Second Circuit Give Summary Victory to Songwriters

Before getting to the Summary the Summary Order issued by the Second Circuit on December 19, a bit of a review is appropriate. The Second Circuit’s decision has to do with whether the consent decree under which BMI has operated for decades requires it to engage in “100% licensing” (also known as “full work licensing”) as the Justice Department argued or whether BMI (and ASCAP under its very similar consent decree) could engage in “fractional licensing” as both entities – and indeed the entire music industry – has done for decades.  As I’ve previously written extensively about this issue I won’t repeat the background here but I would implore my gentle readers to review my prior blog post, Why DOJ’s Mandate of 100% Licensing of Works by ASCAP and BMI is 100% Lunacy, for an explanation of what 100% and fractional licensing are and why the former, if adopted, would have upended decades of music industry practice and many thousands of individually negotiated contracts.  And to quote again from the U.S. Copyright Office’s  report on the issue:

In sum, an interpretation of the consent decrees that would require 100-percent licensing or removal of a work from the ASCAP or BMI repertoire would appear to be fraught with legal and logistical problems, and might well result in a sharp decrease in repertoire through these PROs’ blanket licenses. It would seemingly punish copyright owners who have chosen to exercise their rights under the Copyright Act to manage their separate interests through the PRO of their choice.

ASCAP and BMI adopted parallel strategies to deal with DOJ’s edict. BMI would seek judicial review in the Southern District of New York before Judge Louis L. Stanton, the judge overseeing the BMI consent decree. ASCAP would lobby Congress for a legislative fix.  As I again had previously written, on September 16, 2016, on what had been scheduled to be a pre-motion conference, Judge Stanton decided to hold an evidentiary hearing on the 100% licensing issue. He then issued a six-page summary opinion rejecting DOJ’s view that the BMI consent decree required works to be licensed on a whole work basis:

The phrase in Art. II (C) of the Consent Decree defining BMI’s repertory as “those compositions, the right of public performance of which [BMI] has… the right to license or sublicense” is descriptive, not prescriptive. The “right of public performance” is left undefined as to score or form, to be determined by processes outside the Consent Decree. The Consent Decree neither bars fractional licensing nor requires full-work licensing.

While BMI – and ASCAP were pleased with this result, DOJ was not. It appealed Judge Stanton’s order to the Second Circuit. Oral arguments on the appeal were held on December 1, 2017. A mere two weeks later, on December 19, 2017, the Second Circuit issued its seven-page Summary Order affirming Judge Stanton’s ruling.  The Court noted:

This appeal begins and ends with the language of the consent decree. It is a “well-established principle that the language of a consent decree must dictate what a party is required to do and what it must refrain from doing.” Perez v. Danbury Hosp., 347 F.3d 419, 424 (2d Cir. 2003); United States v. Armour & Co., 402 U.S. 673, 682 (1971) (“[T]he scope of a consent decree must be discerned within its four corners…”). “[C]ourts must abide by the express terms of a consent decree and may not impose additional requirements or supplementary obligations on the parties even to fulfill the purposes of the decree more effectively.” Perez, 347 F.3d at 424; see also Barcia v. Sitkin, 367 F.3d 87, 106 (2d Cir. 2004) (internal citations omitted) (The district court may not “impose obligations on a party that are not unambiguously mandated by the decree itself.”). Accordingly, since the decree is silent on fractional licensing, BMI may (and perhaps must) offer them unless a clear and unambiguous command of the decree would thereby be violated. See United States v. Int’l Bhd. Of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., AFLCIO, 998 F.2d 1101, 1107 (2d Cir. 1993); see also Armour, 402 U.S. at 681-82.

(Opinion at p. 4).  The Second Circuit also noted that looking beyond the four corners of the consent decree was similarly of no avail:

Extrinsic evidence does not assist the DOJ. The decree was amended in 1994 at a time when fractional licensing was apparently common practice. “If the parties had agreed to such a prohibition, they could have chosen language that would have established the sort of prohibition that the Government now seeks.” Armour, 402 U.S. at 679.

