Warren E. Burger: We'll hear arguments next in Harper and Row against Nation Enterprises. Mr. Miller, I think you may proceed whenever you're ready.
Edward A. Miller: Thank you, Mr. Chief Justice, and may it please the Court. This case presents two important issues concerning the relationship between copyright and First Amendment interests.
Warren E. Burger: Would you raise your voice a little.
Edward A. Miller: Yes. First, does the First Amendment require that the scope of protection for a copyrighted work of non-fiction dealing with news and history be narrowed? Secondly, does the policy in the Fair Use case, does the policy of facilitating the harvest of knowledge call for a sanction for the use of an unpublished manuscript that the author himself is about to publish? The case also raises the question of whether the court below heard, first of all, in failing to consider that the manuscript was unpublished; and secondly, in failing to consider that the user added nothing at all to the material that he published. In February of 1977, shortly after leaving office, President Ford signed a publishing agreement with Harper & Row and the Reader's Digest to publish his memoirs. President Ford retained an experienced writer, Trevor Armbrister, to assist him in that task, and the work began almost at once on a project that was to take two years, that is, the writing of the book. The District Court has detailed findings of the extensive work that went into that, and I'll just mention one or two of those facts. Trevor Armbrister met with President Ford on 200 separate occasions for interviews, and each of those interviews lasted two hours each. Those interviews were taped and they were typed up, and they resulted in 3600 legal sized transcripts pages of those interviews. Trevor Armbrister took that material--
William H. Rehnquist: Do you have any idea of how many words to the page?
Edward A. Miller: --No, Your Honor, I don't. I don't know how many there were. Trevor Armbrister took that material and he took material of almost equal mass from his interviews with others, together with a mountain of material from public records and the like, and then out of that he prepared a manuscript for President Ford. President Ford reviewed that manuscript word for word, and he then reviewed three subsequent revisions word for word before finally giving his okay for the manuscript to be published. In March, 1979, approximately two years later, Harper & Row's subsidiary right department began to contact newspapers and magazines to ascertain if any of them were interested in publishing excerpts from this book prior to book publication, a right that is referred to in the book publishing trade as "first serial rights". In circulating that manuscript, the subsidiary rights department secured a confidentiality agreement from each of the firms to whom it was given. Eventually an agreement was signed with Time Magazine whereby Time agreed to publish excerpts from Chapters 1 and 3 of the book, a 7500-word excerpt which was to appear in the Time Magazine issue that was to go on sale on April 16th, 1979. That agreement was entered into in the middle of March, 1979. The agreement also provided that if for any reason material from Chapters 1 and 3 of the manuscript were published prior to Time's publication, Time would have the right to renegotiate the second installment of the advance, which was $12,500. Approximately two weeks later, a copy of the manuscript found its way into the hands of the editor of The Nation Magazine. The editor testified that he did not solicit it and did not pay for it. He has never revealed who the source was, but he has acknowledged that he knew that the source had no authority to give it to him. Working quickly over a weekend, he rushed into print with an article that was derived almost exclusively from the memoirs. Eighty percent of it was from the memoirs, and what wasn't from the memoirs was either introduction or conclusion, or a few transition sentences. The article quoted verbatim from several portions of the manuscript. It included President Ford's summary of the underlying philosophy for pardoning Nixon. It included a vivid description of--
William H. Rehnquist: You say, Mr. Miller, that it included President Ford's summary of his reasons for the pardon, do you mean by that that it quoted directly or that it simply paraphrased?
Edward A. Miller: --There was a quote in which President Ford summarized his overall philosophy. In fact, he predated to the time when he was in law school, and he said that the basic underlying philosophy that governed my decision here was the fact that public policy sometimes has to take precedence over the rule of law, then he went on and expanded that somewhat, and that was quoted verbatim. That particular passage was quoted verbatim. He also quoted verbatim a vivid description of Nixon's--
Warren E. Burger: Was that material available anywhere else?
Edward A. Miller: --President Ford's--
Warren E. Burger: In prior speeches, or articles?
Edward A. Miller: --That particular material was the material that President Ford created as he wrote the book, and that particular material was not available. It also included President Ford's assessment of Nixon's character, which President Ford had written out in longhand during that interviewing process that I described, and that also was copied verbatim by Nation in the article.
Sandra Day O'Connor: Mr. Miller, do you take the position that the copyright allows President Ford to license publication of those facts, or just his written expression or choice of words in expressing?
Edward A. Miller: Just his expression, Justice O'Connor, as that term has been defined traditionally in the copyright courts.
Byron R. White: How many total words were quoted, actually quoted?
Edward A. Miller: How many were quoted? There was approximately 1800 words altogether derived from the manuscript, and about 700, I think, were quoted and the balance were paraphrased.
Byron R. White: Seven hundred were quoted?
Edward A. Miller: Yes. The balance constitutes paraphrase of the material in the manuscript.
Byron R. White: How many did the Court of Appeals think were quoted?
Edward A. Miller: The Court of Appeals did a stripping away exercise, and ended up with 300 words that in their view represented copyrightable expression.
Byron R. White: Whose word should we take?
Edward A. Miller: Well, Your Honor, Justice White, I think--
Byron R. White: Do we have to count them?
Edward A. Miller: --I think it is not a question of counting. I think that the problem is that the majority--
Byron R. White: You say that it included a summary of his philosophy going back to law school, an assessment of President Nixon's character. If it gets down to 300 words, that is getting pretty short to cover those fields, isn't it?
Edward A. Miller: --Your Honor, I think that 300 words of expression should be protected, certainly in a manuscript that hasn't been published yet. But, if I can address your point, it is not really a question of counting words, I think, it is a question of the fact that the majority applied the wrong standards in determining copyrightability, and that is one of the major points we make on the copyrightability.
Lewis F. Powell, Jr.: The copyright Act applies to works, as I understand it, not to words. Is that correct?
Edward A. Miller: Yes, Justice Powell.
Lewis F. Powell, Jr.: It uses the term "works", doesn't it?
Edward A. Miller: I think the Copyright Act applies to protect expression, and expression has been defined in cases to include the following, this is a reading from a Second Circuit case: What is protected is the manner of expression, the author's analysis or interpretation of events, the way he structures his material and marshals his facts, his choice of words, and the emphasis he gives to the particular developments. "That is a quote from the Second Circuit opinion in Wainwright, and that was the definition of expression. " The majority in this case didn't follow that definition in determining what was copyrightable in the copied portions of the manuscript. What the majority did, was they said, expression is limited to barest elements, to literal copying, to the ordering and choice of the words themselves. We submit that traditional copyright cases have always recognized that copyright protection for expression goes beyond just the literal words themselves, to protect, as the dissent noted in this case, selection, arrangement, emphasis, and anything else that makes original.
William H. Rehnquist: Mr. Miller, it isn't just a question that he who reads may count as to how many words were copyrightable, is that the Court of Appeals had one view of copyrightability, and I take it that you have a somewhat broader view, and that is why you reach a higher number.
Edward A. Miller: That's correct. That's correct, Justice Rehnquist, that is the reason for the difference. The majority applied, we submit, an incorrect standard in a second respect. They adopted a dissection--
Byron R. White: I take it that you would say that even there was not a single instance in this story that you could identify as a literal quote, you would think that there could be a violation of copyright.
Edward A. Miller: --I think it is certainly possible, Justice White, that there could be a violation in that situation, but that, of course, isn't the situation here. Here there was use of exact language. Indeed, the editor of The Nation Magazine testified that he took this passage, he said, because that was Ford's own way of saying it. He took another passage, he said, because of the absolutely certainty with which Ford addressed himself. He took still another passage because... he quoted it because it was a much more powerful statement for the reader.
Sandra Day O'Connor: Mr. Miller, do you think that the fact that it was an unpublished work expands your definition of what is protectable under the copyright law, or is the fact that it was unpublished in your view just one element of determining Fair Use?
Edward A. Miller: I think the fact that it wasn't published doesn't expand the scope of what is protectable, but it is certainly a very important factor in determining Fair Use.
John Paul Stevens: Mr. Miller, it would be helpful to me, in trying to focus on the difference between your two positions, if you could identify one or two of the passages that you think are clearly copyrightable, and they think are not, because talking in generalities, it is always a little hard to focus on what the difference is.
Edward A. Miller: President Ford has a discussion in the book that describes his discussions with Alexander Haig during that eight-day period prior to the time that he became President. He covered a lot of that same material in the Hungate testimony, but the material in the book, if you compare the two, has quite a different emphasis from what it has in Hungate. The material in the book includes President Ford's subjective feelings about those events. He tells how, for example, President Nixon had reassured him over many months that he would ultimately prevail, and that the facts would justify him. He says how hurt he was, the deep hurt that he had when that material was revealed. He includes also the reaction of his aides to Alexander Haig's discussion of the pardon, and how they reacted to that. All of that creates a subjective... it gives the subjective feelings that Ford had during those things. President Ford testified in his deposition that what he tried to add to the book was the more subjective, the more personal feelings that went through his mind for the time the pardon became a possibility.
John Paul Stevens: One of the examples that you have given, I guess, is this written statement that President Ford read to General Haig over the telephone, I guess it was. Is there a dispute between you as to whether that particular writing was copyrightable?
Edward A. Miller: No, there really isn't because our position, and I think the District Court's position was that the totality of Ford's expression is copyrightable.
John Paul Stevens: Just take the quote itself, is that in your view copyrightable?
