Legal education is monumentally difficult. Legal “rules” are not “rules” in the sense most people understand them; they are, instead, formulations intended to reach just results based on the evidence in individual lawsuits.

In making the point set forth in the title of my post, it is worth repeating the message I sent this morning to my Contracts students, who are in the midst of studying for the first semester exams. My students are in the midst of making the transition from the lay understanding of legal “rules” as “rules” of the sort that govern the outcome of scientific experiments to the professional understanding that legal “rules” are professional terms of art used to articulate arguments intended to achieve justice in individual cases. It is not an easy transition to make, and it is a transition from a way of perceiving rules that seems to dominate the thinking of the vast majority of mankind to a way of perceiving rules as man-made constructs intended most of all to do justice to individuals.

As I wrote to my students, focusing on legal issues relating to the interpretation of disputed contract terms (the last subject of our semester’s study):

In trying to understand the law we are applying, consider the teachings of the teachings of the Chuang-tzu, a collection of writings from the fourth, third and second centuries B.C.:

Great understanding is broad and unhurried; Little understanding is cramped and busy.

Trying to understand the rules that pertain to contract interpretation will not come through a cramped and busy effort to memorize the “parol evidence rule” and the rules regarding when evidence outside of a writing is permitted to interpret the writing.

Instead, understanding contract interpretation will come first from from a broad and unhurried consideration of what language the parties are disputing the interpretation of. Then you must understand why each party considers his interpretation the correct one. What evidence does each party have that his interpretation is correct? How persuasive do you consider that evidence?

If one side’s interpretation is more persuasive, that will likely be the correct one. One must first consider the writing setting forth the purported agreement, the purposes of the purported agreement, the situations of the parties, and any other evidence that may bear on the meaning of the written agreement. Only after considering all these matters (which can range far and wide) and coming to some individual, human understanding of whether one person’s interpretation or the other’s is more persuasive can on go back to the rules to and use those rules to show how the rules and the evidence together will lead to that more persuasive result.

Thus, for example, in Thompson v. Lilly, 26 N.W. 1 (Minn. (1885), the buyer of logs insisted the seller did not supply logs of as high a quality as the parties had agreed the seller would provide. The parties had written the following brief agreement:

AGREEMENT.

Hastings, Minn., June 1, 1883.

I have this day sold to R. C. Libby, of Hastings, Minn., all my logs marked ‘‘H. C. A.,’’ cut in the winters of 1882 and 1883, for ten dollars a thousand feet, boom scale at Minneapolis, Minnesota. Payments cash as fast as scale bills are produced.

[Signed] J. H. Thompson,

Per D. S. Mooers.

R. C. Libby.

The Minnesota Supreme Court concluded that “[t]he written agreement . . . , as it appears on its face, . . . purports to be a complete expression of the whole agreement of the parties as to the sale and purchase of these logs, solemnly executed by both parties.” Thus, the court concluded that the buyer could not prevail on his claim that he and the seller had in fact agreed that the logs he had purchased were supposed to be of a higher quality than those logs the seller actually supplied.

But there really is nothing in the written agreement itself to preclude the reasonable possibility that the parties had also agreed that the logs marked “H.C.A” would be of the higher quality the buyer had not received. What is it about that 3 line agreement that suggests that it is the exhaustive statement of all the terms the parties agreed to?

Admittedly, there are a few things you might point to to support the court’s conclusion: the writing states price, it states the identifying marks on the buyer’s logs, and it states the delivery place and times. We might infer that if it includes all of those things it must include everything the parties had agreed upon.

But are we to suppose that in 1883 Minnesota in a sale between a logging company and a lumber buyer the technical requirements of the parol evidence rule were foremost in the buyer’s and seller’s minds? And are we to suppose the 3 line agreement was intended as the height of formality. And when, for example, would “winter” begin in Minesota — November, December 21, at first frost? To suppose the seller of logs and the buyer of logs would have put into the writing something they considered important is to be naive about how commercial transactions really take place (even today in the vast majority of commercial transactions, and even among investment bankers in the high flying world of Wall Street finance in which I once practiced).

In other words, if you merely start with the proposition that the parol evidence rule excludes the consideration of evidence regarding the content of a contractual agreement that is not contained in a final and complete written record of the agreement, you hardly have a convincing argument that the decision in Thompson v. Lilly must have been correct.

But if you look at the evidence recounted in the opinion (and the absence of certain evidence) the wisdom of the result (if not the clarity of the reasoning) becomes much, much more apparent — the buyer is claiming the agreement included a promise that the logs the seller was providing would be of a higher quality than the logs that were delivered. And while the writing in and of itself doesn’t inherently exclude that possibility in any conclusive way I can fathom, what evidence does the buyer have that the agreement included a promise of higher quality logs? Only the buyer’s own self-serving testimony. There is no corroborating testimony from, say,  others in the logging trade in 1883 Minnesota that an agreement on quality like that insisted upon the buyer would be expected. There is no documentary evidence outside of the 3 line agreement regarding the parties’ negotiations. There is no evidence that the buyer’s purposes for buying the logs should have indicated to the seller that higher quality logs were what the buyer expected. There is no indication the price the buyer agreed to pay reflects a market price for logs of a higher quality than that which he received.

