explicit the well-settled rule that the owner of a derivative work receives copyright protection only for the material contributed by him and to the extent he has obtained a grant of rights in the pre-existing work. Pp. 221-224.

(c) Nor is petitioners' position supported by the termination provisions of the 1976 Act, which, for works existing in their original or renewal terms as of January 1, 1978, empowered the author to gain an additional 19 years' copyright protection by terminating any grant of rights at the end of the renewal term, except, under 17 U.S.C. § 304(c)(6)(A) (1988 ed.), the right to use a derivative work for which the owner of the derivative work has held valid rights in the original and renewal terms. No overarching policy preventing authors of pre-existing works from blocking distribution of derivative works may be inferred from § 304(c)(6)(A), which was part of a compromise between competing special inter-[209] ests. In fact, the plain language of the section indicates that Congress assumed that the owner of the pre-existing work continued to possess the right to sue for infringement even after incorporation of that work into the derivative work, since, otherwise, Congress would not have explicitly withdrawn the right to terminate use rights in the limited circumstances contemplated by the section. Pp. 224-227.

(d) Thus, the Rohauer theory is supported by neither the 1909 nor the 1976 Act. Even if it were, however, the "rule" of that case would make little sense when applied across the derivative works spectrum. For example, although the contribution by the derivative author of a condensed book might be little as compared to that of the original author, publication of the book would not infringe the pre-existing work under the Rohauer "rule" even though the derivative author has no license or grant of rights in the pre-existing work. In fact, the Rohauer "rule" is considered to be an interest-balancing approach. Pp. 227-228.

(e) Petitioners' contention that the rule applied here will undermine the Copyright Act's policy of ensuring the dissemination of creative works is better addressed by Congress than the courts. In attempting to fulfill its constitutional mandate to "secur[e] for limited Times to Authors . . . the exclusive Right to their Respective Writings," Congress has created a balance between the artist's right to control the work during the term of the copyright protection and the public's need for access to creative works. Absent an explicit statement of congressional intent that the rights in the renewal term of an owner of a pre-existing work are extinguished when his work is incorporated into another work, it is not the role of this Court to alter the delicate balance Congress has labored to achieve. Pp. 228-230.

(f) Section 6 of the 1909 Act, 17 U.S.C. § 7 (1976 ed.)—which provides that derivate works when produced with the consent of the copyright proprietor of the pre-existing work "shall be regarded as new works subject to copyright . . .; but the publication of any such new works shall not affect the force or validity of any subsisting copyright upon the matter employed . . .," or be construed to affect the copyright status of the original work—does not, as the dissent contends, give the original author the power to sell the rights to make a derivative work that upon creation and copyright would be completely independent of the original work. This assertion is derived from three erroneous premises. First, since the plain meaning of the "force or validity" clause is that the copyright in the "matter employed"—i.e., the pre-existing work when it is incorporated into the derivative work is not abrogated by publication of the derivative work, the dissent misreads § 7 when it asserts that only the copyright in the "original work" survives the author's conveyance of derivative rights. Second, the substitution of "publication" for "copy right" [210] in the final version of the force or validity clause does not, as the dissent contends, establish that it was the publication of the derivative work, and not the copyright, that was not to "affect . . . any subsisting copyright." Since publication of a work without proper notice sent it into the public domain under the 1909 Act, the language change was necessary to ensure that the publication of a derivative work without proper notice, including smaller portions that had not been previously published and separately copyrighted, would not result in those sections moving into the public domain. Third, the dissent errs in interpreting § 3 of the 1909 Act—which provides that a copyright protects all copyrightable component parts of a work and "all matter therein in which copyright is already subsisting, but without extending the duration or scope of such copyright"—as indicating, when read with § 7, that the copyright on derivative work extends to both the new material and that "in which the copyright is already subsisting," such that the derivative work proprietor has the right to publish and distribute the entire work absent permission from the owner of the pre-existing work. When § 7 states that derivative works "shall be regarded as new works subject to copyright," it simply confirms that § 3's provision that one can obtain copyright in a work, parts of which were already copyrighted, extends to derivative works. More important, § 7's second clause merely clarifies what might have been otherwise unclear—that the § 3 principle of preservation of the duration or scope of the subsisting copyright applies to derivative works, and that neither the scope of the copyright in the matter employed nor the duration of the copyright in the derivative work is undermined by publication of the derivative work. Pp. 230-236.

2. Petitioners' unauthorized use of Woolrich's story in their film does not constitute a noninfringing "fair use." The film does not fall into any of the categories of fair use enumerated in 17 U.S.C. § 107 (1988 ed.); e.g., criticism, comment, news reporting, teaching, scholarship, or research. Nor does it meet any of the nonexclusive criteria that § 107 requires a court to consider. First, since petitioners received $12 million from the film's re-release during the renewal term, their use was commercial rather than educational. Second, the nature of the copyrighted work is fictional and creative rather than factual. Third, the story was a substantial portion of the film, which expressly used its unique setting, characters, plot, and sequence of events. Fourth, and most important, the record supports the conclusion that re-release of the film impinged on Abend's ability to market new versions of the story. Pp. 236-238.

863 F.2d 1465 (CA9 1988), affirmed and remanded.

[211] O'CONNOR, J., delivered the opinion of the Court, in which BRENNAN, MARSHALL, BLACKMUN, and KENNEDY, JJ., joined. WHITE, J., filed an opinion concurring in the judgment, post, p. 238. STEVENS, J., filed a dissenting opinion, in which REHNQUIST, C.J., and SCALIA, J., joined, post, p. 239.

Louis P. Petrich, Los Angeles, Cal., for petitioners.

Peter J. Anderson for respondent.

Justice O'CONNOR delivered the opinion of the Court.

The author of a pre-existing work may assign to another the right to use it in a derivative work. In this case the author of a pre-existing work agreed to assign the rights in his renewal copyright term to the owner of a derivative work, but died before the commencement of the renewal period. The question presented is whether the owner of the derivative work infringed the rights of the successor owner of the pre-existing work by continued distribution and publication of the derivative work during the renewal term of the pre-existing work.

I

Cornell Woolrich authored the story "It Had to Be Murder," which was first published in February 1942 in Dime Detective Magazine. The magazine's publisher, Popular Publications, Inc., obtained the rights to magazine publication of the story and Woolrich retained all other rights. Popular Publications obtained a blanket copyright for the issue of Dime Detective Magazine in which "It Had to Be Murder" was published.

[212] The Copyright Act of 1909, 35 Stat. 1075, 17 U.S.C. § 1 et seq. (1976 ed.) (1909 Act), provided authors a 28-year initial term of copyright protection plus a 28-year renewal term. See 17 U.S.C. § 24 (1976 ed.). In 1945, Woolrich agreed to assign the rights to make motion picture versions of six of his stories, including "It Had to Be Murder," to B.G. De Sylva Productions for $9,250. He also agreed to renew the copyrights in the stories at the appropriate time and to assign the same motion picture rights to De Sylva Productions for the 28-year renewal term. In 1953, actor Jimmy Stewart and director Alfred Hitchcock formed a production company, Patron, Inc., which obtained the motion picture rights in "It Had to Be Murder" from De Sylva's successors in interest for $10,000.

In 1954, Patron, Inc., along with Paramount Pictures, produced and distributed "Rear Window," the motion picture version of Woolrich's story "It Had to Be Murder." Woolrich died in 1968 before he could obtain the rights in the renewal term for petitioners as promised and without a surviving spouse or child. He left his property to a trust administered by his executor, Chase Manhattan Bank, for the benefit of Columbia University. On December 29, 1969, Chase Manhattan Bank renewed the copyright in the "It Had to Be Murder" story pursuant to 17 U.S.C. § 24 (1976 ed.). Chase Manhattan assigned the renewal rights to respondent Abend for $650 plus 10% of all proceeds from exploitation of the story.

"Rear Window" was broadcast on the ABC television network in 1971. Respondent then notified petitioners Hitchcock (now represented by cotrustees of his will), Stewart, and MCA Inc., the owners of the "Rear Window" motion picture and renewal rights in the motion picture, that he owned the renewal rights in the copyright and that their distribution of the motion picture without his permission infringed his copyright in the story. Hitchcock, Stewart, and MCA nonetheless entered into a second license with ABC to [213] rebroadcast the motion picture. In 1974, respondent filed suit against these same petitioners, and others, in the United States District Court for the Southern District of New York, alleging copyright infringement. Respondent dismissed his complaint in return for $25,000.

Three years later, the United States Court of Appeals for the Second Circuit decided Rohauer v. Killiam Shows, Inc., 551 F.2d 484, cert. denied, 431 U.S. 949, 97 S.Ct. 2666, 53 L.Ed.2d 266 (1977), in which it held that the owner of the copyright in a derivative work^[1] may continue to use the existing derivative work according to the original grant from the author of the pre-existing work even if the grant of rights in the pre-existing work lapsed. 551 F.2d, at 494. Several years later, apparently in reliance on Rohauer, petitioners re-released the motion picture in a variety of media, including new 35 and 16 millimeter prints for theatrical exhibition in the United States, videocassettes, and videodiscs. They also publicly exhibited the motion picture in theaters, over cable television, and through videodisc and videocassette rentals and sales.

Respondent then brought the instant suit in the United States District Court for the Central District of California against Hitchcock, Stewart, MCA, and Universal Film Exchanges, a subsidiary of MCA and the distributor of the motion picture. Respondent's complaint alleges that the re-release of the motion picture infringes his copyright in the story because petitioners' right to use the story during the renewal term lapsed when Woolrich died before he could register for the renewal term and transfer his renewal rights to them. Respondent also contends that petitioners have interfered with his rights in the renewal term of the story in other ways. He alleges that he sought to contract with Home Box [214] Office (HBO) to produce a play and television version of the story, but that petitioners wrote to him and HBO stating that neither he nor HBO could use either the title, "Rear Window" or "It Had to Be Murder." Respondent also alleges that petitioners further interfered with the renewal copyright in the story by attempting to sell the right to make a television sequel and that the re-release of the original motion picture itself interfered with his ability to produce other derivative works.

Petitioners filed motions for summary judgment, one based on the decision in Rohauer, supra, and the other based on alleged defects in the story's copyright. Respondent moved for summary judgment on the ground that petitioners' use of the motion picture constituted copyright infringement. Petitioners responded with a third motion for summary judgment based on a "fair use" defense. The District Court granted petitioners' motions for summary judgment based on Rohauer and the fair use defense and denied respondent's motion for summary judgment, as well as petitioners' motion for summary judgment alleging defects in the story's copyright. Respondent appealed to the United States Court of Appeals for the Ninth Circuit and petitioners cross-appealed.

The Court of Appeals reversed, holding that respondent's copyright in the renewal term of the story was not defective, Abend v. MCA, Inc., 863 F.2d 1465, 1472 (1988). The issue before the court, therefore, was whether petitioners were entitled to distribute and exhibit the motion picture without respondent's permission despite respondent's valid copyright in the pre-existing story. Relying on the renewal provision of the 1909 Act, 17 U.S.C. § 24 (1976 ed.), respondent argued before the Court of Appeals that because he obtained from Chase Manhattan Bank, the statutory successor, the renewal right free and clear of any purported assignments of any interest in the renewal copyright, petitioners' distribution and publication of "Rear Window" without authorization infringed his renewal copyright. Petitioners responded that [215] they had the right to continue to exploit "Rear Window" during the 28-year renewal period because Woolrich had agreed to assign to petitioners' predecessor in interest the motion picture rights in the story for the renewal period.

Petitioners also relied, as did the District Court, on the decision in Rohauer v. Killiam Shows, Inc., supra. In Rohauer, the Court of Appeals for the Second Circuit held that statutory successors to the renewal copyright in a pre-existing work under § 24 could not "depriv[e] the proprietor of the derivative copyright of a right . . . to use so much of the underlying copyrighted work as already has been embodied in the copyrighted derivative work, as a matter of copyright law." Id., at 492. The Court of Appeals in the instant case rejected this reasoning, concluding that even if the pre-existing work had been incorporated into a derivative work, use of the pre-existing work was infringing unless the owner of the derivative work held a valid grant of rights in the renewal term.

The court relied on Miller Music Corp. v. Charles N. Daniels, Inc., 362 U.S. 373, 80 S.Ct. 792, 4 L.Ed.2d 804 (1960), in which we held that assignment of renewal rights by an author before the time for renewal arrives cannot defeat the right of the author's statutory successor to the renewal rights if the author dies before the right to renewal accrues. An assignee of the renewal rights takes only an expectancy: "Until [the time for registration of renewal rights] arrives, assignees of renewal rights take the risk that the rights acquired may never vest in their assignors. A purchaser of such an interest is deprived of nothing. Like all purchasers of contingent interests, he takes subject to the possibility that the contingency may not occur." Id., at 378, 80 S.Ct., at 796. The Court of Appeals reasoned that "[i]f Miller Music makes assignment of the full renewal rights in the underlying copyright unenforceable when the author dies before effecting renewal of the copyright, then, a fortiori, an assignment of part of the rights in the underlying work, the right to produce a movie version, must [216] also be unenforceable if the author dies before effecting renewal of the underlying copyright." 863 F.2d, at 1476. Finding further support in the legislative history of the 1909 Act and rejecting the Rohauer court's reliance on the equities and the termination provisions of the 1976 Act, 17 U.S.C. §§ 203(b)(1), 304(c)(6)(A) the Court of Appeals concluded that petitioners received from Woolrich only an expectancy in the renewal rights that never matured; upon Woolrich's death, Woolrich's statutory successor, Chase Manhattan Bank, became "entitled to a renewal and extension of the copyright," which Chase Manhattan secured "within one year prior to the expiration of the original term of copyright." 17 U.S.C. § 24 (1976 ed.). Chase Manhattan then assigned the existing rights in the copyright to respondent.

The Court of Appeals also addressed at length the proper remedy, an issue not relevant to the issue on which we granted certiorari. We granted certiorari to resolve the conflict between the decision in Rohauer, supra, and the decision below. 493 U.S. 807, 110 S.Ct. 47, 107 L.Ed.2d 16 (1989). Petitioners do not challenge the Court of Appeals' determination that respondent's copyright in the renewal term is valid, and we express no opinion regarding the Court of Appeals' decision on this point.

II

A.

Petitioners would have us read into the Copyright Act a limitation on the statutorily created rights of the owner of an underlying work. They argue in essence that the rights of the owner of the copyright in the derivative use of the pre-existing work are extinguished once it is incorporated into the derivative work, assuming the author of the pre-existing work has agreed to assign his renewal rights. Because we find no support for such a curtailment of rights in either the 1909 Act or the 1976 Act, or in the legislative history of either, we affirm the judgment of the Court of Appeals.

[217] Petitioners and amicus Register of Copyrights assert, as the Court of Appeals assumed, that § 23 of the 1909 Act, and the case law interpreting that provision, directly control the disposition of this case. Respondent counters that the provisions of the 1976 Act control, but that the 1976 Act reenacted § 24 in § 304 and, therefore, the language and judicial interpretation of § 24 are relevant to our consideration of this case. Under either theory, we must look to the language of and case law interpreting § 24.

The right of renewal found in § 24 provides authors a second opportunity to obtain remuneration for their works. Section 24 provides:

"[T]he author of [a copyrighted] work, if still living, or the widow, widower, or children of the author, if the author be not living, or if such author, widow, widower, or children be not living, then the author's executors, or in the absence of a will, his next of kin shall be entitled to a renewal and extension of the copyright in such work for a further term of twenty-eight years when application for such renewal and extension shall have been made to the copyright office and duly registered therein within one year prior to the expiration of the original term of copyright." 17 U.S.C. § 24 (1976 ed.)

Since the earliest copyright statute in this country, the copyright term of ownership has been split between an original term and a renewal term. Originally, the renewal was intended merely to serve as an extension of the original term; at the end of the original term, the renewal could be effected and claimed by the author, if living, or by the author's executors, administrators, or assigns. See Copyright Act of May 31, 1790, ch. XV, § 1, 1 Stat. 124. In 1831, Congress altered the provision so that the author could assign his contingent interest in the renewal term, but could not, through his assignment, divest the rights of his widow or children in the renewal term. See Copyright Act of February 3, 1831, ch. XVI, 4 Stat. 436; see also G. Curtis, Law of Copyright 235 [218] (1847). The 1831 renewal provisions created "an entirely new policy, completely dissevering the title, breaking up the continuance . . . and vesting an absolutely new title eo nomine in the persons designated." White-Smith Music Publishing Co. v. Goff, 187 F. 247, 250 (CA1 1911). In this way, Congress attempted to give the author a second chance to control and benefit from his work. Congress also intended to secure to the author's family the opportunity to exploit the work if the author died before he could register for the renewal term. See Bricker, Renewal and Extension of Copyright, 29 S.Cal.L.Rev. 23, 27 (1955) ("The renewal term of copyright is the law's second chance to the author and his family to profit from his mental labors"). "The evident purpose of [the renewal provision] is to provide for the family of the author after his death. Since the author cannot assign his family's renewal rights, [it] takes the form of a compulsory bequest of the copyright to the designated persons." De Sylva v. Ballentine, 351 U.S. 570, 582, 76 S.Ct. 974, 981, 100 L.Ed. 1415 (1956). See Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643, 651, 63 S.Ct. 773, 776, 87 L.Ed. 1055 (1943) (if at the end of the original copyright period, the author is not living, "his family stand[s] in more need of the only means of subsistence ordinarily left to them" (citation omitted)).

In its debates leading up to the Copyright Act of 1909, Congress elaborated upon the policy underlying a system comprised of an original term and a completely separate renewal term. See G. Ricordi & Co. v. Paramount Pictures, Inc., 189 F.2d 469, 471 (CA2) (the renewal right "creates a new estate, and the . . . cases which have dealt with the subject assert that the new estate is clear of all rights, interests or licenses granted under the original copyright"), cert. denied, 342 U.S. 849, 72 S.Ct. 77, 96 L.Ed. 641 (1951). "It not infrequently happens that the author sells his copyright outright to a publisher for a comparatively small sum." H.R.Rep. No. 2222, 60th Cong., 2d Sess., 14 (1909). The renewal term permits the author, originally in a poor bargaining position, to renegoti [219] ate the terms of the grant once the value of the work has been tested. "[U]nlike real property and other forms of personal property, [a copyright] is by its very nature incapable of accurate monetary evaluation prior to its exploitation." 2 M. Nimmer & D. Nimmer, Nimmer on Copyright § 9.02, p. 9-23 (1989) (hereinafter Nimmer). "If the work proves to be a great success and lives beyond the term of twenty-eight years, . . . it should be the exclusive right of the author to take the renewal term, and the law should be framed . . . so that [the author] could not be deprived of that right." H.R.Rep. No. 2222, supra, at 14. With these purposes in mind, Congress enacted the renewal provision of the Copyright Act of 1909, 17 U.S.C. § 24 (1976 ed.). With respect to works in their original or renewal term as of January 1, 1978, Congress retained the two-term system of copyright protection in the 1976 Act. See 17 U.S.C. §§ 304(a) and (b) (1988 ed.) (incorporating language of 17 U.S.C. § 24 (1976 ed.)).

Applying these principles in Miller Music Corp. v. Charles N. Daniels, Inc., 362 U.S. 373, 80 S.Ct. 792, 4 L.Ed.2d 804 (1960), this Court held that when an author dies before the renewal period arrives, his executor is entitled to the renewal rights, even though the author previously assigned his renewal rights to another party. "An assignment by an author of his renewal rights made before the original copyright expires is valid against the world, if the author is alive at the commencement of the renewal period. [Fred] Fisher Co. v. [M.] Witmark & Sons, 318 U.S. 643 [63 S.Ct. 773], so holds." Id., 362 U.S., at 375, 80 S.Ct., at 794. If the author dies before that time, the "next of kin obtain the renewal copyright free of any claim founded upon an assignment made by the author in his lifetime. These results follow not because the author's assignment is invalid but because he had only an expectancy to assign; and his death, prior to the renewal period, terminates his interest in the renewal which by § 24 vests in the named classes." Ibid. The legislative history of the 1909 Act echoes this view: "The right of renewal is contingent. It does not vest until the end [of the original term].

[220] If [the author] is alive at the time of renewal, then the original contract may pass it, but his widow or children or other persons entitled would not be bound by that contract." 5 Legislative History of the 1909 Copyright Act, Part K, p. 77 (E. Brylawski & A. Goldman eds. 1976) (statement of Mr. Hale).^[2] Thus, the renewal provisions were intended to give the author a second chance to obtain fair remuneration for his creative efforts and to provide the author's family a "new estate" if the author died before the renewal period arrived.

An author holds a bundle of exclusive rights in the copyrighted work, among them the right to copy and the right to incorporate the work into derivative works.^[3] By assigning the renewal copyright in the work without limitation, as in Miller Music, the author assigns all of these rights. After Miller Music, if the author dies before the commencement of the renewal period, the assignee holds nothing. If the assignee of all of the renewal rights holds nothing upon the death of the assignor before arrival of the renewal period, [221] then, a fortiori, the assignee of a portion of the renewal rights, e.g., the right to produce a derivative work, must also hold nothing. See also Brief for Register of Copyrights as Amicus Curiae 22 ("[A]ny assignment of renewal rights made during the original term is void if the author dies before the renewal period"). Therefore, if the author dies before the renewal period, then the assignee may continue to use the original work only if the author's successor transfers the renewal rights to the assignee. This is the rule adopted by the Court of Appeals below and advocated by the Register of Copyrights. See 863 F.2d, at 1478; Brief for Register of Copyrights as Amicus Curiae 22. Application of this rule to this case should end the inquiry. Woolrich died before the commencement of the renewal period in the story, and, therefore, petitioners hold only an unfulfilled expectancy. Petitioners have been "deprived of nothing. Like all purchasers of contingent interests, [they took] subject to the possibility that the contingency may not occur." Miller Music, supra, 362 U.S., at 378, 80 S.Ct., at 796.

B

The reason that our inquiry does not end here, and that we granted certiorari, is that the Court of Appeals for the Second Circuit reached a contrary result in Rohauer v. Killiam Shows, Inc., 551 F.2d 484 (1977). Petitioners' theory is drawn largely from Rohauer. The Court of Appeals in Rohauer attempted to craft a "proper reconciliation" between the owner of the pre-existing work, who held the right to the work pursuant to Miller Music, and the owner of the derivative work, who had a great deal to lose if the work could not be published or distributed. 551 F.2d, at 490. Addressing a case factually similar to this case, the court concluded that even if the death of the author caused the renewal rights in the pre-existing work to revert to the statutory successor, the owner of the derivative work could continue to exploit that work. The court reasoned that the 1976 Act and the relevant precedents did not preclude such a re [222] sult and that it was necessitated by a balancing of the equities:

"[T]he equities lie preponderantly in favor of the proprietor of the derivative copyright. In contrast to the situation where an assignee or licensee has done nothing more than print, publicize and distribute a copyrighted story or novel, a person who with the consent of the author has created an opera or a motion picture film will often have made contributions literary, musical and economic, as great as or greater than the original author. . . . [T]he purchaser of derivative rights has no truly effective way to protect himself against the eventuality of the author's death before the renewal period since there is no way of telling who will be the surviving widow, children or next of kin or the executor until that date arrives." Id., at 493.

