Introduction to the United States Legal System and U.S. Intellectual Property

Law

Dennis S. KarjalaJack E. Brown Professor of Law

Sandra Day O’Connor College of LawArizona State Universitydennis.karjala@asu.edu

Course Information

• Reading Assignments– http://homepages.law.asu.edu/~dkarjala/SlovakiaClasses/IntroU

SLegalSystem&IP.htm

• Course Materials– http://homepages.law.asu.edu/~dkarjala/SlovakiaClasses/Cours

eMaterialsBratislavaF-08.html

• Course Outline (.doc)– Available from Reading Assignments and Course Materials

pages

Civil Law versus Common Law

• See the Wikipedia entry for “property”:

– In Armory v. Delamirie, a chimney sweep's boy found a jewel encrusted with precious stones. He took it to a goldsmith to have it valued. The goldsmith's apprentice looked at it, sneakily removed the stones, told the boy it was worth three halfpence and that he would buy it. The boy said he would prefer the jewel back, so the apprentice gave it to him, but without the stones. The boy sued the goldsmith for his apprentice's attempt to cheat him. Lord Chief Justice Pratt ruled that even though the boy could not be said to own the jewel, he should be considered the rightful keeper until the original owner is found. In fact the apprentice and the boy both had a right of possession in the jewel (a technical concept, meaning evidence that something could belong to someone), but the boy's possessory interest was considered better, because it could be shown to be first in time. Physical possession is nine tenths of the law, but not all.

Civil Law versus Common Law

– Still from Wikipedia:

• This case is used to support the view of property in common law jurisdictions, that the person who can show the best claim to a piece of property, against any contesting party, is the owner.

• By contrast, the classic civil law approach to property, propounded by Friedrich Carl von Savigny, is that it is a right good against the world. Obligations, like contracts and torts are conceptualised as rights good between individuals.

Civil Law versus Common Law

• Is there really such a difference between civil law and common law legal systems?

• How would a judge in a civil law country handle the problem of Armory v. Delamirie, assuming there is no statute governing “found property”?

• How would people react if a court held that the apprentice could keep the jewels?

• How does anyone prove “ownership” of personal property?• If you take your coat to be cleaned and lose the receipt, should the

cleaner be able to keep your coat?• The real legal problem in this case is not who owns the coat –

almost a metaphysical question – but who, as between the apprentice and the boy, gets to keep the jewels

Overall Structure of U.S. Legal System

UNITED STATES CONSTITUTION

• Federal statutes adopted by Congress (and signed by the President) and international treaties approved by the President and confirmed by the Senate

• Regulations of federal administrative agencies (Securities & Exchange Commission, Food & Drug Adminstration, etc.)

• State constitutions• Statutes adopted by state

legislature and regulations adopted by state administrative agencies

• Municipal ordinances adopted by cities and towns (zoning, traffic rules, etc.)

Two Court Systems

• Federal courts interpret and apply federal statutes and regulations and consider the constitutionality of both state and federal legislation and regulations

• Federal courts can also apply state law in disputes involving parties from different states

• State courts interpret and apply the laws of their state only – their rulings have no legal application outside the boundaries of their state

• State courts can also interpret and apply most federal statutes and regulations when they otherwise have jurisdiction (patent and copyright are a major exception)

• State courts can also consider the constitutionality of both state and federal legislation

The Federal Court System

• Cases in federal courts originate in federal district courts– There is at least one federal district court in every state, and some

large states have three or four

– Most cases are litigated before a single judge, possibly with a jury making decisions on factual questions

• Appeals from district court decisions go to one of twelve federal circuit courts of appeal– Appeals go before three-judge panels of the courts of appeal

– Important cases may be reargued “en banc,” where all the members of the court of appeal participate in the decision

– Appeals of patent cases go exclusively to a specialized patent court, called the “Court of Appeals for the Federal Circuit”

• The ultimate federal judicial authority in the U.S. is the United States Supreme Court (Supreme Court of the United States, or “SCOTUS” for short)

The Supreme Court (SCOTUS)

• Appeal to SCOTUS is available only by a so-called “writ of certiorari,” a process by which the appealing party gives reasons why SCOTUS should decide the case (such as conflict with law of other circuits or an important principle of constitutional law)

• SCOTUS hears appeals from the federal circuit courts of appeal or from final decisions of state courts if a matter of constitutional law is involved

• SCOTUS hears only about 250 cases each year• A majority of the participating Justices (usually five out of nine) is

necessary to win the case

Federal Supremacy

• Any state law that conflicts with a validly adopted federal law, an international treaty, or the Constitution is invalid

• Article VI of the Constitution says– This Constitution, and the laws of the United States which shall

be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding

• Under Article I, Section 8, of the Constitution, Congress has the power to do such things as collect taxes, regulate commerce among the states and foreign countries, coin money, establish federal courts, declare war, and to raise and support armies and navies

Law Practice in the U.S.

• Each state has its own “bar,” which consists of those people who have passed the exam (called the “bar exam”) to become lawyers

• Some states have reciprocity with other states, so that if you pass one state’s bar exam, you can become a member of the bar (and therefore practice law) in the other state

• Many states do not have any reciprocity, however, such as California and Arizona

• Law practice is largely divided up into – Litigation

– Business counseling and transactions

• Many lawyers are specialists in fields like taxation, securities regulation and corporate law, intellectual property law, insurance law, and so forth

Why Property Rights?

• Tangible property is a zero-sum game– Use by one person means that no one else can use it at the

same time– Much personal property is “consumable,” in that, once

consumed, it is gone forever

• Tragedy of the commons– Without property rights, there is less incentive to put property to

its most valued uses– The standard example is a grazing field – if anyone can graze

animals there anytime, it will be “overgrazed”• Future uses are discounted in favor of present uses

• Higher valuing users cannot negotiate for exclusive use

Why Rights in Information?