Edward A. Miller: The quote itself, Your Honor, don't I think it was copyrightable, but we are not so contending in this case.
John Paul Stevens: Is see.
Edward A. Miller: The reason why it is not copyrightable, and we are not contending it is, is that the quote itself was disclosed. It is the same thing that President Ford said in the Hungate testimony, and that would get into a very difficult question, copyright protection for government work.
John Paul Stevens: Let me be sure I understand your entire position. You are saying that that statement as a part of his general description of that particular event was copyrightable?
Edward A. Miller: Yes.
John Paul Stevens: I see.
Edward A. Miller: Still another example, Your Honor, President Ford describes many factors that influenced him in granting the pardon, the advice that he received from various people, and the advice that he received from Henry Ruth, and so forth and so on. Our position is that the totality of that expression, including the advice and the reaction that Ford had to it represents Ford's expression. The Nation position, as I understand it, is that what one should do in determining copyrightability is to look at each of those little pieces of advice separately and say, well, this is not copyrightable, and therefore that is not entitled to further consideration. We both agree that the Ruth Memorandum per se is not copyrightable. We urge that President Ford's entire expression, including the Ruth Memorandum and the impact it had on him, represents copyrightable expression as it has been traditionally viewed by the courts--
John Paul Stevens: Let me ask just one other question here. On some of these example, do you think the that President Ford is not an ordinary author affects the determination of the copyrightability of some of this material? In other words, there is newsworthiness in the fact that he was the President of United States when he had these views, as distinguished from someone else who might just have been narrating about them.
Edward A. Miller: --Your Honor, I don't think that that fact should affect copyrightability. I think it might affect Fair Use, but after the book is published. I think our position is that before the book is published, President Ford ought to have the same right that any author has, the right of first publication. President Ford took two years to write this book. This harvest of knowledge that was so important to the majority in which we concur, that harvest of knowledge came about because President Ford spent two years writing the book. We submit that having put that effort, he's entitled to the right that the copyright laws have given him, namely, the right of first publication. I would like to also just go back to the copyrightability point. The majority, in addition to the two other factors that I mentioned, also gave no consideration to the paraphrasing here, stating that paraphrasing is the equivalent of copying only if the copier has copied virtually the entire work. We submit that the cases don't support that interpretation of a copyright. In essence, the majority imposed these... applied these limited restrictions on copyrightability because of its belief that to do otherwise would give President Ford a monopoly over facts. We submit that that is not true. It would only give President Ford protection for his expression of those facts. Furthermore, that protection is not unlimited. It is protection that is subject to the requirements of the Fair Use doctrine. On the Fair Use doctrine--
Byron R. White: Do I understand you to say that if President Ford, in his memoirs, revealed that an event that no one had ever known about before and he described that event, do you say that no one could reveal that event without violating his copyright?
Edward A. Miller: --They could certainly reveal the information, but they couldn't take his expression.
Byron R. White: Yes. It is just a question of when in the process of revealing the event, they are close enough to his expression to get in trouble?
Edward A. Miller: That's correct. That's correct, Justice White, and we submit that the majority, in making that determination, applied a number of standards that--
Byron R. White: Such as it has to be a literal quote, or something.
Edward A. Miller: --It has to be a literal quote, and such as--
Byron R. White: You say, it can also violate if it is just a paraphrase.
Edward A. Miller: --That's correct.
Byron R. White: How do you recognize a paraphrase when you meet it on the street?
Edward A. Miller: Justice White, I think it is a question of looking at the material and exercising judgment.
Byron R. White: As to whether it is practically the same thing as the quote?
Edward A. Miller: What I think the District Court did in this case was the District Court took the Ford material and compared it in its totality with what The Nation did, and said, overall this is substantially similar and, therefore, infringement.
Byron R. White: Substantially similar, that is your test?
Edward A. Miller: That is the test of infringement, yes, and I think that's the test that has to be applied when you are dealing with paraphrase.
William H. Rehnquist: Paraphrase then includes the idea that even though there is not literal quotation, there is so much similarity in arrangement, the sentence structure, and that sort of thing?
Edward A. Miller: That's correct. That's correct, Justice Rehnquist. On the Fair Use branch of the case, we urge that the fundamental flaw of the court, or a fundamental flaw of the court was in its belief that in some way a decision was required in order to facilitate the harvest of knowledge so essential to a democratic state.
John Paul Stevens: Mr. Miller, could I interrupt once more. I'm sorry, but I just want to be sure. Is there anything that tells us which 300 words the Court of Appeals and your opponent agree are copyrightable, and which words you agree are not copyrightable? Do we have anything that really tells us?
Edward A. Miller: I think in The Nation sentence by sentence analysis, they have a chart, which is in the Joint Appendix, and they have a little red line underneath the stuff that they say or concede is possibly expression, or they are arguable expressions, or something like that. I think that that is probably where the 300 words comes from. It is probably the count of the material that The Nation conceded was expression.
John Paul Stevens: Conversely, everything in yellow you contend is copyrightable.
Edward A. Miller: Really, everything in yellow is what we contend was copyrightable.
Byron R. White: Is that the total question, that it is copyrightable? I thought there might have been an awful lot of things in the memoirs that were copyrightable, but the claim is there that there was no violation because it was a paraphrase. Isn't part of the holding below that there wasn't a violation of the copyright because it was only a paraphrase?
Edward A. Miller: That was part of the holding below, and our contention is that the majority shouldn't have dismissed paraphrasing so lightly because it can indeed--
Byron R. White: Do you say that... The court below said 300, and you say 700?
Edward A. Miller: --No. I think that everything that is yellowed in our Appendix C to the cert petition, which comes to about 1800 words, was in fact copied from the--
Byron R. White: You are just saying, because it was a violation of copyrightable material?
Edward A. Miller: --Yes, that is correct.
Byron R. White: Eighteen hundred words.
Edward A. Miller: Yes.
William H. Rehnquist: When you say 1800 words were copied, do you say that every one of those 1800 words was copyrightable?
Edward A. Miller: Yes.
Byron R. White: It is just as though President Ford used those words.
Edward A. Miller: Yes, that's correct. As I said, the court below acted on the premise or the underlying philosophy that the decision was necessary in order to facilitate the harvest of knowledge so necessary to a democratic state. But the material was about to be harvested by President Ford himself, and nothing that The Nation did in any way facilitated that. What The Nation did was to arrogate to itself author's right of first publication. Author Ford had spent two years writing this book, and The Nation took it upon itself to be the first publisher or, to use The Nation's words, "to scoop the President on his own memoirs. " As I think I have already suggested, the majority believed that this policy of facilitating the harvest of knowledge was somehow at odds with the Copyright Act. We submit that it is not. The Copyright Act indeed has that very same purpose, to reward authors so that authors will go cut and spend the time and effort necessary to write their books so that the public will have the benefit of that.
William H. Rehnquist: So that they'll get some royalties.
Edward A. Miller: And so that they'll get some royalties, too. But the Copyright Act provides an economic incentive, and the real underlying purpose of that is the purpose that the public will get the benefit of their writings. I would like to just talk briefly about the legislative history of the Copyright Act because that makes clear that the fact that work is unpublished means that the Fair Use doctrine has narrow applicability. The court disregarded that completely. That statement that the author's right of first publication ought to prevail appears in committee reports, the 1966 and '67 House report. It appears in the '76... the '75 Senate report. It didn't appear in the final House report only for one reason, and that is that the parties had gotten together and agreed on specific guidelines. But the House went out of its way to refer to its earlier discussion, and to say, we still think that that earlier discussion has validity, and it still has value for an analysis of the various aspects of the problem. Mr. Chief Justice, if I have some time left, I would like to reserve it for rebuttal.
Warren E. Burger: Very well. Mr. Abrams.
Floyd Abrams: Mr. Chief Justice, and may it please the Court. The copyright law protects works of authorship, and President Ford wrote a book which was properly copyrighted. We have never disputed the fact that the book was copyrightable in its totality, and copyrighted. The copyright law also, as Mr. Miller said, does not protect facts, and it doesn't protect certain other things as to which we seem not to be in disagreement, for example, government works. It does not protect other information of one sort or another.
William H. Rehnquist: It does protect, doesn't it, Mr. Abrams, a particular method of describing a fact.
Floyd Abrams: It protects expression, Justice Renquist, which indeed is very often a way of describing a fact. It doesn't protect ideas. It doesn't protect facts. It does protect, as the Second Circuit said, the structure and mosaic of a work, but it doesn't protect expression. The Second Circuit went through a process of looking to see what part of what was before it was the sort of thing as to which President Ford could bring a law suit on against The Nation. Let me give you, if I may, first the numbers, which some members of the court have asked for, in terms of quotations and the like. We deal here with a manuscript of 655 pages written by President Ford, approximately 200,000 words. We deal with an article by The Nation of three pages of a total of 2250 words.
Harry A. Blackmun: So the real comparison is between 300 words.
Floyd Abrams: That is the starting cut, I think. There are cases in other areas in which a small amount of words has been held to violate the copyright law. There are other cases, Betamax, in which 100 percent does not violate. It does depend upon the case, but we are starting out, I think, fairly, talking about, if we are right, and if the Second Circuit is right in saying that it is 300 words, in comparing the 300 words to the book or, if you will, to the chapters, which relate to the--
William H. Rehnquist: How about to the Time excerpt?
Floyd Abrams: --The Time excerpt wasn't in existence, and never got written, Your Honor. Mr. Navasky didn't have that or knowledge of it, so I can't compare it to that.
