Second Round
Who’s on Second? A look at secondary liability and the DMCA

A couple of weeks ago, I reprised my talk on secondary liability and the DMCA for the State Bar of California’s IP Section. I updated my original talk – initially delivered last fall to the ABA – to reflect the current status of the UMG v. Veoh and Viacom v. YouTube appeals, which in the interim were fully briefed (and, in the case of Veoh, argued). You can review the revised and updated outline here.

The outline also notes a late-breaking development in the YouTube case stemming from the United States Supreme Court’s recent decision in Global-Tech v. SEB, a patent case addressing the doctrine of willful blindness. I have posted a fuller analysis of this development over at The 1709 Blog, which you can read here.

Sharing the Love
Naomi Jane Gray joins The 1709 Blog team

I am pleased to announce that I have joined the team of The 1709 Blog, which is dedicated to “all things copyright, warts and all.”  The blog takes its name from the year of passage of the Statute of Anne, the copyright act that started it all, to which I am eternally indebted for my livelihood (h/t Her Maj. Queen A.).  Thanks to Jeremy Phillips, dean of the IP blogosphere, for the invitation.  You can also view the announcement of my joining The 1709 Blog over at Jeremy’s sister blog, The IPKat.

I will, of course, continue to post regularly here at Shades of Gray, so please keep reading!

Vernor v. Autodesk and the First Sale Doctrine – Going, Going, Gone?

I drafted this piece in preparation for my ABA-sponsored speaking engagement in Washington, D.C. on June 10, 2011.  If you’re going to be in the DC area on that day, please consider joining us.  In addition to the Vernor case analyzed below, my panel will also address the Ninth Circuit’s opinion in UMG v. Augusto and the future of the first sale doctrine in the wake of these two significant cases.  There will also be panels on topics relating to trademarks, patents and trade secrets.  To register for the event, click here.

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The first sale doctrine entitles “the owner of a particular copy . . . lawfully made under this title” to “sell . . . that copy.” 17 U.S.C. § 109(a).  The Supreme Court first recognized this doctrine in 1908 in Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908).  In that case, a book publisher sold copies of a book to the wholesale trade bearing a notice stating that the book could not be sold for a retail price of less than $1.  There was no license agreement between the book publisher and wholesale purchasers.  The defendants bought copies of the book and resold them at retail for less than $1 per copy.  The Supreme Court held that the Copyright Act did “not create the right to impose, by notice . . . a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract.”  Bobbs-Merrill, 210 U.S. at 350. “[O]ne who has sold a copyrighted article, without restriction, has parted with all right to control the sale of it. . . . [T]he books sold by the appellant were sold at wholesale, and purchased by those who made no agreement as to the control of future sales of the book, and took upon themselves no obligation to enforce the notice printed in the book, undertaking to restrict retail sales to a price of one dollar per copy.”   Because the Copyright Act did not grant the publisher the right to control the pricing of downstream sales, and there was no privity of contract between the publisher and the defendants, the defendants were free to resell the books as they saw fit.

Over the last 100 years, the first sale doctrine has furthered the dual purposes of the U.S. Constitution’s Copyright Clause by acting as a limitation on the copyright owner’s monopoly and providing a corresponding benefit to the public’s interest in access to creative works.  In June 2010, the Ninth Circuit dealt a significant blow to the applicability of the first sale doctrine to software when it ruled that a downstream purchaser had obtained a mere license to the software and could not resell his copy of it.  Vernor v. Autodesk, 621 F.3d 1102 (9th Cir. 2010) (“Vernor II”).  Timothy Vernor, an eBay reseller, purchased several copies of Autodesk’s AutoCAD software from CTA, one of Autodesk’s direct customers, and sought to resell them on eBay.  Vernor succeeded in selling some copies, but after Autodesk served eBay with repeated DMCA takedown notices accusing Vernor of copyright infringement, eBay eventually terminated his account, effectively prohibiting him from selling his remaining copies.