The Court of Appeals for the Second Circuit thereby shifted the focus from the right to use the pre-existing work in a derivative work to a right inhering in the created derivative work itself. By rendering the renewal right to use the original work irrelevant, the court created an exception to our ruling in Miller Music and, as petitioners concede, created an "intrusion" on the statutorily created rights of the owner of the pre-existing work in the renewal term. Brief for Petitioners 33.

Though petitioners do not, indeed could not, argue that its language expressly supports the theory they draw from Rohauer, they implicitly rely on § 6 of the 1909 Act, 17 U.S.C. § 7 (1976 ed.), which states that "dramatizations . . . of copyrighted works when produced with the consent of the proprietor of the copyright in such works . . . shall be regarded as new works subject to copyright under the provisions of this title." Petitioners maintain that the creation of the "new," i.e., derivative, work extinguishes any right the owner of rights in the pre-existing work might have had to sue for infringement that occurs during the renewal term.

[223] We think, as stated in Nimmer, that "[t]his conclusion is neither warranted by any express provision of the Copyright Act, nor by the rationale as to the scope of protection achieved in a derivative work. It is moreover contrary to the axiomatic copyright principle that a person may exploit only such copyrighted literary material as he either owns or is licensed to use." 1 Nimmer § 3.07[A], pp. 3-23 to 3-24 (footnotes omitted). The aspects of a derivative work added by the derivative author are that author's property, but the element drawn from the pre-existing work remains on grant from the owner of the pre-existing work. See Russell v. Price, 612 F.2d 1123, 1128 (CA9 1979) (reaffirming "well-established doctrine that a derivative copyright protects only the new material contained in the derivative work, not the matter derived from the underlying work"), cert. denied, 446 U.S. 952, 100 S.Ct. 2919, 64 L.Ed.2d 809 (1980); see also Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 547, 105 S.Ct. 2218, 2223, 85 L.Ed.2d 588 (1985) ("The copyright is limited to those aspects of the work termed 'expression'—that display the stamp of the author's originality"). So long as the pre-existing work remains out of the public domain, its use is infringing if one who employs the work does not have a valid license or assignment for use of the pre-existing work. Russell v. Price, supra, at 1128 ("[E]stablished doctrine prevents unauthorized copying or other infringing use of the underlying work or any part of that work contained in the derivative product so long as the underlying work itself remains copyrighted"). It is irrelevant whether the pre-existing work is inseparably intertwined with the derivative work. See Gilliam v. American Broadcasting Cos., 538 F.2d 14, 20 (CA2 1976) ("[C]opyright in the underlying script survives intact despite the incorporation of that work into a derivative work"). Indeed, the plain language of § 7 supports the view that the full force of the copyright in the pre-existing work is preserved despite incorporation into the derivative work. See 17 U.S.C. § 7 (1976 ed.) (publication of the derivative work "shall not affect the force or validity of [224] any subsisting copyright upon the matter employed"); see also 17 U.S.C. § 3 (1976 ed.) (copyright protection of a work extends to "all matter therein in which copyright is already subsisting, but without extending the duration or scope of such copyright"). This well-settled rule also was made explicit in the 1976 Act:

"The copyright in a compilation or derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material. The copyright in such work is independent of, and does not affect or enlarge the scope, duration, ownership, or subsistence of, any copyright protection in the pre-existing material." 17 U.S.C. § 103(b).

See also B. Ringer, Renewal of Copyright (1960), reprinted as Copyright Law Revision Study No. 31, prepared for the Senate Committee on the Judiciary, 86th Cong., 2d. Sess., 169-170 (1961) ("[O]n the basis of judicial authority, legislative history, and the opinions of the commentators, . . . someone cannot avoid his obligations to the owner of a renewal copyright merely because he created and copyrighted a 'new version' under a license or assignment which terminated at the end of the first term") (footnotes omitted).

Properly conceding there is no explicit support for their theory in the 1909 Act, its legislative history, or the case law, petitioners contend, as did the court in Rohauer, that the termination provisions of the 1976 Act, while not controlling, support their theory of the case. For works existing in their original or renewal terms as of January 1, 1978, the 1976 Act added 19 years to the 1909 Act's provision of 28 years of initial copyright protection and 28 years of renewal protection. See 17 U.S.C. §§ 304(a) and (b). For those works, the author has the power to terminate the grant of rights at the end of the renewal term and, therefore, to gain the benefit of that additional 19 years of protection. See [225] § 304(c). In effect, the 1976 Act provides a third opportunity for the author to benefit from a work in its original or renewal term as of January 1, 1978. Congress, however, created one exception to the author's right to terminate: The author may not, at the end of the renewal term, terminate the right to use a derivative work for which the owner of the derivative work has held valid rights in the original and renewal terms. See § 304(c)(6)(A). The author, however, may terminate the right to create new derivative works. Ibid. For example, if petitioners held a valid copyright in the story throughout the original and renewal terms, and the renewal term in "Rear Window" were about to expire, petitioners could continue to distribute the motion picture even if respondent terminated the grant of rights, but could not create a new motion picture version of the story. Both the court in Rohauer and petitioners infer from this exception to the right to terminate an intent by Congress to prevent authors of pre-existing works from blocking distribution of derivative works. In other words, because Congress decided not to permit authors to exercise a third opportunity to benefit from a work incorporated into a derivative work, the Act expresses a general policy of undermining the author's second opportunity. We disagree.

The process of compromise between competing special interests leading to the enactment of the 1976 Act undermines any such attempt to draw an overarching policy out of § 304(c)(6)(A), which only prevents termination with respect to works in their original or renewal copyright terms as of January 1, 1978, and only at the end of the renewal period. See Ringer, First Thoughts on the Copyright Act of 1976, 13 Copyright 187, 188-189 (1977) (each provision of 1976 Act was drafted through series of compromises between interested parties). More specifically, § 304(c)

"was part of a compromise package involving the controversial and intertwined issues of initial ownership, duration of copyright, and reversion of rights. The Regis [226] ter, convinced that the opposition . . . would scuttle the proposed legislation, drafted a number of alternative proposals. . . .

"Finally, the Copyright Office succeeded in urging negotiations among representatives of authors, composers, book and music publishers, and motion picture studios that produced a compromise on the substance and language of several provisions.

. . . . .

"Because the controversy surrounding the provisions disappeared once the parties reached a compromise, however, Congress gave the provisions little or no detailed consideration. . . . Thus, there is no evidence whatsoever of what members of Congress believed the language to mean." Litman, Copyright, Compromise, and Legislative History, 72 Cornell L. Rev. 857, 865-868 (1987) (footnotes omitted).

In fact, if the 1976 Act's termination provisions provide any guidance at all in this case, they tilt against petitioners' theory. The plain language of the termination provision itself indicates that Congress assumed that the owner of the pre-existing work possessed the right to sue for infringement even after incorporation of the pre-existing work in the derivative work.

"A derivative work prepared under authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination, but this privilege does not extend to the preparation after the termination of other derivative works based upon the copyrighted work covered by the terminated grant." § 304(c)(6)(A) (emphasis added).

Congress would not have stated explicitly in § 304(c)(6)(A) that, at the end of the renewal term, the owner of the rights in the pre-existing work may not terminate use rights in existing derivative works unless Congress had assumed that [227] the owner continued to hold the right to sue for infringement even after incorporation of the pre-existing work into the derivative work. Cf. Mills Music, Inc. v. Snyder, 469 U.S. 153, 164, 105 S.Ct. 638, 645, 83 L.Ed.2d 556 (1985) (§ 304(c)(6)(A) "carves out an exception from the reversion of rights that takes place when an author exercises his right to termination").

Accordingly, we conclude that neither the 1909 Act nor the 1976 Act provides support for the theory set forth in Rohauer. And even if the theory found some support in the statute or the legislative history, the approach set forth in Rohauer is problematic. Petitioners characterize the result in Rohauer as a bright-line "rule." The Court of Appeals in Rohauer, however, expressly implemented policy considerations as a means of reconciling what it viewed as the competing interests in that case. See 551 F.2d, at 493-494. While the result in Rohauer might make some sense in some contexts, it makes no sense in others. In the case of a condensed book, for example, the contribution by the derivative author may be little, while the contribution by the original author is great. Yet, under the Rohauer "rule," publication of the condensed book would not infringe the pre-existing work even though the derivative author has no license or valid grant of rights in the pre-existing work. See Brief for Committee for Literary Property Studies as Amicus Curiae 29-31; see also Brief for Songwriters Guild of America as Amicus Curiae 11-12 (policy reasons set forth in Rohauer make little sense when applied to musical compositions). Thus, even if the Rohauer "rule" made sense in terms of policy in that case, it makes little sense when it is applied across the derivative works spectrum. Indeed, in the view of the commentators, Rohauer did not announce a "rule," but rather an "interest-balancing approach." See Jaszi, When Works Collide: Derivative Motion Pictures, Underlying Rights, and the Public Interest, 28 UCLA L.Rev. 715, 758-761 (1981); Note, Derivative Copyright and the 1909 [228] Act—New Clarity or Confusion?, 44 Brooklyn L.Rev. 905, 926-927 (1978).

Finally, petitioners urge us to consider the policies underlying the Copyright Act. They argue that the rule announced by the Court of Appeals will undermine one of the policies of the Act—the dissemination of creative works—by leading to many fewer works reaching the public. Amicus Columbia Pictures asserts that "[s]ome owners of underlying work renewal copyrights may refuse to negotiate, preferring instead to retire their copyrighted works, and all derivative works based thereon, from public use. Others may make demands—like respondent's demand for 50% of petitioners' future gross proceeds in excess of advertising expenses . . . which are so exorbitant that a negotiated economic accommodation will be impossible." Brief for Columbia Pictures et al. as Amici Curiae 21. These arguments are better addressed by Congress than the courts.

In any event, the complaint that respondent's monetary request in this case is so high as to preclude agreement fails to acknowledge that an initially high asking price does not preclude bargaining. Presumably, respondent is asking for a share in the proceeds because he wants to profit from the distribution of the work, not because he seeks suppression of it.

Moreover, although dissemination of creative works is a goal of the Copyright Act, the Act creates a balance between the artist's right to control the work during the term of the copyright protection and the public's need for access to creative works. The copyright term is limited so that the public will not be permanently deprived of the fruits of an artist's labors. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 429, 104 S.Ct. 774, 782, 78 L.Ed.2d 574 (1984) (the limited monopoly conferred by the Copyright Act "is intended to motivate creative activity of authors and inventors by the provision of a special reward, and to allow the public access to the products of their genius after the limited period of exclusive control has expired"). But nothing in the copyright statutes would [229] prevent an author from hoarding all of his works during the term of the copyright. In fact, this Court has held that a copyright owner has the capacity arbitrarily to refuse to license one who seeks to exploit the work. See Fox Film Corp. v. Doyal, 286 U.S. 123, 127, 52 S.Ct. 546, 547, 76 L.Ed. 1010 (1932).

The limited monopoly granted to the artist is intended to provide the necessary bargaining capital to garner a fair price for the value of the works passing into public use. See Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S., at 546, 105 S.Ct., at 2223 ("The rights conferred by copyright are designed to assure contributors to the store of knowledge a fair return for their labors"); Register of Copyrights, Copyright Law Revision, 87th Cong., 1st Sess., 6 (Comm.Print 1961) ("While some limitations and conditions on copyright are essential in the public interest, they should not be so burdensome and strict as to deprive authors of their just reward. . . . [T]heir rights should be broad enough to give them a fair share of the revenue to be derived from the market for their works"). When an author produces a work which later commands a higher price in the market than the original bargain provided, the copyright statute is designed to provide the author the power to negotiate for the realized value of the work. That is how the separate renewal term was intended to operate. See Ringer, Renewal of Copyright (1960), reprinted as Copyright Law Revision Study No. 31, prepared for the Senate Committee on the Judiciary, 86th Cong., 2d. Sess., 125 (1961) ("Congress wanted to give [the author] an opportunity to benefit from the success of his work and to renegotiate disadvantageous bargains . . . made at a time when the value of the work [wa]s unknown or conjectural and the author . . . necessarily in a poor bargaining position"). At heart, petitioners' true complaint is that they will have to pay more for the use of works they have employed in creating their own works. But such a result was contemplated by Congress and is consistent with the goals of the Copyright Act.

[230] With the Copyright Act of 1790, Congress provided an initial term of protection plus a renewal term that did not survive the author. In the Copyright Act of 1831, Congress devised a completely separate renewal term that survived the death of the author so as to create a "new estate" and to benefit the author's family, and, with the passage of the 1909 Act, his executors. See supra, at 217-219. The 1976 Copyright Act provides a single, fixed term, but provides an inalienable termination right. See 17 U.S.C. §§ 203, 302. This evolution of the duration of copyright protection tellingly illustrates the difficulties Congress faces in attempting to "secur[e] for limited Times to Authors . . . the exclusive Right to their respective Writings." U.S. Const., Art. I, § 8, cl. 8. Absent an explicit statement of congressional intent that the rights in the renewal term of an owner of a pre-existing work are extinguished upon incorporation of his work into another work, it is not our role to alter the delicate balance Congress has labored to achieve.

C

In a creative, though ultimately indefensible, exposition of the 1909 Act, the dissent attempts to breathe life into petitioners' suggestion that the derivative work is somehow independent of the pre-existing work. Although no Court of Appeals in the 81 years since enactment of the 1909 Act has held as much, and although the petitioners have not argued the point, the dissent contends that "§ 7 was intended to . . . give the original author the power to sell the right to make a derivative work that upon creation and copyright would be completely independent of the original work." Post, at 244; see also post, at 248. This assertion, far removed from the more modest holding of Rohauer, is derived from three erroneous premises.

First, we think the dissent misreads § 7, which provides:

"Compilations or abridgments, adaptations, arrangements, dramatizations, translations, or other versions of [231] works in the public domain or of copyrighted works when produced with the consent of the proprietor of the copyright in such works, or works republished with new matter, shall be regarded as new works subject to copyright under the provisions of this title; but the publication of any such new works shall not affect the force or validity of any subsisting copyright upon the matter employed or any part thereof, or be construed to imply an exclusive right to such use of the original works, or to secure or extend copyright in such original works." 17 U.S.C. § 7 (1976 ed.).

The provision consists of one sentence with two clauses divided by a semicolon. The first clause lists the types of works that may be derivative works, explains that one may incorporate either copyrighted or public domain works into a derivative work, and further explains that the derivative work itself is copyrightable. The clause also expressly limits incorporation of copyrighted works to instances where the owner of the pre-existing work "consents."

The second clause explains what publication of the new work does not portend: Publication of the derivative work does not "affect the force or validity of any subsisting copyright upon the matter employed " (emphasis added); publication of the derivative work does not mean that use of the original work in other works is precluded; and publication does not mean that a copyright in the original work shall be secured, e.g., if the work was in the public domain, or extended, as where the original work was copyrighted before the date that the derivative work is copyrighted. The plain meaning of the italicized sentence is that the copyright in the "matter employed"—the pre-existing work when it is incorporated into the derivative work—is not abrogated by publication of the new work. The succeeding phrases preserve the copyright status of the original work: Publication does not operate to prohibit other uses of the original work or to [232] "secure or extend copyright in such original works." Cf. post, at 249.

The dissent fails to heed § 7's preservation of copyright in both the "matter employed" and the "original work." Under its theory, only the latter is preserved. See post, at 253 ("author's right to sell his derivative rights is exercised when consent is conveyed and completed when the derivative work is copyrighted"); post, at 250 (underlying work "owner . . . retains full dominion and control over all other means of exploiting" underlying work). In light of § 7's explicit preservation of the "force and validity" of the copyright in the "matter employed," the dissent is clearly wrong when it asserts that § 7 was intended to create a work that is "completely independent" of the pre-existing work. Post, at 245. The dissent further errs when it unjustifiably presumes that § 7 "limit[s] the enforceability of the derivative copyright." Post, at 249.

According to the dissent, § 7 requires the derivative work author to obtain "consent of the proprietor of the copyright" in the pre-existing work, because "§ 7 . . . derogate[s] in some manner from the underlying author's copyright rights." Post, at 241. The more natural inference to be drawn from the requirement of consent is that Congress simply intended that a derivative work author may not employ a copyrighted work without the author's permission, although of course he can obtain copyright protection for his own original additions.

The text of § 7 reveals that it is not "surplusage." Post, at 244. It does not merely stand for the proposition that authors receive copyright protection for their original additions. It also limits the effect of the publication of the derivative work on the underlying work. See supra, at 231 and this page. Nowhere else in the Act does Congress address the treatment to be afforded derivative works. The principle that additions and improvements to existing works of art receive copyright protection was settled at the time the 1909 Act was enacted, a principle that Congress simply codified in § 7.

[233] Second, the dissent attempts to undercut the plain meaning of § 7 by looking to its legislative history and the substitution of the term "publication" for "copyright" in the force or validity clause. According to the dissent, that particular alteration in the proposed bill "made clear that it was the publication of the derivative work, not the copyright itself, that was not to 'affect the force or validity of any subsisting copyright.' " Post, at 249. Under the 1909 Act, it was necessary to publish the work with proper notice to obtain copyright. Publication of a work without proper notice automatically sent a work into the public domain. See generally 2 Nimmer § 7.02[C][1]; 17 U.S.C. § 10 (1976 ed.). The language change was suggested only to ensure that the publication of a "new compiled work" without proper notice, including smaller portions that had not been previously published and separately copyrighted, would not result in those sections moving into the public domain. See Note, 44 Brooklyn L.Rev., at 919-920. Had the bill retained the term "copyright," publication alone could have affected the force or validity of the copyright in the pre-existing work. Thus, far from telling us anything about the copyright in the derivative work, as the dissent apparently believes it does, the language change merely reflects the practical operation of the Act.

Third, we think the dissent errs in its reading of § 3. Section 3 provides:

"The copyright provided by this title shall protect all the copyrightable component parts of the work copyrighted, and all matter therein in which copyright is already subsisting, but without extending the duration or scope of such copyright." 17 U.S.C. § 3 (1976 ed.).

The dissent reasons that § 7, "read together with § 3, plainly indicates that the copyright on a derivative work extends to both the new material and that 'in which copyright is already subsisting.' The author or proprietor of the derivative work therefore has the statutory right to publish and distribute the entire work." Post, at 241. Section 3, however, [234] undermines, rather than supports, the dissent's ultimate conclusion that the derivative work is "completely independent" of the pre-existing work. Post, at 245. Section 3 makes three distinct points: (1) copyright protects the copyrightable parts of the work; (2) copyright extends to parts of the work in which copyright was already obtained, and (3) the duration or scope of the copyright already obtained will not be extended. Important for this case is that § 3 provides that one can obtain copyright in a work where parts of the work are already copyrighted. For example, one could obtain a copyright in an opera even though three of the songs to be used were already copyrighted. This, and only this, is what is meant in § 7 when it states that "[c]ompilations or abridgments, adaptations, arrangements, dramatizations, translations or other versions of works . . . or works republished with new matter shall be regarded as new works subject to copyright under the provisions of this title."

More important, however, is that under the express language of § 3, one obtains a copyright on the entire work, but the parts previously copyrighted get copyright protection only according to the "duration or scope" of the already existing copyright. Thus, if an author attempts to obtain copyright in a book derived from a short story, he can obtain copyright on the book for the full copyright term, but will receive protection of the story parts only for the duration and scope of the rights previously obtained. Correlatively, if an author attempts to copyright a novel, e.g., about Cinderella, and the story elements are already in the public domain, the author holds a copyright in the novel, but may receive protection only for his original additions to the Cinderella story. See McCaleb v. Fox Film Corp., 299 F. 48 (CA5 1924); American Code Co. v. Bensinger, 282 F. 829 (CA2 1922).

The plain language of the first clause of § 7 ensures that this scheme is carried out with respect to "[c]ompilations or abridgments, adaptations, arrangements, dramatizations, translations, or other versions of works in the public domain [235] or of copyrighted works . . . or works republished with new matter," i.e., derivative works. The second clause of § 7 clarifies what might have been otherwise unclear—that the principle in § 3 of preservation of the duration or scope of the subsisting copyright applies to derivative works, and that neither the scope of the copyright in the matter employed nor the duration of the copyright in the original work is undermined by publication of the derivative work. See Adventures in Good Eating v. Best Places to Eat, 131 F.2d 809, 813, n. 3 (CA7 1942); G. Ricordi & Co. v. Paramount Pictures, Inc., 189 F.2d 469 (CA2), cert. denied, 342 U.S. 849, 72 S.Ct. 77, 96 L.Ed. 641 (1951); Russell v. Price, 612 F.2d, at 1128; see also 1 Nimmer § 3.07.

If one reads the plain language of § 7 and § 3 together, one must conclude that they were enacted in no small part to ensure that the copyright in the pre-existing work would not be abrogated by the derivative work. Section 7 requires consent by the author of the pre-existing work before the derivative work may be produced, and both provisions explicitly require that the copyright in the "subsisting work" will not be abrogated by incorporation of the work into another work.

If the dissent's theory were correct, § 3 need only say that "copyright provided by this title shall protect all the copyrightable component parts of the work copyrighted, and all matter therein in which copyright is already subsisting." Instead, § 3 goes on to say that the latter coverage exists "without extending the duration or scope of such copyright." Clearly, the 1909 Act's plain language requires that the underlying work's copyright term exists independently of the derivative work's term, even when incorporated and even though the derivative work holder owns copyright in the whole "work." If the terms must exist separately, each copyright term must be examined for the validity and scope of its grant of rights.

In this case, the grant of rights in the pre-existing work lapsed and, therefore, the derivative work owners' rights to [236] use those portions of the pre-existing work incorporated into the derivative work expired. Thus, continued use would be infringing; whether the derivative work may continue to be published is a matter of remedy, an issue which is not before us. To say otherwise is to say that the derivative work nullifies the "force" of the copyright in the "matter employed." Whether or not we believe that this is good policy, this is the system Congress has provided, as evidenced by the language of the 1909 Act and the cases decided under the 1909 Act. Although the dissent's theory may have been a plausible option for a legislature to have chosen, Congress did not so provide.

III

Petitioners assert that even if their use of "It Had to Be Murder" is unauthorized, it is a fair use and, therefore, not infringing. At common law, "the property of the author . . . in his intellectual creation [was] absolute until he voluntarily part[ed] with the same." American Tobacco Co. v. Werckmeister, 207 U.S. 284, 299, 28 S.Ct. 72, 77, 52 L.Ed. 208 (1907). The fair use doctrine, which is incorporated into the 1976 Act, evolved in response to this absolute rule. See Harper & Row, 471 U.S., at 549-551, 105 S.Ct., at 2224-2226. The doctrine is an " 'equitable rule of reason,' " Sony Corp. of America v. Universal City Studios, Inc., 464 U.S., at 448, 104 S.Ct., at 792, which "permits courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster." Iowa State University Research Foundation, Inc. v. American Broadcasting Cos., 621 F.2d 57, 60 (CA2 1980). Petitioners contend that the fair use doctrine should be employed in this case to "avoid [a] rigid applicatio[n] of the Copyright Act." Brief for Petitioners 42.

In 17 U.S.C. § 107, Congress provided examples of fair use, e.g., copying "for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research," and listed four [237] nonexclusive factors that a court must consider in determining whether an unauthorized use is not infringing:

"(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

"(2) the nature of the copyrighted work;

"(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

"(4) the effect of the use upon the potential market for or value of the copyrighted work."

