8 Module 7 - Innovation, Hold-out Powers, and Competition 8 Module 7 - Innovation, Hold-out Powers, and Competition
8.1 William Fisher, Secondary Liability and Dual-Use Technologies (CopyrightX Lecture) 8.1 William Fisher, Secondary Liability and Dual-Use Technologies (CopyrightX Lecture)
8.2 Intermediate Digital Copying 8.2 Intermediate Digital Copying
8.2.1 Baker v. Selden 8.2.1 Baker v. Selden
Baker
v.
Selden
APPEAL from the Circuit Court of the United States for the Southern District of Ohio.
The facts are stated in the opinion of the court.
Mr. Alphonso Taft and Mr. H. P. Lloyd for the appellant.
Mr. C. W. Moulton and Mr. M. I. Southard for the appellee.
MR. JUSTICE BRADLEY delivered the opinion of the court.
Charles Selden, the testator of the complainant in this case, in the year 1859 took the requisite steps for obtaining the copyright [100] of a book, entitled 'Selden's Condensed Ledger, or Book-keeping Simplified,' the object of which was to exhibit and explain a peculiar system of book-keeping. In 1860 and 1861, he took the copyright of several other books, containing additions to and improvements upon the said system. The bill of complaint was filed against the defendant, Baker, for an alleged infringement of these copyrights. The latter, in his answer, denied that Selden was the author or designer of the books, and denied the infringement charged, and contends on the argument that the matter alleged to be infringed is not a lawful subject of copyright.
The parties went into proofs, and the various books of the complainant, as well as those sold and used by the defendant, were exhibited before the examiner, and witnesses were examined on both sides. A decree was rendered for the complainant, and the defendant appealed.
The book or series of books of which the complainant claims the copyright consists of an introductory essay explaining the system of book-keeping referred to, to which are annexed certain forms or banks, consisting of ruled lines, and headings, illustrating the system and showing how it is to be used and carried out in practice. This system effects the same results as book-keeping by double entry; but, by a peculiar arrangement of columns and headings, presents the entire operation, of a day, a week, or a month, on a single page, or on two pages facing each other, in an account-book. The defendant uses a similar plan so far as results are concerned; but makes a different arrangement of the columns, and uses different headings. If the complainant's testator had the exclusive right to the use of the system explained in his book, it would be difficult to contend that the defendant does not infringe it, notwithstanding the difference in his form of arrangement; but if it be assumed that the system is open to public use, it seems to be equally difficult to contend that the books made and sold by the defendant are a violation of the copyright of the complainant's book considered merely as a book explanatory of the system. Where the truths of a science or the methods of an art are the common property of the whole world, any author has the right to express the one, or explain and use the other, in [101] his own way. As an author, Selden explained the system in a particular way. It may be conceded that Baker makes and uses account-books arranged on substantially the same system; but the proof fails to show that he has violated the copyright of Selden's book, regarding the latter merely as an explanatory work; or that he has infringed Selden's right in any way, unless the latter became entitled to an exclusive right in the system.
The evidence of the complainant is principally directed to the object of showing that Baker uses the same system as that which is explained and illustrated in Selden's books. It becomes important, therefore, to determine whether, in obtaining the copyright of his books, he secured the exclusive right to the use of the system or method of book-keeping which the said books are intended to illustrate and explain. It is contended that he has secured such exclusive right, because no one can use the system without using substantially the same ruled lines and headings which he has appended to his books in illustration of it. In other words, it is contended that the ruled lines and headings, given to illustrate the system, are a part of the book, and, as such, are secured by the copyright; and that no one can make or use similar ruled lines and headings, or ruled lines and headings made and arranged on substantially the same system, without violating the copyright. And this is really the question to be decided in this case. Stated in another form, the question is, whether the exclusive property in a system of book-keeping can be claimed, under the law of copyright, by means of a book in which that system is explained? The complainant's bill, and the case made under it, are based on the hypothesis that it can be.
It cannot be pretended, and indeed it is not seriously urged, that the ruled lines of the complainant's account-book can be claimed under any special class of objects, other than books, named in the law of copyright existing in 1859. The law then in force was that of 1831, and specified only books, maps, charts, musical compositions, prints, and engravings. An account-book, consisting of ruled lines and blank columns, cannot be called by any of these names unless by that of a book.
There is no doubt that a work on the subject of book-keeping, [102] though only explanatory of well-known systems, may be the subject of a copyright; but, then, it is claimed only as a book. Such a book may be explanatory either of old systems, or of an entirely new system; and, considered as a book, as the work of an author, conveying information on the subject of book-keeping, and containing detailed explanations of the art, it may be a very valuable acquisition to the practical knowledge of the community. But there is a clear distinction between the book, as such, and the art which it is intended to illustrate. The mere statement of the proposition is so evident, that it requires hardly any argument to support it. The same distinction may be predicated of every other art as well as that of book-keeping. A treatise on the composition and use of medicines, be they old or new; on the construction and use of ploughs, or watches, or churns; or on the mixture and application of colors for painting or dyeing; or on the mode of drawing lines to produce the effect of perspective, would be the subject of copyright; but no one would contend that the copyright of the treatise would give the exclusive right to the art or manufacture described therein. The copyright of the book, if not pirated from other works, would be valid without regard to the novelty, or want of novelty, of its subject-matter. The novelty of the art or thing described or explained has nothing to do with the validity of the copyright. To give to the author of the book an exclusive property in the art described therein, when no examination of its novelty has ever been officially made, would be a surprise and a fraud upon the public. That is the province of letters-patent, not of copyright. The claim to an invention or discovery of an art or manufacture must be subjected to the examination of the Patent Office before an exclusive right therein can be obtained; and it can only be secured by a patent from the government.
The difference between the two things, letters-patent and copyright, may be illustrated by reference to the subjects just enumerated. Take the case of medicines. Certain mixtures are found to be of great value in the healing art. If the discoverer writes and publishes a book on the subject (as regular physicians generally do), he gains no exclusive right to the manufacture and sale of the medicine; he gives that to the [103] public. If he desires to acquire such exclusive right, he must obtain a patent for the mixture as a new art, manufacture, or composition of matter. He may copyright his book, if he pleases; but that only secures to him the exclusive right of printing and publishing his book. So of all other inventions or discoveries.
The copyright of a book on perspective, no matter how many drawings and illustrations it may contain, gives no exclusive right to the modes of drawing described, though they may never have been known or used before. By publishing the book, without getting a patent for the art, the latter is given to the public. The fact that the art described in the book by illustrations of lines and figures which are reproduced in practice in the application of the art, makes no difference. Those illustrations are the mere language employed by the author to convey his ideas more clearly. Had he used words of description instead of diagrams (which merely stand in the place of words), there could not be the slightest doubt that others, applying the art to practical use, might lawfully draw the lines and diagrams which were in the author's mind, and which he thus described by words in his book.
The copyright of a work on mathematical science cannot give to the author an exclusive right to the methods of operation which he propounds, or to the diagrams which he employs to explain them, so as to prevent an engineer from using them whenever occasion requires. The very object of publishing a book on science or the useful arts is to communicate to the world the useful knowledge which it contains. But this object would be frustrated if the knowledge could not be used without incurring the guilt of piracy of the book. And where the art it teaches cannot be used without employing the methods and diagrams used to illustrate the book, or such as are similar to them, such methods and diagrams are to be considered as necessary incidents to the art, and given therewith to the public; not given for the purpose of publication in other works explanatory of the art, but for the purpose of practical application.
Of course, these observations are not intended to apply to ornamental designs, or pictorial illustrations addressed to the taste. Of these it may be said, that their form is their essence, [104] and their object, the production of pleasure in their contemplation. This is their final end. They are as much the product of genius and the result of composition, as are the lines of the poet or the historian's periods. On the other hand, the teachings of science and the rules and methods of useful art have their final end in application and use; and this application and use are what the public derive from the publication of a book which teaches them. But as embodied and taught in a literary composition or book, their essence consists only in their statement. This alone is what is secured by the copyright. The use by another of the same methods of statement, whether in words or illustrations, in a book published for teaching the art, would undoubtedly be an infringement of the copyright.
Recurring to the case before us, we observe that Charles Selden, by his books, explained and described a peculiar system of book-keeping, and illustrated his method by means of ruled lines and blank columns, with proper headings on a page, or on successive pages. Now, whilst no one has a right to print or publish his book, or any material part thereof, as a book intended to convey instruction in the art, any person may practise and use the art itself which he has described and illustrated therein. The use of the art is a totally different thing from a publication of the book explaining it. The copyright of a book on book-keeping cannot secure the exclusive right to make, sell, and use account-books prepared upon the plan set forth in such book. Whether the art might or might not have been patented, is a question which is not before us. It was not patented, and is open and free to the use of the public. And, of course, in using the art, the ruled lines and headings of accounts must necessarily be used as incident to it.
The plausibility of the claim put forward by the complainant in this case arises from a confusion of ideas produced by the peculiar nature of the art described in the books which have been made the subject of copyright. In describing the art, the illustrations and diagrams employed happen to correspond more closely than usual with the actual work performed by the operator who uses the art. Those illustrations and diagrams consist of ruled lines and headings of accounts; and [105] it is similar ruled lines and headings of accounts which, in the application of the art, the book-keeper makes with his pen, or the stationer with his press; whilst in most other cases the diagrams and illustrations can only be represented in concrete forms of wood, metal, stone, or some other physical embodiment. But the principle is the same in all. The description of the art in a book, though entitled to the benefit of copyright, lays no foundation for an exclusive claim to the art itself. The object of the one is explanation; the object of the other is use. The former may be secured by copyright. The latter can only be secured, if it can be secured at all, by letters-patent.
The remarks of Mr. Justice Thompson in the Circuit Court in Clayton v. Stone & Hall (2 Paine, 392), in which copyright was claimed in a daily price-current, are apposite and instructive. He says: 'In determining the true construction to be given to the act of Congress, it is proper to look at the Constitution of the United States, to aid us in ascertaining the nature of the property intended to be protected. 'Congress shall have power to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their writings and discoveries.' The act in question was passed in execution of the power here given, and the object, therefore, was the promotion of science; and it would certainly be a pretty extraordinary view of the sciences to consider a daily or weekly publication of the state of the market as falling within any class of them. They are of a more fixed, permanent, and durable character. The term 'science' cannot, with any propriety, by applied to a work of so fluctuating and fugitive a form as that of a newspaper or price-current, the subject-matter of which is daily changing, and is of mere temporary use. Although great praise may be due to the plaintiffs for their industry and enterprise in publishing this paper, yet the law does not contemplate their being rewarded in this way: it must seek patronage and protection from its utility to the public, and not a work of science. The title of the act of Congress is, 'for the encouragement of learning,' and was not intended for the encouragement of mere industry, unconnected with learning and the sciences. . . . We are, accordingly, of opinion that the paper in question is not [106] a book the copyright to which can be secured under the act of Congress.'
The case of Cobbett v. Woodward (Law Rep. 14 Eq. 407) was a claim to copyright in a catalogue of furniture which the publisher had on sale in his establishment, illustrated with many drawings of furniture and decorations. The defendants, being dealers in the same business, published a similar book, and copied many of the plaintiff's drawings, though it was shown that they had for sale the articles represented thereby.
The court held that these drawings were not subjects of copyright. Lord Romilly, M. R., said: 'This is a mere advertisement for the sale of particular articles which any one might imitate, and any one might advertise for sale. If a man not being a vendor of any of the articles in question were to publish a work for the purpose of informing the public of what was the most convenient species of articles for household furniture, or the most graceful species of decorations for articles of home furniture, what they ought to cost, and where they might be bought, and were to illustrate his work with designs of each article he described,—such a work as this could not be pirated with impunity, and the attempt to do so would be stopped by the injunction of the Court of Chancery; yet if it were done with no such object, but solely for the purpose of advertising particular articles for sale, and promoting the private trade of the publisher by the sale of articles which any other person might sell as well as the first advertiser, and if in fact it contained little more than an illustrated inventory of the contents of a warehouse, I know of no law which, while it would not prevent the second advertiser from selling the same articles, would prevent him from using the same advertisement; provided he did not in such advertisement by any device suggest that he was selling the works and designs of the first advertiser.'
Another case, that of Page v. Wisden (20 L. T. N. S. 435), which came before Vice-Chancellor Malins in 1869, has some resemblance to the present. There a copyright was claimed in a cricket scoring-shett, and the Vice-Chancellor held that it was not a fit subject for copyright, partly because it was not new, but also because 'to say that a particular [107] mode of ruling a book constituted an object for a copyright is absurd.'
These cases, if not precisely in point, come near to the matter in hand, and, in our view, corroborate the general proposition which we have laid down.
In Drury v. Ewing (1 Bond, 540), which is much relied on by the complainant, a copyright was claimed in a chart of patterns for cutting dresses and basques for ladies, and coats, jackets, &c., for boys. It is obvious that such designs could only be printed and published for information, and not for use in themselves. Their practical use could only be exemplified in cloth on the tailor's board and under his shears; in other words, by the application of a mechanical operation to the cutting of cloth in certain patterns and forms. Surely the exclusive right to this practical use was not reserved to the publisher by his copyright of the chart. Without undertaking to say whether we should or should not concur in the decision in that case, we think it cannot control the present.
The conclusion to which we have come is, that blank account-books are not the subject of copyright; and that the mere copyright of Selden's book did not confer upon him the exclusive right to make and use account-books, ruled and arranged as designated by him and described and illustrated in said book.
The decree of the Circuit Court must be reversed, and the cause remanded with instructions to dismiss the complainant's bill; and it is
So ordered
8.2.2 Authors Guild Inc. v. Google Inc. 8.2.2 Authors Guild Inc. v. Google Inc.
THE AUTHORS GUILD, INC., and BETTY MILES, JOSEPH GOULDEN, and JIM BOUTON, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
GOOGLE INC., Defendant.
United States District Court, S.D. New York.
BONI & ZACK LLC, Michael J. Boni, Esq., Joshua D. Snyder, Esq., John E. Sindoni, Esq., Bala Cynwyd, PA, for Plaintiffs.
FRANKFURT KURNIT KLEIN & SELZ P.C., Edward H. Rosenthal, Esq., Jeremy S. Goldman, Esq., New York, NY,
MILBERG LLP, Sanford P. Dumain, Esq., New York, NY,
DURIE TANGRI LLP, Daralyn J. Durie, Esq., Joseph C. Gratz, Esq., David McGowan, Esq., Genevieve P. Rosloff, Esq., San Francisco, CA, for Defendant Google, Inc.
SAMUELSON LAW, TECHNOLOGY & PUBLIC POLICY CLINIC, Jennifer M. Urban, Esq., Babak Siavoshy, Esq., Jason Schultz, Esq., University of California, Berkeley, School of Law, Berkeley, CA, -and- Matthew Sag, Esq., Loyola University of Chicago School of Law, Chicago, IL, for Amicus Curiae Digital Humanities and Law Scholars.
JONATHAN BAND PLLC, Jonathan Band, Esq., Washington, DC, for Amicus Curiae American Library Association, Association of College and Research Libraries, Association of Research Libraries, and Electronic Frontier Foundation.
OPINION
DENNY CHIN, Circuit District Judge.
Since 2004, when it announced agreements with several major research libraries to digitally copy books in their collections, defendant Google Inc. ("Google") has scanned more than twenty million books. It has delivered digital copies to participating libraries, created an electronic database of books, and made text available for online searching through the use of "snippets." Many of the books scanned by Google, however, were under copyright, and Google did not obtain permission from the copyright holders for these usages of their copyrighted works. As a consequence, in 2005, plaintiffs brought this class action charging Google with copyright infringement.
Before the Court are the parties' cross-motions for summary judgment with respect to Google's defense of fair use under § 107 of the Copyright Act, 17 U.S.C. § 107. For the reasons set forth below, Google's motion for summary judgment is granted and plaintiffs' motion for partial summary judgment is denied. Accordingly, judgment will be entered in favor of Google dismissing the case.
BACKGROUND
A. The Facts
For purposes of this motion, the facts are not in dispute. (See 9/23/13 Tr. 10-11, 15, 25-28 (Doc. No. 1086)).[1] They are summarized as follows:
1. The Parties
Plaintiff Jim Bouton, the former pitcher for the New York Yankees, is the legal or beneficial owner of the U.S. copyright in the book Ball Four. Plaintiff Betty Miles is the legal or beneficial owner of the U.S. copyright in the book The Trouble with Thirteen. Plaintiff Joseph Goulden is the legal or beneficial owner of the U.S. copyright in the book The Superlawyers: The Small and Powerful World of the Great Washington Law Firms. (Google Resp. ¶¶ 1-3).[2] All three books have been scanned by Google and are available for search on Google's website, without plaintiffs' permission. (Google Resp. ¶ 4). Plaintiff The Authors Guild, Inc., is the nation's largest organization of published authors and it advocates for and supports the copyright and contractual interests of published writers. (Google Resp. ¶¶ 7-8).
Google owns and operates the largest Internet search engine in the world. (Google Resp. ¶ 9). Each day, millions of people use Google's search engine free of charge; commercial and other entities pay to display ads on Google's websites and on other websites that contain Google ads. (Google Resp. ¶ 10). Google is a for-profit entity, and for the year ended December 31, 2011, it reported over $36.5 billion in advertising revenues. (Google Resp. ¶ 11).
2. The Google Books Project
In 2004, Google announced two digital books programs. The first, initially called "Google Print" and later renamed the "Partner Program," involved the "hosting" and display of material provided by book publishers or other rights holders. (Google Resp. ¶¶ 13, 14). The second became known as the "Library Project," and over time it involved the digital scanning of books in the collections of the New York Public Library, the Library of Congress, and a number of university libraries. (Clancy Decl. ¶ 5 (Doc. No. 1035); Google Resp. ¶¶ 25, 26, 27; Pl. Resp. ¶ 14).
The Partner Program and the Library Project together comprise the Google Books program ("Google Books"). (Google Resp. ¶ 15). All types of books are encompassed, including novels, biographies, children's books, reference works, textbooks, instruction manuals, treatises, dictionaries, cookbooks, poetry books, and memoirs. (Pl. Resp. ¶ 6; Jaskiewicz Decl. ¶ 4 (Doc. No. 1041)). Some 93% of the books are non-fiction while approximately 7% are fiction.[3] Both in-print and out-of-print books are included, although the great majority are out-of-print. (Jaskiewicz Decl. ¶ 4).
In the Partner Program, works are displayed with permission of the rights holders. (Google Resp. ¶ 16). The Partner Program is aimed at helping publishers sell books and helping books become discovered. (Google Resp. ¶ 18). Initially, Google shared revenues from ads with publishers or other rights holders in certain circumstances. In 2011, however, Google stopped displaying ads in connection with all books. (Google Resp. ¶¶ 17, 21; Dougall Decl. ¶¶ 5-8 (Doc. No. 1076)). Partners provide Google with a printed copy of their books for scanning, or a digital copy if one already exists. (Google Resp. ¶ 19). Partners decide how much of their books — from a few sample pages to the entire book — are browsable. (Google Resp. ¶ 20). As of early 2012, the Partner Program included approximately 2.5 million books, with the consent of some 45,000 rights holders. (Google Resp. ¶ 24).
As for the Library Project, Google has scanned more than twenty million books, in their entirety, using newly-developed scanning technology. (Google Resp. ¶¶ 28, 29). Pursuant to their agreement with Google, participating libraries can download a digital copy of each book scanned from their collections. (Google Resp. ¶ 30). Google has provided digital copies of millions of these books to the libraries, in accordance with these agreements. (Google Resp. ¶ 85). Some libraries agreed to allow Google to scan only public domain works, while others allowed Google to scan in-copyright works as well. (Google Resp. ¶ 36).
Google creates more than one copy of each book it scans from the library collections, and it maintains digital copies of each book on its servers and back-up tapes. (Google Resp. ¶¶ 40, 41). Participating libraries have downloaded digital copies of in-copyright books scanned from their collections. (Google Resp. ¶¶ 53, 54). They may not obtain a digital copy created from another library's book. (Jaskiewicz Decl. ¶¶ 6, 8). The libraries agree to abide by the copyright laws with respect to the copies they make. (Clancy Decl. ¶ 5).
Google did not seek or obtain permission from the copyright holders to digitally copy or display verbatim expressions from in-copyright books. (Google Resp. ¶¶ 53, 54). Google has not compensated copyright holders for its copying of or displaying of verbatim expression from in-copyright books or its making available to libraries for downloading of digital copies of in-copyright books scanned from their collections. (Google Resp. ¶ 55).
3. Google Books
In scanning books for its Library Project, including in-copyright books, Google uses optical character recognition technology to generate machine-readable text, compiling a digital copy of each book. (Google Resp. ¶ 62; Pl. Resp. ¶ 18; Jaskiewicz Decl. ¶ 3). Google analyzes each scan and creates an overall index of all scanned books. The index links each word or phrase appearing in each book with all of the locations in all of the books in which that word or phrase is found. The index allows a search for a particular word or phrase to return a result that includes the most relevant books in which the word or phrase is found. (Clancy Decl. ¶ 6; Pl. Resp. ¶ 22-26). Because the full texts of books are digitized, a user can search the full text of all the books in the Google Books corpus. (Clancy Decl. ¶ 7; Google Resp. ¶ 42).
Users of Google's search engine may conduct searches, using queries of their own design. (Pl. Resp. ¶ 10). In response to inquiries, Google returns a list of books in which the search term appears. (Clancy Decl. ¶ 8). A user can click on a particular result to be directed to an "About the Book" page, which will provide the user with information about the book in question. The page includes links to sellers of the books and/or libraries that list the book as part of their collections. No advertisements have ever appeared on any About the Book page that is part of the Library Project. (Clancy Decl. ¶ 9).
For books in "snippet view" (in contrast to "full view" books), Google divides each page into eighths — each of which is a "snippet," a verbatim excerpt. (Google Resp. ¶¶ 43, 44). Each search generates three snippets, but by performing multiple searches using different search terms, a single user may view far more than three snippets, as different searches can return different snippets. (Google Resp. ¶ 45). For example, by making a series of consecutive, slightly different searches of the book Ball Four, a single user can view many different snippets from the book. (Google Resp. ¶¶ 46, 47).
Google takes security measures to prevent users from viewing a complete copy of a snippet-view book. For example, a user cannot cause the system to return different sets of snippets for the same search query; the position of each snippet is fixed within the page and does not "slide" around the search term; only the first responsive snippet available on any given page will be returned in response to a query; one of the snippets on each page is "black-listed," meaning it will not be shown; and at least one out of ten entire pages in each book is black-listed. (Google Resp. ¶¶ 48-50; Pl. Resp. ¶¶ 35, 37-40). An "attacker" who tries to obtain an entire book by using a physical copy of the book to string together words appearing in successive passages would be able to obtain at best a patchwork of snippets that would be missing at least one snippet from every page and 10% of all pages. (Pl. Resp. ¶ 41). In addition, works with text organized in short "chunks," such as dictionaries, cookbooks, and books of haiku, are excluded from snippet view. (Pl. Resp. ¶ 42).
4. The Benefits of the Library Project and Google Books
The benefits of the Library Project are many. First, Google Books provides a new and efficient way for readers and researchers to find books. (See, e.g., Clancy Decl. Ex. G). It makes tens of millions of books searchable by words and phrases. It provides a searchable index linking each word in any book to all books in which that word appears. (Clancy Decl. ¶ 7). Google Books has become an essential research tool, as it helps librarians identify and find research sources, it makes the process of interlibrary lending more efficient, and it facilitates finding and checking citations. (Br. of Amici Curiae American Library Ass'n et al. at 4-7 (Doc. No. 1048)). Indeed, Google Books has become such an important tool for researchers and librarians that it has been integrated into the educational system — it is taught as part of the information literacy curriculum to students at all levels. (Id. at 7).
Second, in addition to being an important reference tool, Google Books greatly promotes a type of research referred to as "data mining" or "text mining." (Br. of Digital Humanities and Law Scholars as Amici Curiae at 1 (Doc. No. 1052)). Google Books permits humanities scholars to analyze massive amounts of data — the literary record created by a collection of tens of millions of books. Researchers can examine word frequencies, syntactic patterns, and thematic markers to consider how literary style has changed over time. (Id. at 8-9; Clancy Decl. ¶ 15). Using Google Books, for example, researchers can track the frequency of references to the United States as a single entity ("the United States is") versus references to the United States in the plural ("the United States are") and how that usage has changed over time. (Id. at 7). The ability to determine how often different words or phrases appear in books at different times "can provide insights about fields as diverse as lexicography, the evolution of grammar, collective memory, the adoption of technology, the pursuit of fame, censorship, and historical epidemiology." Jean-Baptiste Michel et al., Quantitative Analysis of Culture Using Millions of Digitized Books, 331 Science 176, 176 (2011) (Clancy Decl. Ex. H). Third, Google Books expands access to books. In particular, traditionally underserved populations will benefit as they gain knowledge of and access to far more books. Google Books provides print-disabled individuals with the potential to search for books and read them in a format that is compatible with text enlargement software, text-to-speech screen access software, and Braille devices. Digitization facilitates the conversion of books to audio and tactile formats, increasing access for individuals with disabilities. (Letter from Marc Maurer, President of the National Federation for the Blind, to J. Michael McMahon, Office of the Clerk (Jan. 19, 2010) (Doc. No. 858)). Google Books facilitates the identification and access of materials for remote and underfunded libraries that need to make efficient decisions as to which resources to procure for their own collections or through interlibrary loans. (Br. of Amici Curiae American Library Ass'n at 5-6).
Fourth, Google Books helps to preserve books and give them new life. Older books, many of which are out-of-print books that are falling apart buried in library stacks, are being scanned and saved. See Authors Guild v. Google Inc., 770 F. Supp. 2d 666, 670 (S.D.N.Y. 2011). These books will now be available, at least for search, and potential readers will be alerted to their existence.
Finally, by helping readers and researchers identify books, Google Books benefits authors and publishers. When a user clicks on a search result and is directed to an "About the Book" page, the page will offer links to sellers of the book and/or libraries listing the book as part of their collections. (Clancy Decl. ¶ 9). The About the Book page for Ball Four, for example, provides links to Amazon.com, Barnes&Noble.com;, Books-A-Million, and IndieBound. (See Def. Mem. at 9). A user could simply click on any of these links to be directed to a website where she could purchase the book. Hence, Google Books will generate new audiences and create new sources of income.
As amici observe: "Thanks to . . . [Google Books], librarians can identify and efficiently sift through possible research sources, amateur historians have access to a wealth of previously obscure material, and everyday readers and researchers can find books that were once buried in research library archives." (Br. of Amici Curiae American Library Ass'n at 3).
B. Procedural History
Plaintiffs commenced this action on September 20, 2005, alleging, inter alia, that Google committed copyright infringement by scanning copyrighted books and making them available for search without permission of the copyright holders. From the outset, Google's principal defense was fair use under § 107 of the Copyright Act, 17 U.S.C. § 107.
After extensive negotiations, the parties entered into a proposed settlement resolving plaintiffs' claims on a class-wide basis. On March 22, 2011, I issued an opinion rejecting the proposed settlement on the grounds that it was not fair, adequate, and reasonable. Authors Guild v. Gooqle Inc., 770 F. Supp. 2d 666 (S.D.N.Y. 2011).
Thereafter, the parties engaged in further settlement discussions, but they were unable to reach agreement. The parties proposed and I accepted a schedule that called for the filing of plaintiffs' class certification motion, the completion of discovery, and then the filing of summary judgment motions. (See 9/16/11 Order (Doc. No. 982)). Plaintiffs filed a fourth amended class action complaint (the "Complaint") on October 14, 2011. (Doc. No. 985). While the dates in the schedule were subsequently extended, the sequence of events was retained, with the class certification motion to precede the summary judgment motions, and adding dates for Google's filing of a motion to dismiss the Authors Guild's claims. (See, e.g., 1/17/12 Order (Doc. No. 996); 3/28/12 Order (Doc. No. 1007)).
Plaintiffs filed their class certification motion and Google filed its motion to dismiss the Authors Guild's claims. On May 31, 2012, I issued an opinion denying Google's motion to dismiss and granting the individual plaintiffs' motion for class certification. Authors Guild v. Google Inc., 282 F.R.D. 384 (S.D.N.Y. 2012).
On June 9, 2012, I issued an order re-setting the briefing schedule for the summary judgment motions. (6/19/12 Order (Doc. No. 1028)). The parties thereafter filed the instant cross-motions for summary judgment. Before the motions were fully submitted, however, the Second Circuit issued an order on September 17, 2012, staying these proceedings pending an interlocutory appeal by Google from my decision granting class certification. (9/17/12 Order (Doc. No. 1063)).
On July 1, 2013, without deciding the merits of the appeal, the Second Circuit vacated my class certification decision, concluding that "resolution of Google's fair use defense in the first instance will necessarily inform and perhaps moot our analysis of many class certification issues." Authors Guild, Inc. v. Gooqle Inc., 721 F.3d 132, 134 (2d Cir. 2013). The Second Circuit remanded the case "for consideration of the fair use issues." Id. at 135.
On remand, the parties completed the briefing of the summary judgment motions. I heard oral argument on September 23, 2013. I now rule on the motions.
DISCUSSION
For purposes of these motions, I assume that plaintiffs have established a prima facie case of copyright infringement against Google under 17 U.S.C. § 106. See Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991). Google has digitally reproduced millions of copyrighted books, including the individual plaintiffs' books, maintaining copies for itself on its servers and backup tapes. See 17 U.S.C. § 106(1) (prohibiting unauthorized reproduction). Google has made digital copies available for its Library Project partners to download. See 17 U.S.C. § 106(3) (prohibiting unauthorized distribution). Google has displayed snippets from the books to the public. See 17 U.S.C. § 106(5) (prohibiting unauthorized display). Google has done all of this, with respect to in-copyright books in the Library Project, without license or permission from the copyright owners. The sole issue now before the Court is whether Google's use of the copyrighted works is "fair use" under the copyright laws. For the reasons set forth below, I conclude that it is.
A. Applicable Law
Fair use is a defense to a claim of copyright infringement. The doctrine permits the fair use of copyrighted works "to fulfill copyright's very purpose, t[t]o promote the Progress of Science and useful Arts.'" Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 575 (1994) (quoting U.S. Const., Art. I, § 8, cl. 8)); accord Cariou v. Prince, 714 F.3d 694, 705 (2d Cir. 2013). Copyright law seeks to achieve that purpose by providing sufficient protection to authors and inventors to stimulate creative activity, while at the same time permitting others to utilize protected works to advance the progress of the arts and sciences. See Eldred v. Ashcroft, 537 U.S. 186, 212 (2003); Blanch v. Koons, 467 F.3d 244, 250 (2d Cir. 2006); Hon. Pierre N. Leval, Toward a Fair Use Standard, 103 Harv. L. Rev. 1105, 1107-08 (1990). As the Supreme Court has held, "[f]rom 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; see also Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 560 (1985) (recognizing "the latitude for scholarship and comment traditionally afforded by fair use").
The fair use doctrine is codified in § 107 of the Copyright Act, which provides in relevant part as follows:
[T]he fair use of a copyrighted work, . . . for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement 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.
17 U.S.C. § 107.
The determination of fair use is "an open-ended and context-sensitive inquiry," Blanch v. Koons, 467 F.3d at 251, and thus the fair use doctrine calls for "case-by-case analysis," Campbell, 510 U.S. at 577; see also Harper & Row, 471 U.S. at 553. The four factors enumerated in the statute are non-exclusive and provide only "general guidance"; they are to be explored and weighed together, "in light of the purposes of copyright." Campbell, 510 U.S. at 578-79; Harper & Row, 471 U.S. at 560-61. As fair use is an affirmative defense to a claim of copyright infringement, the proponent carries the burden of proof as to all issues in dispute. Am. Geophysical Union v. Texaco Inc., 60 F.3d 913, 918 (2d Cir. 1994); see also Campbell, 510 U.S. at 590.
A key consideration is whether, as part of the inquiry into the first factor, the use of the copyrighted work is "transformative," that is, whether the new work merely "supersedes" or "supplants" the original creation, or whether it:
instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message; it asks, in other words, whether and to what extent the new work is "transformative."
Campbell, 510 U.S. at 579 (quoting Leval, Toward a Fair Use Standard, 103 Harv. L. Rev. at 1111); accord Bill Graham Archives v. Darling Kindersley Ltd., 448 F.3d 605, 608 (2d Cir. 2006) ("Most important to the court's analysis of the first factor is 'transformative' nature of the work."); Am. Geophysical Union, 60 F.3d at 923. Although transformative use is not "absolutely necessary" to a finding of fair use, "the goal of copyright, to promote science and the arts, is generally furthered by the creation of transformative works." Campbell, 510 U.S. at 579.
B. Application
I discuss each of the four factors separately, and I then weigh them together.
1. Purpose and Character of Use
The first factor is "the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes." 17 U.S.C. § 107(1).
Google's use of the copyrighted works is highly transformative. Google Books digitizes books and transforms expressive text into a comprehensive word index that helps readers, scholars, researchers, and others find books. Google Books has become an important tool for libraries and librarians and cite-checkers as it helps to identify and find books. The use of book text to facilitate search through the display of snippets is transformative. See Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1168 (9th Cir. 2007) (holding that use of works — "thumbnail images," including copyrighted photographs — to facilitate search was "transformative"); Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir. 2003) (same); see also Bill Graham Archives, 448 F.3d at 609-11 (holding that display of images of posters in 480-page cultural history of the Grateful Dead was transformative, explaining that "[w]hile the small size [of the images of the posters] is sufficient to permit readers to recognize the historial significance of the posters, it is inadequate to offer more than a glimpse of their expressive value"). The display of snippets of text for search is similar to the display of thumbnail images of photographs for search or small images of concert posters for reference to past events, as the snippets help users locate books and determine whether they may be of interest. Google Books thus uses words for a different purpose — it uses snippets of text to act as pointers directing users to a broad selection of books.
Similarly, Google Books is also transformative in the sense that it has transformed book text into data for purposes of substantive research, including data mining and text mining in new areas, thereby opening up new fields of research. Words in books are being used in a way they have not been used before. Google Books has created something new in the use of book text — the frequency of words and trends in their usage provide substantive information.
Google Books does not supersede or supplant books because it is not a tool to be used to read books. Instead, it "adds value to the original" and allows for "the creation of new information, new aesthetics, new insights and understandings." Leval, Toward a Fair Use Standard, 103 Harv. L. Rev. at 1111. Hence, the use is transformative.
It is true, of course, as plaintiffs argue, that Google is a for-profit entity and Google Books is largely a commercial enterprise. The fact that a use is commercial "tends to weigh against a finding of fair use." Harper & Row, 471 U.S. at 562; accord Campbell, 510 U.S. at 585. On the other hand, fair use has been found even where a defendant benefitted commercially from the unlicensed use of copyrighted works. See, e.g., Blanch, 467 F.3d at 253; Bill Graham Archives, 448 F.3d at 612. See also Castle Rock Entm't, Inc. v. Carol Publ'q Grp., Inc., 150 F.3d 132, 142 (2d Cir. 1998) (observing that Second Circuit does "not give much weight to the fact that the secondary use was for commercial gain"). Here, Google does not sell the scans it has made of books for Google Books; it does not sell the snippets that it displays; and it does not run ads on the About the Book pages that contain snippets. It does not engage in the direct commercialization of copyrighted works. See 17 U.S.C. § 107(1). Google does, of course, benefit commercially in the sense that users are drawn to the Google websites by the ability to search Google Books. While this is a consideration to be acknowledged in weighing all the factors, even assuming Google's principal motivation is profit, the fact is that Google Books serves several important educational purposes.
Accordingly, I conclude that the first factor strongly favors a finding of fair use.
2. Nature of Copyrighted Works
The second factor is "the nature of the copyrighted work." 17 U.S.C. § 107(2).[4] Here, the works are books — all types of published books, fiction and non-fiction, in-print and out-of-print. While works of fiction are entitled to greater copyright protection, Stewart v. Abend, 495 U.S. 207, 237 (1990), here the vast majority of the books in Google Books are non-fiction. Further, the books at issue are published and available to the public. These considerations favor a finding of fair use. See Arica Inst., Inc. v. Palmer, 970 F.2d 1067, 1078 (2d Cir. 1992) ("Whether or not a work is published is critical to its nature under factor two because the scope of fair use is narrower with respect to unpublished works.") (quoting New Era Publ'ns Intern., ApS v. Carol Publ'q Grp., 904 F.2d 152, 157 (2d Cir. 1990) (internal quotation marks ommitted)).
3. Amount and Substantiality of Portion Used
The third factor is "the amount and substantiality of the portion used in relation to the copyrighted work as a whole." 17 U.S.C. § 107(3). Google scans the full text of books — the entire books — and it copies verbatim expression. On the other hand, courts have held that copying the entirety of a work may still be fair use. See, e.g., Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 449-50 (1984); Bill Graham Archives, 448 F.3d at 613 ("copying the entirety of a work is sometimes necessary to make a fair use of the image"). Here, as one of the keys to Google Books is its offering of full-text search of books, full-work reproduction is critical to the functioning of Google Books. Significantly, Google limits the amount of text it displays in response to a search.
On balance, I conclude that the third factor weighs slightly against a finding of fair use.
4. Effect of Use Upon Potential Market or Value
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). Here, plaintiffs argue that Google Books will negatively impact the market for books and that Google's scans will serve as a "market replacement" for books. (Pl. Mem. at 41). It also argues that users could put in multiple searches, varying slightly the search terms, to access an entire book. (9/23/13 Tr. at 6).
Neither suggestion makes sense. Google does not sell its scans, and the scans do not replace the books. While partner libraries have the ability to download a scan of a book from their collections, they owned the books already — they provided the original book to Google to scan. Nor is it likely that someone would take the time and energy to input countless searches to try and get enough snippets to comprise an entire book. Not only is that not possible as certain pages and snippets are blacklisted, the individual would have to have a copy of the book in his possession already to be able to piece the different snippets together in coherent fashion.
To the contrary, a reasonable factfinder could only find that Google Books enhances the sales of books to the benefit of copyright holders. An important factor in the success of an individual title is whether it is discovered — whether potential readers learn of its existence. (Harris Decl. ¶ 17 (Doc. No. 1039)). Google Books provides a way for authors' works to become noticed, much like traditional in-store book displays. (Id. at ¶¶ 14-15). Indeed, both librarians and their patrons use Google Books to identify books to purchase. (Br. of Amici Curiae American Library Ass'n at 8). Many authors have noted that online browsing in general and Google Books in particular helps readers find their work, thus increasing their audiences. Further, Google provides convenient links to booksellers to make it easy for a reader to order a book. In this day and age of on-line shopping, there can be no doubt but that Google Books improves books sales.
Hence, I conclude that the fourth factor weighs strongly in favor of a finding of fair use.
5. Overall Assessment
Finally, the various non-exclusive statutory factors are to be weighed together, along with any other relevant considerations, in light of the purposes of the copyright laws.
In my view, Google Books provides significant public benefits. It advances the progress of the arts and sciences, while maintaining respectful consideration for the rights of authors and other creative individuals, and without adversely impacting the rights of copyright holders. It has become an invaluable research tool that permits students, teachers, librarians, and others to more efficiently identify and locate books. It has given scholars the ability, for the first time, to conduct full-text searches of tens of millions of books. It preserves books, in particular out-of-print and old books that have been forgotten in the bowels of libraries, and it gives them new life. It facilitates access to books for print-disabled and remote or underserved populations. It generates new audiences and creates new sources of income for authors and publishers. Indeed, all society benefits.
Similarly, Google is entitled to summary judgment with respect to plaintiffs' claims based on the copies of scanned books made available to libraries. Even assuming plaintiffs have demonstrated a prima facie case of copyright infringement, Google's actions constitute fair use here as well. Google provides the libraries with the technological means to make digital copies of books that they already own. The purpose of the library copies is to advance the libraries' lawful uses of the digitized books consistent with the copyright law. The libraries then use these digital copies in transformative ways. They create their own full-text searchable indices of books, maintain copies for purposes of preservation, and make copies available to print-disabled individuals, expanding access for them in unprecedented ways. Google's actions in providing the libraries with the ability to engage in activities that advance the arts and sciences constitute fair use.
To the extent plaintiffs are asserting a theory of secondary liability against Google, the theory fails because the libraries' actions are protected by the fair use doctrine. Indeed, in the HathiTrust case, Judge Baer held that the libraries' conduct was fair use. See Authors Guild, Inc. v. HathiTrust, 902 F. Supp. 2d 445, 460-61, 464 (S.D.N.Y. 2012) ("I cannot imagine a definition of fair use that would not encompass the transformative uses made by Defendants' [Mass Digitization Project] and would require that I terminate this invaluable contribution to the progress of science and cultivation of the arts that at the same time effectuates the ideals espoused by the [Americans with Disabilities Act]."). The fair use analysis set forth above with respect to Google Books applies here as well to the libraries' use of their scans, and if there is no liability for copyright infringement on the libraries' part, there can be no liability on Google's part.
CONCLUSION
For the reasons set forth above, plaintiffs' motion for partial summary judgment is denied and Google's motion for summary judgment is granted. Judgment will be entered in favor of Google dismissing the Complaint. Google shall submit a proposed judgment, on notice, within five business days hereof.
SO ORDERED.
[1] When pressed at oral argument to identify any factual issues that would preclude the award of summary judgment, plaintiffs' counsel was unable to do so. (Id. at 25-26).
[2] "Google Resp." refers to Google's Responses and Objections to plaintiffs' Statement of Undisputed Facts in Support of Their Motion for Partial Summary Judgment (Doc. No. 1077). "Pl. Resp." refers to plaintiffs' Response to Google's Local Rule 56.1 Statement (Doc. No. 1071). I have relied on the parties' responses to the statements of undisputed facts only to the extent that factual statements were not controverted.
[3] These estimates are based on studies of the contents of the libraries involved. (Def. Mem. at 7 (Doc. No. 1032) (citing Brian Lavoie and Lorcan Dempsey, Beyond 1923: Characteristics of Potentially In-Copyright Print Books in Library Collections, 15-D-Lib 11/12 (2009), available at http://www.dlib.org/dlib/ november09/1avoie/111avoie.html (last visited November 12, 2013)). The numbers are not disputed. (See 9/23/2013 Tr. at 26).
[4] The parties agree that the second factor plays little role in the ultimate fair use determination. (Pl. Mem. at 36 n.18 (Doc. No. 1050); Def. Mem. at 25). See On Davis v. Gap, Inc., 246 F.3d 152, 175 (2d Cir. 2001) ("The second statutory factor, the nature of the copyrighted work, is rarely found to be determinative.") (internal citation omitted).
8.2.3 AUTHORS GUILD v. GOOGLE INC. 8.2.3 AUTHORS GUILD v. GOOGLE INC.
THE AUTHORS GUILD, BETTY MILES, JIM BOUTON, JOSEPH GOULDEN, individually and on behalf of all others similarly situated, Plaintiff-Appellants,
HERBERT MITGANG, DANIEL HOFFMAN, individually and on behalf of all others similarly situated, PAUL DICKSON, THE McGRAW-HILL COMPANIES, INC., PEARSON EDUCATION, INC., SIMON & SCHUSTER, INC., ASSOCIATION OF AMERICAN PUBLISHERS, INC., CANADIAN STANDARD ASSOCIATION, JOHN WILEY & SONS, INC., individually and on behalf of all others similarly situated, Plaintiffs,
v.