District Court proceedings and opinion

Vernor brought an action for declaratory relief, seeking a declaration that his sales of AutoCAD were noninfringing because he was an “owner” of the “particular copy” of each software package pursuant to §109.  Vernor also claimed immunity under §117 of the Copyright Act, which authorizes the “owner of a copy of a computer program” to make a copy of the program if doing so is an “essential step in the utilization of the program.”  This provision exempts from liability the copying of a software program into a computer’s memory as part of the program’s normal operation.
Autodesk argued that though it transferred possession of the software to CTA, its license agreement (“License”), which imposed a variety of limits on CTA’s ability to use and dispose of the software, did not transfer ownership of the software to CTA.  The License reserved title and copyright in the software to Autodesk.  Moreover, the License allowed CTA to install the software on only two computers at a time, and prohibited CTA from using the software simultaneously on those computers.  The License forbade CTA from modifying or reverse engineering the software, and from using or transferring the software outside the Western Hemisphere.  It likewise barred any transfer of the software without Autodesk’s written permission.  And it provided that if CTA obtained the software as an upgrade from an earlier version of the software, CTA must destroy its copies of the earlier version.  When CTA purchased the software packages at issue, however, it did not agree to destroy them if it later upgraded to a subsequent version.

The District Court ruled in Vernor’s favor, finding that Autodesk transferred ownership of the AutoCAD packages to CTA, which in turn transferred its ownership interest to Vernor.  In so doing, the District Court made an important distinction: that although there was no dispute that Autodesk licensed the software itself to CTA, “the use of software copies can be licensed while the copies themselves are sold.”  Vernor v. Autodesk, 2009 U.S. Dist. LEXIS 90906 (W.D. Wa. Sept. 30, 2009)(“Vernor I”).

In order to determine who was the “owner” of the AutoCAD copies, the District Court attempted to reconcile four apparently conflicting Ninth Circuit opinions.  United States v. Wise, 550 F.2d 1180 (9th Cir. 1977), involved movie prints distributed by studios to theaters for display, or to various “V.I.P. licensees” like the actress Vanessa Redgrave for personal use.  The Wise panel looked to the terms of the applicable transfer agreements to assess whether the studios had transferred ownership of the prints or merely licensed them.  The transfer agreements contained a variety of contradictory terms; some suggested a transfer of ownership, while others suggested a mere license.  Thus, the Wise panel considered whether an agreement contained a clause reserving title in the transferred work to the copyright owner; whether the transferee made a single, up-front payment; whether the agreement required the transferee to return or destroy the transferred copy after a certain period of time; and whether the agreement imposed restrictions on the use or subsequent disposition of the copy.  The Vernor I court found that none of these terms was dispositive of the issue, with one exception: the Wise panel found a transfer of ownership in each agreement which allowed the transferee to retain possession of the transferred copy indefinitely, and gave the copyright owner no right to reclaim the copy.  By contrast, the Wise panel construed as a license each agreement which gave the copyright holder the right to regain possession of the transferred copy.

The Vernor I court concluded that, under Wise, Autodesk had transferred ownership in AutoCAD to CTA.  Though the License purported to reserve title in the software to Autodesk, and imposed restrictions on the use and disposition of the transferred copy, it did not allow Autodesk to regain possession of the copy. “In [the District Court’s] view, retaining title in a copy is meaningless unless the copyright holder has some means to regain possession of the copy.”

The Vernor I court then turned its attention to a trio of Ninth Circuit opinions issued long after Wise, in the digital era: MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); Triad Sys. Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995); and Wall Data Inc. v. Los Angeles County Sheriff’s Dep’t, 447 F.3d 769 (9th Cir. 2006).  Each of these cases addressed whether a licensee was an owner entitled to invoke the “essential step” defense in §117.  In MAI, the Ninth Circuit addressed whether a computer repair service that serviced computer systems containing licensed software made unauthorized copies of that software when they operated the computers that they were servicing.  In a footnote, the court noted, “Since MAI licensed its software, [its] customers do not qualify as ‘owners’ of the software and are not eligible for protection under §117.”  Consequently, those customers could not authorize the repair service to make repairs to the computers, since doing so necessarily involved the making of a copy of the software in the computer’s memory.