The Court of Appeals determined that the use of Woolrich's story in petitioners' motion picture was not fair use. We agree. The motion picture neither falls into any of the categories enumerated in § 107 nor meets the four criteria set forth in § 107. "[E]very [unauthorized] commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright." Sony Corp. of America v. Universal Studios, Inc., supra, 464 U.S., at 451, 104 S.Ct., at 793. Petitioners received $12 million from the re-release of the motion picture during the renewal term. 863 F.2d, at 1468. Petitioners asserted before the Court of Appeals that their use was educational rather than commercial. The Court of Appeals found nothing in the record to support this assertion, nor do we.

Applying the second factor, the Court of Appeals pointed out that "[a] use is less likely to be deemed fair when the copyrighted work is a creative product." 863 F.2d, at 1481 (citing Brewer v. Hustler Magazine, Inc., 749 F.2d 527, 529 (CA9 1984)). In general, fair use is more likely to be found in factual works than in fictional works. See 3 Nimmer § 13.05[A], pp. 13-77 to 13-78 ("[A]pplication of the fair use defense [is] greater . . . in the case of factual works than in the case of works of fiction or fantasy"); cf. Harper & Row, 471 U.S., at 563, 105 S.Ct., at 2232 ("The law generally recognizes a greater need to disseminate factual works than works of fiction or fan tasy").

[238] A motion picture based on a fictional short story obviously falls into the latter category.

Examining the third factor, the Court of Appeals determined that the story was a substantial portion of the motion picture. See 471 U.S., at 564-565, 105 S.Ct., at 2232-2233 (finding unfair use where quotation from book " 'took what was essentially the heart of the book' "). The motion picture expressly uses the story's unique setting, characters, plot, and sequence of events. Petitioners argue that the story constituted only 20% of the motion picture's story line, Brief for Petitioners 40, n. 69, but that does not mean that a substantial portion of the story was not used in the motion picture. "[A] taking may not be excused merely because it is insubstantial with respect to the infringing work." Harper & Row, supra, at 565, 105 S.Ct., at 2233.

The fourth factor is the "most important, and indeed, central fair use factor." 3 Nimmer § 13.05[A], p. 13-81. The record supports the Court of Appeals' conclusion that re-release of the film impinged on the ability to market new versions of the story. Common sense would yield the same conclusion. Thus, all four factors point to unfair use. "This case presents a classic example of an unfair use: a commercial use of a fictional story that adversely affects the story owner's adaptation rights." 863 F.2d, at 1482.

For the foregoing reasons, the judgment of the Court of Appeals is affirmed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Justice WHITE, concurring in the judgment.

Although I am not convinced, as the Court seems to be, that the decision in Miller Music Corp. v. Charles N. Daniels, Inc., 362 U.S. 373, 80 S.Ct. 792, 4 L.Ed.2d 804 (1960), was required by the Copyright Act, neither am I convinced that it was an impermissible construction of the statute. And because Miller Music, in my view, requires the result reached by the Court in this case, I concur in the judgment of affirmance.

[239] Justice STEVENS, with whom THE CHIEF JUSTICE and Justice SCALIA join, dissenting.

The Constitution authorizes the Congress:

"To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. . . ." U.S. Const. Art. I, § 8, Cl. 8.

Section 6 of the Copyright Act of 1909, 35 Stat. 1077, 17 U.S.C. § 7 (1970 ed.) (hereinafter § 7), furthers that purpose; § 24 of that Act, 17 U.S.C. § 24 (1970 ed.) (hereinafter § 24), as construed by the Court in this case, does not. It is therefore appropriate to begin with § 7.^[1]

I

In a copyright case, as in any other case, the language of the statute provides the starting point. Community for Creative Non-Violence v. Reid, 490 U.S. 730, 739, 109 S.Ct. 2166, 2172, 104 L.Ed.2d 811 (1989); Mills Music, Inc. v. Snyder, 469 U.S. 153, 164, 105 S.Ct. 638, 645, 83 L.Ed.2d 556 (1985).

Section 7 provides in pertinent part:

"Compilations or abridgments, adaptations, arrangements, dramatizations, translations, or other versions of [240] works in the public domain or of copyrighted works when produced with the consent of the proprietor of the copyright in such works . . . shall be regarded as new works subject to copyright under the provisions of this title; but the publication of any such new works shall not affect the force or validity of any subsisting copyright upon the matter employed or any part thereof, or be construed to imply an exclusive right to such use of the original works, or to secure or extend copyright in such original works."

This statutory provision deals with derivative works—works that include both old material and new material. The plain language of § 7 confers on the entire derivative work—not just the new material contained therein—the status of all other works of authorship, that of "new works subject to copyright under the provisions of this title." Among those rights is that specified in § 3 of the 1909 Act, 17 U.S.C. § 3 (1976 ed.), which applies both to composite and derivative works and states that "the copyright provided by this Act shall protect all the copyrightable component parts of the work copyrighted, and all matter therein in which copyright is already subsisting, but without extending the duration or scope of such copyright." In turn, under § 1, U.S.C. § 1 (1976 ed.), the author or proprietor of the copyright has the right to distribute and publicly perform the copyrighted derivative work. §§ 1(a), 1(d).^[2] The statute does not say [241] anything about the duration of the copyright being limited to the underlying work's original term; rather, derivative works made with the consent of the author and derivative works based on matter in the public domain are treated identically. They are both given independent copyright protection. Section 7, read together with § 3, plainly indicates that the copyright on a derivative work extends to both the new material and that "in which copyright is already subsisting." § 3. The author or proprietor of the derivative work therefore has the statutory right to publish and distribute the entire work.^[3]

The structure of § 7 confirms this reading. The statute does not merely provide the derivative author with a right to copyright but goes on to set limitations and conditions on that copyright. The statute makes "the consent of the proprietor of the [underlying] copyright" a precondition for copyright of the derivative work, a provision that would make little sense if the copyright provided by § 7 did not derogate in some manner from the underlying author's copyright rights.^[4] The [242] statute also directs that the right granted the derivative work proprietor should not "be construed to imply an exclusive right to such use of the original works," suggesting, by negative implication, that it should be read to include a non-exclusive right to use of the original works. The provision that publication "shall not affect the force or validity of any subsisting copyright" also suggests that publication would otherwise have the capacity to affect the force or validity of the original copyright: By publishing the derivative work [243] without satisfying the notice requirements of the Act, the derivative author would dedicate to the public not only his own original contribution, but also that of the original author. Conversely, the limitation that publication does not "secure or extend copyright in such original works" would be unnecessary if the copyrighted derivative work did not include within it some of the material covered by the earlier copyright, or if the term of the derivative copyright did not extend beyond the life of the original copyright.^[5] Although the derivative copyright protects only the new material contained within the new work, that limitation is not the product of the limited extent of the copyright—which encompasses both new and old material—but rather of the specific statutory language restricting its effect against third parties.^[6]

[244] Any other interpretation would render the provision largely surplusage. The Copyright Act of 1909 elsewhere accords protection to "all the writings of an author," § 4, including dramatic composition, § 5, and long before the Act of 1909, it was recognized that the additions and improvements to existing works of art were subject to copyright as original works of authorship.^[7] Congress would hardly have needed to provide for the copyright of derivative works, including the detailed provisions on the limit of that copyright, if it intended only to accord protection to the improvements to an original work of authorship. In my opinion, § 7 was intended to do something more: to give the original author the power [245] to sell the right to make a derivative work that upon creation and copyright would be completely independent of the original work.

II

The statutory background supports the conclusion that Congress intended the original author to be able to sell the right to make a derivative work that could be distributed for the full term of the derivative work's copyright protection. At the time of the enactment of § 7, copyright in the right to dramatize a nondramatic work was a relatively recent innovation with equivocal support. Until 1870, an author had only the right to prevent the copying or vending of his work in the identical medium.^[8] The Act of 1870, which gave the author the "sole liberty of printing, reprinting, publishing, completing, copying, executing, finishing, and vending," made a limited start toward further protection, providing that "authors may reserve the right to dramatize or to translate their own works." Ch. 230, § 86, 16 Stat. 212. The identical language was carried over when the statute was revised in 1873. Rev.Stat. § 4952. The Act of 1891 was a landmark. It gave the same rights to the "author" as had the previous statutes, but provided further that "authors or their assigns shall have exclusive right to dramatize and translate any of their works for which copyright shall have been obtained under the laws of the United States." Ch. 565, § 4952, 26 Stat. 1107. The case law was in accord. Although courts were occasionally willing to enjoin abridgments as infringing, in 1853 Justice Grier wrote that a dramatization of the novel "Uncle Tom's Cabin" would not infringe [246] the author's rights in the book, see Stowe v. Thomas, 23 F.Cas. 201, 208 (No. 13,514) (CC ED Pa.1853),^[9] and it was not until after the passage of the 1909 Act that this Court first held that a copy of a literary work in another form than the original could infringe the author's copyright. See Kalem Co. v. Harper Brothers, 222 U.S. 55, 32 S.Ct. 20, 56 L.Ed. 92 (1911).^[10]

[247] The drafts of the copyright bill, considered by the Conferences held by the Register of Copyrights and the Librarian of Congress in 1905 and 1906,^[11] had three distinctive features with respect to derivative works: They provided a limited period of protection from the creation of derivative works during which a derivative work could only be created with "the consent of the author or his assigns," Brylawski & Goldman D LXV; ^[12] they distinguished between the copyright term for original works of authorship and for derivative works, according the latter a shorter period of protection; ^[13] and, finally, they provided that derivative works produced with the consent of the original author would be considered new works entitled to copyright. Together these provisions reveal a more complicated set of theoretical premises than is commonly acknowledged. Although originality of authorship was an essential precondition of copy- [248] right, the duration of the copyright term and the extent of copyright protection rested upon the nature of the work as a whole rather than the original expression contributed by the copyright author. Moreover, the consent of the underlying author to the production of a derivative work was to be encouraged and, once given, entitled the derivative work to independence from the work upon which it was based.

The first two provisions were not included in the Copyright Act, which gave authors the right, during the full term of copyright, to create or consent to the creation of derivative works which would then enjoy their own copyright protection. But the third provision which set the conditions upon which an original author would consent and the second author would create a derivative work entitled to protection under the Copyright Act carried forward the view that the derivative copyright extended beyond the original contribution of the derivative author. Throughout the debates on the provision, the drafters of the Copyright Act evinced their understanding that the derivative copyright itself encompassed the whole derivative work. The first draft of § 7, considered by the second Conference in 1905, would have provided copyright as a new work for a derivative work "produced with the consent and authorization of the author of the original," without any restrictions on the effect of that copyright on the copyright in the original work. 2 Brylawski & Goldman, Part D, p. XXXII. By the time of the third Conference in 1906, the Register of Copyrights expressed his concern that that provision would be read too broadly, adding the proviso: "That the copyright thus secured shall not be construed to grant any exclusive right to such use of the original works, except as that may be obtained by agreement with the author or proprietor thereof." 3 id., Part E, p. LI. The implication was that, in the absence of an agreement, the author of the derivative work would have, as a matter of copyright law, a nonexclusive right "to such use of the original works."

[249] The final draft presented to Congress at the end of 1906 addressed a parallel problem that the license to use the underlying material might also detract from the rights of the underlying copyright if the derivative author did not adequately protect the material on which the copyright was subsisting. To allay this concern, the Register added the language "no such copyright shall affect the force or validity of any subsisting copyright upon the matter employed or any part thereof." 1 id., Part B, p. 15.

Two significant changes were made during the congressional hearings from 1907 through 1909, but with those exceptions the provision survived intact. First, in response to the objection that the language of § 6, codified at 17 U.S.C. § 7 (1976 ed.), in conjunction with that of § 3, codified at 17 U.S.C. § 3 (1976 ed.), would be read to give the derivative work proprietor "a new term of copyright running on this old matter of his" and, in that way, provide for perpetual copyright, 4 Brylawski & Goldman, Part J, pp. 132-138 (statement of Mr. Porterfeld); see also id., at 428, Congress limited the enforceability of the derivative copyright, adding language that publication of the dramatization would not "secure or extend copyright in such original works." § 6, 35 Stat. 1077. Second, in response to the objection that the Register's draft provision did not address with sufficient precision the possibility that failure of the derivative copyright would allow the underlying work to enter the public domain, Congress substituted the word "publication" for "copyright" in the "force or validity" clause. Congress thus made clear that it was the publication of the derivative work, not the copyright itself, that was not to "affect the force or validity of any subsisting copyright." Ibid.^[14]

[250] The legislative history confirms that the copyright in derivative works not only gives the second creative product the monopoly privileges of excluding others from the unconsented use of the new work, but also allows the creator to publish his or her own work product. The authority to produce the derivative work, which includes creative contributions by both the original author and the second artist, is dependent upon the consent of the proprietor of the underlying copyright. But once that consent has been obtained, and a derivative work has been created and copyrighted in accord with that consent, "a right of property spr[ings] into existence," Edmonds v. Stern, 248 F. 897, 898 (CA2 1918), that Congress intended to protect. Publication of the derivative work does not "affect the force or validity" of the underlying copyright except to the extent that it gives effect to the consent of the original proprietor. That owner—and in this case, the owner of a renewal of the original copyright—retains full dominion and control over all other means of exploiting that work of art, including the right to authorize other derivative works. The original copyright may have relatively little value because the creative contribution of the second artist is far more significant than the original con-[251] tribution, but that just means that the rewards for creativity are being fairly allocated between the two artists whose combined efforts produced the derivative work.

III

Nothing in § 24 requires a different result. The portion of that section dealing with copyright renewals provides:

"[T]he author of such work, if still living, or the widow, widower, or children of the author, if the author be not living, . . . shall be entitled to a renewal and extension of the copyright in such work for a further term of twenty-eight years when application for such renewal and extension shall have been made to the copyright office and duly registered therein within one year prior to the expiration of the original term of copyright." 17 U.S.C. § 24 (1976 ed.).

That statute limits the renewal rights in a copyright to the specified statutory beneficiaries, "completely dissevering the title, breaking up the continuance . . . and vesting an absolutely new title eo nomine in the persons designated." White-Smith Music Publishing Co. v. Goff, 187 F. 247, 250 (CA1 1911). Since copyright is a creature of statute and since the statute gives the author only a contingent estate, with "the widow, widower, or children" as remaindermen, the author "ha[s] only an expectancy to assign" for the second term. Miller Music Corp. v. Charles N. Daniels, Inc., 362 U.S. 373, 375, 80 S.Ct. 792, 794, 4 L.Ed.2d 804 (1960). The original author may not sell more than he owns. He may not convey the second-term rights to print or copy the underlying work or to create additional derivative works from it. See Gilliam v. American Broadcasting Cos., 538 F.2d 14, 21 (CA2 1976); G. Ricordi & Co. v. Paramount Pictures Inc., 189 F.2d 469 (CA2), cert. denied, 342 U.S. 849, 72 S.Ct. 77, 96 L.Ed. 641 (1951).^[15] Nor may the derivative author dedi-[252] cate the underlying art to the public by failing to renew his copyright. See Filmvideo Releasing Corp. v. Hastings, 668 F.2d 91, 93 (CA2 1981); Russell v. Price, 612 F.2d 1123, 1128 (CA9 1979).^[16] Even if the alienation of second-term rights would be in the author's best interest, providing funds when he is most in need, the restriction on sale of the corpus is a necessary consequence of Congress' decision to provide two terms of copyright.

Neither § 24 nor any other provision of the Act, however, expressly or by implication, prevents the author from exercising any of his other statutory rights during the original term of the copyright. The author of the underlying work may contract to sell his work at a bargain price during the original term of the copyright. That agreement would be enforceable even if performance of the contract diminished the value of the copyright to the owner of the renewal interest. Similarly, the original author may create and copyright his own derivative work; the right of an assignee or legatee to receive that work by assignment or bequest should not be limited by the interests of the owners of the renewal copyright in the underlying work. Section 1 of the Act, 17 U.S.C. § 1 (1976 ed.), gives the author the right to dramatize his own work without any apparent restriction. Such use might appear, at the time or in retrospect, to be improvident and a waste of the asset. Whatever harm the proprietor of the renewal copyright might suffer, however, is a consequence of the enjoyment by the author of the rights granted him by Congress.

The result should be no different when the author exercises his right to consent to creation of a derivative work by another. By designating derivative works as "new works" [253] that are subject to copyright and accorded the two terms applicable to original works, Congress evinced its intention that the derivative copyright not lapse upon termination of the original author's interest in the underlying copyright. The continued publication of the derivative work, after the expiration of the original term of the prior work, does not infringe any of the statutory successor's rights in the renewal copyright of the original work. The author's right to sell his derivative rights is exercised when consent is conveyed and completed when the derivative work is copyrighted. At that point, prior to the end of the first term, the right to prevent publication of the derivative work is no longer one of the bundle of rights attaching to the copyright. The further agreement to permit use of the underlying material during the renewal term does not violate § 24 because at the moment consent is given and the derivative work is created and copyrighted, a new right of property comes into existence independent of the original author's copyright estate.

As an ex post matter, it might appear that the original author could have negotiated a better contract for his consent to creation of a derivative work, but Congress in § 24 was not concerned with giving an author a second chance to renegotiate his consent to the production of a derivative work.^[17] It provided explicitly that, once consent was given, the derivative work was entitled as a matter of copyright law to treatment as a "new wor[k]." § 7. Ironically, by restricting the [254] author's ability to consent to creation of a derivative work with independent existence, the Court may make it practically impossible for the original author to sell his derivative rights late in the original term and to reap the financial and artistic advantage that comes with the creation of a derivative work.^[18] Unless § 24 is to overwhelm § 7, the consent of the original author must be given effect whether or not it intrudes into the renewal term of the original copyright.

A putative author may sell his work to a motion picture company who will have greater use for it, by becoming an employee and making the work "for hire." The 1909 Act gave the employer the right to renew the copyright in such circumstances.^[19] In addition, when an author intends that his work be used as part of a joint work, the copyright law gives the joint author common authority to exploit the underlying work and renew the copyright.^[20] The Court today [255] holds, however, that the independent entrepreneur, who does not go into the company's employ and who intends to make independent use of his work, does not also have the same right to sell his consent to produce a derivative work that can be distributed and publicly performed during the full term of its copyright protection. That result is perverse and cannot have been what Congress intended.^[21]

The critical flaw in the Court's analysis is its implicit endorsement of the Court of Appeals reasoning that:

" 'If Miller Music makes assignment of the full renewal rights in the underlying copyright unenforceable when the author dies before effecting renewal of the copyright, then a fortiori, an assignment of part of the rights in the underlying work, the right to produce a movie version, must also be unenforceable if the author dies before effecting renewal of the underlying copyright.' " Ante, at 215-216.

That reasoning would be valid if the sole basis for the protection of the derivative work were the contractual assignment of copyright, but Woolrich did not just assign the rights to produce a movie version the way an author would assign the publisher rights to copy and vend his work. Rather, he expressed his consent to production of a derivative work under § 7. The possession of a copyright on a properly created derivative work gives the proprietor rights superior to those of [256] a mere licensee. As Judge Friendly concluded, this position is entirely consistent with relevant policy considerations.^[22]

In my opinion, a fair analysis of the entire 1909 Act, with special attention to § 7, indicates that the statute embodied the same policy choice that continues to be reflected in the 1976 Act. Section 101 of the Act provides:

"A derivative work prepared under authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination, but this privilege does not extend to the preparation after the termination of other derivative works based upon the copyrighted work covered by the terminated grant." 17 U.S.C.App. § 304(c)(6)(A).

I respectfully dissent.

__________

[1] The Copyright Act of 1976 (1976 Act), 17 U.S.C. § 101 et seq. (1988 ed.), codified the definition of a " 'derivative work,' " as "a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version . . . or any other form in which a work may be recast, transformed, or adapted." § 101.

[2] Neither Miller Music nor Fred Fisher decided the question of when the renewal rights vest, i.e., whether the renewal rights vest upon commencement of the registration period, registration, or the date on which the original term expires and the renewal term begins. We have no occasion to address the issue here.

[3] Title 17 U.S.C. § 106 (1988 ed.) codifies the various rights a copyright holder possesses: "[T]he owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

"(1) to reproduce the copyrighted work in copies or phonorecords;

"(2) to prepare derivative works based upon the copyrighted work;

"(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;

"(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; and

"(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly."

__________

[1] Although the Court of Appeals determined the rights of the parties by looking to the 1909 Act, respondent now argues that the 1976 Act is applicable. At the time petitioners secured their copyright in the film in 1954, and respondent renewed his copyright in the short story in 1969, the Copyright Act of 1909 was in effect. There is no evidence that Congress in the Copyright Act of 1976 intended to abrogate rights created under the previous Act. I therefore take it as evident that while the cause of action under which respondent sues may have been created by the 1976 Act, the respective property rights of the parties are determined by the statutory grant under the 1909 Act. See Roth v. Pritikin, 710 F.2d 934, 938 (CA2), cert. denied, 464 U.S. 961, 104 S.Ct. 394, 78 L.Ed.2d 337 (1983); International Film Exchange, Ltd. v. Corinth Films, Inc., 621 F.Supp. 631 (SDNY 1985); Jaszi, When Works Collide: Derivative Motion Pictures, Underlying Rights, and the Public Interest, 28 UCLA L.Rev. 715, 746-747 (1981) (hereinafter Jaszi). Cf. 1 M. Nimmer & D. Nimmer, Nimmer on Copyright § 1.11, p. 1-96 (1989) (hereinafter Nimmer) (no explicit statement of a legislative intent to apply the current Act retroactively).

[2] Section 1 of the 1909 Act, 35 Stat. 1075, provides in pertinent part:

"That any person entitled thereto, upon complying with the provisions of this Act, shall have the exclusive right:

"(a) To print, reprint, publish, copy, and vend the copyrighted work;

. . . . .

"(d) To perform or represent the copyrighted work publicly if it be a drama . . .; and to exhibit, perform, represent, produce, or reproduce it in any manner or by any method whatsoever."

In its response to this dissent, the Court completely ignores the plain language of § 1.

[3] The Court states that this reading of § 7 is "creative," has not been adopted by any Court of Appeals in the history of the 1909 Act, and has not been argued by petitioners. Ante, at 230. Although I am flattered by this comment, I must acknowledge that the credit belongs elsewhere. In their briefs to this Court, petitioners and their amici argue that § 7 created an independent but limited copyright in the entire derivative work entitled to equal treatment with original works under the renewal and duration provisions of § 24. Brief for Petitioners 14-15, 17, 21, 29-30; Brief for Columbia Pictures Industries, Inc., et al., as Amici Curiae 11, 13, 15. That was also the central argument of Judge Friendly in his opinion for the Court of Appeals for the Second Circuit, see Rohauer v. Killiam Shows, Inc., 551 F.2d 484, 487-488, 489-490, 493-494, cert. denied, 431 U.S. 949, 97 S.Ct. 2666, 53 L.Ed.2d 266 (1977), and Judge Thompson dissenting from the panel decision below, see Abend v. MCA, Inc., 863 F.2d 1465, 1484-1487 (CA9 1988). Indeed, Judge Friendly only addressed the equities with great reservation, 551 F.2d, at 493, after "a close reading of the language of what is now § 7." Id., at 489.

