On March 20, 2013, the Honorable Denise L. Cote of the U.S. District Court for the Southern District of New York issued a sweeping decision in favor of The Associated Press ("AP"), finding Meltwater News, an online media monitoring service, liable for copyright infringement and dismissing Meltwater's defenses, including its claim of fair use. In so holding, the Court embraced the principle that granting individual consumers free access to news content on the Internet does not mean that others can commercially distribute that news content.

AP, one of the oldest and most highly regarded news organizations in the world, filed suit against Meltwater in February 2012, accusing it of copyright infringement and related claims. Meltwater is a commercial media-monitoring service that provides its paying customers with daily "News Reports" containing excerpts – including the headline and lede – from news articles scraped from the Internet on topics selected by the customer.  After a period of expedited discovery, the parties submitted cross-motions for summary judgment on Meltwater's liability for copyright infringement.  Meltwater, relying heavily on the 9th Circuit's decisions in Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir. 2003) and Perfect 10, Inc. v. Amazon.com, 508 F.3d 1146 (9th Cir. 2007), argued that it operated as an Internet search engine, and that its use of AP content was therefore protected by the fair use doctrine.  Meltwater also claimed there were triable issues of fact on its affirmative defenses of implied license, equitable estoppel, laches, and copyright misuse that prevented granting summary judgment in favor of AP. The case generated substantial interest from amici, who recognized the potential impact of this decision on the media industry.  A consortium of news organizations (the New York Times Company, Advance Publications, Inc., Gannett Co., Inc., the McClatchy Company, and the Newspaper Association of America), and one of Meltwater's own competitors (BurrellesLuce, which licenses content from AP), filed an amicus brief in support of AP, while the Electronic Frontier Foundation and Public Knowledge submitted a brief in support of Meltwater.  The Computer & Communications Industry Association submitted an amicus brief, purportedly in support of neither party, asking the Court to take into account the effect of its ruling on the operation of "legitimate online services."

In the March 20 Opinion, Judge Cote rejected Meltwater's fair use defense.  Applying the first statutory factor, the purpose and character of the use, she first undertook a careful examination of the nature of Meltwater's use of news content in its service, and concluded that Meltwater was "a classic news clipping service," whose use of content was neither transformative nor fair.  As she noted, "Meltwater copies AP content in order to make money directly from the undiluted use of the copyrighted material; this is the central feature of its business model and not an incidental consequence of the use to which it puts the copyrighted material."  Judge Cote further noted the public interest weighed heavily against a finding of fair use:

"Paraphrasing James Madison, the world is indebted to the press for triumphs which have been gained by reason and humanity over error and oppression.  Investigating and writing about newsworthy events occurring around the globe is an expensive undertaking and enforcement of the copyright laws permits AP to earn the revenue that underwrites that work. Permitting Meltwater to take the fruit of AP's labor for its own profit, without compensating AP, injures AP's ability to perform this essential function of democracy."

In response to Meltwater's argument that it was like other search engines that "transform the work they take from Internet news sites by using that content for a new purpose, that is, as an integral part of an information-location tool," Judge Cote first observed that interests of news reporting and search engines are not necessarily at odds, and are in fact complementary.  As she said, "The Internet would be far poorer if it were bereft of the reporting done by news organizations and both are enhanced by the accessibility the Internet provides to news gathered and delivered by news organizations."  And, in fact, Judge Cote assumed for purposes of her opinion that a search engine as defined by Meltwater—"a system that by design and operation improves access to information that is available on the Internet"—would be transformative.

Turning to the evidence before her, however, Judge Cote concluded that Meltwater had failed to meet even its own definition of a search engine; rather than improving access to AP's copyrighted content, Judge Cote found that Meltwater acted as a substitute for that content.  The Court pointed to evidence that "customers rarely clicked-through to the underlying AP article." It occurred just 0.08% of the time. In her deposition, a Meltwater executive testified that a "click-through rate of 0.05% would be consistent with her expectations."  Judge Cote also noted that Meltwater had, in fact, marketed itself as a substitute, rather than a service that functioned as a search engine:

"Meltwater's own marketing materials convey an intent to serve as a substitute for AP's news service. Meltwater describes its Meltwater News products as 'News at a glance' and 'News brought to you.' They trumpet that "'Meltwater News continuously tracks news sources, updating its database continuously throughout the day so searches return fresh, relevant content,'" and advertise that "'your news is delivered in easy to read morning and/or afternoon reports.'"

Further, Meltwater had deliberately "chosen not to offer evidence that Meltwater News customers actually use its service to improve their access to the underlying news stories that are excerpted in its news feed," even though AP had "repeatedly requested additional data about Meltwater's click-through rate in anticipation of any argument by Meltwater that Meltwater News directs traffic to the original websites for the news articles."  Thus, although Meltwater argued that "its U.S. subscribers clicked-through to the underlying story millions of times during just the first six months of 2012," it could not put that number in context by disclosing the overall click-through rate, and, indeed, was precluded from doing so by failing to respond to AP's discovery requests.

Without evidence to bolster its search engine argument, Meltwater found itself relying on Kelly and Perfect 10, which Judge Cote found were entirely distinguishable.  She observed that both those cases addressed "a search engine engaged in a transformative purpose" (i.e., pointing users to the original content, rather than supplanting the need for the original).  Judge Cote also noted that both those cases involved photographs, "which by their nature are indivisible," while the text at issue here presented a different case.

