Let’s Talk about the “Effect on the Market”. Seriously.

Barry Sookman’s blog features a post titled “Renewed Attacks on the “Effect on the Market” Factor” and written by his associate Dan Glover. The post opens with an inappropriate and inaccurate ad hominem attack on Howard Knopf and Michael Geist, both of whom he accuses of being on a “crusade to open Canadian copyright law so wide that a convoy of army trucks filled with textbooks and DVDs could drive through it”. Why? Because “they are suggesting that Parliament not clarify that “the effect of the dealing on the market for the original work” is the pre-eminent factor in the fair dealing test.”

Glover and Sookman acted as counsel for three publisher associations who were interveners in the in the recent K-12 fair dealing case (Province of Alberta v. Canadian Copyright Licensing Agency), one of the five cases argued before the Supreme Court of Canada last December. Sookman is also a registered lobbyist for the Canadian Publishers’ Council (and other copyright owners’ organizations), and the arguments in the blog are similar to those made in the publishers’ factum, by Mr. Sookman in oral argument, and by Access Copyright and other interveners who supported it. Howard Knopf and I wrote an intervener’s factum in the same case on behalf of the Centre for Innovation Law and Policy at the Faculty of Law, University of Toronto, and our position is clearly very different.

Both Howard Knopf and Michael Geist are internationally recognized, respected, and accomplished authorities on copyright. Both are clearly motivated in improving both domestic and international copyright law in accordance with the purpose of balancing “the public interest in promoting the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator”, as articulated by the Chief Justice of Canada in CCH v. LSUC. I am confident that Glover and Sookman share the same view about the purpose, even though they have a different view about how to achieve it. So let’s stop the personal attacks and nonsensical rhetoric about Orwell, crusades, and “ideologically friendly academic texts”, and talk seriously about the “effect on the market factor” and about the sudden recent demand for legislation that clarifies that the “effect on the market” is the pre-eminent factor in the fair dealing test.

All of the points that he makes were forcefully argued in CCH but rejected. It is legitimate to ask the Court to overrule its earlier decision or to ask Parliament to overrule the Court’s decision. However, it is hoped that anyone who asks to overrule a recent and unanimous decision, would be, at the minimum forthright about what he requests and why.

 

The “Effect on the Market” is unquestionably an important factor

It is unquestionable that the effect of unauthorized copying on the market of the copied work is a highly important factor in determining whether the dealing is fair. The list of authorities supporting this proposition is longer and older than the authorities that Mr. Glover relies on. But equally unquestionable is the proposition that the fair dealing (or fair use) inquiry cannot and has never been reduced to a single factor. As Lord Denning famously wrote in Hubbard v. Vosper (and cited with approval by the Supreme Court in CCH):

It is impossible to define what is “fair dealing.” It must be a question of degree. You must consider first the number and extent of the quotations and extracts. Are they altogether too many and too long to be fair? Then you must consider the use made of them. If they are used as a basis for comment, criticism or review, that may be fair dealing. If they are used to convey the same information as the author, for a rival purpose, that may be unfair. Next, you must consider the proportions. To take long extracts and attach short comments may be unfair. But, short extracts and long comments may be fair. Other considerations may come to mind also. But, after all is said and done, it must be a matter of impression.

Similarly, when US Congress codified fair use in 1976, the House Report explained the following:

Although the courts have considered and ruled upon the fair use doctrine over and over again, no real definition of the concept has ever emerged. Indeed, since the doctrine is an equitable rule of reason, no generally applicable definition is possible, and each case raising the question must be decided on its own facts. On the other hand, the courts have evolved a set of criteria which, though in no case definitive or determinative, provide some guage for balancing the equities. These criteria have been stated in various ways, but essentially they can all be reduced to the four standards which have been adopted in section 107: “(1) the purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.”

I would agree with Mr. Glover that “there is a grave risk of killing copyright incentives if the law regards as “fair” acts of copying that hollow out markets for works”. But the law does not do that in any jurisdiction of which I am aware. Moreover, whether this could be the case in any particular dispute is far from self-evident. As Professor Sag writes in a recent article,

Although market effect has the ring of an objective factual investigation, it is in fact a highly subjective assessment. In most cases, the judgment as to whether the defendant’s conduct falls foul of the fourth factor is somewhat elastic because to ascertain the extent of potential market effect, courts must first determine whether a given use is within the potential market. The proper scope of the plaintiff’s current and future copyright markets is thus an input, throughput, and output of this analytical process. In light of this imprecision, the apparent symmetry between the way judges describe the fourth factor and the outcomes of fair use cases raises the suspicion that market effect is no factor at all.

He continues,

The question then becomes: Is there any empirical content to the fourth statutory factor, or is it merely a legal conclusion? The simplest way to understand the market effect factor is as an inquiry into competitive injury or lost sales. Conceived as such, the empirical question is just a matter of finding that injury or those lost sales. This inquiry is easy to conceive but harder to implement because the extent of past losses and probable extent of future losses are keenly contested elements in most fair use trials. (p. 17)

That is why the courts in all Anglo-American jurisdictions prefer a multi-factor and flexible analysis over one that focuses on a single factor.

Indeed, we can describe the essence of the fair dealing (or fair use) inquiry as an exercise in determining the location of the particular use on a spectrum between two end-points. On one end are uses that are unquestionably beneficial because they add or contribute to the stock of human knowledge while depriving the copyright owner of nothing. If those were not allowed, copyright law would discourage the very creativity that it seeks to foster. At the other extreme are uses that do not add anything to the stock of human knowledge, constitute no more than direct substitution to and competition with the copyright owner, deprive the copyright owner of the opportunity to earn a return on her investment, and that unless prohibited, would similarly discourage the very creativity that the law seeks to foster. Most adjudicated cases fall somewhere between these two extremes, and all the factors that courts have used over the years are simply aids in making this inquiry more nuanced and accurate. Time and again courts emphasized that this task requires a case-by-case analysis, and that the inquiry defies bright-line rules.

 

Glover misstates English law

English law is no different. This would have been apparent had Mr. Glover quoted the full paragraph from the recent UK Ashdown case, not only the selected lines. Here are the lines that Mr. Glover quotes:

[70] … by far the most important factor is whether the alleged fair dealing is in fact commercially competing with the proprietor’s exploitation of the copyright work, a substitute for the probable purchase of authorised copies, and the like. If it is, the fair dealing defence will almost certainly fail.

But did the court in Ashdown really endorse an unequivocal view that effect on the market is the most important factor? Read the entire paragraph and the subsequent paragraph and judge to yourself.

70.  Authority is very sparse in relation to the defence of fair dealing in the context of reporting current events … . The Vice-Chancellor [in the court below] commented with approval, however, on the summary of the authors of Laddie, Prescott & Vitoria, The Modern Law of Copyright and Designs, paragraph 20.16, on the test of fair dealing in the general context of s.30. We also have found this an accurate and helpful summary and set it out for the purpose of discussion.

“It is impossible to lay down any hard-and-fast definition of what is fair dealing, for it is a matter of fact, degree and impression. However, by far the most important factor is whether the alleged fair dealing is in fact commercially competing with the proprietor’s exploitation of the copyright work, a substitute for the probable purchase of authorised copies, and the like. If it is, the fair dealing defence will almost certainly fail. If it is not and there is a moderate taking and there are no special adverse factors, the defence is likely to succeed, especially if the defendant’s additional purpose is to right a wrong, to ventilate an honest grievance, to engage in political controversy, and so on. The second most important factor is whether the work has already been published or otherwise exposed to the public. If it has not, and especially if the material has been obtained by a breach of confidence or other mean or underhand dealing, the courts will be reluctant to say this is fair. However this is by no means conclusive, for sometimes it is necessary for the purposes of legitimate public controversy to make use of ‘leaked’ information. The third most important factor is the amount and importance of the work that has been taken. For, although it is permissible to take a substantial part of the work (if not, there could be no question of infringement in the first place), in some circumstances the taking of an excessive amount, or the taking of even a small amount if on a regular basis, would negative fair dealing.”