• Information is NOT a zero-sum game– If one person knows how to drive a car, he can still drive even if

others learn to do so (until it gets too crowded on the streets)– Thomas Jefferson said, of ideas:

• “[N]o one possess the less because everyone possesses the whole of it. He who receives an idea from me receives [it] without lessening [me], as he who lights his [candle] at mine receives light without darkening me.”

– Once a song or a movie has been created, anyone can sing it or watch it without taking away from the ability of others to do the

same

Economic Efficiency

• Once information is created, it is economically inefficient to give property rights in it (in contrast to the case of tangible property)

• In efficient, competitive markets, the price of goods necessarily falls to the marginal cost of producing them

• The marginal cost of reproducing information is zero, or at least very low compared to the cost of creating it in the first place

• Recognizing property rights in information – that is, the right to exclude others from using the information – allows the IPR (intellectual property right) holder to charge a price exceeding marginal cost

• This “monopoly” pricing results in a “deadweight loss” associated with any monopoly

Why Do We Recognize IPRs?

• Natural rights?– John Locke argued that property rights arise “naturally” from the act of

creation

– This makes good sense for tangible property, like tables (which is what Locke was thinking about)

– But does it work for intangible property, like ideas and information?

• Reward for creativity – fairness– Should creators be allowed to control what they create?

– Why, and if so, to what extent?• Should creators be able to control every use?• Should IPRs extend in perpetuity, like rights in tangible property?

– The reward-for-creativity argument does not explain how to determine the appropriate limits on IPRs

Creation Incentives

• Most IP has the character that it is costly to create initially but easy and often inexpensive to copy

• Would no one write books, produce films, or invent new machines without IPR protection?– SCOTUS Justice Stephen Breyer argued in 1970 (as professor at

Harvard) that most books would likely get written even without copyright rights, with employers, patrons and government filling most of the gap. Stephen Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 Harv. L. Rev. 281 (1970)

– Many inventions from ancient history (the wheel, use of fire, agricultural methods and crops) came without the incentive of patent rights

Creation Incentives

• A basic assumption of IPR systems is that we will get less of socially desirable information-based goods without the incentive that arises from affording exclusive rights– Copying was always cheaper than creating the original

– In the digital age, copying and even redistributing is essentially without cost at all

• So, we recognize IPRs in order to provide an incentive to create socially desirable works– We want to limit the strength and length of these rights to what is

necessary to supply the incentive

– If IPRs become too strong they can act as a disincentive to others who wish to build on existing works

– Too strong IPRs can also result in an over-production of “creativity” goods over other goods that may be even more desirable

Value of the Public Domain

• IPRs thus give an incentive to create desirable works• Progress in both arts and technology, however, moves

incrementally, with current creators building on what has been passed down to them from their predecessors– Inventions can be improved (think how automobiles have improved over

the past 100 years)

– Works of literature can spark new creativity (think “Romeo and Juliet” leading to “West Side Story”)

• Imagine what the world would be like if IPRs were perpetual– Somebody would be collecting royalties whenever anyone used a wheel

– James Joyce would have had to negotiate with the heirs of Homer in order to write “Ulysses”

– Most of Shakespeare’s plays likely would never have been written (he stole from many sources)

Drawing the Balance

• In creating and enforcing IPRs, then, we must carefully balance the need for creation incentives versus the need for later creators to build on past creations

• We must resist the temptation to analogize information to tangible property– Information is not a zero-sum game

– Protection of information is economically inefficient, but for the need for creation incentives

– Notions of “fairness” or “natural rights,” while highly emotive, should not play much, if any, role in analyzing either the existence or the scope of IPRs

Intellectual Property Law

• Patent– Protects “nonobvious” technological advances

• Copyright– Protects the “expression” contained in artistic, literary, and

musical works

• Trademark– Protects investment in names or symbols signifying the origin of

goods or services

• Trade Secret– Protects unpublished information valuable to a business

• Rights of Publicity– Protects the right to use the names or images of famous people

in commercial advertising

Patent Versus Copyright

• These two venerable statutes seek to accomplish the same end: Protect the fruits of intellectual creativity for the purpose of encouraging the production of intellectual works

• They go about their tasks, however, in very different ways

Patent

• Patents issue only upon formal application and after examination by a skilled examiner for “novelty” and “nonobviousness”

• Patent requires a complete specification of the invention• The scope of patent protection is defined and narrowly

limited by the claims• The term of patent protection is 20 years (from filing)

Copyright

• Copyright arises automatically upon fixation• The scope of copyright protection is defined by the

vague idea/expression dichotomy• Copyright infringement is determined by the equally

vague “substantial similarity” standard• The term of copyright protection endures for 70 after the

death of the author (or 95 years for so-called “works made for hire”) – in other words, the term is practically perpetual

Why These Differences?