William H. Rehnquist: So he never saw that.
Floyd Abrams: Yes, sir, he never saw it, and so far as I know it never came into existence at all.
Sandra Day O'Connor: Do the 300 words represent just the direct quotes?
Floyd Abrams: The 300 words represent direct quotes.
Sandra Day O'Connor: Do you not concede that paraphrasing other words could constitute a copyright violation?
Floyd Abrams: I do concede that, Justice O'Connor. It seems to me, and indeed the law says, that if you track something slavishly enough, it can indeed constitute a copyright violation, and there are lots of cases in which parties have just about literally tracked what someone else wrote, and put in a little word here and there, the Wainwright case in the Second Circuit.
Sandra Day O'Connor: And perhaps this case.
Floyd Abrams: I hope not, Your Honor. 0 [Generallaughter.] The Wainwright case in the Second Circuit seems to me an example of what is not involved here. The Wainwright case is a case in which a financial publisher went out and collected all the recommendations to prospective buyers by Kitty Peabody sayings and in the news article, so called, was Kitty Peabody said today this, they said that, they said that, and they said that. It was the totality of what they were saying. It was a practice of what they were doing again and again in article after article. I think that there is a word or two words to describe what The Nation was engaged in today, it is news reporting. One may like it or not, but it is the sort of thing which for Fair Use purposes, which I haven't reached yet Congress defined as a paradigmatic example of what is protected.
Sandra Day O'Connor: Why are direct quotes or direct paraphrasing of an author's expression essential to news reporting? Why can't they be rewritten?
Floyd Abrams: It can be rewritten less well, less probingly, less meaningfully. There was expert testimony on that very subject. All the testimony was, both in the amount that was used, and in the nature of the quotations that were used, I mean literally all of it thought that it was reasonable in journalistic terms, and that it was reasonable from the point of view of authors. Mr. Halberstam, for example, testifying, as all the experts did, uncontradicted, gave examples of that.
Sandra Day O'Connor: Didn't Mr. Navasky himself testify that the words quoted had a definitive quality and were a more powerful statement than he himself could have written. Isn't that the very essence of what is protected?
Floyd Abrams: Justice O'Connor, those words are protected, and we agree with that. That is where we get to 300 words, that at least is a common ground as regards sore of the words. How Mr. Nixon looked in the hospital, for example, that is pure expression. We don't have any disagreement with that. What President Ford learned or says that he learned at Yale Law School is expression, and we don't have any quarrel with that. That is how we get to 300 words. Where we disagree... where we disagree on numbers or where the Second Circuit is not the same as what my brother here has said to you today is how to do the counting, how to do the analysis of that.
Byron R. White: But you also say that that 300 can be published under the rubric of Fair Use.
Floyd Abrams: Yes, sir. As a matter of Fair Use, we argue that the 300 words, as a matter of law--
Byron R. White: Even if it is the essence of the article.
Floyd Abrams: --It is not the essence of the article. The essence of the article, as all agree, is the story of the pardon by one president of his predecessor president, who in fact appointed him.
Lewis F. Powell, Jr.: Mr. Abrams, did the editor of The Nation know that Time Magazine was going to publish an article on the book?
Floyd Abrams: By the time the article was published in The Nation, he was aware that Time Magazine was going to publish something. He didn't know what, and he wasn't aware of that at the time that he received the manuscript.
Lewis F. Powell, Jr.: He was trying to scoop the publication by Time in the vernacular of the news business?
Floyd Abrams: In a sense, Mr. Navasky testified that he wanted to be first, yes, sir, and he testified that he wanted to be first because he wanted to put his own perspective on it.
Lewis F. Powell, Jr.: Did Mr. Navasky contribute anything to the article itself, beyond what he obtained from the Ford manuscript?
Floyd Abrams: Yes, Your Honor.
Lewis F. Powell, Jr.: Besides condensation.
Floyd Abrams: Two things. One is summarized. If news reporting is presumptively protected.
Lewis F. Powell, Jr.: Were any of his ideas incorporated into that?
Floyd Abrams: In one way they were, Your Honor. Mr. Navasky testified that by his selection and choice of the material with respect to the pardon, he thought that a reader would come out, when you strip of expression, as Mr. Navasky did, when you strip what President Ford was saying of how he felt, which Mr. Navasky generally did, that you come out with a view of the pardon which involved at least a strong sense that it may have been the result of improper behavior.
Lewis F. Powell, Jr.: You characterize this as objective reporting or editorializing?
Floyd Abrams: I have to say, Justice Powell, I think it's some of both. It is a summary on the one hand, and it is a summary to make a point on the other. What I would certainly characterize it as is news reporting. One of the areas that the District Court erred in was in passing a sort of judgment on it. He said that it was "poor" journalism. One of the things that we have urged on you in our briefs is that, be that as it may, whatever Mr. Navasky might think or, if I may, what any of us might think here, that's not the business of courts.
William H. Rehnquist: Why did you have all the expert witnesses, then, in the District Court testifying that something was journalistically proper if courts can't review that?
Floyd Abrams: What we called them for was to deal with various aspects of Fair Use. Courts can deal with the Fair Use factors, and anything that is relevant to Fair Use.
William H. Rehnquist: I thought you said they testified that something was done well from a journalistic standpoint.
Floyd Abrams: They testified to the amount that was taken, for example, Part III of Fair Use, they didn't take any more than was necessary. It was honorable and reasonable. That, we thought, was a matter for expert opinion. I went perhaps farther than I had to in having experts testify that the information wasn't only news, but was newsworthy. Maybe we didn't have to do that. But we were not making the case, and we made it very clear to the court again and again, that our view at least was that the standard to he applied was not whether it was a great news story, but whether it was really a news story. What the Second Circuit said was, the question is when a party comes before a court, and is arguing Fair Use and saying this is "news reporting", the question is, is that true or not? Is it a pretext or not to say that. In Wainwright, the Second Circuit said that it was a pretext. You can't just say that it's news reporting and make it news reporting. It matters because news reporting is set forth by Congress, at least, as an example of what is presumptively protected as Fair Use. It doesn't answer all the questions, but it's a start once one gets to Fair Use analysis.
Byron R. White: I hope you have a good litmus paper test to identify news as compared to what is newsworthy.
Floyd Abrams: We got into, Justice White, arguments about whether something has to be news.
Byron R. White: You suggest that there is a lot of news that's not newsworthy.
Floyd Abrams: I suggest that news doesn't have to be new, and that was one of the areas we drifted off on to at trial.
Warren E. Burger: Did you say that this was also commercial valuable material that was taken?
Floyd Abrams: As any book is, Your Honor, sure. I don't have any doubt that Harper & Row wanted to sell what it had, and that it did so.
Warren E. Burger: The question is commercially valuable to The Nation?
Floyd Abrams: I don't know if anything is really commercially valuable to The Nation, Your Honor. 0 [Generallaughter.]
Warren E. Burger: I am talking to the party to this action, and not the country with a small "n".
Floyd Abrams: I am sorry, I meant the magazine. All I meant was the magazine. I suppose in a sense, at least I would have to concede, there's nothing in the record, that Mr. Navasky may have hoped long range it would be a good thing for the magazine, and that eventually they would sell more copies. They sold 418 copies of this altogether on newsstands, so it's not the sort of thing one would ordinarily think of in terms of magazines or newspapers. If I might, Your Honor, though, I'd like to continue a proposal your question with the question of what is copyrightable and what's not, because essentially what the Second Circuit did was to say, we look at this in two ways. First, we see what is it that we're supposed to count, so to speak. The whole work is copyrighted. I say again, there is no question about that, President Ford wrote a copyrightable work. But it's clear, and we don't disagree with our opponents, that we are entitled as a general matter to make what Professor Latman called "unlimited use" of material in that copyrighted work which is not copyrighted subject to however this court comes out on the issue of structure, mosaic, or whatever. Justice Stevens asked earlier for some examples and, if I may, I would like to just cite one or two to give you an example of where we think the court can look to make a decision as to whether the Second Circuit approach was a correct approach. At page 633 of the Joint Appendix, in the midst of our paragraph by paragraph analysis of the article, we quote from the article in paragraph 4... of The Nation article. Paragraph 4 of The Nation article says, and I will just paraphrase it now, that Ford's account contained significant new details on the negotiations and consideration when the subject was first broached to him by General Haig on August 1st, 1974. General Haig revealed that the newly transcribed White House tapes were the equivalent of the smoking gun, et cetera. That came from what we then annex immediately after page 633, which is pages 634, 635, 636, and 637. It was, I would use the word, news, if you went to say condensed, paraphrased, it was a report about that aspect of what President Ford did. The same thing is true of the example that Mr. Miller cited. I think it is a good example of the Ruth Memorandum. At page 654 of the Joint Appendix, there is a paragraph from The Nation article in which The Nation wrote that the precipitating factor in Ford's decision was a series of secret meetings. Then they go down to say that Ford's cites a memorandum from Henry Ruth as being especially persuasive. "Ruth had written". Where we disagree is this. President Ford never owned the Ruth Memorandum, and we believe that he doesn't own it today. What the District Court said was that when you put the Ruth Memorandum together with how President Ford used it, the totality was protected, and that is why we get to 700 words, because they include the Ruth Memorandum in the 700 words. Our position is that the totality doctrine is absolutely unprecedented in copyright law, and terribly dangerous because that doctrine would, in fact, give Harper & Row a monopoly of the story of the pardon of President Nixon by President Ford. I want to add one thing to it. They're right when they say that the monopoly they would get is the monopoly in President Ford's version of that story. That's true. Mr. Navasky could have gone out and written a whole article about the pardon, but his article was about President Ford's version of the pardon. What I believe their argument comes down to is that that sort of article cannot be written about at least published work without violating the copyright law. That's what it is, because if you once say, you can't paraphrase, what you are saying is, you can't report what the books says about that, what happened next. There were events that happened one after another. If you say that the Ruth memorandum gets scores of--
William H. Rehnquist: Mr. Abrams.
