by Lee Gesmer | Jan 7, 2023 | Noncompete Agreements
There aren’t many issues in business law as divisive as non-compete agreements. Some people believe that non-competes are essential to protect trade secrets and confidential information. Critics argue that they suppress wages, reduce competition and keep innovative ideas from breaking into the market. In the eyes of many critics they are a contractual form of involuntary servitude. We’ve encountered many employees who were unaware that their employment agreements contained a non-compete clause until they tried to leave their job, or who were under the mistaken impression that noncompetes are legally unenforceable.
Despite this controversy, changes to noncompete law have been complicated by the fact that non-compete agreements are creatures of state law. Every state has its own body of non-compete law. Sometimes the law is based on statute, and sometimes it’s judge-made common law.
Among the states there is enormous variation. Some states, notably California, have laws that make non-competes unenforceable. In Massachusetts judges enforced non-competes under common law for decades until, in 2018, the state passed a law severely restricting them. In New York non-competes are enforceable, but there is no statute, just judge-made common law. 
Non-compete agreements are so state specific that if a client asks us to advise on a non-compete subject to the laws of a state other than Massachusetts we have to consult a lawyer in that state who knows the intricacies of that state’s laws.
All of this may be about to change.
Federal Agency Proposals on Non-Compete Agreements
In 2016 the federal government entered the debate over non-compete agreements for the first time when the Obama administration issued reports critical of non-competes and suggesting policy changes. (2016 Treasury Report; 2016 White House Report).
This initiative was dormant during the four years of the Trump administration, but was revived in July 2021 when the Biden White House released an Executive Order on Promoting Competition in the American Economy “encouraging” the FTC to “exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
The FTC’s Current Proposed Rule
The wheels of the law grind slowly but now – 18 months later – the FTC has proposed a rule that would ban all non-competes for both employees and independent contractors, as well as nondisclosure agreements that act as “de facto” non-competes. There are exceptions (most notably non-competes entered into as part of the sale of a business), but most non-compete agreements – including those currently in effect – would be prohibited.
The FTC’s “overview” of the proposed rule captures the “anti-non-compete” arguments:
About one in five American workers—approximately 30 million people—are bound by a non-compete clause and are thus restricted from pursuing better employment opportunities. A non-compete clause is a contractual term between an employer and a worker that blocks the worker from working for a competing employer, or starting a competing business, typically within a certain geographic area and period of time after the worker’s employment ends. Because non-compete clauses prevent workers from leaving jobs and decrease competition for workers, they lower wages for both workers who are subject to them as well as workers who are not. Non-compete clauses also prevent new businesses from forming, stifling entrepreneurship, and prevent novel innovation which would otherwise occur when workers are able to broadly share their ideas. The Federal Trade Commission proposes preventing employers from entering into non-compete clauses with workers and requiring employers to rescind existing non-compete clauses. The Commission estimates that the proposed rule would increase American workers’ earnings between $250 billion and $296 billion per year. The Commission is asking for the public’s opinion on its proposal to declare that non-compete clauses are an unfair method of competition, and on the possible alternatives to this rule that the Commission has proposed.
It’s not uncommon for federal law to preempt state law, and that would be the case under this rule – the rule would supersede any conflicting state law. In other words, the rule would render almost all state non-compete laws – statutory or judge-made – obsolete. Employers, regardless of size, would be required to notify employees that any existing noncompete clause has been rescinded.
If it became law this rule would be a sea change in noncompete law and, more broadly, employment law. Decades of established non-compete law would be wiped from the books.
Implications
The implications have many lawyers who work in the areas of non-compete agreements and employment law pinching themselves to make sure they’re not dreaming.
I’ll write in more detail about this proposed rule as the rulemaking process proceeds, but here are a few initial observations:
First, like many federal laws or agency rules the law is complex – it weighs in at over 1400 words. If it becomes effective its full implications will be understood through further explanation from the FTC and interpretation by the courts. The “de facto” provision alone – which would treat some nondisclosure agreements as non-competes – is ripe for litigation. In other words, there’s a lot to unpack here.