71. These principles are based on a summary of the authorities before the Human Rights Act came into force. They are still important when balancing the public interest in freedom of expression against the interests of owners of copyright. It is, however, now essential not to apply inflexibly tests based on precedent, but to bear in mind that considerations of public interest are paramount (emphasis added).

When read in their entirety, the paragraphs from Ashdown teach us the following about English law: (1) precedent authority is sparse; (2) the Laddie et al. summary is accurate and helpful summary of the authorities that predate the Human Rights Act; (3) that although these considerations are still important, they are not controlling; (4) because it is now essential not to apply inflexibly tests based on precedent, but to bear in mind that considerations of public interest are paramount.

There are enough similarities between the Human Rights Act and Canada’s Charter of Rights and Freedoms that the caution expressed by the Ashdown court is also applicable to a Canadian court reading Ashdown (which is a UK Court of Appeal and not a House of Lords (now Supreme Court) decision). In any event, Canada’s Supreme Court is not obliged to follow UK law and has notably departed from decisions of its counterparts in copyright cases.  For example, in CCH the Court expressly indicated that the Australian High Court’s Moorehouse decision on authorization is not good law in Canada.

Therefore, Ashdown, does not stand for the proposition that under current English law the effect on the market is the pre-eminent consideration. Rather, it supports the proposition that “considerations of public interest are paramount.”

 

Glover misstates American law

If English law does not support Mr. Glover’s argument, does American law support it? Apparently not. It is correct that in Harper & Row, decided in 1985, the U.S. Supreme Court noted that the effect on the market is “undoubtedly the single most important element of fair use”. Unfortunately, Mr. Glover fails to mention that nine years later the U.S. Supreme Court, in Campbell v. Acuff-Rose abandoned the idea that this or any factor enjoys primacy. As Campbell instructs,

The task is not to be simplified with bright line rules, for the statute, like the doctrine it recognizes, calls for case by case analysis. … The text employs the terms “including” and “such as” in the preamble paragraph to indicate the “illustrative and not limitative” function of the examples given, … which thus provide only general guidance about the sorts of copying that courts and Congress most commonly had found to be fair uses. Nor may the four statutory factors be treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright (emphasis added).

The fact that in Campbell the US Supreme Court retracted the “single most important” view is well noted. It was explicitly noted in American Geophysical Union v. Texaco, a case that I will return to below, where the Court of Appeal of the 2nd Circuit noted that

Prior to Campbell, the Supreme Court had characterized the fourth factor as “the single most important element of fair use,” Harper & Row, 471 U.S. at 566, 105 S.Ct. at 2233; … . However, Campbell‘s discussion of the fourth factor conspicuously omits this phrasing. Apparently abandoning the idea that any factor enjoys primacy, Campbell instructs that `[a]ll [four factors] are to be explored, and the results weighed together, in light of the purposes of copyright.’

Similarly, the 2nd Circuit noted in Castle Rock Entertainment, Inc. v. Carol Pub. Group, Inc. that

The Supreme Court has recently retreated from its earlier cases suggesting that the fourth statutory factor is the most important element of fair use, see Harper & Row, … recognizing instead that “[a]ll [factors] are to be explored, and the results weighed together, in light of the purposes of copyright,” Campbell, 510 U.S. at 578, 114 S.Ct. 1164;

Similarly, in Perfect 10, Inc. v. Amazon.com, Inc., the Court of Appeal of the 9th Circuit concluded that

the significantly transformative nature of Google’s search engine, particularly in light of its public benefit, outweighs Google’s superseding and commercial uses of the thumbnails in this case. In reaching this conclusion, we note the importance of analyzing fair use flexibly in light of new circumstances.

The “effect on the market” is NOT the preeminent factor in the US

Indeed, since Campbell, as recent empirical studies show, there has been a noticeable trend in the US fair use jurisprudence. Moreover, these recent studies show that US fair use jurisprudence has become much predictable that commonly suggested. According to Neil Netanel, courts now emphasize the “transformative use paradigm, as adopted by the Supreme Court in Campbell v. Acuff-Rose, over the market-centered paradigm of Harper & Row v. The Nation and its progeny.” In light of this evidence, the Bouchat case that Mr. Glover refers to, which does not notice the change that occured between Harper & Row and Campbell, is an outlier.

Matthew Sag’s empirical study reaches similar results. He finds that “the evidence from litigated cases … confirms the centrality of transformative use” (p. 36) and that “the amount and substantiality” of the defendant’s unauthorized use of the plaintiff’s work is also a strong predictor of fair use.  He notes that

Although the effect is not as large as was transformative use, there is clear evidence confirming that partial copying weighs in favor of the defendant’s assertion of fair use. At a practical level, this reinforces the wisdom of minimizing the extent of unauthorized use when relying on the fair use defense. However, it is also apparent from the data that there are many strong cases of fair use involving copying the entirety of the plaintiff’s work. Technologies that rely on digital processing of entire copyrighted works, such as Internet search engines and plagiarism detection software, nonetheless present a very strong case for fair use. (p. 37).

He further finds that “there is no evidence that commercial use (in contrast to direct commercial use)[1] reduces the defendant’s chance of maintaining a fair use defense,” and that courts do not show bias in favour of the underdog defendant. He concludes that his findings

tell us a great deal about the broader nature of the doctrine. Fair use is not a timid exception to the rights of copyright owners or a compulsory form of copyright charity; it is an integral part of the copyright system. The right to make fair use of a copyrighted work is equally applicable to Fortune 500 companies as it is to struggling artists. Fair use creates breathing space for cultural engagement in the form of reinterpretation and remixing of copyrighted content. Just as importantly, fair use also makes it possible for large commercial entities to build tools such as search engines that make the Internet work and to create platforms such as YouTube and Facebook for sharing individual self-expression. (p. 38).

Sag’s conclusions about the state of US fair use jurisprudence sound like a very close summary of CCH.

It follows that Mr. Glover’s statement about the “effect on the market” being “the single most important element of fair use” not only misstates the law as laid down by the US Supreme Court, it also misdescribes the way lower courts implement it.

Mr. Glover is not a law professor, so he cannot be faulted for not keeping up with “fresh from the oven” studies, such as those by Netanel and Sag. But Mr. Glover is a lawyer at a top law firm, graduate of top law school, and he surely knows how to retrieve US Supreme Court cases and how to check their currency. On a blog, relying on an earlier Supreme Court decision that supports a proposition while ignoring a later decision that refutes it (i.e., invoking Harper & Row while ignoring Campbell) might be embarrassing but excusable. On a blog, it is somewhat amusing that he accuses Howard Knopf of quoting “from ideologically friendly academic texts to misstate the law” because that would also mean that the US Supreme Court in Campbell, to which Knopf also refers, is equally “ideologically friendly”.

