The Progress & Freedom Foundation Blog

The Journal notes the significance of the first factor--ISP cooperation--but it understates the significance of the second. Copyright laws are supposed to make it difficult to build viable commercial distribution businesses around limitations and exceptions like the fair-use defense. An example may show how and why.

For example, imagine a popular, commercial video-sharing website, UGCSite, run by its corporate parent, UGC Inc. Imagine also that UGC Inc. employs Terms of Service that require any UGCSite user uploading a video to agree to the following Terms:

First, the UGCSite user must grant UGC Inc. "a worldwide, non-exclusive, royalty-free sublicensable and transferable license to use, reproduce, distribute, prepare derivative works of, display, and perform the video in connection with the UGC Website and UGC's (and its successors' and affiliates') businesses, including without limitation for promoting and redistributing part or all of the video (and derivative works thereof) in any media formats and through any media channels."

Second, the UGCSite user must also "agree that you will not submit material that is copyrighted, protected by trade secret or otherwise subject to third party proprietary rights, including privacy and publicity rights, unless you are the owner of such rights or have permission from their rightful owner to post the material and to grant UGC all of the license rights granted herein."

From the copyright-related perspective of non-professionals using UGCSite to post their own works, these terms seem pretty reasonable. UGCSite provides valuable and popular commercial-quality hosting, distribution, and delivery services. Moreover, the commercial-use rights granted to UGC Inc. may only be exercised as to those few works that become iconic Internet sensations.

But if a UGCSite user uploads a work that "remixes," without permission, the work of another author, UGCSite's commercial nature and its Terms of Service should significantly affect any subsequent fair-use analysis.

For example, overlook, for now, some of the complexities of applying fair-use analysis to music and consider the following use: Bob uses his camcorder to record a 2-minute video of his daughter wearing her Halloween princess costume. The film includes an (unauthorized) 30-second segment in which she lip-syncs to a recording of a popular copyrighted song, not realizing that her princess costume puts a funny "spin" on the lyrics. At this point, many of the usual fair-use factors would appear to favor a finding of fair use: Bob made a transformative, non-commercial use of a short segment of a song that seems unlikely to affect its potential market.

But consider how fair-use analysis changes if Bob makes a new use of the song by agreeing to UGCSite's Terms of Service and uploading his video to UGCSite. Now, the relevant question is not just whether Bob's creation of his video was a fair use, but also whether it was a fair use for Bob to upload that video to UGCSite and make the representations and grant the rights required by the UGCSite Terms of Service. To be clear, the fair-use issues that would then arise have yet to be litigated, but most are straightforward:

Bob made a commercial use of the song: Bob uploaded his video to UGCSite in order to obtain valuable hosting and delivery services from a commercial provider. Even if UGC INC. does not directly monetize Bob's video, UGC Inc. is not hosting it as community service--even non-monetized videos help increase traffic to UGCSite and generate critical network effects. As Justice Holmes put it in Herbert v. Shanley, "If music did not pay it would be given up. If it pays it pays out of the public's pocket. Whether it pays or not the purpose of employing it is profit and that is enough." In short, when Bob uploaded his video to UGCSite to obtain valuable storage, distribution and delivery services, his use of the song became a commercial use. This weighs strongly against a finding of fair use.

Were this not obvious, (and it may not be, to Bob), UGCSite's Terms of Service remove all doubt about the upload's commercial character--and they do so even before the commercial-use rights granted are actually exercised. Indeed, the sheer breadth of the commercial-use license that Bob granted to UGCSite readily explains why even an artist who would usually be thrilled to have parents recording their children singing his songs might object if those parents then license his works to UGC Inc. for royalty-free, world-wide commercial recombination and use.

Bob granted commercial derivative-works rights that foreclose claims about transformativeness or limited use: In itself, Bob's video may be transformative, and it uses only a part of the copyrighted song. These factors would normally favor fair use. But the broad, commercial derivative-works rights that Bob granted to UCG Inc. should change the analysis.

The derivative-work rights that Bob granted would let UGC Inc. separate the sound track of Bob's video, combine it with other soundtracks containing other parts of the same song, and use the resulting complete copy of the song commercially. Such use is neither transformational or limited, yet it is clearly within the scope of the commercial-use rights that Bob granted to UGC Inc.

Bob (incorrectly) represented he either owned the copyrights in the song or had the owner's permission to grant commercial-use rights to UGC Inc: In Harper & Row, Publishers, Inc. v. Nation Enterprises, the Supreme Court held that "'[f]air use presupposes "good faith" and "fair dealing.'" The bounds of this "fair dealing" factor remain controversial. Nevertheless, and virtually by definition, unauthorized uses should not be "fair" if tolerating them could cause copyright owners to waive their rights.

Perhaps unknowingly, Bob potentially created such a situation. Copyrights, like almost all property rights, are subject to an array of ill-defined equitable defenses like laches, waiver, license by estoppel, implied license, misuse, etc. As a result, if copyright owners knowingly and consistently tolerate public acts that are inconsistent with their rights or ownership, then they may be precluded from asserting them. Consequently, a fair-use defense may be seriously compromised if a public act of uploading represents either a claim of ownership or permissioned permission to grant commercial use and derivative-works rights to for-profit corporations like UGC Inc. Such representations could create potential waiver and estoppel issues that copyright owners may conclude that they cannot safely ignore--and that is the antithesis of "fair."

The preceding hypothetical about Bob, UGCSite, and UGC Inc., closely tracks real-world events and agreements. Consequently, even the partial fair-use analysis presented here can suggest why real UGC-site operators trying to monetize law-abiding businesses will tend to rely more on cooperation and licensing than limitations and exceptions.

Indeed, in the long run, these cooperative efforts should also ensure that UGC-site users can be compensated for their creativity. For example, imagine that Bob's video did become the next Internet sensation. If the legality of his video rested upon fair use, then Bob, like everyone else, would have to carefully avoid commercial exploitation of its success. But if Bob's remix and upload were licensed, then his own original contributions might give him leverage to demand a share of the rewards.

Nevertheless, some Internet utopians largely ignore all of this: their fair-use analyses seem to pretend that commercial UGC-site owners are charitable foundations. The result is a non sequitur that relies on "fair use bootstrapping": if a truly noncommercial consumer "remix" of a famous song would have been a fair use, then it is a fair use for a consumer to decide that all potential commercial benefits arising from his use of another artist's work should accrue to a commercial UGC site. That conclusion does not follow.

You rely upon such reasoning at your peril. If you do, you might even end up suing someone in federal court because you were told that a copyright owner just could not have had a good-faith belief that you exceeded the bounds of "fair use" when you acquired commercial hosting services for yourself by inaccurately representing that you either owned the copyrights in an iconic work or had the real owner's permission to grant royalty-free, world-wide commercial-use and derivative-works rights to a huge corporation.

Finally, let me be very clear about one point: the preceding analysis neither states nor implies that consumers using commercial UGC sites cannot make "fair uses" of works. They can, but as the law clearly states, the commercial nature of such uses is highly relevant to, but not dispositive of, any reasoned fair-use analysis--though plenty of commercial uses have been held to be fair uses. Nevertheless, fair use was never meant to be a means through which commercially valuable uses of works could be systematically monetized by parties that do not bear the costs and risks inherent in creating them.

By contrast, cooperation is intended to permit precisely such results--after all, distributors add value too. Cooperative approaches based upon consent, cooperation and innovative new technologies, like Vobile and others, can thus allow UGC site operators, artists, and site users, to find mutually acceptable ways to benefit from the social value created by their individual and joint efforts.