ISMT 520 Lecture #3: Fair Use Exceptions, DMCA, and Individual Assignment Dr. Theodore H. K. Clark Associate Professor and Academic Director of MSc Programs in IS Management and E-Commerce Management Department of Information & Systems Management Hong Kong University of Science & Technology and Visiting Associate Professor of Operations & Information Management (Information Economics and Strategy Group) The Wharton School of the University of Pennsylvania

HKUST Business School DMCA USA unique law Augments copyright protections on software and other forms of digital information Not applicable or enforced outside USA Makes breaking encryption a CRIME No defenses against breaking encryption Extremely anti-consumer law Even if fair use applies, DMCA prohibits actions Not generally enforced, but very powerful

HKUST Business School 3 Individual Assignment Due next week, at or before start of class Two or three pages maximum Internal law firm memo format, not to client Copyright law focused on fair use exceptions Do not worry about question about standing Use cases in reading materials assigned Other materials may also be used, if desired

HKUST Business School 4 Review and Discussion of Cases Apple Computer case – what did we learn? Operating system code is protected by copyright Copyright protects source code and complied code ROM software code not same as “microcode” General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? White-Smith Music Publishing Co. (piano rolls) Unresolved issues left open in this case?

HKUST Business School 5 Review and Discussion of Cases Lotus case – what did we learn? Menu “look and feel” is protected by copyright First impression of court – what is included in copyright protections, and what is functional only Function not protected by copyright, but menu structure considered to be “expression” and protected “art”, not generic function or ideas not protected by copyright General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? Unresolved issues left open in this case?

HKUST Business School 6 Review and Discussion of Cases Lewis Galoob Toys case – what did we learn? Game Genie not violation of copyright Fair use exception applies, for various reasons Game Genie not derivative work Failed to show any harm, and non-profit (???) General questions to also ask or consider What jurisdiction? To whom does this apply? Minority or dissenting opinions? Other cases? Unresolved issues left open in this case?

HKUST Business School 7 Fair Use Exception to Copyright Copyright law is simple, but fair use makes the application of what is or is not violation of copyright very complex and difficult to assess Fair use a DEFENSE to charge of infringement Must have apparently violated copyright before fair use is even applicable or worth considering Fair use requires a VERY specific inquiry, and it is almost impossible to give clear general guidelines as to what is or is not “fair use”.

HKUST Business School 8 Fair Use Exception Principles Four basic principles universal to Fair Use, which must explicitly consider the following: The purpose and character of the use, including commercial nature; The nature of the copyright work (e.g., fiction); The proportion that was “taken”; and The economic impact of the “taking”. These four factors must be considered and balanced against individual property rights

HKUST Business School 9 Fair Use Additional Consideration Two additional interests must be considered in the USA, but may not apply outside USA: Intent and motives of defendant often matter; and First Amendment rights and interest often can trump copyright laws and other property interests. Intent may matter outside USA as well as within USA courts, but it is not determinative anywhere, as unintentional violations happen. First Amendment is USA specific law only.

HKUST Business School 10 Fair Use Balancing Tests Determination of whether or not Fair Use exception to copyright should apply requires a “balancing test” of the interests of society (e.g., public policy) versus need to protect individual rights of the copyright holder. No single test dominates, but any one of these tests may be determinative, and any one could be sufficient to show fair use. However, most cases consider multiple factors and balance tradeoffs across all.

HKUST Business School 11 Fair Use Challenges Fair use determination requires weighing multiple factors based on ambiguous criteria and judging between competing interests. In Dellar v. Samual Goldwyn, Inc., the court opinion stated that fair use was “the most troublesome in the whole of copyright.” Copyright law would be simple if not for fair use, but it also would be very restrictive.

HKUST Business School 12 Fair Use: Character of the Use Non-commercial, education, non-profit Not the same, but often overlap Non-commercial use “highly persuasive” Sony Betamax case Non-commercial, not contributory violation MacMillan v. King case Too much copying not okay for economics text Profit motive highly influential in evaluation But, only one factor, and not determinative

HKUST Business School 13 Fair Use: Nature of the Work Fact versus fiction – fiction more protected Book of forms not protected, as copying intended Educational textbooks LESS protected by non- profit and educational usage --- Why? Economic impact linked strongly to nature of the work, with interactions between factors Creativity and Originality should be protected Unpublished nature does not bar fair use

HKUST Business School 14 Fair Use: Amount and Substance The percentage of the work copied is a factor to be considered, but is not conclusive Portion of unique VALUE and quality taken is more important than merely % of work copied Copying less than 1% of work was violation Half of work, or even 90%, might be fair use Both qualitative and quantitative measures are important under fair use determination What is key and prominent part of work?

HKUST Business School 15 Fair Use: Economic Effect Economic impact of “taking” on plaintiff is highly persuasive, but must be balanced against other fair use factors as well Small portion of large work might be its economic “heart”, and thus, claim of fair use defeated Not simply direct economic harm, but potential harm to potential future markets must be considered as well Tied closely with profit motivation as well

HKUST Business School 16 Fair Use: Parody and Satire Courts generally give wide latitude to works using parody, satire, or criticism Pretty Woman “rap” song How much is taken? Is more than needed to do parody, satire, or criticism taken? For what purpose was the taking done? Economic effect ASSUMED to be negligible True “transformative” usage, not substitute

HKUST Business School 17 Fair Use: Free Speech Strongest when linked to criticism or parody or when related to public policy issues VERY strong defense, when accepted First amendment has priority over copyright Probably would apply to non-USA violation if the work was owned by USA company or individual and case raised in USA courts, but not an issue for works solely outside USA.

HKUST Business School 18 Fair Use: Transformative Use Evaluates whether defendant’s work serves a clearly different function or market need than the original copyright work, and therefore does not detract or weaken expected profits Sort of part of the economic impact test, but sometimes used as a separate test when the direct economic impact of a work is unclear Defines abstract terms of intrinsic purpose or function of the original and infringing works

HKUST Business School 19 Fair Use: Summary Balancing Act Weighing Multiple Factors Difficult to Clearly Determine Outcome in Advance for Fair Use Exception Claims Copyright Law is simple, other than Fair Use Different courts MIGHT reach different opinions on the same fact pattern and laws Presenting facts effectively using prior case examples and persuading Judge is critical

HKUST Business School 20 Group & Individual Assignments Group assignments made for those who have not yet selected groups for their project Individual assignment due next week, at or before the start of class Individual assignment will help you prepare for group project, as questions overlap some Start working on Group project soon, as time will fly fast and be gone before you realize it!