Triad also involved software and a computer repair service.  The software in Triad was distributed pursuant to three different agreements.  The first sold the software outright; these transferees were owners under §117.  The second licensed the software but restricted duplication and third-party use, and the third added a requirement that licensees pay a transfer fee to sell computer systems on which the software had been installed.  Transferees under these agreements were licensees, not owners, and could not authorize repairs pursuant to §117.

Finally, in Wall Data, the Los Angeles County Sheriff’s Department purchased software pursuant to a license which (1) prohibited the department from installing the software in “multiple computer” or networked arrangements; (2) restricted transfers of the software between computers to once every thirty days; and (3) limited the department to installing the software on 3600 machines.  The license did not, however, prohibit resale of the software.  The department proceeded to install the software on more than 6000 machines, but configured it so that no more than 3600 users could access it at any given time.  The Wall Data panel held that “if the copyright owner makes it clear that she or he is granting only a license to the copy of software and imposes significant restrictions on the purchaser’s ability to redistribute or transfer that copy, the purchaser is considered a licensee, not an owner, of the software.”  As in MAI, the Wall Data licensing agreement “imposed severe restrictions on the Sheriff’s Department’s rights with respect to the software.  Such restrictions would not be imposed on a party who owned the software.”  Thus, the Sheriff’s Department did not own its copies of the software, and could not rely upon the essential step defense.  The panel also denied §117 protection to the Sheriff’s Department because copying the software to the additional computers was not an “essential step” in the operation of the software.

The Vernor I court concluded that if it were to follow the MAI trio, “Autodesk would prevail.”  Under MAI and Triad, “the mere labeling of an agreement as a license is sufficient to ensure that the licensee does not have ownership of any copy of the software.”  The Wall Data holding, while “more flexible” according to the Vernor I court, nonetheless provided that “if the copyright owner makes it clear that she or he is granting only a license to the copy of software and imposes significant restrictions on the purchaser’s ability to redistribute or transfer that copy, the purchaser is considered a licensee, not an owner, of the software.” 

The Vernor I court found Wise and the MAI trio in irreconcilable conflict with each other.  Under the reasoning of Wise, Vernor should prevail, because the Autodesk License allowed CTA to retain possession of the copy of the software indefinitely.  Under the MAI trio, Autodesk should prevail, because the licenses in question unequivocally provided that they were licenses, and reserved ownership to the copyright holder.  When precedent conflicts, the court must follow “the oldest precedent among conflicting opinions from three-judge Ninth Circuit panels.”  Consequently, the Vernor I court applied Wise and ruled in favor of Vernor.

Ninth Circuit opinion

The Ninth Circuit reversed, finding that Autodesk’s direct customers were licensees, not owners, and therefore could not transfer ownership rights to Vernor.  The Vernor II court found no conflict between Wise and the MAI trio.  It reasoned that under Wise, the Ninth Circuit considers all of the provisions of a transfer agreement to determine whether it constitutes a license or a transfer of ownership, including “(1) whether the agreement was labeled a license and (2) whether the copyright owner retained title to the copy, required its return or destruction, forbade its duplication, or required the transferee to maintain possession of the copy for the agreement’s duration.”  Vernor II rejected Vernor I’s interpretation of Wise as holding that “a transferee’s right to indefinite possession itself established a first sale.”  To the contrary, no one factor is dispositive, and each transfer agreement must be examined in its entirety.

The Vernor II court characterized the MAI and Triad agreements as “restrictive license agreements,” and thus their customers were licensees who could not qualify for the essential step defense.  Finally, the Vernor II court interpreted Wall Data as holding “that the essential step defense does not apply where the copyright owner grants the user a license and significantly restricts the user’s ability to transfer the software.”  Thus, the Vernor II court read “Wise and the MAI trio to prescribe three considerations that we may use to determine whether a software user is a licensee, rather than an owner of a copy.  First, we consider whether the copyright owner specifies that a user is granted a license.  Second, we consider whether the copyright owner significantly restricts the user’s ability to transfer the software.  Finally, we consider whether the copyright owner imposes notable use restrictions.” 

