United States Four Fair Use Factors and the WTO Three-Step Test

Copyright limitations and exceptions are important limits to the exclusive rights of the copyright holder, permitting use of copyrighted works without the right holder’s permission in certain cases. Under international law, some specific limitations and exceptions exist, such as those enumerated by the Berne Convention. Additional limitations and exceptions that are not specifically enumerated are generally considered under the “three-step test” of (1) certain special cases; (2) that do not conflict with a normal exploitation of the work; and (3) do not unreasonably prejudice the legitimate interest of the right holder. Like international law, the United States provides some specific limitations and exceptions in its Copyright Act. Additionally, the United States contains a broader provision to permit other limitations and exceptions that are not specifically provided for may still be found noninfringing under the “fair use” doctrine.

Currently, at SCCR 25, the interpretation of the three-step test is again being discussed, but how does it compare with the United States four-factor fair use test? While international law and the United States Copyright Act both provide for specifically enumerated limitations and exceptions as well as a test for additional limitations and exceptions, the United States “fair use” test provides a broader and more flexible interpretation than the restrictive WTO interpretation of the “three-step test.” These interpretations are important, determining whether a flexible approach is taken, likely to result in greater limitations and exceptions.

A country’s international copyright obligations are determined by the treaties it has signed (including those in multilateral fora as well as bilateral and plurilateral trade agreements). Most countries are parties to several international agreements related to copyright, most notably the Berne Convention and the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). As noted above, the Berne Convention provides for specific limitations and exceptions as well as the “three-step test” to accomodate other exceptions that are not specifically listed. A version of the three-step test also appears in the TRIPS Agreement and in 2000, a WTO panel decision interpreted the three-step on limitations and exceptions narrowly, requiring that parties meet all three criteria to satisfy limitations to exclusive rights under Article 13 of TRIPS (of (1) certain special cases; (2) that do not conflict with a normal exploitation of the work; and (3) do not unreasonably prejudice the legitimate interests of the right holder). This interpretation results in a restrictive reading of the three-step test, requiring parties to independently satisfy each of the three criteria. If one factor is not satisfied, the inquiry ends and the limitation or exception will be found in non-compliance with the three-step test.

In the United States, many limitations and exceptions to copyright are specifically codified under the Copyright Act. However, many noninfringing uses in the United States are not specifically enumerated, but rather, stem from the broad “fair use” provision codified at 17 U.S.C. 107. Section 107 provides for four factors in determining whether a use is “fair use” and therefore not an infringement of copyright. These four factors 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.

In applying the four fair use factors, courts in the United States have repeatedly held that a party need not prevail on each of the four factors, but are weighed and balanced. As the recent case of Authors Guild v. Hathitrust, No. 11 CV 6351 (HB) (S.D.N.Y. 2012) summarized:

A defendant need not prevail with respect to each of the four enumerated fair-use factors to succeed on a fair-use defense. NXIVM Corp. v. Ross Inst., 364 F.3d 471, 477 (2d Cir. 2004). Rather, the factors are “explored and weighed together, in light of copyright’s purpose.” Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 569 (1994). “The ultimate focus is the goal of copyright itself, whether `promoting the Progress of Science and useful Arts would be better served by allowing the use than by preventing it.'” Swatch Grp. Mgmt. Servs. Ltd. v. Bloomberg L.P., No. 11 Civ. 1006, 2012 WL 1759944, at *3 (S.D.N.Y. May 17, 2012) (quoting Castle Rock Entm’t, 150 F.3d at 141; U.S. Const. art, 1, § 8, cl. 8). Plaintiffs, Defendants, and Defendant Intervenors have each filed motions for summary judgment that argue that there is no genuine issue of material fact as to the fair-use factors.

The Supreme Court in the case Campbell v. Acuff-Rose Music, Inc. emphasized that the four factors may not “be treated in isolation, one from another. All are to be explored, and the results weighed together in light of the purposes of the copyright. (citing Leval 1110-1111; Patry & Perlmutter*, Fair Use Misconstrued: Profit, Presumptions, and Parody, 11 Cardozo Arts & Ent. L.J. 667, 687-87(1983)).”

Thus, even where a defendant cannot establish satisfaction of one (or more) of the four enumerated factors, fair use may still apply. Taking a holistic approach, considering the four factors in total, allows greater flexibility and additional limitations and exceptions that may not otherwise be found as valid fair use if the defendant were required to satisfy each of the four factors. The approach the Supreme Court has taken allows courts to more generally consider the public interest and the avowed purpose of the United States copyright system (promoting the progress of science and useful arts). This approach is clearly distinguishable from the approach of the 2000 WTO panel and is more in line with the approach favored in the Max Planck Declaration on a Balanced Interpretation of the Three-Step Test which advocates for a holistic approach.

*Author’s note: the Supreme Court in Campbell v. Acuff-Rose cites an article co-authored by Shira Perlmutter, current USPTO Administrator for Policy and External Affairs. There, Ms. Perlmutter advocates for the position adopted by the Acuff-Rose court, that is a flexible approach that considers all four factors, rather than requiring a defendant to independently satisfy each factor. That article, entitled Fair Use Misconstrued: Profit, Presumptions and Parody concludes:

As difficult as it is to apply, fair use must remain a sensitive, flexible doctrine, responsive to the facts of each individual case. Presumptions, formulas and rigid rules are foreign both to the doctrine’s traditional nature and to its statutory formulation . . . equity and reasonableness, the essence of fair use, cannot be cast in stone, and Congress has instructed that the courts are to continue a common law, fact-specific approach. The desired open-endedness is necessary if the fair use doctrine is to preserve its function of calibrating the optimal balance of public interests on both sides of the copyright scale.