(Opinion at p.5)

Not surprisingly, both BMI and ASCAP were delighted that the Second Circuit dispensed with DOJ’s purported mandate in the same summary manner as did Judge Stanton.  BMI, CEO, Mike O’Neill stated:

This is a massive victory for songwriters, composers, music publishers and the entire industry. We have said from the very beginning that BMI’s consent decree allowed for fractional licensing, and we are incredibly gratified that Judge Stanton and the Second Circuit agreed with our position. We thank all the songwriters, composers, publishers and organizations who supported us throughout this process, which unfortunately, has been a nearly two-year distraction from our original intent which was to update our outdated consent decree and modernize music licensing. We look forward to our continued efforts to protect and grow the value of music.

Similarly, ASCAP’s CEO, Beth Matthews, also applauded the decision:

The Second Circuit’s ruling today is an important victory for music creators across the country. The Court affirms what we have known all along, that the right of public performance allows for the fractional licensing of musical works in our repertories, and the consent decrees do not limit that right. ASCAP and BMI can now continue to offer blanket licenses to our hundreds of thousands of licensees that contain all the shares of works that are in our repertories and the livelihoods of our 650,000 ASCAP songwriter, composer and publisher members can continue to depend on a strong collective licensing system. ASCAP remains committed to making music licensing more efficient, effective and transparent for today’s digital music marketplace.

DOJ could try to seek review in the Supreme Court, a very uphill battle as that tribunal only elects to hear about 80 cases a year. Its only other option would be to seek review of ASCAP’s similarly worded consent decree in the Southern District of New York before Judge Denise Cote, who oversees that consent decree. And even if successful (a dubious proposition given the Second Circuit ruling on the BMI decree) such a ruling would only apply to ASCAP and would then be subject to appeal to the Second Circuit. Perhaps the 100% licensing issue has finally been dealt the death it so richly deserves.

Update: As of March 23, 2018, the deadline to file an appeal of the Second Circuit decision with the U.S. Supreme Court has passed.

Google Books’ Dubious Distinction Between Transformative Use and Derivative Works

Given its prior ruling in last year’s substantially similar HathiTrust case, the Second Circuit’s October 16 decision in The Author’s Guild v. Google, Inc. was as inevitable as the Cubs failing to win the World Series. Still those in the content creating community feel it’s fundamentally unfair that Google gets to scan millions of copyrighted books in their entirety without paying a dime for the privilege under the banner of fair use. The opinion, written by Judge Pierre N. Leval (Mr. Transformative Use, himself), not surprisingly held that Google’s usage was a transformative, and therefore fair, use under the Supreme Court’s 1994 decision in Campbell v. Acuff-Rose Music, which had relied upon Judge Leval’s own Harvard Law Review article advocating a transformative use analysis.

The facts are briefly as follows: Google digitally scanned more than 20 million of books that were submitted by participating university libraries – but without the consent of the rights holders – to create a searchable database for these materials. In return, the submitting library gets a digital copy of each work it submitted, providing that the library agrees to use the digital copy only in compliance with copyright laws. The database, which can be searched online by the public for free, provides a list of works containing the key terms searched as well as snippets from each book containing the search terms in context. Google has built in safeguards that limit the number of snippets and the amount of text displayed so that a searcher cannot obtain a copy of the book, or a substantial portion of it, simply by doing repeated searches.

I’ll leave it to others to critique the Court’s analysis of the finding of fair use under the four factors of Section 107 of the Copyright Act. My focus is on the opinion’s distinction between “transformative” fair uses of copyrighted works, for which no permission is needed, and the creation of “derivative works” as defined in Section 101 and for which authorization from the copyright owner is required pursuant to Section 106(2).

Judge Leval, in pages 17 through 19 of his opinion, including a lengthy footnote 18, appears to address the Seventh Circuit’s issues with the transformative test, particularly as voiced in Judge Easterbrook’s opinion in last year’s Kienitz case, which I’ve previously written about. Kienitz concerned alterations to a copyrighted photograph of the mayor of Madison, Wisconsin. The District Court found that the usage was fair, relying on a “transformative use” analysis.

