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August 05, 2019 Feature

Is the Southern District of New York Rewriting Copyright’s Fair Use Statute? A View on Magnum Photos

R. Terry Parker

©2019. Published in Landslide, Vol. 11, No. 6, July/August 2019, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

Academics have long warned that courts often stray from precedent when analyzing the four fair use factors provided by § 107 of the U.S. Copyright Act.1 As one scholar put it, judges have a tendency to “stampede” through the factors to arrive at a presupposed outcome.2 A recent decision from the Southern District of New York, Magnum Photos International, Inc. v. Houk Gallery, Inc.,3 is particularly notable for straying from precedent and allowing such stampeding. This recent decision may provide online media companies with confidence to embrace business models that depend on infringement. After all, the decision essentially guts the statute of its factors and allows fair use solely on the basis of whether the infringer’s purpose differs from that of the creator. However, such confidence should be tempered. This article argues that the Magnum Photos decision is misguided on a number of levels and should not be seen as the new direction of fair use.

The Magnum Photos Decision

The facts of the case were simple and undisputed. The defendant, an art gallery, staged two exhibitions of secondhand prints by photographer Henri Cartier-Bresson. To promote the exhibitions and the prints that were for sale, the gallery reproduced the originals and displayed small, low-resolution copies (“thumbnails”) on its website. The copyright owner had no issues with the secondhand sale of the prints, or their display at the gallery. It instead objected to the use of the thumbnail copies displayed on the gallery’s website. The plaintiff claimed that the posting of the copyrighted images in thumbnail form on the gallery’s website was infringing use. The gallery asserted fair use under § 107 and moved for summary judgment. The court, viewing the evidence in the light most favorable to the plaintiff, found for the gallery.

On the face of the decision, the court appears to evaluate these statutory factors seriatim, walking through each in turn. But before jumping into the court’s decision, we should first look at the statute, which provides:

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.4

The court offered an extensive analysis of the first factor, the “purpose” factor, and found that it weighed heavily in favor of fair use. Relying on the U.S. Supreme Court case Campbell v. Acuff-Rose Music, Inc.5—the Supreme Court’s most recent attempt to clarify how courts should determine fair use under § 107—the Magnum Photos court explained that “[t]he focus of this factor is whether the use ‘merely supersedes the objects of the original creation, or instead adds something new, with a further purpose or different character.’”6 Citing two search engine cases from the Ninth Circuit, Perfect 10, Inc. v. Amazon.com, Inc.,7 and Kelly v. Arriba Soft Corp.,8 the Magnum Photos court concluded that the gallery’s use was transformative. The court further found that the gallery’s purpose in copying and displaying the photographs on its website was to provide the public with enough information to know whether they wanted to buy the work. In addition, the gallery added to the original by including biographical information along with its display of the thumbnail images. The court also stressed that the owners of the prints authorized the gallery to sell them.

While the statute expressly queries whether the use of the works is of a commercial nature or is for nonprofit educational purposes, the court reasoned that the commercial use here was lawful and that commercialism is less significant when the use is transformative. The court quoted the Supreme Court’s observation in Campbell that “[t]he language of the statute makes clear that the commercial or nonprofit educational purpose of a work is only one element of the first factor enquiry into its purpose and character.”9 Here, the court explained, the commercial activity was the lawful sale of the prints, and “it has little bearing on the fair use analysis in this context” because “the more transformative the new work, the less will be the significance of other factors, like commercialism.”10

The finding of transformative use dominated the analysis of the second factor, “the nature of the copyrighted work” and its expressive content. The court conceded that the photographs at issue were highly creative works of art, a finding that would normally weigh against the fair use exception. However, the court explained that this factor should play less of a role in the analysis given the transformative nature of the gallery’s use. The court further explained that the gallery’s transformative use of the originals would not take away from the incentive to create, which is a key determination in the second factor analysis.

The third statutory factor was similarly dominated by the court’s finding of transformative use. This third factor, “the amount and substantiality of the portion used in relation to the copyrighted work as a whole,” asks whether the portion of the copyrighted work used by the defendant is reasonable in relation to the purpose of the infringement. Even though the gallery copied and displayed unchanged photographs, the court found that this factor weighed in favor of fair use. It concluded that the use of the whole work was necessary to achieve the gallery’s transformed purpose, and that the thumbnail versions were not equivalent to the high-quality prints being sold. The court also emphasized that the gallery’s use of the thumbnails was not a substitute for the originals—they were only meant to provide enough information for viewers to assess which of the Cartier-Bresson photographs were available for purchase.