• There MUST be something in the nature of “patent subject matter” that distinguishes it from “copyright subject matter” that justifies such radically different treatment

• Statements like “Patent protects technology” or “Patent protects function” were enough to distinguish the art, music, and literature that were the traditional subject matter of copyright

• Even before computer programs, however, the old case of Baker v. Selden shows the importance of distinguishing between the two types of subject matter

Baker v. Selden

• This case involved the copyright in a book by Selden on bookkeeping

• Selden’s book described a new system of double-entry bookkeeping that allowed presenting the results of any given time period on a single sheet (or two facing sheets)

• Selden included some sample forms in his book to show how to use his new system

• Baker wrote a book describing a similar system, and included in his book forms that were similar to those in Selden’s book

• We can see the forms here

Baker v. Selden

• What happened in this case?– Selden wrote his book

• The book included an “introductory essay” explaining Selden’s system• It appended some blank forms to illustrate how to use Selden’s system

– Selden “took the requisite steps” to get a copyright (today he would not have to do anything, but he would have to register the copyright before he could bring suit against Baker)

– Baker published his book, and Selden sued Baker• Baker’s book did not copy Selden’s explanatory language• Baker’s example forms used a “similar plan” and got to the same

results but with a different arrangement of columns and headings

– Selden won in the district court and in the court of appeal

Baker v. Selden

• The Court frames the issue as whether Selden is entitled to exclusive rights to his new bookkeeping system– The evidence introduced by Selden at trial, too, was aimed at showing

that Baker’s book explained the same system as Selden’s

– Baker argued that no one could use the system without using essentially similar forms

• The Court says, “the question is, whether the exclusive property in a system of book-keeping can be claimed, under the law or copyright, by means of a book in which that system is explained”

• The Court did not question that Selden had a copyright in his book– The question is, what in the book does that copyright protect – just the

literal language, close paraphrases, the overall explanatory structure, or even the system the book describes

– In other words, the problem is the scope of copyright protection

Baker v. Selden• The Court concedes that a book describing a new system can be

very valuable, but there is a distinction between the book and the “art” (i.e., system) it is intended to illustrate

• A book describing a new medicine, a new tool (like a plow or watch), or a new method of painting (like perspective) would be protected by copyright, but the copyright would NOT cover the methods described in the book

• “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.”

Baker v. Selden

• The Court then gives several examples, again using medicine, perspective, and mathematics

• It distinguishes, however, “ornamental designs” that are addressed to the taste:– In these, “their form is their essence”

– Rules and methods have applications and uses

– Note the definition of a “useful article” in the Copyright Act:

• A “useful article” is an article having an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information. An article that is normally a part of a useful article is considered a “useful article”.

• Copyright in a book describing useful methods and systems covers only their statement, not the methods themselves

Baker v. Selden

• No one ever thought that copyright in a book picturing a new tool, like a plow, would protect against manufacture of a similar plow– For that, everyone agrees you need a patent

• What was different here?– Here, the “tools” were themselves pictures – diagrams or lined charts– Pictures are usually protected by copyright as “graphic works”

• The Court says this is a distinction without a difference– Tools are tools, and to protect them with IPRs, you need a patent

• But note that the Court distinguishes Drury v. Ewing, which involved published patterns for cutting dresses– The Court says that the copyright there cannot prevent someone from

cutting dresses in the way shown– But how does Ewing show how to cut such dresses without using similar

pictures?

Baker v. Selden

• Note that much of what the Court says about the forms used in Selden’s system applies to computer programs

• In Baker, the forms themselves were tools, even though they were also graphic works

• Computer programs, too, are tools for achieving results on a computer, even though they also meet the definition of a “literary work” under copyright

• The holding of Baker v. Selden is now codified in section 102(b) of the Copyright Act:– In no case does copyright protection for an original work of authorship

extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.

Intellectual Property Law

• United States ConstitutionArticle I, Section 8, clause 8– The 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 respective writings and discoveries

• This is the basis for federal patent and copyright law– Federal trademark law is based on Congress’s power under the

interstate commerce clause– Trade secret law and rights of publicity are still largely matters

solely of state law

28 U.S.C. § 1338(a)

The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.

United States ConstitutionEleventh Amendment

• The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state.

What Does Copyright Protect?

• Section 102(a): “Copyright protection subsists, in accordance with this title, in original works of authorship fixed in any tangible medium

of expression . . . .”• What is “original” and what constitutes a “work of authorship”• The Bleistein case addresses the first question, and the Feist case

addresses the second.

Bleistein v. Donaldson Lithograph

• The plaintiff had created some advertising signs for a circus, and defendant copied them.

• What happened in the lower courts?– Both the district court and the court of appeals held for the defendant

– The reason was that mere advertising signs (commercial art) was not protected by copyright

– Until this case, this view was generally accepted by U.S. courts

– As Justice Harlan says in dissent, a work must have some “intrinsic value” connected to the “fine arts” in order to be protected by copyright

• The SCOTUS majority, however, overturns this past history and concludes that “originality” means simply the personal stamp of the creator – something that arises from the creator’s mind rather than being copied from something else

Bleistein v. Donaldson Lithograph

• The Court points out that dictionaries are protected by copyright and that even a very simple picture has more “originality” than a dictionary

• Thus, the standard for “originality” is quite low• What about the fact that the pictures were created simply as

advertisements – does copyright protected commercial advertising?– Justice Holmes says it’s both difficult and dangerous for judges to try to

distinguish between “fine art” and “mere advertising”

– Think of Toulouse-Lautrec’s advertising posters for the Moulin Rouge

– The quote beginning “It would be a dangerous undertaking . . .” is very famous

Bleistein v. Donaldson Lithograph

• There are other “quotable quotes” in this decision, but one must use care– For example, Justice Holmes says that drawing from life (that is,

drawing a real person, plant, or building) can still result in an “original work of authorship” because each contains the author’s personal reaction to the subject

– Copyright in one portrait of, say, Oscar Wilde, does not stop a second author from also drawing Oscar Wilde: “Others are free to copy the original. They are not free to copy the copy.”

– That does not necessarily mean, however, that a second artist can re-create the same realistic composition or pose and then simply draw from that

Ansel Adams, “Autumn Moon”

Kisch v. Ammirati Photos

Substantial Similarity in Photos

Bleistein v. Donaldson Lithograph

• After Bleistein U.S. courts stopped looking for “artistic” qualities and began asking simply, did the purported author create the work in question using his or her own intellectual processes or was the work copied from something else?