The Court further found that calling oneself a "search engine" did not create a presumption of fair use; rather, Meltwater had an "independent burden to prove that its specific display of search results for its subscribers qualifies as a fair use."  As she put it, "using the mechanics of search engines to scrape material from the Internet and provide it to consumers in response to their search requests does not immunize a defendant from the standards of conduct imposed by law through the Copyright Act, including the statutory embodiment of the fair use defense."

Continuing with the analysis, the Court found that the second factor (the nature of the copyrighted work) was "at most neutral on the question of fair use" because AP's works were factual, and that the third factor (the amount and substantiality of the copying) weighed heavily in favor of AP because Meltwater's taking had been both quantitatively and qualitatively significant, particularly based on Meltwater's inclusion of the lede, or opening portion of the article, in its News Reports.  As for the fourth factor (the effect of the use on the potential market or value of the work), the Court found that Meltwater's use had, in fact, harmed the market for AP's content: "By refusing to pay a licensing fee to AP, Meltwater not only deprives AP of a licensing fee in an established market for AP's work, but also cheapens the value of AP's work by competing with companies that do pay a licensing fee to use AP content in the way that Meltwater does." (emphasis original).

Judge Cote also rejected as a matter of law Meltwater's additional defenses to copyright infringement based on implied license, estoppel, laches, and copyright misuse.  In support of its implied license defense, Meltwater had argued that by not employing robots.txt protocols to affirmatively block Meltwater – and requiring that its members and licensees do the same – AP had granted Meltwater an implied license to scrape and re-sell AP content published on the Internet, regardless of any copyright notices or terms of use explicitly limiting commercial use of AP content.

After first recognizing that an implied license required "a meeting of the minds between the licensor and licensee," the Court rejected Meltwater's argument, observing its failure to "point to any interaction with AP from which it could be inferred that there was a meeting of minds between the parties that AP was granting Meltwater a nonexclusive license to extract and re-publish excerpts of its news stories that appeared on the Internet."

In rejecting Meltwater's implied license defense, Judge Cote was also aware of the larger impact a contrary finding would have on content providers.  In particular, Judge Cote focused on Meltwater's robots.txt argument.  The robots.txt protocol was designed "to instruct cooperating web crawlers not to access all or part of a website that is publicly viewable.  If a website owner uses the robots.txt file to give instructions about its site to web crawlers, and a crawler honors the instruction, then the crawler should not visit any pages on the website."  Contrary to Meltwater's argument, the Court held that failure to employ the robots.txt protocol did not grant an implied license because, if that were the case, it would impermissibly shift the burden to copyright holders to affirmatively police the use of their content, rather than requiring infringing parties to show that content was properly used.  Moreover, it would remove any flexibility content providers had in regulating the means by which they provided their content.  As she stated, the implied license advocated by Meltwater "would reach to every web crawler with no distinction between those who make fair use and those who do not, or between those whose uses may be publicly observed and those whose uses are hidden within closed, subscriber systems."  Nor would the copyright holder be able to communicate "which types of use the copyright holder is permitting the web crawler to make of the content or the extent of the copying the copyright holder will allow" (emphasis original).  And, recognizing Meltwater's underlying "search engine" argument, Judge Cote noted that "when a crawler is making a fair use of a website's content, it does not need to resort to the implied license doctrine; where it does not, then the website's failure to use the robots.txt protocol to block its access will not create an implied license."

The Court also dismissed Meltwater's equitable estoppel defense, repeating that AP had no duty to restrict access to its content via paywall or robots.txt exclusion before bringing suit, and that there was no evidence that AP or its licensees had granted Meltwater permission to infringe.  To the contrary, Judge Cote found that certain evidence—such as website terms of use, AP's litigation against a Meltwater competitor, and its efforts to protect content from online misappropriation—indicated that Meltwater was (or should have been) on notice that its infringement  was impermissible.

As for Meltwater's laches claim, the Court found that because AP's infringement claims were brought within the three-year statute of limitations, laches was not available as to AP's damages claim or its claim for prospective relief.  The Court did state that laches might be available to Meltwater with respect to AP's claim for retrospective injunctive relief, and thus gave the parties an additional opportunity to address that point.

Finally, Judge Cote addressed Meltwater's copyright misuse defense.  Although the 2nd Circuit has not recognized misuse as an affirmative defense, other circuits have described the defense as "arising from a copyright holder's attempt to use its copyright in a particular expression 'to control competition in an area outside the copyright.'"  See Lasercomb Am. v. Reynolds, 911 F.2d 970, 979 (4th Cir. 1990).  The defense "is one that is applied 'sparingly'" and its focus "is on the improper stifling of competition."

In this case, Meltwater claimed that by participating in NewsRight, a joint venture between AP and other publishers formed in 2011 and publicly launched in 2012, AP had violated antitrust law.  Judge Cote roundly rejected Meltwater's claim, noting that Meltwater had failed to show that AP had "improperly leveraged its copyrights to exert control over competition in the delivery of news."  Instead, "every one of [AP's] competitors, whether a member of NewsRight or not, retains the power to issue its own licenses according to whatever pricing scale it chooses" and that "AP does not create the news, control access to the news, or have any power to restrict any other party's entry into the business of reporting the news."

Davis Wright Tremaine partners Elizabeth A. McNamara and Linda Steinman, and associates Alison B. Schary, and Collin J. Peng-Sue, represented AP in this matter.