The Vernor II court went on to hold that “a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.”  It found that Autodesk’s agreement was a license rather than a sale.  “Autodesk retained title to the software and imposed significant transfer restrictions: it stated that the license is nontransferable, the software could not be transferred or leased without Autodesk’s written consent, and the software could not be transferred out of the Western Hemisphere.”  Moreover, the License “imposed use restrictions against the use of the software outside the Western Hemisphere and against modifying, translating, or reverse-engineering the software.”  The License provided for termination “upon the licensee’s unauthorized copying or failure to comply with other license restrictions.  Thus, because Autodesk reserved title to [AutoCAD] copies and imposed significant transfer and use restrictions, we conclude that its customers are licensees of their copies . . . rather than owners.”  As licensees, Autodesk’s direct customer thus could not transfer ownership to Vernor.  In turn, Vernor could not invoke the first sale doctrine or the essential step defense.


Vernor II raises the question whether and to what extent the first sale doctrine will retain its vitality in the digital age.  It vests software developers with tremendous power to restrict downstream uses of their products.  Purchasers of software rarely – if ever – have the opportunity to negotiate the licenses that come with the products they think they are “purchasing.”  Under Vernor II, saying it makes it so – the opinion makes it all too easy for owners of all types of digital content to include restrictive language in their licenses and strip §109 of any applicability to digital technologies.  Nor is it too great a stretch to imagine Vernor II being extended to other, traditional, contexts.  Imagine, for example, a print book purchased pursuant to a shrink-wrap license that prohibits the purchaser from reselling it on eBay or outside the United States.

Vernor II also appears to conflate the important distinction between a copyrighted work and the tangible medium in which it is reproduced.  In Vernor, the copyrighted work was the AutoCAD software program, but that program was reproduced and distributed on a physical object – a disc. “Ownership of a copyright . . . is distinct from ownership of any material object in which the work is embodied.”  17 U.S.C. § 202.  Transferring a copy does not necessarily transfer the copyright, and vice versa.  As the Vernor I court noted, “the use of software copies can be licensed while the copies themselves are sold.”  Yet nowhere did the Vernor II court explicitly address the issue of ownership of the physical discs as distinct from the copyrighted AutoCAD program.  Consider a printed book: the purchaser obtains no rights in the words printed on the pages of the book (the intellectual property), but the purchaser plainly owns the paper upon which the words are printed.  The same rationale can be used to distinguish software code from the disc on which it is embedded.  Of course, as commerce and digital products increasingly move into the cloud, where products are simply downloaded rather than distributed in a physical medium, this distinction may likewise lose relevance.

On the other hand, the software industry has built itself and its various business models on the foundation that software is licensed, not sold.  A ruling in favor of Vernor could upset settled expectations in an industry with a significant impact on the economy.

Vernor’s deadline to seek certiorari to the Supreme Court was May 18, 2011.  It remains to be seen whether he can defy the very slim odds of winning Supreme Court review.  Until then, the continuing applicability of the first sale doctrine in the context of digital technologies will remain in flux.

In Memoriam – Schelle Simcox

It is with great sadness that I dedicate this post to the memory of my friend and former colleague, Schelle Simcox, who passed away last weekend after a courageous struggle with cancer. Schelle was formerly a law librarian in the San Francisco office of Paul Hastings, where I had the great privilege of working with her and becoming her friend. Schelle, along with her fellow law librarian Sara Paul, inspired and encouraged me to start this blog. Schelle was not only a terrific librarian and researcher (and as the daughter of a librarian, I know a good one when I see one). More importantly, she was simply the most wonderful friend and colleague a person could have. In addition to her professional skills, she had a deep and abiding interest in midwifery, and was a tremendous resource and source of support for me during my first pregnancy. I miss you, Schelle. I will never forget you.