Second, should this rule become effective it can be challenged in court, and almost certainly will be. In fact, the sole Republican FTC Commissioner, Christine Wilson, has already issued a dissenting statement criticizing the proposed rule on substantive grounds and outlining the possible bases for challenging the FTC’s rulemaking authority for this proposed rule. The first of these is likely to be that the rule exceeds the FTC’s authority to regulate“unfair methods of competition.”
Third, federal agency rules are not statutes – they can be reversed by later rules, and in that respect they are somewhat impermanent. The implications of an “on-again/off-again” federal non-compete policy are harrowing to contemplate.
Fourth, what should you do while this rulemaking is pending? The answer is probably nothing – if you’re an employer that uses noncompetes it’s business as usual, along with “watchful waiting,” to borrow a medical term. Theres no reason to change your business practices until the proposed rule becomes effective. Worst case, any noncompetes you enter into during this period will be void. Of course you want to have a nondisclosure provision in your form of employment agreement, but you probably have that already, so it’s likely no change will be required.
If you’re a prospective employee and you’re evaluating a job offer that requires a noncompete, you should be on the defensive and negotiate terms. Again, this rule may never come to fruition, and your noncompete may be fully enforceable. Don’t assume that it won’t be.
Lastly, an essential element of rule-making is that the public gets to submit “comments” on the proposed rule, which – at least in theory – the FTC considers before finalizing the rule. However, in the world of federal agency rule-making, “comments” can include extensive legal and economic analyses and industry position papers. We can expect a flood of comments and a robust debate on this proposed rule, perhaps followed by public hearings. By the time the rule takes effect – if it ever does – it may be substantially different from what has been proposed.
by Lee Gesmer | Nov 12, 2022 | General
Louis Agassiz thought that black and white races had different origins. In 1850 Agassiz – an eminent professor at Harvard – embarked on a tour of South Carolina plantations in search of racially “pure” Africans whom he could study as evidence to support this theory, known as “polygenism.”
On the trip Agassiz commissioned a photographer to take daguerreotypes of Renty Taylor and his daughter Delia, two slaves who lived on a South Carolina plantation.
The images – believed to be the earliest photos of American slaves – disappeared into the archives of Harvard’s Peabody Museum for over a hundred years, only to be discovered by a museum employee in the 1970s and widely publicized by Harvard.
In 2011 Tamara Lanier learned she was a descendant of Renty and Delia and became aware of the daguerreotypes. She wrote to then-Harvard President Drew Faust and asked that Harvard give these family artifacts to her. To make a long story short, Harvard declined. In the words of the Massachusetts Supreme Judicial Court (SJC) Harvard was “dismissive” and “disrespectful” when it wasn’t ignoring her altogether.
Represented by celebrity civil rights lawyer Ben Crump and others Lanier sued Harvard. She didn’t want money – she wanted Harvard to give her the daguerreotypes.
Lanier’s claim had nothing to do with the images, which are unprotected by any copyright. Lanier asserted a property right. She wanted the physical daguerreotypes – the copper plates – that were created in 1850 and which Harvard had retained for almost 175 years.
Renty Taylor
Harvard refused and Lanier sued. Lanier’s suit contained a variety of legal claims, but the central claim was for “replevin.” Replevin is a legal right that has a thousand year history in British and U.S. law. Replevin enables someone to regain possession of property that belongs to them. If you steal my bicycle and refuse to return it I could go to court and file an action for replevin to force you to hand it over. This is what Lanier wanted – to force Harvard to give her the physical media that held the images of her ancestors.
Her suit failed, although the court did throw her a bone – it held that Louis Agassiz’s actions in 1850, and Harvard behavior toward Ms. Lanier post-2011, were plausibly extreme and outrageous, and therefore might support claims of intentional and reckless infliction of emotional distress. The case could proceed to trial on these theories.
However, these claims appear to be little more than an afterthought – they aren’t mentioned in the appellate briefs or oral argument before the SJC. While Ms. Lanier is pursuing them post-appeal they are unlikely to yield much in the way of money, and they won’t give her the relief she was seeking.