Although the Seventh Circuit affirmed the result, it rejected the transformative use approach as articulated in the Second Circuit’s much-criticized Cariou decision, finding a conflict with protected derivative works:

Fair use is a statutory defense to infringement. The Copyright Act sets out four non-exclusive factors for a court to consider. The district court and the parties have debated whether the t-shirts are a “transformative use” of the photo – and , if so, just how “transformative” the use must be. That’s not one of the statutory factors, though the Supreme Court mentioned it in Campbell v. Acuff-Rose Music, Inc. The Second Circuit has run with the suggestion and concluded that “transformative use” is enough to bring a modified copy within the scope of §107. Cariou applied this to an example of “appropriation art,” in which some of the supposed value comes from the very fact that the work was created by someone else. We’re skeptical of Cariou’s approach, because asking exclusively whether something is “transformative” not only replaces the list in §107 but could also override 17 U.S.C. §106(2), which protects derivative works. To say that a new use transforms the work is precisely to say that it is derivative and thus, one might suppose, protected under §106(2). Cariou and its predecessors in the Second Circuit do not explain how every “transformative use” can be “fair use” without extinguishing the author’s rights under §106(2). We think it best to stick with the statutory list, of which the most important usually is the fourth (market effect). (Citations omitted)

While agreeing with Judge Easterbrook that the fourth factor is the most important, Judge Leval also noted that the Supreme Court stressed the importance of the first factor, the “purpose and character of the use,” in making a determination of fair use. Citing Campbell (but coyly omitting the Supreme Court’s approving citation – more than Judge Easterbrook’s mere mention – of his own seminal article promulgating the concept of transformative use), Judge Leval wrote: “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.”

Judge Leval further elaborated: “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.” But, as the Court’s opinion cautions: “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 support a finding of fair use.“ Fair enough, but how is this dictum helpful in practice?

Here’s how the Second Circuit addressed the tension between transformative fair use and protected derivative works:

A further complication that can result from the 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…..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 (emphasis added). As we noted in Author’s Guild 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.” 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 definitions suggest that derivative works generally involve transformations in the nature of changes of form. By contrast, copying from an original for the purpose of criticism or commentary on the original or provision of information about it, tends most clearly to satisfy Campbell’s notion of the “transformative” purpose involved in the analysis of Factor One.” (Citations omitted)

I’m doubtful the foregoing answers Judge Easterbrook because even this formulation of transformative use sounds like it could cover a lot of protected derivative works as translations and abridgements of texts and arrangements of musical works surely expand their utility and often communicate something new. For example, the Southern District of New York recently held that taking the characters, settings and entire scenes from the TV series, Three’s Company, and adapting them into a stage play (a mere “change of form” and presumably a derivative work under Judge Leval’s revised formulation), was a transformative fair use that parodied the original.

As I’ve previously written, the transformative use test remains amorphous and something akin to a restatement of Justice Stewart’s “I know it when I see it” standard where wholesale copying of large swaths or entire works can be found to be fair use if transformative. As the Court concluded in its epic footnote 18: “Attempts to find a circumspect shorthand for a complex concept are best understood as suggestive of a general direction, rather than as definitive descriptions.” Yeah, right.

Despite the not terribly helpful attempts to define the ineffable, the quoted portion of the Court’s opinion does posit two instances of transformative use that do not appear to conflict with the general understanding of what constitutes a derivative work: 1) where the use of the underlying work is to comment on or criticize it; and 2) where the use provides information about the work. The Second Circuit cited Campbell as an instance of the former and clearly views Google’s actions as an example of the latter:

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.

However, in Campbell, the Supreme Court pointed out that the musical parody of Roy Orbison’s iconic “Oh, Pretty Woman,” used only as much as was needed to conjure and comment upon the original song. Here, the Second Circuit blesses the copying of millions of complete works in the name of transformative use. There’s no doubt that Google’s database is incredibly useful and can provide substantial benefits to the public. However, as with derivative works, there are lots of really useful and beneficial things for which licenses are routinely obtained.

Transformative use analysis can be a helpful tool in applying the first statutory factor but it shouldn’t override all four §107 factors as it seems to do under current Second Circuit jurisprudence. And however formulated, it doesn’t adequately distinguish between fair and derivative uses. There is, however, one other point on which the estimable judges Leval and Easterbrook agree: fair use is an affirmative defense, as pointed out in Campbell. However, this seems to conflict with the Ninth’s Circuit’s recent opinion in the “dancing baby case” where, in the context of DMCA takedown notices, it states that fair use is something that is substantively “authorized by law.” Perhaps it’s time once again for the Supreme Court to transform fair use jurisprudence by providing some clarity to the concept.