• A photograph of a piece of chocolate cake, used on the packaging for a frozen cake product, was held protected by copyright

• The instructions for how to use a hair care product were held protected as a “literary work”

• Compilations of facts, like telephone books, were held to be protected because they were the result of the creator’s industrious efforts – his or her “sweat of the brow”

• Thus, “originality” meant not just the product of intellectual (mental) effort but also the result of mere physical effort

Compilations

• Should compilations of facts be protected and, if so, should they be protected by copyright?– Before computers, things like trigonometric and logarithmic tables were

very valuable, as were telephone books, detailed historical records, and compilations of scientific data

– Often, it is quite expensive to collect the data, but it is easy to copy the data once someone else has collected them

• Without copyright protection, would useful compilations be created?– Some, like telephone books, were required by law (because telephone

companies had a monopoly)

– Other compilations, like government data, is collected by the government in the ordinary course of business

– Much scientific data is collected with a view to publishing it for free use by others – that is the nature of science

Feist v. Rural Telephone

• Here, Rural was the telephone company for several counties in Kansas and, as required by law, published a telephone directory listing its customers in alphabetical order by name and telephone number

• Feist wanted to created an “area wide” telephone directory that would cover the service areas of several independent telephone companies

• Feist licensed the listings from ten other telephone companies, but Rural refused to license

• Feist then went ahead and used Rural’s listings, anyway, and Rural sued for copyright infringement

Feist v. Rural Telephone

• Up to this case, courts had uniformly upheld copyright protection of telephone books

• SCOTUS notes that the Copyright Act expressly includes “compilations” as copyright subject matter

• It notes, however, that copyright does not, and should not, protect facts (on the ground that facts have an independent existence and are not “created” by an author but rather only “discovered” by him or her)

• The Court even says that the originality requirement for copyright is constitutional (although the intellectual property clause does not even use the words “patent” or “copyright,” let alone the term “original”)– The link is the term “author” – only “authors” can get copyrights and

facts do not involve “authorship”

Feist v. Rural Telephone

• First, is it true that “facts” do not have authors?– It is a fact that the name of one of James Joyce’s books is “Ulysses,”

but isn’t Joyce the author of that name?

– Model statutes or estimates of value of, say, used cars, are facts but they are created by people. See Justin Hughes, Created Facts and the Flawed Ontology of Copyright Law, 83 Notre Dame L. Rev. 43 (2007)

• Second, what is a “fact”?– Is the distance from earth to the nearest double star a “fact”?

– What if ten different scientific teams attempt to measure such a distance and come up with ten different results?

– Are all ten results “facts”?

– Are the incorrect results nonfacts that are protected by copyright?

Feist v. Rural Telephone

• So, if facts are not protected, what if anything about a compilation is protected by the copyright?– Feist looks to the statutory definition of “compilation” and concludes that

there can be authorship in the “selection, coordination, or arrangement” of the materials in the compilation

– In order to qualify as an “original work of authorship,” the compilation must show at least some minimal creativity (authorship) in selecting, arranging, or coordinating the compilation’s contents

– The classic example is “100 Best Restaurants of Bratislava,” which can show “creativity” in the selection (and independently in the description of each restaurant in a literary work)

• A compilation copyright is infringed, not by taking its factual content, but by copying its creative selection or arrangement

• Telephone book white pages do not qualify under this standard

Compilations

• Consider electronic databases, like Westlaw and Lexis for legal materials– There is no “selection” of their contents, because every decided case is

included

– Databases do not have any visible “arrangement”

– Yet, if the contents must be entered manually, it can be quite expensive and time consuming, especially in checking for accuracy

– Once the contents are stored in electronic form, anyone with access can copy the contents very rapidly

• Feist leaves a potential “market failure” with respect to such databases

What is a “Copy”?

• Under section 106(1) the copyright owner has the exclusive right “to reproduce the copyrighted work in copies”

• Under section 101, – “Copies” are material objects, other than phonorecords, in which a work

is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term “copies” includes the material object, other than a phonorecord, in which the work is first fixed.

– A work is “fixed” in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.

– A work is “created” when it is fixed in a copy or phonorecord for the first time

Copies

• An ordinary book, sheet music, photographic reproductions of paintings are obviously “copies” under this definition

• A photographic “negative” (in the old, pre-digital days when photography involved film) is a “copy” of the photo because the photo can be reproduced from it

• How about a digital version, on floppy disk or hard drive, of the text of “Harry Potter and the Philosopher’s Stone”?– The full text can be perceived by using a computer to reproduce it on

the screen or to print it on paper

– Therefore, the digital version is a “copy”

• How about a live, improvised jazz session?– It’s not “fixed” anywhere and is therefore not protected by federal

copyright in the US. (Many countries do not require “fixation”.)

The Fixation Requirement

• A work is “fixed” in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.

• Consider an original burst of fireworks, presenting, say, a flower with various colors but lasts only 1-2 seconds in the sky and then fades away– Is the flower itself a “copy” of the original design (which let us assume

was drawn – and therefore “fixed” – on paper)?

– Is the explosive package that is ignited to present the firework display a “copy” of the original design?

