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February 7, 2002, 9:00 AM ET, Alert No. 363.
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9th Circuit Reverses in Kelly v. Arriba
2/6. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Kelly v. Arriba Soft, a case involving the fair use exception to copyright infringement in the context of online digital images, hyperlinking and search engines. The Appeals Court reversed in part the District Court's holding that Arriba's ('s) actions constituted fair use.
Background. Leslie Kelly is a professional photographer who has copyrighted and published many of his images of the American west. See, for example, California's Gold Rush Country. Arriba Soft, which is now known as, operates an Internet search engine for images. It placed in its web site reduced size copies of images, called thumbnails. This search engine produced thumbnail images, rather than text, in response to queries. Arriba placed thumbnail copies of Kelly's images in its web site, without permission from Kelly. It also used hyperlinks to files on the servers of others to display the full sized pictures.
Arriba operated by using a crawler that copied images from other web sites, including those of Kelly and third parties which published Kelly's pictures under license. Arriba then used these copies to generate reduced size, lower resolution, thumbnail pictures, which it kept in its database. Arriba then deleted the original, full size, images. When someone used Arriba's search engine to search for images on the Internet, Arriba served web pages that included thumbnails, which resided on its servers. Then, if the user clicked on the thumbnail image, a second page was served, which displayed the full sized image, drawn from the server of the originating web site, along with, among other things, advertisements purchased from Arriba. A hyperlink to the originating web site was also displayed. (Now, if the user clicks on a thumbnail in a results page, the original web page in the originating site is served.)
District Court. Kelly filed a complaint in U.S. District Court (CDCal) against Arriba alleging copyright infringement. Arriba asserted that its actions constituted fair use within the meaning of 17 U.S.C. § 107. The District Court held that that Kelly had established a prima facie case of copyright infringement based on Arriba's unauthorized reproduction and display of Kelly's works, but that this reproduction and display constituted a non-infringing fair use. See, opinion at 77 F. Supp.2d 1116 (C.D. Cal. 1999).
Section 107. The relevant language of the fair use exception provides: "In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include -- (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (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."
Appeals Court. The three judge panel of the Ninth Circuit reasoned that "two distinct actions by Arriba ... warrant analysis. The first action consists of the reproduction of Kelly's images to create the thumbnails and the use of those thumbnails in Arriba's search engine. The second action involves the display of Kelly's images through the inline linking and framing processes when the user clicks on the thumbnails." The Appeals Court applied the four prong analysis of Section 107 for each action.
Copying of Images, and Reproduction of Thumbnails. The Appeals Court held that Arriba's copying of copyrighted images, and creation and use of thumbnails, constituted fair use. On the first factor of fair use, the Appeals Court analyzed the commercial nature of the use, and the transformativeness. It found that "Because the use of Kelly's images was not highly exploitative, the commercial nature of the use only slightly weighs against a finding of fair use." It also found that "Arriba's use of Kelly's images for its thumbnails was transformative." That is, "the thumbnails were much smaller, lower resolution images that served an entirely different function than Kelly's original images." Moreover, the Appeals Court found that there was a "public benefit of the search engine and the minimal loss of integrity to Kelly's images." Hence, the first factor weighs in Arriba's favor.
The Appeals Court found that the second factor -- nature of the copyrighted work -- weighed slightly in favor of Kelly. It held that the third factor was neutral. It wrote that "This factor will neither weigh for nor against either party because, although Arriba did copy each of Kelly's images as a whole, it was reasonable to do so in light of Arriba's use of the images. It was necessary for Arriba to copy the entire image to allow users to recognize the image and decide whether to pursue more information about the image or the originating web site." Finally, the Appeals Court found that the fourth factor weighed in favor of Arriba, because "Kelly's images in its thumbnails does not harm the market for Kelly's images or the value of his images." In conclusion, the Appeals Court found that the four factor test weighed in favor of Arriba.