Buy, Buy, License?
Naomi Jane Gray to join panel at ABA CLE event

I will be a panelist at the upcoming First Annual Intellectual Property Litigation Committee Regional CLE Workshop on June 10, 2011 in Washington, D.C. The full-day program is sponsored by the ABA Section of Litigation Intellectual Property Litigation Committee and will feature panels on copyright, trademark, trade secret and patent topics. The Honorable Randall L. Rader, Chief Judge of the U.S. Court of Appeals for the Federal Circuit, will deliver a lunchtime address. This is going to be a dynamite program and will be capped by a networking reception at the end of the day.

My panel is entitled “Buy, Buy, License? The First Sale Doctrine and What Happens When You Thought You Bought But You Didn’t.” Along with my fellow panelist, Cecil Key of Dickinson Wright, and our moderator, Michael Steger of the Law Offices of Michael Steger, we will address the recent UMG v. Augusto and Vernor v. Autodesk cases and their impact on the first sale doctrine.

Please join us! To register, click here.

Game On! – Viacom, YouTube Briefs On File in 2nd Circuit

YouTube filed its brief Second Circuit brief today in Viacom v. YouTube, in which Viacom and others have sued YouTube for copyright infringement resulting from third parties’ uploading of videos to the YouTube service. See my earlier posts on the District Court opinion here and here; you can find the parties’ District Court briefs here. I haven’t had the opportunity to digest these filings yet, but I will post my thoughts when I get a chance.

Viacom’s Opening Brief
YouTube’s Brief
Amicus Brief American Federation of Musicians et al.
Amicus Brief Advance Publications et al.
Amicus Brief BMI et al.
Amicus Brief Stuart Brotman et al.
Amicus Brief Business Software Alliance
Amicus Brief CBS Corporation
Amicus Brief International Intellectual Property Institute
Amicus Brief Microsoft Corporation and Electronic Arts, Inc.
Amicus Brief Matthew Spitzer et al.
Amicus Brief Washington Legal Foundation
Amicus Brief Intellectual Property Law Professors

Statutory Damages Smackdown!
First Circuit Set to Hear Constitutional Challenge to Filesharing Award

On April 4, the First Circuit Court of Appeals will hear oral argument in Sony v. Tenenbaum, the first constitutional challenge to a statutory damages award to reach the appellate level. The case pits the recording industry against Joel Tenenbaum, who, as a college student, downloaded and made available for distribution thousands of songs using multiple filesharing services over a period of years. A group of recording companies sued Tenenbaum for infringing 30 of those songs. The trial court rejected Tenenbaum’s fair use defense and directed verdict against him. The plaintiffs elected statutory damages and the parties proceeded to a jury trial. The jury found that Tenenbaum had acted willfully and awarded the plaintiffs $22,500 per song, for a total verdict of $675,000.

Tenenbaum moved for a new trial, arguing that the statutory damages award was unconstitutionally excessive as applied. Alternatively, he sought remittitur, a common-law procedure allowing the judge to reduce an award that “shocks the conscience.” If a judge grants the request and reduces the award, the plaintiff may elect either to accept the remitted award or proceed to a new trial. The recording industry plaintiffs, however, indicated to the judge that they would not accept any remitted award. As a result, the Court felt constrained to address the constitutional issues, despite courts’ usual preference for avoiding ruling on constitutional questions if a dispute can be resolved on other grounds.

Before reaching the merits of the constitutional issue, the Court addressed two dueling standards for assessing the appropriateness of damages awards: St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 67-68 (1919) and BMW v. Gore, 517 U.S. 559, 568 (1996). In Williams, the Supreme Court upheld a $75 statutory damages award against a railroad that had overcharged passengers by 66 cents per ticket, which amounted to 114 times the amount of the plaintiffs’ actual damages. The Supreme Court upheld the award because it was not “so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.” In reaching this conclusion, the Supreme Court took into account the following factors: the ratio of the award to the plaintiffs’ actual damages; the interests of the public; the “numberless opportunities” for the railroad to commit the offense; and the need for securing uniform adherence to established passenger rates.