Fixation Requirement

• The current definition was aimed at changing the holding of a 1912 SCOTUS case involving “piano rolls”– The Court in that case held that the rolled sheets with holes in them

designed to be used with “player pianos” were not “copies” of the music that was played back on the piano when the roll was inserted and play began

– It said that a “copy” was something that a human being can actually read or understand simply from looking at it

• Now, as long as human perception is possible, even with the aid of a device (like a player piano), it is a “copy”

• It seems that the term “transitory duration” was intended to eliminate images briefly appearing on television from being covered by the reproduction right

• But, again, digital technology has tested just what we really mean by such terms

Cartoon Network v. Cablevision

• We are all familiar with traditional video cassette recorders (VCRs) and the newer digital video recorders (DVRs)

• Is it copyright infringement to record a copyright-protected television show or film that is broadcast to your TV antenna or transmitted to your home by a cable?– In most countries (including the US) there is no automatic exemption for

copying for “personal use”

– However, SCOTUS held in 1984 (when the technology was still very young) that copying at home for the purpose of viewing the program at a later time (so-called “time shifting”) was a fair use under US copyright law. Sony v. Universal Studios

– This meant that VCR technology had a substantial noninfringing use

– This meant that VCR manufacturers were not contributory infringers by making and selling the devices

Cartoon Network v. Cablevision

• Cablevision, a cable company, wanted to supply remotely essentially the same service that people could do for themselves at home– Sony says it’s OK to set the timer on your DVR or TIVO at home to

record a program for later viewing

– Should it make a difference for copyright purposes if the recording is done remotely?

• Cablevision’s remote storage DVR (RS-DVR) allowed its customers to record cable programs on Cablevision’s system and to have those programs transmitted to the customers’ computers at the time of each customer’s choosing

• Plaintiffs in the case are “content” suppliers, who own the copyrights to movies and TV programs that are delivered over the cable system

Operation of the RS-DVR system

• Cablevision receives programs from various providers and combines them into a single data stream

• This stream is split into two streams– One stream goes directly to customers, who can view the programs by

tuning their devices to the program of their choice, just as with ordinary cable or broadcast TV or radio

– The second stream is buffered in a “Broadband Media Router” and is then sent to the “Arroyo Server”

– At Arroyo, the stream first goes to a “primary ingest buffer,” which holds at any given moment roughly 0.1 seconds of each program in the stream

– If no customer has requested the recording of a particular program, that program simply passes through the primary ingest buffer and disappears from the system

– If a customer has requested recording of a program, however, data from that program go to a secondary data buffer, which can hold up to 1.2 seconds of programming at any given time

Operation of the RS-DVR system

• The Cablevision system is complex, but to the customer use is very similar to that of a standard set-top DVR or VCR

• Use differs from video on demand in that customers can only play content they have requested to be recorded in advance

• It becomes important later in the opinion – where the issue of whether the public performance right is infringed by Cablevision – that each customer has a separate memory bank in the system where that customer’s requests are stored for playback to that customer– If 100 different customers request recording of the same show, 100

copies of the show are made and stored in 100 different sections of the system’s memory, one section for each customer

The Lower Court Decision

• The district court concluded that Cablevision directly infringed in three ways:– By briefly storing the primary stream in the primary ingest buffer,

Cablevision was making an unlicensed “copy” of each of the programs in the stream

– Second, by copying programs onto its hard drives (that is, into the individual sections set aside for each customer), Cablevision was making an unlicensed “copy” of each program

– By transmitting the programs to customers for playback, upon customers’ requests, Cablevision was making a “public performance” of each program

• For now, we consider only the “copying” issues

Who Makes the Requested Copies?

• When a customer requests that a program be recorded, the RS-DVR system saves a copy in that customer’s specific section of memory reserved to that customer

• The issue, for direct infringement, is: Who makes the copy that is stored in the customer’s allocated memory section?– Note that the parties agreed (“stipulated”) that no issues of contributory

infringement would be charged and no defense of fair use would be asserted

– Cablevision might be contributorily liable if it materially assists its customers to infringe

– Certainly, the RS-DVR system materially assists customers

– The issue would be, therefore, if the copying by customers was infringing. (Sony suggests that it would not be infringing.)

Who Makes the Requested Copies?

• The lower court looked at the entire RS-DVR system, which was designed and operated by Cablevision

• It concluded that Cablevision could have stopped any incident of copying that any customer wished to do

• Therefore, even though the copying was done at the customer’s request, it was Cablevision that did the copying

• The Second Circuit, however, took a harder look at the issue: Who actually makes a copy when, in the digital age, one person’s system is used by another to make an infringing copy?

Who Makes the Requested Copies?

• The court of appeals looks to the 1996 Netcom case, which involved a claim of infringement against an internet service provider for copies of works placed on the defendant’s server by a customer

• Netcom said that, for direct infringement of the reproduction right, there must be some connection between the copying and the person charged with infringement beyond mere ownership of the system used to make the copies

• Here, all Cablevision did was design and maintain a system for recording cable programs; after that, it is the customer who chooses whether to record a given program– Here, the only difference from an ordinary VCR is that the actual

physical recording device is remote– In either case it is the customer who chooses what to record

• So the appellate court says Cablevision did not make the permanently held copies later delivered to customers

Is the Buffer Data a “Copy”?

• Recall, the entire stream of programming that is sent to customers is split into two streams, where the second stream goes to the BMR buffer and then to the primary ingest buffer– Each stream is stored in these buffers only in very short pieces – This buffering, however, takes place even if no customer has ordered

any programming at any given time

• Does this buffering amount to a “copy” within the meaning of copyright law? Recall that a “copy” must be “fixed” in a tangible medium

• Recall the definition of “fixed”: “A work is ‘fixed’ in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.”

Is the Buffer Data a “Copy”?

• The Second Circuit concludes that the definition of fixation has two requirements:– The work must be embodied in a medium from which it can be

perceived, either directly or via some machine or device

– It must remain so embodied for more than a transitory duration

• But is it the “embodiment” that must be more than transitory, as the court held, or merely the “perception”?– Here, placing the programs in the buffers was, apparently,

technologically necessary to making copies when customers requested them

– By placing the programs in buffers, the RS-DVR system allowed at least some program to be copies, i.e., perceived for more than a transitory duration

Is the Buffer Data a “Copy”?