Hyperlinking. On the hyperlinking analysis, the Appeals Court easily found that all four fair use factors weighed in favor of Kelly. However, the real issue here was whether there was an infringement in the first place. The Appeals Court began by stating that "This use of Kelly's images does not entail copying them but, rather, importing them directly from Kelly's web site. Therefore, it cannot be copyright infringement based on the reproduction of copyrighted works as in the previous discussion. Instead, this use of Kelly's images infringes upon Kelly's exclusive right to ``display the copyrighted work publicly.´´"
The Court acknowledged that "No cases have addressed the issue of whether inline linking or framing violates a copyright owner's public display rights." The Court analyzed the language of the statute, its legislative history, and related cases. It concluded that "Arriba is directly liable for infringement. Arriba actively participated in displaying Kelly's images by trolling the web, finding Kelly's images, and then having its program inline link and frame those images within its own web site. Without this program, users would not have been able to view Kelly's images within the context of Arriba's site. Arriba acted as more than a passive conduit of the images by establishing a direct link to the copyrighted images. Therefore, Arriba is liable for publicly displaying Kelly's copyrighted images without his permission."
The Appeals Court then applied the four factor fair use analysis to Arriba's linking to and framing of Kelly's full sized images. On the first factor, the Court found that full sized exact copies of photos are not transformative, and hence, this factor favors Kelly. On the second factor, the Court found again that Kelly was favored. On the third factor -- the amount and substantiality factor -- the Court easily concluded that full sized copying was substantial. On the fourth factor -- effect on the potential market -- the Court also found that this factor favors Kelly. Hence, all four factors favored Kelly, and the use was not fair use.
Conclusion. The Appeals Court concluded: "We hold that Arriba's reproduction of Kelly's images for use as thumbnails in Arriba's search engine is a fair use under the Copyright Act. We also hold that Arriba's display of Kelly's full sized images is not a fair use and thus violates Kelly's exclusive right to publicly display his copyrighted works. The district court's opinion is affirmed as to the thumbnails and reversed as to the display of the full sized images. We remand with instructions to determine damages for the copyright infringement and the necessity for an injunction."
House Committee Holds Hearing on Abusive Class Action Litigation
2/6. The House Judiciary Committee held a hearing on HR 2341, the Class Action Fairness Act of 2001, sponsored by Rep. Bob Goodlatte (R-VA). See, prepared statements of Rep. James Sensenbrenner (R-WI), Hilda Bankston (former small business owner), John Beisner (O’Melveny & Myers), Peter Detkin (Intel), Andrew Friedman (Bonnett  Fairbourn).
Peter Detkin, Assistant General Counsel of Intel, testified on behalf of the Semiconductor Industry Association (SIA). He stated that "Intel, the SIA, and much of the rest of the technology community are hopeful that you will act during this Congress to address a growing problem in our legal system: abusive class action litigation." He said that "we are seeing an aggressive move by a limited number of plaintiffs’ attorneys to file class actions against technology companies in areas such as allegedly defective products. It is obvious that many of these suits are brought as class actions because the injury alleged is either trivial, highly speculative, or wholly nonexistent."
He added that there has been a shift to filing class actions in the state courts. He recited the consequent problems: "increased forum shopping; manipulation of procedural rules to avoid federal diversity jurisdiction; displacement of the laws of some states by local judges in other states; the resolution of class action cases by ill-equipped state courts; “strike” suits intended to coerce quick settlements from defendants; collusive settlements, where plaintiffs’ lawyers receive large fees while accepting settlements of little or no value to class members; and grossly inflated “bounties” being paid to lead plaintiffs."
Hubbard Addresses New Economy Statistics
2/5. Glenn Hubbard, Chairman of the Council of Economic Advisors, testified before the Joint Economic Committee of the U.S. Congress. His testimony addressed, among other topics, ways to improve the collection of economic data regarding the new economy.
He stated that "the quality of existing statistics is far from perfect and could be enhanced with further investment. ... A number of steps can be taken to improve the accuracy and timeliness of economic statistics. One cost effective measure would be to ease the current restrictions on the sharing of confidential statistical data among Federal statistical agencies."