The court found that the final factor, “the effect of the use upon the potential market for or value of the copyrighted work,” also weighed in favor of fair use. The focus of this factor, the court explained, is whether the allegedly infringing use would deprive the copyright holder of revenues, because potential purchasers may opt to acquire the copy rather than the original. When answering this question, the court again stressed that the use of thumbnail copies to facilitate the sale of the secondhand prints to the art-seeking public did not cheapen the original works. Although the plaintiff countered that the use of the thumbnail copies damaged the “prestige” of the works and usurped its right and ability to administer how the images would be combined, arranged, and exhibited, and also of its licensing fees earned for doing so, the court noted that the plaintiff failed to identify a market for the thumbnail copies. The court also chided the plaintiff for missing the point of the last factor, which should focus not on the harm to the plaintiff’s exhibition services but on the harm to the market for the copyrighted works.11 Once again, the transformative purpose dominated the analysis. The court gave weighted importance to the gallery’s purpose of selling the secondhand prints, reasoning that no harm to the market for secondhand prints would occur.

Problems with the Analysis in Magnum Photos

The court’s analysis in the Magnum Photos decision is problematic on a number of levels.

Nullifying the Statutory Factors

As academics have warned, decisions in which a court finds the defendant’s use transformative nearly always find fair use because the transformative concept nullifies the other factors.12 It appears that has occurred in this case. Assigning such dominance to transformative use is a problem, especially in this case where the work is “transformed” with the addition of biographical information. The concept of transformative use robs the copyright owner of the right of derivation that is expressly provided by § 106(2) of the Copyright Act.13 The decision in Magnum Photos takes away that explicit right. The court decides that transforming a work from having an aesthetic purpose to having a commercial purpose is enough to prevail on a fair use defense. After this ruling, it is hard to imagine an infringing use of copyrighted material that would not be transformative and thus, by default, fair use.

Eviscerating the Most Important Factor

The finding of transformation in the analysis of the first factor is particularly damaging in its evisceration of the final factor. This is particularly troubling because, in the Second Circuit, the fourth and final factor should be the most important.14 In addition, the court’s conclusion that the gallery’s infringement does not harm the potential market for the copyrighted work confuses the copyrights owned by the plaintiff with the physical works being sold by the gallery. For example, the court justifies its finding of transformative use, despite the gallery’s obviously commercial purpose. The court bases this on its understanding that displaying and offering for sale the original prints does not constitute infringement, because the owners of the original prints had authorized the gallery to display and sell those prints. This finding that the thumbnail copies do not compete with the prints being sold by the gallery misses the point. The market or potential market to be examined should not be the market for the used prints but the market for the thumbnail copies.

Straying from Campbell

The Magnum Photos court follows a bright-line rule in finding the gallery’s use transformative, assigning presumptive significance to the format of the gallery’s infringement, the thumbnails. Citing Perfect 10 and Kelly, it quickly concludes that “courts have held that the use of thumbnails—including copyrighted photographs—to facilitate internet searches is transformative.”15 However, this bright-line rule is at odds with the Supreme Court’s decision in Campbell.

In Campbell, the Court emphatically cautioned that fair use analysis “is not to be simplified with bright-line rules, for the statute, like the doctrine it recognizes, calls for case-by-case analysis.”16 The call for caution in Campbell was needed because, prior to Campbell, courts relied on dicta from the Supreme Court decision Sony Corp. of America v. Universal City Studios, Inc.,17 and presumed a fair use defense was unavailable if the infringement had a commercial purpose. In Sony, the Court noted that “every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright.”18 Taking this comment as a bright-line rule was problematic because examples of fair use provided in the statute—i.e., criticism, comment, news reporting, teaching, scholarship, and research—were inherently commercial and thus, if we follow this rule, not fair use. Accordingly, in Campbell, the Supreme Court confirmed that Sony should not be read as providing a bright-line rule for commercialism that short circuits the fair use analysis. As the Court explained:

Sony stands for the proposition that the “fact that a publication was commercial as opposed to nonprofit is a separate factor that tends to weigh against a finding of fair use.” But that is all, and the fact that even the force of that tendency will vary with the context is a further reason against elevating commerciality to hard presumptive significance. The use, for example, of a copyrighted work to advertise a product, even in a parody, will be entitled to less indulgence under the first factor of the fair use enquiry than the sale of a parody for its own sake, let alone one performed a single time by students in school.19

The Magnum Photos decision is out of sync with Campbell because the court in Magnum Photos adheres to a bright-line rule. This rule states that unauthorized reproduction of copyrighted works is transformative if done in thumbnail sizes to facilitate searches. By labeling the gallery’s purpose as mere information sharing, the court ignores the more obvious purpose of the gallery’s use of the thumbnail copies of the original works as the advertisement of the gallery’s products.