GOOGLE, INC., Defendant-Appellee.
Docket No. 13-4829-cv.
United States Court of Appeals, Second Circuit.
Argued: December 3, 2014.
Decided: October 16, 2015.
PAUL M. SMITH, JENNER & BLOCK LLP, WASHINGTON, DC (Edward H. Rosenthal, Jeremy S. Goldman, Anna Kadyshevich, Andrew D. Jacobs, Frankfurt Kurnit Klein & Selz PC, New York, NY on the brief), for Plaintiff-Appellants.
SETH P. WAXMAN, WILMER CUTLER PICKERING HALE AND DORR LLP, WASHINGTON, D.C. (Louis R. Cohen, Daniel P. Kearney, Jr., Weili J. Shaw, Wilmer Cutler Pickering Hale and Dorr LLP, Washington D.C & Daralyn J. Durie, Joseph C. Gratz, Durie Tangri LLP, San Francisco, CA on the brief), for Defendant-Appellee.
Before: LEVAL, CABRANES, PARKER, Circuit Judges.
LEVAL, Circuit Judge.
This copyright dispute tests the boundaries of fair use. Plaintiffs, who are authors of published books under copyright, sued Google, Inc. ("Google") for copyright infringement in the United States District Court for the Southern District of New York (Chin, J.). They appeal from the grant of summary judgment in Google's favor. Through its Library Project and its Google Books project, acting without permission of rights holders, Google has made digital copies of tens of millions of books, including Plaintiffs', that were submitted to it for that purpose by major libraries. Google has scanned the digital copies and established a publicly available search function. An Internet user can use this function to search without charge to determine whether the book contains a specified word or term and also see "snippets" of text containing the searched-for terms. In addition, Google has allowed the participating libraries to download and retain digital copies of the books they submit, under agreements which commit the libraries not to use their digital copies in violation of the copyright laws. These activities of Google are alleged to constitute infringement of Plaintiffs' copyrights. Plaintiffs sought injunctive and declaratory relief as well as damages.
Google defended on the ground that its actions constitute "fair use," which, under 17 U.S.C. § 107, is "not an infringement." The district court agreed. Authors Guild, Inc. v. Google Inc., 954 F. Supp. 2d 282, 294 (S.D.N.Y. 2013). Plaintiffs brought this appeal.
Plaintiffs contend the district court's ruling was flawed in several respects. They argue: (1) Google's digital copying of entire books, allowing users through the snippet function to read portions, is not a "transformative use" within the meaning of Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578-585 (1994), and provides a substitute for Plaintiffs' works; (2) notwithstanding that Google provides public access to the search and snippet functions without charge and without advertising, its ultimate commercial profit motivation and its derivation of revenue from its dominance of the world-wide Internet search market to which the books project contributes, preclude a finding of fair use; (3) even if Google's copying and revelations of text do not infringe plaintiffs' books, they infringe Plaintiffs' derivative rights in search functions, depriving Plaintiffs of revenues or other benefits they would gain from licensed search markets; (4) Google's storage of digital copies exposes Plaintiffs to the risk that hackers will make their books freely (or cheaply) available on the Internet, destroying the value of their copyrights; and (5) Google's distribution of digital copies to participant libraries is not a transformative use, and it subjects Plaintiffs to the risk of loss of copyright revenues through access allowed by libraries. We reject these arguments and conclude that the district court correctly sustained Google's fair use defense.
Google's making of a digital copy to provide a search function is a transformative use, which augments public knowledge by making available information about Plaintiffs' books without providing the public with a substantial substitute for matter protected by the Plaintiffs' copyright interests in the original works or derivatives of them. The same is true, at least under present conditions, of Google's provision of the snippet function. Plaintiffs' contention that Google has usurped their opportunity to access paid and unpaid licensing markets for substantially the same functions that Google provides fails, in part because the licensing markets in fact involve very different functions than those that Google provides, and in part because an author's derivative rights do not include an exclusive right to supply information (of the sort provided by Google) about her works. Google's profit motivation does not in these circumstances justify denial of fair use. Google's program does not, at this time and on the record before us, expose Plaintiffs to an unreasonable risk of loss of copyright value through incursions of hackers. Finally, Google's provision of digital copies to participating libraries, authorizing them to make non-infringing uses, is non-infringing, and the mere speculative possibility that the libraries might allow use of their copies in an infringing manner does not make Google a contributory infringer. Plaintiffs have failed to show a material issue of fact in dispute.
We affirm the judgment.
BACKGROUND
I. Plaintiffs
The author-plaintiffs are Jim Bouton, author of Ball Four; Betty Miles, author of The Trouble with Thirteen; and Joseph Goulden, author of The Superlawyers: The Small and Powerful World of the Great Washington Law Firms. Each of them has a legal or beneficial ownership in the copyright for his or her book.[1] Their books have been scanned without their permission by Google, which made them available to Internet users for search and snippet view on Google's website.[2]
II. Google Books and the Google Library Project
Google's Library Project, which began in 2004, involves bi-lateral agreements between Google and a number of the world's major research libraries.[3] Under these agreements, the participating libraries select books from their collections to submit to Google for inclusion in the project. Google makes a digital scan of each book, extracts a machine-readable text, and creates an index of the machine-readable text of each book. Google retains the original scanned image of each book, in part so as to improve the accuracy of the machine-readable texts and indices as image-to-text conversion technologies improve.
Since 2004, Google has scanned, rendered machine-readable, and indexed more than 20 million books, including both copyrighted works and works in the public domain. The vast majority of the books are non-fiction, and most are out of print. All of the digital information created by Google in the process is stored on servers protected by the same security systems Google uses to shield its own confidential information.
The digital corpus created by the scanning of these millions of books enables the Google Books search engine. Members of the public who access the Google Books website can enter search words or terms of their own choice, receiving in response a list of all books in the database in which those terms appear, as well as the number of times the term appears in each book. A brief description of each book, entitled "About the Book," gives some rudimentary additional information, including a list of the words and terms that appear with most frequency in the book. It sometimes provides links to buy the book online and identifies libraries where the book can be found.[4] The search tool permits a researcher to identify those books, out of millions, that do, as well as those that do not, use the terms selected by the researcher. Google notes that this identifying information instantaneously supplied would otherwise not be obtainable in lifetimes of searching.
No advertising is displayed to a user of the search function. Nor does Google receive payment by reason of the searcher's use of Google's link to purchase the book.
The search engine also makes possible new forms of research, known as "text mining" and "data mining." Google's "ngrams" research tool draws on the Google Library Project corpus to furnish statistical information to Internet users about the frequency of word and phrase usage over centuries.[5] This tool permits users to discern fluctuations of interest in a particular subject over time and space by showing increases and decreases in the frequency of reference and usage in different periods and different linguistic regions. It also allows researchers to comb over the tens of millions of books Google has scanned in order to examine "word frequencies, syntactic patterns, and thematic markers" and to derive information on how nomenclature, linguistic usage, and literary style have changed over time. Authors Guild, Inc., 954 F. Supp. 2d at 287. The district court gave as an example "track[ing] the frequency of references to the United States as a single entity (`the United States is') versus references to the United States in the plural (`the United States are') and how that usage has changed over time." Id.[6]
The Google Books search function also allows the user a limited viewing of text. In addition to telling the number of times the word or term selected by the searcher appears in the book, the search function will display a maximum of three "snippets" containing it. A snippet is a horizontal segment comprising ordinarily an eighth of a page. Each page of a conventionally formatted book[7] in the Google Books database is divided into eight non-overlapping horizontal segments, each such horizontal segment being a snippet. (Thus, for such a book with 24 lines to a page, each snippet is comprised of three lines of text.) Each search for a particular word or term within a book will reveal the same three snippets, regardless of the number of computers from which the search is launched. Only the first usage of the term on a given page is displayed. Thus, if the top snippet of a page contains two (or more) words for which the user searches, and Google's program is fixed to reveal that particular snippet in response to a search for either term, the second search will duplicate the snippet already revealed by the first search, rather than moving to reveal a different snippet containing the word because the first snippet was already revealed. Google's program does not allow a searcher to increase the number of snippets revealed by repeated entry of the same search term or by entering searches from different computers. A searcher can view more than three snippets of a book by entering additional searches for different terms. However, Google makes permanently unavailable for snippet view one snippet on each page and one complete page out of every ten—a process Google calls "blacklisting."
Google also disables snippet view entirely for types of books for which a single snippet is likely to satisfy the searcher's present need for the book, such as dictionaries, cookbooks, and books of short poems. Finally, since 2005, Google will exclude any book altogether from snippet view at the request of the rights holder by the submission of an online form.
Under its contracts with the participating libraries, Google allows each library to download copies—of both the digital image and machine-readable versions—of the books that library submitted to Google for scanning (but not of books submitted by other libraries). This is done by giving each participating library access to the Google Return Interface ("GRIN"). The agreements between Google and the libraries, although not in all respects uniform, require the libraries to abide by copyright law in utilizing the digital copies they download and to take precautions to prevent dissemination of their digital copies to the public at large.[8] Through the GRIN facility, participant libraries have downloaded at least 2.7 million digital copies of their own volumes.
III. Procedural History
Plaintiffs brought this suit on September 20, 2005, as a putative class action on behalf of similarly situated, rights-owning authors.[9] After several years of negotiation, the parties reached a proposed settlement that would have resolved the claims on a class-wide basis. The proposed settlement allowed Google to make substantially more extensive use of its scans of copyrighted books than contemplated under the present judgment, and provided that Google would make payments to the rights holders in return. On March 22, 2011, however, the district court rejected the proposed settlement as unfair to the class members who relied on the named plaintiffs to represent their interests. Authors Guild v. Google Inc., 770 F. Supp. 2d 666, 679-680 (S.D.N.Y. 2011).
On October 14, 2011, Plaintiffs filed a fourth amended class action complaint, which is the operative complaint for this appeal. See Dist. Ct. Docket No. 985. The district court certified a class on May 31, 2012. Authors Guild v. Google Inc., 282 F.R.D. 384 (S.D.N.Y. 2012). Google appealed from the certification, and moved in the district court for summary judgment on its fair use defense. Plaintiffs cross-moved in the district court for summary judgment. On the appeal from the class certification, our court—questioning whether it was reasonable to infer that the putative class of authors favored the relief sought by the named plaintiffs—provisionally vacated that class certification without addressing the merits of the issue, concluding instead that "resolution of Google's fair use defense in the first instance will necessarily inform and perhaps moot our analysis of many class certification issues." Authors Guild, Inc. v. Google Inc., 721 F.3d 132, 134 (2d Cir. 2013).
On November 14, 2013, the district court granted Google's motion for summary judgment, concluding that the uses made by Google of copyrighted books were fair uses, protected by § 107. Authors Guild, 954 F. Supp. 2d at 284. Upon consideration of the four statutory factors of § 107, the district court found that Google's uses were transformative, that its display of copyrighted material was properly limited, and that the Google Books program did not impermissibly serve as a market substitute for the original works. Id. at 290. The court entered judgment initially on November 27, 2013, followed by an amended judgment on December 10, 2013, dismissing Plaintiffs' claims with prejudice. Plaintiffs filed timely notice of appeal.
DISCUSSION[10]
I. The Law of Fair Use
The ultimate goal of copyright is to expand public knowledge and understanding, which copyright seeks to achieve by giving potential creators exclusive control over copying of their works, thus giving them a financial incentive to create informative, intellectually enriching works for public consumption. This objective is clearly reflected in the Constitution's empowerment of Congress "To promote the Progress of Science . . . by securing for limited Times to Authors . . . the exclusive Right to their respective Writings." U.S. Const., Art. I, § 8, cl. 8) (emphasis added).[11] Thus, while authors are undoubtedly important intended beneficiaries of copyright, the ultimate, primary intended beneficiary is the public, whose access to knowledge copyright seeks to advance by providing rewards for authorship.
For nearly three hundred years, since shortly after the birth of copyright in England in 1710,[12] courts have recognized that, in certain circumstances, giving authors absolute control over all copying from their works would tend in some circumstances to limit, rather than expand, public knowledge. In the words of Lord Ellenborough, "[W]hile I shall think myself bound to secure every man in the enjoyment of his copy-right, one must not put manacles upon science." Cary v. Kearsley, 170 Eng. Rep. 679, 681, 4 Esp. 168, 170 (1802). Courts thus developed the doctrine, eventually named fair use, which permits unauthorized copying in some circumstances, so as to further "copyright's very purpose, `[t]o promote the Progress of Science and useful Arts.'" Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 575 (1994) (quoting U.S. Const., Art. I, § 8, cl. 8). Although well established in the common law development of copyright, fair use was not recognized in the terms of our statute until the adoption of § 107 in the Copyright Act of 1976. 17 U.S.C. §§ 101 et seq.
Section 107, in its present form,[13] provides:
[T]he fair use of a copyrighted work . . . for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement 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. As the Supreme Court has designated fair use an affirmative defense, see Campbell, 510 U.S. at 590, the party asserting fair use bears the burden of proof, Am. Geophysical Union v. Texaco Inc., 60 F.3d 913, 918 (2d Cir. 1994).
The statute's wording, derived from a brief observation of Justice Joseph Story in Folsom v. Marsh,[14] does not furnish standards for recognition of fair use. Its instruction to consider the "purpose and character" of the secondary use and the "nature" of the copyrighted work does not explain what types of "purpose and character" or "nature" favor a finding of fair use and which do not. In fact, as the Supreme Court observed in Campbell, the House Report makes clear that, in passing the statute, Congress had no intention of normatively dictating fair use policy. The purpose of the enactment was to give recognition in the statute itself to such an important part of copyright law developed by the courts through the common law process. "Congress meant § 107 `to restate the present judicial doctrine of fair use, not to change, narrow, or enlarge it an any way,' and intended that courts continue the common-law tradition of fair use adjudication." Campbell, 510 U.S. at 577 (quoting H.R. Rep. No. 94-1476, at 66 (1976), S. Rep. No. 94-473, at 62 (1975), U.S. Code Cong. & Admin. News 5659, 5679 (1976)). Furthermore, notwithstanding fair use's long common-law history, not until the Campbell ruling in 1994 did courts undertake to explain the standards for finding fair use.
The Campbell Court undertook a comprehensive analysis of fair use's requirements, discussing every segment of § 107. Beginning with the examples of purposes set forth in the statute's preamble, the Court made clear that they are "illustrative and not limitative" and "provide only general guidance about the sorts of copying that courts and Congress most commonly ha[ve] found to be fair uses." 510 U.S. at 577-578 (internal quotations and citations omitted). The statute "calls for case-by-case analysis" and "is not to be simplified with bright-line rules." Id. at 577. Section 107's four factors are not to "be treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright." Id. at 578. Each factor thus stands as part of a multifaceted assessment of the crucial question: how to define the boundary limit of the original author's exclusive rights in order to best serve the overall objectives of the copyright law to expand public learning while protecting the incentives of authors to create for the public good.
At the same time, the Supreme Court has made clear that some of the statute's four listed factors are more significant than others. The Court observed in Harper & Row Publishers, Inc. v. Nation Enterprises that the fourth factor, which assesses the harm the secondary use can cause to the market for, or the value of, the copyright for the original, "is undoubtedly the single most important element of fair use." 471 U.S. 539, 566 (1985) (citing MELVILLE B. NIMMER, 3 NIMMER ON COPYRIGHT § 13.05[A], at 13-76 (1984)). This is consistent with the fact that the copyright is a commercial right, intended to protect the ability of authors to profit from the exclusive right to merchandise their own work.
In Campbell, the Court stressed also the importance of the first factor, the "purpose and character of the secondary use." 17 U.S.C. § 107(1). The more the appropriator is using the copied material for new, transformative purposes, the more it serves copyright's goal of enriching public knowledge and the less likely it is that the appropriation will serve as a substitute for the original or its plausible derivatives, shrinking the protected market opportunities of the copyrighted work. 510 U.S. at 591 (noting that, when the secondary use is transformative, "market substitution is at least less certain, and market harm may not be so readily inferred.").
With this background, we proceed to discuss each of the statutory factors, as illuminated by Campbell and subsequent case law, in relation to the issues here in dispute.
II. The Search and Snippet View Functions
A. Factor One
(1) Transformative purpose.
Campbell's explanation of the first factor's inquiry into the "purpose and character" of the secondary use focuses on whether the new work, "in Justice Story's words, . . . merely `supersede[s] the objects' of the original creation, . . . or instead adds something new, with a further purpose . . . . [I]t asks, in other words, whether and to what extent the new work is `transformative.'" 510 U.S. at 578-579 (citations omitted). While recognizing that a transformative use is "not absolutely necessary for a finding of fair use," the opinion further explains that the "goal of copyright, to promote science and the arts, is generally furthered by the creation of transformative works" and that "[s]uch works thus lie at the heart of the fair use doctrine's guarantee of breathing space within the confines of copyright." Id. at 579. In other words, transformative uses tend to favor a fair use finding because a transformative use is one that communicates something new and different from the original or expands its utility, thus serving copyright's overall objective of contributing to public knowledge.
The word "transformative" cannot be taken too literally as a sufficient key to understanding the elements of fair use. It is rather a suggestive symbol for a complex thought, and does not mean that any and all changes made to an author's original text will necessarily support a finding of fair use. The Supreme Court's discussion in Campbell gave important guidance on assessing when a transformative use tends to support a conclusion of fair use. The defendant in that case defended on the ground that its work was a parody of the original and that parody is a time-honored category of fair use. Explaining why parody makes a stronger, or in any event more obvious, claim of fair use than satire, the Court stated,
[T]he heart of any parodist's claim to quote from existing material . . . is the use of . . . a prior author's composition to . . .comment[] on that author's works. . . . If, on the contrary, the commentary has no critical bearing on the substance or style of the original composition, which the alleged infringer merely uses to get attention or to avoid the drudgery in working up something fresh, the claim to fairness in borrowing from another's work diminishes accordingly (if it does not vanish). . . . Parody needs to mimic an original to make its point, and so has some claim to use the creation of its victim's . . . imagination, whereas satire can stand on its own two feet and so requires justification for the very act of borrowing.
Id. at 580-81 (emphasis added). In other words, the would-be fair user of another's work must have justification for the taking. A secondary author is not necessarily at liberty to make wholesale takings of the original author's expression merely because of how well the original author's expression would convey the secondary author's different message. Among the best recognized justifications for copying from another's work is to provide comment on it or criticism of it. A taking from another author's work for the purpose of making points that have no bearing on the original may well be fair use, but the taker would need to show a justification. This part of the Supreme Court's discussion is significant in assessing Google's claim of fair use because, as discussed extensively below, Google's claim of transformative purpose for copying from the works of others is to provide otherwise unavailable information about the originals.
A further complication that can result from oversimplified reliance on whether the copying involves transformation is that the word "transform" also plays a role in defining "derivative works," over which the original rights holder retains exclusive control. Section 106 of the Act specifies the "exclusive right[]" of the copyright owner "(2) to prepare derivative works based upon the copyrighted work." See 17 U.S.C. § 106. The statute defines derivative works largely by example, rather than explanation. The examples include "translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgement, condensation," to which list the statute adds "any other form in which a work may be . . . transformed." 17 U.S.C. § 101 (emphasis added).[15] As we noted in Authors Guild, Inc. v. HathiTrust, "[p]aradigmatic examples of derivative works include the translation of a novel into another language, the adaptation of a novel into a movie or play, or the recasting of a novel as an e-book or an audiobook." 755 F.3d 87, 95 (2d Cir. 2014). While such changes can be described as transformations, they do not involve the kind of transformative purpose that favors a fair use finding. The statutory definition suggests that derivative works generally involve transformations in the nature of changes of form. 17 U.S.C. § 101. By contrast, copying from an original for the purpose of criticism or commentary on the original[16] or provision of information about it,[17] tends most clearly to satisfy Campbell's notion of the "transformative" purpose involved in the analysis of Factor One.[18]
With these considerations in mind, we first consider whether Google's search and snippet views functions satisfy the first fair use factor with respect to Plaintiffs' rights in their books. (The question whether these functions might infringe upon Plaintiffs' derivative rights is discussed in the next Part.)
(2) Search Function.
We have no difficulty concluding that Google's making of a digital copy of Plaintiffs' books for the purpose of enabling a search for identification of books containing a term of interest to the searcher involves a highly transformative purpose, in the sense intended by Campbell. Our court's exemplary discussion in HathiTrust informs our ruling. That case involved a dispute that is closely related, although not identical, to this one. Authors brought claims of copyright infringement against HathiTrust, an entity formed by libraries participating in the Google Library Project to pool the digital copies of their books created for them by Google. The suit challenged various usages HathiTrust made of the digital copies. Among the challenged uses was HathiTrust's offer to its patrons of "full-text searches," which, very much like the search offered by Google Books to Internet users, permitted patrons of the libraries to locate in which of the digitized books specific words or phrases appeared. 755 F.3d at 98. (HathiTrust's search facility did not include the snippet view function, or any other display of text.) We concluded that both the making of the digital copies and the use of those copies to offer the search tool were fair uses. Id. at 105.
Notwithstanding that the libraries had downloaded and stored complete digital copies of entire books, we noted that such copying was essential to permit searchers to identify and locate the books in which words or phrases of interest to them appeared. Id. at 97. We concluded "that the creation of a full-text searchable database is a quintessentially transformative use . . . [as] the result of a word search is different in purpose, character, expression, meaning, and message from the page (and the book) from which it is drawn." Id. We cited A.V. ex rel. Vanderhye v. iParadigms, LLC, 562 F.3d 630, 639-40 (4th Cir. 2009), Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1165 (9th Cir. 2007), and Kelly v. Arriba Soft Corp., 336 F.3d 811, 819 (9th Cir. 2003) as examples of cases in which courts had similarly found the creation of complete digital copies of copyrighted works to be transformative fair uses when the copies "served a different function from the original." HathiTrust, 755 F.3d at 97.
As with HathiTrust (and iParadigms), the purpose of Google's copying of the original copyrighted books is to make available significant information about those books, permitting a searcher to identify those that contain a word or term of interest, as well as those that do not include reference to it. In addition, through the ngrams tool, Google allows readers to learn the frequency of usage of selected words in the aggregate corpus of published books in different historical periods. We have no doubt that the purpose of this copying is the sort of transformative purpose described in Campbell as strongly favoring satisfaction of the first factor.
We recognize that our case differs from HathiTrust in two potentially significant respects. First, HathiTrust did not "display to the user any text from the underlying copyrighted work," 755 F.3d at 91, whereas Google Books provides the searcher with snippets containing the word that is the subject of the search. Second, HathiTrust was a nonprofit educational entity, while Google is a profit-motivated commercial corporation. We discuss those differences below.
(3) Snippet View.
Plaintiffs correctly point out that this case is significantly different from HathiTrust in that the Google Books search function allows searchers to read snippets from the book searched, whereas HathiTrust did not allow searchers to view any part of the book. Snippet view adds important value to the basic transformative search function, which tells only whether and how often the searched term appears in the book. Merely knowing that a term of interest appears in a book does not necessarily tell the searcher whether she needs to obtain the book, because it does not reveal whether the term is discussed in a manner or context falling within the scope of the searcher's interest. For example, a searcher seeking books that explore Einstein's theories, who finds that a particular book includes 39 usages of "Einstein," will nonetheless conclude she can skip that book if the snippets reveal that the book speaks of "Einstein" because that is the name of the author's cat. In contrast, the snippet will tell the searcher that this is a book she needs to obtain if the snippet shows that the author is engaging with Einstein's theories.
Google's division of the page into tiny snippets is designed to show the searcher just enough context surrounding the searched term to help her evaluate whether the book falls within the scope of her interest (without revealing so much as to threaten the author's copyright interests). Snippet view thus adds importantly to the highly transformative purpose of identifying books of interest to the searcher. With respect to the first factor test, it favors a finding of fair use (unless the value of its transformative purpose is overcome by its providing text in a manner that offers a competing substitute for Plaintiffs' books, which we discuss under factors three and four below).
(4) Google's Commercial Motivation.
Plaintiffs also contend that Google's commercial motivation weighs in their favor under the first factor. Google's commercial motivation distinguishes this case from HathiTrust, as the defendant in that case was a non-profit entity founded by, and acting as the representative of, libraries. Although Google has no revenues flowing directly from its operation of the Google Books functions, Plaintiffs stress that Google is profit-motivated and seeks to use its dominance of book search to fortify its overall dominance of the Internet search market, and that thereby Google indirectly reaps profits from the Google Books functions.
For these arguments Plaintiffs rely primarily on two sources. First is Congress's specification in spelling out the first fair use factor in the text of § 107 that consideration of the "purpose and character of the [secondary] use" should "include[e] whether such use is of a commercial nature or is for nonprofit educational purposes." Second is the Supreme Court's assertion in dictum in Sony Corporation of America v. Universal City Studios, Inc, that "every commercial use of copyrighted material is presumptively . . . unfair." 464 U.S. 417, 451 (1984). If that were the extent of precedential authority on the relevance of commercial motivation, Plaintiffs' arguments would muster impressive support. However, while the commercial motivation of the secondary use can undoubtedly weigh against a finding of fair use in some circumstances, the Supreme Court, our court, and others have eventually recognized that the Sony dictum was enormously overstated.[19]
The Sixth Circuit took the Sony dictum at its word in Acuff-Rose Music, Inc. v. Campbell, concluding that, because the defendant rap music group's spoof of the plaintiff's ballad was done for profit, it could not be fair use. 972 F.2d 1429, 1436-1437 (6th Cir. 1992). The Supreme Court reversed on this very point, observing that "Congress could not have intended" such a broad presumption against commercial fair uses, as "nearly all of the illustrative uses listed in the preamble paragraph of § 107 . . . are generally conducted for profit in this country." Campbell, 510 U.S. at 584 (internal quotation marks and citations omitted). The Court emphasized Congress's statement in the House Report to the effect that the commercial or nonprofit character of a work is "not conclusive" but merely "a fact to be `weighed along with other[s] in fair use decisions." Id. at 585 (quoting H.R. Rep. No. 94-1476, at 66 (1976)). In explaining the first fair use factor, the Court clarified that "the more transformative the [secondary] work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use." Id. at 579.
Our court has since repeatedly rejected the contention that commercial motivation should outweigh a convincing transformative purpose and absence of significant substitutive competition with the original. See Cariou v. Prince, 714 F.3d 694, 708 (2d Cir. 2013), cert. denied, 134 S. Ct. 618 (2013) ("The commercial/nonprofit dichotomy concerns the unfairness that arises when a secondary user makes unauthorized use of copyrighted material to capture significant revenues as a direct consequence of copying the original work. This factor must be applied with caution because, as the Supreme Court has recognized, Congress could not have intended a rule that commercial uses are presumptively unfair. Instead, 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.") (internal quotation marks, citations, and alterations omitted); Castle Rock Entm't, Inc. v. Carol Pub. Grp., Inc., 150 F.3d 132, 141-42 (2d Cir. 1998) ("We . . . do not give much weight to the fact that the secondary use was for commercial gain. The more critical inquiry under the first factor and in fair use analysis generally is whether the allegedly infringing work merely supersedes the original work or instead adds something new, with a further purpose or different character, altering the first with new meaning or message, in other words whether and to what extent the new work is transformative.") (internal quotation marks, citations, and alterations omitted).
While we recognize that in some circumstances, a commercial motivation on the part of the secondary user will weigh against her, especially, as the Supreme Court suggested, when a persuasive transformative purpose is lacking, Campbell, 510 U.S. at 579, we see no reason in this case why Google's overall profit motivation should prevail as a reason for denying fair use over its highly convincing transformative purpose, together with the absence of significant substitutive competition, as reasons for granting fair use. Many of the most universally accepted forms of fair use, such as news reporting and commentary, quotation in historical or analytic books, reviews of books, and performances, as well as parody, are all normally done commercially for profit.[20]
B. Factor Two
The second fair use factor directs consideration of the "nature of the copyrighted work." While the "transformative purpose" inquiry discussed above is conventionally treated as a part of first factor analysis, it inevitably involves the second factor as well. One cannot assess whether the copying work has an objective that differs from the original without considering both works, and their respective objectives.
The second factor has rarely played a significant role in the determination of a fair use dispute. See WILLIAM F. PATRY, PATRY ON FAIR USE § 4.1 (2015). The Supreme Court in Harper & Row made a passing observation in dictum that, "[t]he law generally recognizes a greater need to disseminate factual works than works of fiction or fantasy." 471 U.S. 539, 563 (1985). Courts have sometimes speculated that this might mean that a finding of fair use is more favored when the copying is of factual works than when copying is from works of fiction. However, while the copyright does not protect facts or ideas set forth in a work, it does protect that author's manner of expressing those facts and ideas. At least unless a persuasive fair use justification is involved, authors of factual works, like authors of fiction, should be entitled to copyright protection of their protected expression. The mere fact that the original is a factual work therefore should not imply that others may freely copy it. Those who report the news undoubtedly create factual works. It cannot seriously be argued that, for that reason, others may freely copy and re-disseminate news reports.[21]
In considering the second factor in HathiTrust, we concluded that it was "not dispositive," 755 F.3d at 98, commenting that courts have hardly ever found that the second factor in isolation played a large role in explaining a fair use decision. The same is true here. While each of the three Plaintiffs' books in this case is factual, we do not consider that as a boost to Google's claim of fair use. If one (or all) of the plaintiff works were fiction, we do not think that would change in any way our appraisal. Nothing in this case influences us one way or the other with respect to the second factor considered in isolation. To the extent that the "nature" of the original copyrighted work necessarily combines with the "purpose and character" of the secondary work to permit assessment of whether the secondary work uses the original in a "transformative" manner, as the term is used in Campbell, the second factor favors fair use not because Plaintiffs' works are factual, but because the secondary use transformatively provides valuable information about the original, rather than replicating protected expression in a manner that provides a meaningful substitute for the original.
C. Factor Three
The third statutory factor instructs us to consider "the amount and substantiality of the portion used in relation to the copyrighted work as a whole." The clear implication of the third factor is that a finding of fair use is more likely when small amounts, or less important passages, are copied than when the copying is extensive, or encompasses the most important parts of the original.[22] The obvious reason for this lies in the relationship between the third and the fourth factors. The larger the amount, or the more important the part, of the original that is copied, the greater the likelihood that the secondary work might serve as an effectively competing substitute for the original, and might therefore diminish the original rights holder's sales and profits.
(1) Search Function.
The Google Books program has made a digital copy of the entirety of each of Plaintiffs' books. Notwithstanding the reasonable implication of Factor Three that fair use is more likely to be favored by the copying of smaller, rather than larger, portions of the original, courts have rejected any categorical rule that a copying of the entirety cannot be a fair use.[23] Complete unchanged copying has repeatedly been found justified as fair use when the copying was reasonably appropriate to achieve the copier's transformative purpose and was done in such a manner that it did not offer a competing substitute for the original.[24] The Supreme Court said in Campbell that "the extent of permissible copying varies with the purpose and character of the use" and characterized the relevant questions as whether "the amount and substantiality of the portion used . . . are reasonable in relation to the purpose of the copying," Campbell, 510 U.S. at 586-587, noting that the answer to that question will be affected by "the degree to which the [copying work] may serve as a market substitute for the original or potentially licensed derivatives," id. at 587-588 (finding that, in the case of a parodic song, "how much . . . is reasonable will depend, say, on the extent to which the song's overriding purpose and character is to parody the original or, in contrast, the likelihood that the parody may serve as a market substitute for the original").
In HathiTrust, our court concluded in its discussion of the third factor that "[b]ecause it was reasonably necessary for the [HathiTrust Digital Library] to make use of the entirety of the works in order to enable the full-text search function, we do not believe the copying was excessive." 755 F.3d at 98. As with HathiTrust, not only is the copying of the totality of the original reasonably appropriate to Google's transformative purpose, it is literally necessary to achieve that purpose. If Google copied less than the totality of the originals, its search function could not advise searchers reliably whether their searched term appears in a book (or how many times).
While Google makes an unauthorized digital copy of the entire book, it does not reveal that digital copy to the public. The copy is made to enable the search functions to reveal limited, important information about the books. With respect to the search function, Google satisfies the third factor test, as illuminated by the Supreme Court in Campbell.
(2) Snippet View.
Google's provision of snippet view makes our third factor inquiry different from that inquiry in HathiTrust. What matters in such cases is not so much "the amount and substantiality of the portion used" in making a copy, but rather the amount and substantiality of what is thereby made accessible to a public for which it may serve as a competing substitute. In HathiTrust, notwithstanding the defendant's full-text copying, the search function revealed virtually nothing of the text of the originals to the public. Here, through the snippet view, more is revealed to searchers than in HathiTrust.
Without doubt, enabling searchers to see portions of the copied texts could have determinative effect on the fair use analysis. The larger the quantity of the copyrighted text the searcher can see and the more control the searcher can exercise over what part of the text she sees, the greater the likelihood that those revelations could serve her as an effective, free substitute for the purchase of the plaintiff's book. We nonetheless conclude that, at least as presently structured by Google, the snippet view does not reveal matter that offers the marketplace a significantly competing substitute for the copyrighted work.
Google has constructed the snippet feature in a manner that substantially protects against its serving as an effectively competing substitute for Plaintiffs' books. In the Background section of this opinion, we describe a variety of limitations Google imposes on the snippet function. These include the small size of the snippets (normally one eighth of a page), the blacklisting of one snippet per page and of one page in every ten, the fact that no more than three snippets are shown—and no more than one per page—for each term searched, and the fact that the same snippets are shown for a searched term no matter how many times, or from how many different computers, the term is searched. In addition, Google does not provide snippet view for types of books, such as dictionaries and cookbooks, for which viewing a small segment is likely to satisfy the searcher's need. The result of these restrictions is, so far as the record demonstrates, that a searcher cannot succeed, even after long extended effort to multiply what can be revealed, in revealing through a snippet search what could usefully serve as a competing substitute for the original.
The blacklisting, which permanently blocks about 22% of a book's text from snippet view, is by no means the most important of the obstacles Google has designed. While it is true that the blacklisting of 22% leaves 78% of a book theoretically accessible to a searcher, it does not follow that any large part of that 78% is in fact accessible. The other restrictions built into the program work together to ensure that, even after protracted effort over a substantial period of time, only small and randomly scattered portions of a book will be accessible. In an effort to show what large portions of text searchers can read through persistently augmented snippet searches, Plaintiffs' counsel employed researchers over a period of weeks to do multiple word searches on Plaintiffs' books. In no case were they able to access as much as 16% of the text, and the snippets collected were usually not sequential but scattered randomly throughout the book. Because Google's snippets are arbitrarily and uniformly divided by lines of text, and not by complete sentences, paragraphs, or any measure dictated by content, a searcher would have great difficulty constructing a search so as to provide any extensive information about the book's use of that term. As snippet view never reveals more than one snippet per page in response to repeated searches for the same term, it is at least difficult, and often impossible, for a searcher to gain access to more than a single snippet's worth of an extended, continuous discussion of the term.
The fact that Plaintiffs' searchers managed to reveal nearly 16% of the text of Plaintiffs' books overstates the degree to which snippet view can provide a meaningful substitute. At least as important as the percentage of words of a book that are revealed is the manner and order in which they are revealed. Even if the search function revealed 100% of the words of the copyrighted book, this would be of little substitutive value if the words were revealed in alphabetical order, or any order other than the order they follow in the original book. It cannot be said that a revelation is "substantial" in the sense intended by the statute's third factor if the revelation is in a form that communicates little of the sense of the original. The fragmentary and scattered nature of the snippets revealed, even after a determined, assiduous, time-consuming search, results in a revelation that is not "substantial," even if it includes an aggregate 16% of the text of the book. If snippet view could be used to reveal a coherent block amounting to 16% of a book, that would raise a very different question beyond the scope of our inquiry.
D. Factor Four
The fourth fair use factor, "the effect of the [copying] use upon the potential market for or value of the copyrighted work," focuses on whether the copy brings to the marketplace a competing substitute for the original, or its derivative, so as to deprive the rights holder of significant revenues because of the likelihood that potential purchasers may opt to acquire the copy in preference to the original. Because copyright is a commercial doctrine whose objective is to stimulate creativity among potential authors by enabling them to earn money from their creations, the fourth factor is of great importance in making a fair use assessment. See Harper & Row, 471 U.S. at 566 (describing the fourth factor as "undoubtedly the single most important element of fair use").
Campbell stressed the close linkage between the first and fourth factors, in that the more the copying is done to achieve a purpose that differs from the purpose of the original, the less likely it is that the copy will serve as a satisfactory substitute for the original. 510 U.S. at 591. Consistent with that observation, the HathiTrust court found that the fourth factor favored the defendant and supported a finding of fair use because the ability to search the text of the book to determine whether it includes selected words "does not serve as a substitute for the books that are being searched." 755 F.3d at 100.
However, Campbell's observation as to the likelihood of a secondary use serving as an effective substitute goes only so far. Even if the purpose of the copying is for a valuably transformative purpose, such copying might nonetheless harm the value of the copyrighted original if done in a manner that results in widespread revelation of sufficiently significant portions of the original as to make available a significantly competing substitute. The question for us is whether snippet view, notwithstanding its transformative purpose, does that. We conclude that, at least as snippet view is presently constructed, it does not.
Especially in view of the fact that the normal purchase price of a book is relatively low in relation to the cost of manpower needed to secure an arbitrary assortment of randomly scattered snippets, we conclude that the snippet function does not give searchers access to effectively competing substitutes. Snippet view, at best and after a large commitment of manpower, produces discontinuous, tiny fragments, amounting in the aggregate to no more than 16% of a book. This does not threaten the rights holders with any significant harm to the value of their copyrights or diminish their harvest of copyright revenue.
We recognize that the snippet function can cause some loss of sales. There are surely instances in which a searcher's need for access to a text will be satisfied by the snippet view, resulting in either the loss of a sale to that searcher, or reduction of demand on libraries for that title, which might have resulted in libraries purchasing additional copies. But the possibility, or even the probability or certainty, of some loss of sales does not suffice to make the copy an effectively competing substitute that would tilt the weighty fourth factor in favor of the rights holder in the original. There must be a meaningful or significant effect "upon the potential market for or value of the copyrighted work." 17 U.S.C. § 107(4).
Furthermore, the type of loss of sale envisioned above will generally occur in relation to interests that are not protected by the copyright. A snippet's capacity to satisfy a searcher's need for access to a copyrighted book will at times be because the snippet conveys a historical fact that the searcher needs to ascertain. For example, a student writing a paper on Franklin D. Roosevelt might need to learn the year Roosevelt was stricken with polio. By entering "Roosevelt polio" in a Google Books search, the student would be taken to (among numerous sites) a snippet from page 31 of Richard Thayer Goldberg's The Making of Franklin D. Roosevelt (1981), telling that the polio attack occurred in 1921. This would satisfy the searcher's need for the book, eliminating any need to purchase it or acquire it from a library. But what the searcher derived from the snippet was a historical fact. Author Goldberg's copyright does not extend to the facts communicated by his book. It protects only the author's manner of expression. Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 974 (2d Cir. 1980) ("A grant of copyright in a published work secures for its author a limited monopoly over the expression it contains.") (emphasis added). Google would be entitled, without infringement of Goldberg's copyright, to answer the student's query about the year Roosevelt was afflicted, taking the information from Goldberg's book. The fact that, in the case of the student's snippet search, the information came embedded in three lines of Goldberg's writing, which were superfluous to the searcher's needs, would not change the taking of an unprotected fact into a copyright infringement.
Even if the snippet reveals some authorial expression, because of the brevity of a single snippet and the cumbersome, disjointed, and incomplete nature of the aggregation of snippets made available through snippet view, we think it would be a rare case in which the searcher's interest in the protected aspect of the author's work would be satisfied by what is available from snippet view, and rarer still—because of the cumbersome, disjointed, and incomplete nature of the aggregation of snippets made available through snippet view—that snippet view could provide a significant substitute for the purchase of the author's book.
Accordingly, considering the four fair use factors in light of the goals of copyright, we conclude that Google's making of a complete digital copy of Plaintiffs' works for the purpose of providing the public with its search and snippet view functions (at least as snippet view is presently designed) is a fair use and does not infringe Plaintiffs' copyrights in their books.
III. Derivative Rights in Search and Snippet View
Plaintiffs next contend that, under Section 106(2), they have a derivative right in the application of search and snippet view functions to their works, and that Google has usurped their exclusive market for such derivatives.
There is no merit to this argument. As explained above, Google does not infringe Plaintiffs' copyright in their works by making digital copies of them, where the copies are used to enable the public to get information about the works, such as whether, and how often they use specified words or terms (together with peripheral snippets of text, sufficient to show the context in which the word is used but too small to provide a meaningful substitute for the work's copyrighted expression). The copyright resulting from the Plaintiffs' authorship of their works does not include an exclusive right to furnish the kind of information about the works that Google's programs provide to the public. For substantially the same reasons, the copyright that protects Plaintiffs' works does not include an exclusive derivative right to supply such information through query of a digitized copy.
The extension of copyright protection beyond the copying of the work in its original form to cover also the copying of a derivative reflects a clear and logical policy choice. An author's right to control and profit from the dissemination of her work ought not to be evaded by conversion of the work into a different form. The author of a book written in English should be entitled to control also the dissemination of the same book translated into other languages, or a conversion of the book into a film. The copyright of a composer of a symphony or song should cover also conversions of the piece into scores for different instrumentation, as well as into recordings of performances.
This policy is reflected in the statutory definition, which explains the scope of the "derivative" largely by examples—including "a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgement, [or] condensation"—before adding, "or any other form in which a work may be recast, transformed, or adapted." 17 U.S.C. § 101.[25] As noted above, this definition, while imprecise, strongly implies that derivative works over which the author of the original enjoys exclusive rights ordinarily are those that re-present the protected aspects of the original work, i.e., its expressive content, converted into an altered form, such as the conversion of a novel into a film, the translation of a writing into a different language, the reproduction of a painting in the form of a poster or post card, recreation of a cartoon character in the form of a three-dimensional plush toy, adaptation of a musical composition for different instruments, or other similar conversions. If Plaintiffs' claim were based on Google's converting their books into a digitized form and making that digitized version accessible to the public, their claim would be strong. But as noted above, Google safeguards from public view the digitized copies it makes and allows access only to the extent of permitting the public to search for the very limited information accessible through the search function and snippet view. The program does not allow access in any substantial way to a book's expressive content. Nothing in the statutory definition of a derivative work, or of the logic that underlies it, suggests that the author of an original work enjoys an exclusive derivative right to supply information about that work of the sort communicated by Google's search functions.
Plaintiffs seek to support their derivative claim by a showing that there exist, or would have existed, paid licensing markets in digitized works, such as those provided by the Copyright Clearance Center or the previous, revenue-generating version of the Google Partners Program. Plaintiffs also point to the proposed settlement agreement rejected by the district court in this case, according to which Google would have paid authors for its use of digitized copies of their works. The existence or potential existence of such paid licensing schemes does not support Plaintiffs' derivative argument. The access to the expressive content of the original that is or would have been provided by the paid licensing arrangements Plaintiffs cite is far more extensive than that which Google's search and snippet view functions provide. Those arrangements allow or would have allowed public users to read substantial portions of the book. Such access would most likely constitute copyright infringement if not licensed by the rights holders. Accordingly, such arrangements have no bearing on Google's present programs, which, in a non-infringing manner, allow the public to obtain limited data about the contents of the book, without allowing any substantial reading of its text.