Delia Taylor
Why did the SJC deny her property claim? The SJC’s decision in this case is a remarkable deep dive into the history of slavery and racism in 19th Century America. The Harvard professor, Louis Agassiz, was not an obscure academic – he was a giant in the study of natural history, and geology. Until not long ago a neighborhood in Cambridge, Massachusetts where he had lived was known as “Agassiz.” Reading the legal filings and the SJC decision is as much a historical journey through American slavery and a moral crusade as a legal argument. The central message is that Harvard committed a terrible wrong to Renty and Delia in 1850, and that Harvard’s refusal to give his ancestors the daguerreotypes is a continuation of that wrong. In essence, Lanier asked Harvard to do the right thing and give the plates to her. When Harvard refused to do so Lanier’s lawyers asked the courts to force Harvard to compel Harvard to do the right thing.
Lanier’s arguments failed before the SJC. The court held that Lanier was unable to satisfy the strict requirements of replevin because she had no property interest in the plates. Under well-established law the photographer (or in this case the commissioning party, Harvard) owns the negatives from a photograph. The court declined to make “new law” that would give her possession of the plates. And, in any event, her claim was barred by the statute of limitations.
One of the seven SJC justices – Associate Justice Elspeth Cypher – wrote separately and argued for a new common-law cause of action. In a concurring opinion she argued that the common law may be used to remedy any injustice. While she cited many case decisions that support this proposition, the most powerful statement came from former SJC Chief Justice Ralph Gants:
“We are responsible [for] and the sole arbiter of the common law of Massachusetts. The common law of Massachusetts is ours. We are responsible for it. . . . probably the single most important thing … is that it is our obligation to correct miscarriages of justice. . . . we don’t walk away from miscarriages of justice. We don’t generally say, `well, we rely upon the importance of continuity, so if it was an injustice that occurred a while ago, we’re just going to leave it be.’ Our obligation is to correct a miscarriage of justice whenever it happens, and that is part of what is bred in our bone.”
R.D. Gants, C.J., Welcome Remarks (Aug. 31, 2020).
Tragically, Justice Gants passed away suddenly in 2020, just a month after making these remarks, so he had no voice in the SJC’s Lanier decision.
Justice Cypher proposed an extraordinarily narrow legal legal test to resolve this case – a test that might provide justice to Ms. Lanier and likely never be applied again:
“a plaintiff must show that (1) she is a direct lineal descendant of a specific individual or individuals enslaved in the United States or in a colony that later became a part of the United States; (2) the defendant has possession of an artifact, which was created or obtained as a consequence of the enslavement of the plaintiff’s ancestors; (3) the defendant participated, either directly or indirectly, in the wrongful creation or attainment of such artifact; (4) the artifact provides a meaningful connection between the plaintiff and her ancestors; and (5) the plaintiff has made a request or demand to the defendant to relinquish the artifact to the plaintiff, which the defendant has refused or ignored. On establishment of the foregoing elements, as the sole remedy for this cause of action, the plaintiff would be entitled to the specific performance of transfer of possession of the artifact from the defendant to the plaintiff.”
The majority of the Court rejected this test, arguing that –
“we can identify no support in the common law of this Commonwealth or any other State for the new cause of action that Justice Cypher’s concurrence would create to allow descendants of persons who were enslaved to obtain possession of artifacts that resulted from the enslavement of their ancestors. . . . the new right proposed in Justice Cypher’s concurrence does not derive from common-law reasoning, which is a precedent-based, evolutionary decision-making process providing both for continuity and change. Rather, a right and remedy, without precedent, would be created anew.”
As best I can determine, Ms. Lanier has no further legal recourse. There are no federal constitutional or statutory issues in the case, so she has no right of appeal to the U.S. Supreme Court. Unless Harvard has a change of heart, Harvard will maintain possession of the daguerreotypes of Renty and Delia Taylor in perpetuity.
Lanier v. President and Fellows of Harvard College, 490 Mass. 37 (2022)
Oral Argument Video
by Lee Gesmer | Oct 10, 2022 | DMCA/CDA
Have you noticed that when you perform a search on Youtube you start seeing links to similar content? If you search for John Coltrane, Youtube will serve up links to more Coltrane videos and jazz performers from his era and genre. If you search for Stephen Colbert you’ll start seeing links to more Colbert shows and other late night TV shows. The more you watch, the better Youtube becomes at suggesting similar content.
