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The Relevance of Bad Faith to Fair Use Analysis

By Kai B. Falkenberg
[Winter 2007]

Your client, Celebrity Weekly, obtains an unauthorized copy of a bombshell Lifestyle Magazine exclusive interview with Angelina Jolie. The editor wants to know whether they can publish highlights of the interview before the Lifestyle issue hits the stands. Lifestyle had refused to provide Celebrity Weekly with an advance copy of the interview, but Celebrity Weekly managed to get it anyway. How does that play in the fair use analysis, you wonder. Can Celebrity Weekly still claim a fair use defense, even though they obtained the interview by unauthorized means?

Unfortunately, the case law is inconsistent and provides no clear answer to this question. The Supreme Court’s decision in Harper & Row v. Nation Enterprises, 471 U.S. 539 (1985), appeared to inject the defendant’s good or bad faith into its analysis of the fair use defense’s first statutory factor (the purpose and character of the use). The Court mentioned the issue once again, nearly 10 years later, suggesting in a footnote in Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994), that the bad faith subfactor should not be central to the fair use analysis. However, the Campbell opinion failed to shed any further light on the appropriate role of bad faith in the fair use inquiry.

In light of the continued ambiguity, federal appellate courts have given differing weight to a defendant’s bad faith conduct. The Federal Circuit, at one end of the spectrum, has interpreted Harper & Row as requiring “an individual [to] possess an authorized copy of a literary work” as a prerequisite to claiming fair use. Atari Games Corp. v. Nintendo of Am. Inc., 975 F.2d 832, 843 (Fed. Cir. 1992). The Second and Ninth Circuits, on the other hand, both have read Harper & Row, as clarified by Campbell, more narrowly—ruling that a defendant’s bad faith is not dispositive of a fair use defense but merely a subfactor that weighs in plaintiff’s favor. NXIVM Corp. v. The Ross Institute, 364 F.3d 471 (2d Cir. 2004); Los Angeles News Srvc. v. KCAL-TV Channel 9, 108 F.3d 1119 (9th Cir. 1997).

How much weight should courts place on a defendant’s bad faith conduct when analyzing fair use?

Under Section 107 of the Copyright Act, four factors are relevant to determining whether a particular use is a fair use:

(1) the purpose and character of the use of the copyrighted work;

(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. 17 U.S.C. § 107.

The debate over the role of bad faith in a fair use analysis found its genesis in the Supreme Court’s decision in Harper & Row, 471 U.S. 539, which arose after an undisclosed source provided The Nation magazine with an unauthorized copy of President Ford’s soon-to-be-published memoirs. Using excerpts from the manuscript, The Nation published a piece on President Ford’s reasons for pardoning President Nixon, timing the piece to scoop an article scheduled to appear in Time magazine. As a result of The Nation article, Time canceled its agreement to license prepublication excerpts from the purloined manuscript. Harper & Row, Ford’s publisher, then brought a copyright action against The Nation. On appeal, the Second Circuit reversed the lower court’s finding of infringement, holding that The Nation’s act was a legitimate “fair use” of the copyrighted material.

The Supreme Court reversed. In evaluating the character and purpose under the first fair use factor, the Court noted that it could not ignore The Nation’s stated purpose of scooping the forthcoming book and Time excerpts. The Court explained that “The Nation’s use had not merely the incidental effect but the intended purpose of supplanting the copyright holder’s commercially valuable right of first publication.” 471 U.S. at 562. “Also relevant to the ‘character’ of the use,” the Court continued, “is the propriety of the defendant’s conduct.” Id. at 562-63 (internal citations omitted). “Fair use presupposes good faith and fair dealing,” the Court held, and it therefore found that The Nation’s knowing exploitation of a purloined manuscript weighed against The Nation (and a finding of fair use) on the first factor. Id. The Court continued its analysis of the remaining fair use factors, ultimately concluding that The Nation’s publication of verbatim excerpts from the unpublished manuscript was not a fair use.