Plaintiffs also seek to support their derivative claim by a showing that there is a current unpaid market in licenses for partial viewing of digitized books, such as the licenses that publishers currently grant to the Google Partners program and Amazon's Search Inside the Book program to display substantial portions of their books. Plaintiffs rely on Infinity Broadcast Corporation v. Kirkwood, 150 F.3d 104 (2nd Cir. 1998) and United States v. American Society of Composers, Authors and Publishers (ASCAP), 599 F. Supp. 2d 415 (S.D.N.Y. 2009) for the proposition that "a secondary use that replaces a comparable service licensed by the copyright holder, even without charge, may cause market harm." Pls.' Br. at 51. In the cases cited, however, the purpose of the challenged secondary uses was not the dissemination of information about the original works, which falls outside the protection of the copyright, but was rather the re-transmission, or re-dissemination, of their expressive content. Those precedents do not support the proposition Plaintiffs assert—namely that the availability of licenses for providing unprotected information about a copyrighted work, or supplying unprotected services related to it, gives the copyright holder the right to exclude others from providing such information or services.
While the telephone ringtones at issue in the ASCAP case Plaintiffs cite are superficially comparable to Google's snippets in that both consist of brief segments of the copyrighted work, in a more significant way they are fundamentally different. While it is true that Google's snippets display a fragment of expressive content, the fragments it displays result from the appearance of the term selected by the searcher in an otherwise arbitrarily selected snippet of text. Unlike the reading experience that the Google Partners program or the Amazon Search Inside the Book program provides, the snippet function does not provide searchers with any meaningful experience of the expressive content of the book. Its purpose is not to communicate copyrighted expression, but rather, by revealing to the searcher a tiny segment surrounding the searched term, to give some minimal contextual information to help the searcher learn whether the book's use of that term will be of interest to her. The segments taken from copyrighted music as ringtones, in contrast, are selected precisely because they play the most famous, beloved passages of the particular piece—the expressive content that members of the public want to hear when their phone rings. The value of the ringtone to the purchaser is not that it provides information but that it provides a mini-performance of the most appealing segment of the author's expressive content. There is no reason to think the courts in the cited cases would have come to the same conclusion if the service being provided by the secondary user had been simply to identify to a subscriber in what key a selected composition was written, the year it was written, or the name of the composer. These cases, and the existence of unpaid licensing schemes for substantial viewing of digitized works, do not support Plaintiffs' derivative works argument.
IV. Plaintiffs' Exposure to Risks of Hacking of Google's Files
Plaintiffs argue that Google's storage of its digitized copies of Plaintiffs' books exposes them to the risk that hackers might gain access and make the books widely available, thus destroying the value of their copyrights. Unlike the Plaintiffs' argument just considered based on a supposed derivative right to supply information about their books, this claim has a reasonable theoretical basis. If, in the course of making an arguable fair use of a copyrighted work, a secondary user unreasonably exposed the rights holder to destruction of the value of the copyright resulting from the public's opportunity to employ the secondary use as a substitute for purchase of the original (even though this was not the intent of the secondary user), this might well furnish a substantial rebuttal to the secondary user's claim of fair use. For this reason, the Arriba Soft and Perfect 10 courts, in upholding the secondary user's claim of fair use, observed that thumbnail images, which transformatively provided an Internet pathway to the original images, were of sufficiently low resolution that they were not usable as effective substitutes for the originals. Arriba Soft, 336 F.3d 811 at 819; Perfect 10, 508 F.3d at 1165.
While Plaintiffs' claim is theoretically sound, it is not supported by the evidence. In HathiTrust, we faced substantially the same exposure-to-piracy argument. The record in HathiTrust, however, "document[ed] the extensive security measures [the secondary user] ha[d] undertaken to safeguard against the risk of a data breach," evidence which was unrebutted. 755 F.3d at 100. The HathiTrust court thus found "no basis . . . on which to conclude that a security breach is likely to occur, much less one that would result in the public release of the specific copyrighted works belonging to any of the plaintiffs in this case." Id. at 100-101 (citing Clapper v. Amnesty Int'l USA, 133 S.Ct. 1138, 1143 (2013) (finding that risk of future harm must be "certainly impending," rather than merely "conjectural" or "hypothetical," to constitute a cognizable injury-in-fact), and Sony Corp., 464 U.S. at 453-454 (concluding that time-shifting using a Betamax is fair use because the copyright owners' "prediction that live television or movie audiences will decrease" was merely "speculative")).
Google has documented that Google Books' digital scans are stored on computers walled off from public Internet access and protected by the same impressive security measures used by Google to guard its own confidential information. As Google notes, Plaintiffs' own security expert praised these security systems, remarking that "Google is fortunate to have ample resources and top-notch technical talents" that enable it to protect its data. JA 1558, 1570. Nor have Plaintiffs identified any thefts from Google Books (or from the Google Library Project). Plaintiffs seek to rebut this record by quoting from Google's July 2012 SEC filing, in which the company made legally required disclosure of its potential market risks.[26] Google's prudent acknowledgment that "security breaches could expose [it] to a risk of loss . . . due to the actions of outside parties, employee error, malfeasance, or otherwise," however, falls far short of rebutting Google's demonstration of the effective measures it takes to guard against piratical hacking. Google has made a sufficient showing of protection of its digitized copies of Plaintiffs' works to carry its burden on this aspect of its claim of fair use and thus to shift to Plaintiffs the burden of rebutting Google's showing. Plaintiffs' effort to do so falls far short.
V. Google's Distribution of Digital Copies to Participant Libraries
Finally, Plaintiffs contend that Google's distribution to a participating library of a digital copy of Plaintiffs' books is not a fair use and exposes the Plaintiffs to risks of loss if the library uses its digital copy in an infringing manner, or if the library fails to maintain security over its digital copy with the consequence that the book may become freely available as a result of the incursions of hackers. The claim fails.
Although Plaintiffs describe the arrangement between Google and the libraries in more nefarious terms, those arrangements are essentially that each participant library has contracted with Google that Google will create for it a digital copy of each book the library submits to Google, so as to permit the library to use its digital copy in a non-infringing fair use manner. The libraries propose to use their digital copies to enable the very kinds of searches that we here hold to be fair uses in connection with Google's offer of such searches to the Internet public, and which we held in HathiTrust to be fair uses when offered by HathiTrust to its users. The contract between Google and each of the participating libraries commits the library to use its digital copy only in a manner consistent with the copyright law, and to take precautions to prevent dissemination of their digital copies to the public at large.
In these circumstances, Google's creation for each library of a digital copy of that library's already owned book in order to permit that library to make fair use through provision of digital searches is not an infringement. If the library had created its own digital copy to enable its provision of fair use digital searches, the making of the digital copy would not have been infringement. Nor does it become an infringement because, instead of making its own digital copy, the library contracted with Google that Google would use its expertise and resources to make the digital conversion for the library's benefit.
We recognize the possibility that libraries may use the digital copies Google created for them in an infringing manner. If they do, such libraries may be liable to Plaintiffs for their infringement. It is also possible that, in such a suit, Plaintiffs might adduce evidence that Google was aware of or encouraged such infringing practices, in which case Google could be liable as a contributory infringer. But on the present record, the possibility that libraries may misuse their digital copies is sheer speculation. Nor is there any basis on the present record to hold Google liable as a contributory infringer based on the mere speculative possibility that libraries, in addition to, or instead of, using their digital copies of Plaintiffs' books in a non-infringing manner, may use them in an infringing manner.
We recognize the additional possibility that the libraries might incur liability by negligent mishandling of, and failure to protect, their digital copies, leaving them unreasonably vulnerable to hacking. That also, however, is nothing more than a speculative possibility. There is no basis in the record to impose liability on Google for having lawfully made a digital copy for a participating library so as to enable that library to make non-infringing use of its copy, merely because of the speculative possibility that the library may fail to guard sufficiently against the dangers of hacking, as it is contractually obligated to do. Plaintiffs have failed to establish any basis for holding Google liable for its creation of a digital copy of a book submitted to it by a participating library so as to enable that library to make fair use of it.[27]
In sum, we conclude that: (1) Google's unauthorized digitizing of copyright-protected works, creation of a search functionality, and display of snippets from those works are non-infringing fair uses. The purpose of the copying is highly transformative, the public display of text is limited, and the revelations do not provide a significant market substitute for the protected aspects of the originals. Google's commercial nature and profit motivation do not justify denial of fair use. (2) Google's provision of digitized copies to the libraries that supplied the books, on the understanding that the libraries will use the copies in a manner consistent with the copyright law, also does not constitute infringement. Nor, on this record, is Google a contributory infringer.
CONCLUSION
The judgment of the district court is AFFIRMED.
APPENDIX A
APPENDIX B
[1] The Authors Guild, a membership organization of published authors, is also a plaintiff and appellant, seeking injunctive and declaratory relief on behalf of its members. However, in a separate case, this court found that, under the Copyright Act, the Authors Guild lacks standing to sue for copyright infringement on its members' behalf. Authors Guild, Inc. v. HathiTrust, 755 F.3d 87, 94 (2d Cir. 2014). As the three individual author-plaintiffs clearly do have standing, their suit and their appeal are properly adjudicated, notwithstanding the Authors Guild's lack of standing. See Bowsher v. Synar, 478 U.S. 714, 721 (1986) (finding that where one appellee had standing, the court need not consider the standing of other appellees in order to determine the merits of the appeal).
[2] Google now honors requests to remove books from snippet view. Some Plaintiffs appear to have had books removed from snippet view.
[3] Libraries participating in the Library Project at the time the suit was filed included the University of Michigan, the University of California, Harvard University, Stanford University, Oxford University, Columbia University, Princeton University, Ghent University, Keio University, the Austrian National Library, and the New York Public Library.
[4] Appendix A exhibits, as an example, a web page that would be revealed to a searcher who entered the phase "fair use," showing snippets from ALAN LATMAN, ROBERT A. GORMAN, & JANE C. GINSBURG, COPYRIGHT FOR THE EIGHTIES (1985).
[5] Appendix B exhibits the ngram for the phrase "fair use."
[6] For discussions and examples of scholarship and journalism powered by searchable digital text repositories, see, e.g., David Bamman & David Smith, Extracting Two Thousand Years of Latin from a Million Book Library, J. COMPUTING & CULTURAL HERITAGE 5 (2012), 1-13; Jean-Baptiste Michel et al., Quantitative Analysis of Culture Using Millions of Digitized Books, SCIENCE 331 (Jan. 14, 2011), 176-182; Marc Egnal, Evolution of the Novel in the United States: The Statistical Evidence, 37 SOC. SCI. HIST. 231 (2013); Catherine Rampell, The `New Normal' Is Actually Pretty Old, N.Y. TIMES ECONOMIX BLOG (Jan. 11, 2011), http://economix.blogs.nytimes.com/2011/01/11/the-new-normal-is-actually-pretty-old/?_r=0; and Christopher Forstall et al., Modeling the Scholars: Detecting Intertextuality through Enhanced Word-Level N-Gram Matching, DIGITAL SCHOLARSHIP IN THE HUMANITIES (May 15, 2014), http://dx.doi.org/10.1093/llc/fqu014.
[7] For unconventionally formatted books, the number of snippets per page may vary so as to approximate the same effect. The pages of a book of unusually tall, narrow format may be divided into more than eight horizontal snippets, while the pages of an unusually wide, short book may be divided into fewer than eight snippets.
[8] For example, the "Cooperative Agreement" between Google and the University of Michigan ("U of M") provides, inter alia, that:
Both Google and U of M agree and intend to perform this Agreement pursuant to copyright law. If at any time, either party becomes aware of copyright infringement under this agreement, that party shall inform the other as quickly as reasonably possible. . . . U of M shall have the right to use the U of M Digital Copy . . . as part of services offered on U of M's website. U of M shall implement technological measures (e.g., through use of the robots.txt protocol) to restrict automated access to any portion of the U of M Digital Copy or the portions of the U of M website on which any portion of the U of M Digital Copy is available. U of M shall also make reasonable efforts (including but not limited to restrictions placed in Terms of Use for the U of M website) to prevent third parties from (a) downloading or otherwise obtaining any portion of the U of M Digital Copy for commercial purposes, (b) redistributing any portions of the U of M Digital Copy, or (c) automated and systematic downloading from its website image files from the U of M Digital Copy. U of M shall restrict access to the U of M Digital Copy to those persons having a need to access such materials and shall also cooperate in good faith with Google to mutually develop methods and systems for ensuring that the substantial portions of the U of M Digital Copy are not downloaded from the services offered on U of M's website or otherwise disseminated to the public at large.
JA 233.
Google's agreement with Stanford appears to be less restrictive on Stanford than its agreements with other libraries. It ostensibly permits Stanford's libraries to "provide access to or copies from the Stanford Digital Copy" to a wide range of users, including individuals authorized to access the Stanford University Network, individuals affiliated with "partner research libraries," and "education, research, government institutions and libraries not affiliated with Stanford," CA 133, and to permit authorized individuals to download or print up to ten percent of Stanford Digital Copy. On the other hand, the agreement requires Stanford to employ its digital copies in conformity with the copyright law. Without evidence to the contrary, which Plaintiffs have not provided, it seems reasonable to construe these potentially conflicting provisions as meaning that Stanford may do the enumerated things ostensibly permitted only to the extent that doing so would be in conformity with the copyright law.
[9] A year earlier, authors brought suit against the HathiTrust Digital Library, alleging facts that are closely related, although not identical, to those alleged in the instant case. Authors Guild, Inc. v. HathiTrust, 755 F.3d 87, 91 (2d Cir. 2014).
[10] The district court had subject-matter jurisdiction over this federal copyright action pursuant to 28 U.S.C. §§ 1331 and 1338(a). This court has jurisdiction over the appeal from the final decision of the district court pursuant to 28 U.S.C. § 1291. We review an order granting summary judgment de novo, drawing all reasonable factual inferences in favor of the non-moving party. Ment Bros. Iron Works Co., Inc. v. Interstate Fire & Cas. Co., 702 F.3d 118, 120-21 (2d Cir. 2012).
[11] A similar message is reflected in England's original copyright enactment, "An Act for the Encouragement of Learning, by Vesting the Copies of Printed Books in the Authors," which explains as its purpose "the Encouragement of Learned Men to Compose and Write useful Books." Statute of Anne [1710].
[12] Id.
[13] The last sentence was added in 1992, rejecting this court's assertion in Salinger v. Random House, Inc. that unpublished works "normally enjoy insulation from fair use copying." 811 F.2d 90, 95 (2d Cir. 1987). See Pub. L. 102-492, Oct. 24, 1992, 106 Stat. 3145.
[14] 9 F. Cas. 342, 348 (C.C.D. Mass. 1841) ("[W]e must often, in deciding questions of this sort, look to the nature and objects of the selections made, the quantity and value of the materials used, and the degree in which the use may prejudice the sale, or diminish the profits, or supersede the objects, of the original work.").
[15] The full text of the statutory definition is as follows: "A `derivative work' is a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgement, 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.'" 17 U.S.C. § 101.
[16] See, e.g., Suntrust Bank v. Houghton Mifflin Co., 268 F.3d 1257, 1269-1271 (11th Cir. 2001) (copying from original to support parodic criticism of original's moral code justified as transformative fair use purpose).
[17] See, e.g., HathiTrust, 755 F.3d at 97-98 (justifying as transformative fair use purpose the digital copying of original for purpose of permitting searchers to determine whether its text employs particular words); A.V. ex rel. Vanderhye v. iParadigms, LLC, 562 F.3d 630, 638-640 (4th Cir. 2009) (justifying as transformative fair use purpose the complete digital copying of a manuscript to determine whether the original included matter plagiarized from other works); Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1165 (9th Cir. 2007) (justifying as transformative fair use purpose the use of a digital, thumbnail copy of the original to provide an Internet pathway to the original); Kelly v. Arriba Soft Corp., 336 F.3d 811, 818-819 (9th Cir. 2003) (same); Bond v. Blum, 317 F.3d 385 (4th Cir. 2003) (justifying as fair use purpose the copying of author's original unpublished autobiographical manuscript for the purpose of showing that he murdered his father and was an unfit custodian of his children); Nuñez v. Carribean Int'l News Corp., 235 F.3d 18, 21-23 (1st Cir. 2000) (justifying as transformative fair use purpose a newspaper's copying of a photo of winner of beauty pageant in a revealing pose for the purpose of informing the public of the reason the winner's title was withdrawn).
[18] The Seventh Circuit takes the position that the kind of secondary use that favors satisfaction of the fair use test is better described as a "complementary" use, referring to how a hammer and nail complement one another in that together they achieve results that neither can accomplish on its own. Ty, Inc. v Publ'ns Int'l, Ltd., 292 F.3d 512, 517-518 (7th Cir. 2002); see also Kienitz v. Sconnie Nation LLC, 766 F.3d 756, 758 (7th Cir. 2014), cert. denied, 135 S. Ct. 1555 (2015); WILLIAM M. LANDES & RICHARD A. POSNER, THE ECONOMIC STRUCTURE OF INTELLECTUAL PROPERTY LAW 153-154 (2003). We do not find the term "complementary" particularly helpful in explaining fair use. The term would encompass changes of form that are generally understood to produce derivative works, rather than fair uses, and, at the same time, would fail to encompass copying for purposes that are generally and properly viewed as creating fair uses. When a novel is converted into film, for example, the original novel and the film ideally complement one another in that each contributes to achieving results that neither can accomplish on its own. The invention of the original author combines with the cinematographic interpretive skills of the filmmaker to produce something that neither could have produced independently. Nonetheless, at least when the intention of the film is to make a "motion picture version" of the novel, 17 U.S.C. § 101, without undertaking to parody it or to comment on it, the film is generally understood to be a derivative work, which under § 106, falls within the exclusive rights of the copyright owner. Although they complement one another, the film is not a fair use. At the same time, when a secondary work quotes an original for the purpose of parodying it, or discrediting it by exposing its inaccuracies, illogic, or dishonesty, such an undertaking is not within the exclusive prerogatives of the rights holder; it produces a fair use. Yet, when the purpose of the second is essentially to destroy the first, the two are not comfortably described as complementaries that combine to produce together something that neither could have produced independently of the other. We recognize, as just noted above, that the word "transformative," if interpreted too broadly, can also seem to authorize copying that should fall within the scope of an author's derivative rights. Attempts to find a circumspect shorthand for a complex concept are best understood as suggestive of a general direction, rather than as definitive descriptions.
[19] Campbell, 510 U.S. at 583-84; Cariou v. Prince, 714 F.3d 694, 708 (2d Cir. 2013) cert. denied, 134 S. Ct. 618 (2013); Castle Rock Entm't, Inc. v. Carol Pub. Grp., Inc., 150 F.3d 132, 141-42 (2d Cir. 1998); Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1165 (9th Cir. 2007); Kelly v. Arriba Soft Corp., 336 F.3d 811, 819 (9th Cir. 2003); see also Monge v. Maya Magazines, Inc., 688 F.3d 1164, 1172 (9th Cir. 2012) (noting that Campbell "debunked the notion that Sony called for a `hard evidentiary presumption' that commercial use is presumptively unfair.")
[20] Just as there is no reason for presuming that a commercial use is not a fair use, which would defeat the most widely accepted and logically justified areas of fair use, there is likewise no reason to presume categorically that a nonprofit educational purpose should qualify as a fair use. Authors who write for educational purposes, and publishers who invest substantial funds to publish educational materials, would lose the ability to earn revenues if users were permitted to copy the materials freely merely because such copying was in the service of a nonprofit educational mission. The publication of educational materials would be substantially curtailed if such publications could be freely copied for nonprofit educational purposes.
[21] We think it unlikely that the Supreme Court meant in its concise dictum that secondary authors are at liberty to copy extensively from the protected expression of the original author merely because the material is factual. What the Harper & Row dictum may well have meant is that, because in the case of factual writings, there is often occasion to test the accuracy of, to rely on, or to repeat their factual propositions, and such testing and reliance may reasonably require quotation (lest a change of expression unwittingly alter the facts), factual works often present well justified fair uses, even if the mere fact that the work is factual does not necessarily justify copying of its protected expression.
[22] See Harper & Row, 471 U.S. at 564-565 (rejecting fair use defense for copying of only about 300 words, where the portion copied was deemed "the heart of the book").
[23] Some copyright scholars have argued this position. See, e.g., Paul Goldstein, Copyright's Commons, 29 COLUM. J.L. & ARTS 1, 5-6 (2005).
[24] See cases cited supra note 17; see also Bill Graham Archives v. Dorling Kindersley Ltd., 448 F.3d 605, 613 (2d Cir. 2006) ("[C]opying the entirety of a work is sometimes necessary to make a fair use of the [work].").
[25] The complete text is set forth at footnote 15, supra.
[26] The filing includes the following disclosure:
Our products and services involve the storage and transmission of users' and customers' proprietary information, and security breaches could expose us to a risk of loss of this information, litigation, and potential liability. Our security measures may be breached due to the actions of outside parties, employee error, malfeasance, or otherwise, and, as a result, an unauthorized party may obtain access to our data or our users' or customers' data. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information in order to gain access to our data or our users' or customers' data. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our products and services that could potentially have an adverse effect on our business. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose users and customers.
JA 562.
[27] We have considered Plaintiffs' other contentions not directly addressed in this opinion and find them without merit.
8.2.4. Giancarlo Frosio, Google Books Rejected: Taking the Orphans to the Digital Library of Alexandria, 28 Santa Clara Computer & High. Tech. L. J. 81 (2011)
8.2.5 Public Relations Consultants Association Ltd v Newspaper Licensing Agency Ltd and Others, C-360-13, 5 June 2014 (ECJ) 8.2.5 Public Relations Consultants Association Ltd v Newspaper Licensing Agency Ltd and Others, C-360-13, 5 June 2014 (ECJ)
JUDGMENT OF THE COURT (Fourth Chamber)
5 June 2014 (*)
(Copyright — Information Society — Directive 2001/29/EC — Article 5(1) and (5) — Reproduction — Exceptions and limitations — Creation of copies of an internet site on-screen and in the cache of the hard disk in the course of browsing the internet — Temporary act of reproduction — Transient or incidental act — Integral and essential part of a technological process — Lawful use — Independent economic significance)
In Case C‑360/13,
REQUEST for a preliminary ruling under Article 267 TFEU from the Supreme Court of the United Kingdom (United Kingdom), made by decision of 24 June 2013, received at the Court on 27 June 2013, in the proceedings
Public Relations Consultants Association Ltd
v
Newspaper Licensing Agency Ltd and Others,
THE COURT (Fourth Chamber),
composed of L. Bay Larsen, President of the Chamber, M. Safjan, J. Malenovský (Rapporteur), A. Prechal and K. Jürimäe, Judges,
Advocate General: M. Szpunar,
Registrar: A. Calot Escobar,
having regard to the written procedure,
after considering the observations submitted on behalf of:
– Public Relations Consultants Association Ltd, by M. Hart, Solicitor,
– Newspaper Licensing Agency Ltd and Others, by S. Clark, Solicitor,
– the United Kingdom Government, by L. Christie, acting as Agent,
– the Italian Government, by G. Palmieri, acting as Agent, and by M. Santoro, avvocato dello Stato,
– the Polish Government, by B. Majczyna, acting as Agent,
– the European Commission, by J. Samnadda, acting as Agent,
having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,
gives the following
Judgment
1 This request for a preliminary ruling concerns the interpretation of Article 5(1) of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society (OJ 2001 L 167, p. 10).
2 The request has been made in proceedings between Public Relations Consultants Association Ltd (‘the PRCA’) and Newspaper Licensing Agency Ltd and Others (‘the NLA’) concerning the obligation to obtain authorisation from the copyright holders for the viewing of websites where this involves copies of those sites being made on the user’s computer screen and in the internet cache of that computer’s hard disk.
Legal context
EU law
3 Recitals 5, 9, 31 and 33 in the preamble to Directive 2001/29 are worded as follows:
‘(5) Technological development has multiplied and diversified the vectors for creation, production and exploitation. While no new concepts for the protection of intellectual property are needed, the current law on copyright and related rights should be adapted and supplemented to respond adequately to economic realities such as new forms of exploitation.
…
(9) Any harmonisation of copyright and related rights must take as a basis a high level of protection, since such rights are crucial to intellectual creation. …
…
(31) A fair balance of rights and interests between the different categories of rightholders, as well as between the different categories of rightholders and users of protected subject-matter, must be safeguarded. …
…
(33) The exclusive right of reproduction should be subject to an exception to allow certain acts of temporary reproduction, which are transient or incidental reproductions, forming an integral and essential part of a technological process and carried out for the sole purpose of enabling either efficient transmission in a network between third parties by an intermediary, or a lawful use of a work or other subject-matter to be made. The acts of reproduction concerned should have no separate economic value on their own. To the extent that they meet these conditions, this exception should include acts which enable browsing as well as acts of caching to take place, including those which enable transmission systems to function efficiently, provided that the intermediary does not modify the information and does not interfere with the lawful use of technology, widely recognised and used by industry, to obtain data on the use of the information. A use should be considered lawful where it is authorised by the rightholder or not restricted by law.’
4 Article 2(a) of that directive states:
‘Member States shall provide for the exclusive right to authorise or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part:
(a) for authors, of their works …’.
5 Under Article 5(1) and (5) of Directive 2001/29:
‘1. Temporary acts of reproduction referred to in Article 2, which are transient or incidental, which are an integral and essential part of a technological process and whose sole purpose is to enable:
(a) a transmission in a network between third parties by an intermediary, or
(b) lawful use
of a work or other subject-matter to be made, and which have no independent economic significance, shall be exempted from the reproduction right provided for in Article 2.
…
5. The exceptions and limitations provided for in paragraphs 1, 2, 3 and 4 shall only be applied in certain special cases which do not conflict with a normal exploitation of the work or other subject-matter and do not unreasonably prejudice the legitimate interests of the rightholder.’
United Kingdom law
6 Article 5(1) of Directive 2001/29 was transposed into national law by section 28A of the Copyright, Designs and Patents Act 1988.
The dispute in the main proceedings and the question referred for a preliminary ruling
7 The PRCA is an association of public relations professionals. Those professionals use the media monitoring service offered by the Meltwater group of companies (‘Meltwater’), which makes available to them, online, monitoring reports on press articles published on the internet, those reports being compiled on the basis of key words provided by the customers.
8 The NLA is a body set up by the publishers of newspapers in the United Kingdom for the purpose of providing collective licensing of newspaper content.
9 The NLA took the view that Meltwater and its customers were required to obtain authorisation from the copyright holders for, respectively, providing and receiving the media monitoring service.
10 Meltwater agreed to enter into a web database licence. The PRCA, however, maintained that the online receipt of the monitoring reports by Meltwater’s customers not require a licence.
11 Seised of the dispute, the High Court of Justice (England & Wales), Chancery Division, and the Court of Appeal (England & Wales) held that the members of the PRCA were required to obtain a licence or consent from the NLA in order to receive Meltwater’s service.
12 The PRCA brought an appeal against that decision before the Supreme Court of the United Kingdom, claiming, in particular, that its members do not need authorisation from rights holders when they confine themselves to viewing the monitoring reports on Meltwater’s website.
13 The NLA contended that that activity requires the authorisation of the copyright holders, in so far as viewing the website leads to copies being made on the user’s computer screen (‘the on-screen copies’) and in the internet ‘cache’ of that computer’s hard disk (‘the cached copies’). It contends that those copies constitute ‘reproductions’, within the meaning of Article 2 of Directive 2001/29, that do not come within the exemption provided for in Article 5(1) of that directive.
14 The referring court observes that the proceedings before it concern the question whether internet users who view websites on their computers without downloading or printing them out are committing infringements of copyright by reason of the creation of on-screen copies and cached copies, unless they have the authorisation of the rights holders to make such copies.
15 In this connection, the referring court states, first of all, that when an internet user views a website on his computer, without downloading it, the technical processes involved require the copies in question to be made. The creation of those copies is the automatic result of browsing the internet and requires no human intervention other than the decision to access the website in question. The on-screen copies and the cached copies are retained only for the ordinary duration of the processes associated with internet usage. In addition, the deletion of those copies does not require any human intervention. It is true that the cached copies may be deleted deliberately by the internet user concerned. However, if the internet user does not do this, those copies are normally replaced by other content after a certain time, which depends on the capacity of the cache and the extent and frequency of internet usage by the internet user concerned.
16 Next, the referring court states that the on-screen copy is an essential part of the technology involved, without which the website cannot be viewed, and remains on the screen until the internet user moves away from the site in question. The internet cache is a universal feature inherent in current internet-browsing technology, without which the internet would be unable to cope with current volumes of online data transmission and would not function properly. The creation of on-screen copies and cached copies is therefore indispensable to the correct and efficient operation of the technical processes involved in internet browsing.
17 Lastly, the referring court points out that, ordinarily, when an internet user browses the internet, he does not set out to make a copy of the image unless he chooses to download it or to print it out. His aim is to view the content of the website selected. The on-screen copies and the cached copies are therefore merely the incidental consequence of the use of his computer to view a website.
18 In the light of those considerations, the referring court concluded that on-screen copies and cached copies satisfy the conditions laid down in Article 5(1) of Directive 2001/29. None the less, a request for a preliminary ruling to the Court would, it found, be desirable for the purpose of ensuring the uniform application of EU law throughout the territory of the European Union.
19 In this connection, it explains that it is uncertain as to whether those copies are temporary, whether they are transient or incidental in nature and whether they are an integral part of the technological process. By contrast, it takes the view that such copies are bound to satisfy the other conditions laid down in Article 5(1) of Directive 2001/29.
20 In those circumstances, the Supreme Court of the United Kingdom decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
‘In circumstances where:
– an end-user views a web-page without downloading, printing or otherwise setting out to make a copy of it;
– copies of that web-page are automatically made on screen and in the internet “cache” on the end-user’s [computer] hard disk;
– the creation of those copies is indispensable to the technical processes involved in correct and efficient internet browsing;
– the screen copy remains on screen until the end-user moves away from the relevant web-page, when it is automatically deleted by the normal operation of the computer;
– the cached copy remains in the cache until it is overwritten by other material as the end-user views further web-pages, when it is automatically deleted by the normal operation of the computer; and
– the copies are retained for no longer than the ordinary processes associated with internet use referred to [in the fourth and fifth indents] continue;
are such copies (i) temporary, (ii) transient or incidental and (iii) an integral and essential part of the technological process within the meaning of Article 5(1) of Directive 2001/29/EC?’
Consideration of the question referred
21 By its question, the referring court asks, in essence, whether Article 5 of Directive 2001/29 must be interpreted as meaning that the on-screen copies and the cached copies made by an end-user in the course of viewing a website satisfy the conditions that those copies must be temporary, that they must be transient or incidental in nature and that they must constitute an integral and essential part of a technological process, and, if so, whether those copies may be made without the authorisation of the copyright holders.
Preliminary observations
22 Under Article 5(1) of Directive 2001/29, an act of reproduction is exempted from the reproduction right provided for in Article 2 of that directive on condition that:
– it is temporary;
– it is transient or incidental;
– it is an integral and essential part of a technological process;
– its sole purpose is to enable a transmission in a network between third parties by an intermediary or a lawful use of a work or other subject-matter to be made, and
– it has no independent economic significance.
23 According to the case-law of the Court, the conditions set out above must be interpreted strictly, because Article 5(1) of Directive 2001/29 is a derogation from the general rule established by that directive that the copyright holder must authorise any reproduction of his protected work (Case C‑5/08 Infopaq International, EU:C:2009:465, paragraphs 56 and 57, and Joined Cases C‑403/08 and C‑429/08 Football Association Premier League and Others, EU:C:2011:631, paragraph 162).
24 None the less, it is apparent from that same case-law that the exemption provided for in that provision must allow and ensure the development and operation of new technologies, and safeguard a fair balance between the rights and interests of rights holders and of users of protected works who wish to avail themselves of those technologies (see Football Association Premier League and Others, EU:C:2011:631, paragraph 164).
Whether the conditions laid down in Article 5(1) of Directive 2001/29 are satisfied
25 The referring court has stated that the on-screen copies and cached copies satisfy the fourth and fifth conditions set out in Article 5(1) of Directive 2001/29; accordingly, the present reference relates solely to whether the first three conditions are satisfied.
26 As regards the first condition, under which the act of reproduction must be temporary, it is apparent from the documents before the Court, first, that the on-screen copies are deleted when the internet user moves away from the website viewed. Secondly, the cached copies are normally automatically replaced by other content after a certain time, which depends on the capacity of the cache and on the extent and frequency of internet usage by the internet user concerned. It follows that those copies are temporary in nature.
27 In those circumstances, it must be held that those copies satisfy the first condition set out in Article 5(1) of Directive 2001/29.
28 Under the third condition, which it is appropriate to examine in second place, the acts of reproduction in question must be an integral and essential part of a technological process. That condition requires that two criteria both be fulfilled, namely that, first, the acts of reproduction are carried out entirely in the context of the implementation of a technological process and, secondly, the completion of those acts of reproduction is necessary, in that the technological process could not function correctly and efficiently without those acts (seeInfopaq International, EU:C:2009:465, paragraph 61, and order in Case C‑302/10 Infopaq International, EU:C:2012:16, paragraph 30).
29 Concerning, first of all, the first of those two criteria, it should be pointed out that, in the case in the main proceedings, the on-screen copies and the cached copies are created and deleted by the technological process used for viewing websites, with the result that they are made entirely in the context of that process.
30 It is irrelevant, in this regard, that the process in question is activated by the internet user and that it is terminated by a temporary act of reproduction such as the on-screen copy.
31 It follows from the case-law of the Court that, since Article 5(1) of Directive 2001/29 does not specify at which stage of the technological process the acts of temporary reproduction are deemed to be carried out, it cannot be excluded that such acts can initiate or terminate that process (order Infopaq International, EU:C:2012:16, paragraph 31).
32 Furthermore, it is apparent from the case-law that Article 5(1) of Directive 2001/29 does not preclude the technological process from involving human intervention and, in particular, from being activated or completed manually (see, to that effect, order Infopaq International, EU:C:2012:16, paragraph 32).
33 It follows that the on-screen copies and the cached copies must be regarded as being an integral part of the technological process at issue in the main proceedings.
34 Next, as regards the second of the criteria mentioned in paragraph 28 above, it is apparent from the order for reference that, even if the process at issue in the main proceedings can be implemented without the acts of reproduction concerned taking place, the fact remains that, in those circumstances, the process cannot function correctly and efficiently.
35 According to the order for reference, the cached copies greatly facilitate browsing on the internet, since without those copies, the internet would be unable to cope with current volumes of data transmitted online. Without the creation of such copies, the process used for viewing websites would be considerably less efficient and would not be able to function properly.
36 Concerning the on-screen copies, it has not been disputed that, at present, the technology for the viewing of websites on computers requires such copies to be made if it is to function correctly and efficiently.
37 Consequently, the on-screen copies and the cached copies must be regarded as being an essential part of the technological process at issue in the main proceedings.
38 It follows that the two categories of copies satisfy the third condition laid down in Article 5(1) of Directive 2001/29.
39 The second condition, which it is appropriate to examine in third place, comprises alternative criteria. The act of reproduction must be either transient or incidental.
40 As regards the first of the two criteria, it should be recalled that an act will be held to be ‘transient’, in the light of the technological process used, if its duration is limited to what is necessary for that process to work properly, it being understood that that process must be automated inasmuch as it deletes such an act automatically, without human intervention, once its function of enabling the completion of such a process has come to an end (see, to that effect, Infopaq International, EU:C:2009:465, paragraph 64).
41 Nevertheless, the requirement of automatic deletion does not preclude such a deletion from being preceded by human intervention directed at terminating the use of the technological process. As stated in paragraph 32 above, it is permissible for the technological process at issue in the main proceedings to be activated and completed manually.
42 Therefore, contrary to what the NLA contends, an act of reproduction does not lose its transient nature merely because the deletion by the system of the copy generated is preceded by the intervention of the end-user designed to terminate the technological process concerned.
43 As regards the other criterion mentioned in paragraph 39 above, an act of reproduction can be regarded as ‘incidental’ if it neither exists independently of, nor has a purpose independent of, the technological process of which it forms part.
44 In the case in the main proceedings, as regards, first, the on-screen copies, it should be recalled that these are automatically deleted by the computer at the moment when the internet user moves away from the website concerned and, therefore, at the moment when he terminates the technological process used for viewing that site.
45 In this connection, it is irrelevant, contrary to what the NLA contends, that the on-screen copy remains in existence for as long as the internet user keeps his browser open and stays on the website concerned because, during that period, the technological process used for viewing that site remains active.
46 Accordingly, it must be held that the period during which the on-screen copies remain in existence is limited to what is necessary for the proper functioning of the technological process used for viewing the website concerned. Consequently, those copies must be regarded as ‘transient’.
47 Next, so far as concerns the cached copies, it is true that, unlike the on-screen copies, they are not deleted at the time when the internet user terminates the technological process used for viewing the website concerned, since they are retained in the cache for the purposes of a possible subsequent viewing of that site.
48 However, it is not necessary that such copies be categorised as ‘transient’ once it has been established that they are incidental in nature in the light of the technological process used.
49 In this connection, it should be pointed out, first, that the technological process in question wholly determines the purpose for which those copies are created and used, although, as is apparent from paragraph 34 above, that process can function, albeit less efficiently, without such copies being made. Secondly, it is apparent from the documents before the Court that internet users employing the technological process at issue in the main proceedings cannot create the cached copies outside of that process.
50 It follows that the cached copies neither exist independently of, nor have a purpose independent of, the technological process at issue in the main proceedings and must, for that reason, be regarded as ‘incidental’.
51 In those circumstances, it must be held that the on-screen copies and the cached copies satisfy the second condition laid down in Article 5(1) of Directive 2001/29.
52 In the light of the foregoing, it must be held that the copies at issue in the main proceedings satisfy the first three conditions set out in Article 5(1) of Directive 2001/29.
53 Nevertheless, in order for it to be possible to rely on the exception laid down in that provision, as interpreted in paragraph 52 above, those copies must also satisfy the conditions laid down in Article 5(5) of Directive 2001/29 (see, to that effect, Football Association Premier League and Others, EU:C:2011:631, paragraph 181).
Whether the conditions laid down in Article 5(5) of Directive 2001/29 are satisfied
54 Under Article 5(5) of Directive 2001/29, the carrying-out of a temporary act of reproduction is exempt from the reproduction right only in certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the rights holders.
55 In this connection, it should be stated, first of all, that, since the on-screen copies and the cached copies are created only for the purpose of viewing websites, they constitute, on that basis, a special case.
56 Next, although the copies make it possible, in principle, for internet users to access works displayed on websites without the authorisation of the copyright holders, the copies do not unreasonably prejudice the legitimate interests of those rights holders.
57 In this connection, it must be pointed out that the works are made available to internet users by the publishers of the websites, those publishers being required, under Article 3(1) of Directive 2001/29, to obtain authorisation from the copyright holders concerned, since that making available constitutes a communication to the public within the meaning of that article.
58 The legitimate interests of the copyright holders concerned are thus properly safeguarded.
59 In those circumstances, there is no justification for requiring internet users to obtain another authorisation allowing them to avail themselves of the same communication as that already authorised by the copyright holder in question.
60 Lastly, it must be held that the creation of the on-screen copies and the cached copies does not conflict with a normal exploitation of the works.
61 In this connection, it should be pointed out that the viewing of websites by means of the technological process at issue represents a normal exploitation of the works which makes it possible for internet users to avail themselves of the communication to the public made by the publisher of the website concerned. Given that the creation of the copies in question forms part of such viewing, it cannot operate to the detriment of such an exploitation of the works.
62 It follows from the foregoing that the on-screen copies and the cached copies satisfy the conditions laid down in Article 5(5) of Directive 2001/29.
63 In those circumstances, the answer to the question referred is that Article 5 of Directive 2001/29 must be interpreted as meaning that the on-screen copies and the cached copies made by an end-user in the course of viewing a website satisfy the conditions that those copies must be temporary, that they must be transient or incidental in nature and that they must constitute an integral and essential part of a technological process, as well as the conditions laid down in Article 5(5) of that directive, and that they may therefore be made without the authorisation of the copyright holders.
Costs
64 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Fourth Chamber) hereby rules:
Article 5 of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society must be interpreted as meaning that the copies on the user’s computer screen and the copies in the internet ‘cache’ of that computer’s hard disk, made by an end-user in the course of viewing a website, satisfy the conditions that those copies must be temporary, that they must be transient or incidental in nature and that they must constitute an integral and essential part of a technological process, as well as the conditions laid down in Article 5(5) of that directive, and that they may therefore be made without the authorisation of the copyright holders.
8.2.6. Technische Universitн_t Darmstadt v Eugen Ulmer KG, C-117/13, 11 September 2014
8.2.7 Padawan v SGAE, C-467/08, October 21, 2010 (ECJ) (private copy, fair compensation) 8.2.7 Padawan v SGAE, C-467/08, October 21, 2010 (ECJ) (private copy, fair compensation)
JUDGMENT OF THE COURT (Third Chamber)
21 October 2010 (*)
(Approximation of laws – Copyright and related rights – Directive 2001/29/EC – Reproduction right – Exceptions and limitations – Private copying exception – Definition of ‘fair compensation’ – Uniform interpretation – Implementation by the Member States – Criteria – Limits – Private copying levy applied to digital reproduction equipment, devices and media)
In Case C‰ЫФ467/08,
REFERENCE for a preliminary ruling under Article 234 EC from the Audiencia Provincial de Barcelona (Spain), made by decision of 15 September 2008, received at the Court on 31 October 2008, in the proceedings
Padawan SL
v
Sociedad General de Autores y Editores de España (SGAE),
intervening parties:
Entidad de Gestión de Derechos de los Productores Audiovisuales (EGEDA),
Asociación de Artistas Intérpretes o Ejecutantes – Sociedad de Gestión de España (AIE),
Asociación de Gestión de Derechos Intelectuales (AGEDI),
Centro Español de Derechos Reprográficos (CEDRO),
THE COURT (Third Chamber),
composed of K. Lenaerts, President of the Chamber, D. Šváby, R. Silva de Lapuerta, E. Juhász and J. Malenovský (Rapporteur), Judges,
Advocate General: V. Trstenjak,
Registrar: M. Ferreira, Principal Administrator,
having regard to the written procedure and further to the hearing on 4 March 2010,
after considering the observations submitted on behalf of:
– Padawan SL, by J. Jover Padró, E. Blanco Aymerich and A. González García, abogados,
– Sociedad General de Autores y Editores (SGAE), by P. Hernández Arroyo, J. Segovia Murúa, R. Allendesalazar Corchó and R. Vallina Hoset, abogados,
– Entidad de Gestión de Derechos de los Productores Audiovisuales (EGEDA), by J.A. Suárez Lozano and M. Benzal Medina, abogados,
– Asociación de Artistas Intérpretes o Ejecutantes – Sociedad de Gestión de España (AIE), by C. López Sánchez, abogado,
– Asociación de Gestión de Derechos Intelectuales (AGEDI), by R. Ros Fernández, procurador, and F. Márquez Martín, abogado,
– Centro Español de Derechos Reprográficos (CEDRO), by M. Malmierca Lorenzo and J. Díaz de Olarte, abogados,
– the Spanish Government, by J. López-Medel Bascones and N. Díaz Abad, acting as Agents,
– the German Government, by M. Lumma and S. Unzeitig, acting as Agents,
– the Greek Government, by E.-M. Mamouna and V. Karra, acting as Agents,
– the French Government, by G. de Bergues and B. Beaupère-Manokha, acting as Agents,
– the Portuguese Government, by L. Inez Fernandes and N. Gonçalves, acting as Agents,
– the Finnish Government, by A. Guimaraes-Purokoski, acting as Agent,
– the United Kingdom Government, by H. Walker, acting as Agent,
– the European Commission, by L. Lozano Palacios and H. Krämer, acting as Agents,
after hearing the Opinion of the Advocate General at the sitting on 11 May 2010,
gives the following
Judgment
1 This reference for a preliminary ruling concerns the interpretation of the concept of ‘fair compensation’ in Article 5(2)(b) of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society (OJ 2001 L 167, p. 10) paid to copyright holders in respect of the ‘private copying exception’.