Floyd Abrams: --Yes, Your Honor.
William H. Rehnquist: I didn't understand your opponent to go that far in his concept of paraphrasing, that simply a relating of the same of the factual account would would automatically be described as paraphrasing.
Floyd Abrams: I don't understand him to go that far in paraphrasing, Your Honor. I understand that when you put together... It is my view, at least, that when you put together their argument about paraphrasing with the lower court's ruling about the totality of the work, when you put all that together, what you are seeing is, for example, an entirety of the depiction of the pardon. There are 19 paragraphs in The Nation article, all of that, they say, what, comes from, it is about President Ford's version of the pardon. It is one thing to say, we can't do that at all, but as Mr. Miller said in response to a question that he was asked by Mr. Justice White, it is not based on the amount of words that he is talking about. His position and the lower court's position was that when you looked at it all together, this was President Ford's version, this was his depiction of the pardon. Our position is that this was an article about President Ford's depiction of the pardon. I agree that if this depiction had gotten so close at such length so that like Wainwright this was just a fraud, we would have a different case.
William H. Rehnquist: When you say, 30 chapters--
Floyd Abrams: No, sir, that is exactly what I am conceding my client was not allowed to do, was to take a chapter out of the book and change a few words.
William H. Rehnquist: --Or 300 words out of the book if he is simply--
Floyd Abrams: When you start to get down, Justice Renquist, to 300 words, then I think you have to apply standard Fair Use analysis.
William H. Rehnquist: --Okay. You say, a chapter, let's say, a chapter of ten pages, 300 words to a page, 3,000 words. There you say that Harper & Row is protected. You say if you get down to one page, you have to apply the Fair Use analysis. Is there any line in-between there?
Floyd Abrams: I should have said, I misspoke a moment ago, you have to use Fair Use analysis no matter what you get down to. All I am saying is that first you have to see what it is that you are looking at, what is the fair document, what is the fair amount of words, or whatever, that you are looking at, then you apply fair use analysis. Is there a line that you use? I think you start with what Congress said. Congress gave four factors to look at, they are not exclusive.
Sandra Day O'Connor: The first publication right is not a factor for consideration in Fair Use?
Floyd Abrams: I think pre-publication, Justice O'Connor, can be a factor in a particular type of case. For example, if this were a case--
Sandra Day O'Connor: What about this case?
Floyd Abrams: --This case, no. We don't think the factor that it is pre-publication is a factor in this case. We read the legislative history differently than our friends, but not just that. We look at a statute which, when it wants to, distinguishes between published and unpublished works, and that is what the copyright law does in Section 104 and 108, 302 and 412. Congress said in a number of situation, we are going to treat published and unpublished works in a different way, but that is not that they did here. We look at a statute which says, news reporting is a paradigmatic example of Fair Use. We think, and the Second Circuit on this was unanimous, that what was involved here was news reporting.
Sandra Day O'Connor: Do you think the right of first publication is a right encompassed under Section 106 of the law?
Floyd Abrams: Yes. I have no doubt at all that the right of first publication is a right subject to Fair Use. Everything is subject to Fair Use, that is what 106 says, that is is subject to 107. So when one applies Fair Use, it seems to me one looks at what Congress said. You look at the nature of the use, and our answer, and the Second Circuit's answer was news reporting. If you look at the nature of the underlying work, it is heavily factual, the certainly heavily factual nature of the work in terms of what Mr. Navasky was looking at and using. No personal stories, no vignettes, no stuff which you can take from a book like that. You look at the question of how much did he take for the use, and we have undisputed--
Sandra Day O'Connor: Do you look at the negative effect on the potential market and value?
Floyd Abrams: --Yes, that is the fourth factor, and you certainly look at that.
Sandra Day O'Connor: Wouldn't that be a factor here to worry about?
Floyd Abrams: It is a factor here but only if the negative effect was caused by taking copyrightable material. If you once say that we are right, that they are allowed to write a summary, a news article, or whatever, about the pardon, then if Time cancelled because the news was lost, that's not something that is compensable at law. If Time cancelled because of the expression that is something which would be compensable, at least that would be a factor against us. What the Second Circuit said looking at this, looking at what it got it down to after it looked at what was copyrightable in terms of what was involved here, we had a situation, the Second Circuit said, in which it can't be the case. What Time cancelled about was the description of President Ford's Yale Law School. Everyone agreed that what the article was about was about the pardon, and that the main thrust of the article that Time wanted was material about the pardon. So on that factor as well, we don't lose. In any event, we think we win, as the Second Circuit said, on the first three factors.
Lewis F. Powell, Jr.: Would you repeat what you have said about the first factor, whether or not publication was for commercial purposes rather than for non-profit, educational purposes. This was certainly commercial, wasn't it?
Floyd Abrams: This is commercial as opposed to educational, Your Honor.
Lewis F. Powell, Jr.: Is it not commercial in every sense in that you knew that the material would be published by Time in a matter of a couple of weeks?
Floyd Abrams: I think the commercial relates to my client and not Time. But I would concede in any event, Justice Powell, that if the first factor requires a simple choice between whether it is commercial or educational, as the language is--
Lewis F. Powell, Jr.: You flunk that test.
Floyd Abrams: --We don't flunk it, Your Honor, because we view it as a sort of a sliding scale necessarily. How can news reporting be stated by Congress to be a paradigmatic example of Fair Use in a case where the publisher would fail stage one.
Thurgood Marshall: Yours is educational for profit.
Floyd Abrams: It is hopefully for profits, Justice Marshall, but it's news reporting. That is why I pause a little, Justice Powell, before saying that it is simply commercial. It is not like running it for an advertisement, for example. It seems to me that when Congress comes right out and says that news reporting is presumptively protected, we have to give some meaning to that, and the meaning, we can't, it seems to me, say that notwithstanding that news reporting is listed in so many words by Congress in Section 107 as an example of Fair Use, that every example of news reporting in every newspaper here today fails stage one if they sell it for a profit. That is why I think the only sensible reading, if I may, of Section 1 is to say that what Congress did was to give two examples. On one side of the scale, it is pure commercial, and on the other side it is pure educational.
Lewis F. Powell, Jr.: But you do start with copyrighted material, don't you, which is a little different from most news reporting.
Floyd Abrams: It really isn't, Your Honor.
Lewis F. Powell, Jr.: This was copyrighted, wasn't it?
Floyd Abrams: I'm sorry.
Lewis F. Powell, Jr.: Was the book copyrighted?
Floyd Abrams: The book was copyrighted. What is not unusual is for... President Ford uses the doctrine of Fair Use. His book is filled with quotations of what other people have said, and it is only protected because of the Fair Use doctrine. If Mr. Ruth, for example, owned his memo... he doesn't because it is a U.S. memo, the same with President Ford, he is not the owner of the memo... it would only be Fair Use to allow President Ford to quote it, even though it may have been copyrighted.
William H. Rehnquist: Yes, but the kind of Fair Use example you give of President Ford is in the context of a work which bears the imprint... the individual imprint of an author. Here this Nation thing didn't really add anything original to what is found in the Ford Memoirs.
Floyd Abrams: Your Honor, if we are right for the moment, if I am persuasive for the moment with respect to the pre-publication and post-publication issue, if one just puts that to the side for the moment, it is inconceivable to me that anyone would say that this article, this very article, published after publication of the Ford Memoirs, violates the copyright law. It is inconceivable because of the amount quoted, because of all the factors which we ordinarily take account of in Fair Use. I understand, it is more than a relevant, it is a very central question to this case when one talks about pre-publication and post-publication, but in terms of whether it is that unusual to have long quotations or to have an article like this. Book reviews are filled with much more in quotation than this.
William H. Rehnquist: Yes, but most book reviews contain the reviewer's appraisal of the work as a piece of literature.
Floyd Abrams: News articles on books just published frequently do not, new articles about books about politics in particular. A book like this is a political event. It is a president reflecting and stating what happened during his presidency. It is news in and of itself, and we have testimony on that. These things are not in dispute on this record at least. Everyone has testified as to that. There was no cross-examination. There were no counter-witnesses as to that. It does happen, and it happens with some frequency that that a news article will be written about a book. The question, to be sure, the question is, supposed it happened before publication, what difference does that make? We cite our legislative history, and we cite more than legislative history. We cite the statute to you which doesn't say what Mr. Miller wants it to have said, but it doesn't say it. We cite cases to you which say, in common law, that it didn't make any difference. The Hemingway case, for example. We cite Professor Nimmer's book to you which says, the leading authority on copyright, that at common law the fact was that pre-publication, Fair Use applied... not that it did rot apply, that it did apply in common law. We cite more recent cases, the Am-Law case in the Second Circuit just a few weeks ago, which rather routinely, Judge Winter went ahead with an unpublished work and applied the standard, and all the factors under Fair Use. If we are wrong about published and unpublished work, if that's dispositive as Mr. Miller argues, we have a lot of troubles in this case, but if we are right about that--
Sandra Day O'Connor: I understood your opponent to concede that Fair Use was a proper question for inquiry here, but he takes the view that whether it is a first publication is a factor to be considered under Fair Use. You say, it's not.