Hubbard also stated that "the Administration is proposing new and continued funding for the development of better and more timely measures to reflect recent changes in the economy. For example, these resources would allow for tracking the effects of the growth in e-commerce, software, and other key services, and for developing better estimates of employee compensation. The latter are increasingly important given the expansion in the use of stock options as a form of executive compensation, as well as for tracking the creation and dissolution of businesses, given the importance of business turnover in a constantly evolving economy. Improved quality adjusted price indexes for high technology products are also an important area for future research. As the economy continues to change and grow, the need persists to create and develop such new measures, to provide decision makers with better tools with which to track the economy as accurately as possible."
People and Appointments
2/5. Securities and Exchange Commission (SEC) General Counsel David Becker will leave the SEC. He has not yet accepted another position. Before going to the SEC he was a partner at the law firm of Wilmer Cutler & Pickering. See, SEC release.
2/5. The National Cable & Telecommunications Association (NCTA) announced the appointments of Joe Waz of Comcast Corporation and Christine Levesque of Rainbow Media Holdings as co-chairs of the NCTA Public Affairs Committee. See, release.
2/4. The Senate confirmed Callie Granade to be a U.S. District Judge for the Southern District of Alabama. See, Cong. Rec., Feb. 4, 2002, at S309.
2/5. The Senate confirmed Philip Martinez to be a U.S. District Judge for the Western District of Texas. See, Cong. Rec., Feb. 5, 2002, at S381.
More News
2/6. The FCC released its Notice of Proposed Rule Making [77 pages in PDF] regarding licensing a total of 27 megahertz of spectrum from the 216-220 MHz, 1390-1395 MHz, 1427-1429.5 MHz, 1429.5-1432 MHz, 1432-1435 MHz, 1670-1675 MHz, and 2385-2390 MHz bands.
2/6. Mitch Daniels, Director of the Office of Management and Budget, testified before the House Ways and Means Committee regarding the President's proposed FY 2003 budget.
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Thursday, Feb 7
The House will meet at 10:00 AM. It will likely pass HR 3394, the Cyber Security Research and Development Act, sponsored by Rep. Sherwood Boehlert (R-NY).
10:00 AM. The House Ways and Means Committee will hold a hearing on the President's Trade Agenda for 2002. U.S. Trade Representative (USTR) Robert Zoellick will testify. Location: Room 1100, Longworth Building.
10:00 AM. The Senate Judiciary Committee has scheduled an executive business meeting to consider pending nominations and other matters. Location: Room 226, Dirksen Building.
12:30 PM. Members of the House Science Committee will hold a press conference regarding passage of HR 3394, the Cyber Security Research and Development Act. Location: Room 2325, Rayburn Building.
12:30 PM. Tom Ridge, Director of the Office of Homeland Security will speak at a luncheon. Location: Ballroom, National Press Club, 529 14th St. NW, 13th Floor.
Friday, Feb 8
The House will not be in session.
9:00 AM - 12:30 PM. The Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) will hold the second in a series of joint hearings on antitrust and intellectual property. There will be two concurrent sessions, titled "Patent Law for Antitrust Lawyers" and "Antitrust Law for Patent Lawyers". See, FTC release and DOJ release. Location: Rooms 432 and 332, respectively, of the FTC, 600 Pennsylvania Ave., NW.
TO BE DECIDED ON THE BRIEFS. 9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in Chameleon Radio Corp v. FCC, No. 00-1546. Judges Edwards, Sentelle and Silberman will preside.
10:00 AM. Chris Murck, Chairman of the American Chamber of Commerce in China, will speak on the U.S. relationship with China. He will also comment on China's membership into the WTO and its likely impact on the global marketplace. For more information, contact Micaela de Leon Vivero at mdeleon or 202 778-1024. Location: Murrow Room, National Press Club, 529 14th St. NW, 13th Floor.