2 The reference has been made in the course of proceedings between Padawan SL (‘Padawan’) and Sociedad General de Autores y Editores de España (‘SGAE’) concerning the ‘private copying levy’ allegedly owed by Padawan in respect of CD-R, CD-RW, DVD-R and MP3 players marketed by it.
Legal context
Directive 2001/29
3 Recitals 9, 10, 31, 32, 35, 38 and 39 in the preamble to Directive 2001/29 are worded as follows:
‘(9) Any harmonisation of copyright and related rights must take as a basis a high level of protection, since such rights are crucial to intellectual creation. Their protection helps to ensure the maintenance and development of creativity in the interests of authors, performers, producers, consumers, culture, industry and the public at large. Intellectual property has therefore been recognised as an integral part of property.
(10) If authors or performers are to continue their creative and artistic work, they have to receive an appropriate reward for the use of their work, as must producers in order to be able to finance this work …
…
(31) A fair balance of rights and interests between the different categories of rightholders, as well as between the different categories of rightholders and users of protected subject-matter must be safeguarded …
(32) This Directive provides for an exhaustive enumeration of exceptions and limitations to the reproduction right and the right of communication to the public. Some exceptions or limitations only apply to the reproduction right, where appropriate. This list takes due account of the different legal traditions in Member States, while, at the same time, aiming to ensure a functioning internal market. Member States should arrive at a coherent application of these exceptions and limitations, which will be assessed when reviewing implementing legislation in the future.
…
(35) In certain cases of exceptions or limitations, rightholders should receive fair compensation to compensate them adequately for the use made of their protected works or other subject-matter. When determining the form, detailed arrangements and possible level of such fair compensation, account should be taken of the particular circumstances of each case. When evaluating these circumstances, a valuable criterion would be the possible harm to the rightholders resulting from the act in question. In cases where rightholders have already received payment in some other form, for instance as part of a licence fee, no specific or separate payment may be due. The level of fair compensation should take full account of the degree of use of technological protection measures referred to in this Directive. In certain situations where the prejudice to the rightholder would be minimal, no obligation for payment may arise.
…
(38) Member States should be allowed to provide for an exception or limitation to the reproduction right for certain types of reproduction of audio, visual and audio-visual material for private use, accompanied by fair compensation. This may include the introduction or continuation of remuneration schemes to compensate for the prejudice to rightholders …
(39) When applying the exception or limitation on private copying, Member States should take due account of technological and economic developments, in particular with respect to digital private copying and remuneration schemes, when effective technological protection measures are available. Such exceptions or limitations should not inhibit the use of technological measures or their enforcement against circumvention.’
4 Under Article 2 of Directive 2001/29:
‘Member States shall provide for the exclusive right to authorise or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part:
(a) for authors, of their works;
(b) for performers, of fixations of their performances;
(c) for phonogram producers, of their phonograms;
(d) for the producers of the first fixations of films, in respect of the original and copies of their films;
(e) for broadcasting organisations, of fixations of their broadcasts, whether those broadcasts are transmitted by wire or over the air, including by cable or satellite.’
5 Article 5 of Directive 2001/29, entitled ‘Exceptions and limitations’, states in subparagraph 2(b):
‘Member States may provide for exceptions or limitations to the reproduction right provided for in Article 2 in the following cases:
…
(b) in respect of reproductions on any medium made by a natural person for private use and for ends that are neither directly nor indirectly commercial, on condition that the rightholders receive fair compensation which takes account of the application or non-application of technological measures referred to in Article 6 to the work or subject-matter concerned’.
6 Article 5(5) of that directive provides:
‘The exceptions and limitations provided for in paragraphs 1, 2, 3 and 4 shall only be applied in certain special cases which do not conflict with a normal exploitation of the work or other subject-matter and do not unreasonably prejudice the legitimate interests of the rightholder.’
7 Article 6 of Directive 2001/29, entitled ‘Obligations as to technological measures’, provides in paragraphs 3 and 4:
‘3. For the purposes of this Directive, the expression “technological measures” means any technology, device or component that, in the normal course of its operation, is designed to prevent or restrict acts, in respect of works or other subject-matter, which are not authorised by the rightholder of any copyright or any right related to copyright as provided for by law or the sui generis right provided for in Chapter III of Directive 96/9/EC. Technological measures shall be deemed “effective” where the use of a protected work or other subject-matter is controlled by the rightholders through application of an access control or protection process, such as encryption, scrambling or other transformation of the work or other subject-matter or a copy control mechanism, which achieves the protection objective.
4. Notwithstanding the legal protection provided for in paragraph 1, in the absence of voluntary measures taken by rightholders, including agreements between rightholders and other parties concerned, Member States shall take appropriate measures to ensure that rightholders make available to the beneficiary of an exception or limitation provided for in national law in accordance with Article 5(2)(a), (2)(c), (2)(d), (2)(e), (3)(a), (3)(b) or (3)(e) the means of benefiting from that exception or limitation, to the extent necessary to benefit from that exception or limitation and where that beneficiary has legal access to the protected work or subject-matter concerned.
A Member State may also take such measures in respect of a beneficiary of an exception or limitation provided for in accordance with Article 5(2)(b), unless reproduction for private use has already been made possible by rightholders to the extent necessary to benefit from the exception or limitation concerned and in accordance with the provisions of Article 5(2)(b) and (5), without preventing rightholders from adopting adequate measures regarding the number of reproductions in accordance with these provisions.
…’
National legislation
8 The applicable rules are contained in Royal Legislative Decree 1/1996 of 12 April 1996, approving the consolidated text of the Law on Intellectual Property (‘the CTLIP’). That royal legislative decree was amended in the context of the transposition of Directive 2001/29 by the Law 23/2006 of 7 July 2006 amending the consolidated text of the Law on Intellectual Property approved by Royal Legislative Decree 1/1996 (BOE No 162 of 8 July 2006, p. 25561).
9 Article 17 of the CTLIP, entitled ‘Exclusive rights of exploitation and implementing rules’, is worded as follows:
‘The author shall have exclusive rights of exploitation of his works regardless of their form and, in particular, reproduction rights … which cannot be exercised without his permission except in circumstances laid down in this Law.’
10 Under the heading ‘Reproduction’, Article 18 of the CTLIP provides:
‘Reproduction means the fixation of the work on a medium which enables communication of the work and copying of the whole or part of the work.’
11 Under Article 31(2) of the CTLIP:
‘The reproduction of works which have already been circulated shall not be subject to the author’s permission where the reproduction is by a natural person for his private use with respect to works which he has accessed legally, without prejudice to the fair compensation provided for in Article 25 … provided that the usage of the copy is not collective or for profit’.
12 Article 25 of the CTLIP, entitled ‘Fair compensation for private copying’, provides in subparagraphs 1, 2 and 4:
‘1. Reproduction exclusively for private use, by means of non-typographical devices or technical instruments, of works circulated in the form of books or publications, deemed by regulation to be equivalent, and phonograms, videograms and other sound, visual or audiovisual media shall give rise to fair compensation paid at a flat rate for each of the three methods of reproduction mentioned, for the persons cited in subparagraph 4(b) in order to compensate the intellectual property rights which cease to be paid by reason of that reproduction. …
2. That compensation shall be determined for each means of reproduction according to the equipment, devices and media appropriate to create that reproduction, which were manufactured on Spanish territory or acquired elsewhere with a view to their commercial distribution or their use there.
…
4. With respect to the legal obligation mentioned in subparagraph 1,
(a) “Debtors”: means manufacturers established in Spain, where they operate as commercial distributors, and persons who acquire outside Spanish territory, the equipment, devices and media referred to in subparagraph 2 with a view to their commercial distribution or use there.
The distributors, wholesalers and retailers, as subsequent purchasers of the equipment, devices and media, shall pay compensation jointly and severally with the debtors who supplied them for the products concerned, unless they prove that that compensation has in fact been paid for them, without prejudice to subparagraphs 14, 15 and 20.
(b) “Creditors” means the authors of works publicly exploited in one of the forms mentioned in subparagraph 1, together, according to the case and mode of reproduction, with the editors, producers of phonograms and videograms and performers whose performances have been fixed on those phonograms and videograms.’
13 Article 25(6) of the CTLIP sets out the procedure for approving the amount of compensation which each debtor has to pay with respect to digital equipment, devices and media, a procedure which involves the Ministry of Culture, the Ministry of Industry, Tourism and Trade, intellectual property rights management societies, sectoral associations which represent mainly the debtors, Spanish consumer associations and the Ministry of Economy and Finance.
14 Article 25(6) provides that ‘the parties to the process of negotiation and, in every case, the Ministry of Culture and the Ministry of Industry, Tourism and Trade, for the purposes of the adoption of the inter-ministerial decree referred to in the following provision, shall take into account, inter alia, the following criteria:
– the harm actually caused to the rightholders referred to in subparagraph 1, regard being had to the fact that if the harm caused to the holder is minimal it cannot give rise to an obligation for payment;
– the degree to which the equipment, devices and media was used for the copying referred to in subparagraph 1;
– the storage capacity of the equipment, devices and media;
– the quality of the reproductions;
– the availability, level of application and effectiveness of the technological measures referred to in Article 161;
– how long the reproductions can be preserved;
– the corresponding amounts of compensation applicable to the various equipment or devices concerned must be financially proportionate with respect to the average final retail price of those products.’
15 Article 25(12) of the CTLIP, which concerns the persons who are required to pay compensation, is worded as follows:
‘The obligation to pay compensation shall arise in the following circumstances:
(a) With respect to manufacturers, where they operate as distributors, and for the persons who acquire the equipment, devices and media outside Spanish territory with a view to their commercial distribution therein, when the passing of property is effected by the debtor or, as the case may be, when the right to use or to enjoy any of the equipment, devices and media is transferred.
(b) With respect to the persons who acquire equipment, devices and media outside Spanish territory in order to use them therein, at the time they were acquired.’
The dispute in the main proceedings and the questions referred for a preliminary ruling
16 SGAE is one of the bodies responsible for the collective management of intellectual property rights in Spain.
17 Padawan markets CD-Rs, CD-RWs, DVD-Rs and MP3 players. SGAE claimed payment from Padawan of the ‘private copying levy’ provided for in Article 25 of the CTLIP for the years 2002 to 2004. Padawan refused on the ground that the application of that levy to digital media, indiscriminately and regardless of the purpose for which they were intended (private use or other professional or commercial activities), was incompatible with Directive 2001/29. By judgment of 14 June 2007, the Juzgado de lo Mercantil No 4 de Barcelona upheld SGAE’s claim in its entirety and Padawan was ordered to pay EUR 16 759.25 together with interest.
18 Padawan appealed against that judgment to the referring court.
19 After consulting the parties and the Public Prosecutor’s office about the expediency of making a reference for a preliminary ruling, the Audiencia Provincial de Barcelona (Provincial Court, Barcelona) decided to stay its proceedings and to refer the following questions to the Court for a preliminary ruling:
‘1. Does the concept of “fair compensation” in Article 5(2)(b) of Directive 2001/29/EC entail harmonisation, irrespective of the Member States’ right to choose the system of collection which they deem appropriate for the purposes of giving effect to the right to fair compensation of intellectual property rightholders affected by the adoption of the private copying exception or limitation?
2. Regardless of the system used by each Member State to calculate fair compensation, must that system ensure a fair balance between the persons affected, the intellectual property rightholders affected by the private copying exception, to whom the compensation is owed, on the one hand, and the persons directly or indirectly liable to pay the compensation, on the other, and is that balance determined by the reason for the fair compensation, which is to mitigate the harm arising from the private copying exception?
3. Where a Member State opts for a system of charging or levying in respect of digital reproduction equipment, devices and media, in accordance with the aim pursued by Article 5(2)(b) of Directive 2001/29 and the context of that provision, must that charge (the fair compensation for private copying) necessarily be linked to the presumed use of those equipment and media for making reproductions covered by the private copying exception, with the result that the application of the charge would be justified where it may be presumed that the digital reproduction equipment, devices and media are to be used for private copying, but not otherwise?
4. If a Member State adopts a private copying “levy” system, is the indiscriminate application of that “levy” to undertakings and professional persons who clearly purchase digital reproduction devices and media for purposes other than private copying compatible with the concept of “fair compensation”?
5. Might the system adopted by the Spanish State of applying the private copying levy indiscriminately to all digital reproduction equipment, devices and media infringe Directive 2001/29, in so far as there is insufficient correlation between the fair compensation and the limitation of the private copying right justifying it, because to a large extent it is applied to different situations in which the limitation of rights justifying the compensation does not exist?’
The questions referred for a preliminary ruling
Admissibility
20 First, the Centro Español de Derechos Reprográficos and the Spanish Government argue essentially that the reference for a preliminary ruling is irrelevant to the outcome of the dispute in the main proceedings since Directive 2001/29 is not applicable to it ratione temporis. They submit that the national provisions preceding the entry into force of those implementing Directive 2001/29 are applicable to the present dispute. Consequently, the interpretation of the notion of ‘fair compensation’ in Article 5(2)(b) of that directive is unnecessary for the resolution of the dispute.
21 In that connection, it should be recalled that, in the context of the cooperation between the Court of Justice and the national courts provided for by Article 267 TFEU, it is solely for the national court before which a dispute has been brought, and which must assume responsibility for the subsequent judicial decision, to determine, in the light of the particular circumstances of the case, both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court. Consequently, where the questions submitted concern the interpretation of European Union law, the Court of Justice is bound, in principle, to give a ruling (see, inter alia, Case C-379/98 PreussenElektra [2001] ECR I-2099, paragraph 38; Case C-18/01 Korhonen and Others[2003] ECR I-5321, paragraph 19; and Joined Cases C-261/07 and C‑299/07 VTB-VAB and Galatea [2009] ECR I-2949, paragraph 32).
22 However, it is not for the Court, in the context of a reference for a preliminary ruling, to rule on the interpretation of national provisions or to decide whether the referring court’s interpretation thereof is correct. The Court must take account, under the division of jurisdiction between the courts of the European Union and the national courts, of the factual and legislative context, as described in the order for reference, in which the questions put to it are set (Joined Cases C-482/01 and C-493/01 Orfanopoulos and Oliveri [2004] ECR I-5257, paragraph 42; Case C‑330/07 Jobra [2008] ECR I-9099, paragraph 17; and Joined Cases C-378/07 to C-380/07 Angelidaki and Others [2009] ECR I-3071, paragraph 48).
23 As far as concerns the present reference for a preliminary ruling, it must be stated, first, that it concerns the interpretation of a provision of European Union law, namely Article 5(2)(b) of Directive 2001/29, which falls within the jurisdiction of the Court in such a reference, and furthermore, it is not inconceivable, having regard to the period for which the levy at issue in the main proceedings is claimed and the expiry date of the transposition period prescribed in the first subparagraph of Article 13(1) of Directive 2001/29 of 22 December 2002, that the referring court may be required to draw conclusions from the interpretation it has requested, in particular with respect to its obligation to interpret national law in the light of European Union law (Case C-106/89 Marleasing [1990] ECR I-4135, paragraph 8).
24 Second, the determination of the applicable national legislation ratione temporis is a question of interpretation of national law and thus does not fall within the jurisdiction of the Court in a reference for a preliminary ruling.
25 It follows that the first plea of inadmissibility must be dismissed.
26 Second, SGAE submits that the questions referred by the national court are inadmissible in so far as they concern situations of national law which are not harmonised by Directive 2001/29. It argues that the questions raised are based essentially on aspects which fall within the jurisdiction of the Member States. In the context of a reference for a preliminary ruling the Court of Justice does not have jurisdiction to interpret and apply national law.
27 However, it should be borne in mind that the issue whether the questions submitted by the national court concern a matter unconnected with European Union law, on the ground that Directive 2001/29 provides only for minimal harmonisation in that area, relates to the substance of the questions submitted by that Court and, not to their admissibility (see Joined Cases C-51/96 and C-191/97 Deliège [2000] ECR I-2549, paragraph 28). Therefore, SGAE’s plea alleging that that directive is inapplicable to the dispute in the main proceedings does not relate to the admissibility of these proceedings but concerns the substance of those questions (see, to that effect, Joined Cases C-295/04 to C-298/04 Manfredi and Others [2006] ECR I-6619, paragraph 30).
28 Since the second plea of inadmissibility must be dismissed, it follows from all of the foregoing considerations that the reference for a preliminary ruling must be declared admissible.
Substance
The first question
29 By its first question, the national court asks, in essence, whether the concept of ‘fair compensation’, within the meaning of Article 5(2)(b) of Directive 2001/29, is an autonomous concept of European Union law which must be interpreted in a uniform manner in all Member States, irrespective of the Member States’ right to choose the system of collection.
30 It should be borne in mind that under Article 5(2)(b) of Directive 2001/29 Member States which decide to introduce the private copying exception into their national law are required to provide for the payment of ‘fair compensation’ to rightholders.
31 It should be noted at the outset that neither Article 5(2)(b) nor any other provision of Directive 2001/29 refers to the national law of the Member States as regards the concept of ‘fair compensation’.
32 In such circumstances, according to settled case-law, the need for a uniform application of European Union law and the principle of equality require that the terms of a provision of European Union law which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope must normally be given an independent and uniform interpretation throughout the European Union; that interpretation must take into account the context of the provision and the objective of the relevant legislation (see, in particular, Case 327/82 Ekro [1984] ECR 107, paragraph 11; Case C-287/98 Linster [2000] ECR I-6917, paragraph 43; and Case C-523/07 A [2009] ECR I‑2805, paragraph 34).
33 It is clear from that case-law that the concept of ‘fair compensation’ which appears in a provision of a directive which does not contain any reference to national laws must be regarded as an autonomous concept of European Union law and interpreted uniformly throughout the European Union (see, by analogy, as regards the concept of ‘equitable remuneration’ in Article 8(2) of Council Directive 92/100/EEC of 19 November 1992 on rental right and lending right and on certain rights related to copyright in the field of intellectual property (OJ 1992 L 346, p. 61) and Case C-245/00 SENA [2003] ECR I-1251, paragraph 24).
34 That conclusion is supported by the objective pursued by the legislation in which the concept of fair compensation appears.
35 The objective of Directive 2001/29, based, in particular, on Article 95 EC and intended to harmonise certain aspects of the law on copyright and related rights in the information society and to ensure competition in the internal market is not distorted as a result of Member States’ different legislation (Case C-479/04 Laserdisken [2006] ECR I-8089, paragraphs 26, 31 to 34) requires the elaboration of autonomous concepts of European Union law. The European Union legislature’s aim of achieving the most uniform interpretation possible of Directive 2001/29 is apparent in particular from recital 32 in the preamble thereto, which calls on the Member States to arrive at a coherent application of the exceptions to and limitations on reproduction rights, with the aim of ensuring a functioning internal market.
36 Therefore, although it is open to the Member States, pursuant to Article 5(2)(b) of Directive 2001/29, to introduce a private copying exception to the author’s exclusive reproduction right laid down in European Union law, those Member States which make use of that option must provide for the payment of fair compensation to authors affected by the application of that exception. An interpretation according to which Member States which have introduced an identical exception of that kind, provided for by European Union law and including, as set out in recitals 35 and 38 in the preamble thereto the concept of ‘fair compensation’ as an essential element, are free to determine the limits in an inconsistent and un-harmonised manner which may vary from one Member State to another, would be incompatible with the objective of that directive, as set out in the preceding paragraph.
37 Having regard to the foregoing considerations, the answer to the first question is that the concept of ‘fair compensation’, within the meaning of Article 5(2)(b) of Directive 2001/29, is an autonomous concept of European Union law which must be interpreted uniformly in all the Member States that have introduced a private copying exception, irrespective of the power conferred on them to determine, within the limits imposed by European Union law and in particular by that directive, the form, detailed arrangements for financing and collection, and the level of that fair compensation.
The second question
38 By its second question, the national court asks, in essence, whether the ‘fair balance’ to be established between the persons concerned requires fair compensation to be calculated on the basis of the criterion of the harm caused to authors as a result of the introduction of the private copying exception. It also asks who, apart from the authors affected, are the persons concerned between whom a ‘fair balance’ must be established.
39 In the first place, as regards the role played by the criterion of the harm suffered by the author in the calculation of fair compensation, it is apparent from recitals 35 and 38 in the preamble to Directive 2001/29 that the purpose of fair compensation is to compensate authors ‘adequately’ for the use made of their protected works without their authorisation. In order to determine the level of that compensation, account must be taken – as a ‘valuable criterion’ – of the ‘possible harm’ suffered by the author as a result of the act of reproduction concerned, although prejudice which is ‘minimal’ does not give rise to a payment obligation. The private copying exception must therefore include a system ‘to compensate for the prejudice to rightholders’.
40 It is clear from those provisions that the notion and level of fair compensation are linked to the harm resulting for the author from the reproduction for private use of his protected work without his authorisation. From that perspective, fair compensation must be regarded as recompense for the harm suffered by the author.
41 Furthermore, the word ‘compensate’ in recitals 35 and 38 in the preamble to Directive 2001/29 expresses the intention of the European Union legislature to establish a specific compensation scheme triggered by the existence of harm to the detriment of the rightholders, which gives rise, in principle, to the obligation to ‘compensate’ them.
42 It follows that fair compensation must necessarily be calculated on the basis of the criterion of the harm caused to authors of protected works by the introduction of the private copying exception.
43 In the second place, as regards the question of the persons concerned by the ‘fair balance’, recital 31 in the preamble to Directive 2001/29 provides for the maintenance of a ‘fair balance’ between the rights and interests of the rightholders, who are to receive the fair compensation, on one hand, and those of the users of protected works on the other.
44 Copying by natural persons acting in a private capacity must be regarded as an act likely to cause harm to the author of the work concerned.
45 It follows that the person who has caused harm to the holder of the exclusive reproduction right is the person who, for his own private use, reproduces a protected work without seeking prior authorisation from the rightholder. Therefore, in principle, it is for that person to make good the harm related to that copying by financing the compensation which will be paid to the rightholder.
46 However, given the practical difficulties in identifying private users and obliging them to compensate rightholders for the harm caused to them, and bearing in mind the fact that the harm which may arise from each private use, considered separately, may be minimal and therefore does not give rise to an obligation for payment, as stated in the last sentence of recital 35 in the preamble to Directive 2001/29, it is open to the Member States to establish a ‘private copying levy’ for the purposes of financing fair compensation chargeable not to the private persons concerned, but to those who have the digital reproduction equipment, devices and media and who, on that basis, in law or in fact, make that equipment available to private users or who provide copying services for them. Under such a system, it is the persons having that equipment who must discharge the private copying levy.
47 It is true that in such a system it is not the users of the protected subject-matter who are the persons liable to finance fair compensation, contrary to what recital 31 in the preamble to the directive appears to require.
48 However, it should be observed, first, that the activity of the persons liable to finance the fair compensation, namely the making available to private users of reproduction equipment, devices and media, or their supply of copying services, is the factual precondition for natural persons to obtain private copies. Second, nothing prevents those liable to pay the compensation from passing on the private copying levy in the price charged for making the reproduction equipment, devices and media available or in the price for the copying service supplied. Thus, the burden of the levy will ultimately be born by the private user who pays that price. In those circumstances, the private user for whom the reproduction equipment, devices or media are made available or who benefit from a copying service must be regarded in fact as the person indirectly liable to pay fair compensation.
49 Accordingly, since that system enables the persons liable to pay compensation to pass on the cost of the levy to private users and that, therefore, the latter assume the burden of the private copying levy, it must be regarded as consistent with a ‘fair balance’ between the interests of authors and those of the users of the protected subject-matter.
50 Having regard to all of the foregoing considerations, the answer to the second question is that Article 5(2)(b) of Directive 2001/29 must be interpreted as meaning that the ‘fair balance’ between the persons concerned means that fair compensation must be calculated on the basis of the criterion of the harm caused to authors of protected works by the introduction of the private copying exception. It is consistent with the requirements of that ‘fair balance’ to provide that persons who have digital reproduction equipment, devices and media and who, on that basis, in law or in fact, make that equipment available to private users or provide them with copying services are the persons liable to finance the fair compensation, inasmuch as they are able to pass on to private users the actual burden of financing it.
The third and fourth questions
51 By its third and fourth questions, which it is appropriate to examine together, the national court asks essentially whether, under Article 5(2)(b) of Directive 2001/29, there is a necessary link between the application of the levy intended to finance fair compensation with respect to digital reproduction equipment, devices and media, and the deemed use of the latter for the purposes of private copying. It also asks whether the indiscriminate application of the private copying levy, in particular with respect to digital reproduction equipment, devices and media clearly intended for uses other than the production of private copies, complies with Directive 2001/29.
52 It must be held from the outset that a system for financing fair compensation such as that described in paragraphs 46 and 48 of this judgment is compatible with the requirements of a ‘fair balance’ only if the digital reproduction equipment, devices and media concerned are liable to be used for private copying and, therefore, are likely to cause harm to the author of the protected work. There is therefore, having regard to those requirements, a necessary link between the application of the private copying levy to the digital reproduction equipment, devices and media and their use for private copying.
53 Consequently, the indiscriminate application of the private copying levy to all types of digital reproduction equipment, devices and media, including in the case expressly mentioned by the national court in which they are acquired by persons other than natural persons for purposes clearly unrelated to private copying, does not comply with Article 5(2) of Directive 2001/29.
54 On the other hand, where the equipment at issue has been made available to natural persons for private purposes it is unnecessary to show that they have in fact made private copies with the help of that equipment and have therefore actually caused harm to the author of the protected work.
55 Those natural persons are rightly presumed to benefit fully from the making available of that equipment, that is to say that they are deemed to take full advantage of the functions associated with that equipment, including copying.
56 It follows that the fact that that equipment or devices are able to make copies is sufficient in itself to justify the application of the private copying levy, provided that the equipment or devices have been made available to natural persons as private users.
57 Such an interpretation is supported by the wording of recital 35 in the preamble to Directive 2001/29. That recital mentions, as a valuable criterion for the determination of the level of fair compensation, not only the ‘harm’ as such but also the ‘possible’ harm. The ‘possibility’ of causing harm to the author of the protected work depends on the fulfilment of the necessary pre-condition that equipment or devices which allow copying have been made available to natural persons, which need not necessarily be followed by the actual production of private copies.
58 Furthermore, the Court has already held that, from the copyright point of view, account must be taken of the mere possibility for the ultimate user, in that case customers of a hotel, to watch programmes broadcast by means of a television set and a television signal made available to them by that establishment, and not the actual access of the customers to those works (Case C-306/05 SGAE [2006] ECR I-11519, paragraphs 43 and 44).
59 Having regard to all of the foregoing considerations, the answer to questions 3 and 4 is that Article 5(2)(b) of Directive 2001/29 must be interpreted as meaning that a link is necessary between the application of the levy intended to finance fair compensation with respect to digital reproduction equipment, devices and media and the deemed use of them for the purposes of private copying. Consequently, the indiscriminate application of the private copying levy, in particular with respect to digital reproduction equipment, devices and media not made available to private users and clearly reserved for uses other than private copying, is incompatible with Directive 2001/29.
The fifth question
60 By its fifth question, the national court asks, in essence, whether the system adopted by the Kingdom of Spain, which consists in indiscriminately applying the private copying levy to all types of digital reproduction equipment, devices and media, however the equipment, devices or media are used, is compatible with Directive 2001/29.
61 In that connection, the Court has consistently held that, except in an action for a declaration of a failure to fulfil obligations, it is not for the Court to rule on the compatibility of a national provision with European Union law. That competence belongs to the national courts, if necessary, after obtaining from the Court, by way of a reference for a preliminary ruling, such clarification as may be necessary on the scope and interpretation of that law (see Case C-347/87 Triveneta Zuccheri and Others v Commission [1990] ECR I-1083, paragraph 16).
62 Therefore, it is for the national court to determine, in the light of the answers provided to the first four questions, the compatibility of the Spanish private copying levy with Directive 2001/29.
63 Therefore, there is no need for the Court to answer that question.
Costs
64 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Third Chamber) hereby rules:
1. The concept of ‘fair compensation’, within the meaning of Article 5(2)(b) of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society, is an autonomous concept of European Union law which must be interpreted uniformly in all the Member States that have introduced a private copying exception, irrespective of the power conferred on the Member States to determine, within the limits imposed by European Union law in particular by that directive, the form, detailed arrangements for financing and collection, and the level of that fair compensation.
2. Article 5(2)(b) of Directive 2001/29 must be interpreted as meaning that the ‘fair balance’ between the persons concerned means that fair compensation must be calculated on the basis of the criterion of the harm caused to authors of protected works by the introduction of the private copying exception. It is consistent with the requirements of that ‘fair balance’ to provide that persons who have digital reproduction equipment, devices and media and who on that basis, in law or in fact, make that equipment available to private users or provide them with copying services are the persons liable to finance the fair compensation, inasmuch as they are able to pass on to private users the actual burden of financing it.
3. Article 5(2)(b) of Directive 2001/29 must be interpreted as meaning that a link is necessary between the application of the levy intended to finance fair compensation with respect to digital reproduction equipment, devices and media and the deemed use of them for the purposes of private copying. Consequently, the indiscriminate application of the private copying levy, in particular with respect to digital reproduction equipment, devices and media not made available to private users and clearly reserved for uses other than private copying, is incompatible with Directive 2001/29.
8.2.8 Padawan (SUMMARY) 8.2.8 Padawan (SUMMARY)
Padawan SL
v
Sociedad General de Autores y Editores de España (SGAE)
(Reference for a preliminary ruling from the
Audiencia Provincial de Barcelona)
(Approximation of laws – Copyright and related rights – Directive 2001/29/EC – Reproduction right – Exceptions and limitations – Private copying exception – Definition of ‘fair compensation’ – Uniform interpretation – Implementation by the Member States – Criteria – Limits – Private copying levy applied to digital reproduction equipment, devices and media)
Summary of the Judgment
1. Approximation of laws – Copyright and related rights – Directive 2001/29 – Harmonisation of certain aspects of copyright and related rights in the information society – Reproduction right
(European Parliament and Council Directive 2001/29, Art. 5(2)(b))
2. Approximation of laws – Copyright and related rights – Directive 2001/29 – Harmonisation of certain aspects of copyright and related rights in the information society – Reproduction right
(European Parliament and Council Directive 2001/29, recitals 35 and 38 and Art. 5(2)(b))
3. Approximation of laws – Copyright and related rights – Directive 2001/29 – Harmonisation of certain aspects of copyright and related rights in the information society – Reproduction right
(European Parliament and Council Directive 2001/29, Art. 5(2)(b))
1. The concept of ‘fair compensation’, within the meaning of Article 5(2)(b) of Directive 2001/29 on the harmonisation of certain aspects of copyright and related rights in the information society, is an autonomous concept of European Union law which must be interpreted uniformly in all the Member States that have introduced a private copying exception, irrespective of the power conferred on the Member States to determine, within the limits imposed by European Union law in particular by that directive, the form, detailed arrangements for financing and collection, and the level of that fair compensation.
(see para. 37, operative part 1)
2. Article 5(2)(b) of Directive 2001/29 on the harmonisation of certain aspects of copyright and related rights in the information society must be interpreted as meaning that the fair balance between the persons concerned means that fair compensation must be calculated on the basis of the criterion of the harm caused to authors of protected works by the introduction of the private copying exception. It is consistent with the requirements of that fair balance to provide that persons who have digital reproduction equipment, devices and media and who on that basis, in law or in fact, make that equipment available to private users or provide them with copying services are the persons liable to finance the fair compensation, inasmuch as they are able to pass on to private users the actual burden of financing it.
In that connection, given the practical difficulties in identifying private users and obliging them to compensate rightholders for the harm caused to them, and bearing in mind the fact that the harm which may arise from each private use, considered separately, may be minimal and therefore does not give rise to an obligation for payment, as stated in the last sentence of recital 35 in the preamble to Directive 2001/29, it is open to the Member States to establish a ‘private copying levy’ for the purposes of financing fair compensation chargeable not to the private persons concerned, but to those who have the digital reproduction equipment, devices and media and who, on that basis, in law or in fact, make that equipment available to private users or who provide copying services for them.
(see paras 46, 50, operative part 2)
3. Article 5(2)(b) of Directive 2001/29 on the harmonisation of certain aspects of copyright and related rights in the information society must be interpreted as meaning that a link is necessary between the application of the levy intended to finance fair compensation with respect to digital reproduction equipment, devices and media and the deemed use of them for the purposes of private copying. Consequently, the indiscriminate application of the private copying levy, in particular with respect to digital reproduction equipment, devices and media not made available to private users and clearly reserved for uses other than private copying, is incompatible with Directive 2001/29.
On the other hand, where the equipment at issue has been made available to natural persons for private purposes it is unnecessary to show that they have in fact made private copies with the help of that equipment and have therefore actually caused harm to the author of the protected work. Those natural persons are rightly presumed to benefit fully from the making available of that equipment, that is to say that they are deemed to take full advantage of the functions associated with that equipment, including copying.
(see paras 54-55, 59, operative part 3)
8.2.9 Stichting de Thuiskopie v Opus, C-462/09, June 16, 2011 (ECJ) (private copy) 8.2.9 Stichting de Thuiskopie v Opus, C-462/09, June 16, 2011 (ECJ) (private copy)
JUDGMENT OF THE COURT (Third Chamber)
16 June 2011 (*)
(Approximation of laws – Copyright and related rights – Directive 2001/29/EC – Reproduction right – Exceptions and limitations – Exception of copying for private use – Article 5(2)(b) and (5) – Fair compensation – Person responsible for paying the levy earmarked for financing of that compensation – Distance selling between two persons resident in different Member States)
In Case C‰ЫФ462/09,
REFERENCE for a preliminary ruling under Article 234 EC from the Hoge Raad der Nederlanden (Netherlands), made by decision of 20 November 2009, received at the Court on 25 November 2009, in the proceedings
Stichting de Thuiskopie
v
Opus Supplies Deutschland GmbH,
Mijndert van der Lee,
Hananja van der Lee,
THE COURT (Third Chamber),
composed of K. Lenaerts, President of the Chamber, R. Silva de Lapuerta, G. Arestis, J. Malenovský (Rapporteur) and T. von Danwitz, Judges,
Advocate General: N. Jääskinen,
Registrar: M. Ferreira, Principal Administrator,
having regard to the written procedure and further to the hearing on 15 December 2010,
after considering the observations submitted on behalf of:
– the Stichting de Thuiskopie, by T. Cohen Jehoram and V. Rörsch, advocaten,
– Opus Supplies Deutschland GmbH and Mr and Mrs van der Lee, by D. Visser and A. Quaedvlieg, advocaten,
– the Belgian Government, by T. Materne and J.-C. Halleux, acting as Agents,
– the Spanish Government, by N. Díaz Abad, acting as Agent,
– the Lithuanian Government, by D. KriauЂЌiЃЗnas and L. LiubertaitЂС, acting as Agents,
– the Austrian Government, by E. Riedl and G. Kunnert, acting as Agents,
– the Finnish Government, by J. Heliskoski, acting as Agent,
– the European Commission, by A. Nijenhuis and J. Samnadda, acting as Agents,
after hearing the Opinion of the Advocate General at the sitting on 10 March 2011,
gives the following
Judgment
1 This reference for a preliminary ruling concerns the interpretation of Article 5(2)(b) and (5) of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society (OJ 2001 L 167, p. 10).
2 The reference has been made in proceedings between the Stichting de Thuiskopie (‘the Stichting’), on the one hand, and Opus Supplies Deutschland GmbH (‘Opus’) and Mr and Mrs van der Lee, two managing directors of Opus, on the other hand, concerning payment by Opus of the levy intended to finance the fair compensation paid to copyright holders on the basis of the exception for copying for private use (‘private copying levy’).
Legal context
Directive 2001/29
3 Recitals 9, 10, 31, 32, 35 and 38 in the preamble to Directive 2001/29 are worded as follows:
‘(9) Any harmonisation of copyright and related rights must take as a basis a high level of protection, since such rights are crucial to intellectual creation. Their protection helps to ensure the maintenance and development of creativity in the interests of authors, performers, producers, consumers, culture, industry and the public at large. Intellectual property has therefore been recognised as an integral part of property.
(10) If authors or performers are to continue their creative and artistic work, they have to receive an appropriate reward for the use of their work, as must producers in order to be able to finance this work. …
…
(31) A fair balance of rights and interests between the different categories of rightholders, as well as between the different categories of rightholders and users of protected subject-matter must be safeguarded. …
(32) This Directive provides for an exhaustive enumeration of exceptions and limitations to the reproduction right and the right of communication to the public. Some exceptions or limitations only apply to the reproduction right, where appropriate. This list takes due account of the different legal traditions in Member States, while, at the same time, aiming to ensure a functioning internal market. Member States should arrive at a coherent application of these exceptions and limitations, which will be assessed when reviewing implementing legislation in the future.
…
(35) In certain cases of exceptions or limitations, rightholders should receive fair compensation to compensate them adequately for the use made of their protected works or other subject-matter. When determining the form, detailed arrangements and possible level of such fair compensation, account should be taken of the particular circumstances of each case. When evaluating these circumstances, a valuable criterion would be the possible harm to the rightholders resulting from the act in question. In cases where rightholders have already received payment in some other form, for instance as part of a licence levy, no specific or separate payment may be due. The level of fair compensation should take full account of the degree of use of technological protection measures referred to in this Directive. In certain situations where the prejudice to the rightholder would be minimal, no obligation for payment may arise.
…
(38) Member States should be allowed to provide for an exception or limitation to the reproduction right for certain types of reproduction of audio, visual and audio-visual material for private use, accompanied by fair compensation. This may include the introduction or continuation of remuneration schemes to compensate for the prejudice to rightholders. …’
4 Under Article 2 of Directive 2001/29, headed ‘Reproduction right’:
‘Member States shall provide for the exclusive right to authorise or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part:
(a) for authors, of their works;
(b) for performers, of fixations of their performances;
(c) for phonogram producers, of their phonograms;
(d) for the producers of the first fixations of films, in respect of the original and copies of their films;
(e) for broadcasting organisations, of fixations of their broadcasts, whether those broadcasts are transmitted by wire or over the air, including by cable or satellite.’
5 Article 5 of Directive 2001/29, entitled ‘Exceptions and limitations’, states in subparagraph 2(b):
‘Member States may provide for exceptions or limitations to the reproduction right provided for in Article 2 in the following cases:
…
(b) in respect of reproductions on any medium made by a natural person for private use and for ends that are neither directly nor indirectly commercial, on condition that the rightholders receive fair compensation which takes account of the application or non-application of technological measures referred to in Article 6 to the work or subject-matter concerned.’
6 Article 5(5) of that directive provides:
‘The exceptions and limitations provided for in paragraphs 1, 2, 3 and 4 shall only be applied in certain special cases which do not conflict with a normal exploitation of the work or other subject-matter and do not unreasonably prejudice the legitimate interests of the rightholder.’
National legislation
7 According to Article 16c(1) to (3) of the Law on copyright (Auteurswet, Staatsblad 2008, No 538):
‘1. The reproduction of a literary, scientific or artistic work on an item designed for the reproduction of a work shall not be regarded as an infringement of the copyright in that work if the reproduction is made for ends that are neither directly nor indirectly commercial and serves exclusively for the own practice, study or use of the natural person making the reproduction.
2. Payment of a fair remuneration in respect of the reproduction referred to in paragraph 1 shall be due to the maker of the work or his legal successor. The manufacturer or importer of the items referred to in paragraph 1 shall be liable for payment of the remuneration.
3. The manufacturer’s payment obligation arises when the items manufactured by him are put on the market. The importer’s obligation arises at the time of importation.’
The dispute in the main proceedings and the questions referred for a preliminary ruling
8 As is apparent from Article 16c(1) of the Law on copyright, the Kingdom of the Netherlands has introduced an exception into its national law for copying for private use. According to Article 16(2) of that law, the manufacturer or importer of the item used for reproduction is responsible for paying the private copying levy.
9 The Stichting is the Netherlands body responsible for the recovery of the private copying levy.
10 Opus is a company based in Germany which sells, via the internet, blank media. Its operations are focused in particular on the Netherlands by means of Dutch-language websites which target Netherlands consumers.
11 The contract of sale established by Opus provides that, where a Netherlands consumer makes an order online, that order is processed in Germany and the goods are delivered from Germany to the Netherlands, on behalf of and in the name of the customer, by a carrier, that carrier however in fact being engaged by Opus.
12 Opus does not pay a private copying levy in respect of the media delivered to its customers in the Netherlands, either in that Member State or in Germany. In addition, the referring court states that the cost of the reproduction media thus sold by Opus does not include the private copying levy.
13 Arguing that Opus had to be regarded as the ‘importer’ and, consequently, responsible for paying the private copying levy, the Stichting brought an action against Opus before the Netherlands courts, seeking payment of that levy.
14 Referring to the provisions of the sales contract, Opus denied that it could be classified as an importer into the Netherlands of the reproduction media sold by it. It argues that it is the Netherlands purchasers, that is, individual consumers, who must be classified as importers.
15 That argument relied upon by Opus in its defence was accepted by the Netherlands courts at first instance and then on appeal, which dismissed the Stichting’s action for payment. The Stichting then pursued an appeal in cassation before the referring court.
16 The referring court questions whether the solution proposed by those courts to the dispute in the main proceedings is compatible with Directive 2001/29. According to it, to consider the purchaser, that is the individual consumer, to be the importer and, therefore, the person responsible for paying the private copying levy, is tantamount to admitting that that levy cannot in fact be recovered, since the individual purchaser cannot in practice easily be identified. It then raises the question whether the concept of ‘importer’ should not be defined in a broader manner than that resulting from the purely linguistic meaning of the word, also taking into account the final use of the media, which is also clear to the commercial seller.
17 In those circumstances, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
‘(1) Does Directive [2001/29], in particular Article 5(2)(b) and (5) thereof, provide any assistance in determining who should be regarded under national law as owing the “fair compensation” referred to in Article 5(2)(b)? If so, what assistance does it provide?
(2) In a case of distance selling in which the buyer is established in a different Member State to that of the seller, does Article 5(5) of Directive [2001/29] require national law to be interpreted so broadly that a person owing the “fair compensation” referred to in Article 5(2)(b) of the directive who is acting on a commercial basis owes such compensation in at least one of the Member States involved in the distance selling?’
Consideration of the questions referred
The first question
18 By its first question, the referring court asks whether the provisions of Directive 2001/29, in particular Article 5(2)(b) and (5) thereof, must be interpreted as containing criteria which make it possible to determine who must be regarded as responsible for paying fair compensation on the basis of the exception of copying for private use.
19 As a preliminary point, it must be recalled that, under Article 2 of Directive 2001/29, Member States grant, in principle, to authors the exclusive right to authorise or prohibit direct or indirect, temporary or permanent, reproduction by any means and in any form, in whole or in part, of their works.