• Clearly, a copy has been made whenever a customer has requested one

• So, what difference does it make whether the buffering activity also constitutes copying?– The answer lies in who can be sued for direct copyright infringement

– The court has already held that it is the customer who makes the copy that is held by Cablevision for customer playback

– But the content owners do not want to sue individual customers• It creates ill will and bad feelings among the public• It is expensive to sue individual customers one by one• The content owners therefore want to sue the cable company

• So, the issue becomes whether slicing the content into small pieces of roughly 0.1 seconds stored sequentially in buffer constitutes the making of a “copy”

Is the Buffer Data a “Copy”?

• The district court took essentially the second view mentioned above, namely, that the works were “embodied” in the buffer and, because copies were made from this buffering activity, the storage in the buffers also constituted copying

• The court of appeal concludes that the durational requirement must be given more attention– In doing so, it decides to reject language in a report from the Copyright

Office stating that a copy is made when a work is stored in a medium for any amount of time that permits it to be copied

– The court concluded that this interpretation would read the “duration” requirement out of the statute

• Therefore, finding no controlling authorities, the court goes on to figure out whether the buffer embodiments were more than “transitory”

Is the Buffer Data a “Copy”?

• “Embodiment” in the buffer was not a serious issue– The BMR buffer “communicates” the works to the primary ingest buffer,

and the primary ingest buffer allows requested works to be copied into individual customer memory spaces

– Moreover, not just isolated pieces of each work (i.e., each program) is held in the buffers but rather the entire work, even though only a small fraction is held in the buffers at any one time

• But nothing stayed in either buffer longer than 1.2 seconds• Plaintiffs argued that this is long enough to permit copies to be

made, but the court says that this is insufficient– Implicitly, the court says plaintiffs must look to the copy that is made for

their remedy

– Holding pieces no longer than 1.2 seconds is merely “transitory,” so the buffering activity does not constitute reproduction of the works

What Does It All Mean?

• When the definition of “copy” and “fixed” were adopted in 1976, everyone thought that fireworks or perhaps brief television appearances were all that was involved

• No one could foresee the changes in the means for delivering content would be changed by digital technology

• It is difficult to rewrite these definitions now that we see the issues more clearly, because there are entrenched interests on both sides

• In the US Congress, it is always much easier to stop legislation than to get something passed

What Does It All Mean?

• In this case, the buffering activity was simply a technological artifact• No one seriously questions that viewers can make private copies at

home for viewing at a later time• All that RS-DVR does is allow exactly the same thing to be done by

viewers but with, arguably, a more advanced technology• Maybe we should rethink whether home copying for later private

viewing should be permitted• But if it should be permitted, why should users have to use only old

technologies?• This is the real issue in Cablevision: Although it appears to be a

mere technical issue of whether the buffering activity results in the making of a “copy,” in fact the issue is whether the content creators should be able to get a second cut of the money to be made from home copying for later private viewing

Incentives

• Let us go back to the reason we recognize IP in the first place• Recall, if creative people would produce all the books, music, and

art that society desires without the incentive of copyright’s exclusive rights, it is economically inefficient to recognize IPRs at all

• Do content producers need the incentive of additional licensing fees from remote home copying?– The movie industry thought it needed the incentive of royalty fees for the

sale of VCRs

– When the movie industry lost in Sony, it opened the market for VCRs, which in turn created a new market for movie makers in the form of cassette, and now DVD, rentals

– Now the movie industry makes more money from sales and rentals of DVDs than from the box office

Music and P2P Networks

• As we all know, the internet has made possible a much wider distribution of copyright-protected content than was ever possible before

• In fact, even before P2P networks people often referred to the internet as a “massive world-wide copy machine”

• P2P networks, like Napster and later Grokster, greatly enhanced the possibilities for copying music and other files without paying anything to the recording companies or the performing artists

• In order to study how the law has reacted to this crucial technological change, we need to go back a bit and think about the question of “contributory” copyright infringement

Secondary Copyright Infringement

• There are two types of so-called “secondary copyright infringement”– Someone who is aware of the primary infringer’s activities or intentions

and “materially” assists the primary infringer is a contributory infringer and liable as if he were a primary infringer

• An example would be loaning your printing press to someone who you know intends to print unauthorized copies for sale

– Someone who profits from another’s infringement and is in a position to control the activities of the primary infringer may be liable as a “vicarious infringer”

• The classic example is the “dance hall,” where the operator of a dance hall hires a band to publicly perform music for customers – the band is the primary infringer (by publicly performing the music), the operator of the dance hall profits (because people come for the music), and the operator is in a position to prohibit the performance

• Both types of secondary liability require that there be a primary infringer

New Technologies

• Should manufacturers of, say, printing presses, be held liable if a customer buys one and uses it to infringe copyrights?– Traditionally, there is no vicarious liability because the press

manufacturer is not in a position to control the activities of purchasers; once the printing press has left the factory or store, the purchaser can use it without any further intervention from the manufacturer

– Also, a printing press can be used for many legitimate activities, such as printing posters and pamphlets by people who own the copyrights

– Therefore, although selling the printing press “materially assists” an infringer who publishes protected works without authorization, the seller or manufacturer of the printing press usually has no knowledge that a given purchaser will use if for an illegal purpose – so there is no contributory infringement, either

Sony and the VCR

• The Sony case arose in the early 1980’s with the appearance of video cassete recorders, which allowed users to record television programs on video tape cassettes

• Movie studios that owned copyrights on films shown on television complained that the devices allowed consumers to infringe the copyrights in their movies, by making complete copies of the entire work

• Why didn’t the studios sue the individual consumers who the studios claimed were infringing?– It is very hard to know who is recording what at any given time (maybe

it’s easier with digital technology)

– They would have to sue a lot of people, for only minimal damages each – what are the damages when someone records a film at home?