Floyd Abrams: --I think he goes farther.
Sandra Day O'Connor: Is that the essence of the difference?
Floyd Abrams: I don't think so, Justice O'Connor. His position in his brief is that Fair Use is precluded absent extraordinary circumstances in a pre-publication situation, and that is not our view at all. If it were that, for example, under Section 101 of the copyright law, every time a program was or television, or a play is performed, you would have to have extraordinary circumstances to have a review of it because under the copyright law, that's not a publication. So that's what we are saying here. We think what the Second Circuit did as a matter of analysis was right in first saying, what is copyrightable, what are we talking about here, and then saying, 300 words, in the circumstances of this factual book, is Fair Use.
Byron R. White: Mr. Abrams, you got us up to 700 words with that memorandum. Your opponent says that he is really talking about 1800 words. Are the 700 included in the 1800 words, or is the 1800 in addition to that?
Floyd Abrams: No. Of the entirety of the Nation article of 2250 words--
Byron R. White: Yes.
Floyd Abrams: --the amount quoted is about 700 words--
Byron R. White: Yes.
Floyd Abrams: --Our opponents say that an additional 1100 words were paraphrased.
Byron R. White: I got you.
Floyd Abrams: There is no argument about 400 words... about the other 700 words.
Byron R. White: Thank you.
Warren E. Burger: Do you have anything further, Mr. Miller.
Edward A. Miller: I have no rebuttal.
Sandra Day O'Connor: Mr. Miller, may I ask one question, please. If the article were published in The Nation after the publication of President Ford's book, would that be a copyright violation?
Edward A. Miller: Justice O'Connor, if that happened, there would be one significant change in one of the Fair Use factors, and a possible change in the other.
Sandra Day O'Connor: Yes or no, a violation or not?
Edward A. Miller: It could be, but I can't answer yes or no because it would depend upon the economic impact of the use. A significant factor that would change is that it would be a published manuscript. If he did this after the book came out, I don't know whether it would have caused economic harm, and I think that would be a significant factor. By doing it before the book came out, he caused us to lose the benefit of the first serial license deal that we made. It is possible that if he came out with his article after the book came out that it wouldn't receive very much attention because, after all, he didn't add anything to what President Ford said in the article. Thank you.
Warren E. Burger: Thank you. Gentlemen, the case is submitted.
Speaker: The Honorable Court is now adjourned until tomorrow at 10:00.


Earl Warren: 503, Commissioner of Internal Revenue, petitioner versus Estate of Marshal L. Noel, deceased, et al. Mr. Jones.
John B. Jones, Jr.: Mr. Chief Justice may it please the Court. This case involves the applicability of the federal estate tax to the proceeds of airplane flight insurance paid on the death of one who has died in an airplane accident. The facts are undisputed. On the evening of June 19, 1956 the decedent and his wife went to Idlewild Airport from which he was taking a trip to Venezuela. In that airport he applied for two flight insurance policies in face amount of $62,500 each, totaling a $125,000 for a premium of $2.50 each. He signed a written application to each of the two companies and in that application he named his wife Ruth as the beneficiary. He specified that his trip was to be a roundtrip between New York and Puerto Ordaz in Venezuela. He gave application, his application to the clerk, who validated them and on instructions of the decedent handed them to the wife who kept them until they will later surrendered for payment. There is perhaps some disagreement in this record as to who paid the premium for the policy. While we don't think anything in this case, in its present posture would turn on that, we note that the tax court judge, although we had testimonies from the wife that she had paid the premium, and refused to make that finding. They expressed some question. The Third Circuit on the other hand in stating the facts of the case did go ahead and made that finding though without discussing the point.
Potter Stewart: Finding that she had paid the premium?
John B. Jones, Jr.: Yes, it's a sentence of the record -- it's at page 49 of the record just says she paid and I'm not sure that they were aware in the Third Circuit that they were making a finding which the tax court have refused to make.
Potter Stewart: And of what significance would this be?
John B. Jones, Jr.: It would be at significance if he --
Potter Stewart: If he did not have any incidence of ownership it might be of significance, is that right?
John B. Jones, Jr.: That's right. We have an additional argument relating to a gift in contemplation of death, which is before the Court at this time. It would not be a gift, if she had herself paid for the policy. That would be the only --
Potter Stewart: It has no present significance.
John B. Jones, Jr.: No, present significance. Each of these policies provided for payments in specified amounts for certain bodily injuries such as loss of limb or sight resulting from accident in the contemplated airplane flight and provided for the payment of the principle sum on loss of life. Each policy also reserved the right in the insured to assign the policy and to change beneficiaries. At 12:31 am approximately just less than three hours after it took off the plane crashed into the Atlantic Ocean and everyone on board was killed. On due application by his widow under the policy, she received a $125,000 from the two companies. These amounts were not included in the estate tax return filed on behalf of the decedent. The commissioner asserted a deficiency and the case proceeded in due course to the tax court which upheld the deficiency, but on the petitioner's appeal to the Third Circuit, Third Circuit reversed the decision for the government and held that these particular policies were not insurance under policies on the life of the decedent as required by Section 2042 (2) of the Code. That code section is in relevant portion set forth at page 16 of our brief and virtually all of the discussion in this case will revolve about those words, insurance under policies on the life of the decedent as set forth in page 16 there. Our position before this Court is that the Third Circuit was wrong for four reasons and that the decision of the Third Circuit should be reversed and that of the tax court reinstated. First we would meet the Third Circuit in the terms in which it spoke. It suggested that somehow this language which I've just quoted is not clear and that it's necessary to make considerable construction. We think that the Third Circuit got into that error by equating the quoted phrase insurance under policies on the life of the decedent with life insurance and then find a fact which no one disputes that life insurance is quite different from accident insurance and it would be our view that the statute rather pointedly refrained from using the term life insurance and says rather insurance under policies on the life of the decedent, which it would seem at least as reasonable reading and in our view the better reading to say that this includes all policies under which death is the occasion for payment of the proceeding. And we think that this spirit and the spirit that animates the choice of language in the section is picked up in the regulation, which have been with us for 30 or 40 years, which provide that the term insurance refers to life insurance of every description.
Earl Warren: Is there is a legislative history on that statute Mr. Jones that's convincing that --
John B. Jones, Jr.: The legislative history is quoted in the opinions below. I think it does not focus on the fact that there might be ordinary life insurance policies and accident life insurance policies that would cover on death. What it does do and this comes in a little later in the argument, it does give some support to the theory that the Congress was concerned with the possibility of -- at one time there was no tax on life insurance to a named beneficiary and at that time this was put in and they wanted to have a rule which made it clear that insurance payable to a beneficiary other than the estate was part of the estate and that is really all legislative history deals with. I don't think either side has cited anything more helpful than that and that this is I believe amply discussed in both briefs.
Speaker: What was the situation [Inaudible]
John B. Jones, Jr.: Well I think that I've covered the clarity of the language its really all I wanted to say on that and our second reason for doing this is, for taking this position is, it's all very well for us to sit here and look at this one flight policy which is after all is going to last for a very short time, it doesn't have much intrinsic value as a piece of paper, it isn't worth any more than the $5.00 that was paid on it until the fact that the accident which instantly makes it payable in its full amount and there's not going to be a trading market in these policies, it's not the kind of thing which is transferred. And if you compare that with ordinary life insurance, it's very easy to see differences in time, differences in nature and if that was all that was involved it wouldn't be too bad to have a different rule for these flight insurance policies on the one hand and the ordinary life on the other, but the difficulty is that, in our view, this is a -- the insurance policies really fill out a spectrum of which this policy would be off to this side, let's say a flight insurance policy would last a very short time and covers a single flight. And maybe the next one over in the line would be an annual policy and some people are covering only airplane accidents and then the next one would be the term insurance which Your Honor mentioned and then their might be renewable term insurance and then there might be ordinary life insurance with double indemnity and then there might be ordinary life insurance without double indemnity. And our view is that the distinction which was picked by the Third Circuit was to say that ordinary life insurance and that which is within the meaning of the section, is that which ensures against an inevitable event. Well you can't make that statement about term insurance, because term insurance insures only against death during a 10 year, 20 or whatever the agreed term is. Now this is a form of term insurance, it covers a limited cause of death. It has a 12-month actual limitation in it, but it would be terminated shorter if the roundtrip terminates before that.
Speaker: [Inaudible]
John B. Jones, Jr.: Oh, no question about --
Speaker: [Inaudible]
John B. Jones, Jr.: No, I would. I say this, I don't think anybody has ever, if I may use the phrase, had the nerve to suggest that it was not includable in the estate. Until this decision of the Third Circuit I don't know how you would have made the argument and I'm not sure that in the brief, petitioners go away from that. They don't think that they can soundly argue that term insurance ought to be excluded and in fact in this particular case if the record on pages 23 and 24 you will find that this man had an annual airplane accident life insurance policy. I didn't mean to use life insurance, I beg your pardon, but covering his loss of life in an airplane accident and he didn't make any effort to apply this rule to this policy. He agrees that there is something more in that policy that he just -- he couldn't come into court and claim that, that wasn't includable in his estate. And whereas under the rationale of the Third Circuit as adopted as we see it you would have to rule that it wasn't life insurance. So my answer is that the regulations here, say life insurance of every description, as far as I know there has never been a contest or even a situation close enough that it was necessary to issue a ruling suggesting that term insurance was includable. I think it would be a fair assumption and I'm sure opposing counsel picking up that they feel I'm in error in this finding. It's the first time that no one has suggested that there was any reason for exclude.