[4] The drafters of the 1909 Act were well aware of the difficulty of contacting distant authors who no longer wished to enforce their copyright rights. In § 24,

for example, Congress provided that a proprietor could secure and renew copyright on a composite work when the individual contributions were not separately registered. The provision was apparently addressed to the difficulties such proprietors had previously faced in locating and obtaining the consent of authors at the time of renewal. See H.R.Rep. No. 2222, 60th Cong., 2d Sess., 15 (1909); 1 Legislative History of the 1909 Copyright Act, Part C, p. 56 (E. Brylawski & A. Goldman eds. 1976) (statement of Mr. Elder) (hereinafter Brylawski & Goldman); 5 id., Part K pp. 18-19 (statement of Mr. Putnam); id., at K77 (statement of Mr. Hale). See also Elder, Duration of Copyright, 14 Yale L.J. 417, 418 (1905). The effect of the § 7 consent requirement under the Court's reading should not only be to forbid the author of the derivative work to "employ a copyrighted work without the author's permission," ante, at 232, but also to penalize him by depriving him both of the right to use his own new material and, in theory, of the right to protect that new material against use by the public. It is most unlikely that a Congress which intended to promote the creation of literary works would have conditioned the protection of new material in an otherwise original work on "consent" of an original author who did not express the desire to protect his own work.

The Court of Appeals thought that the failure of Congress to grant an "exemption" to derivative works similar to that it granted composite works demonstrated its intention that derivative works lapse upon termination of the underlying author's copyright interest. 863 F.2d, at 1476. Section 24, however, does not exempt composite works from the renewal provision, but merely provides for their renewal by the proprietor alone when the individual contributions are not separately copyrighted. See 2 Nimmer § 9.03[B], p. 9-36. Moreover, the "author," entitled to renewal under § 24, refers back to the author of the original work and the derivative work. Congress did not need to make special provision for the derivative work in § 24 because it already did so in § 7, making it a new work "subject to copyright under the provisions of this title." 17 U.S.C. § 7 (1976 ed.).

[5] It is instructive to compare the language of § 7 to that used by Congress in 1976 to indicate that copyright in a derivative work under the new Act attached only to the new material:

"The copyright in a compilation or derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material. The copyright in such work is independent of, and does not affect or enlarge the scope, duration, ownership, or subsistence of, any copyright protection in the preexisting material." 17 U.S.C. § 103(b) (1988 ed.).

[6] I thus agree with the Court that publication of a derivative work cannot extend the scope or duration of the copyright in the original work, ante, at 234-235, and that the underlying work's copyright term exists independently of the derivative work's term. Ante, at 231-232, 235. As much is clear from the language of § 7, which extends the copyright to the entire work, but then limits the effect of that copyright. I further agree that the original author's right to "consent" to the copyright of a derivative work terminates when the statutory term of the copyright in the underlying work expires. Ante, at 235. As I explain, infra at 251-253, that result follows from the language of § 24. I do not agree, however, that the statutory right to distribute and publicly perform a derivative work that has been copyrighted with the original author's consent during the original term of the underlying work is limited by the validity and scope of the original copyright. Ante, at 235. Section 7, in conjunction with § 24, gives the derivative author two full terms of copyright in the entire derivative work both when the original work is used with the consent of the original author and when the original work is in the public domain. My conclusion thus rests upon the language of the statute. The Court's contrary assertion, that if the right to publish the derivative work extended beyond the original term of the underlying work it would "nulli[fy] the 'force' of the copyright in the 'matter employed,' " ante, at 236, simply begs the question of the extent of the original author's statutory rights. Even after the derivative work has been copyrighted, the original author retains all of his statutory rights, including the right to consent to the creation of additional derivative works during both the original and renewal terms. Moreover, even if the derivative work did derogate from the force of the original work, the provision to which the Court apparently refers states only that "publication " of a derivative work—and not consent to its creation—shall not affect the force of the copyright in the matter employed. The Court can avoid making § 7 complete surplus (and allow it to limit the rights of both the original and the derivative author) only by distorting the plain language of that provision.

[7] See, e.g., Gray v. Russell, 10 F.Cas. 1035, 1037-1038 (No. 5,728) (CC Mass.1839); Emerson v. Davies, 8 F.Cas. 615, 618-619 (No. 4,436) (CC Mass.1845); Shook v. Rankin, 21 F.Cas. 1335, 1336 (No. 12,804) (CC N.D.Ill.1875). The Court's difficulty in explaining away the language of § 7 is not surprising. The authority upon whom it almost exclusively relies, see ante, at 223, had the same difficulty, stating at one point that "[t]he statutory text was somewhat ambiguous," 1 Nimmer, p. 3-22.2, and admitting at another that under his reading of the Copyright Act the provision was largely irrelevant. See id., at 3-29, n. 17 ("[I]t is consent referred to in Sec. 7, but which would have efficacy as a matter of contract law even without Sec. 7"). At least in the Copyright Act of 1909, however, Congress knew exactly what it was doing.

[8] The Act of 1790, passed by the First Congress, provided "the sole right and liberty of printing, reprinting, publishing and vending" the copyrighted work. § 1, 1 Stat. 124. Its successor, the Act of 1831, repeated the language that the author of a copyrighted work "shall have the sole right and liberty of printing, reprinting, publishing, and vending" the work. Ch. 16, § 1, 4 Stat. 436. Benjamin Kaplan has written that the Act of 1870 constituted an "enlargement of the monopoly to cover the conversion of a work from one to another artistic medium." An Unhurried View of Copyright 32 (1967) (hereinafter Kaplan).

[9]

"By the publication of Mrs. Stowe's book, the creations of the genius and imagination of the author have become as much public property as those of Homer or Cervantes. . . . All her conceptions and inventions may be used and abused by imitators, play-rights and poetasters [They are no longer her own—those who have purchased her book, may clothe them in English doggerel, in German or Chinese prose. Her absolute dominion and property in the creations of her genius and imagination have been voluntarily relinquished.] All that now remains is the copyright of her book; the exclusive right to print, reprint and vend it, and those only can be called infringers of her rights, or pirates of her property, who are guilty of printing, publishing, importing or vending without her license, 'copies of her book.' " Stowe v. Thomas, 23 F.Cas., at 208 (footnote omitted).

It appears that at least as late as 1902, English copyright law also did not recognize that a dramatization could infringe an author's rights in a book. See E. MacGillivray, A Treatise Upon The Law of Copyright 114 (1902); see also Reade v. Conquist, 9 C.B.N.S. 755, 142 Eng.Rep. 297 (C.P.1861); Coleman v. Wathen, 5 T.R. 245, 101 Eng.Rep. 137 (K.B.1793). Even after the passage of the Act of 1870, one American commentator flatly declared: "Even if the public recitation of a book, in which copyright exists, is not made from memory, but takes the form of a public reading, from the work itself, of the whole or portions of it, this would not amount to an infringement of the author's copyright." 2 J. Morgan, Law of Literature 700-701 (1875).

[10]

"The American cases reflect no recognition that unauthorized dramatization could infringe rights in a nondramatic work until the 1870 copyright revision provided authors with the same option to reserve dramatization rights that they were afforded with respect to translation. By then, dramatizations like other derivative works—already had enjoyed almost a century of substantial independence. During this period, courts construing federal copyright statutes were willing to extend protection to them, but were reluctant to interfere with their unauthorized production." Jaszi 783.

See also Goldstein, Derivative Rights and Derivative Works in Copyright, 30 J. Copyright Society 209, 211-215 (1983).

[11] The history of the Copyright Act of 1909 is recounted in Justice Frankfurter's opinion for the Court in Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643, 652, 63 S.Ct. 773, 777, 87 L.Ed. 1055 (1943).

[12] The first draft of the copyright bill considered in 1905 provided that if the author or his assigns did not make or authorize to be made a dramatization within 10 years of the date of registration, the work could be used for dramatization by other authors. 2 Brylawski & Goldman, Part D, p. LXV. A similar provision appeared in the third draft of the bill considered by the Conference the following year, 3 id., Part E, p. XL, and in the bill submitted by the Register of Copyrights to Congress. 1 id., Part B, pp. 37-38. The provision was eventually dropped during hearings in Congress and was never adopted into law.

[13] The first draft provided identical terms for both original works of authorship and derivative works, 2 id., Part D, pp. XXXVII-XXXVIII. Successive drafts gave the copyright in the original work to the author for his life plus 50 years, but limited the copyright in a derivative work to 50 years. 3 id., Part E, pp. LIII-LIV; 1 id., Part B, pp. 34-35. The single term was rejected at a late date by Congress and the final Act eventually provided the same two-term copyright for original and derivative works. See generally B. Ringer, Renewal of Copyright (1960), reprinted as Copyright Law Revision Study No. 31, prepared for the Senate Committee on the Judiciary, 86th Cong., 2d Sess., 115-121 (1961).

[14] The amendment apparently emerged from dialogue between Mr. W.B. Hale, representative of the American Law Book Company, and Senator Smoot:

"Mr. Hale: 'There is another verbal criticism I should like to make in section 6 of the Kittredge bill, which also relates to compilations, abridgments, etc.'

"The Chairman [Senator Smoot]. 'I think it is the same in the other bills.'

"Mr. Hale. 'Yes; it is the same in all the bills. I heartily agree with and am in favor of that section; but in line 12, in lieu of the words "but no such copyright shall effect the force or validity," etc., I would prefer to substitute these words: "and the publication of any such new work shall not affect the copyright," etc. . . . Under the act, as it stands now, it says the copyright shall not affect it. I would like to meet the case of a new compiled work, within the meaning of this clause, that is not copyrighted, or where, by reason of some accident the copyright fails. That should not affect the original copyrights in the works that have entered into and formed a part of this new compiled work. It does not change the intent of this section in any way.' " 5, Brylawski & Goldman, Part K, p. 78.

[15] In Ricordi, the author of the derivative work not only produced a new derivative work, but also breached his covenant not to distribute the work, after the first term of the underlying copyright. As Justice WHITE has explained, "Ricordi merely held that the licensee of a copyright holder may not prepare a new derivative work based upon the copyrighted work after termination of the grant." Mills Music, Inc. v. Snyder, 469 U.S. 153, 183, n. 7, 105 S.Ct. 638, 655, n. 7, 83 L.Ed.2d 556 (1985) (dissenting opinion).

[16] The result follows as well from the "force and validity" clause of § 7.

[17] Congress was primarily concerned with the ability of the author to exploit his own work of authorship:

"Your committee, after full consideration, decided that it was distinctly to the advantage of the author to preserve the renewal period. It not infrequently happens that the author sells his copyright outright to a publisher for a comparatively small sum. If the work proves to be a great success and lives beyond the term of twenty-eight years, your committee felt that it should be the exclusive right of the author to take the renewal term, and the law should be framed as is the existing law, so that he could not be deprived of that right." H.R.Rep. No. 2222, 60th Cong., 2d Sess., at 14.

[18] The creation of a derivative work often is in the best interests of both the original author and his statutory successors. As one commentator has noted:

"The movie Rear Window became a selling point for anthologies containing the Woolrich story. The musical play Cats no doubt sent many people who dimly remembered the Love Song of J. Alfred Prufrock as the chief, if not the only oeuvre of T.S. Eliot to the bookstore for Old Possum's Book of Practical Cats."

Weinreb, Fair's Fair: A Comment on the Fair Use Doctrine, 103 Harv.L.Rev. 1137, 1147 (1990).

[19] See 17 U.S.C. § 24 (1976 ed.) ("[I]n the case of . . . any work copyrighted by . . . an employer for whom such work is made for hire, the proprietor of such copyright shall be entitled to a renewal and extension of the copyright in such work for the further term of twenty-eight years"). See also Ellingson, Copyright Exception for Derivative Works and the Scope of Utilization, 56 Ind.L.J. 1, 11 (1980-1981).

[20] See Shapiro, Bernstein & Co. v. Jerry Vogel Music Co., 161 F.2d 406 (CA2 1946); Edward B. Marks Music Corp. v. Jerry Vogel Music Co., 140 F.2d 266 (CA2 1944). In the "12th Street Rag" case, Shapiro, Bernstein & Co. v. Jerry Vogel Music Co., 221 F.2d 569 (CA2 1955), the Court of Appeals held that a work of music, intended originally to stand on its own as an instrumental, could become a joint work when it was later sold to a publisher who commissioned lyrics to be written for it. The decision, which would give the creator of the derivative work and the underlying author a joint interest in the derivative work, accomplishes the same result that I believe § 7 does expressly.

[21]

"The effect of the Fred Fisher [, 318 U.S. 643, 63 S.Ct. 773, 87 L.Ed. 1055 (1943),] case and other authorities is that if the author is dead when the twenty-eighth year comes round, the renewal reverts, free and clear, to his widow, children, and so forth in a fixed order of precedency; but if the author is alive in that year, the original sale holds and there is no reversion. The distinction is hard to defend and may operate in a peculiarly perverse way where on the faith of a transfer from the now-deceased author, the transferee has created a 'derivative work,' say a movie based on the original novel." Kaplan 112.

[22]

"To such extent as it may be permissible to consider policy considerations, the equities lie preponderantly in favor of the proprietor of the derivative copyright. In contrast to the situation where an assignee or licensee has done nothing more than print, publicize and distribute a copyrighted story or novel, a person who with the consent of the author has created an opera or a motion picture film will often have made contributions literary, musical and economic, as great as or greater than the original author. As pointed out in the Bricker article [Bricker, Renewal and Extension of Copyright, 29 S.Cal.L.Rev. 23, 33 (1955) ], the purchaser of derivative rights has no truly effective way to protect himself against the eventuality of the author's death before the renewal period since there is no way of telling who will be the surviving widow, children or next of kin or the executor until that date arrives. To be sure, this problem exists in equal degree with respect to assignments or licenses of underlying copyright, but in such cases there is not the countervailing consideration that large and independently copyrightable contributions will have been made by the transferee." Rohauer v. Killiam Shows, Inc., 551 F.2d 484, 493 (CA2), cert. denied, 431 U.S. 949, 97 S.Ct. 2666, 53 L.Ed.2d 266 (1977).

118 F.3d 199
1997 Copr.L.Dec. P 27,671, 43 U.S.P.Q.2d 1299

Donna R. HOTALING; William W. Hotaling, Jr.; James P.
Maher; Dorothy C. Sherwood, Plaintiffs-Appellants,
v.
CHURCH OF JESUS CHRIST OF LATTER-DAY SAINTS, Defendant-Appellee.

No. 96-1399.
United States Court of Appeals,
Fourth Circuit.
Argued Jan. 29, 1997.
Decided June 30, 1997.

[201] ARGUED: Hunter Craycroft Harrison, Jr., McLean, VA, for Appellants. Michael Abbott Grow, Vorys, Sater, Seymour & Pease, Washington, DC, for Appellee.

Before HALL and LUTTIG, Circuit Judges, and BUTZNER, Senior Circuit Judge.

Reversed and remanded by published opinion. Senior Judge BUTZNER wrote the majority opinion, in which Judge LUTTIG joined. Judge HALL wrote a dissenting opinion.

OPINION

BUTZNER, Senior Circuit Judge:

In this appeal we hold that a library distributes a published work, within the meaning of the Copyright Act, 17 U.S.C. §§ 101 et seq., when it places an unauthorized copy of the work in its collection, includes the copy in its catalog or index system, and makes the copy available to the public. Because the district court ruled that these actions, by themselves, were insufficient to constitute distribution, we reverse the district court's summary judgment for the library and remand this case for further proceedings.

Summary judgment is appropriate only if the record reveals no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). We review the entry of summary judgment de novo, applying the same standard as the district court. Stone v. Liberty Mutual Ins. Co., 105 F.3d 188, 191 (4th Cir.1997).

I

We present the facts in the light most favorable to the plaintiffs, Donna Hotaling, William Hotaling, Jr., James Maher, and Dorothy Sherwood (collectively the Hotalings). See Yarnevic v. Brink's, Inc., 102 F.3d 753, 756 (4th Cir.1996). The Hotalings compiled and copyrighted a number of genealogical research materials. The validity of the copyrights is not at issue at this stage of the litigation. The Hotaling research materials were published in microfiche form and marketed by All-Ireland Heritage, Inc. At some point, most likely between 1985 and 1989, the defendant, the Church of Jesus Christ of Latter-Day Saints (Church), acquired a single legitimate copy of the microfiche and added it to its main library's collection in Salt Lake City, Utah. Sometime before 1992, the Church made microfiche copies of the works without the Hotalings' permission and sent the copies to several of its branch libraries, located throughout the country. The legitimately acquired copy had a black background, and the copies that were made by the Church had purple backgrounds.

In July, 1991, Donna Hotaling learned that the Church was making copies and placing them in its branch libraries. She contacted the Church and demanded that it stop this activity. After receiving her complaint, the Church recalled and destroyed many of the copies that it had made. According to the [202] affidavits submitted by the Church, it did not make any copies after 1991, and there is no evidence to contradict that assertion.

In 1992, All-Ireland Heritage, Inc., sued the Church for copyright infringement based on the Church's copying and distribution of the Hotaling works. The district court dismissed the action because All-Ireland Heritage, Inc., did not own the copyright. As a result of the lawsuit, the Church became concerned that nine of its branch libraries might still possess copies of the Hotaling works. In October, 1993, the Church sent a memorandum to those branch libraries asking them to search their microfiche inventories for copies of the works. Six libraries found and returned one microfiche copy each. Upon receipt, the main library destroyed these copies.

In 1994, Donna Hotaling visited a branch library in Rhode Island. During her visit, she discovered a paper copy of one of the Hotaling works. According to the Rhode Island library director, a patron made the copy and left it in an infrequently used section of the library. The director had been unaware, and believes the other staff members had been unaware, of the copy's existence. When the copy was discovered, the director destroyed it. Prior to April 1992, the Rhode Island library had returned to the Church's main library the microfiche from which the patron apparently had made the paper copy.

In 1995, Donna Hotaling went to the Church's main library in Salt Lake City. There she observed that the library maintained a microfiche copy of the Hotaling works in its collection. She examined a portion of the microfiche and noticed that it had a purple background. The Church acknowledges that the single copy it keeps in its collection is one that it made. The library retained this copy, the Church explains, because the copy it originally acquired was destroyed inadvertently.

In August, 1995, the Hotalings filed this suit. Following discovery, the Church moved for summary judgment, arguing that the record did not include any evidence of an infringing act within the three year statute of limitations. The district court granted the motion, and the Hotalings appealed.

II

The applicable statute of limitations bars civil copyright actions brought more than three years after the claim accrues. 17 U.S.C. § 507(b). "A cause of action for copyright infringement accrues when one has knowledge of a violation or is chargeable with such knowledge." Roley v. New World Pictures, Ltd., 19 F.3d 479, 481 (9th Cir.1994). A party does not waive the right to sue for infringements that accrue within three years of filing by not asserting related claims that accrued beyond three years. Roley, 19 F.3d at 481 (quoting Hoey v. Dexel Systems Corp., 716 F.Supp. 222, 223 (E.D.Va.1989)). In addition, under the prevailing view, a party cannot reach back, based on acts of infringement that accrued within the limitations period, and recover for claims that accrued outside the limitations period. Id.; see also Stone v. Williams, 970 F.2d 1043, 1049-50 (2d Cir.1992); 3 M. Nimmer & D. Nimmer, Nimmer on Copyright, § 12.05 at p. 12-110 (1996); contra Taylor v. Meirick, 712 F.2d 1112, 1118-19 (7th Cir.1983).

Hotaling filed this lawsuit in August, 1995. As a result, the statute of limitations bars recovery on claims that accrued before August, 1992. It is undisputed that any claim based on the Church's copying of Hotaling's works, which ceased by 1991, or on the original distribution of those copies from the main library to the branch libraries, which took place in or before 1991, is untimely. Those claims accrued in 1991 when Hotaling learned that the Church was copying and distributing her works.

In support of its summary judgment motion, the Church argued that there is no evidence of an infringing act within the limitations period. The district court found that the evidence, construed in Hotaling's favor, showed at most that the branch libraries possessed copies within the limitations period. The court granted the motion because it concluded that, without any evidence of copying or specific instances of distribution to the public within the limitations period, Hotaling could not prevail.[203]

III

A copyright infringement is a violation of "any of the exclusive rights of the copyright owner." 17 U.S.C. § 501(a). One of those exclusive rights is the right "to distribute copies ... of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending[.]" 17 U.S.C. § 106(3). Generally, as permitted by what is known as the first-sale doctrine, the copyright owner's right to distribute a copyrighted work does not prevent the owner of a lawful copy of the work from selling, renting, lending, or otherwise disposing of the lawful copy. 17 U.S.C. § 109(a); see Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49, 52, 113 S.Ct. 1920, 1923-24, 123 L.Ed.2d 611 (1993). For example, a library may lend an authorized copy of a book that it lawfully owns without violating the copyright laws. See H.R.Rep. No. 94-1476, § 109, at 79 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5693 and excerpted following 17 U.S.C.A. § 109. However, distributing unlawful copies of a copyrighted work does violate the copyright owner's distribution right and, as a result, constitutes copyright infringement. In order to establish "distribution" of a copyrighted work, a party must show that an unlawful copy was disseminated "to the public." 17 U.S.C. § 106(3); see National Car Rental v. Computer Associates, 991 F.2d 426, 434 (8th Cir.1993); 2 Nimmer, § 8.11[A] at 8-137.

The Hotalings assert that the Church's libraries infringed their copyrights by distributing unauthorized copies of their works to the public. The libraries did not record public use of the microfiche. Consequently, the Hotalings concede that the record does not contain any evidence showing specific instances within the limitations period in which the libraries loaned the infringing copies to members of the public. But, they argue that proving the libraries held unauthorized copies in their collections, where they were available to the public, is sufficient to establish distribution within the meaning of the statute.

The Church, on the other hand, argues that holding a work in a library collection that is open to the public constitutes, at most, an offer to distribute the work. In order to establish distribution, the Church argues, the evidence would need to show that a member of the public accepted such an offer.

On this issue, we agree with the Hotalings. When a public library adds a work to its collection, lists the work in its index or catalog system, and makes the work available to the borrowing or browsing public, it has completed all the steps necessary for distribution to the public. At that point, members of the public can visit the library and use the work. Were this not to be considered distribution within the meaning of § 106(3), a copyright holder would be prejudiced by a library that does not keep records of public use, and the library would unjustly profit by its own omission.

IV

The Church argues that, even if holding a copyrighted work in a library's collection does constitute distribution within the meaning of the statute, there is no evidence showing that, within the limitations period, unauthorized copies of the Hotaling works were available to the public at any of its libraries. In response, the Hotalings point to the copy Donna Hotaling examined in Salt Lake City in 1995, the paper copy she found in Rhode Island in 1994, and the six copies that were returned and destroyed in 1993.

The Hotalings presented sufficient evidence to create a genuine issue over whether the copy Donna Hotaling examined in Salt Lake City was being distributed to the public in 1995. According to Donna Hotaling's personal observations, that copy was part of the library's collection, listed in the card file, and available to the public. In addition, she asserts that the copy she inspected had a purple background. Based on this evidence, a reasonable jury could conclude that the library held an unauthorized copy of the Hotaling works in its publicly-accessible collection within the limitations period. Because the evidence is sufficient to show that this potentially infringing copy was being distributed to the public as recently as 1995, it provides a timely basis for Hotaling's suit.