These “targeted recommendations” are performed by behind-the-scenes algorithms that dole out hundreds of millions of recommendations to users daily. I use Youtube a lot, and these recommendations are quite good. I’d miss them if they disappeared. And, based on a case now pending before the Supreme Court, they might.
On October 3, 2022 the Supreme Court accepted a case to consider whether, under Section 230 of the Communications Decency Act of 1996 (“Section 230”), this automated recommendation system should deprive Google (Youtube’s owner) of its “non-publisher” status under Section 230. The case on appeal is Gonzalez v. Google, decided by the 9th Circuit early this year.
In Gonzalez the plaintiffs seek to hold Google liable for recommending inflammatory ISIS videos that radicalized users, encouraging them to join ISIS and commit terrorist acts. The plaintiffs are the relatives and estate of Nohemi Gonzalez, a U.S. citizen who was murdered in 2015 when ISIS terrorists fired into a crowd of diners at a Paris bistro. The plaintiffs allege that Google’s actions provided material support to ISIS, in violation of the federal Anti-Terrorism Act, 18 U.S.C. § 2333.
Google’s first-line defense is that it is immune under Section 230. This law states:
No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.
47 U.S.C,. § 230(c)(1).
This 1996 law has been central to the growth of the Internet by protecting online publishers from liability for user generated content. See The Twenty-Six Words That Created the Internet. The most common situation is where someone is defamed by a user on a social media site. The person publishing the defamation may be liable, but the social media company is immune under Section 230.
Do Google’s targeted recommendations cause it to cross over the line and lose its “non-publisher/non-speaker” status under this law? The 9th Circuit held that they do not, and dismissed the case under Section 230: “a website’s use of content neutral algorithms, without more, does not expose it to content posted by a third party.”
Here is the issue the Gonzalez plaintiffs submitted to the Court on appeal:
Does section 230(c)(1) immunize interactive computer services when they make targeted recommendations of information provided by another information content provider, or only limit the liability of interactive computer services when they engage in traditional editorial functions (such as deciding whether to display or withdraw) with regard to such information?
…
Petitioners will urge the Court to adopt the [following] interpretation of section 230: the protections of section 230 are limited to a publisher’s traditional editorial functions, such as whether to publish, withdraw, postpone or alter content provided by another, and do not additionally include recommending writings or videos to others.
Wow! if the Supreme Court accepts this argument at the very least it would likely leave social media companies (Google, Facebook, Twitter, Instagram and many others) with the difficult decision of whether to stop providing content recommendations or risk liability if they continue to do so. Cases based on content recommendations are rare, so these companies (at least the large ones, that can afford the legal risk) might conclude that the benefits outweigh the risk.
However, the case has the potential to do much more, should the Court use Gonzalez to limit the scope of Section 230. Since Section 230 was enacted the courts have interpreted the law broadly and favorably to social media companies. Hundreds of lawsuits have been defended successfully under Section 230. This will be the first time the Supreme Court has decided a case under Section 230, and there is reason to believe that the Court might narrow 230’s protection. In fact, comments by Justice Thomas portend just that. In Malware Bytes v. Enigma Software (2020) the Court denied review of a Section 230 case. However, Justice Thomas filed a lengthy “statement,” stating that “many courts have construed [Section 230] broadly to confer sweeping immunity on some of the largest companies in the world,” criticizing the “nontextual” and “purpose and policy”-based rationales for those decisions, and concluding that “we need not decide today the correct interpretation of Section 230. But in an appropriate case, it behooves us to do so.”
Will the Supreme Court use Gonzalez to narrow the scope of Section 230’s protection? Justice Thomas seems to have staked out his position, and the Court’s conservative block may be inclined to follow his lead. Only time will tell, but we can expect that this will be a blockbuster decision for social media companies and the Internet-at-large.
More to follow as the parties brief the case, amici weigh in and the Court schedules oral argument.
Scotusblog page on Gonzalez v. Google.
by Lee Gesmer | Sep 3, 2022 | Copyright
With some exceptions, every public venue that plays popular music for its customers – concert venue, bar, restaurant, shopping mall or health club – needs to enter into a blanket license agreement with ASCAP, BMI and SESAC, the performing rights organizations (PROs) that pay public performance royalties to songwriters and publishers.