20 However, under Article 5(2)(b) of that directive, Member States may provide for an exception to the author’s reproduction right in relation to his work in respect of reproductions on any medium made by a natural person for private use and for ends that are neither directly nor indirectly commercial (so-called ‘private copying’ exception).
21 Article 5(5) of Directive 2001/29 nevertheless makes the introduction of the private copying exception subject to three conditions, that is, first, that the exception applies only in certain special cases, second, that it does not conflict with a normal exploitation of the work and, finally, that it does not unreasonably prejudice the legitimate interests of the copyright holder.
22 Thus, with regard to that last condition, the Member States, if they decide to introduce the private copying exception into their national law, are, in particular, required to provide, in application of Article 5(2)(b) of Directive 2001/29, for the payment of ‘fair compensation’ to rightholders (see, also, Case C-467/08 Padawan [2010] ECR I-0000, paragraph 30).
23 With regard to the answer to the question of the identification of the person who must be regarded as responsible for paying the fair compensation, the provisions of Directive 2001/29 do not expressly address the issue of who is to pay that compensation, meaning that the Member States enjoy broad discretion when determining who must discharge that obligation.
24 That being the case, the Court has already held that the notion and level of fair compensation are linked to the harm resulting for the author from the reproduction for private use of his protected work without his authorisation. From that perspective, fair compensation must be regarded as recompense for the harm suffered by the author (Padawan, paragraph 40).
25 In addition, as is apparent from recital 31 in the preamble to Directive 2001/29 and from paragraph 43 of Padawan, a ‘fair balance’ must be maintained between the rights and interests of the authors, who are to receive the fair compensation, on one hand, and those of the users of protected works, on the other.
26 Since the person who has caused the harm to the holder of the exclusive reproduction right is the person who, for his private use, reproduces a protected work without seeking prior authorisation from that rightholder, it is, in principle, for that person to make good the harm related to that copying by financing the compensation which will be paid to that rightholder (Padawan, paragraph 45).
27 The Court has however admitted that, given the practical difficulties in identifying private users and obliging them to compensate rightholders for the harm caused to them, it is open to the Member States to establish a ‘private copying levy’ for the purposes of financing fair compensation, chargeable not to the private persons concerned but to those who have the digital reproduction equipment, devices and media and who, on that basis, in law or in fact, make that equipment available to private users or who provide copying services for them. Under such a system, it is the persons having that equipment who must discharge the private copying levy (Padawan, paragraph 46).
28 The Court has again pointed out that, since that system enables the persons responsible for payment to pass on the amount of the private copying levy in the price charged for making the reproduction equipment, devices and media available, or in the price for the copying service supplied, the burden of the levy will ultimately be borne by the private user who pays that price, in a way consistent with the ‘fair balance’ between the interests of authors and those of the users of the protected subject-matter (Padawan, paragraphs 48 and 49).
29 In the light of the foregoing considerations, the answer to the first question is that Directive 2001/29, in particular Article 5(2)(b) and (5) thereof, must be interpreted as meaning that the final user who carries out, on a private basis, the reproduction of a protected work must, in principle, be regarded as the person responsible for paying the fair compensation provided for in Article 5(2)(b). However, it is open to the Member States to establish a private copying levy chargeable to the persons who make reproduction equipment, devices and media available to that final user, since they are able to pass on the amount of that levy in the price paid by the final user for that service.
The second question
30 By its second question, the referring court asks, in essence, whether, in a case of distance selling between a purchaser and a commercial seller of reproduction equipment, devices and media, who are established in different Member States, Directive 2001/29 requires national law to be interpreted so that fair compensation can be recovered from the person responsible for payment who is acting on a commercial basis.
31 In that regard, it must be noted that Article 5(5) of Directive 2001/29, which lays down the cumulative conditions for the application, inter alia, of the private copying exception, does not contain, as such, any specific statement such as to allow a particular interpretation with regard to the person to be regarded as responsible for paying the fair compensation owed to the authors on the basis of the private copying exception in the context of a distance selling arrangement such as that at issue in the main proceedings.
32 It should however be recalled that, according to recital 9 in the preamble to Directive 2001/29, the European Union legislature expressed its desire for a high level of protection to be guaranteed for copyright and related rights, since they are crucial to intellectual creation. Their protection helps to ensure the maintenance and development of creativity in the interests of authors, performers, producers, consumers, culture, industry and the public at large. Thus, according to recital 10 in the preamble to Directive 2001/29, if authors or performers are to continue their creative and artistic work, they have to receive an appropriate reward for the use of their work.
33 In particular, it is apparent from Article 5(2)(b) of and recital 35 in the preamble to Directive 2001/29 that, in those Member States which have introduced the private copying exception, rightholders must receive fair compensation to compensate them adequately for the use made of their protected works or other subject-matter without their permission. Furthermore, in accordance with Article 5(5) of Directive 2001/29, the introduction of the private copying exception may not unreasonably prejudice the legitimate interests of the copyright holder.
34 It follows that, unless they are to be deprived of all practical effect, those provisions impose on a Member State which has introduced the private copying exception into its national law an obligation to achieve a certain result, meaning that it must guarantee, within the framework of its competences, the effective recovery of the fair compensation intended to compensate the authors harmed for the prejudice sustained, in particular if that harm arose on the territory of that Member State.
35 Since, as stated in paragraph 26 of the present judgment, it is in principle for the final users who, for their private use, reproduce a protected work without seeking prior authorisation from the rightholder, thereby causing him harm, to make good that harm, it can be assumed that the harm for which reparation is to be made arose on the territory of the Member State in which those final users reside.
36 It follows from the foregoing that, if a Member State has introduced an exception for private copying into its national law and if the final users who, on a private basis, reproduce a protected work reside on its territory, that Member State must ensure, in accordance with its territorial competence, the effective recovery of the fair compensation for the harm suffered by the authors on the territory of that State.
37 With regard to the case in the main proceedings, it is agreed that the harm suffered by the authors arose on the territory of the Netherlands, since the purchasers as final users, on a private basis, of the protected works reside there. It is also common ground that the Kingdom of the Netherlands has chosen to introduce a system of recovery of fair compensation, owed on the basis of the private copying exception, from the manufacturer or importer of the media intended for reproduction of the protected works.
38 According to the information contained in the order for reference, in relation to contracts such as those at issue in the main proceedings, it appears to be impossible, in practice, to recover such compensation from the final users as importers of those media in the Netherlands.
39 If that is the case, and in the light of the fact that the system of recovery chosen by the Member State concerned cannot relieve that Member State of the obligation to achieve the certain result of ensuring that the authors who have suffered harm actually receive payment of fair compensation for the prejudice which arose on its territory, it is for the authorities, in particular the courts, of that Member State to seek an interpretation of national law which is consistent with that obligation to achieve a certain result and guarantees the recovery of that compensation from the seller who contributed to the importation of those media by making them available to the final users.
40 In that regard, in circumstances such as those stated in particular in paragraph 12 of the present judgment, it is of no bearing on that obligation on the said Member State that, in the case of distance selling arrangements such as those at issue in the main proceedings, the commercial seller who makes available reproduction equipment, devices and media to purchasers residing on the territory of that Member State, as final users, is established in another Member State.
41 In the light of the foregoing considerations, the answer to the second question is that Directive 2001/29, in particular Article 5(2)(b) and (5) thereof, must be interpreted as meaning that it is for the Member State which has introduced a system of private copying levies chargeable to the manufacturer or importer of media for reproduction of protected works, and on the territory of which the harm caused to authors by the use for private purposes of their work by purchasers who reside there occurs, to ensure that those authors actually receive the fair compensation intended to compensate them for that harm. In that regard, the mere fact that the commercial seller of reproduction equipment, devices and media is established in a Member State other than that in which the purchasers reside has no bearing on that obligation to achieve a certain result. It is for the national court, where it is impossible to ensure recovery of the fair compensation from the purchasers, to interpret national law in order to allow recovery of that compensation from the person responsible for payment who is acting on a commercial basis.
Costs
42 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Third Chamber) hereby rules:
1. Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society, in particular Article 5(2)(b) and (5) thereof, must be interpreted as meaning that the final user who carries out, on a private basis, the reproduction of a protected work must, in principle, be regarded as the person responsible for paying the fair compensation provided for in Article 5(2)(b). However, it is open to the Member States to establish a private copying levy chargeable to the persons who make reproduction equipment, devices and media available to that final user, since they are able to pass on the amount of that levy in the price paid by the final user for that service.
2. Directive 2001/29, in particular Article 5(2)(b) and (5) thereof, must be interpreted as meaning that it is for the Member State which has introduced a system of private copying levies chargeable to the manufacturer or importer of media for reproduction of protected works, and on the territory of which the harm caused to authors by the use for private purposes of their work by purchasers who reside there occurs, to ensure that those authors actually receive the fair compensation intended to compensate them for that harm. In that regard, the mere fact that the commercial seller of reproduction equipment, devices and media is established in a Member State other than that in which the purchasers reside has no bearing on that obligation to achieve a certain result. It is for the national court, where it is impossible to ensure recovery of the fair compensation from the purchasers, to interpret national law in order to allow recovery of that compensation from the person responsible for payment who is acting on a commercial basis.
8.2.10 Perfect 10 v. Amazon.com (CA9 2007) 8.2.10 Perfect 10 v. Amazon.com (CA9 2007)
Perfect 10 v. Amazon.com (CA9 2007)
8.2.10.1. Perfect 10 v. Giganews, CV 11-07098-AB (Cal. CD 2015)
8.2.10.2. Perfect 10 v. Giganews (SUMMARY)
8.3. VCAST Limited v. RTI SpA, Case Cдуп265/16 (29 November 2017)
8.4 American Broadcasting Companies v. Aero (2015) 8.4 American Broadcasting Companies v. Aero (2015)
8.4.1 American Broadcasting Companies, Inc. v. Aereo, Inc. 8.4.1 American Broadcasting Companies, Inc. v. Aereo, Inc.
134 S.Ct. 2498 (2014)
AMERICAN BROADCASTING COMPANIES, INC., ET AL., PETITIONERS,
v.
AEREO, INC., FKA BAMBOOM LABS, INC.
No. 13-461.
Supreme Court of the United States.
Argued April 22, 2014.
Decided June 25, 2014.
BREYER, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined. SCALIA, J., filed a dissenting opinion, in which THOMAS and ALITO, JJ., joined.
JUSTICE BREYER, delivered the opinion of the Court.
The Copyright Act of 1976 gives a copyright owner the "exclusive righ[t]" to "perform the copyrighted work publicly." 17 U. S. C. §106(4). The Act's Transmit Clause defines that exclusive right as including the right to
"transmit or otherwise communicate a performance. . . of the [copyrighted] work . . . to the public, by means of any device or process, whether the members of the public capable of receiving the performance . . . receive it in the same place or in separate places and at the same time or at different times." §101.
We must decide whether respondent Aereo, Inc., infringes this exclusive right by selling its subscribers a technologically complex service that allows them to watch television programs over the Internet at about the same time as the programs are broadcast over the air. We conclude that it does.
I
A
For a monthly fee, Aereo offers subscribers broadcast television programming over the Internet, virtually as the programming is being broadcast. Much of this program-ming is made up of copyrighted works. Aereo neither owns the copyright in those works nor holds a license from the copyright owners to perform those works publicly.
Aereo's system is made up of servers, transcoders, and thousands of dime-sized antennas housed in a central warehouse. It works roughly as follows: First, when a subscriber wants to watch a show that is currently being broadcast, he visits Aereo's website and selects, from a list of the local programming, the show he wishes to see.
Second, one of Aereo's servers selects an antenna, which it dedicates to the use of that subscriber (and that subscriber alone) for the duration of the selected show. A server then tunes the antenna to the over-the-air broadcast carrying the show. The antenna begins to receive the broadcast, and an Aereo transcoder translates the signals received into data that can be transmitted over the Internet.
Third, rather than directly send the data to the subscriber, a server saves the data in a subscriber-specific folder on Aereo's hard drive. In other words, Aereo's system creates a subscriber-specific copy—that is, a "personal" copy—of the subscriber's program of choice.
Fourth, once several seconds of programming have been saved, Aereo's server begins to stream the saved copy of the show to the subscriber over the Internet. (The subscriber may instead direct Aereo to stream the program at a later time, but that aspect of Aereo's service is not before us.) The subscriber can watch the streamed program on the screen of his personal computer, tablet, smart phone, Internet-connected television, or other Internet-connected device. The streaming continues, a mere few seconds behind the over-the-air broadcast, until the subscriber has received the entire show. See A Dictionary of Computing 494 (6th ed. 2008) (defining "streaming" as "[t]he process of providing a steady flow of audio or video data so that an Internet user is able to access it as it is transmitted").
Aereo emphasizes that the data that its system streams to each subscriber are the data from his own personal copy, made from the broadcast signals received by the particular antenna allotted to him. Its system does not transmit data saved in one subscriber's folder to any other subscriber. When two subscribers wish to watch the same program, Aereo's system activates two separate antennas and saves two separate copies of the program in two separate folders. It then streams the show to the subscribers through two separate transmissions—each from the subscriber's personal copy.
B
Petitioners are television producers, marketers, distributors, and broadcasters who own the copyrights in many of the programs that Aereo's system streams to its subscribers. They brought suit against Aereo for copyright infringement in Federal District Court. They sought a preliminary injunction, arguing that Aereo was infringing their right to "perform" their works "publicly," as the Transmit Clause defines those terms.
The District Court denied the preliminary injunction. 874 F. Supp. 2d 373 (SDNY 2012). Relying on prior Circuit precedent, a divided panel of the Second Circuit affirmed. WNET, Thirteen v. Aereo, Inc., 712 F. 3d 676 (2013) (citing Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F. 3d 121 (2008)). In the Second Circuit's view, Aereo does not perform publicly within the meaning of the Transmit Clause because it does not transmit "to the public." Rather, each time Aereo streams a program to a subscriber, it sends a private transmission that is available only to that subscriber. The Second Circuit denied rehearing en banc, over the dissent of two judges. WNET, Thirteen v. Aereo, Inc., 722 F. 3d 500 (2013). We granted certiorari.
II
This case requires us to answer two questions: First, in operating in the manner described above, does Aereo "perform" at all? And second, if so, does Aereo do so "publicly"? We address these distinct questions in turn.
Does Aereo "perform"? See §106(4) ("[T]he owner of [a] copyright . . . has the exclusive righ[t] . . . to perform the copyrighted work publicly" (emphasis added)); §101 ("To perform . . . a work `publicly' means [among other things] to transmit . . . a performance . . . of the work . . . to the public . . ." (emphasis added)). Phrased another way, does Aereo "transmit . . . a performance" when a subscriber watches a show using Aereo's system, or is it only the subscriber who transmits? In Aereo's view, it does not perform. It does no more than supply equipment that "emulate[s] the operation of a home antenna and [digital video recorder (DVR)]." Brief for Respondent 41. Like a home antenna and DVR, Aereo's equipment simply responds to its subscribers' directives. So it is only the subscribers who "perform" when they use Aereo's equipment to stream television programs to themselves.
Considered alone, the language of the Act does not clearly indicate when an entity "perform[s]" (or "transmit[s]") and when it merely supplies equipment that allows others to do so. But when read in light of its purpose, the Act is unmistakable: An entity that engages in activities like Aereo's performs.
A
History makes plain that one of Congress' primary purposes in amending the Copyright Act in 1976 was to overturn this Court's determination that community antenna television (CATV) systems (the precursors of modern cable systems) fell outside the Act's scope. In Fortnightly Corp. v. United Artists Television, Inc., 392 U. S. 390 (1968), the Court considered a CATV system that carried local television broadcasting, much of which was copyrighted, to its subscribers in two cities. The CATV provider placed antennas on hills above the cities and used coaxial cables to carry the signals received by the antennas to the home television sets of its subscribers. The system amplified and modulated the signals in order to improve their strength and efficiently transmit them to subscribers. A subscriber "could choose any of the . . . programs he wished to view by simply turning the knob on his own television set." Id., at 392. The CATV provider "neither edited the programs received nor originated any programs of its own." Ibid.
Asked to decide whether the CATV provider infringed copyright holders' exclusive right to perform their works publicly, the Court held that the provider did not "perform" at all. See 17 U. S. C. §1(c) (1964 ed.) (granting copyright holder the exclusive right to "perform . . . in public for profit" a nondramatic literary work), §1(d) (granting copyright holder the exclusive right to "perform. . . publicly" a dramatic work). The Court drew a line: "Broadcasters perform. Viewers do not perform." 392 U. S., at 398 (footnote omitted). And a CATV provider "falls on the viewer's side of the line." Id., at 399.
The Court reasoned that CATV providers were unlike broadcasters:
"Broadcasters select the programs to be viewed; CATV systems simply carry, without editing, whatever programs they receive. Broadcasters procure programs and propagate them to the public; CATV systems receive programs that have been released to the public and carry them by private channels to additional viewers." Id., at 400.
Instead, CATV providers were more like viewers, for "the basic function [their] equipment serves is little different from that served by the equipment generally furnished by" viewers. Id., at 399. "Essentially," the Court said, "a CATV system no more than enhances the viewer's capacity to receive the broadcaster's signals [by] provid[ing] a well-located antenna with an efficient connection to the viewer's television set." Ibid. Viewers do not become performers by using "amplifying equipment," and a CATV provider should not be treated differently for providing viewers the same equipment. Id., at 398-400.
In Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U. S. 394 (1974), the Court considered the copyright liability of a CATV provider that carried broadcast television programming into subscribers' homes from hundreds of miles away. Although the Court recognized that a viewer might not be able to afford amplifying equipment that would provide access to those distant signals, it nonetheless found that the CATV provider was more like a viewer than a broadcaster. Id., at 408-409. It explained: "The reception and rechanneling of [broadcast television signals] for simultaneous viewing is essentially a viewer function, irrespective of the distance between the broadcasting station and the ultimate viewer." Id., at 408.
The Court also recognized that the CATV system exercised some measure of choice over what to transmit. But that fact did not transform the CATV system into a broadcaster. A broadcaster exercises significant creativity in choosing what to air, the Court reasoned. Id., at 410. In contrast, the CATV provider makes an initial choice about which broadcast stations to retransmit, but then "`simply carr[ies], without editing, whatever programs [it] receive[s].'" Ibid. (quoting Fortnightly, supra, at 400 (alterations in original)).
B
In 1976 Congress amended the Copyright Act in large part to reject the Court's holdings in Fortnightly and Teleprompter. See H. R. Rep. No. 94-1476, pp. 86-87 (1976) (hereinafter H. R. Rep.) (The 1976 amendments "completely overturned" this Court's narrow construction of the Act in Fortnightly and Teleprompter). Congress enacted new language that erased the Court's line between broadcaster and viewer, in respect to "perform[ing]" a work. The amended statute clarifies that to "perform" an audiovisual work means "to show its images in any sequence or to make the sounds accompanying it audible." §101; see ibid. (defining "[a]udiovisual works" as "works that consist of a series of related images which are intrinsically intended to be shown by the use of machines . . ., together with accompanying sounds"). Under this new language, both the broadcaster and the viewer of a television program "perform," because they both show the program's images and make audible the program's sounds. See H. R. Rep., at 63 ("[A] broadcasting network is performing when it transmits [a singer's performance of a song] . . . and any individual is performing whenever he or she . . . communicates the performance by turning on a receiving set").
Congress also enacted the Transmit Clause, which specifies that an entity performs publicly when it "transmit[s]. . . a performance . . . to the public." §101; see ibid. (defining "[t]o `transmit' a performance" as "to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent"). Cable system activities, like those of the CATV systems in Fortnightly and Teleprompter, lie at the heart of the activities that Congress intended this language to cover. See H. R. Rep., at 63 ("[A] cable television system is performing when it retransmits [a network] broadcast to its subscribers"); see also ibid. ("[T]he concep[t] of public performance. . . cover[s] not only the initial rendition or showing, but also any further act by which that rendition or showing is transmitted or communicated to the public"). The Clause thus makes clear that an entity that acts like a CATV system itself performs, even if when doing so, it simply enhances viewers' ability to receive broadcast television signals.
Congress further created a new section of the Act to regulate cable companies' public performances of copyrighted works. See §111. Section 111 creates a complex, highly detailed compulsory licensing scheme that sets out the conditions, including the payment of compulsory fees, under which cable systems may retransmit broadcasts. H. R. Rep., at 88 (Section 111 is primarily "directed at the operation of cable television systems and the terms and conditions of their liability for the retransmission of copyrighted works").
Congress made these three changes to achieve a similar end: to bring the activities of cable systems within the scope of the Copyright Act.
C
This history makes clear that Aereo is not simply an equipment provider. Rather, Aereo, and not just its subscribers, "perform[s]" (or "transmit[s]"). Aereo's activities are substantially similar to those of the CATV companies that Congress amended the Act to reach. See id., at 89 ("[C]able systems are commercial enterprises whose basic retransmission operations are based on the carriage of copyrighted program material"). Aereo sells a service that allows subscribers to watch television programs, many of which are copyrighted, almost as they are being broadcast. In providing this service, Aereo uses its own equipment, housed in a centralized warehouse, outside of its users' homes. By means of its technology (antennas, transcoders, and servers), Aereo's system "receive[s] programs that have been released to the public and carr[ies] them by private channels to additional viewers." Fortnightly, 392 U. S., at 400. It "carr[ies] . . . whatever programs [it] receive[s]," and it offers "all the programming" of each over-the-air station it carries. Id., at 392, 400.
Aereo's equipment may serve a "viewer function"; it may enhance the viewer's ability to receive a broadcaster's programs. It may even emulate equipment a viewer could use at home. But the same was true of the equipment that was before the Court, and ultimately before Congress, in Fortnightly and Teleprompter.
We recognize, and Aereo and the dissent emphasize, one particular difference between Aereo's system and the cable systems at issue in Fortnightly and Teleprompter. The systems in those cases transmitted constantly; they sent continuous programming to each subscriber's television set. In contrast, Aereo's system remains inert until a subscriber indicates that she wants to watch a program. Only at that moment, in automatic response to the subscriber's request, does Aereo's system activate an antenna and begin to transmit the requested program.
This is a critical difference, says the dissent. It means that Aereo's subscribers, not Aereo, "selec[t] the copyrighted content" that is "perform[ed]," post, at 4 (opinion of SCALIA, J.), and for that reason they, not Aereo, "transmit" the performance. Aereo is thus like "a copy shop that provides its patrons with a library card." Post, at 5. A copy shop is not directly liable whenever a patron uses the shop's machines to "reproduce" copyrighted materials found in that library. See §106(1) ("exclusive righ[t] . . . to reproduce the copyrighted work"). And by the same token, Aereo should not be directly liable whenever its patrons use its equipment to "transmit" copyrighted television programs to their screens.
In our view, however, the dissent's copy shop argument, in whatever form, makes too much out of too little. Given Aereo's overwhelming likeness to the cable companies targeted by the 1976 amendments, this sole technological difference between Aereo and traditional cable companies does not make a critical difference here. The subscribers of the Fortnightly and Teleprompter cable systems also selected what programs to display on their receiving sets. Indeed, as we explained in Fortnightly, such a subscriber "could choose any of the . . . programs he wished to view by simply turning the knob on his own television set." 392 U. S., at 392. The same is true of an Aereo subscriber. Of course, in Fortnightly the television signals, in a sense, lurked behind the screen, ready to emerge when the subscriber turned the knob. Here the signals pursue their ordinary course of travel through the universe until today's "turn of the knob"—a click on a website—activates machinery that intercepts and reroutes them to Aereo's subscribers over the Internet. But this difference means nothing to the subscriber. It means nothing to the broadcaster. We do not see how this single difference, invisible to subscriber and broadcaster alike, could transform a system that is for all practical purposes a traditional cable system into "a copy shop that provides its patrons with a library card."
In other cases involving different kinds of service or technology providers, a user's involvement in the operation of the provider's equipment and selection of the content transmitted may well bear on whether the provider performs within the meaning of the Act. But the many similarities between Aereo and cable companies, considered in light of Congress' basic purposes in amending the Copyright Act, convince us that this difference is not critical here. We conclude that Aereo is not just an equipment supplier and that Aereo "perform[s]."
III
Next, we must consider whether Aereo performs petitioners' works "publicly," within the meaning of the Transmit Clause. Under the Clause, an entity performs a work publicly when it "transmit[s] . . . a performance . . . of the work . . . to the public." §101. Aereo denies that it satisfies this definition. It reasons as follows: First, the "performance" it "transmit[s]" is the performance created by its act of transmitting. And second, because each of these performances is capable of being received by one and only one subscriber, Aereo transmits privately, not publicly. Even assuming Aereo's first argument is correct, its second does not follow.
We begin with Aereo's first argument. What performance does Aereo transmit? Under the Act, "[t]o `transmit' a performance . . . is to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent." Ibid. And "[t]o `perform'" an audiovisual work means "to show its images in any sequence or to make the sounds accompanying it audible." Ibid.
Petitioners say Aereo transmits a prior performance of their works. Thus when Aereo retransmits a network's prior broadcast, the underlying broadcast (itself a performance) is the performance that Aereo transmits. Aereo, as discussed above, says the performance it transmits is the new performance created by its act of transmitting. That performance comes into existence when Aereo streams the sounds and images of a broadcast program to a subscriber's screen.
We assume arguendo that Aereo's first argument is correct. Thus, for present purposes, to transmit a performance of (at least) an audiovisual work means to communicate contemporaneously visible images and contemporaneously audible sounds of the work. Cf. United States v. American Soc. of Composers, Authors and Publishers, 627 F. 3d 64, 73 (CA2 2010) (holding that a download of a work is not a performance because the data transmitted are not "contemporaneously perceptible"). When an Aereo subscriber selects a program to watch, Aereo streams the program over the Internet to that subscriber. Aereo thereby "communicate[s]" to the subscriber, by means of a "device or process," the work's images and sounds. §101. And those images and sounds are contemporaneously visible and audible on the subscriber's computer (or other Internet-connected device). So under our assumed definition, Aereo transmits a performance whenever its subscribers watch a program.
But what about the Clause's further requirement that Aereo transmit a performance "to the public"? As we have said, an Aereo subscriber receives broadcast television signals with an antenna dedicated to him alone. Aereo's system makes from those signals a personal copy of the selected program. It streams the content of the copy to the same subscriber and to no one else. One and only one subscriber has the ability to see and hear each Aereo transmission. The fact that each transmission is to only one subscriber, in Aereo's view, means that it does not transmit a performance "to the public."
In terms of the Act's purposes, these differences do not distinguish Aereo's system from cable systems, which do perform "publicly." Viewed in terms of Congress' regulatory objectives, why should any of these technological differences matter? They concern the behind-the-scenes way in which Aereo delivers television programming to its viewers' screens. They do not render Aereo's commercial objective any different from that of cable companies. Nor do they significantly alter the viewing experience of Aereo's subscribers. Why would a subscriber who wishes to watch a television show care much whether images and sounds are delivered to his screen via a large multisubscriber antenna or one small dedicated antenna, whether they arrive instantaneously or after a few seconds' delay, or whether they are transmitted directly or after a personal copy is made? And why, if Aereo is right, could not modern CATV systems simply continue the same commercial and consumer-oriented activities, free of copyright restrictions, provided they substitute such new technologies for old? Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies.
The text of the Clause effectuates Congress' intent. Aereo's argument to the contrary relies on the premise that "to transmit . . . a performance" means to make a single transmission. But the Clause suggests that an entity may transmit a performance through multiple, discrete transmissions. That is because one can "transmit" or "communicate" something through a set of actions. Thus one can transmit a message to one's friends, irrespective of whether one sends separate identical e-mails to each friend or a single e-mail to all at once. So can an elected official communicate an idea, slogan, or speech to her constituents, regardless of whether she communicates that idea, slogan, or speech during individual phone calls to each constituent or in a public square.
The fact that a singular noun ("a performance") follows the words "to transmit" does not suggest the contrary. One can sing a song to his family, whether he sings the same song one-on-one or in front of all together. Similarly, one's colleagues may watch a performance of a particular play—say, this season's modern-dress version of "Measure for Measure"—whether they do so at separate or at the same showings. By the same principle, an entity may transmit a performance through one or several transmissions, where the performance is of the same work.
The Transmit Clause must permit this interpretation, for it provides that one may transmit a performance to the public "whether the members of the public capable of receiving the performance . . . receive it . . . at the same time or at different times." §101. Were the words "to transmit . . . a performance" limited to a single act of communication, members of the public could not receive the performance communicated "at different times." Therefore, in light of the purpose and text of the Clause, we conclude that when an entity communicates the same contemporaneously perceptible images and sounds to multiple people, it transmits a performance to them regardless of the number of discrete communications it makes.
We do not see how the fact that Aereo transmits via personal copies of programs could make a difference. The Act applies to transmissions "by means of any device or process." Ibid. And retransmitting a television program using user-specific copies is a "process" of transmitting a performance. A "cop[y]" of a work is simply a "material objec[t] . . . in which a work is fixed . . . and from which the work can be perceived, reproduced, or otherwise communicated." Ibid. So whether Aereo transmits from the same or separate copies, it performs the same work; it shows the same images and makes audible the same sounds. Therefore, when Aereo streams the same television program to multiple subscribers, it "transmit[s] . . . a performance" to all of them.
Moreover, the subscribers to whom Aereo transmits television programs constitute "the public." Aereo communicates the same contemporaneously perceptible images and sounds to a large number of people who are unrelated and unknown to each other. This matters because, although the Act does not define "the public," it specifies that an entity performs publicly when it performs at "any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered." Ibid. The Act thereby suggests that "the public" consists of a large group of people outside of a family and friends.
Neither the record nor Aereo suggests that Aereo's subscribers receive performances in their capacities as owners or possessors of the underlying works. This is relevant because when an entity performs to a set of people, whether they constitute "the public" often depends upon their relationship to the underlying work. When, for example, a valet parking attendant returns cars to their drivers, we would not say that the parking service provides cars "to the public." We would say that it provides the cars to their owners. We would say that a car dealership, on the other hand, does provide cars to the public, for it sells cars to individuals who lack a pre-existing relationship to the cars. Similarly, an entity that transmits a performance to individuals in their capacities as owners or possessors does not perform to "the public," whereas an entity like Aereo that transmits to large numbers of paying subscribers who lack any prior relationship to the works does so perform.
Finally, we note that Aereo's subscribers may receive the same programs at different times and locations. This fact does not help Aereo, however, for the Transmit Clause expressly provides that an entity may perform publicly "whether the members of the public capable of receiving the performance . . . receive it in the same place or in separate places and at the same time or at different times." Ibid. In other words, "the public" need not be situated together, spatially or temporally. For these reasons, we conclude that Aereo transmits a performance of petitioners' copyrighted works to the public, within the meaning of the Transmit Clause.
IV
Aereo and many of its supporting amici argue that to apply the Transmit Clause to Aereo's conduct will impose copyright liability on other technologies, including new technologies, that Congress could not possibly have wanted to reach. We agree that Congress, while intending the Transmit Clause to apply broadly to cable companies and their equivalents, did not intend to discourage or to control the emergence or use of different kinds of technologies. But we do not believe that our limited holding today will have that effect.
For one thing, the history of cable broadcast transmissions that led to the enactment of the Transmit Clause informs our conclusion that Aereo "perform[s]," but it does not determine whether different kinds of providers in different contexts also "perform." For another, an entity only transmits a performance when it communicates contemporaneously perceptible images and sounds of a work. See Brief for Respondent 31 ("[I]f a distributor . . . sells [multiple copies of a digital video disc] by mail to consumers, . . . [its] distribution of the DVDs merely makes it possible for the recipients to perform the work themselves—it is not a `device or process' by which the distributor publicly performs the work" (emphasis in original)).
Further, we have interpreted the term "the public" to apply to a group of individuals acting as ordinary members of the public who pay primarily to watch broadcast television programs, many of which are copyrighted. We have said that it does not extend to those who act as owners or possessors of the relevant product. And we have not considered whether the public performance right is infringed when the user of a service pays primarily for something other than the transmission of copyrighted works, such as the remote storage of content. See Brief for United States as Amicus Curiae 31 (distinguishing cloudbased storage services because they "offer consumers more numerous and convenient means of playing back copies that the consumers have already lawfully acquired" (emphasis in original)). In addition, an entity does not transmit to the public if it does not transmit to a substantial number of people outside of a family and its social circle.
We also note that courts often apply a statute's highly general language in light of the statute's basic purposes. Finally, the doctrine of "fair use" can help to prevent inappropriate or inequitable applications of the Clause. See Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417 (1984).
We cannot now answer more precisely how the Transmit Clause or other provisions of the Copyright Act will apply to technologies not before us. We agree with the Solicitor General that "[q]uestions involving cloud computing, [remote storage] DVRs, and other novel issues not before the Court, as to which `Congress has not plainly marked [the] course,' should await a case in which they are squarely presented." Brief for United States as Amicus Curiae 34 (quoting Sony, supra, at 431 (alteration in original)). And we note that, to the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are of course free to seek action from Congress. Cf. Digital Millennium Copyright Act, 17 U. S. C. §512.
* * *
In sum, having considered the details of Aereo's practices, we find them highly similar to those of the CATV systems in Fortnightly and Teleprompter. And those are activities that the 1976 amendments sought to bring within the scope of the Copyright Act. Insofar as there are differences, those differences concern not the nature of the service that Aereo provides so much as the technological manner in which it provides the service. We conclude that those differences are not adequate to place Aereo's activities outside the scope of the Act.
For these reasons, we conclude that Aereo "perform[s]" petitioners' copyrighted works "publicly," as those terms are defined by the Transmit Clause. We therefore reverse the contrary judgment of the Court of Appeals, and we remand the case for further proceedings consistent with this opinion.
It is so ordered.
JUSTICE SCALIA, with whom JUSTICE THOMAS and JUSTICE ALITO join, dissenting.
This case is the latest skirmish in the long-running copyright battle over the delivery of television program-ming. Petitioners, a collection of television networks and affiliates (Networks), broadcast copyrighted programs on the public airwaves for all to see. Aereo, respondent, operates an automated system that allows subscribers to receive, on Internet-connected devices, programs that they select, including the Networks' copyrighted programs. The Networks sued Aereo for several forms of copyright infringement, but we are here concerned with a single claim: that Aereo violates the Networks'"exclusive righ[t]" to "perform" their programs "publicly." 17 U. S. C. §106(4). That claim fails at the very outset because Aereo does not "perform" at all. The Court manages to reach the opposite conclusion only by disregarding widely accepted rules for service-provider liability and adopting in their place an improvised standard ("looks-like-cable-TV") that will sow confusion for years to come.
I. Legal Standard
There are two types of liability for copyright infringement: direct and secondary. As its name suggests, the former applies when an actor personally engages in infringing conduct. See Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417, 433 (1984). Secondary liability, by contrast, is a means of holding defendants responsible for infringement by third parties, even when the defendants "have not themselves engaged in the infringing activity." Id., at 435. It applies when a defendant "intentionally induc[es] or encourag[es]" infringing acts by others or profits from such acts "while declining to exercise a right to stop or limit [them]." Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U. S. 913, 930 (2005).
Most suits against equipment manufacturers and service providers involve secondary-liability claims. For example, when movie studios sued to block the sale of Sony's Betamax videocassette recorder (VCR), they argued that Sony was liable because its customers were making unauthorized copies. See Sony, supra, at 434-435. Record labels and movie studios relied on a similar theory when they sued Grokster and StreamCast, two providers of peer-to-peer file-sharing software. See Grokster, supra, at 920-921, 927.
This suit, or rather the portion of it before us here, is fundamentally different. The Networks claim that Aereo directly infringes their public-performance right. Accordingly, the Networks must prove that Aereo "perform[s]" copyrighted works, §106(4), when its subscribers log in, select a channel, and push the "watch" button. That process undoubtedly results in a performance; the question is who does the performing. See Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F. 3d 121, 130 (CA2 2008). If Aereo's subscribers perform but Aereo does not, the claim necessarily fails.
The Networks' claim is governed by a simple but profoundly important rule: A defendant may be held directly liable only if it has engaged in volitional conduct that violates the Act. See 3 W. Patry, Copyright §9:5.50 (2013). This requirement is firmly grounded in the Act's text, which defines "perform" in active, affirmative terms: One "perform[s]" a copyrighted "audiovisual work," such as a movie or news broadcast, by "show[ing] its images in any sequence" or "mak[ing] the sounds accompanying it audible." §101. And since the Act makes it unlawful to copy or perform copyrighted works, not to copy or perform in general, see §501(a), the volitional-act requirement demands conduct directed to the plaintiff's copyrighted material, see Sony, supra, at 434. Every Court of Appeals to have considered an automated-service provider's direct liability for copyright infringement has adopted that rule. See Fox Broadcasting Co. v. Dish Network LLC, 747 F. 3d 1060, 1066-1068 (CA9 2014); Cartoon Network, supra, at 130-131 (CA2 2008); CoStar Group, Inc. v. LoopNet, Inc., 373 F. 3d 544, 549-550 (CA4 2004).[1] Although we have not opined on the issue, our cases are fully consistent with a volitional-conduct requirement. For example, we gave several examples of direct infringement in Sony, each of which involved a volitional act directed to the plaintiff's copyrighted material. See 464 U. S., at 437, n. 18.
The volitional-conduct requirement is not at issue in most direct-infringement cases; the usual point of dispute is whether the defendant's conduct is infringing (e.g., Does the defendant's design copy the plaintiff's?), rather than whether the defendant has acted at all (e.g., Did this defendant create the infringing design?). But it comes right to the fore when a direct-infringement claim is lodged against a defendant who does nothing more than operate an automated, user-controlled system. See, e.g., Fox Broadcasting, supra, at 1067; Cartoon Network, supra, at 131. Internet-service providers are a prime example. When one user sends data to another, the provider's equipment facilitates the transfer automatically. Does that mean that the provider is directly liable when the transmission happens to result in the "reproduc[tion]," §106(1), of a copyrighted work? It does not. The provider's system is "totally indifferent to the material's content," whereas courts require "some aspect of volition" directed at the copyrighted material before direct liability may be imposed. CoStar, 373 F. 3d, at 550-551.[2] The defendant may be held directly liable only if the defendant itself "trespassed on the exclusive domain of the copyright owner." Id., at 550. Most of the time that issue will come down to who selects the copyrighted content: the defendant or its customers. See Cartoon Network, supra, at 131-132.
A comparison between copy shops and video-on-demand services illustrates the point. A copy shop rents out photocopiers on a per-use basis. One customer might copy his 10-year-old's drawings—a perfectly lawful thing to do— while another might duplicate a famous artist's copyrighted photographs—a use clearly prohibited by §106(1). Either way, the customer chooses the content and activates the copying function; the photocopier does nothing except in response to the customer's commands. Because the shop plays no role in selecting the content, it cannot be held directly liable when a customer makes an infringing copy. See CoStar, supra, at 550.
Video-on-demand services, like photocopiers, respond automatically to user input, but they differ in one crucial respect: They choose the content. When a user signs in to Netflix, for example, "thousands of . . . movies [and] TV episodes" carefully curated by Netflix are "available to watch instantly." See How [D]oes Netflix [W]ork?, online at http://help.netflix.com/en/node/412 (as visited June 20, 2014, and available in Clerk of Court's case file). That selection and arrangement by the service provider constitutes a volitional act directed to specific copyrighted works and thus serves as a basis for direct liability.
The distinction between direct and secondary liability would collapse if there were not a clear rule for determining whether the defendant committed the infringing act. See Cartoon Network, 536 F. 3d, at 132-133. The volitional-conduct requirement supplies that rule; its purpose is not to excuse defendants from accountability, but to channel the claims against them into the correct analytical track. See Brief for 36 Intellectual Property and Copyright Law Professors as Amici Curiae 7. Thus, in the example given above, the fact that the copy shop does not choose the content simply means that its culpability will be assessed using secondary-liability rules rather than direct-liability rules. See Sony, supra, at 434-442; Cartoon Network, supra, at 132-133.
II. Application to Aereo
So which is Aereo: the copy shop or the video-on-demand service? In truth, it is neither. Rather, it is akin to a copy shop that provides its patrons with a library card. Aereo offers access to an automated system consisting of routers, servers, transcoders, and dime-sized antennae. Like a photocopier or VCR, that system lies dormant until a subscriber activates it. When a subscriber selects a program, Aereo's system picks up the relevant broadcast signal, translates its audio and video components into digital data, stores the data in a user-specific file, and transmits that file's contents to the subscriber via the Internet—at which point the subscriber's laptop, tablet, or other device displays the broadcast just as an ordinary television would. The result of that process fits the statutory definition of a performance to a tee: The subscriber's device "show[s]" the broadcast's "images" and "make[s] the sounds accompanying" the broadcast "audible." §101. The only question is whether those performances are the product of Aereo's volitional conduct.
They are not. Unlike video-on-demand services, Aereo does not provide a prearranged assortment of movies and television shows. Rather, it assigns each subscriber an antenna that—like a library card—can be used to obtain whatever broadcasts are freely available. Some of those broadcasts are copyrighted; others are in the public domain. The key point is that subscribers call all the shots: Aereo's automated system does not relay any program, copyrighted or not, until a subscriber selects the program and tells Aereo to relay it. Aereo's operation of that system is a volitional act and a but-for cause of the resulting performances, but, as in the case of the copy shop, that degree of involvement is not enough for direct liability. See Grokster, 545 U. S., at 960 (BREYER, J., concurring) ("[T]he producer of a technology which permits unlawful copying does not himself engage in unlawful copying").
In sum, Aereo does not "perform" for the sole and simple reason that it does not make the choice of content. And because Aereo does not perform, it cannot be held directly liable for infringing the Networks' public-performance right.[3] That conclusion does not necessarily mean that Aereo's service complies with the Copyright Act. Quite the contrary. The Networks' complaint alleges that Aereo is directly and secondarily liable for infringing their publicperformance rights (§106(4)) and also their reproduction rights (§106(1)). Their request for a preliminary injunction—the only issue before this Court—is based exclusively on the direct-liability portion of the public-performance claim (and further limited to Aereo's "watch" function, as opposed to its "record" function). See App. to Pet. for Cert. 60a-61a. Affirming the judgment below would merely return this case to the lower courts for consideration of the Networks' remaining claims.
III. Guilt By Resemblance
The Court's conclusion that Aereo performs boils down to the following syllogism: (1) Congress amended the Act to overrule our decisions holding that cable systems do not perform when they retransmit over-the-air broadcasts;[4] (2) Aereo looks a lot like a cable system; therefore (3) Aereo performs. Ante, at 4-10. That reasoning suffers from a trio of defects.
First, it is built on the shakiest of foundations. Perceiving the text to be ambiguous, ante, at 4, the Court reaches out to decide the case based on a few isolated snippets of legislative history, ante, at 7-8 (citing H. R. Rep. No. 94-1476 (1976)). The Court treats those snippets as authoritative evidence of congressional intent even though they come from a single report issued by a committee whose members make up a small fraction of one of the two Houses of Congress. Little else need be said here about the severe shortcomings of that interpretative methodology. See Lawson v. FMR LLC, 571 U. S. ___, ___ (2014) (SCALIA, J., concurring in principal part and concurring in judgment) (slip op., at 1-2).