The Second Circuit Terminates Copyright in Santa Claus Song

In its October 8 decision in Baldwin v. EMI Feist Catalog, Inc., the Second Circuit reversed the District Court’s granting of summary judgment to defendant music publisher, holding that a 2007 termination notice effectively severed a portion of EMI’s US copyright interest in the Christmas classic, Santa Claus is Coming to Town (the “Song”). The Song was written by J. Fred Coots and Haven Gillespie. Plaintiffs are Coots’s statutory heirs.

In order to understand the Court’s 40-page opinion, one must briefly delve into the differences between the Copyright Act of 1909 and the current copyright law, the Copyright Act of 1976, which became effective as of January 1, 1978. Works created since 1978 enjoy a copyright term of life of the author(s) plus 70 years. Under the 1909 Act, the US copyright consisted of two distinct terms, an initial term of 28 years, followed by a renewal term of an additional 28 years. One reason for the bifurcated term of copyright under the 1909 Act was to give authors such as songwriters a second chance to negotiate for the value of their creations as fledgling artists often lack the information or bargaining power to do a good deal. However, writers often, but not always, assigned both the initial and renewal terms of US copyright to the grantee, here a music publisher. This assignment of both terms was valid so long as the assigning author lived into the renewal term so that the grant of those rights would vest.

When the 1976 Act was passed, it included some provisions that affected copyrights under the 1909 Act. First, it extended the renewal term so that a pre-1978 copyright would last for a total of 75 years. Second, the 1976 Act introduced similar, but not identical, termination provisions for both old and new copyright assignments, allowing authors or their statutory heirs (who are often different from, and for copyright purposes superior to, those designated under a will or state intestacy statutes), another chance to reclaim their share of the US copyright. Although termination notices can be served prior to the effective date, no termination of a US copyright interest can be effective until 35 years after the original assignment was made.

Section 203 governs terminations of copyright assignments occurring after January 1, 1978 and Section 304(c) covers those that occurred pre-1978. Since book and music publishers had better lobbyists than struggling writers, the termination provisions are deliberately difficult to execute. Both Section 203 and 304(c) require that the termination notice must: a) be served within a specific window of time, b) contain all of the required information including the date of the grant to be terminated, c) be served on the proper party, d) be executed by the author or the requisite percentage of statutory heirs; and e) be recorded in the Copyright Office. The details are contained in the statutory provisions and the Copyright Office regulations for terminations.

Both Sections 203 and 304(c) contain an additional clause: terminating parties cannot re-assign their post-termination US copyright interest until after the effective date of the termination – except they may do a new deal covering the post-termination period prior to the effective date with the party whose rights are being terminated. This gives the incumbent rights holder a leg up in negotiations and it is often the case that termination notices are used by authors and heirs merely as leverage to get a better deal with their current publisher.

With this somewhat simplified legal background, let’s review the salient facts in our Santa Claus suit. Coots and Gillespie wrote the Song and assigned the copyright to Feist, EMI’s predecessor-in-interest, in 1934. Copyright for the song was registered later that year. However, Coots didn’t assign his renewal rights in the 1934 agreement but did so separately in a 1951 agreement. A renewal registration was timely filed in 1961 as was required under the 1909 Act to prevent the copyright in the Song from going into the public domain. As of 1961, the copyright in the song was due to expire at the end of 56 years, in 1990.

In September 1981, Coots served a notice under §304(c) terminating the 1951 agreement, effective as of October 1990. By that time, the 1976 Act had passed and the copyright in the Song was now due to expire in 2009. Coots’s attorney sent the termination notice to the Copyright Office for recordation, as required by the statute. Under the doing a deal with the current publisher exception, Coots’s lawyer then engaged in negotiations with the music publisher to secure a new (and presumably better) deal. This usually consists of one or more of the following: the writer receiving a larger percentage of royalties, the writer being paid an acquisition fee for the post-termination term and the writer receiving a hefty recoupable advance on post-termination royalties.

The new deal concluded with Coot’s signing a 1981 agreement and the assignment clause included the usual boilerplate: “all rights” including “all renewals and extensions” of the copyright as well as “reversionary and termination interests” pursuant to section 304. The 1981 agreement further stated that the termination notice was filed in the Copyright Office and, in addition to payment of royalties, included a “non-recoupable bonus” (i.e., an acquisition payment) of $100,000 for the post-termination rights. After the 1981 deal was done, apparently Coots’s lawyer contacted the Copyright Office and the unrecorded termination notice was returned to him.