In short, apart from the buyer’s self-serving testimony, there is no evidence of any sort that any agreement on the quality of the logs had been reached. In the absence of any evidence other than the buyer’s self-serving testimony in support of his position, the court conclusion that the three-line agreement contains all the material terms of the agreement does in fact seem convincing. If, on the other hand, others in the trade suggested the quality of the logs would not have been included in the written agreement or that the price in the agreement reflected a price for higher quality logs, the court would have had a much more difficult time suggesting the three line agreement contained all the material terms of the agreement.

Thus, the parol evidence rule does its job in this case — it prevents the dispute from ending up as a trial in which the buyer’s uncorroborated and self-serving sworn statements will be weighed by a jury against the writing and the seller’s sworn statements. But if we merely considered the 3 line agreement without considering what other evidence the buyer had (or did not have) in support of his position, the parol evidence rule in and of itself would have provided a very poor guide to determining whether there would be any justifiable basis for a trial on the buyer’s claims.

To engage in the extra effort of trial in Thompson v. Lilly would have been unreasonable as a matter of the administration of justice in that there seems no persuasive reason in the first place to believe the buyer. Trials are expensive and burdensome affairs. And keeping the case from trial prevents a jury from being persuaded by improper factors (such as preferring the buyer as a person to the seller). Thus, the court invoked the technical rule — the parol evidence rule — to produce an outcome that seems fair, just, and in accord with a common sense view of the evidence.

In other words, the legal rules and their proper application arise from the evidence the parties bring to bear. The rules do not predetermine disputes that are predictable before they arise. Instead, they provide the legal language (developed over the centuries’ long development of the common law) in which to couch the just conclusions compelled by the evidence.

So, as I explained to my students, when you are trying to figure out on an exam how to answer a question, consider first: what question you are you trying to answer. Then consider what evidence you have from each side of the dispute that helps persuade one way or another in answering that question. Then weigh that evidence and consider what we are primarily trying to determine in contract law: what the parties intended to agree to.

Then, and only then, use the rules to structure the presentation of your understanding of the proper resolution to the dispute. You are likely being asked to present your personal and human understanding as an intelligent adult being asked to solve a previously unsolved problem for the first time in your life. You are not merely being asked to repeat material your professor asked you to learn but to apply that learning to resolve new problems in a creative and original way no one other than you can be relied on to answer — that’s what you’re going to be doing as a lawyer!

I do not mean to minimize the importance of knowing the rules. You must know the rules. The rules are the language the law uses to structure the presentation of your persuasive explanations. Merely to give a recitation of your personal reaction to the evidence without reference to the rules is not to act as a lawyer. But the rules will only make sense to you if you use them to come to a result that makes sense to you as a human being.

You also have to keep in mind that rules in contract law sometimes serve purposes other than merely giving effect to what the parties intended. Rules such as the statute of frauds, for example, will in the absence of clear and convincing evidence of agreement avoid the administrative difficulties and expense of full-blown trial in certain types of important cases in which the parties have not supplied either the formal requirements evidencing such agreements or can supply other evidence as convincing as those formal requirements.

Again, this is not to discount the importance of the rules. You must know the rules to articulate your arguments in a manner that makes sense to lawyers, judges, and law professors. You are now a member of a profession, and you must communicate in the language of the profession. But you will never persuasively apply those profession-specific rules without first understanding the human disputes, the evidence, and the ways that evidence persuades human beings as to the merits of the disputes. Then, and only then, can you begin to structure your arguments in a manner that usefully employs the technical legal rules.

As a final note, my disquisition here should put to rest the myth — even one propounded by the Chief Justice of the U.S. Supreme Court as a means of obtaining confirmation in the course of a farcical political show — that applying legal rules to resolve legal disputes is the same as calling balls and strikes.

Money or racism? Could the Dolans just do the right thing already? The courts won’t.

The Lanham Act, the federal law governing trademarks prohibits trademarks “which may disparage . . . persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt. . . .” Nevertheless, the Supreme Court has declined to review a lower court decision (pdf download) in Pro Football, Inc. v. Harjo ruling that, even assuming the name of the Washington, D.C. football team, Redskins, is disparaging to Native Americans or brings them into contempt, the Redskins cannot be forced to give up their trademark rights. Why? Because, given the length of time that the Redskins have had the name without challenge and the delay in the plaintiffs bringing their claim, it would be unfair to deprive the football team of the profits to be made from selling goods bearing the Redskins name.

There are serious questions to be raised about the legal merits of the NFL’s position — among other points, the Lanham Act states that challenges to a trademark can come “at any time.” But my more serious question, to Daniel Snyder and to Larry Dolan, is this: why in the world would you want to make money off of a symbol so many people consider racist? Well, Larry Dolan’s answer is that he doesn’t see evidence that Chief Wahoo is racist.

It’s amazing how money can blind someone.

Homeland uber alles.