[204] Although the Church acknowledges that its sole remaining copy is not the one it originally acquired from All-Ireland Heritage, Inc., it maintains that the remaining copy does not infringe Hotaling's copyright because it is a replacement copy, authorized by 17 U.S.C. § 108. The Copyright Act does permit libraries to make a replacement copy of a copyrighted work that has been published, but only if the library "has, after a reasonable effort, determined that an unused replacement cannot be obtained at a fair price," § 108(c), and the library has complied with other pertinent provisions of § 108. Because the district court did not reach this issue, we decline to address it for the first time on appeal.

We turn next to the other copies that the Hotalings contend were distributed within the limitations period. Based on the evidence in the record, a reasonable jury could not conclude that the library distributed the Rhode Island copy to the public. According to the unrebutted affidavit of the Rhode Island library director, the paper copy was made and left behind by a library patron. Although the copy was later found in the library, there is no evidence to show that it was made part of the library's collection or listed in the library's catalog file.

Nor is there sufficient evidence to establish that the six copies returned and destroyed in 1993 were held out to the public within the limitations period. The evidence in the record does not reveal where the branch libraries found the six copies or whether those copies had been available for public use.

V

The Church asserts an alternative argument. It contends that, even if the library held an unlawful copy of the Hotaling works in its collection during the limitations period, any claim related to that copy accrued more than three years before this suit was filed in August, 1995. The Church points out that Donna Hotaling knew the libraries were adding the unlawful copies to their collections in 1991. With regard to the copy held in the main library's collection, the Church asserts that Donna Hotaling has known for several years that that copy, which had been made by the Church, was maintained in the library's collection as a replacement for the one it had purchased. In Donna Hotaling's deposition, she states that she was aware of the main library's replacement copy before 1992. Therefore, says the Church, the Hotalings action accrued prior to 1992, and the statute of limitations bars the 1995 suit.

The Church's argument is unpersuasive. "Each act of infringement is a distinct harm giving rise to an independent claim for relief." Stone v. Williams, 970 F.2d at 1049. As we decided in Part III, distribution occurs, within the meaning of § 106, when a library holds a copy in its collection, lists the copy in its card file, and makes the copy available to the public. In this respect, the Church distributed the Hotaling microfiche as late as 1995. As we explained in Part II, a copyright holder may recover for infringements that occurred within three years before suit was filed, even if earlier claims were not pursued. Roley, 19 F.3d at 481. For this reason, the statute of limitations does not present a bar to the Hotalings' remaining claim.

Moreover, even if we were to accept the Church's argument, it would not change the outcome. If, as the Church says, actual use by the public must be shown to establish distribution, no one can expect a copyright holder to prove particular instances of use by the public when the proof is impossible to produce because the infringing library has not kept records of public use. To reiterate, a copyright holder should not be prejudiced in this manner, nor should an infringer benefit from its failure to keep records. In this case, the Church's library did not record instances of public use of the Hotaling microfiche.

VI

The Hotalings presented evidence that suggests the Church distributed at its main library one potentially infringing copy of the Hotaling works to the public within the limitations period. For that reason, dismissal of [205] the suit based on the statute of limitations was inappropriate. Accordingly, we reverse and remand to the district court for adjudication of the Hotalings' surviving claim. If the district court finds that the Church complied with § 108, it should dismiss this action. If the court finds that the Church did not comply with § 108, it should conduct further proceedings on outstanding claims, including the validity of the copyright.

REVERSED AND REMANDED

K.K. HALL, Circuit Judge, dissenting:

I respectfully dissent. The statute specifically identifies the sorts of "distribution" that violate a copyright, and none of them fit this situation.

The owner of a copyright does not possess an exclusive right to "distribute" the work in any conceivable manner; instead, it has the exclusive right "to distribute copies ... of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending [.]" 17 U.S.C. § 106(3). The Church did not sell or give an infringing copy to anyone. The Church did not "rent" or "lease" a copy; indeed, the public may use the Church's libraries and all of their contents for free.

"Lending" is the only remaining candidate. Because they are for research, the libraries do not permit materials to be checked out and used by a member of the public off-premises. Do the libraries nonetheless "lend" a work each time a patron consults it? I think not. The patron might report that he "used" or "looked at" the work, but he would not likely say that it had been "lent" to him.

Moreover, in this case, the plaintiffs do not even have any evidence that anyone used or looked at an infringing copy during the limitations period. The majority suggests that such evidence might have existed had the libraries--unlike all or nearly all others--recorded each and every use of its millions of volumes. It might have, but it does not.

In closing, I should say that I have some sympathy for the result reached by the majority. A library's allowing on-premises public use of an unauthorized copy should probably infringe a copyright. Nonetheless, I believe that current law does not deem this sort of use an infringing "distribution," and that, in any event, there is no evidence of such use in this case.

I would affirm the judgment of the district court.

154 F.3d 1107

1998 Copr.L.Dec. P 27,820, 48 U.S.P.Q.2d 1026,
98 Cal. Daily Op. Serv. 7130,
98 Daily Journal D.A.R. 9859

MICRO STAR, Plaintiff-Appellant,
v.
FORMGEN INC., a corporation; GT Interactive Software Corp.;
3D Realms Entertainment, aka 3D Realms
Entertainment; DOES, 1 through 100,
inclusive., Defendants-Appellees.
MICRO STAR, Plaintiff-Appellant/Cross-Appellee,
v.
FORMGEN INC., a corporation; GT Interactive Software Corp.;
3D Realms Entertainment, aka 3D Realms
Entertainment; Does, 1 through 100,
inclusive., Defendants-Appellees/Cross-Appellants.

Nos. 96-56426, 96-56433.

United States Court of Appeals,
Ninth Circuit.

Argued and Submitted Nov. 4, 1997.
Decided Sept. 11, 1998.

[1109] Philip H. Stillman, Flynn, Sheridan, Tabb & Stillman, San Diego, CA, for plaintiff-appellant/cross-appellee.

Michael S. Oberman, Kramer, Levin, Naftalis & Frankel, New York City, for defendants-appellees/cross-appellants.

Mark E. Nebergall, Mark Traphagen, Software Publishers Association, Washington, DC, for defendants-appellees/cross-appellants.

Gail E. Markels, Interactive Digital Software Association, New York City, for defendants-appellees/cross-appellants.

Appeal from the United States District Court for the Southern District of California Marilyn L. Huff, District Judge, Presiding. D.C. No. CV-96-03435-MLH.

Before: KOZINSKI, THOMPSON^[*] and TROTT, Circuit Judges.

KOZINSKI, Circuit Judge.

Duke Nukem routinely vanquishes Octabrain and the Protozoid Slimer. But what about the dreaded Micro Star?

I

FormGen Inc., GT Interactive Software Corp. and Apogee Software, Ltd. (collectively FormGen) made, distributed and own the rights to Duke Nukem 3D (D/N-3D), an immensely popular (and very cool) computer game. D/N-3D is played from the first-person perspective; the player assumes the personality and point of view of the title character, who is seen on the screen only as a pair of hands and an occasional boot, much as one might see oneself in real life without the aid of a mirror.^[1] Players explore a futuristic city infested with evil aliens and other hazards. The goal is to zap them before they zap you, while searching for the hidden passage to the next level. The basic game comes with twenty-nine levels, each with a different combination of scenery, aliens, and other challenges. The game also includes a "Build Editor," a utility that enables players to create their own levels. With FormGen's encouragement, players frequently post levels they have created on the Internet where others can download them. Micro Star, a computer software distributor, did just that: It downloaded 300 user-created levels and stamped them onto a CD, which it then sold commercially as Nuke It (N/I). N/I is packaged in a box decorated with numerous "screen shots," pictures of what the new levels look like when played.

Micro Star filed suit in district court, seeking a declaratory judgment that N/I did not infringe on any of FormGen's copyrights. FormGen counterclaimed, seeking a preliminary injunction barring further production and distribution of N/I. Relying on Lewis Galoob Toys, Inc. v. Nintendo of Am., Inc., 964 F.2d 965 (9th Cir.1992), the district court held that N/I was not a derivative work and therefore did not infringe FormGen's copyright. The district court did, however, grant a preliminary injunction as to the screen shots, finding that N/I's packaging violated FormGen's copyright by reproducing pictures of D/N-3D characters without a license. The court rejected Micro Star's fair use claims. Both sides appeal their losses.

II

A party seeking a preliminary injunction must show "either a likelihood of success on the merits and the possibility of irreparable injury, or that serious questions going to the merits were raised and the balance of hardships tips sharply in its favor." Johnson Controls, Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173, 1174 (9th Cir.1989). Because "in a copyright infringement claim, a showing of a reasonable likelihood of success on the merits raises a presumption of irreparable harm," id., FormGen need only show a likelihood of success on the merits to get the preliminary injunction it seeks (barring the manufacture and distribution of N/I) and to preserve the preliminary injunction it already won (barring the screen shots on N/I's packaging).

III

To succeed on the merits of its claim that N/I infringes FormGen's copyright, FormGen must show (1) ownership of the copyright to D/N-3D, and (2) copying of protected expression by Micro Star. See Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330, 1335 (9th Cir.1995). FormGen's [1110] copyright registration creates a presumption of ownership, see id., and we are satisfied that FormGen has established its ownership of the copyright. We therefore focus on the latter issue.

FormGen alleges that its copyright is infringed by Micro Star's unauthorized commercial exploitation of user-created game levels. In order to understand FormGen's claims, one must first understand the way D/N-3D works. The game consists of three separate components: the game engine, the source art library and the MAP files.^[2] The game engine is the heart of the computer program; in some sense, it is the program. It tells the computer when to read data, save and load games, play sounds and project images onto the screen. In order to create the audiovisual display for a particular level, the game engine invokes the MAP file that corresponds to that level. Each MAP file contains a series of instructions that tell the game engine (and, through it, the computer) what to put where. For instance, the MAP file might say scuba gear goes at the bottom of the screen. The game engine then goes to the source art library, finds the image of the scuba gear, and puts it in just the right place on the screen.^[3] The MAP file describes the level in painstaking detail, but it does not actually contain any of the copyrighted art itself; everything that appears on the screen actually comes from the art library. Think of the game's audiovisual display as a paint-by-numbers kit. The MAP file might tell you to put blue paint in section number 565, but it doesn't contain any blue paint itself; the blue paint comes from your palette, which is the low-tech analog of the art library, while you play the role of the game engine. When the player selects one of the N/I levels, the game engine references the N/I MAP files, but still uses the D/N-3D art library to generate the images that make up that level.

FormGen points out that a copyright holder enjoys the exclusive right to prepare derivative works based on D/N-3D. See 17 U.S.C. § 106(2) (1994). According to FormGen, the audiovisual displays generated when D/N-3D is run in conjunction with the N/I CD MAP files are derivative works that infringe this exclusivity. Is FormGen right? The answer is not obvious.

The Copyright Act defines a derivative work as

a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a "derivative work."

Id. § 101. The statutory language is hopelessly overbroad, however, for "[e]very book in literature, science and art, borrows and must necessarily borrow, and use much which was well known and used before." Emerson v. Davies, 8 F. Cas. 615, 619 (C.C.D.Mass.1845) (No. 4436), quoted in 1 Nimmer on Copyright, § 3.01, at 3-2 (1997). To narrow the statute to a manageable level, we have developed certain criteria a work must satisfy in order to qualify as a derivative work. One of these is that a derivative work must exist in a "concrete or permanent form," Galoob, 964 F.2d at 967 (internal quotation marks omitted), and must substantially incorporate protected material from the preexisting work, see Litchfield v. Spielberg, 736 F.2d 1352, 1357 (9th Cir.1984). Micro Star argues that N/I is not a derivative work because the audiovisual displays generated when D/N-3D is run with N/I's MAP files are [1111] not incorporated in any concrete or permanent form, and the MAP files do not copy any of D/N-3D's protected expression. It is mistaken on both counts.

The requirement that a derivative work must assume a concrete or permanent form was recognized without much discussion in Galoob. There, we noted that all the Copyright Act's examples of derivative works took some definite, physical form and concluded that this was a requirement of the Act. See Galoob, 964 F.2d at 967-68; see also Edward G. Black & Michael H. Page, Add-On Infringements, 15 Hastings Comm/Ent. L.J. 615, 625 (1993) (noting that in Galoob the Ninth Circuit "re-examined the statutory definition of derivative works offered in section 101 and found an independent fixation requirement of sorts built into the statutory definition of derivative works"). Obviously, N/I's MAP files themselves exist in a concrete or permanent form; they are burned onto a CD-ROM. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1453 (7th Cir.1996) (computer files on a CD are fixed in a tangible medium of expression). But what about the audiovisual displays generated when D/N-3D runs the N/I MAP files--i.e., the actual game level as displayed on the screen? Micro Star argues that, because the audiovisual displays in Galoob didn't meet the "concrete or permanent form" requirement, neither do N/I's.

In Galoob, we considered audiovisual displays created using a device called the Game Genie, which was sold for use with the Nintendo Entertainment System. The Game Genie allowed players to alter individual features of a game, such as a character's strength or speed, by selectively "blocking the value for a single data byte sent by the game cartridge to the [Nintendo console] and replacing it with a new value." Galoob, 964 F.2d at 967. Players chose which data value to replace by entering a code; over a billion different codes were possible. The Game Genie was dumb; it functioned only as a window into the computer program, allowing players to temporarily modify individual aspects of the game. See Lewis Galoob Toys, Inc. v. Nintendo of Am., Inc., 780 F.Supp. 1283, 1289 (N.D.Cal.1991).

Nintendo sued, claiming that when the Game Genie modified the game system's audiovisual display, it created an infringing derivative work. We rejected this claim because "[a] derivative work must incorporate a protected work in some concrete or permanent form." Galoob, 964 F.2d at 967 (internal quotation marks omitted). The audiovisual displays generated by combining the Nintendo System with the Game Genie were not incorporated in any permanent form; when the game was over, they were gone. Of course, they could be reconstructed, but only if the next player chose to reenter the same codes.^[4]

Micro Star argues that the MAP files on N/I are a more advanced version of the Game Genie, replacing old values (the MAP files in the original game) with new values (N/I's MAP files). But, whereas the audiovisual displays created by Game Genie were never recorded in any permanent form, the audiovisual displays generated by D/N-3D from the N/I MAP files are in the MAP files themselves. In Galoob, the audiovisual display was defined by the original game cartridge, not by the Game Genie; no one could possibly say that the data values inserted by the Game Genie described the audiovisual display. In the present case the audiovisual display that appears on the computer monitor when a N/I level is played is described--in exact detail--by a N/I MAP file.

This raises the interesting question whether an exact, down to the last detail, description of an audiovisual display (and--by definition--we know that MAP files do describe audiovisual displays down to the last detail) [1112] counts as a permanent or concrete form for purposes of Galoob. We see no reason it shouldn't. What, after all, does sheet music do but describe in precise detail the way a copyrighted melody sounds? See 1 William F. Patry, Copyright Law and Practice 168 (1994) ("[A] musical composition may be embodied in sheet music...."). To be copyrighted, pantomimes and dances may be "described in sufficient detail to enable the work to be performed from that description." Id. at 243 (citing Compendium II of Copyright Office Practices § 463); see also Horgan v. Macmillan, Inc., 789 F.2d 157, 160 (2d Cir.1986). Similarly, the N/I MAP files describe the audiovisual display that is to be generated when the player chooses to play D/N-3D using the N/I levels. Because the audiovisual displays assume a concrete or permanent form in the MAP files, Galoob stands as no bar to finding that they are derivative works.

In addition, "[a] work will be considered a derivative work only if it would be considered an infringing work if the material which it has derived from a preexisting work had been taken without the consent of a copyright proprietor of such preexisting work." Mirage Editions v. Albuquerque A.R.T. Co., 856 F.2d 1341, 1343 (quoting 1 Nimmer on Copyright § 3.01 (1986)) (internal quotation marks omitted). "To prove infringement, [FormGen] must show that [D/N-3D's and N/I's audiovisual displays] are substantially similar in both ideas and expression." Litchfield v. Spielberg, 736 F.2d 1352, 1356 (9th Cir.1984) (emphasis omitted). Similarity of ideas may be shown by comparing the objective details of the works: plot, theme, dialogue, mood, setting, characters, etc. See id. Similarity of expression focuses on the response of the ordinary reasonable person, and considers the total concept and feel of the works. See id. at 1356-57. FormGen will doubtless succeed in making these showings since the audiovisual displays generated when the player chooses the N/I levels come entirely out of D/N-3D's source art library. Cf. Atari, Inc. v. North Am. Philips Consumer Elec. Corp., 672 F.2d 607, 620 (7th Cir.1982) (finding two video games substantially similar because they shared the same "total concept and feel").

Micro Star further argues that the MAP files are not derivative works because they do not, in fact, incorporate any of D/N-3D's protected expression. In particular, Micro Star makes much of the fact that the N/I MAP files reference the source art library, but do not actually contain any art files themselves. Therefore, it claims, nothing of D/N-3D's is reproduced in the MAP files. In making this argument, Micro Star misconstrues the protected work. The work that Micro Star infringes is the D/N-3D story itself--a beefy commando type named Duke who wanders around post-Apocalypse Los Angeles, shooting Pig Cops with a gun, lobbing hand grenades, searching for medkits and steroids, using a jetpack to leap over obstacles, blowing up gas tanks, avoiding radioactive slime. A copyright owner holds the right to create sequels, see Trust Co. Bank v. MGM/UA Entertainment Co., 772 F.2d 740 (11th Cir.1985), and the stories told in the N/I MAP files are surely sequels, telling new (though somewhat repetitive) tales of Duke's fabulous adventures. A book about Duke Nukem would infringe for the same reason, even if it contained no pictures.^[5]

Micro Star nonetheless claims that its use of D/N-3D's protected expression falls within the doctrine of fair use, which permits unauthorized use of copyrighted works "for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research." 17 U.S.C. § 107; see Narell v. Freeman, 872 F.2d 907, 913 (9th Cir.1989). Section 107 instructs courts "determining whether the use made of a work in any particular case is a fair use" to consider four factors: (1) the purpose and character of the use, including whether it is commercial in nature; (2) the nature of the copyrighted work; (3) the amount and substantiality of the copied material in relation to the copyrighted work as a whole; and (4) the effect of the use on the potential market for the copyrighted work. 17 U.S.C. § 107.

[1113] As a preliminary matter, Micro Star asks us to focus on the player's use of the N/I CD in evaluating the fair use claim, because-according to Micro Star-the player actually creates the derivative work. In Galoob, after we assumed for purposes of argument that the Game Genie did create derivative works, we went on to consider the fair use defense from the player's point of view. See Galoob, 964 F.2d at 970. But the fair use analysis in Galoob was not necessary and therefore is clearly dicta. More significantly, Nintendo alleged only contributory infringement--that Galoob was helping consumers create derivative works; FormGen here alleges direct infringement by Micro Star, because the MAP files encompass new Duke stories, which are themselves derivative works.

Our examination of the section 107 factors yields straightforward results. Micro Star's use of FormGen's protected expression was made purely for financial gain. While that does not end our inquiry, see Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 584, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994), "every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright." Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 451, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984).^[6] The Supreme Court has explained that the second factor, the nature of the copyrighted work, is particularly significant because "some works are closer to the core of intended copyright protection than others, with the consequence that fair use is more difficult to establish when the former works are copied." Campbell, 510 U.S. at 586, 114 S.Ct. 1164. The fair use defense will be much less likely to succeed when it is applied to fiction or fantasy creations, as opposed to factual works such as telephone listings. See United Tel. Co. v. Johnson Publ'g Co., 855 F.2d 604, 609 (8th Cir.1988); see also Stewart v. Abend, 495 U.S. 207, 237, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990). Duke Nukem's world is made up of aliens, radioactive slime and freezer weapons-clearly fantasies, even by Los Angeles standards. N/I MAP files "expressly use[ ] the [D/N-3D] story's unique setting, characters, [and] plot," Stewart, 495 U.S. at 238, 110 S.Ct. 1750; both the quantity and importance of the material Micro Star used are substantial. Finally, by selling N/I, Micro Star "impinged on [FormGen's] ability to market new versions of the [D/N-3D] story." Stewart, 495 U.S. at 238, 110 S.Ct. 1750; see also Twin Peaks Productions, Inc. v. Publications Int'l, Ltd., 996 F.2d 1366, 1377 (2d Cir.1993). Only FormGen has the right to enter that market; whether it chooses to do so is entirely its business. "[N/I] neither falls into any of the categories enumerated in section 107 nor meets the four criteria set forth in section 107." Stewart, 495 U.S. at 237, 110 S.Ct. 1750. It is not protected by fair use.

Micro Star also argues that it is the beneficiary of the implicit license FormGen gave to its customers by authorizing them to create new levels. Section 204 of the Copyright Act requires the transfer of the exclusive rights granted to copyright owners (including the right to prepare derivative works) to be in writing. See 17 U.S.C. § 204(a); Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 556 (9th Cir.1990). A nonexclusive license may, however, be granted orally or implied by conduct. See Effects, 908 F.2d at 558. Nothing indicates that FormGen granted Micro Star any written license at all; nor is there evidence of a nonexclusive oral license. The only written license FormGen conceivably granted was to players who designed their own new levels, but that license contains a significant limitation: Any new levels the players create "must be offered [to others] solely for free." The parties dispute whether the license is binding, but it doesn't matter. If the license is valid, it clearly prohibits commercial distribution of levels; if it doesn't, FormGen hasn't granted any written licenses at all.^[7]

[1114] In case FormGen didn't license away its rights, Micro Star argues that, by providing the Build Editor and encouraging players to create their own levels, FormGen abandoned all rights to its protected expression. It is well settled that rights gained under the Copyright Act may be abandoned. But abandonment of a right must be manifested by some overt act indicating an intention to abandon that right. See Hampton v. Paramount Pictures Corp., 279 F.2d 100, 104 (9th Cir.1960). Given that it overtly encouraged players to make and freely distribute new levels, FormGen may indeed have abandoned its exclusive right to do the same. But abandoning some rights is not the same as abandoning all rights, and FormGen never overtly abandoned its rights to profit commercially from new levels. Indeed, FormGen warned players not to distribute the levels commercially and has actively enforced that limitation by bringing suits such as this one.

IV

Because FormGen will likely succeed at trial in proving that Micro Star has infringed its copyright, we reverse the district court's order denying a preliminary injunction and remand for entry of such an injunction. Of course, we affirm the grant of the preliminary injunction barring Micro Star from selling N/I in boxes covered with screen shots of the game. ^[8]

AFFIRMED in part, REVERSED in part, and REMANDED. Micro Star to bear costs of both appeals.

---------------

[*] Judge Thompson was drawn to replace Judge Floyd Gibson who became unavailable after the case was submitted.

[1] This form of play was pioneered by a company called id Software with its classic Wolfenstein 3D character.

[2] So-called because the files all end with the extension ".MAP". Also, no doubt, because they contain the layout for the various levels.

[3] Actually, this is all a bit metaphorical. Computer programs don't actually go anywhere or fetch anything. Rather, the game engine receives the player's instruction as to which game level to select and instructs the processor to access the MAP file corresponding to that level. The MAP file, in turn, consists of a series of instructions indicating which art images go where. When the MAP file calls for a particular art image, the game engine tells the processor to access the art library for instructions on how each pixel on the screen must be colored in order to paint that image.