Tom C. Clark: Wasn't there however a different theory advanced for excluding the other accident policy, and that was that the ownership wasn't transferred to the wife, whereas here the theory was that the ownership was?
John B. Jones, Jr.: Well that raises problems under the alternative argument which is presented in their brief. It does not under the rationale which the Third Circuit adopted.
Tom C. Clark: Yes, I understand.
John B. Jones, Jr.: And that at the time this was advanced to Judge Brown he was talking about, well if you say there's any validity to this argument about the nature of insurance wouldn't it necessarily cover this other policy too? And so Your Honor's point is well taken, absent an assignment, there might be very good reasons for taxing it but not under the Third Circuit rationale. Now, the second reason or the third reason for -- in our view reversing the Third Circuit is that this seems to us to have been a settled area of law. It is true that the decision is one of the Board of Tax Appeals which is not high up in the judicial structure of the country, but it was promulgated in 1929 and as far as we know has not been contested until this case, or successfully contested until this case. We've cited in our brief, page 6 that the degree to which it's been accepted by the three textbook authorities. Opposing counsel in their briefs say well, they're not going all out in their endorsement of it, when they refer to it in their treatises perhaps that's true, but I think treatise writers are exact to take issue with unsound decisions as anybody and I think in these same treatises if there are well established decisions with which they are in disagreement, you will find that they do not hesitate to express it. And I will think that the fact that this is reported is entitled to some weight, not in any sense conclusive but it adds to the picture which we see here. And the same thing maybe said for the Ackerman decision being known to Congress over the years. Again respondent here states, well there's no showing that this was ever called to Congress' attention, which we say granted and if this isn't the strongest case for congressional reenactment, but at the same time if there was discontent with the decision I think one could expect that over the course of 30 years, it would have been called to the attention of Congress and fitted into the picture as a whole. I think it is fair to say that Congress -- the inaction of Congress supports the view which we're now espousing. And the last reason which we would advance for the error in the decision of Third Circuit comes about from the interrelationship between the income tax and the estate tax. There is in Section 101 of the income tax which is printed at page 17 of our brief, just facing the 2042, a provision which excludes from income amounts paid under a life insurance contract. And the regulations under that section have always felt that, that language was strong enough to support exclusion of death benefits under accident insurance policy. It's the phrase under a life insurance contract, is I would think a narrower phrase in the statute to be construed than that phrase policies on the life of the decedent which we have in Section 2042 in front us now. And the reason -- the point to be made here is that if the Third Circuit rationale is accepted then the regulations under 101 are wrong and payments under an accident, so called accident insurance, accident life insurance policy should not be excluded from income under 101 and the price of obtaining the exposition from the estate would be to have it included in the income, which in virtually every case would be a much more expensive proposition tax wise. We don't urge that and I don't suppose if we lost this case we would even urge it, but it does seem to us to show that Congress had a very clear concept in mind of what life insurance was and that all the pieces in the puzzle fit together until this case came along and it does knock it considerably out of kilter and that the uncertainty should be removed and that the pattern of taxation of insurance on flight accidents should follow the pattern of all other life insurance. Now upon brief here the tax payer makes some point about the incidence of ownership and let me say that this is in our view a more troubling and a closer question under the -- on the facts of this case. That point however, was dealt with unanimously by -- neither the Court below disagreed on this. It seemed to us that Judge Brown was aware of all the arguments, treated them very carefully and was so satisfying to the Third Circuit that they passed over in a sentence with a statement that decedent here clearly did have the incidence of ownership. If I just outline the objections and our answers to them I might suggest one of the most important is a suggestion that somehow with the policies in the wife's hands and the insured on the airplane, there wasn't any practical way to exercise the power to change the beneficiary and I would just point out that on that Section 2042 very clearly speaks of power alone or in conjunction with any other person. And since the most that could be set for facts is that it puts it in the joint control of the decedent and his wife, that there would be no reason for allowing a person by their own act to just argue the impossibility of exercise when Congress has gone so far in advance to cover the possibility of being exercisable with some other person. And another very practical possibility and one that has to be contemplated is that man who buys the flight insurance contract at the counter is not in a very effective position to change the beneficiary, he goes from the counter, he gets on the airplane and he's not going to be allowed to use the pilot's radio. There's not, as a practical matter, a great chance of exercising at that point.
Potter Stewart: Suppose he could do it with the roundtrip policy, I suppose he could do it at his one way destination.
John B. Jones, Jr.: That's right, but -- and this one was roundtrip policy and he could have done it at his destination.
Potter Stewart: And had he arrived there.
Hugo L. Black: [Inaudible]
John B. Jones, Jr.: Yes, this happened to be a non-stop flight but I have to certainly -- you could try it anyway.
Hugo L. Black: [Inaudible]
John B. Jones, Jr.: Right, right, but there is. That is only significant aspect of ownership in this policy, is this power to change the beneficiary and it just isn't possible to overlook it. That's all you've got and it clearly was in the decedent. What we have considered this business of impossibility at the time he was on that airplane he couldn't have changed the beneficiary on his own ordinary life insurance policy either, but I don't suppose that, that would be -- would be taken seriously as an argument for not including his own life insurance just because the minute he left he was in the airplane where he couldn't contact the company. So as Judge Brown points out it goes too far. And we have cases in the power of appointment area which the heard case is an example which points out it isn't the actual likelihood of exercise of the existence of the power which has to be controlling for tax purposes. Some comment is made that this is pure broiler plate, but we note from the record at page 28 that the company involved has considered this problem a little bit more and now makes available forms for assignment which presumably would permit an insured to assign it. But unfortunately for the decedent here those forms were not available at that time and we think that closer recognition, there is a right which has to be dealt with here. And just lastly on the incidence of ownership we would say that you can't overlook the accidental portion here for loss of limb and sight and eye. That's a benefit which is payable. It is payable to the insured if that had been the result of the accident and that in itself may have been incident of ownership.
Byron R. White: Mr. Jones I gather this case really bears on all accident policies not just aircraft accident policies, isn't it?
John B. Jones, Jr.: Yes, Mr. Justice I would --
Byron R. White: I mean either way it's decided it would have a -- rather it would settle a lot of other things too.
John B. Jones, Jr.: Yes.
Byron R. White: A lot of other -- settle insurance cases with other [Inaudible]
John B. Jones, Jr.: Yes, it would. I fear that I've expressed Mr. Justice White is that it would go further, it would also settle adversely such things as term insurance, double indemnity portions of regular life insurance if at least have done in the terms which the Third Circuit has stated. There's nothing magic to the airplane nature, just except the fact that it highlights the tangency of the policy. It last only a short time, it covers only a very small likelihood of death and as the Court can recognize, it's not a very valuable piece of paper spoken of generally just in the rare case of an airplane accident suddenly assumes this, but we think the rules set down by Congress speak to this policy as to all others. Thank you.
Earl Warren: Mr. Ball.
Harry Norman Ball: May it please the Court. The coverage under these policies was the payment of benefits prescribed in the policies resulting from injury through accident in connection with an airplane flight. Of course there was an infinitesimal possibility fortunately that any liability, whatever accrued and of course everybody hoped that the contingency, the accident would never occur. Now it is this fact which I will develop which shows that this kind of coverage does not posses the requirements as intended by Congress under the congressional policy which Mr. Chief Justice asked about in the beginning. This type of policy is not covered by the intent of Congress as expressed in 1918 and is not covered by the intent of Congress which has persisted to this very day. Prior to 1918, when the estate tax was imposed, there was no inclusion of life insurance policy proceeds except those which came into the estate physically by reason of the fact that the executor in his fiduciary capacity was a beneficiary. Congress had before it the question of tax evasion or avoidance under which wealthy persons could take from their estates large sums of money, put those sums into life insurance and in that way create for their beneficiaries distributions which would escape estate taxation. It was this situation which Congress tried to eliminate by enacting the section which said that hereafter, proceeds on life policies will be included if the insured took out the policies and if the proceeds exceed $40,000. The Court will please observe that only way that this intent could be translated to insurance would be in connection with the translation to life insurance. And the reason for that is that life insurance is inherently a form of investment or contract which looks toward the future and looks towards the protection of beneficiaries. And the reason why that is so is because the insurance carrier, when he enters into a contract, is just as certain to have to pay to the beneficiary or to the estate as the case may be as there is a certainty of death. Of course this is in complete contrast with a flight accident policy where the probability of payment is infinitesimal and almost negligible and as I say, it is fortunate that, that is the situation. Now the --
Potter Stewart: How about the kind of a policy that the people sometimes take out during the -- when they borrow money which is a short-term life insurance policy to be sure that that will be paid if they die during [Inaudible]
Harry Norman Ball: Yes sir.
Potter Stewart: Now there is -- where would you think that would fall if it's some kind of a policy?
Harry Norman Ball: I would think that since that is truly life insurance that, that would fall within 2042.
Potter Stewart: Of course, the statute doesn't say life insurance.
Harry Norman Ball: The statute says insurance on the life.
Potter Stewart: Yes.
Harry Norman Ball: But reading that statute in the light of the congressional intent, it is clear we submit that the only kind of insurance that could have been useful and could have been meant in thwarting the concept which the Congress was trying to avoid was through life insurance.