Second, the Court's reasoning fails on its own terms because there are material differences between the cable systems at issue in Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U. S. 394 (1974), and Fortnightly Corp. v. United Artists Television, Inc., 392 U. S. 390 (1968), on the one hand and Aereo on the other. The former (which were then known as community-antenna television systems) captured the full range of broadcast signals and forwarded them to all subscribers at all times, whereas Aereo transmits only specific programs selected by the user, at specific times selected by the user. The Court acknowledges this distinction but blithely concludes that it "does not make a critical difference." Ante, at 10. Even if that were true, the Court fails to account for other salient differences between the two technologies.[5] Though cable systems started out essentially as dumb pipes that routed signals from point A to point B, see ante, at 5, by the 1970's, that kind of service "`no longer exist[ed],'" Brief for Petitioners in Columbia Broadcasting System, Inc. v. Teleprompter Corp., O. T. 1973, No. 72-1633, p. 22. At the time of our Teleprompter decision, cable companies "perform[ed] the same functions as `broadcasters' by deliberately selecting and importing distant signals, originating programs, [and] selling commercials," id., at 20, thus making them curators of content—more akin to video-ondemand services than copy shops. So far as the record reveals, Aereo does none of those things.
Third, and most importantly, even accepting that the 1976 amendments had as their purpose the overruling of our cable-TV cases, what they were meant to do and how they did it are two different questions—and it is the latter that governs the case before us here. The injury claimed is not violation of a law that says operations similar to cable TV are subject to copyright liability, but violation of §106(4) of the Copyright Act. And whatever soothing reasoning the Court uses to reach its result ("this looks like cable TV"), the consequence of its holding is that someone who implements this technology "perform[s]" under that provision. That greatly disrupts settled jurisprudence which, before today, applied the straightforward, bright-line test of volitional conduct directed at the copyrighted work. If that test is not outcome determinative in this case, presumably it is not outcome determinative elsewhere as well. And it is not clear what the Court proposes to replace it. Perhaps the Court means to adopt (invent, really) a two-tier version of the Copyright Act, one part of which applies to "cable companies and their equivalents" while the other governs everyone else. Ante, at 9-10, 16.
The rationale for the Court's ad hoc rule for cablesystem lookalikes is so broad that it renders nearly a third of the Court's opinion superfluous. Part II of the opinion concludes that Aereo performs because it resembles a cable company, and Congress amended the Act in 1976 "to bring the activities of cable systems within [its] scope." Ante, at 8. Part III of the opinion purports to address separately the question whether Aereo performs "publicly." Ante, at 10-15. Trouble is, that question cannot remain open if Congress's supposed intent to regulate whatever looks like a cable company must be given legal effect (as the Court says in Part II). The Act reaches only public performances, see §106(4), so Congress could not have regulated "the activities of cable systems" without deeming their retransmissions public performances. The upshot is this: If Aereo's similarity to a cable company means that it performs, then by necessity that same characteristic means that it does so publicly, and Part III of the Court's opinion discusses an issue that is no longer relevant—though discussing it certainly gives the opinion the "feel" of real textual analysis.
Making matters worse, the Court provides no criteria for determining when its cable-TV-lookalike rule applies. Must a defendant offer access to live television to qualify? If similarity to cable-television service is the measure, then the answer must be yes. But consider the implications of that answer: Aereo would be free to do exactly what it is doing right now so long as it built mandatory time shifting into its "watch" function.[6] Aereo would not be providing live television if it made subscribers wait to tune in until after a show's live broadcast ended. A subscriber could watch the 7 p.m. airing of a 1-hour program any time after 8 p.m. Assuming the Court does not intend to adopt such a do-nothing rule (though it very well may), there must be some other means of identifying who is and is not subject to its guilt-by-resemblance regime.
Two other criteria come to mind. One would cover any automated service that captures and stores live television broadcasts at a user's direction. That can't be right, since it is exactly what remote storage digital video recorders (RS-DVRs) do, see Cartoon Network, 536 F. 3d, at 124-125, and the Court insists that its "limited holding" does not decide the fate of those devices, ante, at 16-17. The other potential benchmark is the one offered by the Government: The cable-TV-lookalike rule embraces any entity that "operates an integrated system, substantially dependent on physical equipment that is used in common by [its] subscribers." Brief for United States as Amicus Curiae 20. The Court sensibly avoids that approach because it would sweep in Internet service providers and a host of other entities that quite obviously do not perform.
That leaves as the criterion of cable-TV-resemblance nothing but th'ol' totality-of-the-circumstances test (which is not a test at all but merely assertion of an intent to perform test-free, ad hoc, case-by-case evaluation). It will take years, perhaps decades, to determine which automated systems now in existence are governed by the traditional volitional-conduct test and which get the Aereo treatment. (And automated systems now in contemplation will have to take their chances.) The Court vows that its ruling will not affect cloud-storage providers and cabletelevision systems, see ante, at 16-17, but it cannot deliver on that promise given the imprecision of its result-driven rule. Indeed, the difficulties inherent in the Court's makeshift approach will become apparent in this very case. Today's decision addresses the legality of Aereo's "watch" function, which provides nearly contemporaneous access to live broadcasts. On remand, one of the first questions the lower courts will face is whether Aereo's "record" function, which allows subscribers to save a program while it is airing and watch it later, infringes the Networks' public-performance right. The volitionalconduct rule provides a clear answer to that question: Because Aereo does not select the programs viewed by its users, it does not perform. But it is impossible to say how the issue will come out under the Court's analysis, since cable companies did not offer remote recording and playback services when Congress amended the Copyright Act in 1976.
* * *
I share the Court's evident feeling that what Aereo is doing (or enabling to be done) to the Networks' copyrighted programming ought not to be allowed. But perhaps we need not distort the Copyright Act to forbid it. As discussed at the outset, Aereo's secondary liability for performance infringement is yet to be determined, as is its primary and secondary liability for reproduction infringement. If that does not suffice, then (assuming one shares the majority's estimation of right and wrong) what we have before us must be considered a "loophole" in the law. It is not the role of this Court to identify and plug loopholes. It is the role of good lawyers to identify and exploit them, and the role of Congress to eliminate them if it wishes. Congress can do that, I may add, in a much more targeted, better informed, and less disruptive fashion than the crude "looks-like-cable-TV" solution the Court invents today.
We came within one vote of declaring the VCR contraband 30 years ago in Sony. See 464 U. S., at 441, n. 21. The dissent in that case was driven in part by the plaintiffs' prediction that VCR technology would wreak all manner of havoc in the television and movie industries. See id., at 483 (opinion of Blackmun, J.); see also Brief for CBS, Inc., as Amicus Curiae, O. T. 1982, No. 81-1687, p. 2 (arguing that VCRs "directly threatened" the bottom line of "[e]very broadcaster").
The Networks make similarly dire predictions about Aereo. We are told that nothing less than "the very existence of broadcast television as we know it" is at stake. Brief for Petitioners 39. Aereo and its amici dispute those forecasts and make a few of their own, suggesting that a decision in the Networks' favor will stifle technological innovation and imperil billions of dollars of investments in cloud-storage services. See Brief for Respondents 48-51; Brief for BSA, The Software Alliance as Amicus Curiae 5-13. We are in no position to judge the validity of those self-interested claims or to foresee the path of future technological development. See Sony, supra, at 430-431; see also Grokster, 545 U. S., at 958 (BREYER, J., concurring). Hence, the proper course is not to bend and twist the Act's terms in an effort to produce a just outcome, but to apply the law as it stands and leave to Congress the task of deciding whether the Copyright Act needs an upgrade. I conclude, as the Court concluded in Sony: "It may well be that Congress will take a fresh look at this new technology, just as it so often has examined other innovations in the past. But it is not our job to apply laws that have not yet been written. Applying the copyright statute, as it now reads, to the facts as they have been developed in this case, the judgment of the Court of Appeals must be [affirmed]." 464 U. S., at 456.
I respectfully dissent.
[1] An unpublished decision of the Third Circuit is to the same effect. Parker v. Google, Inc., 242 Fed. Appx. 833, 836-837 (2007) (per curiam).
The Networks muster only one case they say stands for a different approach, New York Times Co. v. Tasini, 533 U. S. 483 (2001). Reply Brief 18. But Tasini is clearly inapposite; it dealt with the question whether the defendants' copying was permissible, not whether the defendants were the ones who made the copies. See 533 U. S., at 487-488, 492, 504-506.
[2] Congress has enacted several safe-harbor provisions applicable to automated network processes, see, e.g., 17 U. S. C. §512(a)-(b), but those provisions do not foreclose "any other defense," §512(l), including a volitional-conduct defense.
[3] Because I conclude that Aereo does not perform at all, I do not reach the question whether the performances in this case are to the public. See ante, at 10-15.
[4] See Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U. S. 394 (1974); Fortnightly Corp. v. United Artists Television, Inc., 392 U. S. 390 (1968).
[5] The Court observes that "[t]he subscribers of the Fortnightly and Teleprompter cable systems . . . selected what programs to display on their receiving sets," but acknowledges that those choices were possible only because "the television signals, in a sense, lurked behind the screen, ready to emerge when the subscriber turned the knob." Ante, at 10. The latter point is dispositive: The signals were "ready to emerge" because the cable system—much like a video-on-demand provider— took affirmative, volitional steps to put them there. As discussed above, the same cannot be said of the programs available through Aereo's automated system.
[6] Broadcasts accessible through the "watch" function are technically not live because Aereo's servers take anywhere from a few seconds to a few minutes to begin transmitting data to a subscriber's device. But the resulting delay is so brief that it cannot reasonably be classified as time shifting.
8.4.2. Aero (SUMMARY) - G. Frosio, The Supreme Court Finds Aereo a Direct Infringer, Justice Brandeis (And Scalia) Dissent, CIS Blog, July 1, 2014
8.4.3. Saw Cheng Lim and Warren B. Chik, Whither the Future of Internet Streaming and Time-Shifting? Revisiting the Rights of Reproduction and Communication to the Public in Copyright Law after Aereo, 23 Int'l J. L. Info. Tech. 55 (2015)
8.5 First Sale and Digital Exhaustion 8.5 First Sale and Digital Exhaustion
8.5.1 UsedSoft GmbH v Oracle International Corp., C-128/11, July 3, 2012 (ECJ) (digital distribution, exhaustion) 8.5.1 UsedSoft GmbH v Oracle International Corp., C-128/11, July 3, 2012 (ECJ) (digital distribution, exhaustion)
JUDGMENT OF THE COURT (Grand Chamber)
3 July 2012 (*)
(Legal protection of computer programs — Marketing of used licences for computer programs downloaded from the internet — Directive 2009/24/EC — Articles 4(2) and 5(1) — Exhaustion of the distribution right — Concept of lawful acquirer)
In Case C‑128/11,
REFERENCE for a preliminary ruling under Article 267 TFEU from the Bundesgerichtshof (Germany), made by decision of 3 February 2011, received at the Court on 14 March 2011, in the proceedings
UsedSoft GmbH
v
Oracle International Corp.,
THE COURT (Grand Chamber),
composed of V. Skouris, President, A. Tizzano, J.N. Cunha Rodrigues, K. Lenaerts (Rapporteur), J.‑C. Bonichot and A. Prechal, Presidents of Chambers, K. Schiemann, E. Juhász, A. Borg Barthet, D. Šváby and M. Berger, Judges,
Advocate General: Y. Bot,
Registrar: K. Malacek, Administrator,
having regard to the written procedure and further to the hearing on 6 March 2012,
after considering the observations submitted on behalf of:
– UsedSoft GmbH, by B. Ackermann and A. Meisterernst, Rechtsanwälte,
– Oracle International Corp., by T. Heydn and U. Hornung, Rechtsanwälte,
– Ireland, by D. O’Hagan, acting as Agent,
– the Spanish Government, by N. Díaz Abad, acting as Agent,
– the French Government, by J. Gstalter, acting as Agent,
– the Italian Government, by G. Palmieri, acting as Agent, and S. Fiorentino, avvocato dello Stato,
– the European Commission, by J. Samnadda and F.W. Bulst, acting as Agents,
after hearing the Opinion of the Advocate General at the sitting on 24 April 2012,
gives the following
Judgment
1 This reference for a preliminary ruling concerns the interpretation of Articles 4(2) and 5(1) of Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs (OJ 2009 L 111, p. 16).
2 The reference has been made in proceedings between UsedSoft GmbH (‘UsedSoft’) and Oracle International Corp. (‘Oracle’) concerning the marketing by UsedSoft of used licences for Oracle computer programs.
Legal context
International law
3 The World Intellectual Property Organisation (WIPO) adopted the WIPO Copyright Treaty (‘the Copyright Treaty’) in Geneva on 20 December 1996. That treaty was approved on behalf of the European Community by Council Decision 2000/278/EC of 16 March 2000 (OJ 2000 L 89, p. 6).
4 Article 4 of the Copyright Treaty, ‘Computer programs’, reads as follows:
‘Computer programs are protected as literary works within the meaning of Article 2 of the Berne Convention. Such protection applies to computer programs, whatever may be the mode or form of their expression.’
5 Article 6 of the Copyright Treaty, ‘Right of distribution’, provides:
‘1. Authors of literary and artistic works shall enjoy the exclusive right of authorising the making available to the public of the original and copies of their works through sale or other transfer of ownership.
2. Nothing in this Treaty shall affect the freedom of Contracting Parties to determine the conditions, if any, under which the exhaustion of the right in paragraph 1 applies after the first sale or other transfer of ownership of the original or a copy of the work with the authorisation of the author.’
6 Article 8 of the Copyright Treaty provides:
‘… authors of literary and artistic works shall enjoy the exclusive right of authorising any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access these works from a place and at a time individually chosen by them’.
7 In the agreed statements concerning Articles 6 and 7 of the Copyright Treaty, it is declared that:
‘As used in these Articles, the expressions “copies” and “original and copies” being subject to the right of distribution and the right of rental under the said Articles, refer exclusively to fixed copies that can be put into circulation as tangible objects.’
European Union law
Directive 2001/29
8 Recitals 28 and 29 in the preamble to Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society (OJ 2001 L 167, p. 10) state:
‘(28) Copyright protection under this Directive includes the exclusive right to control distribution of the work incorporated in a tangible article. The first sale in the Community of the original of a work or copies thereof by the rightholder or with his consent exhausts the right to control resale of that object in the Community. This right should not be exhausted in respect of the original or of copies thereof sold by the rightholder or with his consent outside the Community. Rental and lending rights for authors have been established in Directive 92/100/EEC. The distribution right provided for in this Directive is without prejudice to the provisions relating to the rental and lending rights contained in Chapter I of that Directive.
(29) The question of exhaustion does not arise in the case of services and on-line services in particular. This also applies with regard to a material copy of a work or other subject-matter made by a user of such a service with the consent of the rightholder. Therefore, the same applies to rental and lending of the original and copies of works or other subject-matter which are services by nature. Unlike CD‑ROM or CD-I, where the intellectual property is incorporated in a material medium, namely an item of goods, every on-line service is in fact an act which should be subject to authorisation where the copyright or related right so provides.’
9 In accordance with Article 1(2)(a) of Directive 2001/29, the directive ‘shall leave intact and shall in no way affect existing Community provisions relating to … the legal protection of computer programs’.
10 Article 3 of Directive 2001/29 provides:
‘1. Member States shall provide authors with the exclusive right to authorise or prohibit any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them.
…
3. The rights referred to in paragraphs 1 and 2 shall not be exhausted by any act of communication to the public or making available to the public as set out in this Article.’
11 Article 4 of Directive 2001/29, ‘Distribution right’, provides:
‘1. Member States shall provide for authors, in respect of the original of their works or of copies thereof, the exclusive right to authorise or prohibit any form of distribution to the public by sale or otherwise.
2. The distribution right shall not be exhausted within the Community in respect of the original or copies of the work, except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent.’
Directive 2009/24
12 According to recital 1 in the preamble to Directive 2009/24, that directive codifies Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs (OJ 1991 L 122, p. 42).
13 According to recital 7 in that preamble, ‘[f]or the purpose of this Directive, the term “computer program” shall include programs in any form, including those which are incorporated into hardware.’
14 According to recital 13 in that preamble, ‘the acts of loading and running necessary for the use of a copy of a program which has been lawfully acquired, and the act of correction of its errors, may not be prohibited by contract’.
15 Article 1(1) of Directive 2009/24 provides that ‘Member States shall protect computer programs, by copyright, as literary works within the meaning of the Berne Convention for the Protection of Literary and Artistic Works’.
16 Under Article 1(2) of that directive, ‘[p]rotection in accordance with this Directive shall apply to the expression in any form of a computer program’.
17 Article 4 of the directive, ‘Restricted acts’, provides:
‘1. Subject to the provisions of Articles 5 and 6, the exclusive rights of the rightholder within the meaning of Article 2 shall include the right to do or to authorise:
(a) the permanent or temporary reproduction of a computer program by any means and in any form, in part or in whole; in so far as loading, displaying, running, transmission or storage of the computer program necessitate such reproduction, such acts shall be subject to authorisation by the rightholder;
(b) the translation, adaptation, arrangement and any other alteration of a computer program and the reproduction of the results thereof, without prejudice to the rights of the person who alters the program;
(c) any form of distribution to the public, including the rental, of the original computer program or of copies thereof.
2. The first sale in the Community of a copy of a program by the rightholder or with his consent shall exhaust the distribution right within the Community of that copy, with the exception of the right to control further rental of the program or a copy thereof.’
18 Article 5 of the directive, ‘Exceptions to the restricted acts’, provides in paragraph 1:
‘In the absence of specific contractual provisions, the acts referred to in points (a) and (b) of Article 4(1) shall not require authorisation by the rightholder where they are necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction.’
German law
19 Paragraphs 69c and 69d of the Law on copyright and related rights (Gesetz über Urheberrecht und verwandte Schutzrechte (Urheberrechtsgesetz)) of 9 September 1965, as amended (‘the UrhG’), transpose Articles 4 and 5 of Directive 2009/24 into national law.
Facts of the main proceedings and questions referred for a preliminary ruling
20 Oracle develops and markets computer software. It is the proprietor of the exclusive user rights under copyright law in those programs. It is also the proprietor of the German and Community word marks Oracle, which are registered inter alia for computer software.
21 Oracle distributes the software at issue in the main proceedings, namely databank software, in 85% of cases by downloading from the internet. The customer downloads a copy of the software directly to his computer from Oracle’s website. The software is what is known as ‘client-server-software’. The user right for such a program, which is granted by a licence agreement, includes the right to store a copy of the program permanently on a server and to allow a certain number of users to access it by downloading it to the main memory of their work-station computers. On the basis of a maintenance agreement, updated versions of the software (‘updates’) and programs for correcting faults (‘patches’) can be downloaded from Oracle’s website. At the customer’s request, the programs are also supplied on CD‑ROM or DVD.
22 Oracle offers group licences for the software at issue in the main proceedings for a minimum of 25 users each. An undertaking requiring licences for 27 users thus has to acquire two licences.
23 Oracle’s licence agreements for the software at issue in the main proceedings contain the following term, under the heading ‘Grant of rights’:
‘With the payment for services you receive, exclusively for your internal business purposes, for an unlimited period a non-exclusive non-transferable user right free of charge for everything that Oracle develops and makes available to you on the basis of this agreement.’
24 UsedSoft markets used software licences, including user licences for the Oracle computer programs at issue in the main proceedings. For that purpose UsedSoft acquires from customers of Oracle such user licences, or parts of them, where the original licences relate to a greater number of users than required by the first acquirer.
25 In October 2005 UsedSoft promoted an ‘Oracle Special Offer’ in which it offered for sale ‘already used’ licences for the Oracle programs at issue in the main proceedings. In doing so it pointed out that the licences were all ‘current’ in the sense that the maintenance agreement concluded between the original licence holder and Oracle was still in force, and that the lawfulness of the original sale was confirmed by a notarial certificate.
26 Customers of UsedSoft who are not yet in possession of the Oracle software in question download a copy of the program directly from Oracle’s website, after acquiring such a used licence. Customers who already have that software and then purchase further licences for additional users are induced by UsedSoft to copy the program to the work stations of those users.
27 Oracle brought proceedings in the Landgericht München I (Regional Court, Munich I) seeking an order that UsedSoft cease the practices described in paragraphs 24 to 26 above. That court allowed Oracle’s application. UsedSoft’s appeal against the decision was dismissed. UsedSoft thereupon appealed on a point of law to the Bundesgerichtshof (Federal Court of Justice).
28 According to the Bundesgerichtshof, the actions of UsedSoft and its customers infringe Oracle’s exclusive right of permanent or temporary reproduction of computer programs within the meaning of Article 4(1)(a) of Directive 2009/24. UsedSoft’s customers cannot, in that court’s view, rely on a right validly transferred to them by Oracle to reproduce the computer programs. Oracle’s licence agreements state that the right to use the programs is ‘non-transferable’. Oracle’s customers are not therefore entitled to transfer to third parties the right of reproduction of those programs.
29 The outcome of the dispute depends, according to that court, on whether the customers of UsedSoft can successfully rely on Paragraph 69d(1) of the UrhG, which transposes Article 5(1) of Directive 2009/24 into German law.
30 The question arises, first, whether a person who, like UsedSoft’s customers, does not hold a user right in the computer program granted by the rightholder, but relies on the exhaustion of the right to distribute a copy of the computer program, is a ‘lawful acquirer’ of that copy within the meaning of Article 5(1) of Directive 2009/24. The referring court considers that that is the case. It explains that the marketability of a copy of the computer program which arises from the exhaustion of the distribution right would be largely meaningless if the acquirer of such a copy did not have the right to reproduce the program. The use of a computer program, unlike the use of other works protected by copyright, generally requires its reproduction. Article 5(1) of Directive 2009/24 thus serves to safeguard the exhaustion of the distribution right under Article 4(2) of Directive 2009/24.
31 Next, the referring court considers whether, in a case such as that in the main proceedings, the right to distribute a copy of a computer program is exhausted under the second sentence of Paragraph 69c(3) of the UrhG, which transposes Article 4(2) of Directive 2009/24.
32 There are several possible interpretations. First, Article 4(2) of Directive 2009/24 could be applicable if the rightholder allows a customer, after the conclusion of a licence agreement, to make a copy of a computer program by downloading that program from the internet and storing it on a computer. That provision attaches the legal consequence of exhaustion of the distribution right to the first sale of a copy of the program and does not necessarily presuppose the putting into circulation of a physical copy of the program. Secondly, Article 4(2) of Directive 2009/24 could be applicable by analogy in the case of the sale of a computer program by means of on-line transmission. According to the supporters of that view, there is an unintended lacuna in the law (‘planwidrige Regelungslücke’) because the authors of the directive did not regulate or contemplate on-line transmission of computer programs. Thirdly, Article 4(2) of Directive 2009/24 is inapplicable because the exhaustion of the distribution right under that provision always presupposes the putting into circulation of a physical copy of the program by the rightholder or with his consent. The authors of the directive deliberately refrained from extending the rule on exhaustion to the on-line transmission of computer programs.
33 Finally, the referring court raises the question whether a person who has acquired a used licence may, for making a copy of the program (as UsedSoft’s customers do in the dispute in the main proceedings by downloading a copy of Oracle’s program onto a computer from Oracle’s website or uploading it to the main memory of other work stations), rely on exhaustion of the right of distribution of the copy of the program made by the first acquirer, with the consent of the rightholder, by downloading it from the internet, if the first acquirer has deleted his copy or no longer uses it. The referring court considers that the application by analogy of Articles 5(1) and 4(2) of Directive 2009/24 can be ruled out. Exhaustion of the distribution right is intended solely to guarantee the marketability of a copy of a program which is incorporated in a particular data carrier and sold by the rightholder or with his consent. The effect of exhaustion should not therefore be extended to the non-physical data transmitted on-line.
34 In those circumstances the Bundesgerichtshof decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘1. Is the person who can rely on exhaustion of the right to distribute a copy of a computer program a “lawful acquirer” within the meaning of Article 5(1) of Directive 2009/24?
2. If the reply to the first question is in the affirmative: is the right to distribute a copy of a computer program exhausted in accordance with the first half-sentence of Article 4(2) of Directive 2009/24 when the acquirer has made the copy with the rightholder’s consent by downloading the program from the internet onto a data carrier?
3. If the reply to the second question is also in the affirmative: can a person who has acquired a “used” software licence for generating a program copy as “lawful acquirer” under Article 5(1) and the first half-sentence of Article 4(2) of Directive 2009/24 also rely on exhaustion of the right to distribute the copy of the computer program made by the first acquirer with the rightholder’s consent by downloading the program from the internet onto a data carrier if the first acquirer has erased his program copy or no longer uses it?’
Consideration of the questions referred
Question 2
35 By its second question, which should be addressed first, the referring court essentially seeks to know whether and under what conditions the downloading from the internet of a copy of a computer program, authorised by the copyright holder, can give rise to exhaustion of the right of distribution of that copy in the European Union within the meaning of Article 4(2) of Directive 2009/24.
36 It should be recalled that under Article 4(2) of Directive 2009/24 the first sale in the European Union of a copy of a computer program by the rightholder or with his consent exhausts the distribution right within the European Union of that copy.
37 According to the order for reference, the copyright holder itself, in this case Oracle, makes available to its customers in the European Union who wish to use its computer program a copy of that program which can be downloaded from its website.
38 To determine whether, in a situation such as that at issue in the main proceedings, the copyright holder’s distribution right is exhausted, it must be ascertained, first, whether the contractual relationship between the rightholder and its customer, within which the downloading of a copy of the program in question has taken place, may be regarded as a ‘first sale … of a copy of a program’ within the meaning of Article 4(2) of Directive 2009/24.
39 According to settled case‑law, the need for a uniform application of European Union law and the principle of equality require that the terms of a provision of European Union law which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope must normally be given an independent and uniform interpretation throughout the European Union (see, inter alia, Case C‑5/08 Infopaq International [2009] ECR I‑6569, paragraph 27; Case C‑34/10 Brüstle [2011] ECR I‑9821, paragraph 25; and judgment of 26 April 2012 in Case C‑510/10 DR and TV2 Danmark, paragraph 33).
40 The wording of Directive 2009/24 does not make any reference to national laws as regards the meaning to be given to the term ‘sale’ in Article 4(2) of the directive. It follows that that term must be regarded, for the purposes of applying the directive, as designating an autonomous concept of European Union law, which must be interpreted in a uniform manner throughout the territory of the European Union (see, to that effect, DR and TV2 Danmark, paragraph 34).
41 That conclusion is supported by the subject-matter and purpose of Directive 2009/24. Recitals 4 and 5 in the preamble to that directive, which is based on Article 95 EC, to which Article 114 TFEU corresponds, state that its objective is to remove differences between the laws of the Member States which have adverse effects on the functioning of the internal market and concern computer programs. A uniform interpretation of the term ‘sale’ is necessary in order to avoid the protection offered to copyright holders by that directive varying according to the national law applicable.
42 According to a commonly accepted definition, a ‘sale’ is an agreement by which a person, in return for payment, transfers to another person his rights of ownership in an item of tangible or intangible property belonging to him. It follows that the commercial transaction giving rise, in accordance with Article 4(2) of Directive 2009/24, to exhaustion of the right of distribution of a copy of a computer program must involve a transfer of the right of ownership in that copy.
43 Oracle submits that it does not sell copies of its computer programs at issue in the main proceedings. It says that it makes available to its customers, free of charge, on its website a copy of the program concerned, and they can download that copy. The copy thus downloaded may not, however, be used by the customers unless they have concluded a user licence agreement with Oracle. Such a licence gives Oracle’s customers a non-exclusive and non-transferable user right for an unlimited period for that program. Oracle submits that neither the making available of a copy free of charge nor the conclusion of the user licence agreement involves a transfer of the right of ownership of that copy.
44 In this respect, it must be observed that the downloading of a copy of a computer program and the conclusion of a user licence agreement for that copy form an indivisible whole. Downloading a copy of a computer program is pointless if the copy cannot be used by its possessor. Those two operations must therefore be examined as a whole for the purposes of their legal classification (see, by analogy, Joined Cases C‑145/08 and C‑149/08 Club Hotel Loutraki and Others [2010] ECR I‑4165, paragraphs 48 and 49 and the case‑law cited).
45 As regards the question whether, in a situation such as that at issue in the main proceedings, the commercial transactions concerned involve a transfer of the right of ownership of the copy of the computer program, it must be stated that, according to the order for reference, a customer of Oracle who downloads the copy of the program and concludes with that company a user licence agreement relating to that copy receives, in return for payment of a fee, a right to use that copy for an unlimited period. The making available by Oracle of a copy of its computer program and the conclusion of a user licence agreement for that copy are thus intended to make the copy usable by the customer, permanently, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which it is the proprietor.
46 In those circumstances, the operations mentioned in paragraph 44 above, examined as a whole, involve the transfer of the right of ownership of the copy of the computer program in question.
47 It makes no difference, in a situation such as that at issue in the main proceedings, whether the copy of the computer program was made available to the customer by the rightholder concerned by means of a download from the rightholder’s website or by means of a material medium such as a CD‑ROM or DVD. Even if, in the latter case too, the rightholder formally separates the customer’s right to use the copy of the program supplied from the operation of transferring the copy of the program to the customer on a material medium, the operation of downloading from that medium a copy of the computer program and that of concluding a licence agreement remain inseparable from the point of view of the acquirer, for the reasons set out in paragraph 44 above. Since an acquirer who downloads a copy of the program concerned by means of a material medium such as a CD‑ROM or DVD and concludes a licence agreement for that copy receives the right to use the copy for an unlimited period in return for payment of a fee, it must be considered that those two operations likewise involve, in the case of the making available of a copy of the computer program concerned by means of a material medium such as a CD‑ROM or DVD, the transfer of the right of ownership of that copy.
48 Consequently, in a situation such as that at issue in the main proceedings, the transfer by the copyright holder to a customer of a copy of a computer program, accompanied by the conclusion between the same parties of a user licence agreement, constitutes a ‘first sale … of a copy of a program’ within the meaning of Article 4(2) of Directive 2009/24.
49 As the Advocate General observes in point 59 of his Opinion, if the term ‘sale’ within the meaning of Article 4(2) of Directive 2009/24 were not given a broad interpretation as encompassing all forms of product marketing characterised by the grant of a right to use a copy of a computer program, for an unlimited period, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, the effectiveness of that provision would be undermined, since suppliers would merely have to call the contract a ‘licence’ rather than a ‘sale’ in order to circumvent the rule of exhaustion and divest it of all scope.
50 Secondly, the argument put forward by Oracle and the European Commission that the making available of a copy of a computer program on the copyright holder’s website constitutes a ‘making available to the public’ within the meaning of Article 3(1) of Directive 2001/29, which, in accordance with Article 3(3) of that directive, cannot give rise to exhaustion of the right of distribution of the copy, cannot be accepted.
51 It is apparent from Article 1(2)(a) of Directive 2001/29 that the directive ‘leave[s] intact and … in no way affect[s] existing … provisions [of European Union law] relating to … the legal protection of computer programs’ conferred by Directive 91/250, which was subsequently codified by Directive 2009/24. The provisions of Directive 2009/24, in particular Article 4(2), thus constitute a lex specialis in relation to the provisions of Directive 2001/29, so that even if the contractual relationship at issue in the main proceedings or an aspect of it might also be covered by the concept of ‘communication to the public’ within the meaning of Article 3(1) of the latter directive, the ‘first sale … of a copy of a program’ within the meaning of Article 4(2) of Directive 2009/24 would still give rise, in accordance with that provision, to exhaustion of the right of distribution of that copy.
52 Moreover, as stated in paragraph 46 above, in a situation such as that at issue in the main proceedings, the copyright holder transfers the right of ownership of the copy of the computer program to his customer. As the Advocate General observes in point 73 of his Opinion, it follows from Article 6(1) of the Copyright Treaty, in the light of which Articles 3 and 4 of Directive 2001/29 must, so far as possible, be interpreted (see, to that effect, Case C‑456/06 Peek & Cloppenburg [2008] ECR I‑2731, paragraph 30), that the existence of a transfer of ownership changes an ‘act of communication to the public’ provided for in Article 3 of that directive into an act of distribution referred to in Article 4 of the directive which, if the conditions in Article 4(2) of the directive are satisfied, can, like a ‘first sale … of a copy of a program’ referred to in Article 4(2) of Directive 2009/24, give rise to exhaustion of the distribution right.
53 Thirdly, it must also be examined whether, as argued by Oracle, the governments which have submitted observations to the Court, and the Commission, the exhaustion of the distribution right referred to in Article 4(2) of Directive 2009/24 relates only to tangible property and not to intangible copies of computer programs downloaded from the internet. They refer in this respect to the wording of Article 4(2) of Directive 2009/24, recitals 28 and 29 in the preamble to Directive 2001/29, Article 4 of Directive 2001/29 read in conjunction with Article 8 of the Copyright Treaty, and the agreed statement concerning Articles 6 and 7 of the Copyright Treaty, whose transposition is one of the aims of Directive 2001/29.
54 Furthermore, according to the Commission, recital 29 in the preamble to Directive 2001/29 confirms that ‘[t]he question of exhaustion does not arise in the case of services and on-line services in particular’.
55 On this point, it must be stated, first, that it does not appear from Article 4(2) of Directive 2009/24 that the exhaustion of the right of distribution of copies of computer programs mentioned in that provision is limited to copies of programmes on a material medium such as a CD‑ROM or DVD. On the contrary, that provision, by referring without further specification to the ‘sale … of a copy of a program’, makes no distinction according to the tangible or intangible form of the copy in question.
56 Next, it must be recalled that Directive 2009/24, which concerns specifically the legal protection of computer programs, constitutes a lex specialis in relation to Directive 2001/29.
57 Article 1(2) of Directive 2009/24 states that ‘[p]rotection in accordance with this Directive shall apply to the expression in any form of a computer program’. Recital 7 in the preamble to that directive specifies that the ‘computer programs’ it aims to protect ‘include programs in any form, including those which are incorporated into hardware’.
58 Those provisions thus make abundantly clear the intention of the European Union legislature to assimilate, for the purposes of the protection laid down by Directive 2009/24, tangible and intangible copies of computer programs.
59 In those circumstances, it must be considered that the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 concerns both tangible and intangible copies of a computer program, and hence also copies of programs which, on the occasion of their first sale, have been downloaded from the internet onto the first acquirer’s computer.
60 It is true that the concepts used in Directives 2001/29 and 2009/24 must in principle have the same meaning (see Joined Cases C‑403/08 and C‑429/08 Football Association Premier League and Others [2011] ECR I‑9083, paragraphs 187 and 188). However, even supposing that Article 4(2) of Directive 2001/29, interpreted in the light of recitals 28 and 29 in its preamble and in the light of the Copyright Treaty, which Directive 2001/29 aims to implement (judgment of 9 February 2012 in Case C‑277/10 Luksan, paragraph 59), indicated that, for the works covered by that directive, the exhaustion of the distribution right concerned only tangible objects, that would not be capable of affecting the interpretation of Article 4(2) of Directive 2009/24, having regard to the different intention expressed by the European Union legislature in the specific context of that directive.
61 It should be added that, from an economic point of view, the sale of a computer program on CD‑ROM or DVD and the sale of a program by downloading from the internet are similar. The on-line transmission method is the functional equivalent of the supply of a material medium. Interpreting Article 4(2) of Directive 2009/24 in the light of the principle of equal treatment confirms that the exhaustion of the distribution right under that provision takes effect after the first sale in the European Union of a copy of a computer program by the copyright holder or with his consent, regardless of whether the sale relates to a tangible or an intangible copy of the program.
62 As to the Commission’s argument that European Union law does not provide for the exhaustion of the distribution right in the case of services, it must be recalled that the objective of the principle of the exhaustion of the right of distribution of works protected by copyright is, in order to avoid partitioning of markets, to limit restrictions of the distribution of those works to what is necessary to safeguard the specific subject-matter of the intellectual property concerned (see, to that effect, Case C‑200/96 Metronome Musik [1998] ECR I‑1953, paragraph 14; Case C‑61/97 FDV [1998] ECR I‑5171, paragraph 13; and Football Association Premier League and Others, paragraph 106).
63 To limit the application, in circumstances such as those at issue in the main proceedings, of the principle of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 solely to copies of computer programs that are sold on a material medium would allow the copyright holder to control the resale of copies downloaded from the internet and to demand further remuneration on the occasion of each new sale, even though the first sale of the copy had already enabled the rightholder to obtain an appropriate remuneration. Such a restriction of the resale of copies of computer programs downloaded from the internet would go beyond what is necessary to safeguard the specific subject-matter of the intellectual property concerned (see, to that effect, Football Association Premier League and Others, paragraphs 105 and 106).
64 Fourthly, it must also be examined whether, as Oracle claims, the maintenance agreement concluded by the first acquirer prevents in any event the exhaustion of the right provided for in Article 4(2) of Directive 2009/24, since the copy of the computer program which the first acquirer may transfer to a second acquirer no longer corresponds to the copy he downloaded but to a new copy of the program.
65 According to the order for reference, the used licences offered by UsedSoft are ‘current’, in that the sale of the copy of the program by Oracle to its customer was accompanied by the conclusion of a maintenance agreement for that copy.
66 It must be observed that the exhaustion of the right of distribution of a copy of a computer program under Article 4(2) of Directive 2009/24 only concerns copies which have been the subject of a first sale in the European Union by the copyright holder or with his consent. It does not relate to contracts for services, such as maintenance agreements, which are separable from such a sale and were concluded, possibly for an unlimited period, on the occasion of the sale.
67 None the less, the conclusion of a maintenance agreement, such as those at issue in the main proceedings, on the occasion of the sale of an intangible copy of a computer program has the effect that the copy originally purchased is patched and updated. Even if the maintenance agreement is for a limited period, the functionalities corrected, altered or added on the basis of such an agreement form an integral part of the copy originally downloaded and can be used by the acquirer of the copy for an unlimited period, even in the event that the acquirer subsequently decides not to renew the maintenance agreement.
68 In such circumstances, the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 extends to the copy of the computer program sold as corrected and updated by the copyright holder.
69 It should be pointed out, however, that if the licence acquired by the first acquirer relates to a greater number of users than he needs, as stated in paragraphs 22 and 24 above, the acquirer is not authorised by the effect of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 to divide the licence and resell only the user right for the computer program concerned corresponding to a number of users determined by him.
70 An original acquirer who resells a tangible or intangible copy of a computer program for which the copyright holder’s right of distribution is exhausted in accordance with Article 4(2) of Directive 2009/24 must, in order to avoid infringing the exclusive right of reproduction of a computer program which belongs to its author, laid down in Article 4(1)(a) of Directive 2009/24, make his own copy unusable at the time of its resale. In a situation such as that mentioned in the preceding paragraph, the customer of the copyright holder will continue to use the copy of the program installed on his server and will not thus make it unusable.
71 Moreover, even if an acquirer of additional user rights for the computer program concerned did not carry out a new installation — and hence a new reproduction — of the program on a server belonging to him, the effect of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 would in any event not extend to such user rights. In such a case the acquisition of additional user rights does not relate to the copy for which the distribution right was exhausted at the time of that transaction. On the contrary, it is intended solely to make it possible to extend the number of users of the copy which the acquirer of additional rights has himself already installed on his server.
72 On the basis of all the foregoing, the answer to Question 2 is that Article 4(2) of Directive 2009/24 must be interpreted as meaning that the right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period.
Questions 1 and 3
73 By its first and third questions the referring court seeks essentially to know whether, and under what conditions, an acquirer of used licences for computer programs, such as those sold by UsedSoft, may, as a result of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24, be regarded as a ‘lawful acquirer’ within the meaning of Article 5(1) of Directive 2009/24 who, in accordance with that provision, enjoys the right of reproduction of the program concerned in order to enable him to use the program in accordance with its intended purpose.
74 Article 5(1) of Directive 2009/24 provides that, in the absence of specific contractual provisions, the reproduction of a computer program does not require authorisation by the author of the program where that reproduction is necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction.
75 When the customer of the copyright holder purchases a copy of a computer program that is on the rightholder’s website, he performs, by downloading the copy onto his computer, a reproduction of the copy which is authorised under Article 5(1) of Directive 2009/24. This is a reproduction that is necessary for the use of the program by the lawful acquirer in accordance with its intended purpose.
76 Moreover, recital 13 in the preamble to Directive 2009/24 states that ‘the acts of loading and running necessary for the use of a copy of a program which has been lawfully acquired … may not be prohibited by contract’.
77 It must be recalled, next, that the copyright holder’s distribution right is exhausted, in accordance with Article 4(2) of Directive 2009/24, on the occasion of the first sale in the European Union by that rightholder, or with his consent, of any copy, tangible or intangible, of his computer program. It follows that, by virtue of that provision and notwithstanding the existence of contractual terms prohibiting a further transfer, the rightholder in question can no longer oppose the resale of that copy.
78 Admittedly, as stated in paragraph 70 above, the original acquirer of a tangible or intangible copy of a computer program for which the copyright holder’s distribution right is exhausted in accordance with Article 4(2) of Directive 2009/24 who resells that copy must, in order to avoid infringing that rightholder’s exclusive right of reproduction of his computer program under Article 4(1)(a) of Directive 2009/24, make the copy downloaded onto his computer unusable at the time of its resale.
79 As Oracle rightly observes, ascertaining whether such a copy has been made unusable may prove difficult. However, a copyright holder who distributes copies of a computer program on a material medium such as a CD‑ROM or DVD is faced with the same problem, since it is only with great difficulty that he can make sure that the original acquirer has not made copies of the program which he will continue to use after selling his material medium. To solve that problem, it is permissible for the distributor — whether ‘classic’ or ‘digital’ — to make use of technical protective measures such as product keys.
80 Since the copyright holder cannot object to the resale of a copy of a computer program for which that rightholder’s distribution right is exhausted under Article 4(2) of Directive 2009/24, it must be concluded that a second acquirer of that copy and any subsequent acquirer are ‘lawful acquirers’ of it within the meaning of Article 5(1) of Directive 2009/24.
81 Consequently, in the event of a resale of the copy of the computer program by the first acquirer, the new acquirer will be able, in accordance with Article 5(1) of Directive 2009/24, to download onto his computer the copy sold to him by the first acquirer. Such a download must be regarded as a reproduction of a computer program that is necessary to enable the new acquirer to use the program in accordance with its intended purpose.
82 The argument put forward by Oracle, Ireland and the French and Italian Governments that the concept of ‘lawful acquirer’ in Article 5(1) of Directive 2009/24 relates only to an acquirer who is authorised, under a licence agreement concluded directly with the copyright holder, to use the computer programme cannot be accepted.
83 That argument would have the effect of allowing the copyright holder to prevent the effective use of any used copy in respect of which his distribution right has been exhausted under Article 4(2) of Directive 2009/24, by relying on his exclusive right of reproduction laid down in Article 4(1)(a) of that directive, and would thus render ineffective the exhaustion of the distribution right under Article 4(2).
84 In the case of a situation such as that at issue in the main proceedings, it must be recalled that in paragraphs 44 and 48 above it was found that the downloading onto the customer’s server of a copy of the computer program on the rightholder’s website and the conclusion of a user licence agreement for that copy form an indivisible whole which, as a whole, must be classified as a sale. Having regard to that indivisible link between the copy on the rightholder’s website, as subsequently corrected and updated, on the one hand, and the user licence relating to the copy, on the other, the resale of the user licence entails the resale of ‘that copy’ within the meaning of Article 4(2) of Directive 2009/24, and thus benefits from the exhaustion of the distribution right under that provision, notwithstanding the term in the licence agreement set out in paragraph 23 above.