[4] A low-tech example might aid understanding. Imagine a product called the Pink Screener, which consists of a big piece of pink cellophane stretched over a frame. When put in front of a television, it makes everything on the screen look pinker. Someone who manages to record the programs with this pink cast (maybe by filming the screen) would have created an infringing derivative work. But the audiovisual display observed by a person watching television through the Pink Screener is not a derivative work because it does not incorporate the modified image in any permanent or concrete form. The Game Genie might be described as a fancy Pink Screener for video games, changing a value of the game as perceived by the current player, but never incorporating the new audiovisual display into a permanent or concrete form.

[5] We note that the N/I MAP files can only be used with D/N-3D. If another game could use the MAP files to tell the story of a mousy fellow who travels through a beige maze, killing vicious saltshakers with paper-clips, then the MAP files would not incorporate the protected expression of D/N-3D because they would not be telling a D/N-3D story.

[6] Of course, transformative works have greater recourse to the fair use defense as they "lie at the heart of the fair use doctrine's guarantee of breathing space within the confines of copyright ... and the more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use." Campbell, 510 U.S. at 579, 114 S.Ct. 1164 (citations omitted). N/I can hardly be described as transformative; anything but.

[7] We would have no reason to sever the limitation from the license; the limitation is plainly stated in the User License, unambiguous, and not the least bit unreasonable. Indeed, it is precisely the sort of term we would expect to see in such a license.

[8] Micro Star raises various other claims alleging copyright misuse and abuse of the discovery process. However, nothing indicates that FormGen abused its copyright. See Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330, 1337 (9th Cir.1995). And we are at a loss to understand why Micro Star complains about the discovery process; certainly the district court did not abuse its discretion. See Sopcak v. Northern Mountain Helicopter Serv., 52 F.3d 817, 819 (9th Cir.1995).

[1153] Russell J. Frackman and Jeffrey D. Goldman, Mitchell, Silberberg & Knupp LLP, Los Angeles, CA, Jeffrey N. Mausner, Berman, Mausner & Resser, Los Angeles, CA, Daniel J. Cooper, Perfect 10, Inc., Beverly Hills, CA, for plaintiff-appellant Perfect 10, Inc.

Andrew P. Bridges and Jennifer A. Golinveaux, Winston & Strawn LLP, San Francisco, CA, Gene C. Schaerr, Winston & Strawn LLP, Washington, DC, for defendant-appellee and cross-appellant Google Inc.

Mark T. Jansen & Anthony J. Malutta, Townsend and Townsend and Crew LLP, San Francisco, CA, for defendants-appellees Amazon.com and A9.com, Inc.

Fred von Lohmann, Electronic Frontier Foundation, San Francisco, CA, for amicus curiae Electronic Frontier Foundation, American Library Association, Medical Library [1154] Association, American Association of Law Libraries, Association of Research Libraries, and Special Libraries Association in support of Google Inc.

Victor S. Perlman, of counsel, American Society of Media Photographers; Nancy E. Wolff, of counsel, Cowan, DeBaets, Abrahams & Sheppard, LLP; Robert W. Clarida and Jason D. Sanders, Cowan, Liebowitz & Latman, P.C., New York, NY, for amicus curiae American Society of Media Photographers, Inc., Picture Archive Council of America, Inc., British Association of Picture Libraries and Agencies, Inc., Stock Artists Alliance, The Graphic Artists Guild, American Society of Picture Professionals and National Press Photographers, in support of Perfect 10 on issue of Google's liability for the display of full-size images.

Eric J. Schwartz and Steven J. Metalitz, Smith & Metalitz LLP, Washington, DC, for amicus curiae Motion Picture Association of America, Inc. in support of Perfect 10.

Jonathan Band, Jonathan Band PLLC, Washington, DC, for amicus curiae Net-Coalition, Computer and Communications Industry Association, U.S. Internet Service Provider Association, Consumer Electronics Association, Home Recording Rights Coalition, Information Technology Association of America, and Internet Commerce Coalition in support of Google Inc.

Kenneth L. Doroshow and Linda J. Zirkelbach, Recording Industry Association of America, Washington, DC; Jacqueline C. Charlesworth, National Music Publishers' Association, Washington, DC; Robert W. Clarida, Richard S. Mandel and Jonathan Z. King, Cowan, Liebowitz & Latman, P.C., New York, NY, for amicus curiae Recording Industry Association of America and National Music Publishers' Association in support of neither party.

Appeal from the United States District Court for the Central District of California; A. Howard Matz, District Judge, Presiding. D.C. Nos. CV-05-04753-AHM, CV-04-09484-AHM.

Before: CYNTHIA HOLCOMB HALL, HAWKINS, and SANDRA S. IKUTA, Circuit Judges.

IKUTA, Circuit Judge:

In this appeal, we consider a copyright owner's efforts to stop an Internet search engine from facilitating access to infringing images. Perfect 10, Inc. sued Google Inc., for infringing Perfect 10's copyrighted photographs of nude models, among other claims. Perfect 10 brought a similar action against Amazon.com and its subsidiary A9.com (collectively, "Amazon.com"). The district court preliminarily enjoined Google from creating and publicly displaying thumbnail versions of Perfect 10's images, Perfect 10 v. Google, Inc., 416 F.Supp.2d 828 (C.D.Cal.2006), but did not enjoin Google from linking to third-party websites that display infringing full-size versions of Perfect 10's images. Nor did the district court preliminarily enjoin Amazon.com from giving users access to information provided by Google. Perfect 10 and Google both appeal the district court's order. We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1).^[1]

[1155] The district court handled this complex case in a particularly thoughtful and skillful manner. Nonetheless, the district court erred on certain issues, as we will further explain below. We affirm in part, reverse in part, and remand.

I

Background

Google's computers, along with millions of others, are connected to networks known collectively as the "Internet." "The Internet is a world-wide network of networks ... all sharing a common communications technology." Religious Tech. Ctr. v. Netcom On-Line Commc'n Servs., Inc., 923 F.Supp. 1231, 1238 n. 1 (N.D.Cal.1995). Computer owners can provide information stored on their computers to other users connected to the Internet through a medium called a webpage. A webpage consists of text interspersed with instructions written in Hypertext Markup Language ("HTML") that is stored in a computer. No images are stored on a webpage; rather, the HTML instructions on the webpage provide an address for where the images are stored, whether in the webpage publisher's computer or some other computer. In general, webpages are publicly available and can be accessed by computers connected to the Internet through the use of a web browser.

Google operates a search engine, a software program that automatically accesses thousands of websites (collections of webpages) and indexes them within a database stored on Google's computers. When a Google user accesses the Google website and types in a search query, Google's software searches its database for websites responsive to that search query. Google then sends relevant information from its index of websites to the user's computer. Google's search engines can provide results in the form of text, images, or videos.

The Google search engine that provides responses in the form of images is called "Google Image Search." In response to a search query, Google Image Search identifies text in its database responsive to the query and then communicates to users the images associated with the relevant text. Google's software cannot recognize and index the images themselves. Google Image Search provides search results as a webpage of small images called "thumbnails," which are stored in Google's servers. The thumbnail images are reduced, lower-resolution versions of full-sized images stored on third-party computers.

When a user clicks on a thumbnail image, the user's browser program interprets HTML instructions on Google's webpage. These HTML instructions direct the user's browser to cause a rectangular area (a "window") to appear on the user's computer screen. The window has two separate areas of information. The browser fills the top section of the screen with information from the Google webpage, including the thumbnail image and text. The HTML instructions also give the user's browser the address of the website publisher's computer that stores the full-size version of the thumbnail.^[2] By following [1156] the HTML instructions to access the third-party webpage, the user's browser connects to the website publisher's computer, downloads the full-size image, and makes the image appear at the bottom of the window on the user's screen. Google does not store the images that fill this lower part of the window and does not communicate the images to the user; Google simply provides HTML instructions directing a user's browser to access a third-party website. However, the top part of the window (containing the information from the Google webpage) appears to frame and comment on the bottom part of the window. Thus, the user's window appears to be filled with a single integrated presentation of the full-size image, but it is actually an image from a third-party website framed by information from Google's website. The process by which the webpage directs a user's browser to incorporate content from different computers into a single window is referred to as "in-line linking." Kelly v. Arriba Soft Corp., 336 F.3d 811, 816 (9th Cir.2003). The term "framing" refers to the process by which information from one computer appears to frame and annotate the in-line linked content from another computer. Perfect 10, 416 F.Supp.2d at 833-34.

Google also stores webpage content in its cache.^[3] For each cached webpage, Google's cache contains the text of the webpage as it appeared at the time Google indexed the page, but does not store images from the webpage. Id. at 833. Google may provide a link to a cached webpage in response to a user's search query. However, Google's cache version of the webpage is not automatically updated when the webpage is revised by its owner. So if the webpage owner updates its webpage to remove the HTML instructions for finding an infringing image, a browser communicating directly with the webpage would not be able to access that image. However, Google's cache copy of the webpage would still have the old HTML instructions for the infringing image. Unless the owner of the computer changed the HTML address of the infringing image, or otherwise rendered the image unavailable, a browser accessing Google's cache copy of the website could still access the image where it is stored on the website publisher's computer. In other words, Google's cache copy could provide a user's browser with valid directions to an infringing image even though the updated webpage no longer includes that infringing image.

In addition to its search engine operations, Google generates revenue through a business program called "AdSense." Under this program, the owner of a website can register with Google to become an AdSense "partner." The website owner then places HTML instructions on its webpages that signal Google's server to place advertising on the webpages that is relevant to the webpages' content. Google's computer program selects the advertising automatically by means of an algorithm. AdSense participants agree to share the revenues that flow from such advertising with Google.

[1157] Google also generated revenues through an agreement with Amazon.com that allowed Amazon.com to in-line link to Google's search results. Amazon.com gave its users the impression that Amazon.com was providing search results, but Google communicated the search results directly to Amazon.com's users. Amazon.com routed users' search queries to Google and automatically transmitted Google's responses (i.e., HTML instructions for linking to Google's search results) back to its users.

Perfect 10 markets and sells copyrighted images of nude models. Among other enterprises, it operates a subscription website on the Internet. Subscribers pay a monthly fee to view Perfect 10 images in a "members' area" of the site. Subscribers must use a password to log into the members' area. Google does not include these password-protected images from the members' area in Google's index or database. Perfect 10 has also licensed Fonestarz Media Limited to sell and distribute Perfect 10's reduced-size copyrighted images for download and use on cell phones.

Some website publishers republish Perfect 10's images on the Internet without authorization. Once this occurs, Google's search engine may automatically index the webpages containing these images and provide thumbnail versions of images in response to user inquiries. When a user clicks on the thumbnail image returned by Google's search engine, the user's browser accesses the third-party webpage and in-line links to the full-sized infringing image stored on the website publisher's computer. This image appears, in its original context, on the lower portion of the window on the user's computer screen framed by information from Google's webpage.

Procedural History. In May 2001, Perfect 10 began notifying Google that its thumbnail images and in-line linking to the full-size images infringed Perfect 10's copyright. Perfect 10 continued to send these notices through 2005.

On November 19, 2004, Perfect 10 filed an action against Google that included copyright infringement claims. This was followed by a similar action against Amazon.com on June 29, 2005. On July 1, 2005 and August 24, 2005, Perfect 10 sought a preliminary injunction to prevent Amazon.com and Google, respectively, from "copying, reproducing, distributing, publicly displaying, adapting or otherwise infringing, or contributing to the infringement" of Perfect 10's photographs; linking to websites that provide full-size infringing versions of Perfect 10's photographs; and infringing Perfect 10's username/password combinations.

The district court consolidated the two actions and heard both preliminary injunction motions on November 7, 2005. The district court issued orders granting in part and denying in part the preliminary injunction against Google and denying the preliminary injunction against Amazon.com. Perfect 10 and Google cross-appealed the partial grant and partial denial of the preliminary injunction motion, and Perfect 10 appealed the denial of the preliminary injunction against Amazon.com. On June 15, 2006, the district court temporarily stayed the preliminary injunction.

II

Standard of Review

We review the district court's grant or denial of a preliminary injunction for an abuse of discretion. A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir.2001). The district court must support a preliminary injunction with findings of fact, which we review for clear error. Earth Island Inst. v. U.S. Forest Serv., 442 F.3d 1147, 1156 (9th Cir.2006). We review the district court's conclusions of law de novo. Napster, 239 F.3d at 1013.

[1158] Section 502(a) of the Copyright Act authorizes a court to grant injunctive relief "on such terms as it may deem reasonable to prevent or restrain infringement of a copyright." 17 U.S.C. § 502(a). "Preliminary injunctive relief is available to a party who demonstrates either: (1) a combination of probable success on the merits and the possibility of irreparable harm; or (2) that serious questions are raised and the balance of hardships tips in its favor. These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." Napster, 239 F.3d at 1013 (internal quotation and citation omitted).

Because Perfect 10 has the burden of showing a likelihood of success on the merits, the district court held that Perfect 10 also had the burden of demonstrating a likelihood of overcoming Google's fair use defense under 17 U.S.C. § 107. Perfect 10, 416 F.Supp.2d at 836-37. This ruling was erroneous. At trial, the defendant in an infringement action bears the burden of proving fair use. See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 590, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994). Because "the burdens at the preliminary injunction stage track the burdens at trial," once the moving party has carried its burden of showing a likelihood of success on the merits, the burden shifts to the non-moving party to show a likelihood that its affirmative defense will succeed. Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 418, 429, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006); see also Abbott Labs. v. Andrx Pharms., Inc., 473 F.3d 1196, 1201 (Fed. Cir.2007) (to defeat a motion for preliminary injunctive relief in a patent infringement case, the non-moving party must establish a likelihood of success in proving its defenses of invalidity or unenforceability); PHG Techs., LLC v. St. John Cos., 469 F.3d 1361, 1365 (Fed.Cir.2006). Accordingly, once Perfect 10 has shown a likelihood of success on the merits, the burden shifts to Google to show a likelihood that its affirmative defenses will succeed.

In addition to its fair use defense, Google also raises an affirmative defense under title II of the Digital Millennium Copyright Act ("DMCA"), 17 U.S.C. § 512. Congress enacted title II of the DMCA "to provide greater certainty to service providers concerning their legal exposure for infringements that may occur in the course of their activities." Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004) (internal quotation omitted). Sections 512(a) through (d) limit liability for (respectively): "(1) transitory digital network communications; (2) system caching; (3) information residing on systems or networks at the direction of users; and (4) information location tools." Id. at 1077. A service provider that qualifies for such protection is not liable for monetary relief and may be subject only to the narrow injunctive relief set forth in section 512(j). 17 U.S.C. § 512(a). If Perfect 10 demonstrates a likelihood of success on the merits, Google must show a likelihood of succeeding in its claim that it qualifies for protection under title II of the DMCA.^[4][1159]

III

Direct Infringement

Perfect 10 claims that Google's search engine program directly infringes two exclusive rights granted to copyright holders: its display rights and its distribution rights.^[5] "Plaintiffs must satisfy two requirements to present a prima facie case of direct infringement: (1) they must show ownership of the allegedly infringed material and (2) they must demonstrate that the alleged infringers violate at least one exclusive right granted to copyright holders under 17 U.S.C. § 106." Napster, 239 F.3d at 1013; see 17 U.S.C. § 501(a). Even if a plaintiff satisfies these two requirements and makes a prima facie case of direct infringement, the defendant may avoid liability if it can establish that its use of the images is a "fair use" as set forth in 17 U.S.C. § 107. See Kelly, 336 F.3d at 817.

Perfect 10's ownership of at least some of the images at issue is not disputed. See Perfect 10, 416 F.Supp.2d at 836.

The district court held that Perfect 10 was likely to prevail in its claim that Google violated Perfect 10's display right with respect to the infringing thumbnails. Id. at 844. However, the district court concluded that Perfect 10 was not likely to prevail on its claim that Google violated either Perfect 10's display or distribution right with respect to its full-size infringing images. Id. at 844-45. We review these rulings for an abuse of discretion. Napster, 239 F.3d at 1013.

A. Display Right

In considering whether Perfect 10 made a prima facie case of violation of its display right, the district court reasoned that a computer owner that stores an image as electronic information and serves that electronic information directly to the user ("i.e., physically sending ones and zeroes over the [I]nternet to the user's browser," Perfect 10, 416 F.Supp.2d at 839) is displaying the electronic information in violation of a copyright holder's exclusive display right. Id. at 843-45; see 17 U.S.C. § 106(5). Conversely, the owner of a computer that does not store and serve the electronic information to a user is not displaying that information, even if such owner in-line links to or frames the electronic information. Perfect 10, 416 F.Supp.2d at 843-45. The district court referred to this test as the "server test." Id. at 838-39.

Applying the server test, the district court concluded that Perfect 10 was likely to succeed in its claim that Google's thumbnails constituted direct infringement but was unlikely to succeed in its claim that Google's in-line linking to full-size infringing images constituted a direct infringement. [1160] Id. at 843-45. As explained below, because this analysis comports with the language of the Copyright Act, we agree with the district court's resolution of both these issues.

We have not previously addressed the question when a computer displays a copyrighted work for purposes of section 106(5). Section 106(5) states that a copyright owner has the exclusive right "to display the copyrighted work publicly." The Copyright Act explains that "display" means "to show a copy of it, either directly or by means of a film, slide, television image, or any other device or process...." 17 U.S.C. § 101. Section 101 defines "copies" as "material objects, other than phonorecords, in which a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." Id. Finally, the Copyright Act provides that "[a] work is `fixed' in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration." Id.

We must now apply these definitions to the facts of this case. A photographic image is a work that is "`fixed' in a tangible medium of expression," for purposes of the Copyright Act, when embodied (i.e., stored) in a computer's server (or hard disk, or other storage device). The image stored in the computer is the "copy" of the work for purposes of copyright law. See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 517-18 (9th Cir.1993) (a computer makes a "copy" of a software program when it transfers the program from a third party's computer (or other storage device) into its own memory, because the copy of the program recorded in the computer is "fixed" in a manner that is "sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration" (quoting 17 U.S.C. § 101)). The computer owner shows a copy "by means of a ... device or process" when the owner uses the computer to fill the computer screen with the photographic image stored on that computer, or by communicating the stored image electronically to another person's computer. 17 U.S.C. § 101. In sum, based on the plain language of the statute, a person displays a photographic image by using a computer to fill a computer screen with a copy of the photographic image fixed in the computer's memory. There is no dispute that Google's computers store thumbnail versions of Perfect 10's copyrighted images and communicate copies of those thumbnails to Google's users.^[6] Therefore, Perfect 10 has made a prima facie case that Google's communication of its stored thumbnail images directly infringes Perfect 10's display right.

Google does not, however, display a copy of full-size infringing photographic images for purposes of the Copyright Act when Google frames in-line linked images that appear on a user's computer screen. Because Google's computers do not store the photographic images, Google does not have a copy of the images for purposes of the Copyright Act. In other words, Google does not have any "material objects ... in [1161] which a work is fixed ... and from which the work can be perceived, reproduced, or otherwise communicated" and thus cannot communicate a copy. 17 U.S.C. § 101.

Instead of communicating a copy of the image, Google provides HTML instructions that direct a user's browser to a website publisher's computer that stores the full-size photographic image. Providing these HTML instructions is not equivalent to showing a copy. First, the HTML instructions are lines of text, not a photographic image. Second, HTML instructions do not themselves cause infringing images to appear on the user's computer screen. The HTML merely gives the address of the image to the user's browser. The browser then interacts with the computer that stores the infringing image. It is this interaction that causes an infringing image to appear on the user's computer screen. Google may facilitate the user's access to infringing images. However, such assistance raises only contributory liability issues, see Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 929-30, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005), Napster, 239 F.3d at 1019, and does not constitute direct infringement of the copyright owner's display rights.

Perfect 10 argues that Google displays a copy of the full-size images by framing the full-size images, which gives the impression that Google is showing the image within a single Google webpage. While in-line linking and framing may cause some computer users to believe they are viewing a single Google webpage, the Copyright Act, unlike the Trademark Act, does not protect a copyright holder against acts that cause consumer confusion. Cf. 15 U.S.C. § 1114(1) (providing that a person who uses a trademark in a manner likely to cause confusion shall be liable in a civil action to the trademark registrant).^[7]

Nor does our ruling that a computer owner does not display a copy of an image when it communicates only the HTML address of the copy erroneously collapse the display right in section 106(5) into the reproduction right set forth in section 106(1). Nothing in the Copyright Act prevents the various rights protected in section 106 from overlapping. Indeed, under some circumstances, more than one right must be infringed in order for an infringement claim to arise. For example, a "Game Genie" device that allowed a player to alter features of a Nintendo computer game did not infringe Nintendo's right to prepare derivative works because the Game Genie did not incorporate any portion of the game itself. See Lewis Galoob Toys, Inc. v. Nintendo of Am., Inc., 964 F.2d 965, 967 (9th Cir.1992). We held that a copyright holder's right to create derivative works is not infringed unless the alleged derivative work "incorporate[s] a protected work in some concrete or permanent `form.'" Id. In other words, in some contexts, the claimant must be able to claim infringement of its reproduction right in order to claim infringement of its right to prepare derivative works.

[1162] Because Google's cache merely stores the text of webpages, our analysis of whether Google's search engine program potentially infringes Perfect 10's display and distribution rights is equally applicable to Google's cache. Perfect 10 is not likely to succeed in showing that a cached webpage that in-line links to full-size infringing images violates such rights. For purposes of this analysis, it is irrelevant whether cache copies direct a user's browser to third-party images that are no longer available on the third party's website, because it is the website publisher's computer, rather than Google's computer, that stores and displays the infringing image.

B. Distribution Right

The district court also concluded that Perfect 10 would not likely prevail on its claim that Google directly infringed Perfect 10's right to distribute its full-size images. Perfect 10, 416 F.Supp.2d at 844-45. The district court reasoned that distribution requires an "actual dissemination" of a copy. Id. at 844. Because Google did not communicate the full-size images to the user's computer, Google did not distribute these images. Id.

Again, the district court's conclusion on this point is consistent with the language of the Copyright Act. Section 106(3) provides that the copyright owner has the exclusive right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending." 17 U.S.C. § 106(3). As noted, "copies" means "material objects ... in which a work is fixed." 17 U.S.C. § 101. The Supreme Court has indicated that in the electronic context, copies may be distributed electronically. See N.Y. Times Co. v. Tasini, 533 U.S. 483, 498, 121 S.Ct. 2381, 150 L.Ed.2d 500 (2001) (a computer database program distributed copies of newspaper articles stored in its computerized database by selling copies of those articles through its database service). Google's search engine communicates HTML instructions that tell a user's browser where to find full-size images on a website publisher's computer, but Google does not itself distribute copies of the infringing photographs. It is the website publisher's computer that distributes copies of the images by transmitting the photographic image electronically to the user's computer. As in Tasini, the user can then obtain copies by downloading the photo or printing it.