Federal Circuit finds bad faith precludes fair use defense

Relying on the discussion in Harper & Row, the Federal Circuit ruled that as a broad proposition, bad faith by a defendant forecloses a fair use defense. Atari Games Corp., 975 F.2d 832. The court considered Atari’s invocation of fair use in a claim arising out of Atari’s reverse engineering of the Nintendo game system, but held that the fair use defense was unavailable because Atari had obtained a copy of Nintendo’s source code from the U.S. Copyright office by lying about its reason for needing the code. “To invoke the fair use exception,” the Federal Circuit ruled, citing Harper & Row, “an individual must possess an authorized copy of a literary work.” Id. at 843. “Because Atari was not in authorized possession of the Copyright Office’s copy of [Nintendo’s source code], any copying [of that code],” the court held, “does not qualify as a fair use.” Id.

Supreme Court revisits relevance of bad faith

Two years after the Federal Circuit’s decision in Atari, the Supreme Court briefly revisited the bad faith issue in Campbell, 510 U.S. 569, a parody case involving the song “Pretty Woman.” The defendants, the rap group 2 Live Crew, had sought permission to parody the classic Roy Orbison ballad. Denied permission, the defendants parodied the song anyway. The copyright holder sued, and the Supreme Court held that 2 Live Crew’s parody could be a fair use and remanded the case for further factual findings. In a footnote to its discussion of the first fair use factor (the character and purpose of the use), the Court noted: “[R]egardless of the weight one might place on the alleged infringer’s state of mind, we reject [plaintiff’s] argument that 2 Live Crew’s request for permission to use the original should be weighed against a finding of fair use.” Id. at 585 n.18 (internal citations omitted). “Even if good faith were central to fair use,” the Court said, “being denied permission to use a work does not weigh against a finding of fair use.” Id. (emphasis added).

Ninth and Second Circuits hold bad faith not dispositive of fair use

Some courts read the Campbell footnote as confirming that a finding of good faith is not central to fair use and cannot therefore be dispositive. Shortly after Campbell was decided, one district court refused to bar a defendant from claiming fair use, although it assumed he had obtained some of the works without authorization. Religious Technology Center v. Netcom On-Line Communication Services, 923 F. Supp. 1231 (N.D. Cal. 1995). Here, organizations affiliated with the Church of Scientology brought an infringement action against a former Scientologist who posted a large amount of the Church’s copyrighted work on the Internet. The court found that it was more likely than not that the defendant had received at least some of the copies in an improper manner. Id. at 1244-45. Nevertheless, the court ruled, the fact that the copies obtained were unauthorized did not preclude it from being a fair use. While it would weigh in plaintiff’s favor when analyzing the first fair use factor, the court held that bad faith should merely be considered alongside the other factors. The court reasoned that “[n]othing in Harper & Row indicates that the defendant’s bad faith was itself conclusive of the fair use question, or even of the first factor.” Id. at 1244 n.14. “After Campbell,” the court held, “it is clear that a finding of bad faith, or a finding on any one of the four factors, cannot be considered dispositive.” Accordingly, the court decided to “treat bad faith as merely one aspect of the first factor.” Id.

The Ninth Circuit endorsed this approach two years later in Los Angeles News Srvc. v. KCALTV Channel 9, 108 F.3d 1119 (9th Cir. 1997), a lawsuit involving the copyrighted video of the Reginald Denny beating. The Los Angeles News Service (LANS) sued television station KCAL after the station used LANS’s footage of the beating without a license (which LANS had refused to grant KCAL). Id. at 1120. KCAL asserted a fair use defense and the Ninth Circuit, in analyzing the first fair use factor, assessed whether defendant’s conduct was in bad faith. Id. at 1122. Citing Campbell, the Ninth Circuit ruled that the fact that KCAL had requested a license but had been refused one was relevant, but not dispositive of its fair use defense. As the court reasoned, “‘the propriety of the defendant’s conduct’ is relevant to the character of the use at least to the extent that it may knowingly have exploited a purloined work for free that could have been obtained for a fee.” Id. (citations omitted). The court went on to consider all four factors, and then found that KCAL had not made a fair use of the videotape. The Ninth Circuit thus signaled that a defendant’s improper conduct, while relevant to the first fair use factor, would not foreclose a fair use defense.