Potter Stewart: Well, and that's the reason I asked you my question, because that kind of an insurance is not covered by the congressional intent, is it? Very short-term life insurance, that's not covered by the congressional intent is it?
Harry Norman Ball: It may not be specifically covered by the congressional intent --
Potter Stewart: I mean that kind of life -- that kind of insurance on a person's life is not within the contemplation of Congress and it uses [Inaudible]
Harry Norman Ball: Probably not sir, but since general life insurance company was -- life insurance policies were certainly included under this intent, then I must say that this type of insurance even though it's taken out for the purpose of insuring a creditor is still life insurance and the same treatment would be accorded.
Potter Stewart: Even though it's 30 days or 60 days [Inaudible]
Harry Norman Ball: And may I answer Justice Harlan's question about term insurance. Term insurance in the usual sense is nothing more than regular insurance without cash value. There is a term which is non-cancelable, goes for life. There are modifications of that, but term insurance in our view is covered by 2042 for the reason that it is life insurance and may I at this point --
Potter Stewart: But without cash value, very little with to do with the policy which you say Congress had before it?
Harry Norman Ball: No Your Honor. I think that the fact that there is little or no cash value in the true life insurance policy does not take it out of the contemplation of Congress for this reason that in every life insurance policy, be it term or 20 payment life or endowment and of course it is easier to envisage a situation where for example, an insured goes out and buys a single premium payment life insurance policy. He pays $25,000 or $30,000 for a single premium policy, and then that is a definite depletion of estate -- of his estate to that extent, but the other life insurance also has a built-in value which must be considered because of the fact that the insured's expectancy of death furnishes a value in all kinds of life insurance which the insured has in his estate until such time as he dies.
Earl Warren: Would your argument would be the same if this was an annual policy instead of the single roundtrip policy?
Harry Norman Ball: Yes Your Honor.
Earl Warren: It will.
Potter Stewart: There was an annual policy in this case. There is the depletion on that policy.
Harry Norman Ball: Yes sir.
Potter Stewart: And what happened with the plan? Did you make the same argument?
Harry Norman Ball: No Your Honor, payment had been made on that policy and I think it was a mistake.
Earl Warren: What was the answer, I didn't get it?
Harry Norman Ball: I said that policy was included by the department, and payment of the tax made, I think it was a mistake.
Potter Stewart: You could have sued for a refund.
Harry Norman Ball: I hope we're not too late, we might still do so.
Potter Stewart: Well, the fact of the matter, at least so far while you say you would make the same argument with respect to an annual policy, the fact is at least so far you haven't made, is that right?
Harry Norman Ball: We haven't made it. We haven't done anything about it.
Potter Stewart: Your argument would be different if this was just a straight payment for death rather than an injury, wouldn't it?
Harry Norman Ball: My argument would be different if this was a straight payment for death from any cause; heart attack, disease or any other cause --
William O. Douglas: I mean if it was just a straight policy for death by -- which resulted in here accident.
Harry Norman Ball: No, my argument would be the same. I'd say if it was a straight policy for death alone, it still would not be includable.
William O. Douglas: Then how life insurance continues from that kind of a policy?
Harry Norman Ball: Life insurance is distinguished from that kind of policy because there is a certainty of death. The certainty of death is based upon the fact that the expectancy tables decide that on the average an individual, a human being will die over a certain period of time. It is this certainty of death and this certainty payment that supports the use of this kind of coverage for estate planning. It is this kind of coverage which I suggest was in the mind of Congress when it --
William J. Brennan, Jr.: That would be dangerous to say if there's almost a certainty of no death.
Harry Norman Ball: We like to hope so Your Honor. It's a bad tragedy when anybody is killed, of course the airlines say that the averages are wonderful and of course they don't count to the person who was struck. But the possibility on a mathematical basis is very slight. Now for example, out of 77 million flights in 1963, there were 264 deaths. Now I might make the point at this time that since that statistic indicates the amount of controversy that there might have been involved, I suggest that it was so negligible as not to be able to say that it was before Congress because assuming as the record indicates that 7 or 8 million policies of this kind are taken out a year which would be about 10% and of the 264 deaths, 10% would be 26. Now --
Tom C. Clark: Your argument however would apply to any accidental death policy, whether it's the automobile or airplane or anything else, would it not?
Harry Norman Ball: Yes Your Honor.
Tom C. Clark: And there we have a very substantial incident, while it's true with what you've said about airplanes is true, accidental death by automobile has assumed the largest proportion in the country.
Harry Norman Ball: That may be true Your Honor, but it has not as yet gone so far as to have Congress declare a different intent. Now it may very well be that Congress could say that proceeds from policies because of the death of any individual in an accident or otherwise are includable. It may properly be able to say that, but it has not done so as yet and as the government says, they're asking that this Court say, “Now Congress, if you want to make an exception of flight accident policies, it is up to you to make the exception out of 2042.” I suggest to the Court that you can't make an exception and take something out before it's put in. What the government is saying to this Court is that, they're asking this Court to extend and stretch the language of 2042 beyond the phrases and the words used in that section and beyond the congressional intent, and the purpose is sought to be achieved by Congress.
Earl Warren: If you were to prevail in this case, would that money be subject to taxation by anyone?
Harry Norman Ball: That question if it pleases the Court is whether or not the beneficiary might have to pay a tax on that money, income tax or otherwise. Now probably Congress could impose a tax on the beneficiary income or otherwise, it could call this gain or profit or income and if it chose to do so and thereby impose the tax on the beneficiary, but so far as the estate tax is concerned, we submit that it cannot do so.
Earl Warren: It cannot constitutionally do so?
Harry Norman Ball: I would say sir in this type of policy, it cannot do so for the reason that there is no significant value in the policy which I suggest is necessary for the decedent to have at the time of his death in order to enable the government to tax a transfer. In other words, there has to be something of significant value in the decedent at the time of his death in order to say well we are taxing the transfer of this economic value which the decedent had. And I don't think there is any such economic value in a flight accident policy and therefore, I don't think that it could be taxed because if it were, it would be probably taking property without due process and probably a direct tax which is proscribed.
Earl Warren: How about the double indemnity clause in a life insurance policy? Is that somewhat similar to this?
Harry Norman Ball: Your Honor that is, in someway, there are some similarities, but in a double indemnity policy attached or part of, inherently part of a life policy, the basic contingency is death. Now the double indemnity establishes the amount of payment and to that extent, when you have it all in one, I would say that those proceeds might properly be included. But if the double indemnity feature is taken out of the life policy and is represented by a single policy referring only to death from accident, then I say that falls within our position that it is not includible under Section 2042. Now as the Court below pointed out and of course I think properly so, the certainty of the payment under a life insurance policy, the fact that there is a definite obligation on the part of the insurance carrier to pay and under life insurance, the built-in value which I suggested a moment ago as being in there because of the expectancy of death in every life policy creates the immediate estate which if there is a right to change the beneficiary becomes taxable at the moment of death of because that right in the beneficiary is frozen. It cannot be taken away from him.
William J. Brennan, Jr.: [Inaudible] that form of life insurance is taken out, but the fact that they've said it. For example the ordinary tuition plan for instance, I expect many received, which provides that if you don't pay tuition plan over the course of the full year because of death that the obligation is distinguished, but the bank is paid by the insurance company. What's the economic interest in say passing, if it makes that passing? I think you answered to Justice Stewart earlier that, that would be passable?
Harry Norman Ball: I did sir.
William J. Brennan, Jr.: What is the term?
Harry Norman Ball: The economic interest in every life policy is the value, the built-in value emanating from the fact that the insured, every insured has an expectancy of death. Now to illustrate, if there is a pure term policy without any cash values on an individual say 95 years of age, say there's a $100,000 policy on his life, he has under the tables will say two-and-a-half years expectancy or perhaps a little bit more, but let's say three for the sake of argument. Now, without any cash value in that policy, the expectancy of death would make that policy worth approximately $30,000 and it is this expectancy of death which furnishes the built-in value in every life insurance policy which --
William J. Brennan, Jr.: Now suppose your decedent had one of these tuition plan policies, are you suggesting that while there accident policies is not being suitable, whatever is balance owing to the extent they are still owing tuition, to that extent this would be included, is that it?
Harry Norman Ball: Yes, assuming that he had the right to change the beneficiary --
Byron R. White: But in common insurance there is no expectancy of death within term, the credible life insurance there's no expectancy of death within the period of the said obligation.
Harry Norman Ball: There is no --
Byron R. White: In a year-to-year term policy, it may or it may not happen, just like in an accident policy which includes death. The death proceeds may or may not be paid.
Harry Norman Ball: But your --
Byron R. White: Because death may or may not happen as result of an accident.
Harry Norman Ball: But if the Court pleases, in the life policy, even if it be for a term of one year, there is a definite expectancy of death and not that the death is going to happen within the year necessarily, but that there is that expectancy on the basis of tables which is measurable but you don't have that at all in a flight policy where there is no definite assurance that --
Potter Stewart: I think has to Mr. Ball, both you and my brother White have gotten away a little bit in your arguments. You're not talking about the expectancy of death. The point you've been making is the certainty of death, that a life insurance policy and everybody so far, every human being dies, presumably anyone is going to continue to die someday, that's your point.
Harry Norman Ball: That is my --
Potter Stewart: Both the term policy and an accident insurance policy cover, insure against death but -- and in neither one is there any certainty of death. That the odds are much longer in the policy involved here.