But regrettably, the intervener factum that Mr. Glover submitted last fall (with Mr. Sookman) misstated US law in the same manner. In para. 22 of the factum, Glover and Sookman wrote, quoting Harper & Row, that “In the USA, the Supreme Court has called the effect on the market factor “undoubtedly the single most important element of fair use.” The paragraph did not mention Campbell or any of the appellate cases that unequivocally interpreted Campbell as modifying Harper & Row.[2]

That statement about US law is incorrect. As US law stands today, the effect on the market is undoubtedly not the single most important factor. Ignoring this in a factum submitted to the Supreme Court of Canada resembles the kind of advocacy that Judge Posner recently described as the “ostrich-like tactic of pretending that potentially dispositive authority against a litigant’s contention does not exist”—advocacy which I find not amusing, and indeed, quite disappointing.

Which brings us back to Canada and the current controversy.

 

The attack on CCH and fair dealing

Clearly, Mr. Glover takes issue with the Supreme Court’s holding in CCH that fair dealing should be given “large and liberal interpretation”, with Bill C-11’s proposed explicit recognition of “education” in the fair dealing provision, and with the combination of both. He writes:

Unlike the current education-specific sections of the Copyright Act, the educational fair dealing right is not limited to specific activities carried out in actual educational institutions. Anyone might benefit from it in any context. I could “educate” myself about the works of Judd Apatow by downloading pirated copies of his movies, and then erasing them once I have been “educated” to ensure my actions are “fair”. It sounds outrageous until you look at the language of the Supreme Court’s 2004 decision in CCH, and understand how powerfully its words about fair dealing purposes receiving a “large and liberal interpretation” have been applied on the ground. Fingers are poised above copy buttons as I write.

Apparently, in Glover’s view the Justices who decided CCH also participate in Knopf’s and Geist’s imaginary “crusade to open Canadian copyright law so wide”, and the only difference is that Knopf ‘s and Geist’s crusade takes place offline whereas the Supreme Court’s crusade happens online.

But nothing in CCH seriously suggests that this was the Court’s view in 2004 or that this is the view of the Court in its present composition. In fact, during oral argument in the K-12 case, the justices directed many of their questions toward better understanding whether and, if so, to what extent, the copying by teachers indeed harmed publishers. Mr. Sookman’s own account of the oral argument confirms that.

So what is it about CCH that troubles Mr. Glover? Obviously, the concept of users’ rights, and the notion of giving them “large and liberal interpretation” trouble him, but less than a decade after CCH it seems very unlikely that the Court would retract on these points. Therefore, the attempt to reverse CCH must concentrate on less salient points, such as the following.

 

Avoiding considering harms and benefits

The first is the Court’s holding, in para. 59 that the “effect on the market” is “neither the only factor nor the most important factor that a court must consider in deciding if the dealing is fair.” Even though this holding it entirely consistent with US law and English law, and even though the Court clearly acknowledged that “[i]f the reproduced work is likely to compete with the market of the original work, this may suggest that the dealing is not fair,” Mr. Glover is still dissatisfied. Why? Because when the Court instructs to consider all the relevant factors in a purposive and non-mechanical manner, and to refrain from elevating one of them over the others a priori, it orders lower courts to defy rhetoric and conduct exactly the kind of fact-based and evidence-based inquiry that his publisher clients would surely dread.

When courts need to consider seriously all relevant factors, it becomes more difficult to get traction with unfounded claims about harm. Each of the six factors puts the alleged harm (as well as the defendant’s denial thereof) under closer scrutiny. In effect, the various factors institute a sort of cross-examination of the parties’ claims. They force the parties’ to answer each others’ claims about harms and benefits. The plaintiff cannot simply claim harm, and even proving harm is not sufficient, in the same way that claiming, or even showing, that the copying was done for a legitimate purpose is not sufficient. The factors force the courts to consider whether the alleged harm is of the kind that copyright law is meant to prevent; if it does, what is the causal connection between the defendant’s act and this harm; and whether prohibiting the defendant’s activities may in and of itself frustrate the purposes of copyright law. In the same vein the factors force the courts to consider the benefit arising from the unauthorized use in light of the harm, are there ways to achieve them without causing harm, etc. The following quote from Campbell, in which the Court explains why there cannot be a presumption of harm save in very limited circumstances, illustrates this point.

No “presumption” or inference of market harm that might find support in Sony is applicable to a case involving something beyond mere duplication for commercial purposes. Sony‘s discussion of a presumption contrasts a context of verbatim copying of the original in its entirety for commercial purposes, with the non commercial context of Sony itself (home copying of television programming). In the former circumstances, what Sony said simply makes common sense: when a commercial use amounts to mere duplication of the entirety of an original, it clearly “supersede[s] the objects,” of the original and serves as a market replacement for it, making it likely that cognizable market harm to the original will occur. …

But when, on the contrary, the second use is transformative, market substitution is at least less certain, and market harm may not be so readily inferred. Indeed, as to parody pure and simple, it is more likely that the new work will not affect the market for the original in a way cognizable under this factor, that is, by acting as a substitute for it … This is so because the parody and the original usually serve different market functions. …

We do not, of course, suggest that a parody may not harm the market at all, but when a lethal parody, like a scathing theater review, kills demand for the original, it does not produce a harm cognizable under the Copyright Act.

When Mr. Glover suggests that the Court or Parliament or both should  “clarify” that the “effect on the market” is the pre-eminent consideration, he aims at avoiding this kind of inquiry. His objective is to make it easier for copyright owners to prevent socially desirable uses that produce no cognizable harm, or simply to threaten them with infringement claims and charge money in the form of license fees or settlement payments even when they don’t necessarily wish to prevent them. This may be good for Mr. Glover’s clients, but the public may be shortchanged.

 

Avoiding the need to prove harm

The second related point is the Supreme Court’s holding in para. 72 of CCH, that, because the defendant “lacked access to evidence about the effect of the dealing on the publishers’ markets”, the burden of producing such evidence, and establishing causal connection between the defendant’s copying and the harm lies with the publishers.” The Court found that

If there had been evidence that the publishers’ markets had been negatively affected by the Law Society’s custom photocopying service, it would have been in the publishers’ interest to tender it at trial.  They did not do so. The only evidence of market impact is that the publishers have continued to produce new reporter series and legal publications during the period of the custom photocopy service’s operation.

Mr. Glover’s publisher clients have very good reasons to try avoiding the need to prove harm. It is probably not a result of inadvertence or omission of the publishers’ lawyers that no evidence of harm was brought in CCH. There are not many reported cases dealing with the effect of photocopying on publishers, but in all of the cases that I am aware of, there was no proof of harm. When copyright owners prevailed in such cases it was only when courts merely assumed harm or legally constructed it. CCH is, of course, an example of a case of the first kind. The pending K-12 case is an example of the second.  

During oral argument in the K-12 case in the Supreme Court of Canada on December 7, 2012, some of the judges seemed to be troubled with the possibility that a finding for the Appellants (the educators) might have a non-negligible negative affect on textbook publishers. This concern was mainly based on some lines in the Copyright Board’s reasoning, which Access Copyright stressed constituted a finding of fact that the disputed copies caused harm. Access Copyright also stressed that this case should be distinguished from CCH, where there was no proof of harm, on this basis. The key holding on this issue can be found in para. 111 of the Board’s decision, where the Board explained:

We conclude that the impact of photocopies made … , while impossible to quantify, is sufficiently important to compete with the original to an extent that makes the dealing unfair.

Yet the only evidence before the Board for the existence of harm to publisher was evidence that textbook sales have shrunk by more than 30 per cent in 20 years.  While the Board clearly acknowledged that “several factors contributed to this decline, including the adoption of semester teaching, decrease in registrations, longer lifespan of textbooks, use of the Internet and other electronic tools, resource based learning and use of class sets” and noted that it could not “determine precisely to what extent each factor contributed to this decline” it still held that because schools have copied approx. 250 millions copies this amount of copying must have contributed to the decline in sales.

