Google Book Search, Transformative Use, and Commercial Intermediation: An Economic Perspective

TABLE OF CONTENTS INTRODUCTION I. ECONOMIC ANALYSIS OF COPYRIGHT AND FAIR USE A. The Economics of Copyright Law B. The Economics of Fair Use II. TRANSFORMATIVE USE: AN ECONOMIC PERSPECTIVE III. COMMERCIAL INTERMEDIATION: AN ECONOMIC PERSPECTIVE IV. CASE STUDY: GOOGLE BOOKS A. The Case B. Economic Analysis of Transformative Use in the Case of Google Books C. Economic Analysis of Commercial Intermediation in the Case of Google Books CONCLUSION Introduction "Fair use" is a crucial defense to copyright infringement. As its name suggests, the fair use doctrine strikes a balance between the interests of copyright owners and users by allowing users to make "fair" uses of copyrighted works for free and without the consent of the copyright holder. From the perspectives of competition policy and innovation policy, fair use is an "important competition-facilitating internal mechanism found within [] copyright law" that not only "promotes competition between goods and services that are the subject of, or connected with, the same set of intellectual property rights," but also "strike[s] a balance between protection of initial innovation and further invention and creativity". (1) Given the significant role played by fair use in competition and innovation policy, it is vital that courts make correct decisions on questions of fair use in copyright litigation. The Copyright Act instructs courts to consider four factors in evaluating whether a defendant's use of a copyrighted work is fair use: (1) "the purpose and character of the use"; (2) "the nature of the copyrighted work"; (3) "the amount and substantiality of the portion used"; and (4) "the effect of the use upon the potential market for ... the copyrighted work." (2) In practice, the outcome of the fair use analysis is often determined by the first factor, particularly the commerciality and transformativeness of the use. Yet in Harper & Row Publishers, Inc. v. Nation Enterprises, (3) the Supreme Court remarked that the fourth factor--market effect--"is undoubtedly the single most important element of fair use." (4) In fact, the first and the fourth factors are closely related. The first factor is ultimately just as significant as the fourth factor because it influences that market effect analysis. Unauthorized commercial use of copyrighted material tends to cause market harm (5): profits derived from the defendant's commercial exploitation of the plaintiffs work are likely made at the expense of the plaintiff, in that they reflect forgone profits that the plaintiff could have earned but for the defendant's infringement or lack of permission. Such forgone profits could be caused by the defendant's selling infringing copies in direct competition with the plaintiff or may take the form of lost licensing fees that the plaintiff could have charged for the defendant's commercial use. On the other hand, transformative use tends to make the defendant's work more of a complement to and less of a substitute for the copyrighted work, thereby reducing market harm (if not producing market benefits) to the plaintiff. (6) The first factor thus goes a step further than the fourth factor because it can account for the social benefits of transformative uses, which may trump any market harm resulting from such unauthorized use. Despite its great importance, there is considerable room for improvement in how courts analyze the first fair use factor. While the issue of transformativeness has arisen in many cases, courts lack consistency in how they approach the issue and in how they assess the degree of transformation. Additionally, in analyzing commercial use, courts have largely failed to appreciate the distinctive role played by "commercial intermediaries" in facilitating socially beneficial uses of copyrighted works. This Article advances two economically grounded recommendations to improve courts' analyses of transformative use and commercial use by commercial intermediaries under the first fair use factor. …