The Second Circuit reached the same conclusion in NXIVM Corp. v. The Ross Institute, 364 F.3d 471 (2d Cir. 2004), involving producers of business training seminars who brought an infringement action against individuals who posted NXIVM’s copyrighted course materials on the Internet. The defendants, who ran nonprofit websites providing information to the public about controversial groups, had obtained NXIVM’s course materials from a former participant in NXIVM’s seminars. Id. at 475. The former participant provided the copyrighted information to the defendants despite having signed a non-disclosure agreement that precluded her from disseminating the materials to others. NXIVM moved for a preliminary injunction to require that its copyrighted information be removed from defendants’ websites. Id. at 476. The district court denied the preliminary injunction, finding no likelihood of success on the merits because defendants’ fair use defense was likely to succeed. Id.

On appeal, following its own review of the relevant fair use factors—including the propriety of the defendants’ conduct—the Second Circuit also found that defendants’ fair use defense was likely to defeat plaintiff’s infringement claim. Turning to the first factor in the fair use analysis, the court recognized that the propriety of the defendants’ conduct is “an integral part of the analysis under the first factor” which the district court had failed to consider. Id. at 478. “[T]o the extent [the defendants] knew [their] access to the manuscript was unauthorized or was derived from a violation of law or breach of duty, this consideration weighs in favor of plaintiffs,” the Second Circuit ruled. Id. Also relevant within this subfactor, the court found, was the fact that the defendants could have acquired the manuscripts legitimately by paying the requisite fees to enroll in NXIVM’s seminars. Id.

Assuming the defendants had engaged in bad faith, the court went on to consider how much weight this subfactor should be afforded when assessing the first fair use factor. Id. The Second Circuit rejected the broad interpretation of Harper & Row set out in the Federal Circuit’s Atari opinion, noting that “the rule enunciated in Atari would foreclose the fair use defense altogether based upon defendants’ bad faith.” Id. As the Second Circuit explained, “[b]ecause the Harper & Row Court did not end its analysis of the fair use defense after considering and ascertaining the defendants’ bad faith there, we believe that the bad faith of a defendant is not dispositive of a fair use defense.” Id. at 479. Agreeing with the Religious Technology Center court, the Second Circuit found that the Supreme Court’s Campbell decision “further supports [the] conclusion that a finding of bad faith is not to be weighed very heavily within the first fair use factor and cannot be made central to fair use analysis.” Id. at 479 n.2. According to the Second Circuit in NXIVM, Campbell recognized “the continued relevance of Harper & Row, but clarified that the bad faith factor can be de-emphasized and will not be dispositive of the first fair use factor.” Id. Given the continued ambiguity, however, the Second Circuit noted it would “await from the Supreme Court a clearer renunciation than the Campbell footnote of bad faith’s relevance (however attenuated) to the fair use inquiry.” Id.

Even with the bad faith subfactor weighing in plaintiff’s favor, the court found the first factor still favored defendants in light of the transformative nature of the secondary use as criticism. Id. at 479. If no statutory factor could be dispositive after Campbell, then neither could any single subfactor, the Second Circuit reasoned. Id.

Should bad faith be considered at all?

Concurring with the majority decision in NXIVM, Chief Judge Dennis Jacobs wrote separately to suggest that a finding of bad faith should not just be afforded little weight in the fair use analysis, but rather no weight whatsoever. Jacobs asserted that Harper & Row’s bad faith analysis was unnecessary to the outcome in the case. “Rejection of the fair use defense,” wrote Judge Jacobs, “was compelled by the essential statutory considerations.” 364 F.3d at 483. The Supreme Court’s consideration of fair use in Campbell, thus, “treated as an open question whether the secondary user’s good or bad faith is pertinent to the fair use inquiry (contrary to its observation in Harper & Row).” Id. As Judge Jacobs points out, “Campbell’s contrary-to-fact phrasing—’[e]ven if good faith were central to fair use’—rather suggests that it should not be.” Id. at 484. Believing the issue as yet unresolved by the Supreme Court, Judge Jacobs offered his assessment “that a secondary user’s good or bad faith in gaining access to the original copyrighted material ought to have no bearing on the availability of a fair use defense.” Id. at 483. As Judge Jacobs went on to explain, the central objectives of copyright would be disserved if “the morality and good behavior of secondary users” formed part of the fair use analysis. Id. at 483-84 (citing Pierre N. Leval, Toward a Fair Use Standard, 103 Harv. L. Rev. 1105, 1126-27 (1990)).