85 As may be seen from paragraph 81 above, it follows that a new acquirer of the user licence, such as a customer of UsedSoft, will be able, as a ‘lawful acquirer’ within the meaning of Article 5(1) of Directive 2009/24 of the corrected and updated copy of the computer program concerned, to download that copy from the copyright holder’s website, with that downloading constituting a reproduction of a computer program that is necessary to enable the new acquirer to use the program in accordance with its intended purpose.
86 It should be recalled, however, that, if the licence acquired by the first acquirer relates to a greater number of users than he needs, that acquirer is not authorised by the effect of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 to divide the licence and resell only the user right for the computer program concerned corresponding to a number of users determined by him, as explained in paragraphs 69 to 71 above.
87 Moreover, a copyright holder such as Oracle is entitled, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from his website, to ensure by all technical means at his disposal that the copy still in the hands of the reseller is made unusable.
88 It follows from the foregoing that the answer to Questions 1 and 3 is that Articles 4(2) and 5(1) of Directive 2009/24 must be interpreted as meaning that, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from the copyright holder’s website, that licence having originally been granted by that rightholder to the first acquirer for an unlimited period in return for payment of a fee intended to enable the rightholder to obtain a remuneration corresponding to the economic value of that copy of his work, the second acquirer of the licence, as well as any subsequent acquirer of it, will be able to rely on the exhaustion of the distribution right under Article 4(2) of that directive, and hence be regarded as lawful acquirers of a copy of a computer program within the meaning of Article 5(1) of that directive and benefit from the right of reproduction provided for in that provision.
Costs
89 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Grand Chamber) hereby rules:
1. Article 4(2) of Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs must be interpreted as meaning that the right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period.
2. Articles 4(2) and 5(1) of Directive 2009/24 must be interpreted as meaning that, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from the copyright holder’s website, that licence having originally been granted by that rightholder to the first acquirer for an unlimited period in return for payment of a fee intended to enable the rightholder to obtain a remuneration corresponding to the economic value of that copy of his work, the second acquirer of the licence, as well as any subsequent acquirer of it, will be able to rely on the exhaustion of the distribution right under Article 4(2) of that directive, and hence be regarded as lawful acquirers of a copy of a computer program within the meaning of Article 5(1) of that directive and benefit from the right of reproduction provided for in that provision.
8.5.2 UsedSoft (SUMMARY) 8.5.2 UsedSoft (SUMMARY)
UsedSoft GmbH
v
Oracle International Corp.
(Reference for a preliminary ruling from the Bundesgerichtshof)
(Legal protection of computer programs — Marketing of used licences for computer programs downloaded from the internet — Directive 2009/24/EC — Articles 4(2) and 5(1) — Exhaustion of the distribution right — Concept of lawful acquirer)
Summary of the Judgment
1. Approximation of laws — Copyright and related rights — Directive 2009/24 — Legal protection of computer programs — Restricted acts — Exhaustion of the right of distribution of a copy of a computer program — Conditions — Authorisation by the holder of the copyright in the copy of the downloading of the copy and the right to use the copy
(European Parliament and Council Directive 2009/24, Art. 4(2))
2. Approximation of laws — Copyright and related rights — Directive 2009/24 — Legal protection of computer programs — Exceptions to the restricted acts — Use of the computer program by the lawful acquirer in accordance with its intended purpose — Lawful acquirer — Concept — Subsequent acquirer of a copy of the computer program originally downloaded by the first acquirer from the copyright holder’s website — Included
(European Parliament and Council Directive 2009/24, Arts 4(2) and 5(1))
1. Article 4(2) of Directive 2009/24 on the legal protection of computer programs must be interpreted as meaning that the right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period.
The downloading of a copy of a computer program and the conclusion of a user licence agreement for that copy form an indivisible whole. Downloading a copy of a computer program is pointless if the copy cannot be used by its possessor. Those two operations must therefore be examined as a whole for the purposes of their legal classification.
Those operations involve the transfer of the right of ownership of the copy of the computer program in question, as the making available by the copyright holder of a copy of his computer program and the conclusion of a user licence agreement for that copy are intended to make the copy usable by the customer, permanently, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor. It makes no difference whether the copy of the computer program was made available to the customer by the rightholder concerned by means of a download from the rightholder’s website or by means of a material medium such as a CD-ROM or DVD.
(see paras 44-47, 72, operative part 1)
2. Articles 4(2) and 5(1) of Directive 2009/24 on the legal protection of computer programs must be interpreted as meaning that, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from the copyright holder’s website, that licence having originally been granted by that rightholder to the first acquirer for an unlimited period in return for payment of a fee intended to enable the rightholder to obtain a remuneration corresponding to the economic value of that copy of his work, the second acquirer of the licence, as well as any subsequent acquirer of it, will be able to rely on the exhaustion of the distribution right under Article 4(2) of that directive, and hence be regarded as lawful acquirers of a copy of a computer program within the meaning of Article 5(1) of that directive and benefit from the right of reproduction provided for in that provision.
(see para. 88, operative part 2)
8.5.3 Capitol Records, LLC v. ReDigi, Inc., 934 F.Supp.2d 640 (S.D.N.Y. 2013) 8.5.3 Capitol Records, LLC v. ReDigi, Inc., 934 F.Supp.2d 640 (S.D.N.Y. 2013)
CAPITOL RECORDS, LLC, Plaintiff,
v.
ReDIGI INC., Defendant.
United States District Court, S.D. New York.
644*644 Richard Stephen Mandel, Jonathan Zachary King, and Robert William Clarida of Cowan, Liebowitz & Latmant P.C., New York, NY, for Plaintiff.
Gary Philip Adelman of Davis Shapiro Lewit & Hayes LLP, New York, NY, for Defendant.
MEMORANDUM AND ORDER
RICHARD J. SULLIVAN, District Judge.
Capitol Records, LLC ("Capitol"), the recording label for such classic vinyls as 645*645Frank Sinatra's "Come Fly With Me" and The Beatles' "Yellow Submarine," brings this action against ReDigi Inc. ("ReDigi"), a twenty-first century technology company that touts itself as a "virtual" marketplace for "pre-owned" digital music. What has ensued in a fundamental clash over culture, policy, and copyright law, with Capitol alleging that ReDigi's web-based service amounts to copyright infringement in violation of the Copyright Act of 1976 (the "Copyright Act"), 17 U.S.C. § 101 et seq.Now before the Court are Capitol's motion for partial summary judgment and ReDigi's motion for summary judgment, both filed pursuant to Federal Rule of Civil Procedure 56. Because this is a court of law and not a congressional subcommittee or technology blog, the issues are narrow, technical, and purely legal. Thus, for the reasons that follow, Capitol's motion is granted and ReDigi's motion is denied.
I. BACKGROUND
A. Facts
ReDigi markets itself as "the world's first and only online marketplace for digital used music."[1] (Capitol 56.1 Stmt., Doc. No. 50 ("Cap. 56.1"), ¶ 6.) Launched on October 13, 2011, ReDigi's website invites users to "sell their legally acquired digital music files, and buy used digital music from others at a fraction of the price currently available on iTunes." (Id. ¶¶ 6, 9.) Thus, much like used record stores, ReDigi permits its users to recoup value on their unwanted music. Unlike used record stores, however, ReDigi's sales take place entirely in the digital domain. (See ReDigi Reply 56.1 Stmt., Doc. No. 83 ("RD Rep. 56.1"), 4 ¶ 16.)
To sell music on ReDigi's website, a user must first download ReDigi's "Media Manager" to his computer. (ReDigi 56.1 Stmt., Doc. No. 56 ("RD 56.1"), ¶ 8.) Once installed, Media Manager analyzes the user's computer to build a list of digital music files eligible for sale. (Id.) A file is eligible only if it was purchased on iTunes or from another ReDigi user; music downloaded from a CD or other file-sharing website is ineligible for sale. (Id.) After this validation process, Media Manager continually runs on the user's computer and attached devices to ensure that the user has not retained music that has been sold or uploaded for sale. (Id. ¶ 10.) However, Media Manager cannot detect copies stored in other locations. (Cap. 56.1 ¶¶ 59-61, 63; see Capitol Reply 56.1 Stmt., Doc. No. 78 ("Cap. Rep. 56.1"), ¶ 10.) If a copy is detected, Media Manager prompts the user to delete the file. (Cap. 56.1 ¶ 64.) The file is not deleted automatically or involuntarily, though ReDigi's policy is to suspend the accounts of users who refuse to comply. (Id.)
After the list is built, a user may upload any of his eligible files to ReDigi's "Cloud Locker," an ethereal moniker for what is, in fact, merely a remote server in Arizona. (RD 56.1 ¶¶ 9, 11; Cap. 56.1 ¶ 22.) ReDigi's upload process is a source of contention between the parties. (See RD 56.1 ¶¶ 14-23; Cap. Rep. 56.1 ¶¶ 14-23.) ReDigi asserts that the process involves "migrating" a user's file, packet by packet — "analogous to a train" — from the user's computer to the Cloud Locker so that data does not exist in two places at any one time.[2] (RD 56.1 ¶¶ 14, 36.) Capitol asserts 646*646 that, semantics aside, ReDigi's upload process "necessarily involves copying" a file from the user's computer to the Cloud Locker. (Cap. Rep. 56.1 ¶ 14.) Regardless, at the end of the process, the digital music file is located in the Cloud Locker and not on the user's computer. (RD 56.1 ¶ 21.) Moreover, Media Manager deletes any additional copies of the file on the user's computer and connected devices. (Id. ¶ 38.)
Once uploaded, a digital music file undergoes a second analysis to verify eligibility. (Cap. 56.1 ¶¶ 131-32.) If ReDigi determines that the file has not been tampered with or offered for sale by another user, the file is stored in the Cloud Locker, and the user is given the option of simply storing and streaming the file for personal use or offering it for sale in Re-Digi's marketplace. (Id. ¶¶ 33-37.) If a user chooses to sell his digital music file, his access to the file is terminated and transferred to the new owner at the time of purchase. (Id. ¶ 49.) Thereafter, the new owner can store the file in the Cloud Locker, stream it, sell it, or download it to her computer and other devices. (Id. ¶ 50.) No money changes hands in these transactions. (RD Rep. 56.15 ¶ 18.) Instead, users buy music with credits they either purchased from ReDigi or acquired from other sales. (Id.) ReDigi credits, once acquired, cannot be exchanged for money. (Id.) Instead, they can only be used to purchase additional music. (Id.)
To encourage activity in its marketplace, ReDigi initially permitted users to preview thirty-second clips and view album cover art of songs posted for sale pursuant to a licensing agreement with a third party. (See RD 56.1 ¶¶ 73-78.) However, shortly after its launch, ReDigi lost the licenses. (Id.) Accordingly, ReDigi now sends users to either YouTube or iTunes to listen to and view this promotional material. (Id. ¶¶ 77, 79.) ReDigi also offers its users a number of incentives. (Cap. 56.1 ¶ 39.) For instance, ReDigi gives twenty-cent credits to users who post files for sale and enters active sellers into contests for prizes. (Id. ¶¶ 39, 42.) ReDigi also encourages sales by advising new users via email that they can "[c]ash in" their music on the website, tracking and posting the titles of sought after songs on its website and in its newsletter, notifying users when they are low on credits and advising them to either purchase more credits or sell songs, and connecting users who are seeking unavailable songs with potential sellers. (Id. ¶¶ 39-48.)
Finally, ReDigi earns a fee for every transaction. (Id. ¶ 54.) ReDigi's website prices digital music files at fifty-nine to seventy-nine cents each. (Id. ¶ 55.) When users purchase a file, with credits, 20% of the sale price is allocated to the seller, 20% goes to an "escrow" fund for the artist, and 60% is retained by ReDigi.[3] (Id.)
B. Procedural History
Capitol, which owns a number of the recordings sold on ReDigi's website, commenced 647*647 this action by filing the Complaint on January 6, 2012. (SeeComplaint, dated Jan. 5, 2012, Doc. No. 1 ("Compl."); Cap. 56.1 ¶¶ 68-73.) In its Complaint, Capitol alleges multiple violations of the Copyright Act, 17 U.S.C. § 101,et seq., including direct copyright infringement, inducement of copyright infringement, contributory and vicarious copyright infringement, and common law copyright infringement. (Compl. ¶¶ 44-88.) Capitol seeks preliminary and permanent injunctions of ReDigi's services, as well as damages, attorney's fees and costs, interest, and any other appropriate relief. (Id. at 17-18.) On February 6, 2012, the Court denied Capitol's motion for a preliminary injunction, finding that Capitol had failed to establish irreparable harm. (Doc. No. 26.)
On July 20, 2012, Capitol filed its motion for partial summary judgment on the claims that ReDigi directly and secondarily infringed Capitol's reproduction and distribution rights. (Doc. No. 48.) ReDigi filed its cross-motion the same day, seeking summary judgment on all grounds of liability, including ReDigi's alleged infringement of Capitol's performance and display rights.[4] (Doc. No. 54.) Both parties responded on August 14, 2012 and replied on August 24, 2012. (Doc. Nos. 76, 79, 87, 90.) The Court heard oral argument on October 5, 2012.
II. LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 56(a), a court may not grant a motion for summary judgment unless "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party bears the burden of showing that it is entitled to summary judgment. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court "is not to weigh evidence but is instead required to view the evidence in the light most favorable to the party opposing summary judgment, to draw all reasonable inferences in favor of that party, and to eschew credibility assessments." Amnesty Am. v. Town of W. Hartford, 361 F.3d 113, 122 (2d Cir.2004) (internal quotation marks omitted); accord Anderson, 477 U.S. at 249, 106 S.Ct. 2505. As such, "if there is any evidence in the record from any source from which a reasonable inference in the [nonmoving party's] favor may be drawn, the moving party simply cannot obtain a summary judgment." Binder & Binder PC v. Barnhart, 481 F.3d 141, 148 (2d Cir.2007) (internal quotation marks omitted).
Inferences and burdens of proof on cross-motions for summary judgment are the same as those for a unilateral motion. See Straube v. Fla. Union Free Sch. Dist., 801 F.Supp. 1164, 1174 (S.D.N.Y.1992). "That is, each cross-movant must present sufficient evidence to satisfy its burden of proof on all material facts." U.S. Underwriters Ins. Co. v. Roka LLC, No. 99 Civ. 10136(AGS), 2000 WL 1473607, at *3 (S.D.N.Y. Sept. 29, 2000); see Barhold v. Rodriguez, 863 F.2d 233, 236 (2d Cir.1988).
648*648 III. DISCUSSION
Section 106 of the Copyright Act grants "the owner of copyright under this title" certain "exclusive rights," including the right "to reproduce the copyrighted work in copies or phonorecords," "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership," and to publicly perform and display certain copyrighted works. 17 U.S.C. §§ 106(1), (3)-(5). However, these exclusive rights are limited by several subsequent sections of the statute. Pertinently, Section 109 sets forth the "first sale" doctrine, which provides that "the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord."Id. § 109(a). The novel question presented in this action is whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine. The Court determines that it cannot.
A. Infringement of Capitol's Copyrights
To state a claim for copyright infringement, a plaintiff must establish that it owns a valid copyright in the work at issue and that the defendant violated one of the exclusive rights the plaintiff holds in the work. Twin Peaks Prods., Inc. v. Publ'ns Int'l, Ltd., 996 F.2d 1366, 1372 (2d Cir.1993) (citing Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 113 L.Ed.2d 358 (1991)). It is undisputed that Capitol owns copyrights in a number of the recordings sold on ReDigi's website. (See Cap. 56.1 ¶¶ 68-73; RD Rep. 56.118-19, ¶¶ 68-73; Decl. of Richard S. Mandel, dated July 19, 2012, Doc. No. 52 ("Mandel Decl."), ¶ 16, Ex. M; Decl. of Alasdair J. McMullan, dated July 19, 2012, Doc. No. 51 ("McMullan Decl."), ¶¶ 3-5, Ex. 1.) It is also undisputed that Capitol did not approve the reproduction or distribution of its copyrighted recordings on ReDigi's website. Thus, if digital music files are "reproduce[d]" and "distribute[d]" on ReDigi's website within the meaning of the Copyright Act, Capitol's copyrights have been infringed.
1. Reproduction Rights
Courts have consistently held that the unauthorized duplication of digital music files over the Internet infringes a copyright owner's exclusive right to reproduce. See, e.g.,A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1014 (9th Cir.2001). However, courts have not previously addressed whether the unauthorized transfer of a digital music file over the Internet — where only one file exists before and after the transfer — constitutes reproduction within the meaning of the Copyright Act. The Court holds that it does.
The Copyright Act provides that a copyright owner has the exclusive right "to reproduce the copyrighted work in ... phonorecords." 17 U.S.C. § 106(1) (emphasis added). Copyrighted works are defined to include, inter alia, "sound recordings," which are "works that result from the fixation of a series of musical, spoken, or other sounds." Id. § 101. Such works are distinguished from their material embodiments. These include phonorecords, which are the "material objects in which sounds ... are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." Id. § 101 (emphasis added). Thus, the plain text of the Copyright Act makes clear that reproduction occurs when a copyrighted work is fixed in a new material object. 649*649 See Matthew Bender & Co., Inc. v. W. Pub. Co.,158 F.3d 693, 703 (2d Cir.1998).
The legislative history of the Copyright Act bolsters this reading. The House Report on the Copyright Act distinguished between sound recordings and phonorecords, stating that "[t]he copyrightable work comprises the aggregation of sounds and not the tangible medium of fixation. Thus, `sound recordings' as copyrightable subject matter are distinguished from `phonorecords[,]' the latter being physical objects in which sounds are fixed." H.R.Rep. No. 94-1476, at 56 (1976), 1976 U.S.C.C.A.N. 5659, 5669. Similarly, the House and Senate Reports on the Act both explained:
Read together with the relevant definitions in [S]ection 101, the right "to reproduce the copyrighted work in copies or phonorecords" means the right to produce a material object in which the work is duplicated, transcribed, imitated, or simulated in a fixed form from which it can be "perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device."
Id. at 61, 1976 U.S.C.C.A.N. at 5675; S.Rep. No. 94-473, at 58 (1975). Put differently, the reproduction right is the exclusive right to embody, and to prevent others from embodying, the copyrighted work (or sound recording) in a new material object (or phonorecord). See Nimmer on Copyright § 8.02 (stating that "in order to infringe the reproduction right, the defendant must embody the plaintiffs work in a `material object'").
Courts that have dealt with infringement on peer-to-peer ("P2P") file-sharing systems provide valuable guidance on the application of this right in the digital domain. For instance, in London-Sire Records, Inc. v. John Doe 1, the court addressed whether users of P2P software violated copyright owners' distribution rights. 542 F.Supp.2d 153, 166 & n. 16 (D.Mass.2008). Citing the "material object" requirement, the court expressly differentiated between the copyrighted work — or digital music file — and the phonorecord — or "appropriate segment of the hard disk" that the file would be embodied in following its transfer. Id. at 171. Specifically,
[w]hen a user on a[P2P] network downloads a song from another user, he receives into his computer a digital sequence representing the sound recording. That sequence is magnetically encoded on a segment of his hard disk (or likewise written on other media). With the right hardware and software, the downloader can use the magnetic sequence toreproduce the sound recording. The electronic file (or, perhaps more accurately, the appropriate segment of the hard disk) is therefore a "phonorecord" within the meaning of the statute.
Id. (emphasis added). Accordingly, when a user downloads a digital music file or "digital sequence" to his "hard disk," the file is "reproduce[d]" on a new phonorecord within the meaning of the Copyright Act. Id.
This understanding is, of course, confirmed by the laws of physics. It is simply impossible that the same "material object" can be transferred over the Internet. Thus, logically, the court in London-Sire noted that the Internet transfer of a file results in a material object being "created elsewhere at its finish." Id. at 173. Because the reproduction right is necessarily implicated when a copyrighted work is embodied in a new material object, and because digital music files must be embodied in a new material object following their transfer over the Internet, the Court determines that the embodiment of a digital music file on a new hard disk is a reproduction 650*650 within the meaning of the Copyright Act.
This finding holds regardless of whether one or multiple copies of the file exist.London-Sire, like all of the P2P cases, obviously concerned multiple copies of one digital music file. But that distinction is immaterial under the plain language of the Copyright Act. Simply put, it is the creation of a new material object and not anadditional material object that defines the reproduction right. The dictionary defines "reproduction" to mean, inter alia, "to produce again" or "to cause to exist again oranew." See Merriam-Webster Collegiate Edition 994 (10th ed. 1998) (emphasis added). Significantly, it is not defined as "to produce again while the original exists." Thus, the right "to reproduce the copyrighted work in ... phonorecords" is implicated whenever a sound recording is fixed in a new material object, regardless of whether the sound recording remains fixed in the original material object.
Given this finding, the Court concludes that ReDigi's service infringes Capitol's reproduction rights under any description of the technology. ReDigi stresses that it "migrates" a file from a user's computer to its Cloud Locker, so that the same file is transferred to the ReDigi server and no copying occurs.[5] However, even if that were the case, the fact that a file has moved from one material object — the user's computer — to another — the ReDigi server — means that a reproduction has occurred. Similarly, when a ReDigi user downloads a new purchase from the ReDigi website to her computer, yet another reproduction is created. It is beside the point that the original phonorecord no longer exists. It matters only that a new phonorecord has been created.
ReDigi struggles to avoid this conclusion by pointing to C.M. Paula Co. v. Logan, a 1973 case from the Northern District of Texas where the defendant used chemicals to lift images off of greeting cards and place them on plaques for resale. 355 F.Supp. 189, 190 (N.D.Tex.1973); (see Re-Digi Mem. of Law, dated July 20, 2012, Doc. No. 55 ("ReDigi Mem."), at 13). The court determined that infringement did not occur because "should defendant desire to make one hundred ceramic plaques ..., defendant would be required to purchase one hundred separate ... prints." C.M. Paula, 355 F.Supp. at 191. ReDigi argues that, like the defendant in C.M. Paula, its users must purchase a song on iTunes in order to sell a song on ReDigi. (ReDigi Mem. 13.) Therefore, no "duplication" occurs. See C.M. Paula, 355 F.Supp. at 191 (internal quotation marks omitted). ReDigi's argument is unavailing. Ignoring the questionable merits of the court's holding in C.M. Paula, ReDigi's service is distinguishable from the process in that case. There, the copyrighted print, or material object, was lifted from the greeting card 651*651 and transferred in toto to the ceramic tile; no new material object was created. By contrast, ReDigi's service by necessity creates a new material object when a digital music file is either uploaded to or downloaded from the Cloud Locker.
ReDigi also argues that the Court's conclusion would lead to "irrational" outcomes, as it would render illegal any movement of copyrighted files on a hard drive, including relocating files between directories and defragmenting. (ReDigi Opp'n, dated Aug. 14, 2012, Doc. No. 79 ("ReDigi Opp'n"), at 8.) However, this argument is nothing more than a red herring. As Capitol has conceded, such reproduction is almost certainly protected under other doctrines or defenses, and is not relevant to the instant motion. (Cap. Reply, dated Aug. 24, 2012, Doc. No. 87 ("Cap. Reply"), at 5 n. 1.)
Accordingly, the Court finds that, absent the existence of an affirmative defense, the sale of digital music files on ReDigi's website infringes Capitol's exclusive right of reproduction.
2. Distribution Rights
In addition to the reproduction right, a copyright owner also has the exclusive right "to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership." 17 U.S.C. § 106(3). Like the court in London-Sire, the Court agrees that "[a]n electronic file transfer is plainly within the sort of transaction that § 106(3) was intended to reach [and] ... fit[s] within the definition of `distribution' of a phonorecord." London-Sire, 542 F.Supp.2d at 173-74. For that reason, "courts have not hesitated to find copyright infringement by distribution in cases of file-sharing or electronic transmission of copyrighted works." Arista Records LLC v. Greubel, 453 F.Supp.2d 961, 968 (N.D.Tex.2006) (collecting cases); see, e.g.,Napster, 239 F.3d at 1014. Indeed, in New York Times Co., Inc. v. Tasini, the Supreme Court stated it was "clear" that an online news database violated authors' distribution rights by selling electronic copies of their articles for download. 533 U.S. 483, 498, 121 S.Ct. 2381, 150 L.Ed.2d 500 (2001).
There is no dispute that sales occurred on ReDigi's website. Capitol has established that it was able to buy more than one-hundred of its own recordings on ReDigi's webite, and ReDigi itself compiled a list of its completed sales of Capitol's recordings. (Cap. 56.1 ¶¶ 68-73; RD Rep. 56.1 ¶¶ 68-73.) ReDigi, in fact, does not contest that distribution occurs on its website — it only asserts that the distribution is protected by the fair use and first sale defenses. (See, e.g., ReDigi Opp'n 15 (noting that "any distributions ... which occur on the ReDigi marketplace are protected").)
Accordingly, the Court concludes that, absent the existence of an affirmative defense, the sale of digital music files on ReDigi's website infringes Capitol's exclusive right of distribution.[6]
652*652 3. Performance and Display Rights
Finally, a copyright owner has the exclusive right, "in the case of ... musical ... works, to perform the copyrighted work publicly." 17 U.S.C. § 106(4). Public performance includes transmission to the public regardless of "whether the members of the public ... receive it in the same place or in separate places and at the same time or at different times." Id. § 101. Accordingly, audio streams are performances because a "stream is an electronic transmission that renders the musical work audible as it is received by the client-computer's temporary memory. This transmission, like a television or radio broadcast, is a performance because there is a playing of the song that is perceived simultaneously with the transmission." United States v. Am. Soc. Of Composers, Authors, & Publishers, 627 F.3d 64, 74 (2d Cir.2010). To state a claim for infringement of the performance right, a plaintiff must establish that (1) the public performance or display of the copyrighted work was for profit, and (2) the defendant lacked authorization from the plaintiff or the plaintiff's representative. See Broad. Music, Inc. v. 315 W. 44th St. Rest. Corp., No. 93 Civ. 8082(MBM), 1995 WL 408399, at *2 (S.D.N.Y. July 11, 1995).
The copyright owner also has the exclusive right, "in the case of ... pictorial [and] graphic ... works[,] ... to display the copyrighted work publicly." 17 U.S.C. § 106(5). Public display includes "show[ing] a copy of [a work], either directly or by means of a film, slide, television image, or any other device or process." Id. § 101. The Ninth Circuit has held that the display of a photographic image on a computer may implicate the display right, though infringement hinges, in part, on where the image was hosted. Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1160 (9th Cir.2007).
Capitol alleges that ReDigi infringed its copyrights by streaming thirty-second song clips and exhibiting album cover art to potential buyers. (Compl. ¶¶ 25-26.) ReDigi counters that it only posted such content pursuant to a licensing agreement and within the terms of that agreement. (ReDigi Mem. 24-25.) ReDigi also asserts that it promptly removed the content when its licenses were terminated, and instead sent users to YouTube or iTunes for previews. (Id.) Capitol, in response, claims that ReDigi's use violated the terms of those licenses and did not cease at the time the licenses were terminated. (Compare RD 56.1 ¶¶ 73-79, with Cap. Rep. 56.1 ¶¶ 73-79.) As such, there are material disputes as to the source of the content, whether ReDigi was authorized to transmit the content, when authorization was or was not revoked, and when ReDigi ceased providing the content. Because the Court cannot determine whether ReDigi infringed Capitol's display and performance rights on the present record, ReDigi's motion for summary judgment on its alleged infringement of these exclusive rights is denied.
B. Affirmative Defenses
Having concluded that sales on ReDigi's website infringe Capitol's exclusive rights of reproduction and distribution, the Court turns to whether the fair use or first sale defenses excuse that infringement. For the reasons set forth below, the Court determines that they do not.
1. Fair Use
"The ultimate test of fair use ... is whether the copyright law's goal of `promot[ing] the Progress of Science and useful Arts' would be better served by allowing 653*653 the use than by preventing it." Castle Rock Entm't, Inc. v. Carol Publ'g Grp., Inc., 150 F.3d 132, 141 (2d Cir.1998) (quoting U.S. Const., art. I, § 8, cl. 8). Accordingly, fair use permits reproduction of copyrighted work without the copyright owner's consent "for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research." 17 U.S.C. § 107. The list is not exhaustive but merely illustrates the types of copying typically embraced by fair use.Castle Rock Entm't, Inc., 150 F.3d at 141. In addition, four statutory factors guide courts' application of the doctrine. Specifically, courts look to:
(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.
17 U.S.C. § 107. Because fair use is an "equitable rule of reason," courts are "free to adapt the doctrine to particular situations on a case-by-case basis." Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 448 n. 31, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984) (quoting H. Rep. No. 94-1476, at 65-66, 1976 U.S.C.C.A.N. at 5679-5680); see Iowa State Univ. Research Found., Inc. v. Am. Broad. Cos., 621 F.2d 57, 60 (2d Cir.1980).
On the record before it, the Court has little difficulty concluding that ReDigi's reproduction and distribution of Capitol's copyrighted works falls well outside the fair use defense. ReDigi obliquely argues that uploading to and downloading from the Cloud Locker for storage and personal use are protected fair use.[7] (See ReDigi Mem. 15.) Significantly, Capitol does not contest that claim. (See Tr. 12:8-23.) Instead, Capitol asserts only that uploading to and downloading from the Cloud Locker incident to sale fall outside the ambit of fair use. The Court agrees. See Arista Records, LLC v. Doe 3, 604 F.3d 110, 124 (2d Cir.2010) (rejecting application of fair use to user uploads and downloads on P2P file-sharing network).
Each of the statutory factors counsels against a finding of fair use. The first factor requires the Court to determine whether ReDigi's use "transforms" the copyrighted work and whether it is commercial. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578-79, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994). Both inquiries disfavor ReDigi's claim. Plainly, the upload, sale, and download of digital music files on ReDigi's website does nothing to "add[] something new, with a further purpose or different character" to the copyrighted works. Id.; see, e.g., Napster, 239 F.3d at 1015 (endorsing district court finding that "downloading MP3 files does not transform the copyrighted work"). ReDigi's use is also undoubtedly commercial. ReDigi and the uploading user directly profit from the sale of a digital music file, and the downloading user saves significantly on the price of the song in the primary market. See Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 562, 105 S.Ct. 2218, 85 L.Ed.2d 588 (1985) ("The crux of the profit/nonprofit distinction is not whether the sole motive of the use is monetary gain but whether the user stands to profit from exploitation of the copyrighted material without paying 654*654 the customary price."). ReDigi asserts that downloads for personal, and not public or commercial, use "must be characterized as ... noncommercial, nonprofit activity." (ReDigi Mem. 16 (quotingSony, 464 U.S. at 449, 104 S.Ct. 774).) However, ReDigi twists the law to fit its facts. When a user downloads purchased files from the Cloud Locker, the resultant reproduction is an essential component of ReDigi's commercial enterprise. Thus, ReDigi's argument is unavailing.
The second factor — the nature of the copyrighted work — also weighs against application of the fair use defense, as creative works like sound recordings are "close to the core of the intended copyright protection" and "far removed from the ... factual or descriptive work more amenable to fair use." UMG Recordings, Inc. v. MP3.Com, Inc., 92 F.Supp.2d 349, 351 (S.D.N.Y.2000) (alteration and internal quotation marks omitted) (citing Campbell, 510 U.S. at 586, 114 S.Ct. 1164). The third factor — the portion of the work copied — suggests a similar outcome because ReDigi transmits the works in their entirety, "negating any claim of fair use." Id. at 352, 114 S.Ct. 1164. Finally, ReDigi's sales are likely to undercut the "market for or value of the copyrighted work" and, accordingly, the fourth factor cuts against a finding of fair use. Cf. Arista Records, LLC v. Doe 3, 604 F.3d at 124 (rejecting application of fair use to P2P file sharing, in part, because "the likely detrimental effect of filesharing on the value of copyrighted compositions is well documented." (citing Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 923, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005))). The product sold in ReDigi's secondary market is indistinguishable from that sold in the legitimate primary market save for its lower price. The clear inference is that ReDigi will divert buyers away from that primary market. ReDigi incredibly argues that Capitol is preempted from making a market-based argument because Capitol itself condones downloading of its works on iTunes. (ReDigi Mem. 18.) Of course, Capitol, as copyright owner, does not forfeit its right to claim copyright infringement merely because it permits certain uses of its works. This argument, too, is therefore unavailing.
In sum, ReDigi facilitates and profits from the sale of copyrighted commercial recordings, transferred in their entirety, with a likely detrimental impact on the primary market for these goods. Accordingly, the Court concludes that the fair use defense does not permit ReDigi's users to upload and download files to and from the Cloud Locker incident to sale.
2. First Sale
The first sale defense, a common law principle recognized in Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 350, 28 S.Ct. 722, 52 L.Ed. 1086 (1908) and now codified at Section 109(a) of the Copyright Act, provides that:
Notwithstanding the provisions of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.
17 U.S.C. § 109. Under the first sale defense, "once the copyright owner places a copyrighted item [here, a phonorecord] in the stream of commerce by selling it, he has exhausted his exclusive statutory right to control its distribution." Quality King Distribs., Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135, 152, 118 S.Ct. 1125, 140 L.Ed.2d 254 (1998); see Kirtsaeng v. John Wiley & Sons, Inc., ___ U.S. ___, 133 S.Ct. 1351, 1354-55, 185 L.Ed.2d 392 (2013).
655*655 ReDigi asserts that its service, which involves the resale of digital music files lawfully purchased on iTunes, is protected by the first sale defense. (ReDigi Mem. 19.) The Court disagrees.
As an initial matter, it should be noted that the fair use defense is, by its own terms, limited to assertions of the distribution right. 17 U.S.C. § 109 (referencing Section 106(3)); see Nimmer on Copyright § 8.12. Because the Court has concluded that ReDigi's service violates Capitol's reproduction right, the first sale defense does not apply to ReDigi's infringement of those rights. See Design Options v. Belle-Pointe, Inc., 940 F.Supp. 86, 91 (S.D.N.Y. 1996).
In addition, the first sale doctrine does not protect ReDigi's distribution of Capitol's copyrighted works. This is because, as an unlawful reproduction, a digital music file sold on ReDigi is not "lawfully made under this title." 17 U.S.C. § 109(a). Moreover, the statute protects only distribution by "the owner of a particular copy or phonorecord ... of that copy or phonorecord." Id. Here, a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk. But to sell that song on ReDigi, she must produce a new phonorecord on the ReDigi server. Because it is therefore impossible for the user to sell her "particular" phonorecord on ReDigi, the first sale statute cannot provide a defense. Put another way, the first sale defense is limited to material items, like records, that the copyright owner put into the stream of commerce. Here, ReDigi is not distributing such material items; rather, it is distributing reproductions of the copyrighted code embedded in new material objects, namely, the ReDigi server in Arizona and its users' hard drives. The first sale defense does not cover this any more than it covered the sale of cassette recordings of vinyl records in a bygone era.
Rejecting such a conclusion, ReDigi argues that, because "`technological change has rendered its literal terms ambiguous, the Copyright Act must be construed in light of [its] basic purpose,'" namely, to incentivize creative work for the "ultimate[]... cause of promoting broad public availability of literature, music, and the other arts."Sony, 464 U.S. at 432, 104 S.Ct. 774 (quoting Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 45 L.Ed.2d 84 (1975)). Thus, ReDigi asserts that refusal to apply the first sale doctrine to its service would grant Capitol "a Court sanctioned extension of rights under the [C]opyright [A]ct... which is against policy, and should not be endorsed by this Court." (ReDigi Mem. 24.)
The Court disagrees. ReDigi effectively requests that the Court amend the statute to achieve ReDigi's broader policy goals — goals that happen to advance ReDigi's economic interests. However, ReDigi's argument fails for two reasons. First, while technological change may have rendered Section 109(a) unsatisfactory to many contemporary observers and consumers, it has not rendered it ambiguous. The statute plainly applies to the lawful owner's "particular" phonorecord, a phonorecord that by definition cannot be uploaded and sold on ReDigi's website. Second, amendment of the Copyright Act in line with ReDigi's proposal is a legislative prerogative that courts are unauthorized and ill suited to attempt.
Nor are the policy arguments as straightforward or uncontested as ReDigi suggests. Indeed, when confronting this precise subject in its report on the Digital Millenium Copyright Act, 17 U.S.C. § 512, the United States Copyright Office (the "USCO") rejected extension of the first 656*656 sale doctrine to the distribution of digital works, noting that the justifications for the first sale doctrine in the physical world could not be imported into the digital domain. See USCO, Library of Cong., DMCA Section 104 Report (2001) ("DMCA Report"); see also Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121, 129 (2d Cir.2008) (finding that the DMCA report is entitled to deference under Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944)). For instance, the USCO stated that "the impact of the [first sale] doctrine on copyright owners [is] limited in the off-line world by a number of factors, including geography and the gradual degradation of books and analog works." DMCA Report at xi. Specifically,
[p]hysical copies of works degrade with time and use, making used copies less desirable than new ones. Digital information does not degrade, and can be reproduced perfectly on a recipient's computer. The "used" copy is just as desirable as (in fact, is indistinguishable from) a new copy of the same work. Time, space, effort and cost no longer act as barriers to the movement of copies, since digital copies can be transmitted nearly instantaneously anywhere in the world with minimal effort and negligible cost. The need to transport physical copies of works, which acts as a natural brake on the effect of resales on the copyright owner's market, no longer exists in the realm of digital transmissions. The ability of such "used" copies to compete for market share with new copies is thus far greater in the digital world.
Id. at 82-83 (footnotes omitted). Thus, while ReDigi mounts attractive policy arguments, they are not as one-sided as it contends.
Finally, ReDigi feebly argues that the Court's reading of Section 109(a) would in effect exclude digital works from the meaning of the statute. (ReDigi Mem. 21.) That is not the case. Section 109(a) still protects a lawful owner's sale of her "particular" phonorecord, be it a computer hard disk, iPod, or other memory device onto which the file was originally downloaded. While this limitation clearly presents obstacles to resale that are different from, and perhaps even more onerous than, those involved in the resale of CDs and cassettes, the limitation is hardly absurd — the first sale doctrine was enacted in a world where the ease and speed of data transfer could not have been imagined. There are many reasons, some discussed herein, for why such physical limitations may be desirable. It is left to Congress, and not this Court, to deem them outmoded.
Accordingly, the Court concludes that the first sale defense does not permit sales of digital music files on ReDigi's website.
C. Liability
Having determined that sales on ReDigi's website infringe Capitol's copyrights, the Court turns to whether ReDigi is directly and/or secondarily liable for that infringement. Direct liability requires "volitional conduct" that "causes" the reproduction or distribution to be made. See Cartoon Network, 536 F.3d at 131. Secondary infringement occurs when a defendant contributed to or benefitted from a third party's infringement such that it is "just" to hold the defendant accountable for the infringing activity. Sony, 464 U.S. at 435, 104 S.Ct. 774. For the reasons stated below, the Court finds that ReDigi directly and secondarily infringed Capitol's copyrights.
1. Direct Infringement
To be liable for direct infringement, a defendant must have "engaged in 657*657 some volitional conduct sufficient to show that [it] actively" violated one of the plaintiff's exclusive rights. Arista Records LLC v. Usenet.com, Inc., 633 F.Supp.2d 124, 148 (S.D.N.Y.2009). In other words, "`to establish direct liability under ... the Act, something more must be shown than mere ownership of a machine used by others to make illegal copies. There must be actual infringing conduct with a nexus sufficiently close and causal to the illegal copying that one could conclude that the machine owner himself trespassed on the exclusive domain of the copyright owner.'"Cartoon Network, 536 F.3d at 130 (quoting CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d 544, 550 (4th Cir.2004)) (citing Religious Tech. Ctr. v. Netcom On-Line Commc'n Servs., Inc., 907 F.Supp. 1361, 1370 (N.D.Cal.1995)).
In Cartoon Network, the Second Circuit addressed whether the cable television provider Cablevision had directly infringed the plaintiff's copyrights by providing digital video recording devices to its customers. 536 F.3d 121. The court determined that it had not. Though Cablevision had "design[ed], hous[ed], and maintain[ed]" the recording devices, it was Cablevision's customers who "made" the copies and therefore directly infringed the plaintiff's reproduction rights. Id. at 131-32. The court reasoned that, "[i]n determining who actually `makes' a copy, a significant difference exists between making a request to a human employee, who then volitionally operates the copying system to make the copy, and issuing a command directly to a system, which automatically obeys commands and engages in no volitional conduct." Id. at 131. However, the court allowed that a case may exist where "one's contribution to the creation of an infringing copy [is] so great that it warrants holding that party directly liable for the infringement, even though another party has actually made the copy." Cartoon Network, 536 F.3d at 133.
On the record before it, the Court concludes that, if such a case could ever occur, it has occurred with ReDigi. ReDigi's founders built a service where only copyrighted work could be sold. Unlike Cablevision's programming, which offered a mix of protected and public television, ReDigi's Media Manager scans a user's computer to build a list of eligible files that consists solely of protected music purchased on iTunes. While that process is itself automated, absolving ReDigi of direct liability on that ground alone would be a distinction without a difference. The fact that ReDigi's founders programmed their software to choose copyrighted content satisfies the volitional conduct requirement and renders ReDigi's case indistinguishable from those where human review of content gave rise to direct liability. See Usenet.com,633 F.Supp.2d at 148; Playboy Enters., Inc. v. Russ Hardenburgh, Inc., 982 F.Supp. 503, 512-13 (N.D.Ohio 1997). Moreover, unlike Cablevision, ReDigi infringed both Capitol's reproduction and distribution rights. ReDigi provided the infrastructure for its users' infringing sales and affirmatively brokered sales by connecting users who are seeking unavailable songs with potential sellers. Given this fundamental and deliberate role, the Court concludes that ReDigi's conduct "transform[ed][it] from [a] passive provider[] of a space in which infringing activities happened to occur to [an] active participant[] in the process of copyright infringement." Usenet.com, 633 F.Supp.2d at 148. Accordingly, the Court grants Capitol's motion for summary judgment on its claims for ReDigi's direct infringement of its distribution and reproduction 658*658 rights.[8]
2. Secondary Infringement
"The Copyright Act does not expressly render anyone liable for infringement committed by another." Sony, 464 U.S. at 434, 104 S.Ct. 774. However, common law doctrines permit a court to impose secondary liability where "just" and appropriate. Id.at 435, 104 S.Ct. 774. Capitol asserts that ReDigi is secondarily liable for its users' direct infringement under three such doctrines: contributory infringement, inducement of infringement, and vicarious infringement. (Cap. Mem. 13-16.) The Court agrees with respect to contributory and vicarious infringement, and therefore does not reach the inducement claim.
a. Contributory Infringement
Contributory infringement occurs where "one ... with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another." Arista Records, LLC v. Doe 3, 604 F.3d at 118 (quoting Gershwin Publ'g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir.1971)); see, e.g.,Grokster, 545 U.S. at 930, 125 S.Ct. 2764. The knowledge requirement is "objective" and satisfied where the defendant knew or had reason to know of the infringing activity. See Arista Records, LLC v. Doe 3, 604 F.3d at 118. Further, the support must be "more than a mere quantitative contribution to the primary infringement ... [, it] must be substantial." Usenet.com, 633 F.Supp.2d 124, 155 (S.D.N.Y.2009). However, even where a defendant's contribution is material, it may evade liability if its product is "capable of substantial noninfringing uses." Sony, 464 U.S. at 442, 104 S.Ct. 774 (the "Sony-Betamax rule").