Gore, in contrast to Williams, involved punitive, not statutory, damages. In Gore, the jury awarded $4,000 in compensatory and $4,000,000 in punitive damages for BMW’s failure to disclose that the plaintiff’s “new” car had been repainted before it was sold to him. The Supreme Court struck the award under the Due Process Clause, following three “guideposts”: the degreee of reprehensibility of the defendant’s conduct; the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and the difference betwen the jury’s punitive award and civil penalties authorized in comparable cases.

The Tenenbaum court found little distinction between the two approaches, reasoning that both cases seek to protect defendants from damages awards that are “grossly excessive in relation to the objectives that the awards are designed to achieve.” The court ultimately applied the three Gore guideposts to the jury’s award, while noting two factors that distinguish the award from typical punitive damages awards: the award fell within the statutory range authorized by Congress; and the statute clearly sets forth the maximum and minimum allowable amounts.

Degree of reprehensibility of defendant’s conduct

This is “perhaps the most important” indicator of the reasonableness of a punitive award. The court characterized filesharing as “relatively low on the totem pole of reprehensible conduct.” Tenenbaum caused economic, not physical, harm. He displayed no indifference or reckless disregard of the health or safety of others. The recording companies were not financially vulnerable. On the other hand, the court acknowledged that Tenenbaum’s conduct was willful, and that he had lied under oath and tried to shift blame. Thus, “among this group of comparatively venial offenders, Tenenbaum is one of the most blameworthy.”

Disparity between plaintiffs’ actual harm and the award

The court reasoned that the Copyright Act requires at least some relationship between the actual harm suffered and the statutory damages award. It focused solely on Tenenbaum’s individual conduct, refusing to take into account the activities of other filesharers because “the jury was not permitted to punish Tenenbaum for harm caused by other infringers.” Using the $0.70 wholesale iTunes price for music as a “rough proxy” for the plaintiffs’ profits, Tenenbaum’s unauthorized sharing of 30 songs cost the plaintiffs $21 in profits, resulting in a ratio of statuory to actual damages of 32,143:1. The court also noted that services like Rhapsody charge $15 per month for access to millions of songs. The court dismissed the plaintifsf’ contention that the harm was much greater by virtue of Tenenbaum’s having distributed the songs to countless filesharers, resulting in immeasurable lost sales. The court found it “hard to believe that Tenenbaum’s conduct, when viewed in isolation, had a significant impact on plaintiffs’ profits” because he would not have purchased the music if they were not available for free, and the filesharers who downloaded the songs that Tenenbaum made available would simply have gotten them from a free alterntaive source. This reasoning is fairly remarkable; it is comparable to saying that if Tenenbaum had walked out of Barnes and Noble with a backpack full of stolen CD’s and given those CD’s to his friends, Barnes and Noble would have suffered little harm because Tenenbaum and his friends would simply have stolen the CD’s elsewhere.

Difference between the award and comparable civil penalties

The court found this to be the most troublesome factor for Tenenbaum, as the award was well within the range authorized by Congress. But the court concluded that Congress likely did not foresee that such awards would be imposed on noncommercial infringers like filesharers. The court cited a number of facts in support of this theory. First, Congress’s most recent enactment affecting the amount of allowable statutory damages, which increased the maximum potential penalty for willful infringement from $100,000 to $150,000, occurred before peer-to-peer filesharing became prominent. Napster, however, had been in existence for at least six months at that time. Moreover, Congress passed this increase specifically in response to the illegal sharing of software over the Internet. More remarkably, the court cited statements and conduct of various members of Congress outside the context of statutory damages legislation in concluding that Congress did not intend statutory damages to be awarded against individual filesharers. For example, the court noted that during the course of a Senate Judiciary Committee hearing in July, 2000 on music downloading, committee members demonstrated how peer-to-peer filesharing works by downloading songs, and one Senator admitted that he had downloaded songs on his own laptop. Incredibly, the court also cited remarks made by Senator Hatch at a talk at Brigham Young University in which he praised Shawn Fanning, the founder of Napster. Such events hardly rise to the level of legislative history which can be relied upon to illuminate Congressional intent (Justice Scalia would likely spontaneously combust at the very idea).

