Prof. Jane C. Ginsburg, Columbia University School of Law
May 12, 2014

[Note: The following is drawn from an article forthcoming in the Berkeley Technology Law Journal, in a symposium issue devoted to “The Next Great Copyright Act.”]

The Supreme Court in Sony Corp. of America v. Universal City Studios, 464 U.S. 417 (1984), fended a fork in the fair use road.  It was the first case, apart from the Court of Claims decision a decade earlier in Williams & Wilkins v. U.S., 487 F.2d 1345 (Ct. Cl. 1973), aff’d by an equally divided Court, 420 U.S. 376 (1975), to hold that copying an entire work for the same purpose as the original, i.e., with no additional authorship contribution, could be a fair use, and therefore “free” in both senses of the word.  Prior fair use cases concerned new creativity; fair use developed in the context of what had been called “productive use” to enable new expression, not new distribution.

In prior controversies involving new modes of dissemination, courts wary of copyright owner motives (to enforce copyright in order to put a new entrant out of business) interpreted the scope of exclusive rights narrowly to find no prima facie infringement.  By contrast, copying and retention of an entire work seem clearly to give rise to a prima facie claim of infringement.  Fair use therefore affords the remaining safety valve.  The social or technological pressure that courts may sense to permit the use may contribute to the notorious unpredictability of fair use in the United States.  Of course, any rule that privileges flexibility necessarily produces unpredictability.  The greater the former, the greater also the latter.

But there may be an additional reason.  Fair use is an on/off switch: Either the challenged use is an infringement of copyright, or it is a fair use, which Section 107 declares “is not an infringement of copyright.”  As a result, either the copyright owner can stop the use, or the user not only is dispensed from obtaining permission, but also owes no compensation for the use.  The unpaid nature of fair use introduces pressures that may distort analysis, particularly of the “transformative” character of the use, and of potential market harm.  Faced with a use, particularly in the context of new technologies, that a court perceives to be socially beneficial, a court may overemphasize its “transformativeness,” and correspondingly underestimate the market consequences, in order to prevent the copyright owner from frustrating the social benefit.  Distortions can appear in the other direction as well: A court sensitive to the economic consequences of the unpaid use may feel obliged to downplay the public interest fostered by the use.  Statutory licenses or privately negotiated accords within a statutory framework can alleviate the tension, by ensuring that uses that the legislator perceives to be in the public interest proceed free of the copyright owner’s veto, but with compensation – in other words, “Permitted but Paid.”

The United States is an outlier in the broader international landscape of copyright exceptions.  The copyright laws of EU member states, Canada, Australia, and New Zealand do not include an all-purpose fair use defense (though one has been proposed in Australia), but all these states have enacted a panoply of copyright exceptions, many of which require remuneration.  Thus, while our fair use doctrine confronts courts with an all-or-nothing choice, other countries have charted middle courses between barring the use and permitting its unremunerated pursuit.  Some of these measures correspond to specific compulsory licensees in U.S. law, for example, for cable retransmission.  Others, however, cover some of my proposed zone of “Permitted but Paid” uses.  The various schemes range from compulsory licenses with government rate-setting to “license it or lose it” schemes in which an unremunerated exception will apply if the copyright owner fails to offer a license.  In the latter instance, the license will generally cover a substantial number of works, and the licensor will generally represent a collective of authors and/or publishers.

In contending that some uses previously ruled “fair” should not remain unpaid, I argue that the copyright law should distinguish new distributions from new works, and should confine (free) “fair use” to the latter.  (I deliberately avoid the term “transformative,” which I believe has obscured analysis ever since courts began to attach that label to “uses” unmoored from “works.”) I do not here propose any change to the analysis of fair use cases involving new creativity.  (Although, were I reforming what I’ll call “true” fair use, I would make authorship attribution a factor in assessing – if not a prerequisite to – fair use.)  Analytical difficulties may abound there as well (for example, how much copying is too much; where lies the line between a fair use parody and an infringing derivative work), but they arise in the strongest normative universe for free use.

The situations I address often come down to assessing whether a new use should be exempted from copyright liability in order to enable a new business model, or to ensure relatively inexpensive dissemination in furtherance of socially worthy goals such as nonprofit education.  The normative claims underlying redistributive uses are not based on authorship, but rather on “information policy,” a notion that may cover both the interests of readers in receiving works of authorship and of new distributors in purveying them.  I propose that many redistributive uses fall into a new category, “Permitted but Paid,” and be subject to a statutory framework for license negotiations, with compulsory licensing as a backstop.  “Permitted but Paid” uses may be divided into two classes: Subsidy (socially worthy redistributions); and Market Failure (transactions costs are too high to warrant a licensing solution; or a new mode of dissemination – infant industry – is threatened by copyright owner recalcitrance).  Because the inclusion of a use within the Market Failure class turns largely on facts that may evolve, these uses’ classification as “Permitted but Paid” should be subject to a phase-out, for example, a renewable sunset following a five-year review by the Copyright Office.

I recognize that my categories present a variety of line-drawing challenges.  First, some would dispute my initial distinction between new authorship (true) fair use, and Subsidy or Market Failure “fair” use.  That dispute probably derives from different normative visions of the value of creating new expression as opposed to receiving or reiterating extant expression.  As a result, I note the disagreement, but move on.  Second, the Subsidy and Market Failure categories may overlap as transaction costs and may also characterize some of the kinds of uses I have characterized as subsidies, and social benefit may buttress the appeal of the transaction’s cost justification for a permitted use.  Indeed, just as the concept of “transformative use” seems to have swept all four statutory factors into one – determinative – assessment of the public benefit of bringing the work to an expanded audience, so the perceived social benefit of exempting a subsidy or high transactions-cost use seems to have spawned a new fair use factor, which one might dub “How could this not be a fair use?”  Thus, Judge Baer of the Southern District of New York in the Hathi Trust case (later echoed by Judge Chin in Google Books) exclaimed: “I cannot imagine a definition of fair use that would not encompass the transformative uses made by Defendants’ MDP [Mass Digitization Project] and would require that I terminate this invaluable contribution to the progress of science and cultivation of the arts….” (Authors Guild v. Hathi Trust, 902 F. Supp. 2d 445, 465 (S.D.N.Y. 2012)).

The exclamation proves my point: Courts assume that were the fair use defense to fail, socially beneficial initiatives would have to be “terminated.”  If the choice is all-or-nothing, a fair use outcome is assured.  But were “Permitted but Paid” an option, we would not be lured by a dichotomy falsely pitting authors against a perceived social good: The licensing mechanism would allow both broader dissemination and provide payment to authors.  One might rejoin that there is no need to license if the use is fair.   But if the use is “fair” because it supposedly can’t reasonably be licensed, then “Permitted but Paid” should replace fair use for free.