In weighing the knowledge requirement, courts consider evidence of actual and constructive knowledge, including cease-and-desist letters, officer and employee statements, promotional materials, and industry experience. See, e.g., Napster, 239 F.3d at 1020-21, 1027; Arista Records LLC v. Lime Grp. LLC, 784 F.Supp.2d at 432;Usenet.com, 633 F.Supp.2d at 155. In addition, courts have consistently found that material support existed where file-sharing systems provided "the site and facilities" for their users' infringement. Napster, 239 F.3d at 1022; see, e.g., Usenet.com, 633 F.Supp.2d at 155.
The Court has little difficulty concluding that ReDigi knew or should have known that its service would encourage infringement. Despite the fact that ReDigi boasted on its website that it was "The Legal Alternative" and insisted "YES, ReDigi is LEGAL," ReDigi warned investors in its subscription agreements that "the law cannot be said to be well-settled" in this area and that it could not guarantee ReDigi would prevail on its copyright defenses. (Cap. 56.1 ¶¶ 65-66.) The Recording Industry Association of America ("RIAA") sent ReDigi a cease-and-desist 659*659 letter in November 2011, advising ReDigi that its website violated Capitol's and other RIAA members' copyrights. (Compl. ¶ 41.) Further, ReDigi was ensnared in a licensing dispute over song clips and cover art shortly after its launch, plainly indicating that infringement could be afoot. (RD 56.1 ¶¶ 74-75, 77.) ReDigi was also, of course, aware that copyright protected content was being sold on its website — a fact central to its business model and promotional campaigns. (Cap. 56.1 ¶¶ 70-73). Finally, ReDigi's officers claim to have "researched copyright law [and] consulted with attorneys" concerning their service, and also to have met with record companies "to get input, get marketing support[,] and enter into deals with the labels." (RD Rep. 56.12 ¶ 5, 5 ¶ 20.) By educating themselves, the officers presumably understood the likelihood that use of ReDigi's service would result in infringement. Indeed, though ReDigi attempts to use its consultations with counsel as a shield, it is telling that ReDigi declined to reveal any of the advice it received on the subject. (See Cap. Reply 9). ReDigi's lone rebuttal to this surfeit of evidence could only be that it "sincerely" believed in the legality of its service. However, the Court has not found and will not create a subjective, good faith defense to contributory liability's objective knowledge requirement, and therefore concludes that, based on the objective facts, ReDigi was aware of its users' infringement.
The Court also finds that ReDigi materially contributed to its users' infringement. As ReDigi has admitted, "more than any other website that permits the sale of music, ReDigi is intimately involved in examining the content that will be sold and supervising the steps involved in making the music available for sale and selling it." (Cap. 56.1 ¶ 35; RD Rep. 56.115 ¶ 35.) ReDigi thus provided the "site and facilities" for the direct infringement. See, e.g., Napster, 239 F.3d at 1022; Usenet.com, 633 F.Supp.2d at 155; Lime Grp., 784 F.Supp.2d at 434. Without ReDigi's Cloud Locker, no infringement could have occurred. Indeed, Media Manager ensured that onlyinfringement occurred by limiting eligible files to iTunes tracks. Contrary to any conception of remote conduct, ReDigi's service was the hub and heart of its users' infringing activity.
The Court finally concludes that ReDigi's service is not capable of substantial noninfringing uses. The Sony-Betamax rule requires a court to determine whether a product or service is capable of substantial noninfringing uses, not whether it is currently used in a non-infringing manner. Napster, 239 F.3d at 1021 (discussingSony, 464 U.S. at 442-43, 104 S.Ct. 774). But, put simply, ReDigi, by virtue of its design, is incapable of compliance with the law. ReDigi's business is built on the erroneous notion that the first sale defense permits the electronic resale of digital music. As such, ReDigi is built to trade only in copyright protected iTunes files. However, as determined above, ReDigi's legal argument — and therefore business model — is fundamentally flawed. Accordingly, to comply with the law, either the law or ReDigi must change. While ReDigi 2.0, 3.0, or 4.0 may ultimately be deemed to comply with copyright law — a finding the Court need not and does not now make — it is clear that ReDigi 1.0 does not. Given the fundamental disconnect between ReDigi and the Copyright Act, and ReDigi's failure to provide any evidence of present or potential noninfringing uses, the Court concludes that the Sony-Betamaxrule cannot save ReDigi from contributory liability.
Accordingly, the Court grants Capitol's motion for summary judgment on its claim660*660 for ReDigi's contributory infringement of its distribution and reproduction rights.[9]
b. Vicarious Infringement
Vicarious liability for copyright infringement exists where the defendant "`has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.'" Napster, 239 F.3d at 1022 (quoting Gershwin Pub. Corp., 443 F.2d at 1162); see Grokster, 545 U.S. at 930, 125 S.Ct. 2764. Unlike contributory infringement, knowledge is not an element of vicarious liability. Gershwin, 443, F.2d at 1162; see Fonovisa, Inc. v. Cherry Auction Inc., 76 F.3d 259, 262-63 (9th Cir.1996).
Clearly, ReDigi Vicariously infringed Capitol's copyrights. As discussed, ReDigi exercised complete control over its website's content, user access, and sales. Indeed, ReDigi admits that it "is intimately involved in ... supervising the steps involved in making the music available for sale and selling it" on the website. (Cap. 56.1 ¶ 35; RD Rep. 56.1 ¶ 35); see e.g., Lime Grp., 784 F.Supp.2d at 435 (finding right to supervise where P2P file sharing system could filter content and regulate users). In addition, ReDigi financially benefitted from every infringing sale when it collected 60% of each transaction fee. See e.g., Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 308 (2d Cir.1963) (finding a direct financial benefit where the defendant received a share of the gross receipts on every infringing sale). Notably, ReDigi failed to address any of these arguments in its opposition brief, instead insisting that it was not vicariously liable for infringement that occurredoutside the ReDigi service, for instance, when a user Impermissibly retained files on his computer. (See ReDigi Opp'n 22-23.) However, this argument is inapposite to the instant motions. Accordingly, the Court grants Capitol's motion for summary judgment on its claim for ReDigi's vicarious infringement of its distribution and reproduction rights.
IV. CONCLUSION
At base, ReDigi seeks judicial amendment of the Copyright Act to reach its desired policy outcome. However, "[s]ound policy, as well as history, supports [the Court's] consistent deference to Congress when major technological innovations alter the market for copyrighted materials. Congress has the constitutional authority and the institutional ability to accommodate fully the varied permutations of competing interests that are inevitably implicated by such new technology." Sony, 464 U.S. at 431, 104 S.Ct. 774. Such defence often counsels for a limited interpretation of copyright protection. However, here, the Court cannot of its own accord condone the wholesale application of the first sale defense to the digital sphere, particularly when Congress itself has declined to take that step. Accordingly, and for the reasons stated above, the Court GRANTS Capitol's motion for summary judgment on its claims for ReDigi's direct, 661*661 contributory, and vicarious infringement of its distribution and reproduction rights. The Court also DENIES ReDigi's motion in its entirety.
Because issues remain with respect to Capitol's performance and display rights, and ReDigi's secondary infringement of Capitol's common law copyrights, as well as damages, injunctive relief, and attorney's fees, IT IS HEREBY ORDERED THAT the parties shall submit a joint letter to the Court no later than April 12, 2013 concerning the next contemplated steps in this case.
The Clerk of Court is respectfully directed to terminate the motions pending at Doc. Nos. 48 and 54.
SO ORDERED.
[1] The facts are taken from the pleadings, the parties' Local Civil Rule 56.1 Statements, the affidavits submitted in connection with the instant motions, and the exhibits attached thereto. The facts are undisputed unless otherwise noted. Where one party's 56.1 Statement is cited, the other party does not dispute the fact asserted, has offered no admissible evidence to refute that fact, or merely objects to inferences drawn from that fact.
[2] A train was only one of many analogies used to describe ReDigi's service. At oral argument, the device was likened to the Star Trek transporter — "Beam me up, Scotty" — and Willy Wonka's teleportation device, Wonkavision. (Tr., dated Oct. 5, 2012 ("Tr."), 10:2-12; 28:15-20.)
[3] On June 11, 2012, ReDigi launched ReDigi 2.0, new software that, when installed on a user's computer, purportedly directs the user's new iTunes purchases to upload from iTunes directly to the Cloud Locker. (RD 56.1 ¶¶ 40-41.) Accordingly, while access may transfer from user to user upon resale, the file is never moved from its initial location in the Cloud Locker. (Id. ¶¶ 44-52.) However, because ReDigi 2.0 launched after Capitol filed the Complaint and mere days before the close of discovery, the Court will not consider it in this action. (See Tr. 19:2-20:3.)
[4] ReDigi's arguments in this round of briefing differ markedly from those it asserted in opposition to Capitol's motion for a preliminary injunction. (See ReDigi Opp'n to Prelim. Inj., dated Jan. 27, 2012, Doc. No. 14 ("ReDigi Opp'n to PI").) For instance, ReDigi no longer asserts an "essential step defense," nor does it argue that "copying" to the Cloud Locker for storage is protected by the fair use defense. (Id. at 9-14.) ReDigi has also abandoned its argument that the Digital Millennium Copyright Act, 17 U.S.C. § 512, bars Capitol's claim. (Id. at 22.) As such, the Court will consider only those arguments made in the instant motions.
[5] It bears noting that ReDigi made numerous admissions to the contrary at the preliminary injunction stage. For instance, in its opposition to Capitol's motion, ReDigi stated that, "The only copying which takes place in the ReDigi service occurs when a user uploads music files to the ReDigi Cloud, ... or downloads music files from the user's Cloud Locker." (See ReDigi Opp'n to PI at 9 (emphasis added).) ReDigi also stated that, after a digital music file was uploaded to the Cloud Locker, "the copy from which it was made was actually deleted from the user's machine." (Id. at 14 (emphasis added).) ReDigi's officers made similar statements in their depositions, and ReDigi's patent application for its upload technology states that "to be offered for sale, [a music file] is first copied to the remote server and stored on the disc." (See Capitol Mem. of Law, dated July 20, 2012, Doc. No. 49 ("Cap. Mem."), at 8-9, n. 6 (emphasis added).) But, as earlier stated, these semantic distinctions are immaterial as even ReDigi's most recent description of its service runs afoul of the Copyright Act.
[6] Capitol argues that ReDigi also violated its distribution rights simply by making Capitol's recordings available for sale to the public, regardless of whether a sale occurred. (See Cap. Mem. 11 n. 8 (citing Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199, 201 (4th Cir.1997))). However, a number of courts, including one in this district, have cast significant doubt on this "make available" theory of distribution. See, e.g., Elektra Entm't Grp., Inc. v. Barker, 551 F.Supp.2d 234, 243 (S.D.N.Y.2008) ("[T]he support in the case law for the "make available" theory of liability is quite limited."); London-Sire, 542 F.Supp.2d at 169 ("[T]he defendants cannot be liable for violating the plaintiffs' distribution right unless a `distribution' actually occurred."). In any event, because the Court concludes that actual sales on ReDigi's website infringed Capitol's distribution right, it does not reach this additional theory of liability.
[7] ReDigi's argument is, perhaps, a relic of the argument it previously levied that "copying" to the Cloud Locker is protected as "space shifting" under the fair use doctrine. (See ReDigi Opp'n to PI at 10.)
[8] Capitol also asserts a claim for common law copyright infringement arising from sales of its pre-1972 recordings on ReDigi's website. (Compl. ¶¶ 82-88.) Capitol correctly argues in its memorandum that the elements for a direct infringement claim under federal law mirror those for infringement of common law copyright under state law. See Capitol Records, Inc. v. Naxos of Am., Inc., 4 N.Y.3d 540, 563, 797 N.Y.S.2d 352, 830 N.E.2d 250 (2005); (Cap. Mem. 4.) Accordingly, the Court also Court grants Capitol's motion for summary judgment with respect to ReDigi's direct infringement of Capitol's distribution and reproduction rights in its pre-1972 recordings. However, because neither Capitol nor ReDigi addressed the question of secondary infringement of common law copyrights, the Court does not reach that claim.
[9] As noted above, Capitol has alleged a separate cause of action for inducement of infringement. (Compl. ¶¶ 51-60.) Disagreement exists over whether "inducement of infringement" is a separate theory of liability for copyright infringement or merely a subset of contributory liability. Compare Flava Works, Inc. v. Gunter, 689 F.3d 754, 758 (7th Cir.2012) (describing inducement as "a form of contributory infringement"), with Lime Grp., 784 F.Supp.2d at 424 ("In Grokster, the Supreme Court confirmed that inducement of copyright infringement constitutes a distinct cause of action."). Regardless, because the Court concludes that ReDigi is liable for contributing to its users' direct infringement of Capitol's copyrights, it does not reach Capitol's inducement claim.
8.5.4 Art & Allposters International BV v Stichting Pictoright, C-419/13, January 22, 2015 (ECJ) 8.5.4 Art & Allposters International BV v Stichting Pictoright, C-419/13, January 22, 2015 (ECJ)
[See also summary of the case from IPKat]
JUDGMENT OF THE COURT (Fourth Chamber)
22 January 2015 (*)
(Reference for a preliminary ruling — Intellectual property — Copyright and related rights — Directive 2001/29/EC — Article 4 — Distribution right — Exhaustion rule — Concept of ‘object’ — Transfer of the image of a protected work from a paper poster to a painter’s canvas — Replacement of the medium — Impact on exhaustion)
In Case C‑419/13,
REQUEST for a preliminary ruling under Article 267 TFEU from the Hoge Raad der Nederlanden (Netherlands), made by decision of 12 July 2013, received at the Court on 24 July 2013, in the proceedings
Art & Allposters International BV
THE COURT (Fourth Chamber),
composed of L. Bay Larsen, President of the Chamber, K. Lenaerts, Vice-President of the Court, acting as a Judge of the Fourth Chamber, K. Jürimäe (Rapporteur), M. Safjan and A. Prechal, Judges,
Advocate General: P. Cruz Villalón,
Registrar: C. Strömholm, Administrator,
having regard to the written procedure and further to the hearing on 22 May 2014,
after considering the observations submitted on behalf of:
– Art & Allposters International BV, by T. Cohen Jehoram and P.N.A.M. Claassen, advocaten,
– Stichting Pictoright, by M. van Heezik, A.M. van Aerde and E.J. Hengeveld, advocaten,
– the French Government, by D. Colas and F.-X. Bréchot, acting as Agents,
– the United Kingdom Government, by V. Kaye, acting as Agent, assisted by N. Saunders, Barrister,
– the European Commission, by J. Samnadda and F. Wilman, acting as Agents,
after hearing the Opinion of the Advocate General at the sitting on 11 September 2014,
gives the following
Judgment
1 This request for a preliminary ruling concerns the interpretation of Article 4 of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society (OJ 2001 L 167, p. 10).
2 The request has been made in proceedings between Art & Allposters International BV (‘Allposters’) and Stichting Pictoright (‘Pictoright’) regarding a possible infringement, by Allposters, of copyright exploited by Pictoright, resulting from the transfer of images of protected works from a paper poster to a painter’s canvas and the sale of those images on that new medium.
Legal context
International law
WIPO Copyright Treaty
3 The World Intellectual Property Organization (WIPO) adopted the WIPO Copyright Treaty in Geneva on 20 December 1996. That Treaty was approved on behalf of the European Community by Council Decision 2000/278/EC of 16 March 2000 (OJ 2000 L 89, p. 6).
4 The Treaty provides, in Article 1(4) thereof, that the Contracting Parties are to comply with Articles 1 to 21 and the Appendix of the Convention for the Protection of Literary and Artistic Works, signed at Berne on 9 September 1886 (Paris Act of 24 July 1971), as amended on 28 September 1979 (‘the Berne Convention’).
5 Article 6 of the WIPO Copyright Treaty, entitled ‘Right of distribution’, provides:
‘(1) Authors of literary and artistic works shall enjoy the exclusive right of authorising the making available to the public of the original and copies of their works through sale or other transfer of ownership.
(2) Nothing in this Treaty shall affect the freedom of Contracting Parties to determine the conditions, if any, under which the exhaustion of the right in paragraph 1 applies after the first sale or other transfer of ownership of the original or a copy of the work with the authorisation of the author.’
Berne Convention
6 Article 12 of the Berne Convention, entitled ‘Right of Adaptation, Arrangement and Other Alteration’, provides:
‘Authors of literary or artistic works shall enjoy the exclusive right of authorising adaptations, arrangements and other alterations of their works.’
EU law
7 Recitals 9, 10, 28 and 31 of Directive 2001/29 state:
‘(9) Any harmonisation of copyright and related rights must take as a basis a high level of protection, since such rights are crucial to intellectual creation. …
(10) If authors or performers are to continue their creative and artistic work, they have to receive an appropriate reward for the use of their work. …
…
(28) Copyright protection under this Directive includes the exclusive right to control distribution of the work incorporated in a tangible article. The first sale in the Community of the original of a work or copies thereof by the rightholder or with his consent exhausts the right to control resale of that object in the Community. This right should not be exhausted in respect of the original or of copies thereof sold by the rightholder or with his consent outside the Community. …
…
(31) A fair balance of rights and interests between the different categories of rightholders, as well as between the different categories of rightholders and users of protected subject-matter must be safeguarded. The existing exceptions and limitations to the rights as set out by the Member States have to be reassessed in the light of the new electronic environment. Existing differences in the exceptions and limitations to certain restricted acts have direct negative effects on the functioning of the internal market of copyright and related rights. Such differences could well become more pronounced in view of the further development of transborder exploitation of works and cross-border activities. In order to ensure the proper functioning of the internal market, such exceptions and limitations should be defined more harmoniously. The degree of their harmonisation should be based on their impact on the smooth functioning of the internal market.’
8 Article 2 of that directive, entitled ‘Reproduction right’, is worded as follows:
‘Member States shall provide for the exclusive right to authorise or prohibit direct or indirect, temporary or permanent reproduction by any means and in any form, in whole or in part:
(a) for authors, of their works;
…’
9 Article 4 of the same directive, entitled ‘Distribution right’, provides:
‘(1) Member States shall provide for authors, in respect of the original of their works or of copies thereof, the exclusive right to authorise or prohibit any form of distribution to the public by sale or otherwise.
(2) The distribution right shall not be exhausted within the Community in respect of the original or copies of the work, except where the first sale or other transfer of ownership in the Community of that object is made by the rightholder or with his consent.’
Netherlands law
10 Article 4(1) of Directive 2001/29 was transposed into national law by Articles 1 and 12(1)(1) of the Law on copyright of 23 September 1912 (Auteurswet; ‘Law on copyright’).
11 Article 1 of the Law on Copyright provides:
‘Copyright is the exclusive right of the author of a literary, scientific or artistic work or his successors in title, to publish it and to reproduce it, subject to the limitations laid down by law.’
12 Article 12(1) of that law provides:
‘Publication of a literary, scientific or artistic work shall include:
1 the publication of a reproduction of the work, in full or in part …’
13 Article 12b of the Law, which is intended to transpose Article 4(2) of Directive 2001/29 into national law, is worded as follows:
‘If a copy of a literary, scientific or artistic work has been distributed by transfer of ownership for the first time in one of the Member States of the European Union or in a State which is a party to the European Economic Area [(EEA)] by its author or his successor in title or with his consent, the distribution of that copy in another manner, with the exception of renting or lending, does not constitute an infringement of copyright.’
The dispute in the main proceedings and the questions referred for a preliminary ruling
14 Pictoright is a Netherlands copyright collecting society which looks after the interests of copyright owners affiliated to it. It also safeguards, in the Netherlands, the interests of foreign artists and their heirs on the basis of agreements concluded with foreign entities with the same purpose. Pictoright is mandated to exploit copyright on behalf of the rightholders in particular by licensing and by taking action against infringements of that copyright.
15 Allposters, through its websites, markets posters and other reproductions depicting the works of famous painters, which are covered by the copyright exploited by Pictoright. Among other products, Allposters offers its clients reproductions in the form of posters, framed posters, posters on wood and images on canvases. In order to produce an image on canvas, a synthetic coating (laminate) is first applied to a paper poster depicting the chosen work. Next, the image on the poster is transferred from the paper to a canvas by means of a chemical process. Finally, that canvas is stretched over a wooden frame. The image of the work disappears from the paper backing during the process. Allposters refers to both it and its result as ‘canvas transfer’.
16 Pictoright opposed the sale of canvas transfers reproducing works protected by copyright without the consent of its clients, the holders of that copyright, calling on Allposters to cease that activity and threatening legal proceedings.
17 As Allposters refused to respond to that request, Pictoright brought an action against it before the Rechtbank Roermond (Roermond District Court) seeking that it be ordered to cease all infringement, direct or indirect, of the rightholders’ copyright and moral rights.
18 By decision of 22 September 2010, the Rechtbank Roermond dismissed that action. Pictoright then appealed against that decision before the Gerechtshof te ’s-Hertogenbosch (Regional Court of Appeal, ’s-Hertogenbosch) which, by judgment of 3 January 2012, annulled the decision and upheld most of Pictoright’s claims.
19 In the latter court’s view, the sale of a poster or canvas which reproduces an artistic work constitutes a publication within the meaning of Netherlands law. It followed from the judgment of the Hoge Raad der Nederlanden of 19 January 1979 (NJ 1979/412, Poortvliet) that there is a new publication, within the meaning of Article 12 of the Law on copyright, where the copy of a work placed on the market by the rightholder is distributed to the public under another form, to the extent that whoever markets that new form of that copy has new opportunities for exploitation (‘the Poortvliet doctrine’). Taking the view that the paper poster, marketed with the copyright holder’s consent, underwent a major alteration offering Allposters new opportunities for exploitation, in so far as that alteration allows it to charge higher prices and to target a different group, the Gerechtshof te ’s-Hertogenbosch found that the marketing of canvas transfers constituted a publication which was prohibited under national law and rejected Allposters’ argument that the distribution right had been exhausted.
20 Allposters brought an appeal in cassation before the referring court. It challenges inter alia the relevance of the Poortvliet doctrine and the interpretation given to the concepts of ‘exhaustion’ and ‘publication’, which, it submits, are harmonised within the European Union. Allposters considers that there is exhaustion of the distribution right, within the meaning of Article 4(2) of Directive 2001/29, upon distribution of a work incorporated into a tangible object if it has been offered for sale by the copyright holder or with his consent. Any subsequent alteration to that object has no impact on exhaustion of the distribution right. Pictoright maintains, on the other hand, that, in the absence of harmonisation of the adaptation right in EU law in the field of copyright, the Poortvliet doctrine remains valid or is at least in compliance with EU law.
21 In those circumstances, the Hoge Raad der Nederlanden decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘(1) Does Article 4 of Directive 2001/29 govern the answer to the question whether the distribution right of the copyright holder may be exercised with regard to the reproduction of a copyright-protected work which has been sold and delivered within the [EEA] by or with the consent of the rightholder in the case where that reproduction had subsequently undergone an alteration in respect of its form and is again brought into circulation in that form?
(2) (a) If the answer to Question 1 is in the affirmative, does the fact that there has been an alteration as referred to in Question 1 have any bearing on the answer to the question whether exhaustion within the terms of Article 4(2) of [Directive 2001/29] is hindered or interrupted?
(b) If the answer to Question 2(a) is in the affirmative, what criteria should then be applied in order to determine whether an alteration exists in respect of the form of the reproduction which hinders or interrupts exhaustion within the terms of Article 4(2) of [Directive 2001/29]?
(c) Do those criteria leave room for the criterion developed in Netherlands national law to the effect that there is no longer any question of exhaustion on the sole ground that the reseller has given the reproductions a different form and has disseminated them among the public in that form (judgment of the Hoge Raad of 19 January 1979 in Poortvliet, NJ 1979/412)?’
Consideration of the questions referred for a preliminary ruling
22 The jurisdiction of the Court, in the procedure laid down in Article 267 TFEU, is confined to considering provisions of EU law only and it has no jurisdiction to rule on the compatibility of national law, including the case-law of the Member States, with EU law (see, to that effect,Triveneta Zuccheri and Others v Commission, C‑347/87, EU:C:1990:129, paragraph 16, and Schwarz, C‑321/07, EU:C:2009:104, paragraph 48).
23 In those circumstances, the questions referred, which should be considered together, must be understood to mean that the referring court is asking, in essence, whether the rule of exhaustion of the distribution right set out in Article 4(2) of Directive 2001/29 applies in a situation where a reproduction of a protected work, after having been marketed in the European Union with the copyright holder’s consent, has undergone an alteration of its medium, such as the transfer of that reproduction from a paper poster onto a canvas, and is placed on the market again in its new form.
24 As a preliminary matter, it should be noted that Pictoright is of the view that, owing to the significant alteration undergone by the posters in the process of transfer onto the canvases of reproductions of protected works, those canvases are adaptations of those works, which are not covered by the distribution right. It submits that the adaptation right in the field of copyright is not harmonised in EU law but is governed by Article 12 of the Berne Convention.
25 It should therefore be assessed whether the facts at issue in the main proceedings fall within the scope of Directive 2001/29.
26 With regard to the adaptation right, it is true that Article 12 of the Berne Convention confers on authors of literary or artistic works an exclusive right of authorising adaptations, arrangements and other alterations of their works and that there is no equivalent provision in Directive 2001/29.
27 However, and without having to interpret the concept of ‘adaptation’ within the meaning of Article 12, it is sufficient to state that both the paper poster and the canvas transfer contain the image of a protected artistic work and thus fall within the scope of Article 4(1) of Directive 2001/29 as copies of a protected work marketed within the European Union. That provision recognises the exclusive right of authors, in respect of the original of their works or of copies thereof, to authorise or prohibit any form of distribution to the public by sale or otherwise.
28 It must therefore be held that the facts at issue in the main proceedings fall within the scope of Article 4 of Directive 2001/29.
29 With regard to the conditions of application of the exhaustion rule, it follows from Article 4(2) of Directive 2001/29 that the distribution right is not exhausted in respect of the original or copies of a work, except where the first sale or other transfer of ownership in the European Union of that object is made by the rightholder or with his consent.
30 Moreover, according to the case-law of the Court, Article 4(2) does not leave it open to the Member States to provide for an exhaustion rule other than that set out in that provision, to the extent that, as follows from recital 31 of Directive 2001/29, differences in the national laws governing exhaustion of the right of distribution are likely to affect directly the smooth functioning of the internal market (see, to that effect, judgment in Laserdisken, C‑479/04, EU:C:2006:549, paragraphs 24 and 56).
31 Taking the wording of that article as a basis, the Court found that for the distribution right to be exhausted, two conditions must be fulfilled: first, the original of a work or copies thereof must have been placed on the market by the rightholder or with his consent and, second, they must have been placed on the market in the European Union (see judgment in Laserdisken, EU:C:2006:549, paragraph 21).
32 In the case in the main proceedings, it is undisputed that posters reproducing works of famous painters, which are covered by the copyright the holders of which are represented by Pictoright, have been placed on the market in the EEA with the consent of those rightholders.
33 However, the parties in the main proceedings are in disagreement, first, as to whether exhaustion of the distribution right covers the tangible object into which a work or its copy is incorporated or the author’s own intellectual creation and, secondly, as to whether the alteration of the medium, as undertaken by Allposters, has an impact on exhaustion of the exclusive distribution right.
34 With regard, first, to the purpose of the distribution right, Article 4(2) of Directive 2001/29 refers to the first sale or other transfer of ownership of ‘that object’.
35 In addition, according to recital 28 to Directive 2001/28, ‘[c]opyright protection under [that directive] includes the exclusive right to control distribution of the work incorporated in a tangible article’. According to that recital, the ‘first sale in the [European Union] of the original of a work or copies thereof by the rightholder or with his consent exhausts the right to control resale of that object in the [European Union]’.
36 Similarly, according to settled case-law of the Court, literary and artistic works may be the subject of commercial exploitation, whether by way of public performance or of the reproduction and marketing of the recordings made of them (judgment in FDV, C‑61/97, EU:C:1998:422, paragraph 14 and the case-law cited).
37 It follows from the foregoing considerations that the EU legislature, by using the terms ‘tangible article’ and ‘that object’, wished to give authors control over the initial marketing in the European Union of each tangible object incorporating their intellectual creation.
38 That finding, as the European Commission correctly states, is supported by international law, and in particular by the WIPO Copyright Treaty, in the light of which Directive 2001/29 must be interpreted as far as possible (see, to that effect, judgments in Laserdisken, EU:C:2006:549, paragraphs 39 and 40; Peek & Cloppenburg, C‑456/06, EU:C:2008:232, paragraphs 30 and 31; Football Association Premier League and Others, C‑403/08 and C‑429/08, EU:C:2011:631, paragraph 189; and Donner, C‑5/11, EU:C:2012:370, paragraph 23).
39 Article 6(1) of that Treaty provides that authors of literary and artistic works are to enjoy the exclusive right of authorising the making available to the public of the original and copies of their works through sale or other transfer of ownership. In that regard, the significance of the term ‘copy’ was explained by the Contracting Parties by an agreed statement concerning Articles 6 and 7 of the Treaty adopted by the Diplomatic Conference of 20 December 1996, at which the Treaty itself was also adopted. According to that statement, ‘the expressions “copies” and “original and copies” being subject to the right of distribution and the right of rental under the said Articles, refer exclusively to fixed copies that can be put into circulation as tangible objects’.
40 Accordingly, it should be found that exhaustion of the distribution right applies to the tangible object into which a protected work or its copy is incorporated if it has been placed onto the market with the copyright holder’s consent.
41 In the second place, it must be assessed whether the fact that the object, which was marketed with the copyright holder’s consent, has undergone subsequent alterations to its physical medium has an impact on exhaustion of the distribution right within the meaning of Article 4(2) of Directive 2001/29.
42 In the case in the main proceedings, the alteration carried out consists in a transfer of the image of an artistic work from a paper poster onto a painter’s canvas, by means of the process described in paragraph 15 of this judgment, resulting in the replacement of the paper medium by a canvas. It follows from the observations of the parties in the main proceedings that that technique increases the durability of the reproduction, improves the quality of the image in comparison with the poster and provides a result closer to the original of the work.
43 In that regard, it must be held that, as the French Government correctly argues, a replacement of the medium, as was carried out in the case in the main proceedings, results in the creation of a new object incorporating the image of the protected work, whereas the poster itself ceases to exist. Such an alteration of the copy of the protected work, which provides a result closer to the original, is actually sufficient to constitute a new reproduction of that work, within the meaning of Article 2(a) of Directive 2001/29, which is covered by the exclusive right of the author and requires his authorisation.
44 Allposters nevertheless maintains that the transfer onto canvas cannot be categorised as reproduction on the ground that there is no multiplication of copies of the protected work since the image is transferred and no longer appears on the poster. It explains that the ink which reproduces the work is not altered and that the work itself is not affected in any way.
45 That argument cannot be accepted. The fact that the ink is saved during the transfer cannot affect the finding that the image’s medium has been altered. What is important is whether the altered object itself, taken as a whole, is, physically, the object that was placed onto the market with the consent of the rightholder. That does not appear to be the case in the dispute in the main proceedings.
46 Consequently, the consent of the copyright holder does not cover the distribution of an object incorporating his work if that object has been altered after its initial marketing in such a way that it constitutes a new reproduction of that work. In such an event, the distribution right of such an object is exhausted only upon the first sale or transfer of ownership of that new object with the consent of the rightholder.
47 That interpretation is supported by the principal objective of Directive 2001/29 which, according to recitals 9 and 10 of that directive, is to establish a high level of protection of, inter alia, authors, allowing them to obtain an appropriate reward for the use of their works (see judgments in SGAE, C‑306/05, EU:C:2006:764, paragraph 36; Peek & Cloppenburg, EU:C:2008:232, paragraph 37; and Football Association Premier League and Others, EU:C:2011:631, paragraph 186).
48 However, it follows from the arguments advanced before the Court by the parties in the main proceedings that the copyright holders did not consent to the distribution of the canvas transfers, at least not expressly. Accordingly, applying the rule of exhaustion of the distribution right would deprive those rightholders of the possibility of prohibiting those objects from being distributed or, in the event of distribution, of requiring appropriate reward for the commercial exploitation of their works. In that regard, the Court has already held that, in order to be appropriate, such remuneration must be reasonable in relation to the economic value of the exploitation of the protected work (see, by analogy, judgment in Football Association Premier League and Others, EU:C:2011:631, paragraphs 107 to 109). As regards canvas transfers, the parties in the main proceedings acknowledge that their economic value significantly exceeds that of posters.
49 Having regard to all the foregoing considerations, the answer to the questions asked is that Article 4(2) of Directive 2001/29 must be interpreted as meaning that the rule of exhaustion of the distribution right set out in Article 4(2) of Directive 2001/29 does not apply in a situation where a reproduction of a protected work, after having been marketed in the European Union with the copyright holder’s consent, has undergone an alteration of its medium, such as the transfer of that reproduction from a paper poster onto a canvas, and is placed on the market again in its new form.
Costs
50 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Fourth Chamber) hereby rules:
Article 4(2) of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society must be interpreted as meaning that the rule of exhaustion of the distribution right set out in Article 4(2) of Directive 2001/29 does not apply in a situation where a reproduction of a protected work, after having been marketed in the European Union with the copyright holder’s consent, has undergone an alteration of its medium, such as the transfer of that reproduction from a paper poster onto a canvas, and is placed on the market again in its new form.
8.5.5 Lee v. A.R.T. Company 8.5.5 Lee v. A.R.T. Company
125 F.3d 580
235 Copr.L.Dec. P 27,686, 44 U.S.P.Q.2d 1153
Annie LEE and Annie Lee & Friends Company, Inc., Plaintiffs-Appellants,
v.
A.R.T. COMPANY, also known as Albuquerque A.R.T. Company,
Defendant-Appellee.
No. 96-2522.
United States Court of Appeals, Seventh Circuit.
Argued Feb. 10, 1997.
Decided Sept. 18, 1997.
[580] P. Scott Neville, Jr., Howse, Howse, Neville & Gray, Geraldine C. Simmons (argued), Salone, Simmons & Murray, Chicago, IL, for Plaintiffs-Appellants.
Joan Pennington, Joseph Krieger, Philip M. Kolehmainen, Mason, Kolehmainen, Rathburn & Wyss, Chicago, IL, George J. Netter (argued), Pasadena, CA, for Defendant-Appellee.
Before BAUER, EASTERBROOK, and DIANE P. WOOD, Circuit Judges.
EASTERBROOK, Circuit Judge.
Annie Lee creates works of art, which she sells through her firm Annie Lee & Friends. Deck the Walls, a chain of outlets for modestly priced art, is among the buyers of her works, which have been registered with the Register of Copyrights. One Deck the Walls store sold some of Lee's notecards and small lithographs to A.R.T. Company, which mounted the works on ceramic tiles (covering the art with transparent epoxy resin in the process) and resold the tiles. Lee contends that these tiles are derivative works, which under 17 U.S.C. § 106(2) may not be prepared without the permission of the copyright proprietor. She seeks both monetary and injunctive relief. Her position has the support of two cases holding that A.R.T.'s business violates the copyright laws. Munoz v. Albuquerque A.R.T. Co., 38 F.3d 1218 (9th Cir. 1994), affirming without published opinion 829 F. Supp. 309 (D. Alaska 1993); Mirage Editions, Inc. v. Albuquerque A.R.T. Co., 856 F.2d 1341 (9th Cir. 1988). Mirage Editions, the only full appellate discussion, dealt with pages cut from books and mounted on tiles; the court of appeals' brief order in Muoz concludes that the reasoning of Mirage Editions is equally applicable to works [581] of art that were sold loose. Our district court disagreed with these decisions and entered summary judgment for the defendant. 925 F. Supp. 576 (N.D. Ill. 1996).
Now one might suppose that this is an open and shut case under the doctrine of first sale, codified at 17 U.S.C. § 109(a). A.R.T. bought the work legitimately, mounted it on a tile, and resold what it had purchased. Because the artist could capture the value of her art's contribution to the finished product as part of the price for the original transaction, the economic rationale for protecting an adaptation as "derivative" is absent. See William M. Landes & Richard A. Posner, An Economic Analysis of Copyright Law, 17 J. Legal Studies 325, 353-57 (1989). An alteration that includes (or consumes) a complete copy of the original lacks economic significance. One work changes hands multiple times, exactly what § 109(a) permits, so it may lack legal significance too. But § 106(2) creates a separate exclusive right, to "prepare derivative works", and Lee believes that affixing the art to the tile is "preparation," so that A.R.T. would have violated § 106(2) even if it had dumped the finished tiles into the Marianas Trench. For the sake of argument we assume that this is so and ask whether card-on-a-tile is a "derivative work" in the first place.
"Derivative work" is a defined term:
A "derivative work" is 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".
17 U.S.C. § 101. The district court concluded that A.R.T.'s mounting of Lee's works on tile is not an "original work of authorship" because it is no different in form or function from displaying a painting in a frame or placing a medallion in a velvet case. No one believes that a museum violates § 106(2) every time it changes the frame of a painting that is still under copyright, although the choice of frame or glazing affects the impression the art conveys, and many artists specify frames (or pedestals for sculptures) in detail. Munoz and Mirage Editions acknowledge that framing and other traditional means of mounting and displaying art do not infringe authors' exclusive right to make derivative works. Nonetheless, the ninth circuit held, what A.R.T. does creates a derivative work because the epoxy resin bonds the art to the tile. Our district judge thought this a distinction without a difference, and we agree. If changing the way in which a work of art will be displayed creates a derivative work, and if Lee is right about what "prepared" means, then the derivative work is "prepared" when the art is mounted; what happens later is not relevant, because the violation of the § 106(2) right has already occurred. If the framing process does not create a derivative work, then mounting art on a tile, which serves as a flush frame, does not create a derivative work. What is more, the ninth circuit erred in assuming that normal means of mounting and displaying art are easily reversible. A painting is placed in a wooden "stretcher" as part of the framing process; this leads to some punctures (commonly tacks or staples), may entail trimming the edges of the canvas, and may affect the surface of the painting as well. Works by Jackson Pollock are notoriously hard to mount without damage, given the thickness of their paint. As a prelude to framing, photographs, prints, and posters may be mounted on stiff boards using wax sheets, but sometimes glue or another more durable substance is employed to create the bond.
Lee wages a vigorous attack on the district court's conclusion that A.R.T.'s mounting process cannot create a derivative work because the change to the work "as a whole" is not sufficiently original to support a copyright. Cases such as Gracen v. The Bradford Exchange, Inc., 698 F.2d 300 (7th Cir. 1983), show that neither A.R.T. nor Lee herself could have obtained a copyright in the card-on-a-tile, thereby not only extending the period of protection for the images but also eliminating competition in one medium of display. After the ninth circuit held that its [582] mounting process created derivative works, A.R.T. tried to obtain a copyright in one of its products; the Register of Copyrights sensibly informed A.R.T. that the card-on-a-tile could not be copyrighted independently of the note card itself. But Lee says that this is irrelevant--that a change in a work's appearance may infringe the exclusive right under § 106(2) even if the alteration is too trivial to support an independent copyright. Pointing to the word "original" in the second sentence of the statutory definition, the district judge held that "originality" is essential to a derivative work. This understanding has the support of both cases and respected commentators. E.g., L. Batlin & Son, Inc. v. Snyder, 536 F.2d 486 (2d Cir. 1976); Melville B. Nimmer & David Nimmer, 1 Nimmer on Copyrights § 3.03 (1997). Pointing to the fact that the first sentence in the statutory definition omits any reference to originality, Lee insists that a work may be derivative despite the mechanical nature of the transformation. This view, too, has the support of both cases and respected commentators. E.g., Lone Ranger Television, Inc. v. Program Radio Corp., 740 F.2d 718, 722 (9th Cir. 1984); Paul Goldstein, Copyright: Principles, Law and Practice § 5.3.1 (2d ed. 1996) (suggesting that a transformation is covered by § 106(2) whenever it creates a "new work for a different market").
Fortunately, it is not necessary for us to choose sides. Assume for the moment that the first sentence recognizes a set of non-original derivative works. To prevail, then, Lee must show that A.R.T. altered her works in one of the ways mentioned in the first sentence. The tile is not an "art reproduction"; A.R.T. purchased and mounted Lee's original works. That leaves the residual clause: "any other form in which a work may be recast, transformed, or adapted." None of these words fits what A.R.T. did. Lee's works were not "recast" or "adapted". "Transformed" comes closer and gives the ninth circuit some purchase for its view that the permanence of the bond between art and base matters. Yet the copyrighted note cards and lithographs were not "transformed" in the slightest. The art was bonded to a slab of ceramic, but it was not changed in the process. It still depicts exactly what it depicted when it left Lee's studio. See William F. Patry, Copyright Law and Practice 823-24 (1994) (disapproving Mirage Editions on this ground).[1] If mounting works a "transformation," then changing a painting's frame or a photograph's mat equally produces a derivative work. Indeed, if Lee is right about the meaning of the definition's first sentence, then any alteration of a work, however slight, requires the author's permission. We asked at oral argument what would happen if a purchaser jotted a note on one of the note cards, or used it as a coaster for a drink, or cut it in half, or if a collector applied his seal (as is common in Japan); Lee's counsel replied that such changes prepare derivative works, but that as a practical matter artists would not file suit. A definition of derivative work that makes criminals out of art collectors and tourists is jarring despite Lee's gracious offer not to commence civil litigation.
If Lee (and the ninth circuit) are right about what counts as a derivative work, then the United States has established through the back door an extraordinarily broad version of authors' moral rights, under which artists may block any modification of their works of which they disapprove. No European version of droit moral goes this far. Until recently it was accepted wisdom that the United States did not enforce any claim of moral rights; even bowdlerization of a work was permitted unless the modifications produced a new work so different that it infringed the exclusive right under § 106(2). Compare WGN Continental Broadcasting Co. v. United Video, Inc., 693 F.2d 622 (7th Cir. 1982), with Gilliam v. American Broadcasting Companies, Inc., 538 F.2d 14, 24 (2d Cir. 1976). The Visual Artists Rights Act of 1990, Pub. L. 101-650, 104 Stat. 5089, 5123-33, moves federal law in the direction of moral rights, but the cornerstone of the new statute, 17 U.S.C. § 106A, does not assist [583] Lee. Section 106A(a)(3)(A) gives an artist the right to "prevent any intentional distortion, mutilation, or other modification of that work which would be prejudicial to his or her honor or reputation". At oral argument Lee's lawyer disclaimed any contention that the sale of her works on tile has damaged her honor or reputation. What is more, § 106A applies only to a "work of visual art", a new term defined in § 101 to mean either a unique work or part of a limited edition (200 copies or fewer) that has been "signed and consecutively numbered by the author". Lee's note cards and lithographs are not works of visual art under this definition, so she could not invoke § 106A even if A.R.T.'s use of her works to produce kitsch had damaged her reputation. It would not be sound to use § 106(2) to provide artists with exclusive rights deliberately omitted from the Visual Artists Rights Act. We therefore decline to follow Munoz and Mirage Editions.[2]
AFFIRMED.
[1] Scholarly disapproval of Mirage Editions has been widespread. Goldstein § 5.3 at 5:81-82; Nimmer & Nimmer § 3.03; Wendy J. Gordon, On Owning Information: Intellectual Property and the Restitutionary Impulse, 78 Va. L. Rev. 149, 255 n. 401 (1992).
[2] Because this opinion creates a conflict among the circuits, it has been circulated to all judges in active service. See Circuit Rule 40(e). No judge requested a hearing en banc.