Finally, the court compared the jury award with the results in other filesharing cases and concluded that it was “especially excessive.” The court noted that the court in the case involving Jammie Thomas-Rasset, the only other filesharer to go to trial, remitted a verdict of $80,000 per song (for a total award of $1.92 million) to $2,250 per song, which amounted to three times the minimum statutory damages award. The court concluded that Tenenbaum’s cuilpability was “roughly comparable” to Thomas Rasset’s, and ultimately concluded that the 3-times statutory damages figure was the “outer limit of what a jury could reasonably (and constitutionally) impose in this case.” Accordingly, the court reduced the award to $2,250 per song, for a toal award of $67,500.

The appeal

Both sides have appealed. The plaintiffs argue that Williams, not Gore, is the appropriate standard, and that the jury’s award is constitutional under either approach. They (properly) fault the judge’s questionable reliance on the post-hoc colloquy of a handful of memberes of Congress as “a textbook illustration of misuse of legislative history to avoid giving due deference to Congress’s determinations . . . manufactur[ing] ambiguity where none exists.” The United States submitted a brief arguing that the lower court should have exercised its power of remittitur before reaching the constitutional issues; it also argues that Congress intended the full range of statutory damages to apply to peer-to-peer filesharing. Tenenbaum argues in favor of the Gore standard, but complains that the court improperly instructed the jury on the entire range of statutory damages without “context,” and that statutory damages were never meant to apply to consumer copies. Links to the parties’ briefs appear below.

The court is scheduled to hear oral argument in just over two weeks, on April 4, 2011. I will post the link to the audio recording of the argument when and if it becomes available.

Ascending to the appellate level is a game-changer in more than one respect. Tenenbaum benefited at the trial level from an extraordinarily friendly judge. Indeed, as I described more fully in my post on the fair use ruling, Judge Gertner actively and overtly searched for reasons to rule in Tenenbaum’s favor. He may not find such a warm welcome at the First Circuit.

Sony’s Opening Brief
United States’ Opening Brief
Tenenbaum’s Opening Brief
Sony’s reply brief
United States’ reply brief

Golan’s Heights
Supremes to Hear Constitutional Challenge to Copyright Restoration

On March 7, the Supreme Court granted cert. in Golan v. Holder, taking up the question whether Congress violated the First Amendment when it granted copyright protection to certain foreign works that were previously in the public domain in the United States. The case stems from Section 514 of the Uruguay Round Agreements Act (“URAA”), enacted in 1994 and codified as Sections 104A and 109 of the Copyright Act. Congress passed these provisions to bring the United States into compliance with preexisting international treaty obligations under the Berne Convention, which the United States joined in 1989.

Among other things, the Berne Convention requires its adherents to provide foreign authors with the same degree of copyright protection that they accord to their own nationals. Article 18 of the Berne Conventionrequires joining members to provide copyright protection to foreign works even if those works were previously in the public domain in the joining country. The United States, however, never passed legislation implementing this aspect of Berne.

In 1994, in connection with the Uruguay Round General Agreement on Tariffs and Trade, the United States signed the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). TRIPs required its signatories to comply with Article 18 of the Berne Convention. Accordingly, the United States enacted Section 514 of the URAA, restoring copyrights in foreign works that had entered the public domain in the United States for any one of three reasons: a failure to comply with formalities (such as placing a copyright notice on published copies of a work); lack of subject matter protection; or lack of national eligibility. Section 514 did not restore copyrights in works whose copyright term had expired.

Clawing these works back from the public domain raised an obvious problem for members of the public who, relying on the fact that the subject works had entered the public domain, were making various uses of those works. One of the Golan plaintiffs, for example, created a derivative work sound recording based on several compositions by Shostakovich which had previously fallen into the public domain in the United States. To address this problem, Section 514 implemented certain protections for “reliance parties,” defined as parties who had exploited or created derivative works based on foreign public-domain works prior to restoration. Section 514 granted reliance parties who exploited foreign public-domain works a 12-month grace period, starting from receipt of notice of restoration from the copyright owner, to sell or otherwise dispose of copies of restored works. Furthermore, Section 514 authorized reliance parties who created derivative works based on restored works to continue exploiting those derivative works upon payment of “reasonable compensation” to the owner of the restored work (also upon receipt of notice of restoration).