Fair use, Judge Jacobs observed, is a statutory right, not “a privilege conferred on the well-intentioned.” Id. at 485. Its purpose is to encourage the creation of original, transformative works. In considering the first fair use factor, two questions are critical: first, whether the secondary work copies the original with the same literary intention or rather with a new, transformative purpose; and second, whether the secondary work usurps some of the market for the first by serving as an alternate means of acquiring the quoted material. Id. at 485. Bad faith, the concurrence noted, is not relevant to either of those inquiries. If a person obtains an original work by improper means, that person likely will be subject to a host of civil and criminal charges. “[B]ut the question of fair use itself,” Judge Jacobs concludes,

“should be decided on the basis of the transformative character and commercial effects of the secondary use. If the use satisfies the criteria of §107, it is fair because it advances the utilitarian goals of copyright.” Id.

Thus, just as fair play is not a defense to infringement, Judge Jacobs contends that “bad faith should be no obstacle to fair use”:

[A] hotelier who stocks each room with photocopies of a newly copyrighted translation of the Bible is not saved from infringement by his piety; similarly, a movie reviewer who critiques—and reveals—a surprise ending is not deprived of the fair use by his malice or spite. Nor should a book critic be denied the fair use protection because she gained access to a prepublication manuscript by deceit. Fair use is not a permitted infringement; it lies wholly outside the domain protected by the author’s copyright. Id. at 486.

If bad faith is factored into the fair use analysis, Judge Jacobs opined, it likely will lead “to the suppression of transformative works that are valuable to the expansion of public knowledge.” Id. Given that bad faith is a slippery concept, publishers may be unwilling “to risk liability on the basis of (unknown or unsuspected) tactics and morals of authors who produce transformative works.” Id. This, Judge Jacobs lamented, would be a result contrary to the public good that copyright exists to promote. Id.

What is bad faith?

As Judge Jacobs’ concurrence in NXIVM warns, the notion of what constitutes bad faith is difficult to define. Factoring bad faith into the fair use analysis makes predicting the outcome of a fair use claim even more complicated. For example, if a secondary user obtains the original work by deceit, will that always constitute bad faith? In Atari Games Corp., Atari obtained Nintendo’s source code by lying to the copyright office—clear evidence of bad faith, the Federal Circuit held. 975 F.2d at 843. But what if the conduct were not so egregious? What if the original work was obtained from an anonymous source—must the recipient investigate whether the source’s receipt of the work was authorized? And what about publishing a work after being denied permission? Does that alone constitute bad faith?

The Second Circuit opinion in NXIVM suggests that a finding of bad faith presupposes that the defendant “knew that his access to the [copyrighted works] was unauthorized or was derived from a violation of law or breach of duty.” 364 F.3d at 478. Only then, the court held, would a defendant’s conduct weigh against a finding of fair use. Following NXIVM, for example, a New York district court found that where the evidence was disputed as to whether defendants knew the underlying works had been stolen, summary judgment could not be granted against defendants on bad faith. Shady Records v. Source Enterprises, Inc., 2005 WL 14920 (S.D.N.Y. Jan. 3, 2005).

