Market effect analysis in fair use must consider potential markets
The Ninth Circuit failed to acknowledge the relevance of obvious future markets when it ruled in favor of Google in Perfect 10, Inc. v. Amazon.com, Inc. In doing so, it effectively awarded to Google and others a market that that rightfully belongs to the copyright owner.
The lower court had concluded that this fact and the potential that there would be a market for such images in other contexts indicated that the defendant’s use had a market impact. The court of appeals, however, suggested that this hypothetical market was insufficient given that there was no evidence that users of the search engine downloaded the thumbnail images for cell phone or other use.
But there is a troubling circularity to the market effects analysis here. The market for the thumbnails could include licensing their use in search engines, except that the court’s fair use analysis eliminates this potential market and does so based on the analysis that the market does not exist. This circular analysis deprives the copyright owner of the opportunity to full exploit its work by developing markets over time, since it suggests that another party that enters a market defined by modified versions of the original work (e.g., derivative works of it) before the copyright owner may in fact preempt that field of use. That cannot be what is meant by market impact in the fair use standard.
What is wrong in the court’s analysis is that it failed to consider the likelihood that a copyright owner in general or that this copyright owner in specific would opt into a market defined by online use of thumbnail versions of its works. In fact, in this case and in this era, that likelihood is strong.
The issue in Perfect 10, Inc. v. Amazon.com, Inc., 2007 WL 1428632 (9th Cir. 2007) was whether thumbnail images used in a search engine without authority of the copyright owner were infringing. The court, as it had in the Arriba Soft case, again concluded that the thumbnails were transformative in nature and that their use in an online search engine, coupled with the lack of any impact on an existing market for the full-size images, constituted fair use. The case, however, presented a slight change in the circumstances in Arriba In Perfect 10, the copyright owner had in fact begun to market thumbnail (reduced) versions of its copyrighted images for use in cell phones.
The lower court had concluded that this fact and the potential that there would be a market for such images in other contexts indicated that the defendant’s use had a market impact. The court of appeals, however, suggested that this hypothetical market was insufficient given that there was no evidence that users of the search engine downloaded the thumbnail images for cell phone or other use.
But there is a troubling circularity to the market effects analysis here. The market for the thumbnails could include licensing their use in search engines, except that the court’s fair use analysis eliminates this potential market and does so based on the analysis that the market does not exist. This circular analysis deprives the copyright owner of the opportunity to full exploit its work by developing markets over time, since it suggests that another party that enters a market defined by modified versions of the original work (e.g., derivative works of it) before the copyright owner may in fact preempt that field of use. That cannot be what is meant by market impact in the fair use standard.
What is wrong in the court’s analysis is that it failed to consider the likelihood that a copyright owner in general or that this copyright owner in specific would opt into a market defined by online use of thumbnail versions of its works. In fact, in this case and in this era, that likelihood is strong.
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