Occasionally a club will fail to join a PRO, ignore warnings and be sued for copyright infringement.
Here’s a current example in which a club did sign a license with ASCAP, but allegedly failed to pay ASCAP the license fees.
Universal Music v. Calvin Theater
Two music publishers have sued Calvin Theater and its owner/manager, Eric Suher, for violating public performance rights in six compositions. Calvin Theater is a music venue in Northampton, Massachusetts, and the suit was filed in the Federal District Court for the
District of Massachusetts. ASCAP manages the public performance rights for these songs.
We don’t know why Calvin Theater failed to pay ASCAP. However, the publishers’ claim is that because the venue is in breach the agreement is not in effect and the Theater has no copyright license.
Based on the allegations in the complaint this case is a good opportunity to do a short tutorial on the intersection of the music industry and copyright law.
The Infringement Involves “Musical Compositions,” Not “Sound Recordings”
Every musical work can have two copyrights – the musical composition (melody, lyrics) and the sound recording. The owners can be different, and usually are – it’s common for a record company to own the copyright in the “master” sound recording and a publishing company to own rights in the musical composition.
Calvin Theater involves the public performance of musical compositions – there is no allegation that sound recordings were illegally copied. The complaint doesn’t identify the owner of the sound recordings, nor does it need to do so.
The complaint doesn’t provide any detail about how the compositions were performed. Were the works performed by a live band? Did the Calvin Theater play a CD or stream the songs? Were the songs played over a radio? Which versions of the songs were played – the originals or cover recordings? The complaint doesn’t tell us, but it doesn’t matter – regardless of how the songs were played, the owners of the copyrights in the musical compositions are entitled to a public performance royalty. The music club should have paid that through a contract with ASCAP.
What Is The Right of Public Performance?
One of the exclusive rights held by owners of musical compositions is the right to publicly perform a work. The Copyright Act defines public performance broadly – “to perform … at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.”
If a public venue plays popular music for its customers, it needs a public performance license. If it plays music and doesn’t have one, it’s a copyright infringer.
If you’re wondering about the public performance rights of owners of sound recordings – they don’t have one, except for digital audio transmissions. 17 U.S. Code § 106
What Are Publishing Companies?
The plaintiffs in this case are publishing companies. What’s that, you ask?
A lot of composers don’t have the time or inclination to deal with the music business. Instead, they assign ownership of their compositions
to a publishing company to manage. There are many publishing companies, and the largest own publishing rights to thousands of songs. Two large publishers are the two plaintiffs in this case – Universal Music Publishing and Primary Wave.
What Are Performing Rights Organizations?
The owners of compositions – whether publishing companies or the composers themselves – can’t track and police the thousands of public venues where their compositions may be performed. A complex system has evolved to deal with this – they register their compositions with one of the PROs – ASCAP, BMI or SESAC. In turn, the PROs enter into blanket license agreements with the clubs and restaurants.
The clubs pay the PROs, the PROs pay the publishing companies, and the publishing companies pay the composers. This is all regulated by contracts – thousands and thousands of contracts.
It’s even more complicated than it sounds. For a deeper dive see Songtrust’s “Modern Guide to Music Publishing.“
The Publishing Companies Are Assignees of the Publishing Rights
The two plaintiffs in this case allege that they are owners of the six compositions that have been infringed. From this we know that the composers have transferred ownership of the compositions to these companies. The publishers must be either owners or exclusive licensees
to bring a copyright infringement lawsuit.
Both publishers are members of ASCAP. In order to avoid infringing the compositions of these songs, Calvin Theater needed to enter into a blanket license agreement with ASCAP and not breach the agreement.
The Owner of the Club May be Personally Liable
The complaint alleges that Eric Suher is an owner, officer and director of Calvin Theater, that he controls, manages and operates the company that owns the club, and that he has the right and ability to supervise and control the public performance of musical compositions at the club.
This is important – in my experience many lawyers and business owners don’t realize that a corporation may not shield a business owner or manager from personal liability for copyright infringement. For details on why this may be the case, see Redigi – Did Ossenmacher Know He Was Risking Personal Liability?
If the publishers win their case Suher and Calvin Theater may be jointly and severally liable for copyright infringement.