But this is not evidence of harm, let alone proof that the copying caused the harm—the Board just presumed that. But even if there was causal connection between copying and reduced sales this is not proof of harm. While reduction in sales could lead to reduction in profit, the one does not prove the other. Nor can lower profit be inferred from lower sales. Indeed, reduced sales can be the result of an increase in market power, which allows a publisher to increase profit by selling fewer books at higher prices.[3] The “incentive” that copyright is designed to provide publishers depends on profit, not on the number of sales. There was no evidence for reduction in profit, and as in CCH, there was evidence that the industry is healthy. Moreover, even if harm existed, the Board did not consider whether it would seriously undermine the incentive to publish new books, or whether the social benefits or education outweigh this harm.

 

No evidence of harm in other comparable cases

Lack of proof that photocopying caused harm was a key issue in the landmark Williams & Wilkins Co. v. U. S. case from 1973, a case involving copying of scholarly articles by libraries at research institutions. The US Court of Claims found that the copying was fair use. The case was affirmed by an equally divided Supreme Court. The plaintiff (a publisher of scientific journals) insisted that it has been financially hurt by the photocopying practices of the research institutes and of other libraries. The trial judge, applying logic remarkably similar to that of the Copyright Board, thought that

it was reasonable to infer that the extensive photocopying has resulted in some loss of revenue to plaintiff and that plaintiff has lost, or failed to get, “some undetermined and indeterminable number of journal subscriptions (perhaps small)” by virtue of the photocopying. He thought that the persons requesting photocopies constituted plaintiff’s market and that each photocopy user is a potential subscriber “or at least a potential source of royalty income for licensed copying.”

The appellate court disagreed. It noted that “studies rejecting as “fair use” the kind of photocopying involved here have also assumed, without real proof, that the journal publishers have been and will be injured,” and emphasized that “the record made in this case does not sustain that assumption.” The defendants brought unrefuted evidence that the publisher’s business was growing and healthy, income on the rise, “plaintiff’s business appears to have been growing faster than the gross national product or of the rate of growth of manpower working in the field of science” and the record was “also barren of solid evidence that photocopying has caused economic harm to any other publisher of medical journals.”

The court continued to reject the plaintiff’s theory of harm and its line of reasoning.

Plaintiff has never made a detailed study of the actual effect of photocopying on its business, nor has it refuted defendant’s figures. It has relied for its assumption (in the words of the chairman of its board) on “general business common sense and things that you hear from subscribers, librarians and so forth.” Its argument-and that of the other supporters of its position is that there “must” be an effect because photocopies supplant the original articles, and if there were no photocopying those who now get the copies would necessarily buy the journals or issues.

The court, then, repudiated a line of reasoning that is exactly the one adopted by the Copyright Board in the K-12 case, currently under appeal. It continued.

But this untested hypothesis, reminiscent of the abstract theorems beloved of the “pure” classical economics of 70 or 80 years ago, is neither obvious nor self-proving. One need not enter the semantic debate over whether the photocopy supplants the original article itself or is merely in substitution for the library’s loan of the original issue to recognize, as we have already pointed out, that there are other possibilities. If photocopying were forbidden, the researchers, instead of subscribing to more journals or trying to obtain or buy back-issues or reprints (usually unavailable), might expend extra time in note-taking or waiting their turn for the library’s copies of the original issues-or they might very well cut down their reading and do without much of the information they now get through NLM’s and NIH’s copying system. The record shows that each of the individual requesters in this case already subscribed, personally, to a number of medical journals, and it is very questionable how many more, if any, they would add. The great problems with reprints and back-issues have already been noted. In the absence of photocopying, the financial, time-wasting, and other difficulties of obtaining the material could well lead, if human experience is a guide, to a simple but drastic reduction in the use of the many articles (now sought and read) which are not absolutely crucial to the individual’s work but are merely stimulating or helpful. The probable effect on scientific progress goes without saying, but for this part of our discussion the significant element is that plaintiff, as publisher and copyright owner, would not be better off. Plaintiff would merely be the dog in the manger.

The court further continued to cite additional studies concluding that photocopying had no adverse impact on publishing.

 

Economic studies explain the lack of evidence of harm

Even though such findings seem somewhat counter-intuitive, subsequent studies explained why this was the case, and documented the ways in publishers reacted to the advent of photocopying by changing their pricing structures, and have learned to take advantage of the fact of photocopying and actually become more profitable.

One of the classic studies on this issue was a study by economist Stan Liebowitz. The study, titled The Impact of Reprography on the Copyright System, was commissioned by Industry Canada, and a later version was published in the prestigious Journal of Political Economy, and became a classic piece in the economic study of copyright.

In a nutshell, Liebowitz showed that while photocopying could substitute the purchase of original journals, the feasibility of photocopying has two other important effects: (1) because the materials can be inexpensively copied, there is an increased demand for them as copyable originals (i.e., the demand of copiers can be indirectly appropriated by copyright owners), and (2) the total value of the copyrighted good may be dramatically altered. Because of these two effects, photocopying need not have a detrimental impact on the revenues of copyright holders, and in fact it did not have such effect. Instead, the effect was salutary. By increasing the subscription prices to institutional subscribers, publishers were able to indirectly capture the value created by photocopying and their profits increased accordingly.

There is so little evidence about the actual effect of photocopying in the K-12 case that it is difficult to draw serious conclusions. However, the Board did mention the practice of buying class sets. Class sets are sets of books intended to remain in a specific place at all times and be shared by students. These books may be used by more than one class or by various students in the same class. Obviously, when schools use class sets (instead of supplying new books to every student each year) they purchase fewer books. However, Liebowitz’s study would predict that publishers would adapt by increasing the price of the books to capture the value of sharing. Therefore, the decline in the number of copies sold says nothing about harm to profit, and the fact that the industry has been consistently healthy during the time of decline in sales is consistent with what Liebowitz’s study would predict.

An interesting moment occurred during the oral argument in the K-12 case, in an exchange between Mr. Sookman and Justice Abella. Mr. Sookman highlighted the importance of effect on the market factor, and stressed that the CCH framework could cause real economic harm. “So what are the impacts on the authors and the publishers if the cascading effects of the Appellants’ submissions are given effect to?” he asked, and continued.

We submit” that the Appellants’ propositions would reduce publishers and authors’ incentives to make investments in the creation of educational materials. This would reduce access and dissemination of these materials. In the long run, it would shrink the inventory of materials available to the public, including materials that would be available to be used for a fair dealing purpose. And such a result would neither be in the public interest nor in the interest of publishers.

In response, Justice Abella asked him if there was any study that confirmed what he suggested. “I appreciate we can use common sense. But is there empirical basis for your suggestion that people will stop writing books because people are making copies of them instead of buying them?” Mr. Sookman replied that the Appellant’s factum included a reference to “a study in the UK for example that looked at reprographic copying and which made the point that if extensive reproraphic copying is made then that could have that impact.”

I couldn’t find a reference to any such study in the Appellant’s factum or in any other party’s submissions. The closest thing is a decision of the UK Copyright Tribunal, referenced in Sookman’s clients’ factum, which quotes the UK Whitford Report from 1977. The quoted part, however, contains no empirical support for the proposition, and as noted above, the economic literature draws an entirely different picture. The only additional “empirical” support that Mr. Sookman could offer was telling Justice Abella, on the basis of his experience in working in the industry, that international publishers have choices and therefore, might decide to locate their investments in other countries if they cannot get sufficient return in Canada. Even if this was an admissible testimony (which it is not) that carries any weight, it does not support the claim about the alleged detrimental effect of applying fair dealing to education.