As mentioned above, another factor courts have considered in evaluating bad faith is whether defendant copied the work despite having been denied permission to do so. In Campbell, the Supreme Court found that 2 Live Crew’s use of the Roy Orbison song “Pretty Woman” after having been denied permission did not constitute bad faith. 510 U.S. at 585 n.18. The Court explained that the defendants’ “actions do not necessarily suggest that they believed their version was not fair use; the offer may simply have been made in a good-faith effort to avoid [] litigation.” Id. According to the Court, if the use is otherwise fair, then permission is unnecessary. Id. Proceeding without permission does not therefore establish bad faith. Id.; accord Bill Graham Archives v. Dorling Kindersley Ltd., 2006 WL 1236790, at *8 (2d Cir. May 9, 2006); Gulfstream Aerospace Corp. v. Camp Systems Int’l, Inc., 2006 WL 1061890, at *11 n.5 (S.D. Ga. April 18, 2006).

In addition, several courts have found relevant the fact that the defendant knowingly exploited a work that could have been purchased for a fee. In Los Angeles News Srvc., for example, the court noted that KCAL had requested a license but was refused one. While it found that this fact was not dispositive, it nevertheless held the defendant’s conduct improper given that the defendant had “obtained a copy of the tape from another station, directly copied the original, superimposed its logo on [plaintiff’s] footage, and used it for the same purpose for which it would have been used had it been paid for.” 108 F.3d at 1121. In NXIVM, the Second Circuit similarly considered relevant the fact that the defendants could have paid the requisite fee to enroll in NXIVM’s seminars and obtain their materials legitimately. 364 F.3d at 478. The court assumed that defendants had engaged in bad faith conduct but nevertheless found defendants’ republication of the seminar materials to be a fair use. Id. at 482.

Finally, a finding of bad faith also could be predicated on the violation of a contractual duty. In NXIVM, the plaintiff required its seminar participants to sign a non-disclosure agreement. Violation of that agreement, the Second Circuit noted, “would be a breach of a contractual duty but would not ipso facto be a copyright infringement.” Id. at 478 n.1. However, the court continued, “such a violation of a contractual duty, would be relevant in assessing the bad faith subfactor within the first factor.” Id.

How does the bad faith question impact your advice to clients?

Without further guidance from the Supreme Court on the relevance of bad faith to the fair use inquiry, advising clients on the viability of a fair use defense is difficult. Nevertheless, there are some lessons to be learned from those cases addressing the issue following Harper & Row and Campbell. Absent a clearer renunciation of the good faith principle, clients should be advised that their conduct in acquiring copyrighted materials likely will be considered at least as a subfactor within the first factor of a fair use analysis. Where clients receive the copyrighted material anonymously, courts may well assume that the clients’ possession of such material is unauthorized, absent evidence to the contrary. Where clients have obtained the copyrighted material through their own deceptive or unauthorized means, a finding of bad faith is more certain and likely to have a greater negative impact on a court’s analysis of the first fair use factor. Following Campbell, clients need not fear that using copyrighted material after having been denied permission will automatically constitute bad faith conduct. 510 U.S. at 585 n.18. But if the material could have been lawfully obtained by simply paying a fee, that is a factor that courts may well take into account. Given the increasing competition among media outlets for market share and the premium associated with providing fresh and innovative content in an expedited manner in the Internet age, the question of defendants’ bad faith conduct in using copyrighted material is likely to arise again and again in the context of fair use challenges. The trend appears to be to give less weight to a defendant’s bad faith conduct. But it remains to be seen whether the well-reasoned view of Judge Jacobs—that such conduct should have no relevance at all—will prevail in the end.

About the Author:

Kai Falkenberg is a former media and intellectual property attorney in Davis Wright Tremaine’s New York Office. Kai recently moved to Forbes, where she serves as editorial counsel.

This First Amendment Law Letter is a publication of the law firm of Davis Wright Tremaine LLP and is prepared by the Media Group in its Communications, Media and Information Technologies Department, Kelli L. Sager, Chair, Bruce E.H. Johnson and Robert D. Balin, Vice Chairs, Rochelle Wilcox, editor and Amber Husbands, associate editor.

Our purpose in publishing this law letter is to inform our clients and friends of recent First Amendment and communications law developments. It is not intended, nor should it be used, as a substitute for specific legal advice since legal counsel may be given only in response to inquiries regarding particular factual situations.

Copyright © 2007, Davis Wright Tremaine LLP.

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