With the passage of the Sonny Bono Copyright Act of 1998, the term of pre-1978 copyrights was again extended (as were post-1978 copyrights from life plus 50 years) for another twenty years, bringing the duration of copyright protection for pre-1978 works to a total of 95 years. As a result, the Song now would not enter the public domain until 2029. Moreover, the 1976 Act added yet another termination provision for an author or his statutory heirs to obtain these final twenty years of copyright protection. However, this provision, section 304(d), stipulates that it is available only if there had not been a prior exercise of termination rights under section 304(c).

Although the Coots heirs served a section 304(d) termination notice with respect to the 1951 agreement in 2004 (under the theory that because the prior 304(c) notice had not been recorded it was a nullity), EMI and the Coots heirs ultimately agreed (at least at that time) that any termination rights should be directed against the 1981 agreement in accordance with §203, governing post-1978 grants.

So in early 2007, the Coots heirs served – and recorded—a notice of termination of the grant under the 1981 agreement pursuant to §203, with an effective date of December 15, 2016. EMI offered the heirs $2.75 million for their post-termination copyright interest but that offer was rejected as being too low. Because of additional complications dealing with “publication” rights, the Coots heirs subsequently served another termination notice in 2012, with an effective date of December 2021. The lawsuit over the Song about red-suited St. Nick ensued.

The District Court held that since the 1981 termination notice (under §304(c)) was never recorded, the termination of the 1951 agreement was ineffective and therefore EMI still controlled the copyright as a pre-1978 grant (here, 1951) cannot be terminated pursuant to either notice served pursuant to §203, which only covers post-1978 transfers.

The Second Circuit reversed, holding that the 1981 agreement superseded the 1951 agreement and that latter agreement was properly terminated by the 2007 notice pursuant to §203. While EMI argued that the 1981 agreement conveyed only post-termination rights, the Court held that the parties’ intent was such that the 1981 agreement, which was executed by Coots himself rather than his statutory heirs (thereby not running afoul of prior Second Circuit precedent in the Penguin Group v. Steinbeck case), replaced the 1951 contract, even in the absence of an integration clause, based upon the broadness of the grant.

What do we take away from all this? First, exercising termination rights is complicated. Second, you may have noticed that I’ve consistently referred to the “US copyright” in discussing the case. That’s because the statutory termination provisions, whether under §203 or §304, apply only to US copyrights. By contract, songwriters and other creators typically assign worldwide rights, although recent vintage agreements assign rights “throughout the universe.” So, EMI will still continue to own the rights corresponding to Coots’s share outside of the US, despite the effect of a valid termination notice.

What does that mean? By music industry convention, the US interest is typically valued at 50% of the economic value of the worldwide copyright and the rest of the world constitutes the remaining 50%. So let’s say someone wants to do a synch deal to use the Song in a feature film and the producers pay $40,000 for a worldwide, all rights buyout for several seconds of underscore in an upcoming Christmas caper. By custom, the party that owns the US rights would collect $20,000 and the party that controls the rest of the world would also get $20,000.

Mind you, these fees only cover the composition; the rights to the master recording of the composition would be separately licensed and would command a commensurate fee. And remember, this case only concerns Coots’s share of the Song. As to that of his co-writer, Gillespie, ASCAP’s online database indicates that the US rights are controlled by another publisher (but it’s possible EMI may still control world-ex US rights). So while Santa Claus may no longer be coming to towns in the US for EMI, it’s still possible St. Nick may sojourn through a few foreign cities on its behalf.

Back to the Future: Will the Seventh Circuit Transform Fair Use?

Last month, the Seventh Circuit in Kienitz v. Sconnie Nation signaled what may be a seismic shift in how “fair use” cases are judged. In order to see why, let’s briefly review the statutory and judicial framework.

First, fair use is not a “right” as some “copy-left “ advocates would argue, but is a defense to copyright infringement codified since 1978 in Section 107 of the Copyright Act. And contrary to popular belief, there are no bright line rules as to what is and is not a fair use. For example, there’s no magic number of bars of music you can borrow or any certain number of seconds of a clip you can post or, as we’ll see, a prescribed portion of a photographic portrait that one is automatically free to use.

Rather, as the Supreme Court reiterated in the 1994 case Campbell v. Acuff-Rose Music, fair use is determined by the courts on a case by case basis using the four factors of Section 107:

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.