There is no adjudicated case involves photocopying in which publishers were able to prove harm resulting from photocopying, and there is ample theoretical and empirical evidence that supports the view that photocopying has been harmless or even beneficial for publishers. Lest I be accused of being on a crusade on copyright, I wish to clarify that the lack of evidence of harm in these settings does not mean that harm does not or cannot exist in other setting. These findings cannot also be used to justify uplifting all restrictions on copying. However, these findings support the view, which is currently the law in both the US and Canada that harm cannot be presumed and needs to be proved, as well as weighed against the social benefits that could arise from copying. It is clear why publishers would prefer a system that allows them merely to assert harm.

 

The irrelevance of availability of license, and how Texaco was mysteriously forgotten

The third reason why CCH seems to trouble Mr. Glover is the Court’s abundantly clear holding, in para. 70, that

“The availability of a licence is not relevant to deciding whether a dealing has been fair.  As discussed, fair dealing is an integral part of the scheme of copyright law in Canada. If a copyright owner were allowed to license people to use its work and then point to a person’s decision not to obtain a licence as proof that his or her dealings were not fair, this would extend the scope of the owner’s monopoly over the use of his or her work in a manner that would not be consistent with the Copyright Act’s balance between owner’s rights and user’s interests.”

This point is one that many publishers dread and copyright collectives abhor, because they have been consistently promoting collective licensing as an alternative to fair dealing. As I noted in an earlier post, Access Copyright tried to stress this point in oral argument. And this brings us to the 2nd Circuit decision in American Geophysical Union v. Texaco, which I mentioned earlier.

In that case, publishers of scientific and medical journals brought copyright infringement action against Texaco, who made unauthorized copies of copyrighted articles for use of its researchers. The 2nd Circuit rejected Texaco’s fair use defense and found in favour of the publishers.

On its face, Texaco seems be the perfect case that Access Copyright and its supporting interveners and advocates would rely on. Not only the outcome is similar to that which the Access Copyright and publishers wish to achieve, the decision contains language that they must read with delight. For example, the court notes that “As with the development of other easy and accessible means of mechanical reproduction of documents, the invention and widespread availability of photocopying technology threatens to disrupt the delicate balances established by the Copyright Act.” The court even suggests that had it not been bound by precedent, “it would seriously question whether the fair use analysis … developed in an effort to adjust the competing interests of authors-the author of the original copyrighted work and the author of the secondary work that “copies” a portion of the original work in the course of producing what is claimed to be a new work” is applicable to “[m]echanical “copying” of an entire document, made readily feasible and economical by the advent of xerography, [which] is obviously an activity entirely different from creating a work of authorship.” What a delight (at least at first sight)!

Moreover, even though, when analyzing the “effect on the market”, the court found that there was no persuasive evidence with respect to harm to the sales of subscriptions to journals, the court found that

Though the publishers still have not established a conventional market for the direct sale and distribution of individual articles, they have created, primarily through the CCC, a workable market for institutional users to obtain licenses for the right to produce their own copies of individual articles via photocopying. … [A]nd since there currently exists a viable market for licensing these rights for individual journal articles, it is appropriate that potential licensing revenues for photocopying be considered in a fair use analysis.

The CCC is the Copyright Clearance Center, which is an organization similar to Access Copyright (although different in significant respects). Therefore, according to the court in Texaco, a finding of fair use would deny the ability of the CCC to collect royalties. That, according to the court, was a recognizable harm to the market—exactly the kind of circular argument that Access Copyright often makes.

Why, then, neither Mr. Glover post, nor his factum (or that of Access Copyright and the other interveners supporting it) mention such a delightful decision from the US? I assume that the reason is not lack of access to American cases. Therefore, I can only assume that the answer is that Texaco’s appeal is only superficial. I don’t know if that was the actual reason, but if I had acted for the publishers I would be concerned that, upon a closer reading, relying on Texaco before the Supreme Court of Canada could easily backfire for the following reasons.

First, while delightful to a commercial publisher’s ears, Texaco’s view of copyright is inconsistent with the Supreme Court of Canada’s recognition of users’ rights. Second, as noted earlier, Texaco clearly acknowledges that Harper & Row’s comment about the supremacy of the effect on the market test is no longer good law after Campbell. Relying on Texaco would have exposed the flaw of urging the Supreme Court of Canada to adopt Harper & Row. Third, the harm that Texaco recognized is exactly the kind of harm that CCH rejected in para. 70. Fourth, if the Texaco harm is irrelevant, then Texaco can be added to the list of cases, just like Williams & Wilkins and CCH, in which the publishers failed to produce evidence of harm. Moreover, mentioning Texaco would necessarily draw attention to Williams & Wilkins, which, as noted above, convincingly exposes the flaw of the logic that informed the Copyright Board’s “finding” or harm.

Therefore, if the publishers wanted to rely on Texaco, they would have to convince the Supreme Court of Canada that almost every element of CCH had been wrongly decided.

In fact, Access Copyright and Copibec, which were interveners in CCH, had relied heavily on Texaco. Indeed, they devoted a quarter of its intervener factum in CCH to the argument that “obtaining of licenses from collective societies constitutes a valid alternative to infringement and should be considered in the determination of the fairness of a particular dealing.” They submitted that “[f]ollowing this logic, the U.S. Court of Appeal of the Second Circuit in Texaco, expressly considered the existence of collective societies similar to Copibec and Access Copyright as a relevant factor against a finding of “fair use”, and then concluded that

the obtaining of photocopy licences, when they are offered by collective societies that are authorized by copyright owners to grant licences on their behalf, is an established and readily available alternative to the dealing. Where collective societies have created a workable market for institutional users to obtain licences for the right to reproduce works protected by copyright, courts should acknowledge that the reproduction of such works, absent a licence, will generally affect the potential market for those works, and take this factor into account in any analysis of whether a dealing is ‘”fair”.

Institutional users may currently obtain photocopy licences in Canada. In fact, Access Copyright has on several occasions offered licenses to the Law Society, thus providing it with a readily available alternative to copyright infringement.

The Court in CCH listened to argument. The Court considered the argument. The Court rejected the argument, and it in the clearest of words. Not that there’s anything wrong with urging the Court to overrule its previous decisions, if there are good reasons for doing so. However, the publishers and their astute lawyers probably believed that there is very little likelihood that the Court would reverse a unanimous and internationally acclaimed landmark decision less than eight years after it was rendered.

That is presumably why they chose to camouflage their attack on CCH by misstating American and English and invoking the red-herring of the Berne Convention and the Three-Step Test (a point that Howard Knopf has recently reiterated).

 

Conclusion

The “effect on the market” has always been an important consideration in fair dealing and fair use analysis. But this consideration is neither the single factor nor the pre-eminent one. When courts are instructed to consider all the relevant factors they are instructed to understand whether harm exists, whether it is a cognizable harm, and whether there are social benefits that outweigh it.

Mr. Glover is absolutely correct when he writes “there is a grave risk of killing copyright incentives if the law regards as “fair” acts of copying that hollow out markets for works.” But the crucial word is “if”. The law as it stands in Canada, the US and England does NOT do that and will indeed result in a finding of infringement when the facts so warrant. There is not the slightest indication that Canadian law post-CCH treats as fair any acts of copying that hollow out markets for works, and there is no evidence whatsoever that Canadian post-CCH law has killed or will kill copyright incentives. Mr. Sookman’s “trust me” reply to Justice Abella does not change that.