CANCELLED. 10:00 AM - 12:00 NOON. The American Enterprise Institute (AEI) will host a panel discussion titled "Should the Government Promote Open Source Software? "
10:30 AM. The Department of Commerce (DOC) will host a homeland security technology fair. Location: Main Lobby, DOC, 14th St. and Constitution Ave., NW.
12:15 PM. The FCBA's Wireless Telecommunications Practice Committee will host a lunch. The topic will be "Hot Wireless Issues on the Hill". The price to attend is  $15.00. RSVP to Wendy Parish at by 12:00 NOON on February 6. Location: Sidley & Austin, Room 6-E, 1501 K Street, NW.
Sixth Anniversary of passage of the Telecommunications Act of 1996.
Tuesday, Feb 12
9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in WorldCom v. FCC, No. 01-1218. Judges Tatel, Garland and Williams will preside.
9:30 AM. The Senate Governmental Affairs Committee's Subcommittee on International Security, Proliferation and Federal Services will hold a hearing to examine multilateral non-proliferation regimes, weapons of mass destruction technologies, and the war on terrorism. Location: Room 342, Dirksen Building.
10:00 AM. The Senate Banking Committee will hold a hearing on accounting and investor protection issues surrounding the problems with Enron and other public companies. The witnesses will be five former Chairmen of the Securities and Exchange Commission (SEC), Roderick Hills (1975-77), Harold Williams (1977-81), David Ruder (1987-89), Richard Breeden (1989-93), and Arthur Levitt (1993-2000). Location: Room 538, Dirksen Building.
12:15 PM. The FCBA's Common Carrier Committee will host a brown bag lunch. Kathleen Abernathy (FCC Commissioner) and Nanette Thompson (Chair of the Regulatory Commission of Alaska) will speak about universal service. RSVP to Rhe Brighthaupt at Location: Wiley Rein & Fielding, 1750 K St., NW, 10th Floor.
12:15 PM. The FCBA's Transactional Practice Brown Committee will host a brown bag lunch on wireless transactions. RSVP to Tina Screven at 202 383-3337. Location: Wilkinson Barker & Knauer, 2300 N Street NW.
2:30 PM. The Senate Foreign Relations Committee will hold a hearing to examine the theft of American intellectual property at home and abroad. Location: Room 419, Dirksen Building.
Wednesday, Feb 13
Day one of a three day conference titled Biometric Consortium Conference. The sponsors include the Information Technology Laboratory (ITL) and the Advanced Technology Program (ATP) of the National Institute of Standards and Technology (NIST), the National Security Agency (NSA), the Department of Defense's Biometric Management Office (BMO), the General Services Administration (GSA), and the Federal Technology Service (FTS) Center for Smart Card Solutions. This conference has been rescheduled from September 12-14, 2001. See, conference web site. Location: Hyatt Regency Crystal City, Arlington, VA.
11:00 AM. The Cato Institute will host a panel discussion titled "Trade War or Tax Reform? The WTO Ruling on Tax Breaks for U.S. Exporters". The panelists will be Rep. Phil Crane (R-IL), Chairman of the Trade Subcommittee of the House Ways and Means Committee, William Reinsch, National Foreign Trade Council, John Meagher, Price Waterhouse Coopers, and Chris Edwards, Cato Institute. Cato will web cast the event. A luncheon will follow the program. See, Cato event summary. Location: Cato, 1000 Mass. Ave., NW.
5:00 - 7:00 PM. The Congressional Internet Caucus Advisory Committee will host an event titled "Reception and Technology Fair". The Co-chairs of the Internet Caucus, Sen. Patrick Leahy (D-VT), Sen. Conrad Burns (R-MT), Rep. Bob Goodlatte (R-VA) and Rep. Rick Boucher (D-VA), are likely to speak. The Co-chairs of the Wireless Task Force, Sen. John Ensign (R-NV) and Rep. Mike Honda (D-CA), are likely to speak also. Location: Room 902, Hart Building.