– They did not want to alienate their primary customers

Sony and the VCR

• So, the movie studios sued Sony, which manufactured VCRs for sale to consumers

• Did Sony illegally copy any movies? No!• The studios therefore charged that Sony was liable for contributory

copyright infringement– The studios maintained that Sony’s customers were primary infringers

when they recorded copyright-protected films

– They argued that Sony’s device gave “material assistance” to those customers who infringed the copyrights

– They argued that Sony knew that at least some of its customers would use the VCR to infringe copyrights

Sony and the VCR

• Sony responded that, while all of the above were true, Sony had no way to stop customers from infringing once the machine left Sony’s hands

• Moreover, the VCR had valuable noninfringing uses, namely for playing back copyright-noninfringing video tapes and, especially, for noninfringing recording of TV programs– Sony produced evidence that at least some copyright owners did not

object to the recording of their programs by consumers at home– More broadly, however, Sony argued that copying for private viewing at

a later time was a “fair use” under US copyright law– Consequently, some of the device’s more important, if not most

important, uses were for non-infringing activity

• The basic question, then, is how, if at all, copyright law should regulate the sale of devices that are capable of both infringing and noninfringing uses

Sony and the VCR

• Note that the basic question is not only HOW copyright law should regulate the sale of “dual use” devices (that is, devices that can be used for both infringing as well as noninfringing activities) but WHO should decide such rules?

• What remedy could the court have awarded if it held for the movie studios?– Should the Court enjoin the sale of VCRs? (That may have caused a

revolution!)

– If damages are to be awarded, how can they be determined?

– Should a licensing fee be added to the price of each VCR and the amount of such fees be paid to content owners, and if so how much?

– Who would supervise the collection and payout of such fees?

• Ultimately, the Court concluded that these questions were better addressed by Congress rather than the courts

Sony and the VCR

• Of course, the movie studios argued that Congress had already spoken by accepting the judicial tradition of finding contributory infringement when the elements (knowledge + material assistance) were present

• The Court responded by saying that the judiciary was the wrong institution to regulate devices that were capable of both infringing and noninfringing uses

• Taking a hint from the patent statute, the Court concluded that if a device were useful ONLY for infringement, its sale and use could be enjoined, but if a device has a substantial noninfringing use, regulation of its sale and use was up to Congress

Sony and the VCR

• In a lengthy analysis, the Court concluded that copying TV programs for viewing at a later time (so-called “time shifting”) was a fair use under US copyright law

• Because this use was a substantial one, the VCR was capable of a substantial noninfringing use

• Doctrinally, Sony had no way of telling which of its customers would use the device to infringe copyrights (by, say, copying films for distribution), so Sony had not knowledge of the primary infringement at the time it sold its device (and no control thereafter)

• Therefore, sale of the VCR was not contributory infringement

Sony and MP3 Music

• After Sony, was it a fair use to copy music off the air for later listening?– The Court in Sony emphasized that recording for viewing at a later time,

followed by deletion or recording over, was a fair use

– The Court explicitly stated that it was not dealing with “librarying,” that is, with recording for the purpose of keeping the copy permanently in a “library” of movie tapes

• Isn’t most music recorded for the purpose of listening repeatedly?• No music copyright owners ever sued the audio cassette industry

for contributory infringement, so we’ll never know what the answer might have been

Sony and MP3 Music

• Now section 1008 of the Copyright Act expressly denies liability for consumer music copying:– “No action may be brought under this title alleging infringement

of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.”

• Importantly, this provision does not say that consumer use of these devices is not “infringement”; it simply says that no action for infringement may be brought against such consumers

Napster

• Napster was a company that operated a central computer server and distributed computer software allowing users to connect to Napster’s server

• Users of Napster maintained MP3 files in a Napster-designated directory, usually named in accordance with the song contained in the MP3 file

• If a given user wanted a copy of song ABCD, he connected to the Napster server, told the server that he wanted ABCD, and the server connected the user’s computer to another computer, also online and connected to the Napster server, from which the file automatically downloaded to the user’s computer.

• The music file never passed through the Napster server

Napster

• The recording industry brought suit against Napster seeking an injunction and damages

• Napster was never accused of copying anything itself, so the charge was contributory infringement (and vicarious liability)

• Napster defended on the basis of the Sony rule: The Napster system, it was claimed, had a substantial noninfringing use, namely, the exchanging of MP3 files that were not copyright protected or whose copyright owners had authorized such exchanges

• The Ninth Circuit Court of Appeals said that that was not enough to escape liability– Here Napster operated a central server and could monitor what files

were protected by copyright and what files were free for exchange– It was (relatively) easy for Napster to distinguish infringing from

noninfringing uses, so Napster had an obligation to try to do so– By failing to try, Napster was liable for copyright infringement

Grokster

• Grokster (and its relatives) involved an important technological change from that of Napster– Napster worked from a central server

– Grokster used a “node” approach to finding music (and other) files online, so once the program was installed and working, the makers of the software had no control over who was copying what – they could not even monitor such copying

– Grokster was also not limited to MP3 files but could be used to copy any file in the appropriate directory of the host computer

• Grokster too argued that its software had a substantial noninfringing use, namely P2P copying of copyright-unprotected files

Grokster

• Relying on Sony the Ninth Circuit agreed with Grokster:– For contributory infringement, the key distinction from Napster was that,

at the time of the illegal copying, Grokster had no knowledge of who was copying nor any ability to stop it

– For vicarious liability, too, Grokster was not in a position to stop or control the copying activity once the software (which all agreed had a noninfringing use, although there was a big debate over the degree such use was noninfringing in practice)

• The Ninth Circuit therefore refused to hold Grokster liable for secondary copyright infringement, and the recording studios appealed to the Supreme Court

MGM v. Grokster

• When the case got to the Supreme Court, there was a great deal of interest, because the recording studios asking that the Sony rule be overturned

• Remember the reasons the Court gave for the Sony rule:– If a device can only be used to infringe, it is not troubling for courts to

enjoin its sale and use

– As technology develops, however, who can say what uses will be developed and which ones will be “legitimate”?