Where there is sufficient evidence that the acts of copying would indeed hollow out markets for works and the incentive to create works, both Canadian and American courts under the current law will find infringement. However, to prevail on the “effect on the market” factor, the law requires evidence and not mere rhetoric.

 



[1] Sag defines “direct commercial use” as “any use of the plaintiff’s copyrighted work in a product or service sold to the public was classified as direct commercial exploitation unless: (i) the work was only used or copied as part of an intermediate process; or (ii) the defendant had taken an extra step, applying its own labor or creativity to somehow change the original copyrighted work. However, the addition of new material that left the original copyrighted work basically the same was not treated as involving an extra step.” He notes that direct commercial use is an indicator of transformative use (or lack thereof). (p. 29).

[2] The factum mentions Campbell twice, in para. 20 and para. 27, but to support other points. While both of these points are not really controversial, para. 20 erroneously describes Campbell as a case in which a fair use defence was rejected. The excerpt of Campbell included in their Book of Authorities omits the key passage at page 578 of the report that states “Nor may the four statutory factors be treated in isolation, one from another. All are to be explored, and the results weighed together, in light of the purposes of copyright.” (further references and footnote omitted)

[3] It is well documented that over the last couple of decades the prices of college textbooks in North America have steadily increased at a rate higher than inflation rate, a phenomenon consistent with the exercise of market power. Although the K-12 case involved textbooks used in schools in Canada, the evidence from college textbooks may suggest that the same phenomenon exists in the K-12 sector.

The books image is by Ian Britton, and licensed by FreeFoto.com under Creative Commons license for non-commercial, no derivatives, attribution license (http://creativecommons.org/licenses/by-nc-nd/3.0/).

 

 

Posted in Antitrust / Competition Law, Blog, Copyright, Copyright Collectives, Featured
8 comments on “Let’s Talk about the “Effect on the Market”. Seriously.
  1. William Patry says:

    Without entering into the debate about Canadian law, I merely note that Professor Katz is entirely correct about the evolution of American fair use. The “single most important factor” language in Harper & Row was a quote from the Nimmer treatise. Unfortunately, that treatise’s support for the proposition was non-existent, as I detailed at length in my treatise. The Campbell court, following Judge Leval, corrected this glaring error. The Second Circuit, on which Judge Leval sits has noted the correction a number of times as Professor Katz notes. As it stands, fair use is closer to what it had been before its statutory recognition in 1976: a common law, flexible multi-factor approach. In a given case, the fourth factor may be quite important, in another case (say parody), not at all.

    There is of course a potential circular problem with the fourth factor: fair use is an unconsented use for which no payment is or need be made. How can there be market harm for a use which does not require payment? Yet, if you do take into account licensing, the argument is often made by plaintiffs that they would have licensed the use, and therefore there is, automatically harm to the market.

    The way out of this potential paralysis is to attempt to discern if the use is one that typically is licensed (photocopying being such a use in some case), or not (e.g., parody) and to look at the defense as whole, meaning that the fourth factor is one factor but not the most determinative. The Campbell court helped analysis by treating the factors as existing in their inter-relations, and not as separate factors be checked off like boxes.

  2. Dan Glover says:

    Ariel,
    I want to respond directly to your contention that our Supreme Court factum somehow ignored the Campbell case or misstated U.S. law.

    Intervener factums, particularly ones that are limited to 10 pages by order of the Supreme Court, are necessarily succinct. But citations and authorities to the Court permit it to evaluate and weigh all of the relevant authorities. We included ALL of the leading U.S. Supreme Court cases on s. 107 of the Copyright Act and cited to the relevant portions of Campbell twice, at paras. 20 and 27. We put Campbell directly into our Book of Authorities. We included Nimmer on Copyright, the most-cited copyright authority in U.S. law, which comprehensively cites and discusses all of the broader appellate case law. It is irresponsible to suggest that we failed to draw the full spectrum of case law to the Court’s attention.

    By comparison, you live in a glass house: your CILP factum at the Supreme Court of Canada directs the Court’s attention to Campbell, but doesn’t even CITE the Harper & Row case on fair use. You included ONLY the cases that presented your case in the best light possible. You cite Patry, who clearly favours “flexible” developments in the case law of fair use, but fail to raise or cite contrary accounts, such as those in Nimmer. Was this “ostrich-like”? A “misdescription”? I fear what the answers might be if you applied your own test to your own advocacy.

    While you may not agree with our account of U.S. law in our Supreme Court factum, it is eminently supportable and is adopted by major primary and secondary authorities, including ones that have considered the American Geophysical interpretation (see e.g. the en banc decision of the Sixth Circuit in the Princeton University Press case at http://scholar.google.ca/scholar_case?case=16442235277086819776):

    “The four statutory factors may not have been created equal. In determining whether a use is “fair,” the Supreme Court has said that the most important factor is the fourth, the one contained in 17 U.S.C. § 107(4). See Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 566, 105 S.Ct. 2218, 2233, 85 L.Ed.2d 588 (1985), citing 3 M. Nimmer, Copyright § 13.05[A], at 13-76 (1984). (But see American Geophysical Union v. Texaco Inc., 60 F.3d 913, 926 (2d Cir.1994), cert. dismissed, ___ U.S. ___, 116 S.Ct. 592, 133 L.Ed.2d 486 (1995), suggesting that the Supreme Court may now have abandoned the idea that the fourth factor is of paramount importance.) We take it that this factor, “the effect of the use upon the potential market for or value of the copyrighted work,” is at least primus inter pares, figuratively speaking, and we shall turn to it first.”

    As I mention in my follow-up blog (http://www.barrysookman.com/2012/03/16/misleading-parliament-really/), the most-cited authority in the United States (Nimmer on Copyright) has written “If one looks to the fair use cases, if not always to their stated rationale, [the effect on the market factor] emerges as the most important, and indeed, central fair use factor”.
    So stating in your blog that “As US law stands today, the effect on the market is UNDOUBTEDLY not the single most important factor” is a slanted account of the U.S. law, although one that goes far to promote your policy goals.

    Last, I want to address your footnoted insinuation that para. 20 of our factum “erroneously describes Campbell as a case in which a fair use defence was rejected”. It does nothing of the sort. Readers who actually travel to our factum will see that it presents numerous accurate propositions of U.S. law, ALL of which are footnoted together. The actual statement is “The courts have thus rejected fair use defences that would have the effect of “supplanting the copyright holder’s commercially valuable right”. Campbell itself says this in similar language at 591:

    “In the former circumstances, what Sony said simply makes common sense: when a commercial use amounts to mere duplication of the entirety of an original, it clearly “supersede[s] the objects,” Folsom v. Marsh, supra, at 348, of the original and serves as a market replacement for it, making it likely that cognizable market harm to the original will occur. Sony, supra, at 451. But when, on the contrary, the second use is transformative, market substitution is at least less certain, and market harm may not be so readily inferred.”

    So your paraphrase misrepresents what we actually said. And also contrary to your depiction, the excerpt ALSO clearly restates the uncontroversial proposition that the statutory s. 107 factors must be considered together:

    [590] Market harm is a matter of degree, and the importance of this factor will vary, not only with the amount of harm, but also with the relative strength of the showing on the other factors.

    So, contrary to your suggestions, we DID present the essence of Campbell to the Court. Did you do the same with Harper & Row?

    For those readers who are interested in reviewing both sides of this story, a more thorough discussion of the relevant law is available in my follow-up blog at http://www.barrysookman.com/2012/03/16/misleading-parliament-really/. Among other things, this entry also explains why, in my view, Campbell and Harper & Row continue to stand together as binding statements of U.S. law.