The Works Are Registered
To bring a claim of copyright infringement a work must be registered. This was uncertain until 2019, when the Supreme Court decided Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC. Before that some courts held that a pending registration was sufficient.
Here the publishers provided the registration numbers and dates for each registration. The compositions were initially registered in the
early/mid-1970s. None of the copyrights have expired. In fact, the composers are still alive, so the copyrights will remain in effect for at least another 70 years. Even though the copyrights have been transferred, their duration continues to follow the lives of the composers.
The Publishers Are Seeking Statutory Damages
The publishers don’t want actual damages (their lost profits) or the club’s profits attributable to the infringement – these are probably minimal. The publishers have asked for statutory damages of between $750 and $30,000 per infringing work.
Because the registrations preceded the infringements (which took place in 2022), they are entitled to seek statutory damages and, at the discretion of the judge, attorney’s fees.
However, the amount they are seeking is worth questioning – when an infringement is “willful” statutory damages may be as high as $150,000 per work infringed – in this case that would total $900,000. The publishers allege that ASCAP repeatedly told Calvin Theater that it was infringing and demanded that the Theater pay the contractual license fees. It’s not clear why the publishers are not seeking $150,000 per work based on what appears, at least for pleading purposes, to have been willful infringement.
That said, statutory damages are complicated. This table illustrates the options, depending on whether an infringement is “innocent,” “regular” or “willful”:
Conclusion
If the allegations are true this is a straightforward case. It illustrates the elements of a copyright case in the music industry, and how much trouble a public venue can get into by ignoring the requirement that it license rights from the performing rights organizations if it’s going to play popular music.
However, music publishers are not in business to force music venues into bankruptcy. Most likely Calvin Theater’s lawyers will tell their client that it should settle, and the publishers will accept reasonable terms. I’ll keep an eye on the case and update this post if that happens.
Update: The case was dismissed in December 2022. Very likely the dismissal was pursuant to a settlement.
by Lee Gesmer | Aug 22, 2022 | Copyright
The doctrine of fair use has been called, with some justification, the most troublesome in the whole law of copyright. Justice Blackmun. Sony v. Universal (1984)
Fair use in America simply means the right to hire a lawyer. Larry Lessig
Fair use is the great white whale of American copyright law. Enthralling, enigmatic, protean, it endlessly fascinates us even as it defeats our every attempt to subdue it. Prof. Paul Goldstein
*********
The photo of Prince directly below was taken by Lynn Goldsmith in 1981. Andy Warhol used this photo to create an unauthorized series of sixteen silkscreens and drawings – the “Prince Series” – which appears below Goldsmith’s photo.
Conde Nast Cover
Goldsmith is a well-known rock-and-roll celebrity photographer. When Warhol passed away in 1987 the Prince Series became the property of the Warhol Foundation. Goldsmith was unaware of its existence until Condé Nast licensed one of the silkscreens for the cover of a Prince tribute magazine following Prince’s death in 2016. When Goldsmith learned that Warhol had copied her photo she sued the Warhol Foundation for copyright infringement.
Warhol’s defense in Goldsmith’s case is fair use – specifically the “transformative” branch of copyright fair use. This has its origin in Campbell v. Accuf-Rose, a 1994 case involving a parody of Roy Orbison’s song “Pretty Woman.” The Supreme Court held that a new work of art is “transformative” for purposes of copyright fair use if it “adds something new, with a further purpose or different character, altering the first with new expression, meaning or message.”
This legal standard has proven to be subjective and inconsistent in its application. The Warhol case is a good example.
The District Court and Second Circuit Decisions in Warhol
A Southern District of New York district court judge agreed with Warhol’s defense that the Prince Series was “transformative.” The judge reasoned that while Goldsmith’s photo portrays Prince as “not a comfortable person” and a “vulnerable human being,” the Prince Series portrays the musician as an “iconic, larger-than-life figure.” Comparing the works side-by-side, the district court concluded that a reasonable observer would perceive that Warhol’s work has a “different character, a new expression, and employs new aesthetics with [distinct] creative and communicative results” when compared to the Goldsmith original.