Straying from Second Circuit Precedent

The court in Magnum Photos cites but offers no meaningful discussion of the Second Circuit’s fair use case Authors Guild v. Google, Inc. (Google Books).20 In Google Books, the Second Circuit found the creation of a text-searchable database of millions of books, many protected by copyright, to be fair use. It maintained that the use of the copyrighted material was transformative and, importantly, that the entire works were not publicly displayed and the market of the copyrighted works was not harmed. The Second Circuit was, like the Ninth Circuit in the Perfect 10 case, arguably enchanted by the extreme usefulness of the searchable database offered by Google—almost as if it asked, “Seriously, who really wants to live without Google?” But the Second Circuit warned that Google Books was “test[ing] the boundaries of fair use.”21 Magnum Photos goes beyond those boundaries. Unlike in the searchable database in Google Books, in Magnum Photos the entire copyrighted work is publicly displayed and, more importantly, the copyright o wner’s market for derivative works or thumbnails of the original is destroyed. The stampeding of the transformative use finding tramples these important distinctions.

Another precedential decision the Magnum Photos court fails to heed is Fox News Network, LLC v. TVEyes, Inc.22 TVEyes, a for-profit media company, offered a service that allowed its customers to search television content for specific clips that discuss certain items of interest to the customers. The clips provided to the customers were allegedly grainier than the originals and were only a few minutes of the original works. The service provided by TVEyes was obviously valuable to the public in a similar way that Google search engines are valuable. The district court found that enabling users to watch, archive, and share clips with others was transformative, and therefore fair use. The Second Circuit agreed that the purpose was transformed, but this finding of transformative use did not trample the other factors. For example, the third factor weighed against fair use because, unlike in Google Books, the entirety of the copyrighted work was available if in 10-minute clips. The fourth factor, which the Second Circuit explicitly acknowledged as the most important factor, also weighed against fair use. Even though the searchable clips in TVEyes were no substitute for the full episodes available at Fox, the searchable clips robbed Fox of the potential to license searchable clips. It is clear from TVEyes that a finding of transformative use should not dominate the analysis of the statutory factors of § 107 of the Copyright Act.

Conclusion

The Southern District of New York’s decision in Magnum Photos fulfills the prophecies of numerous academics who warned of the dangers of allowing the transformative use query to dominate a fair use analysis under § 107 of the Copyright Act. The decision essentially removes the four factors from the statute and rests a fair use conclusion solely on the transformative use finding, while neutering the more important fourth factor in the statute—the harm to the potential market. However, such an analysis is not in keeping precedent. Online media companies should be cautioned to seek a license before using the copyrighted work of others, even if they see their use as “transformative.”

Endnotes

1. Neil Weinstock Netanel, Making Sense of Fair Use, 15 Lewis & Clark L. Rev. 715, 731 (2011); Matthew Sag, Predicting Fair Use, 73 Ohio St. L.J. 47 (2012).

2. Barton Beebe, An Empirical Study of U.S. Copyright Fair Use Opinions, 1978–2005, 156 U. Pa. L. Rev. 549, 572 (2008).

3. No. 16-cv-07030-VSB, 2018 U.S. Dist. LEXIS 162357 (S.D.N.Y. Sept. 21, 2018).

4. 17 U.S.C. § 107.

5. 510 U.S. 569 (1994).

6. Magnum Photos, 2018 U.S. Dist. LEXIS 162357, at *7 (quoting Campbell, 510 U.S. at 579).

7. 508 F.3d 1146, 1168 (9th Cir. 2007).

8. 336 F.3d 811, 818–20 (9th Cir. 2003).

9. Magnum Photos, 2018 U.S. Dist. LEXIS 162357, at *9 (quoting Campbell, 510 U.S. at 584).

10. Id.

11. Id. at *13–14.

12. See, e.g., Netanel, supra note 1, at 740.

13. See Matthew D. Bunker & Clay Calvert, The Jurisprudence of Transformation: Intellectual Incoherence and Doctrinal Murkiness Twenty Years after Campbell v. Acuff-Rose Music, 12 Duke L. & Tech. Rev. 92 (2014); Laura A. Heymann, Everything Is Transformative: Fair Use and Reader Response, 31 Colum. J.L. & Arts 445 (2008).

14. See Fox News Network, LLC v. TVEyes, Inc., 883 F.3d 169, 176 (2d Cir. 2018) (“Some of the factors are more important than others, with the fourth (market impact) being ‘the single most important element.’” (quoting Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 566 (1985))).

15. Magnum Photos, 2018 U.S. Dist. LEXIS 162357, at *13.

16. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577 (1994).

17. 464 U.S. 417 (1984).

18. Id. at 451.

19. Campbell, 510 U.S. at 585 (citation omitted).

20. Authors Guild v. Google, Inc. (Google Books), 804 F.3d 202 (2d Cir. 2015).

21. Id. at 206.

22. Fox News Network, LLC v. TVEyes, Inc., 883 F.3d 169 (2d Cir. 2018).

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R. Terry Parker is of counsel at Rath, Young and Pignatelli, PC. He works out of their Boston, Massachusetts, and Concord, New Hampshire, offices, where he practices commercial litigation with a focus on intellectual property disputes.