    • Ariel Katz says:

      Dan,
      I share your frustration about the challenge of being limited to 10 pages. Being forced to leave out many points that might turn out to be important is painful. But shortage of space is not an excuse for cutting corners with respect to the issues that one chooses to write on, and in my view that’s what you did. You decided to devote part of your factum to the “effect on the market” and you made an unequivocal statement about US law, based on Harper & Row. You did not acknowledge the widely held view that Campbell abandoned the Harper & Row formulation, and you didn’t even attach the pages from Campbell that are relevant to this point to your book of authorities. Nobody reading your factum would have any reasons to suspect that Harper & Row might not be the controlling US authority about the question. If your position is that notwithstanding Campbell, Harper & Row correctly reflects US law, then you should have explained why. Instead, you chose to pretend “that potentially dispositive authority against a litigant’s contention does not exist”. The fact that you included in your book of authorities some sources that would allow the Court to educate itself and eventually realize that your statement might have been inaccurate is not a good answer in my view. You were granted leave to intervene in order to assist the Court; to make it easier for the Court to find its way through the various authorities, not to make it more difficult.

      You write that I live in a glass house, but I actually feel very safe in it. Our factum did not address the question of whether the “effect on the market” is the pre-eminent factor at all. CCH’s holding on this issue is clear, and as far as I recall, the question did not arise in the decisions below. In any event, we decided to spend our 10 pages on other issues, mostly the correct statutory interpretation of the term “private study” and of the other explicitly mentioned purposes, in light of the the act’s legislative history. We cited Campbell once, to support the proposition that section 107 of the US Copyright Act, which codified the common law fair use doctrine, was not intended to restrict or narrow the doctrine of fair dealing or to limit the role of the judiciary in applying, developing, and adjusting it to new circumstances.
      You’re absolutely correct that our factum doesn’t even CITE Harper & Row, because there was no need to cite it. Harper & Row says essentially the same thing about the point that we addressed in the factum:

      Fair use was traditionally defined as “a privilege in others than the owner of the copyright to use the copyrighted material in a reasonable manner without his consent.” … . The statutory formulation of the defense of fair use in the Copyright Act reflects the intent of Congress to codify the common-law doctrine. … Section 107 requires a case-by-case determination whether a particular use is fair, and the statute notes four nonexclusive factors to be considered. This approach was “intended to restate the [pre-existing] judicial doctrine of fair use, not to change, narrow, or enlarge it in any way.”

      Since there is no inconsistency or tension between Harper & Row with respect to this point, and since Campbell is more recent than Harper & Row, there is nothing ostrich-like or misdescriptive in mentioning the one but not the other.

      You write that we “cite Patry, who clearly favours “flexible” developments in the case law of fair use, but fail to raise or cite contrary accounts, such as those in Nimmer.” Contrary account to what? We cited Patry twice. The first time is a quote in relation to our statement that “CCH has taken its place in the pantheon of international jurisprudence concerning users’ rights in copyright law” and to support our vision of copyright law and the role of fair dealing in it. This was not a statement about the current state of US law that pretends that potentially dispositive authority against a litigant’s contention does not exist. The second time we cited Patry was in relation to the proposition that “Fair dealing” and its closely related “kissing cousins”, American “fair use” began as a judge-made law and continues to evolve according to common law principles.”
      Is there an authoritative contrary account to this proposition that we failed to mention?

      Lastly, you described Campbell as a case in which fair use was rejected. But Campbell, like Sony, is a case in which the defendants’ fair use defense was accepted. While it is true that the rationale of these cases is not inconsistent with other cases in which fair use was rejected, it is inaccurate to list them as cases rejecting fair use. That time you did not misstate the law, but you did misstate the outcome in Campbell and Sony.

    • Ariel Katz says:

      Dan,
      I’ve now had the chance to read your follow-up blog, and I wish to add four comments:

      1) In your response to Mr. Knopf’s blog you write that Mr. Knopf “also doesn’t disclose that the Sony case at the U.S. Supreme Court set a test stating that “every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright”. The quoted words from Sony are accurate, but it’s inaccurate to say that it “set a test” because the statement was an obiter dictum: the use in Sony (home time-shifting) was clearly non-commercial, there was no real evidence of harm, and the decision held that the use had been fair.
      The dictum from Sony later became the ratio for the 6th Circuit decision in Campbell, which was reversed by the Supreme Court. Here’s what the Court said in Campbell about the presumption that commercial use is unfair:

      The court then inflated the significance of this fact [commercial nature of the parody] by applying a presumption ostensibly culled from Sony, that “every commercial use of copyrighted material is presumptively . . . unfair . . . .” Sony, 464 U. S., at 451. In giving virtually dispositive weight to the commercial nature of the parody, the Court of Appeals erred. …

      If, indeed, commerciality carried presumptive force against a finding of fairness, the presumption would swallow nearly all of the illustrativeuses listed in the preamble paragraph of § 107, including news reporting, comment, criticism, teaching, scholarship, and research, since these activities “are generally conducted for profit in this country.” … . Congress could not have intended such a rule … .

      Sony itself called for no hard evidentiary presumption. There, we emphasized the need for a “sensitive balancing of interests,” 464 U. S., at 455, n. 40, noted that Congress had “eschewed a rigid, bright line approach to fair use,” id., at 449, n. 31, and stated that the commercial or nonprofit educational character of a work is “not conclusive,” id., at 448-449, but rather a fact to be “weighed along with other[s] in fair use decisions.” Id., at 449, n. 32 (quoting House Report, p. 66). The Court of Appeals’s elevation of one sentence from Sony to a per se rule thus runs as much counter to Sony itself as to the long common law tradition of fair use adjudication.

      The above discussion was in the context of the first factor. When discussion the fourth factor, the Court was just as unequivocal:

      The court [below] reasoned that because “the use of the copyrighted work is wholly commercial, . . . we presume a likelihood offuture harm to Acuff Rose exists.” .. . In so doing, the court resolved the fourth factor against 2 Live Crew, just as it had the first, by applying a presumption about the effect of commercial use, a presumption which as applied here we hold to be error.

      No “presumption” or inference of market harm that might find support in Sony is applicable to a case involving something beyond mere duplication for commercial purposes.

      Not only the Supreme Court rejected any presumption that commercial use is unfair in cases involving something beyond mere duplication for commercial purposes, it was even careful not to hold that in those limited cases a presumption does exist, noting that such a presumption only “might” find support in Sony.

      2) I am encouraged by your statement that “Where there is little or no proof that the effect of a dealing is damaging to the market or the potential market for a work, as in Campbell or in Canada’s CCH decision, the proper result is that the fair use or fair dealing defence is made out. I wonder if you would agree with me that this is the case in the K-12 case. You would probably say that this is not the case because, as you wrote in your previous post, “small and repeated acts of copying could deal publishers a death by a thousand cuts.” And I suppose that you would also quote Nimmer’s statement that “widespread conduct of the sort engaged in by the defendant (whether in fact engaged in by the defendant or by others) would result in a substantially adverse impact on the potential market for, or value of, the plaintiff’s present work.” But Nimmer talks about “adverse impact on … the plaintiff’s present work”, and let’s face it, there is no evidence that this was the case in the K-12 context. I would agree that if there’s a work whose main market is schools, and there’s evidence that the schools who copy it would otherwise buy it, and the amount and extent of copying is so widespread so that the copying displaces the market, fair dealing would be difficult to make out. But there’s no evidence of this kind in the K-12 case. Yes, there is widespread copying, but there is no evidence about any single work that is affected by it.