– Congress is better equipped than courts to decide these issues

– At the time of the Sony decision, no one foresaw the huge market that would develop for the rental of movie cassettes and DVDs, from which Hollywood now makes more money than at the box office

• How should the courts deal with technological change if not under the Sony rule?

MGM v. Grokster

• The quantitative evidence of infringement was disputed, but the Court concluded (probably correctly) that the scope of infringement was “staggering” (p.923)

• Grokster admitted that most downloads using its software were infringing and that it was aware that its software was used for infringement (and even provided guidance for playing music that was downloaded when asked)

• Most important, Grokster made it clear to everyone that its software could be used to download protected music and took active steps to encourage such infringement– One of the defendants openly tried to take advantage of the Napster

user base

– That same defendant also sought to have a larger number of protected songs available on its network

MGM v. Grokster

• What were the business models for these defendants?– They gave their software away for free

– They sold advertising space, for which they could charge more if there were more users

– There would be more users if there were more “free” music available that users would otherwise have to pay for

• None of the defendants did anything to try to stop copyright infringement using its network

• The Court poses the problem as balancing the protection of artistic creativity through copyright and allowing keeping courts out of the business of interfering with technological innovation

MGM v. Grokster

• The Court reviews the Sony rule and holds that the Ninth Circuit erred when it treated the “substantial noninfringing use” rule of Sony as the only basis for finding contributory infringement– There was no evidence in the Sony case that Sony actively encouraged

using VCRs for infringement

– If a device has no substantial noninfringing use, an intent to encourage infringement may be presumed

– Because the device in Sony did have a substantial nonfringing use, no such intent could be presumed

• Here, however, there was much independent evidence that the defendants encouraged use of their devices to infringe copyrights

• The Court thus holds that someone distributes a device with the object of promoting infringement, he will be liable as a contributory infringer (p. 937)

MGM v. Grokster

• What was the evidence of intent to encourage infringement here?– Each defendant sought to entice former Napster users, who were known

to be major infringers

– Neither party developed any filtering tools to diminish infringement

– Their business models involved making money by selling advertising space, and the more users there are, the greater the advertising revenues can be

• The Court says that neither failure to develop filters nor a business model based on advertising is, in itself, sufficient for liability

• So, lower courts are now seeking to work out the basis for “inducement” liability when the encouragement of infringement is not so blatant as it was in Grokster.– So far, none has been found although reported litigation is sparse

MGM v. Grokster

• In concurring, Justice Ginsburg argues that even under the Sony rule the Ninth Circuit erred in granting summary judgment– She believed that a fully developed trial record might show that the

“overwhelming source of revenue” from the P2P software products was the ability to infringe (p.948)

– In her mind, this would mean that noninfringing uses were not “commercially significant,” and she believes that Sony does not protect commercially insignificant uses

– Note that she would also look to whether a substantial noninfringing use was “likely to develop over time”

• Is a court capable of predicting how technology will develop over time?• Would the video rental market have developed if Justice Ginsburg’s

approach had been used in Sony itself?

MGM v. Grokster

• Justice Breyer, also in concurrence, disagrees with Justice Ginsburg’s analysis

• On the facts, he finds that the approximately 10% of assumedly legal copying here was close to what was found in Sony, yet the Sony court said that amount was “substantial”

• He also emphasizes Sony’s use of the term “capable” for noninfringing uses and the potential for new such uses in the future– He sees exchanges of research information, historical and educational

materials, digital photos, etc. as likely increasing with time using P2P networks

– He notes that there may also be other, now unforeseen, uses for P2P software, like the video rentals unforeseen by Sony

MGM v. Grokster

• Justice Breyer believes the real issue is whether the Sony rule should be interpreted more strictly (p.956)

• In addressing this issue, he asks three questions– Has the Sony rule worked to protect new technology?

– Would a stricter interpretation weaken that protection?

– If so, would the loss be compensated by copyright-related benefits (e.g., new creativity that more copyright protection would induce)

• As to the first question, he finds that the Sony rule is clear, it protects technology if it has a substantial legitimate use, it is forward looking in that it looks only to “capability” and not only at today’s actual markets, and it leaves the decisions about regulating technology where they belong – in Congress

MGM v. Grokster

• As to the second question, what would be the effect of requiring technology developers to prove the potential usefulness of their products?– Legal uncertainty might cause developers to do something less

controversial

– Who would invest in developing a technology that a court might later hold to contribute to copyright infringement?

• Would stricter interpretation of Sony improve incentives?– It would give greater revenues to copyright owners

– But how much does this pay off in increased incentives?

– In any event, can we equate or even compare this with the potential loss of a new technology that does not get developed because of the stricter approach of the courts to new technologies?

MGM v. Grokster

• Justice Breyer points out that it is not clear just how much P2P copying has reduced revenue to studios and artists

• Copyright owners can still sue individual infringers• New technology might itself develop to reduce unlawful copying• Where lawful copying is cheaper and easier, unlawful copying is

also discouraged, and the lawful copying produces substantial revenue for the artists and studios

• Finally, Congress is available to balance the competing interests that new technology implicates, making it less necessary for the courts to get involved in issues beyond their competence