The Golan plaintiffs – musicians, performers, educators and other creators – sued because they had exploited foreign works previously in the public domain and, after enactment of the URAA, were either prohibited from continuing to exploit those works or were required to pay cost-prohibitive licensing fees to the restored copyright holders. They argued that the removal of works from the public domain hampered their free speech rights and consequently violated the First Amendment of the Constitution. The District Court agreed and held the statute invalid.

On appeal, the Tenth Circuit reversed. As a threshold matter, the court addressed whether it should subject the statute to heightened scrutiny under the First Amendment. The court found no evidence that the government enacted the statute because of agreement or disagreement with a particular message. To the contrary, Congress passed the law to comply with international obligations and to protect the rights of American authors abroad. Thus, the court found the statute to be a content-neutral regulation subject to “intermediate scrutiny.” Under this test, courts uphold legislation if it (1) advances important governmental interests unrelated to the suppression of free speech and (2) does not burden substantially more speech than necessary to further those interests.

The Tenth Circuit found that the government had demonstrated a substantial interest in protecting American copyright holders’ interests abroad, because “[s]ecuring foreign copyrights for American works preserves the authors’ economic and expressive interests.” The United States’ failure to restore foreign copyrights following its adherence to Berne harmed those interests because other countries were following suit and refusing to restore copyright in American works. Though Section 514’s restoration of foreign copyrights does not guarantee that other countries will reciprocate, the Tenth Circuit reasoned that it owed Congress considerable deference in an area involving foreign relations, and concluded that substantial evidence supported Congress’s judgment.

The court also found that the “burdens imposed on the reliance parties are congruent with the benefits” of restoration. The “United States needed to impose the same burden on American reliance parties that it sought to impose on foreign reliance parties. . . . The burdens on speech are therefore directly focused to the harms that the government sought to alleviate.” As a result, Section 514 was narrowly tailored to achieve its goals. The court rejected the plaintiffs’ argument that Congress could have employed less restrictive means consistent with Berne’s requirements. Though a statute must be “narrowly tailored to serve the government’s legitimate, content-neutral interest,” it “need not be the least restrictive” means of doing so. Thus, the availability of other options to protect reliance parties’ interests did not alter the statute’s viability.

A look back at Eldred v. Ashcroft suggests that the Supreme Court may disagree with the Tenth Circuit’s application of intermediate scrutiny to Section 514. In Eldred, the plaintiffs sought to invalidate the Copyright Term Extension Act (“CTEA”), which increased the term of copyright from 50 years after the author’s death to 70 years after the author’s death. The Eldred plaintiffs argued that the CTEA was a content-neutral regulation of speech subject to heightened judicial review. In her majority opinion, however, Justice Ginsburg rejected the “imposition of uncommonly strict scrutiny on a copyright scheme that incorporates its own speech-protective purposes and safeguards,” finding that “copyright law contains built-in First Amendment accommodations” such as the idea-expression dichotomy and the fair use doctrine. The Court went on to hold that the “First Amendment securely protects the freedom to make–or decline to make–one’s own speech; it bears less heavily when speakers assert the right to make other people’s speeches. To the extent such assertions raise First Amendment concerns, copyright’s built-in free speech safeguards are generally adequate to address them.” Of course, three of the Justices who joined in that majority opinion – Chief Justice Rehnquist, Justice O’Connor and Justice Souter – have since retired.

The Surpreme Court is expected to hear Golan in its next term, which begins in October, 2011. I will post briefs as they are filed. In the meantime, the parties’ Tenth Circuit briefs are posted below.

Opening Brief for the Appellants/Cross-Appellees

Opening and Response Brief for the Appellees/Cross-Appellants

Combined Reply and Responsive Brief for the Appellants/Cross-Appellees

Reply Brief for the Appellees/Cross-Appellants