      3) I have nothing to add to Mr. Patry’s reply about Harper & Row and Nimmer. I would only add that Nimmer itself is not as unequivocal as he might appear from your quotations. Immediately after the quoted language he adds:

      Two caveats, however, must be borne in mind. First, as has been emphasized with respect to each of the fair use factors, the analysis must proceed case-by-case. Therefore, even if viewed as central, this factor cannot substitute for an evaluation of each of the four statutory factors.

      (The second caveat is the one that you did cite, dealing with the effect of “unrestricted or widespread conduct”). Omitting a relevant caveat from a cited reference is not only and act that disrespects your readers, it is also disrespectful towards the author that you cite. In this case, omitting the first caveat makes Nimmer appear less balanced than he actually is.

      4) You mention Mr. Patry’s current position as senior copyright counsel at Google. If the point is to suggest that Mr. Patry’s opinions on fair use in the US has been shaped by the interests of his current employer, then this is a chronological impossibility. But there is, indeed, a deeper connection. As Patry himself notes in his comment, the Court’s decision in Campbell was influenced by his writings. When Campbell was handed down, Larry Page and Sergey Brin hadn’t began working on their project that would later become Google. But it is difficult to overestimate the importance of Campbell on creating a legal environment that facilitated the emergence of innovative companies such as Google. We should not lose sight of this when we consider fair dealing in Canada.

  3. William Patry says:

    Again without wading into the debate about Canadian law, or even who said what in which brief, I take exception to Mr. Glover’s following comment: “the most-cited authority in the United States (Nimmer on Copyright) has written ‘If one looks to the fair use cases, if not always to their stated rationale, [the effect on the market factor] emerges as the most important, and indeed, central fair use factor.’”

    The greatest authority on copyright law in the U.S. is the U.S. Congress; after that, the U.S. Supreme Court, and after that the circuit courts of appeals. Commentators, like NImmer and myself are not authorities in this sense. What we say is not law in any sense of that word. We may accurately describe law as made by Congress or the courts, or we may inaccurately describe law as made by Congress and the courts. In the case of the quotation from the Nimmer treatise made by Mr. Glover, it was a completely, thoroughly, totally inaccurate statement of law when Mel Nimmer first made it in 1984, and it is equally inaccurate today. The handful of cases cited by Nimmer do not bear out his assertion and even Nimmer hedged his assertion by declaring that one had to look beyond the opinions’ “stated rationale”. Nimmer may have thought himself God by being able to divine what the courts really meant when they in fact said something different, but we mere mortals have to go by what courts actually say (their “stated rationale”), and they said nothing close to what Nimmer believed in 1984, and since Campbell have decisively rejected it. I go through every case cited by the 1984 Nimmer treatise in detail for those who want to examine this. You can find the analysis in Section 6.5 of my fair use treatise (Patry on Copyright Law) or Section10:149 of my general treatise (Patry on Copyright) both available on Westlaw.

    Harper & Row merely cited Nimmer, and Campell, as has been noted, rejected Harper & Row, as have courts after Campbell.Put as clearly as possible, it is an inaccurate statement of U.S. law to say that the fourth factor is the single most important, determinative, primus inter partes, or anything of the sort. It is one of four and the four are inter-related and therefore considered together.

    Campbell did note that non-transformative, duplicative uses uses that supplant the market will not be fair use, and I agree and hopefully everyone agrees with that. Fair uses cases that get litigated though in the U.S. are rarely of this kind. It costs money to litigate and silly defenses are expensive. For example, the Supreme Court did not make a ruling on fair use in Campbell, because of a factual dispute about whether too much was taken, something that had nothing to do with the market effect: clearly, the copyright owner would never have licensed the use in Campbell, nor did it harm any non-existent market for parodies.

  4. Howard Knopf says:

    I just can’t refrain from weighing in hopefully for one last time on the Knopf/Glover/Katz/Patry (in approximately that chronological order – key links provided below) kerfuffle ostensibly about the status of the “effect on the market” fourth factor in American fair use law. Although this has one or two amusing aspects to it (see below), it is mostly very serious. In fact, it’s really about a lot more than where the fourth factor ranks. (Hint – 4th is not the right answer though it could be, sometimes). In all seriousness, this is very serious. There are huge amounts of money and extremely important implications for education, teaching, research and innovation at stake.

    Mr. Glover and some of his clients and others with similar intentions want nothing less than to:

    1. Persuade the Supreme Court of Canada to reverse its landmark CCH v. LSUC decision (less than eight years after it was decided) in ways that Prof. Katz discusses in some detail in his blog of March 16, 2012 and, whether or not that happens, to get Parliament to effectively do so via the following steps;
    2. Getting rid of the proposed inclusion of the word “education” in s. 29;
    3. Prioritizing the US fourth fair use “effect on the market” factor as priority numero uno in Canada, when it has no such status in the USA or in England; and,
    4. Inject the “three-step test” treaty language verbatim into Canadian jurisprudence and even legislation, just so nobody misses the point.

    (The rest of my blog is here:http://excesscopyright.blogspot.ca/2012/03/canadian-copyright-kerfuffle-how-not-to.html )

  5. Dan Glover says:

    Mr. Patry has now republished his comments above at greater length at the foot of my second blog on this issue (see http://www.barrysookman.com/2012/03/16/misleading-parliament-really), and I have responded to them there in a new posting (http://www.barrysookman.com/2012/03/19/a-reply-to-william-patry/).

    The posting discusses at length the relationship between the Campbell and Harper & Row cases of the United States Supreme Court and provides the basis for my view that courts in the United States have NOT “decisively rejected” the statement in Harper & Row that the effect on the market factor is “the single most important element of fair use”.

    Given the length of my latest reply, I am providing a link to it rather than inserting it fully here: http://www.barrysookman.com/2012/03/19/a-reply-to-william-patry/

  6. Jay says:

    “Fair use is not a timid exception to the rights of copyright owners or a compulsory form of copyright charity; it is an integral part of the copyright system.”

    I love that line.

    I tend to view these discussions as a metaphor for slavery.

    Of course, we all like owning things, and we all like our freedom to use them, including our bodies, without asking anyone else so long as we don’t harm them. And, as long as we have our own property and freedom, it’s easy not to care what else is happening to others.

    Yet, if we take the right to property as absolute (perhaps because ours insulates us, or we rely on it), one can argue that it implies, if not justifies slavery: people AS property, which obviously directly undermines the freedom of others and indirectly undermines our own guarantees of freedom.

    Returning to that quote, fair use/dealing and the public domain counter balance the monopoly of copyright and prevent copyright slavery. The threat of intellectual slavery and exploitation is why we must defend the minimum permissionless use of copyrighted material.

    Freedom means not asking permission. As such, freedom depends on public property. There has to be air for me to breath, and air is so important that I won’t ask if I can take it, when I need to take it. If someone denies me air, it’s called murder, not “exercising property rights.” This is why digital locks are so offensive, and why fair use/dealing is so important. We all deserve to live without begging property owners for every little aspect of our cultural and intellectual lives.

    Property is still good too of course and, as far as I can see, you can’t have one (freedom or property) without the other.

2 Pings/Trackbacks for "Let’s Talk about the “Effect on the Market”. Seriously."
  1. [...] The Light Version Posted on Mar 17, 2012 | 0 comments Print PDF Yesterday I wrote a rather lengthy post about the “Effect on the Market” in fair use and fair dealing analysis. With the [...]

  2. [...] Let’s talk about the “effect on the market”. Seriously. (Ariel Katz) [...]

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