Perfect 10 incorrectly relies on Hotaling v. Church of Jesus Christ of Latter-Day Saints and Napster for the proposition that merely making images "available" violates the copyright owner's distribution right. Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199 (4th Cir.1997); Napster, 239 F.3d 1004. Hotaling held that the owner of a collection of works who makes them available to the public may be deemed to have distributed copies of the works. Hotaling, 118 F.3d at 203. Similarly, the distribution rights of the plaintiff copyright owners were infringed by Napster users (private individuals with collections of music files stored on their home computers) when they used the Napster software to make their collections available to all other Napster users. Napster, 239 F.3d at 1011-14.

This "deemed distribution" rule does not apply to Google. Unlike the participants in the Napster system or the library in Hotaling, Google does not own a collection of Perfect 10's full-size images and does not communicate these images to the computers of people using Google's search engine. Though Google indexes these images, it does not have a collection of stored full-size images it makes available to the public. Google therefore cannot be deemed to distribute copies of these images under the reasoning of Napster or [1163] Hotaling. Accordingly, the district court correctly concluded that Perfect 10 does not have a likelihood of success in proving that Google violates Perfect 10's distribution rights with respect to full-size images.

C. Fair Use Defense

Because Perfect 10 has succeeded in showing it would prevail in its prima facie case that Google's thumbnail images infringe Perfect 10's display rights, the burden shifts to Google to show that it will likely succeed in establishing an affirmative defense. Google contends that its use of thumbnails is a fair use of the images and therefore does not constitute an infringement of Perfect 10's copyright. See 17 U.S.C. § 107.

The fair use defense permits the use of copyrighted works without the copyright owner's consent under certain situations. The defense encourages and allows the development of new ideas that build on earlier ones, thus providing a necessary counterbalance to the copyright law's goal of protecting creators' work product. "From the infancy of copyright protection, some opportunity for fair use of copyrighted materials has been thought necessary to fulfill copyright's very purpose...." Campbell, 510 U.S. at 575, 114 S.Ct. 1164. "The fair use doctrine thus `permits [and requires] courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster.'" Id. at 577, 114 S.Ct. 1164 (quoting Stewart v. Abend, 495 U.S. 207, 236, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990)) (alteration in original).

Congress codified the common law of fair use in 17 U.S.C. § 107, which provides:

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.

17 U.S.C. § 107.

We must be flexible in applying a fair use analysis; it "is not to be simplified with bright-line rules, for the statute, like the doctrine it recognizes, calls for case-by-case analysis.... Nor may the four statutory factors be treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright." Campbell, 510 U.S. at 577-78, 114 S.Ct. 1164; see also Kelly, 336 F.3d at 817-18. The purpose of copyright law is "[t]o promote the Progress of Science and useful Arts," U.S. CONST. art. I, § 8, cl. 8, and to serve "`the welfare of the public.'" Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 n. 10, 104 S.Ct. 774, 78 L.Ed.2d 574 (quoting H.R.Rep. No. 2222, 60th Cong., 2d Sess. 7 (1909)).

[1164] In applying the fair use analysis in this case, we are guided by Kelly v. Arriba Soft Corp., which considered substantially the same use of copyrighted photographic images as is at issue here. See 336 F.3d 811. In Kelly, a photographer brought a direct infringement claim against Arriba, the operator of an Internet search engine. The search engine provided thumbnail versions of the photographer's images in response to search queries. Id. at 815-16. We held that Arriba's use of thumbnail images was a fair use primarily based on the transformative nature of a search engine and its benefit to the public. Id. at 818-22. We also concluded that Arriba's use of the thumbnail images did not harm the photographer's market for his image. Id. at 821-22.

In this case, the district court determined that Google's use of thumbnails was not a fair use and distinguished Kelly. Perfect 10, 416 F.Supp.2d at 845-51. We consider these distinctions in the context of the four-factor fair use analysis.

Purpose and character of the use. The first factor, 17 U.S.C. § 107(1), requires a court to consider "the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes." The central purpose of this inquiry is to determine whether and to what extent the new work is "transformative." Campbell, 510 U.S. at 579, 114 S.Ct. 1164. A work is "transformative" when the new work does not "merely supersede the objects of the original creation" but rather "adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message." Id. (internal quotation and alteration omitted). Conversely, if the new work "supersede[s] the use of the original," the use is likely not a fair use. Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 550-51, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985) (internal quotation omitted) (publishing the "heart" of an unpublished work and thus supplanting the copyright holder's first publication right was not a fair use); see also Wall Data Inc. v. L.A. County Sheriff's Dep't, 447 F.3d 769, 778-82 (9th Cir.2006) (using a copy to save the cost of buying additional copies of a computer program was not a fair use).^[8]

As noted in Campbell, a "transformative work" is one that alters the original work [1165] "with new expression, meaning, or message." Campbell, 510 U.S. at 579, 114 S.Ct. 1164. "A use is considered transformative only where a defendant changes a plaintiff's copyrighted work or uses the plaintiff's copyrighted work in a different context such that the plaintiff's work is transformed into a new creation." Wall Data, 447 F.3d at 778.

Google's use of thumbnails is highly transformative. In Kelly, we concluded that Arriba's use of thumbnails was transformative because "Arriba's use of the images serve[d] a different function than Kelly's use—improving access to information on the [I]nternet versus artistic expression." Kelly, 336 F.3d at 819. Although an image may have been created originally to serve an entertainment, aesthetic, or informative function, a search engine transforms the image into a pointer directing a user to a source of information. Just as a "parody has an obvious claim to transformative value" because "it can provide social benefit, by shedding light on an earlier work, and, in the process, creating a new one," Campbell, 510 U.S. at 579, 114 S.Ct. 1164, a search engine provides social benefit by incorporating an original work into a new work, namely, an electronic reference tool. Indeed, a search engine may be more transformative than a parody because a search engine provides an entirely new use for the original work, while a parody typically has the same entertainment purpose as the original work. See, e.g., id. at 594-96, 114 S.Ct. 1164 (holding that 2 Live Crew's parody of "Oh, Pretty Woman" using the words "hairy woman" or "bald headed woman" was a transformative work, and thus constituted a fair use); Mattel, Inc. v. Walking Mountain Prods., 353 F.3d 792, 796-98, 800-06 (9th Cir.2003) (concluding that photos parodying Barbie by depicting "nude Barbie dolls juxtaposed with vintage kitchen appliances" was a fair use). In other words, a search engine puts images "in a different context" so that they are "transformed into a new creation." Wall Data, 447 F.3d at 778.

The fact that Google incorporates the entire Perfect 10 image into the search engine results does not diminish the transformative nature of Google's use. As the district court correctly noted, Perfect 10, 416 F.Supp.2d at 848-49, we determined in Kelly that even making an exact copy of a work may be transformative so long as the copy serves a different function than the original work, Kelly, 336 F.3d at 818-19. For example, the First Circuit has held that the republication of photos taken for a modeling portfolio in a newspaper was transformative because the photos served to inform, as well as entertain. See Nunez v. Caribbean Int'l News Corp., 235 F.3d 18, 22-23 (1st Cir.2000). In contrast, duplicating a church's religious book for use by a different church was not transformative. See Worldwide Church of God v. Phila. Church of God, Inc., 227 F.3d 1110, 1117 (9th Cir.2000). Nor was a broadcaster's simple retransmission of a radio broadcast over telephone lines transformative, where the original radio shows were given no "new expression, meaning, or message." Infinity Broad. Corp. v. Kirkwood, 150 F.3d 104, 108 (2d Cir.1998). Here, Google uses Perfect 10's images in a new context to serve a different purpose.

The district court nevertheless determined that Google's use of thumbnail images was less transformative than Arriba's use of thumbnails in Kelly because Google's use of thumbnails superseded Perfect 10's right to sell its reduced-size images for use on cell phones. See Perfect 10, 416 F.Supp.2d at 849. The district court stated that "mobile users can download and save the thumbnails displayed by Google Image Search onto their phones," and concluded "to the extent that users may choose to download free images to their [1166] phone rather than purchase [Perfect 10's] reduced-size images, Google's use supersedes [Perfect 10's]." Id.

Additionally, the district court determined that the commercial nature of Google's use weighed against its transformative nature. Id. Although Kelly held that the commercial use of the photographer's images by Arriba's search engine was less exploitative than typical commercial use, and thus weighed only slightly against a finding of fair use, Kelly, 336 F.3d at 818-20, the district court here distinguished Kelly on the ground that some website owners in the AdSense program had infringing Perfect 10 images on their websites, Perfect 10, 416 F.Supp.2d at 846-47. The district court held that because Google's thumbnails "lead users to sites that directly benefit Google's bottom line," the AdSense program increased the commercial nature of Google's use of Perfect 10's images. Id. at 847.

In conducting our case-specific analysis of fair use in light of the purposes of copyright, Campbell, 510 U.S. at 581, 114 S.Ct. 1164, we must weigh Google's superseding and commercial uses of thumbnail images against Google's significant transformative use, as well as the extent to which Google's search engine promotes the purposes of copyright and serves the interests of the public. Although the district court acknowledged the "truism that search engines such as Google Image Search provide great value to the public," Perfect 10, 416 F.Supp.2d at 848-49, the district court did not expressly consider whether this value outweighed the significance of Google's superseding use or the commercial nature of Google's use. Id. at 849. The Supreme Court, however, has directed us to be mindful of the extent to which a use promotes the purposes of copyright and serves the interests of the public. See Campbell, 510 U.S. at 579, 114 S.Ct. 1164; Harper & Row, 471 U.S. at 556-57, 105 S.Ct. 2218; Sony, 464 U.S. at 431-32, 104 S.Ct. 774.

We note that the superseding use in this case is not significant at present: the district court did not find that any downloads for mobile phone use had taken place. See Perfect 10, 416 F.Supp.2d at 849. Moreover, while Google's use of thumbnails to direct users to AdSense partners containing infringing content adds a commercial dimension that did not exist in Kelly, the district court did not determine that this commercial element was significant. See id. at 848-49. The district court stated that Google's AdSense programs as a whole contributed "$630 million, or 46% of total revenues" to Google's bottom line, but noted that this figure did not "break down the much smaller amount attributable to websites that contain infringing content." Id. at 847 & n. 12 (internal quotation omitted).

We conclude that the significantly transformative nature of Google's search engine, particularly in light of its public benefit, outweighs Google's superseding and commercial uses of the thumbnails in this case. In reaching this conclusion, we note the importance of analyzing fair use flexibly in light of new circumstances. Sony, 464 U.S. at 431-32, 104 S.Ct. 774; id. at 448 n. 31, 104 S.Ct. 774 ("`[Section 107] endorses the purpose and general scope of the judicial doctrine of fair use, but there is no disposition to freeze the doctrine in the statute, especially during a period of rapid technological change.'" (quoting H.R.Rep. No. 94-1476, p. 65-66 (1976), U.S.Code Cong. & Admin. News 1976, p. 5680)). We are also mindful of the Supreme Court's direction that "the more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use." Campbell, 510 U.S. at 579, 114 S.Ct. 1164.

[1167] Accordingly, we disagree with the district court's conclusion that because Google's use of the thumbnails could supersede Perfect 10's cell phone download use and because the use was more commercial than Arriba's, this fair use factor weighed "slightly" in favor of Perfect 10. Perfect 10, 416 F.Supp.2d at 849. Instead, we conclude that the transformative nature of Google's use is more significant than any incidental superseding use or the minor commercial aspects of Google's search engine and website. Therefore, this factor weighs heavily in favor of Google.

The nature of the copyrighted work. With respect to the second factor, "the nature of the copyrighted work," 17 U.S.C. § 107(2), our decision in Kelly is directly on point. There we held that the photographer's images were "creative in nature" and thus "closer to the core of intended copyright protection than are more fact-based works." Kelly, 336 F.3d at 820 (internal quotation omitted). However, because the photos appeared on the Internet before Arriba used thumbnail versions in its search engine results, this factor weighed only slightly in favor of the photographer. Id.

Here, the district court found that Perfect 10's images were creative but also previously published. Perfect 10, 416 F.Supp.2d at 850. The right of first publication is "the author's right to control the first public appearance of his expression." Harper & Row, 471 U.S. at 564, 105 S.Ct. 2218. Because this right encompasses "the choices of when, where, and in what form first to publish a work," id., an author exercises and exhausts this one-time right by publishing the work in any medium. See, e.g., Batjac Prods. Inc. v. Good-Times Home Video Corp., 160 F.3d 1223, 1235 (9th Cir.1998) (noting, in the context of the common law right of first publication, that such a right "does not entail multiple first publication rights in every available medium"). Once Perfect 10 has exploited this commercially valuable right of first publication by putting its images on the Internet for paid subscribers, Perfect 10 is no longer entitled to the enhanced protection available for an unpublished work. Accordingly the district court did not err in holding that this factor weighed only slightly in favor of Perfect 10.^[9] See Perfect 10, 416 F.Supp.2d at 849-50.

The amount and substantiality of the portion used. "The third factor asks whether the amount and substantiality of the portion used in relation to the copyrighted work as a whole ... are reasonable in relation to the purpose of the copying." Campbell, 510 U.S. at 586, 114 S.Ct. 1164 (internal quotation omitted); see also 17 U.S.C. § 107(3). In Kelly, we held Arriba's use of the entire photographic image was reasonable in light of the purpose of a search engine. Kelly, 336 F.3d at 821. Specifically, we noted, "[i]t was necessary for Arriba to copy the entire image to allow users to recognize the image and decide whether to pursue more information about the image or the originating [website]. If Arriba only copied part of the image, it would be more difficult to identify it, thereby reducing the usefulness of the visual search engine." Id. Accordingly, we concluded that this factor did not weigh in favor of either [1168] party. Id. Because the same analysis applies to Google's use of Perfect 10's image, the district court did not err in finding that this factor favored neither party.

Effect of use on the market. The fourth factor is "the effect of the use upon the potential market for or value of the copyrighted work." 17 U.S.C. § 107(4). In Kelly, we concluded that Arriba's use of the thumbnail images did not harm the market for the photographer's full-size images. See Kelly, 336 F.3d at 821-22. We reasoned that because thumbnails were not a substitute for the full-sized images, they did not harm the photographer's ability to sell or license his full-sized images. Id. The district court here followed Kelly's reasoning, holding that Google's use of thumbnails did not hurt Perfect 10's market for full-size images. See Perfect 10, 416 F.Supp.2d at 850-51. We agree.

Perfect 10 argues that the district court erred because the likelihood of market harm may be presumed if the intended use of an image is for commercial gain. However, this presumption does not arise when a work is transformative because "market substitution is at least less certain, and market harm may not be so readily inferred." Campbell, 510 U.S. at 591, 114 S.Ct. 1164. As previously discussed, Google's use of thumbnails for search engine purposes is highly transformative, and so market harm cannot be presumed.

Perfect 10 also has a market for reduced-size images, an issue not considered in Kelly. The district court held that "Google's use of thumbnails likely does harm the potential market for the downloading of [Perfect 10's] reduced-size images onto cell phones." Perfect 10, 416 F.Supp.2d at 851 (emphasis omitted). The district court reasoned that persons who can obtain Perfect 10 images free of charge from Google are less likely to pay for a download, and the availability of Google's thumbnail images would harm Perfect 10's market for cell phone downloads. Id. As we discussed above, the district court did not make a finding that Google users have downloaded thumbnail images for cell phone use. This potential harm to Perfect 10's market remains hypothetical. We conclude that this factor favors neither party.

Having undertaken a case-specific analysis of all four factors, we now weigh these factors together "in light of the purposes of copyright." Campbell, 510 U.S. at 578, 114 S.Ct. 1164; see also Kelly, 336 F.3d at 818 ("We must balance[the section 107] factors in light of the objectives of copyright law, rather than view them as definitive or determinative tests."). In this case, Google has put Perfect 10's thumbnail images (along with millions of other thumbnail images) to a use fundamentally different than the use intended by Perfect 10. In doing so, Google has provided a significant benefit to the public. Weighing this significant transformative use against the unproven use of Google's thumbnails for cell phone downloads, and considering the other fair use factors, all in light of the purpose of copyright, we conclude that Google's use of Perfect 10's thumbnails is a fair use. Because the district court here "found facts sufficient to evaluate each of the statutory factors ... [we] need not remand for further factfinding." Harper & Row, 471 U.S. at 560, 105 S.Ct. 2218 (internal quotation omitted). We conclude that Google is likely to succeed in proving its fair use defense and, accordingly, we vacate the preliminary injunction regarding Google's use of thumbnail images.

IV

Secondary Liability for Copyright Infringement

We now turn to the district court's ruling that Google is unlikely to be secondarily [1169] liable for its in-line linking to infringing full-size images under the doctrines of contributory and vicarious infringement.^[10] The district court ruled that Perfect 10 did not have a likelihood of proving success on the merits of either its contributory infringement or vicarious infringement claims with respect to the full-size images. See Perfect 10, 416 F.Supp.2d at 856, 858. In reviewing the district court's conclusions, we are guided by the Supreme Court's recent interpretation of secondary liability, namely: "[o]ne infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it." Grokster, 545 U.S. at 930, 125 S.Ct. 2764 (internal citations omitted).

Direct Infringement by Third Parties. As a threshold matter, before we examine Perfect 10's claims that Google is secondarily liable, Perfect 10 must establish that there has been direct infringement by third parties. See Napster, 239 F.3d at 1013 n. 2 ("Secondary liability for copyright infringement does not exist in the absence of direct infringement by a third party.").

Perfect 10 alleges that third parties directly infringed its images in three ways. First, Perfect 10 claims that third-party websites directly infringed its copyright by reproducing, displaying, and distributing unauthorized copies of Perfect 10's images. Google does not dispute this claim on appeal.

Second, Perfect 10 claims that individual users of Google's search engine directly infringed Perfect 10's copyrights by storing full-size infringing images on their computers. We agree with the district court's conclusion that Perfect 10 failed to provide sufficient evidence to support this claim. See Perfect 10, 416 F.Supp.2d at 852. There is no evidence in the record directly establishing that users of Google's search engine have stored infringing images on their computers, and the district court did not err in declining to infer the existence of such evidence.

Finally, Perfect 10 contends that users who link to infringing websites automatically make "cache" copies of full-size images and thereby directly infringe Perfect 10's reproduction right. The district court rejected this argument, holding that any such reproduction was likely a "fair use." Id. at 852 n. 17. The district court reasoned that "[l]ocal caching by the browsers of individual users is noncommercial, transformative, and no more than necessary to achieve the objectives of decreasing network latency and minimizing unnecessary bandwidth usage (essential to the [I]nternet). It has a minimal impact on the potential market for the original work...." Id. We agree; even assuming such automatic copying could constitute direct infringement, it is a fair use in this context. The copying function performed automatically by a user's computer to assist in accessing the Internet is a transformative use. Moreover, as noted by the district court, a cache copies no more than is necessary to assist the user in Internet use. It is designed to enhance an individual's computer use, not to supersede the copyright holders' exploitation of their works. Such automatic background copying has no more than a minimal effect on Perfect 10's rights, but a considerable public benefit. Because the four fair use factors weigh in favor of concluding that [1170] cache copying constitutes a fair use, Google has established a likelihood of success on this issue. Accordingly, Perfect 10 has not carried its burden of showing that users' cache copies of Perfect 10's full-size images constitute direct infringement.

Therefore, we must assess Perfect 10's arguments that Google is secondarily liable in light of the direct infringement that is undisputed by the parties: third-party websites' reproducing, displaying, and distributing unauthorized copies of Perfect 10's images on the Internet. Id. at 852.

A. Contributory Infringement

In order for Perfect 10 to show it will likely succeed in its contributory liability claim against Google, it must establish that Google's activities meet the definition of contributory liability recently enunciated in Grokster. Within the general rule that "[o]ne infringes contributorily by intentionally inducing or encouraging direct infringement," Grokster, 545 U.S. at 930, 125 S.Ct. 2764, the Court has defined two categories of contributory liability: "Liability under our jurisprudence may be predicated on actively encouraging (or inducing) infringement through specific acts (as the Court's opinion develops) or on distributing a product distributees use to infringe copyrights, if the product is not capable of `substantial' or `commercially significant' noninfringing uses." Id. at 942, 125 S.Ct. 2764 (Ginsburg, J., concurring) (quoting Sony, 464 U.S. at 442, 104 S.Ct. 774); see also id. at 936-37, 125 S.Ct. 2764.

Looking at the second category of liability identified by the Supreme Court (distributing products), Google relies on Sony, 464 U.S. at 442, 104 S.Ct. 774, to argue that it cannot be held liable for contributory infringement because liability does not arise from the mere sale of a product (even with knowledge that consumers would use the product to infringe) if the product is capable of substantial non-infringing use. Google argues that its search engine service is such a product. Assuming the principle enunciated in Sony is applicable to the operation of Google's search engine, then Google cannot be held liable for contributory infringement solely because the design of its search engine facilitates such infringement. Grokster, 545 U.S. at 931-32, 125 S.Ct. 2764 (discussing Sony, 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574). Nor can Google be held liable solely because it did not develop technology that would enable its search engine to automatically avoid infringing images. See id. at 939 n. 12, 125 S.Ct. 2764. However, Perfect 10 has not based its claim of infringement on the design of Google's search engine and the Sony rule does not immunize Google from other sources of contributory liability. See id. at 933-34, 125 S.Ct. 2764.

We must next consider whether Google could be held liable under the first category of contributory liability identified by the Supreme Court, that is, the liability that may be imposed for intentionally encouraging infringement through specific acts.^[11] Grokster tells us that contribution to infringement must be intentional for liability to arise. Grokster, 545 U.S. at 930, 125 S.Ct. 2764. However, Grokster also directs us to analyze contributory liability in light of "rules of fault-based liability derived from the common law," id. at 934-35, 125 S.Ct. 2764, and [1171] common law principles establish that intent may be imputed. "Tort law ordinarily imputes to an actor the intention to cause the natural and probable consequences of his conduct." DeVoto v. Pac. Fid. Life Ins. Co., 618 F.2d 1340, 1347 (9th Cir. 1980); RESTATEMENT (SECOND) OF TORTS § 8A cmt. b (1965) ("If the actor knows that the consequences are certain, or substantially certain, to result from his act, and still goes ahead, he is treated by the law as if he had in fact desired to produce the result."). When the Supreme Court imported patent law's "staple article of commerce doctrine" into the copyright context, it also adopted these principles of imputed intent. Grokster, 545 U.S. at 932, 125 S.Ct. 2764 ("The [staple article of commerce] doctrine was devised to identify instances in which it may be presumed from distribution of an article in commerce that the distributor intended the article to be used to infringe another's patent, and so may justly be held liable for that infringement."). Therefore, under Grokster, an actor may be contributorily liable for intentionally encouraging direct infringement if the actor knowingly takes steps that are substantially certain to result in such direct infringement.

Our tests for contributory liability are consistent with the rule set forth in Grokster. We have adopted the general rule set forth in Gershwin Publishing Corp. v. Columbia Artists Management, Inc., namely: "one who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a `contributory' infringer," 443 F.2d 1159, 1162 (2d Cir.1971). See Ellison, 357 F.3d at 1076; Napster, 239 F.3d at 1019; Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir.1996).

We have further refined this test in the context of cyberspace^[12] to determine when contributory liability can be imposed on a provider of Internet access or services. See Napster, 239 F.3d at 1019-20. In Napster, we considered claims that the operator of an electronic file sharing system was contributorily liable for assisting individual users to swap copyrighted music files stored on their home computers with other users of the system. Napster, 239 F.3d at 1011-13, 1019-22. We stated that "if a computer system operator learns of specific infringing material available on his system and fails to purge such material from the system, the operator knows of and contributes to direct infringement." Id. at 1021. Because Napster knew of the availability of infringing music files, assisted users in accessing such files, and failed to block access to such files, we concluded that Napster materially contributed to infringement. Id. at 1022.