In Campbell, the Supreme Court held that 2 Live Crew’s use of a portion of the Roy Orbison hit, Oh, Pretty Woman, in its similarly titled song, Pretty Woman, constituted a fair use parody of the Orbison song in that only so much of the original work as was necessary to comment on that original work was used in the 2 Live Crew recording. In its analysis of the first statutory factor, the Court cited with approval Judge Pierre N. Leval’s influential 1990 Harvard Law Review article, Toward a Fair Use Standard, as to whether the use of the Orbison in the 2 Live Crew work was “transformative,” in that “it adds something new, with a further purpose or different character, altering the first with new expression, meaning or message….” The Court, noted, however, that “transformative use is not absolutely necessary for a finding of fair use” but that “the goal of copyright, to promote science and the useful arts, is generally furthered by the creation of transformative works.”

Since Campbell, the Second Circuit, historically the nation’s second most important copyright court, took the “transformative use” ball and ran with it. Recent cases, such as the Google Books decision and Cariou v. Prince, held that copying of entire works constituted fair use on the basis that the use was “transformative.” Cariou, for example, involved Richard Prince’s alteration of entire photographs taken by Cariou. The Second Circuit held that the use was “transformative” and therefore a fair use, even though Prince’s works did not comment on Cariou’s, as was the case in Campbell. Any cursory Google search will yield a plethora of articles critical of Cariou.

This leads us to the Seventh Circuit and Kienitz. The case concerns a photo of the Mayor of Madison Wisconsin, Paul Soglin, taken by Kienitz. Soglin, with Kienitz’s approval, posted the portrait on the city’s website. The controversy arose because Soglin wanted to shut down an annual street party that he had once attended as a student many years before. Sensing some irony, defendant Sconnie Nation downloaded the headshot from the website, removed the background, changed the coloring and shading and added the slogan, “Sorry for Partying.” You can see the before and after pictures in the Court’s opinion. Sconnie Nation sold a total of 54 shirts, clearing a modest profit, and engendering the infringement action by Kienitz. Relying on Cariou, the parties argued whether or not defendant’s use of plaintiff’s photograph was “transformative”, with the District Court deciding that it was. Writing for the Seventh Circuit in his typically pithy manner, Judge Easterbook took a cynical view of this:

Fair use is a statutory defense to infringement. The Copyright Act sets out four non-exclusive factors for a court to consider. The district court and the parties have debated whether the t-shirts are a “transformative use” of the photo – and , if so, just how “transformative” the use must be. That’s not one of the statutory factors, though the Supreme Court mentioned it in Campbell v. Acuff-Rose Music, Inc. The Second Circuit has run with the suggestion and concluded that “transformative use” is enough to bring a modified copy within the scope of §107. Cariou applied this to an example of “appropriation art,” in which some of the supposed value comes from the very fact that the work was created by someone else.

We’re skeptical of Cariou’s approach, because asking exclusively whether something is “transformative” not only replaces the list in §107 but could also override 17 U.S.C. §106(2), which protects derivative works. To say that a new use transforms the work is precisely to say that it is derivative and thus, one might suppose, protected under §106(2). Cariou and its predecessors in the Second Circuit do not explain how every “transformative use” can be “fair use” without extinguishing the author’s rights under §106(2).

We think it best to stick with the statutory list, of which the most important usually is the fourth (market effect). [Citations omitted]

In the remainder of its 7-page opinion, the Court went through each of the four factors and affirmed the District Court’s finding of fair use, noting that while non-copyrightable elements, such as the Mayor’s face, were used in the Sconnie Nation shirts, the copyrightable expression in Kienitz’ photo was largely expunged: “Defendants removed so much of the original that, as with the Cheshire Cat, only the smile remains.”

Despite its rejection of the Second Circuit’s approach, the Seventh Circuit reached the same conclusion as under a transformative use analysis. It remains to be seen whether any other courts will adopt the Seventh Circuit’s retro approach in eschewing “transformativeness” as the touchstone of fair use. And if so, will they then find against fair use in cases, as in Author’s Guild v. HathiTrust and Cariou, where far more copyrightable expression was retained in the wholesale copying of works? In sum, adoption of this “new” approach may not necessarily signal a reversal of the trend to expand fair use.

Finally, it would be interesting to see what the Court would have done if Soglin, a public figure, had filed suit for violation of his right of publicity in the unauthorized commercial use of his likeness, albeit one with political overtones.