The Second Circuit Court of Appeals disagreed. It held that to satisfy the “transformative” requirement the second work (the Warhol Series) must –
. . . at a bare minimum, comprise something more than the imposition of another artist’s style on the primary work such that the secondary work remains both recognizably deriving from, and retaining the essential elements of, its source material. The judge must examine whether the secondary work’s use of its source material is in service of a fundamentally different and new artistic purpose and character, such that the secondary work stands apart from the raw material used to create it.
In the eyes of the Second Circuit Warhol’s silkscreens failed this test. Hence, they were not protected by fair use.
Interest in the case has been high since the Second Circuit issued its decision last year. It increased when the Supreme Court agreed to hear Warhol’s appeal, and has gone into overdrive as the case approaches oral argument on October 12, 2022. Warhol filed its appeal brief in early June. Goldsmith filed her opposition in early August. More than 30 amicus briefs have been filed. The Copyright Office and the Solicitor General have filed an amicus brief in support of Goldsmith, and the Solicitor General has asked for leave to participate at oral argument.
Google v. Oracle: Will It Matter to the Warhol Appeal?
An important consideration is how the Court’s 2021 ruling in Google v. Oracle may impact this case. Google is only the second time the Supreme Court has addressed fair use in depth. However, while the Court upheld Google’s fair use defense, the subject of that case was far from the traditional core of copyright – visual art, music and writings. Google involved fair use in the context of Google’s copying and reimplementation of Oracle’s Java API user interface. The Court found this to be fair use because it was socially beneficial – it allowed programmers familiar with the Java API to use their knowledge and experience to program Google’s Android operating system, rather than having to learn a new API. See Final Thoughts On Google v. Oracle.
Warhol argued that Google helped tip the scales in its favor, but the Second Circuit rejected this argument, stating that “a case that addresses fair use in such a novel and unusual context [as functional computer programs] is unlikely to work a dramatic change in the analysis of established principles as applied to a traditional area of copyrighted artistic expression.”
Will the Supreme Court affirm or reverse the Second Circuit? Setting aside Google (which is something of a one-off for copyright fair use), this is only the second time the Court will have addressed fair use since 1994 – will the Court expand fair use (by reversing the Second Circuit), contract it or tread lightly and leave it largely intact?
In pondering these questions it’s worth noting that changes in the Court’s make-up may be a significant factor in the outcome of this case.
Fair Use at the Supreme Court Without Justice Breyer
Until his retirement in June 2022 Justice Breyer had focused on intellectual property law more than any other member of the Court. He was viewed as the most liberal justice on IP issues, and he wrote the majority pro-fair use decision in Google.
Given the current make-up of the Court post-Breyer, a little armchair kremlinology is in order.
Based on their dissent in Google it seems likely that Justices Thomas and Alito will vote to uphold the Second Circuit’s decision for Goldsmith. Under their view of fair use the most important factor is the effect of Warhol’s silkscreens on the market for Goldsmith’s photo. (Google, p. 1216). The Second Circuit found that Warhol’s silkscreens negatively impacted the market for Goldsmith’s original photo in a variety of ways, and Justices Thomas and Alito are likely to overweight this factor in concluding that Warhol’s silkscreens are not protected by fair use.
The remaining justices on the new “conservative” wing of the Court – Justices Gorsuch, Kavanaugh and Barrett – favor “textualism,” the judicial philosophy that places primary weight on the normal meanings of a statute’s words, rather than public policy. It’s worth noting that the word “transformative” (indeed, the concept) appears nowhere in the Copyright Act, and is something of a judicial gloss on the statutory enumerated fair use factors. Based on a strict application of textualism these three justices may side with Justice Thomas’s view of fair use, in which case the Warhol Foundation will lose its bid to reverse the Second Circuit 5-4. If “swing conservative” Chief Justice Roberts joins the conservative wing, Warhol will lose at least 6-3.
My prediction: the Second Circuit’s ruling in favor of Lynn Goldsmith will be affirmed by at least a 5-4 vote.
Conclusion
Either way, affirm or reverse, will this case change fair use in the U.S.? We won’t know until the Supreme Court issues its decision, likely sometime in 2023. In the meantime, tune in to the oral argument in October and judge for yourself.
Update 5-18-23: I was correct in predicting that the Court would uphold the Second Circuit in this case. Here is the 7-2 decision – link