The Napster test for contributory liability was modeled on the influential district court decision in Religious Technology Center v. Netcom On-Line Communication Services, Inc. (Netcom), 907 F.Supp. 1361, 1365-66 (N.D.Cal.1995). See Napster, 239 F.3d at 1021. In Netcom, a disgruntled former Scientology minister posted allegedly infringing copies of Scientological works on an electronic bulletin board service. Netcom, 907 F.Supp. at 1365-66. The messages were stored on the bulletin board operator's computer, then automatically copied onto Netcom's computer, and from there copied onto other computers comprising "a worldwide community" of electronic bulletin board systems. Id. at 1366-67 & n. 4 (internal quotation omitted). Netcom held that if plaintiffs [1172] could prove that Netcom knew or should have known that the minister infringed plaintiffs' copyrights, "Netcom [would] be liable for contributory infringement since its failure to simply cancel [the former minister's] infringing message and thereby stop an infringing copy from being distributed worldwide constitute[d] substantial participation in [the former minister's] public distribution of the message." Id. at 1374.

Although neither Napster nor Netcom expressly required a finding of intent, those cases are consistent with Grokster because both decisions ruled that a service provider's knowing failure to prevent infringing actions could be the basis for imposing contributory liability. Under such circumstances, intent may be imputed. In addition, Napster and Netcom are consistent with the longstanding requirement that an actor's contribution to infringement must be material to warrant the imposition of contributory liability. Gershwin, 443 F.2d at 1162. Both Napster and Netcom acknowledge that services or products that facilitate access to websites throughout the world can significantly magnify the effects of otherwise immaterial infringing activities. See Napster, 239 F.3d at 1022; Netcom, 907 F.Supp. at 1375. The Supreme Court has acknowledged that "[t]he argument for imposing indirect liability" is particularly "powerful" when individuals using the defendant's software could make a huge number of infringing downloads every day. Grokster, 545 U.S. at 929, 125 S.Ct. 2764. Moreover, copyright holders cannot protect their rights in a meaningful way unless they can hold providers of such services or products accountable for their actions pursuant to a test such as that enunciated in Napster. See id. at 929-30, 125 S.Ct. 2764 ("When a widely shared service or product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, the only practical alternative being to go against the distributor of the copying device for secondary liability on a theory of contributory or vicarious infringement."). Accordingly, we hold that a computer system operator can be held contributorily liable if it "has actual knowledge that specific infringing material is available using its system," Napster, 239 F.3d at 1022, and can "take simple measures to prevent further damage" to copyrighted works, Netcom, 907 F.Supp. at 1375, yet continues to provide access to infringing works.

Here, the district court held that even assuming Google had actual knowledge of infringing material available on its system, Google did not materially contribute to infringing conduct because it did not undertake any substantial promotional or advertising efforts to encourage visits to infringing websites, nor provide a significant revenue stream to the infringing websites. Perfect 10, 416 F.Supp.2d at 854-56. This analysis is erroneous. There is no dispute that Google substantially assists websites to distribute their infringing copies to a worldwide market and assists a worldwide audience of users to access infringing materials. We cannot discount the effect of such a service on copyright owners, even though Google's assistance is available to all websites, not just infringing ones. Applying our test, Google could be held contributorily liable if it had knowledge that infringing Perfect 10 images were available using its search engine, could take simple measures to prevent further damage to Perfect 10's copyrighted works, and failed to take such steps.

The district court did not resolve the factual disputes over the adequacy of Perfect 10's notices to Google and Google's responses to these notices. Moreover, there are factual disputes over whether there are reasonable and feasible means for Google to refrain from providing access [1173] to infringing images. Therefore, we must remand this claim to the district court for further consideration whether Perfect 10 would likely succeed in establishing that Google was contributorily liable for in-line linking to full-size infringing images under the test enunciated today.^[13]

B. Vicarious Infringement

Perfect 10 also challenges the district court's conclusion that it is not likely to prevail on a theory of vicarious liability against Google. Perfect 10, 416 F.Supp.2d at 856-58. Grokster states that one "infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it." Grokster, 545 U.S. at 930, 125 S.Ct. 2764. As this formulation indicates, to succeed in imposing vicarious liability, a plaintiff must establish that the defendant exercises the requisite control over the direct infringer and that the defendant derives a direct financial benefit from the direct infringement. See id. Grokster further explains the "control" element of the vicarious liability test as the defendant's "right and ability to supervise the direct infringer." Id. at 930 n. 9, 125 S.Ct. 2764. Thus, under Grokster, a defendant exercises control over a direct infringer when he has both a legal right to stop or limit the directly infringing conduct, as well as the practical ability to do so.

We evaluate Perfect 10's arguments that Google is vicariously liable in light of the direct infringement that is undisputed by the parties, namely, the third-party websites' reproduction, display, and distribution of unauthorized copies of Perfect 10's images on the Internet. Perfect 10, 416 F.Supp.2d at 852; see supra Section IV.A. In order to prevail at this preliminary injunction stage, Perfect 10 must demonstrate a likelihood of success in establishing that Google has the right and ability to stop or limit the infringing activities of third party websites. In addition, Perfect 10 must establish a likelihood of proving that Google derives a direct financial benefit from such activities. Perfect 10 has not met this burden.

With respect to the "control" element set forth in Grokster, Perfect 10 has not demonstrated a likelihood of showing that Google has the legal right to stop or limit the direct infringement of third-party websites. See Grokster, 545 U.S. at 930, 125 S.Ct. 2764. Unlike Fonovisa, where by virtue of a "broad contract" with its vendors the defendant swap meet operators had the right to stop the vendors from selling counterfeit recordings on its premises, Fonovisa, 76 F.3d at 263, Perfect 10 has not shown that Google has contracts with third-party websites that empower Google to stop or limit them from reproducing, displaying, and distributing infringing copies of Perfect 10's images on the Internet. Perfect 10 does point to Google's AdSense agreement, which states that Google reserves "the right to monitor and terminate partnerships with entities that violate others' copyright[s]." Perfect 10, 416 F.Supp.2d at 858. However, Google's right to terminate an AdSense partnership does not give Google the right to [1174] stop direct infringement by third-party websites. An infringing third-party website can continue to reproduce, display, and distribute its infringing copies of Perfect 10 images after its participation in the AdSense program has ended.

Nor is Google similarly situated to Napster. Napster users infringed the plaintiffs' reproduction and distribution rights through their use of Napster's proprietary music-file sharing system. Napster, 239 F.3d at 1011-14. There, the infringing conduct was the use of Napster's "service to download and upload copyrighted music." Id. at 1014 (internal quotation omitted). Because Napster had a closed system requiring user registration, and could terminate its users' accounts and block their access to the Napster system, Napster had the right and ability to prevent its users from engaging in the infringing activity of uploading file names and downloading Napster users' music files through the Napster system.^[14] Id. at 1023-24. By contrast, Google cannot stop any of the third-party websites from reproducing, displaying, and distributing unauthorized copies of Perfect 10's images because that infringing conduct takes place on the third-party websites. Google cannot terminate those third-party websites or block their ability to "host and serve infringing full-size images" on the Internet. Perfect 10, 416 F.Supp.2d at 831.

Moreover, the district court found that Google lacks the practical ability to police the third-party websites' infringing conduct. Id. at 857-58. Specifically, the court found that Google's supervisory power is limited because "Google's software lacks the ability to analyze every image on the [I]nternet, compare each image to all the other copyrighted images that exist in the world ... and determine whether a certain image on the web infringes someone's copyright." Id. at 858. The district court also concluded that Perfect 10's suggestions regarding measures Google could implement to prevent its web crawler from indexing infringing websites and to block access to infringing images were not workable. Id. at 858 n. 25. Rather, the suggestions suffered from both "imprecision and overbreadth." Id. We hold that these findings are not clearly erroneous. Without image-recognition technology, Google lacks the practical ability to police the infringing activities of third-party websites. This distinguishes Google from the defendants held liable in Napster and Fonovisa. See Napster, 239 F.3d at 1023-24 (Napster had the ability to identify and police infringing conduct by searching its index for song titles); Fonovisa, 76 F.3d at 262 (swap meet operator had the ability to identify and police infringing activity by patrolling its premises).

Perfect 10 argues that Google could manage its own operations to avoid [1175] indexing websites with infringing content and linking to third-party infringing sites. This is a claim of contributory liability, not vicarious liability. Although "the lines between direct infringement, contributory infringement, and vicarious liability are not clearly drawn," Sony, 464 U.S. at 435 n. 17, 104 S.Ct. 774 (internal quotation omitted), in general, contributory liability is based on the defendant's failure to stop its own actions which facilitate third-party infringement, while vicarious liability is based on the defendant's failure to cause a third party to stop its directly infringing activities. See, e.g., Ellison, 357 F.3d at 1077-78; Fonovisa, 76 F.3d at 261-64. Google's failure to change its operations to avoid assisting websites to distribute their infringing content may constitute contributory liability, see supra Section IV.A. However, this failure is not the same as declining to exercise a right and ability to make third-party websites stop their direct infringement. We reject Perfect 10's efforts to blur this distinction.

Because we conclude that Perfect 10 has not shown a likelihood of establishing Google's right and ability to stop or limit the directly infringing conduct of third-party websites, we agree with the district court's conclusion that Perfect 10 "has not established a likelihood of proving the [control] prong necessary for vicarious liability." Perfect 10, 416 F.Supp.2d at 858.^[15]

C. Digital Millennium Copyright Act

Google claims that it qualifies for the limitations on liability set forth in title II of the DMCA, 17 U.S.C. § 512. In particular, section 512(d) limits the liability of a service provider "for infringement of copyright by reason of the provider referring or linking users to an online location containing infringing material or infringing activity, by using information location tools, including a directory, index, reference, pointer, or hypertext link" if the service provider meets certain criteria. We have held that the limitations on liability contained in 17 U.S.C. § 512 protect secondary infringers as well as direct infringers. Napster, 239 F.3d at 1025.

The parties dispute whether Google meets the specified criteria. Perfect 10 claims that it sent qualifying notices to Google and Google did not act expeditiously to remove the infringing material. Google claims that Perfect 10's notices did not comply with the notice provisions of section 512 and were not adequate to inform Google of the location of the infringing images on the Internet or identify the underlying copyrighted work. Google also claims that it responded to all notices it received by investigating the webpages identified by Perfect 10 and suppressing links to any webpages that Google confirmed were infringing.

Because the district court determined that Perfect 10 was unlikely to succeed on its contributory and vicarious liability claims, it did not reach Google's arguments under section 512. In revisiting the question of Perfect 10's likelihood of success on its contributory infringement claims, the district court should also consider whether Google would likely succeed in showing that it was entitled to the limitations on injunctive relief provided by title II of the DMCA.

V

Amazon.com

Perfect 10 claims that Amazon.com displays and distributes Perfect 10's copyrighted images and is also secondarily [1176] liable for the infringements of third-party websites and Amazon.com users. The district court concluded that Perfect 10 was unlikely to succeed in proving that Amazon.com was a direct infringer, because it merely in-line linked to the thumbnails on Google's servers and to the full-size images on third-party websites.^[16] Perfect 10 v. Amazon, No. 05-4753, consolidated with 04-9484 (C.D.Cal. February 21, 2006) (order denying preliminary injunction). In addition, the district court concluded that Perfect 10's secondary infringement claims against Amazon.com were likely to fail because Amazon.com had no program analogous to AdSense, and thus did not provide any revenues to infringing sites. Id. Finally, the district court determined that Amazon.com's right and ability to control the infringing conduct of third-party websites was substantially less than Google's. Id. Therefore, the district court denied Perfect 10's motion for a preliminary injunction against Amazon.com. Id.

We agree that Perfect 10 has not shown a likelihood that it would prevail on the merits of its claim that Amazon.com directly infringed its images. Amazon.com communicates to its users only the HTML instructions that direct the users' browsers to Google's computers (for thumbnail images) or to a third party's computer (for full-size infringing images). Therefore, Amazon.com does not display or distribute a copy of the thumbnails or full-size images to its users.

We also agree with the district court's conclusion that Amazon.com does not have "the right and ability to supervise the infringing activity" of Google or third parties. The district court did not clearly err in concluding that Amazon.com lacked a direct financial interest in such activities. Therefore, Perfect 10's claim that Amazon.com is vicariously liable for third-party infringement is unlikely to succeed.

However, the district court did not consider whether Amazon.com had "actual knowledge that specific infringing material is available using its system," Napster, 239 F.3d at 1022 (emphasis in original), and could have "take[n] simple measures to prevent further damage" to copyrighted works, Netcom, 907 F.Supp. at 1375, yet continued to provide access to infringing works. Perfect 10 has presented evidence that it notified Amazon.com that it was facilitating its users' access to infringing material. It is disputed whether the notices gave Amazon.com actual knowledge of specific infringing activities available using its system, and whether Amazon.com could have taken reasonable and feasible steps to refrain from providing access to such images, but failed to do so. Nor did the district court consider whether Amazon.com is entitled to limit its liability under title II of the DMCA. On remand, the district court should consider Amazon.com's potential contributory liability, as well as possible limitations on the scope of injunctive relief, in light of our rulings today.

VI

We conclude that Google's fair use defense is likely to succeed at trial, and therefore we reverse the district court's determination that Google's thumbnail versions of Perfect 10's images likely constituted a direct infringement. The district court also erred in its secondary liability [1177] analysis because it failed to consider whether Google and Amazon.com knew of infringing activities yet failed to take reasonable and feasible steps to refrain from providing access to infringing images. Therefore we must also reverse the district court's holding that Perfect 10 was unlikely to succeed on the merits of its secondary liability claims. Due to this error, the district court did not consider whether Google and Amazon.com are entitled to the limitations on liability set forth in title II of the DMCA. The question whether Google and Amazon.com are secondarily liable, and whether they can limit that liability pursuant to title II of the DMCA, raise fact-intensive inquiries, potentially requiring further fact finding, and thus can best be resolved by the district court on remand. We therefore remand this matter to the district court for further proceedings consistent with this decision.

Because the district court will need to reconsider the appropriate scope of injunctive relief after addressing these secondary liability issues, we do not address the parties' arguments regarding the scope of the injunction issued by the district court. For the same reason, we do not address the parties' dispute over whether the district court abused its discretion in determining that Perfect 10 satisfied the irreparable harm element of a preliminary injunction.

Therefore, we reverse the district court's ruling and vacate the preliminary injunction regarding Google's use of thumbnail versions of Perfect 10's images.^[17] We reverse the district court's rejection of the claims that Google and Amazon.com are secondarily liable for infringement of Perfect 10's full-size images. We otherwise affirm the rulings of the district court. We remand this matter for further proceedings consistent with this opinion. Each party shall bear its own costs on appeal. See FED. R. APP. P. 39(a)(4).

AFFIRMED IN PART; REVERSED IN PART; REMANDED.

[1] Google argues that we lack jurisdiction over the preliminary injunction to the extent it enforces unregistered copyrights. Registration is generally a jurisdictional prerequisite to a suit for copyright infringement. See 17 U.S.C. § 411. But section 411 does not limit the remedies a court can grant. Rather, the Copyright Act gives courts broad authority to issue injunctive relief. See 17 U.S.C. § 502(a). Once a court has jurisdiction over an action for copyright infringement under section 411, the court may grant injunctive relief to restrain infringement of any copyright, whether registered or unregistered. See, e.g., Olan Mills, Inc. v. Linn Photo Co., 23 F.3d 1345, 1349 (8th Cir.1994); Pac. & S. Co., Inc. v. Duncan, 744 F.2d 1490, 1499 n. 17 (11th Cir.1984). Because at least some of the Perfect 10 images at issue were registered, the district court did not err in determining that it could issue an order that covers unregistered works. Therefore, we have jurisdiction over the district court's decision and order.

[2] The website publisher may not actually store the photographic images used on its webpages in its own computer, but may provide HTML instructions directing the user's browser to some further computer that stores the image. Because this distinction does not affect our analysis, for convenience, we will assume that the website publisher stores all images used on its webpages in the website publisher's own computer.

[3] Generally, a "cache" is "a computer memory with very short access time used for storage of frequently or recently used instructions or data." United States v. Ziegler, 474 F.3d 1184, 1186 n. 3 (9th Cir.2007) (quoting MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY 171 (11th ed.2003)). There are two types of caches at issue in this case. A user's personal computer has an internal cache that saves copies of webpages and images that the user has recently viewed so that the user can more rapidly revisit these webpages and images. Google's computers also have a cache which serves a variety of purposes. Among other things, Google's cache saves copies of a large number of webpages so that Google's search engine can efficiently organize and index these webpages.

[4] Perfect 10 argues that we are bound by the language and structure of title II of the DMCA in determining Google's liability for copyright infringement. We have noted that the DMCA does not change copyright law; rather, "Congress provided that [the DMCA's] limitations of liability apply if the provider is found to be liable under existing principles of law." Ellison, 357 F.3d at 1077 (emphasis and internal quotation omitted). As a result, "[c]laims against service providers for direct, contributory, or vicarious copyright infringement, therefore, are generally evaluated just as they would be in the non-online world." Id.; see also 17 U.S.C. § 512(l) ("The failure of a service provider's conduct to qualify for limitation of liability under this section shall not bear adversely upon the consideration of a defense by the service provider that the service provider's conduct is not infringing under this title or any other defense."). Therefore, we must consider Google's potential liability under the Copyright Act without reference to title II of the DMCA.

[5] 17 U.S.C. § 106 states, in pertinent part:

Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

(1) to reproduce the copyrighted work in copies or phonorecords;

....

(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;

....

(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly....

[6] Because Google initiates and controls the storage and communication of these thumbnail images, we do not address whether an entity that merely passively owns and manages an Internet bulletin board or similar system violates a copyright owner's display and distribution rights when the users of the bulletin board or similar system post infringing works. Cf. CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d 544 (4th Cir.2004).

[7] Perfect 10 also argues that Google violates Perfect 10's right to display full-size images because Google's in-line linking meets the Copyright Act's definition of "to perform or display a work `publicly.'" 17 U.S.C. § 101. This phrase means "to transmit or otherwise communicate a performance or display of the work to ... the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times." Id. Perfect 10 is mistaken. Google's activities do not meet this definition because Google transmits or communicates only an address which directs a user's browser to the location where a copy of the full-size image is displayed. Google does not communicate a display of the work itself.

[8] We reject at the outset Perfect 10's argument that providing access to infringing websites cannot be deemed transformative and is inherently not fair use. Perfect 10 relies on Video Pipeline, Inc. v. Buena Vista Home Entm't, Inc., 342 F.3d 191 (3d Cir.2003), and Atari Games Corp. v. Nintendo of Am. Inc., 975 F.2d 832, 843 (Fed.Cir.1992). But these cases, in essence, simply apply the general rule that a party claiming fair use must act in a manner generally compatible with principles of good faith and fair dealing. See Harper & Row, 471 U.S. at 562-63, 105 S.Ct. 2218. For this reason, a company whose business is based on providing scenes from copyrighted movies without authorization could not claim that it provided the same public benefit as the search engine in Kelly. See Video Pipeline, 342 F.3d at 198-200. Similarly, a company whose overriding desire to replicate a competitor's computer game led it to obtain a copy of the competitor's source code from the Copyright Office under false pretenses could not claim fair use with respect to its purloined copy. Atari Games, 975 F.2d at 843.

Unlike the alleged infringers in Video Pipeline and Atari Games, who intentionally misappropriated the copyright owners' works for the purpose of commercial exploitation, Google is operating a comprehensive search engine that only incidentally indexes infringing websites. This incidental impact does not amount to an abuse of the good faith and fair dealing underpinnings of the fair use doctrine. Accordingly, we conclude that Google's inclusion of thumbnail images derived from infringing websites in its Internet-wide search engine activities does not preclude Google from raising a fair use defense.

[9] Google contends that Perfect 10's photographic images are less creative and less deserving of protection than the images of the American West in Kelly because Perfect 10 boasts of its un-retouched photos showing the natural beauty of its models. Having reviewed the record, we conclude that the district court's finding that Perfect 10's photographs "consistently reflect professional, skillful, and sometimes tasteful artistry" is not clearly erroneous. Perfect 10, 416 F.Supp.2d at 849 n. 15. We agree with the district court that there is no basis for concluding that photos of the American West are more deserving of protection than photos of nude models. See id.

[10] Because the district court concluded that Perfect 10 was likely to prevail on its direct infringement claim with respect to Google's use of thumbnails, but not with respect to its in-line linking to full-size images, the district court considered Google's potential secondary liability only on the second issue.

[11] Google's activities do not meet the "inducement" test explained in Grokster because Google has not promoted the use of its search engine specifically to infringe copyrights. See Grokster, 545 U.S. at 935-37, 125 S.Ct. 2764. However, the Supreme Court in Grokster did not suggest that a court must find inducement in order to impose contributory liability under common law principles.

[12] "Cyberspace is a popular term for the world of electronic communications over computer networks." Religious Tech. Ctr. v. Netcom On-Line Commc'n Servs., Inc., 907 F.Supp. 1361, 1365 n. 1 (N.D.Cal.1995).

[13] Perfect 10 claims that Google materially contributed to infringement by linking to websites containing unauthorized passwords, which enabled Google users to access Perfect 10's website and make infringing copies of images. However, Perfect 10 points to no evidence that users logging onto the Perfect 10 site with unauthorized passwords infringed Perfect 10's exclusive rights under section 106. In the absence of evidence that Google's actions led to any direct infringement, this argument does not assist Perfect 10 in establishing that it would prevail on the merits of its contributory liability claim. See Napster, 239 F.3d at 1013 n. 2 ("Secondary liability for copyright infringement does not exist in the absence of direct infringement by a third party.").

[14] Napster's system included "Napster's MusicShare software, available free of charge from Napster's Internet site, and Napster's network servers and server-side software." Napster, 239 F.3d at 1011. By downloading Napster's MusicShare software to the user's personal computer, and registering with the Napster system, a user could both upload and download music files. Id. at 1011-13. If the Napster user uploaded a list of music files stored on the user's personal computer to the Napster system, such music files would be automatically available to other Napster users whenever the user was logged on to the Napster system. Id. at 1012. In addition, the Napster user could download music files directly from other users' personal computers. Id. We explained the infringing conduct as "Napster users who upload file names to the [Napster] search index for others to copy violate plaintiffs' distribution rights. Napster users who download files [through the Napster system] containing copyrighted music violate plaintiffs' reproduction rights." Id. at 1014.

[15] Having so concluded, we need not reach Perfect 10's argument that Google received a direct financial benefit.

[16] Amazon.com states that it ended its relationship with Google on April 30, 2006. Perfect 10's action for preliminary injunction against Amazon.com is not moot, however, because Amazon.com has not established "that the allegedly wrongful behavior cannot reasonably be expected to recur." F.T.C. v. Affordable Media, LLC, 179 F.3d 1228, 1238 (9th Cir.1999) (internal quotation omitted).

[17] Because we vacate the injunction, Google's motion for stay of the injunction is moot.