Harry Norman Ball: And that's why I'm trying to make the point to --
William J. Brennan, Jr.: I know, but this certainly insures against death through a accident, doesn't it?
Harry Norman Ball: This insures against death through the accident but the possibility of death by accident is poles apart from the possibility or the probability of death of every human being based on his life expectancy. You just don't have that --
Byron R. White: What if I just buy a policy, a life insurance policy for a year to satisfy my creditors. Now the expectancy if I die within a year are poles apart, then the certainty of death that everybody has.
Harry Norman Ball: The expectancy of dying within in a year is far less than the expectancy of dying within 25 or 30, the life of expectancy but it's still there.
Byron R. White: Still there, and also there's, I suppose you could figure mathematically that what the chances are of dying accidentally within the year.
Harry Norman Ball: Well I'm not sure of that. I really don't think so. I think the possibility of death in an airplane accident just is so insignificant that it cannot be mathematically or actually figured and that's why I say that it is so far apart from the life coverage regardless of whether the life coverage is full life, 20 permanent life or even when it's on a limited term basis. You just can't talk about both those coverages in the same breath.
Arthur J. Goldberg: [Inaudible] and I don't find any reference to death at all in these policies, am I wrong in that?
Harry Norman Ball: Yes Your Honor.
Arthur J. Goldberg: Now, these policies basically only cover injury. Why are we discussing this as a death policy at all?
Harry Norman Ball: Because the government --
Arthur J. Goldberg: I know a death occurred but the policy on its face only purports to cover indemnity for injury, is that correct?
Harry Norman Ball: Indemnity for injury, and it fixes a --
Arthur J. Goldberg: If there are policies that talk about accidental death, we can have some of those policies, but both of these policies, I looked at them again and say that they are for injury accidental, bodily injury. Now they do have this amount and we can commonly, I know I've taken out policy frequently, I commonly assume what you have said, could you not make an argument that this is not life insurance at all, this is an injury policy?
Harry Norman Ball: That's the argument that I'm trying to make sir.
Arthur J. Goldberg: But you did not distinguish, that's why when Mr. Douglas asked you, do you distinguish between the policy which falls for reimbursement for injury and the policy which for death, you said you didn't distinguish.
Harry Norman Ball: Well then that was my error. The whole basis of the argument is that this is not a life policy, it's true.
Arthur J. Goldberg: I know, you have been arguing otherwise. You have said that the incident, certainty is so remote that it's different from other life policies which my brother White has just been asking you about, but it's quite a different argument it seemed to me to say that this is not a life insurance policy at all. What you are covering for is injury to the body and so it may have resulted in death, but if no death had resulted here, if the man had been injured, or re-injured there could have been a recovery under this policy.
Harry Norman Ball: Had he been injured in certain ways sir?
Arthur J. Goldberg: Yes, lost arm, lost a leg and bodily injured, he could have recovered under this policy.
Harry Norman Ball: That is correct sir.
Potter Stewart: Well I think Mr. Ball that the debit for which my brother Goldberg refers, I guess the excerpts comment that, are they not?
Harry Norman Ball: That's correct sir.
Potter Stewart: And this was the life policy, this did pay, each one of these paid $62,500 in the event of death on this roundtrip airplane.
Harry Norman Ball: By accident or pay the principal sum.
Potter Stewart: And in addition it paid specific sums for loss of an arm or a leg or eye or an ear.
Harry Norman Ball: Not an addition, either/or.
Potter Stewart: If there were no death that paid to be insured himself for the loss of a hand, as I say, or an eye or an ear, but if he died on this roundtrip on a flight it paid, each one of these paid $62,500 to the beneficiary, i. e., the widow.
Harry Norman Ball: As a result of an accident.
Earl Warren: Mr. Ball I -- bearing on the question as to purpose and intention of Congress I understood from Mr. Jones that the government has been collecting taxes on such moneys since the Ackerman case in 1929. And Congress has changed the law several times and since then hasn't done anything about this and apparently no one has challenged it seriously in the courts until this time, and I wonder if we could assume that Congress was to overlook the source of income of this kind or would permit the bureau to collect taxes of this kind, but it was such an important thing in the life of the nation. And I say that because I just read in the newspaper a few days ago that last year there were 47,000 people killed in automobile accidents alone in this country and certainly there must have been a great number of those people who were protected by this kind of insurance and I wonder if Congress had intended what you urge upon us, if they would not have changed that law somewhere along the line and the government has been collecting it all these years.
Harry Norman Ball: But the only regulation that was before Congress during these years is the regulation which said insurance, life insurance of every description and there was nothing before Congress, of course we know which talked about the proceeds from accidental death policies at all and there was no evidence of any great controversy. I think the government admits that there was not any great controversy during that period. So that --
Earl Warren: Well did the government collect the taxes during that period, all these periods since Ackerman, on the theory of the government is now arguing?
Harry Norman Ball: I don't know how much taxes it did collect in this context.
Earl Warren: Whatever the taxes were they were collecting them on this theory, were they not?
Harry Norman Ball: Yes, but in the absence of controversy or in the absence of awareness by Congress it would seem that it can't be said that Congress intended that this section which by its terms did not include proceeds from accident policies should be included. It would seem to me that, that section could have been amended had they so desired. Now in that connection on the basic differences between these coverages, I come to the question of the right to change the beneficiary which was the printed provision in the policy. Incidentally I do not agree that the right of the insured to collect if the injury caused the loss of arms or legs I do not call that an incident of ownership, because I think the term incident of ownership which was phrased by this Court in the Chase case is a term which is confined to life insurance policies. I'm sorry I see that my time is up, I just --
Earl Warren: Well if you have a sentence or two to complete your thought, go ahead, but if you want to extend time all right.
Harry Norman Ball: That incident of ownership test throughout the cases really covers a situation where there was a right to change the beneficiary plus some economic advantage in the policy which I adverted to before now. If you don't have that and if you're not -- and you don't have a life insurance policy before you then the term incident of ownership does not apply. And I say that the right to change the beneficiary even if it existed in this boiler plate did not rise to the incident of ownership. I say that the government should not take a part of this fund which might represent the breadwinner's value to his family unless there is a clear congressional mandate which is not present at this time. Thank you very much.
John B. Jones, Jr.: Mr. Jones.
John B. Jones, Jr.: Mr. Chief Justice. Mr. Justice Goldberg the provision on the indemnity for loss of life the principal sum is at page 40 of the record. In working on this case I've been a little concerned on the fragmentation of the policy throughout the record here. I wonder if the Court would like to have submitted to a, two complete copies of the --
Earl Warren: Could you do that?
John B. Jones, Jr.: -- I don't believe there's any dispute. We wish to arrange that.
Arthur J. Goldberg: [Inaudible]
John B. Jones, Jr.: I think not, that this thing had resulted at the airport and the only other --
Potter Stewart: Mr. Jones this policy would not have covered had the passenger died of old age on the trip and the airplane had landed safely.
John B. Jones, Jr.: No it would not.
Potter Stewart: It was only for accidental death.
John B. Jones, Jr.: That's right, in the manner specified.
Potter Stewart: What manner specified?
John B. Jones, Jr.: Well alighting from an aircraft, being hit by another aircraft.
Potter Stewart: Either in flight or you know the matter specified in connection with this airline?
John B. Jones, Jr.: I don't know whether it would cover the situation if another passenger shoots him or not, I just don't know that.
Potter Stewart: It wouldn't cover death from natural cause.
John B. Jones, Jr.: Clearly it would not cover that.
Potter Stewart: On the trip?
John B. Jones, Jr.: That's right.
Arthur J. Goldberg: The policy could be redefined [Inaudible]
John B. Jones, Jr.: They will be complete --
Arthur J. Goldberg: [Inaudible]
John B. Jones, Jr.: That's correct.
Arthur J. Goldberg: [Inaudible]
John B. Jones, Jr.: I apologize to the Court for that. The only other point that I'd make is that in emphasizing the legislative history here I think that the respondent has shown a misunderstanding of what the estate tax is. The estate tax is a revenue raising measure which produces approximately $2 billion a year in the federal budget which is an appreciable portion of it. And I think this difference between our two sides is shown by the quotation from his brief on page 14, where he describes the purpose of the estate tax to be the prevention of accumulated wealth being passed on undiminished from generation to generation, and I respectfully submit that the history of the same provisions of the estate tax which has been cited to this Court for other purposes will show that there's an important revenue measure and that this is a category of transmission of death which is within the statute.
William J. Brennan, Jr.: Mr. Jones, suppose in addition to naming the beneficiary the insured has written across the face of the policy “I hereby assign all my right, title in this policy to the beneficiary” change this?
John B. Jones, Jr.: I think it would turn on whether the company would accept that. The company could prove that it would not accept it then it's not an effective assignment. My guess is that if that had been done it would be very hard for the company under the laws of any state to resist that and in fact if people do, do that to those policies even though it says that nobody can vary the terms that some people aware of the estate tax consequences have so written.
William J. Brennan, Jr.: Well what would be the estate tax?
John B. Jones, Jr.: If that would be binding on the insurance company then it would take it out of the insured's estate. If it would not be binding then it's an ineffective designate.
William J. Brennan, Jr.: A simpler way, isn't it?
John B. Jones, Jr.: Well, a simpler way is for the insurance company to put a form out there and just say check here if you wish to assign the rights of the beneficiary which is being done.
Hugo L. Black: They do have a form.
John B. Jones, Jr.: They do now have such a form, they did not. Thank you.