I’m not Hannah Arendt’s biggest fan, but the prominence she gave to “banality of evil” is an accomplishment that ought to be honored through the ages. As Wikipedia explains her thesis as well as it can be concisely described, “the great evils in history generally, and the Holocaust in particular, were not executed by fanatics or sociopaths but rather by ordinary people who accepted the premises of their state and therefore participated with the view that their actions were normal.” The role of the legal profession in Nazi Germany is, I think, a relatively neglected topic, but one can recognize when judges engage in specious reasoning to transform ugly, degrading, murderous, and unspeakable acts into the “normal” way of protecting our homeland.

I’ve compared the case of Maher Ahar to The Trial. I’m afraid that comparing it to fiction was my own effort to deflect the ugliness. As Glenn Greenwald describes Arar’s nightmare:

Maher Arar is both a Canadian and Syrian citizen of Syrian descent. A telecommunications engineer and graduate of Montreal’s McGill University, he has lived in Canada since he’s 17 years old. In 2002, he was returning home to Canada from vacation when, on a stopover at JFK Airport, he was (a) detained by U.S. officials, (b) accused of being a Terrorist, (c) held for two weeks incommunicado and without access to counsel while he was abusively interrogated, and then (d) was “rendered” — despite his pleas that he would be tortured — to Syria, to be interrogated and tortured. He remained in Syria for the next 10 months under the most brutal and inhumane conditions imaginable, where he was repeatedly tortured. Everyone acknowledges that Arar was never involved with Terrorism and was guilty of nothing.

Yesterday, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of Arar’s lawsuit (pdf) alleging, among other things, that his treatment by U.S. officials violated his constitutional rights to due process. Why? Because he couldn’t name the people who did what they did to him:

Arar alleges that “Defendants” — undifferentiated — “denied Mr. Arar effective access to consular assistance, the courts, his lawyers, and family members” in order to effectuate his removal to Syria. But he fails to specify any culpable action taken by any single defendant, and does not allege the “meeting of the minds” that a plausible conspiracy claim requires. He alleges (in passive voice) that his requests to make phone calls “were ignored,” and that “he was told” that he was not entitled to a lawyer, but he fails to link these denials to any defendant, named or unnamed. Given this omission, . . . we agree with the District Court and the panel majority that this Count of the complaint must be dismissed. Slip op. at 24-25 (emphasis added).

So next time you’re hauled in off the streets, held incommunicado, and sent to Syria to be tortured, be sure to get down the names of the “officials” doing this to you. Otherwise, you have no constitutional protections against this treatment. It’s all in the name of national security, and that trumps all, right?

This is “judging”?

Shepard Fairey and Manny Garcia: is Garcia lying, or is Tom Gralish(?)? Or is there some other explanation?

As much as law students and law professors want legal questions to resolve into nice, neat abstract questions, they seldom do.

Legal questions are only answered definitively by courts when those questions are necessary to resolve lawsuits, and lawsuits necessarily involve all the messy reality of human life, a messy reality which seldom allows one to merely hone straight in on some nice, neat question (like, hey, what is fair use (in some nice, easy-to-follow rule so we can definitely predict what we can and can’t do)?

One problem — the most important one for lawyers — is figuring out what happened. It’s amazing how people take the facts for granted, as if we have God’s videotape to play to a jury or something. Instead, we have conflicting evidence. And the court has to decide what it all means.

So, when Manny Garcia first learned Shepard Fairey had used his photograph for the Obama Hope poster, did he think what Fairey had done was cool and not even conceive of getting involved in a lawsuit, or was he angry at Fairey and already contemplating legal action?

Last January 23, Tom Gralish, a photographer for the Philadelphia Inquirer who also writes the blog Scene on the Road, wrote that, in a conversation with Manny Garcia two days earlier, Garcia “was quick to add he is not mad at Fairey, and he’s not looking at any lawsuits. ‘I know artists like to look at things; they see things and they make stuff. It’s a really cool piece of work. I wouldn’t mind getting a signed litho or something from the artist to put up on my wall.’”

In paragraph 45 of his Answer to Fairey’s Counterclaim, filed on September 8 in the lawsuit between himself, Fairey, and the Associated Press, Garcia “denies he stated in interviews that he was not ‘angry with Fairey or interested in joining any lawsuits.’”

Does that mean he never stated precisely those words? Or does it mean he did not express to Gralish what Gralish reported? It certainly seems to be the latter. And, if that’s the case, then is he calling Gralish a liar?

Welcome to the law.

ADDENDUM: Tom Gralish’s series of posts chronicling his efforts to identify the photograph that served as the source of Fairey’s Obama Hope poster are here. The posts re-enforce something I have suggested before: Garcia’s photograph just isn’t that original. Since the nature of the copyrighted work is relevant to any fair use analysis, and since the copyrighted work is entitled to less protection to the extent it is less creative, the generic nature of the photo militates in favor of Fairey. But I still think Fairey’s work is so obviously “transformative” that it constitutes fair use. Why? Because it had a resonance in the nation that none of the photos Gralish examined would have had on their own. If Fairey’s ability to confer that kind of power upon the source photo isn’t transformative, I ‘m not sure I know what is. And, incidentally, most of my previous posts on the case are here.

Cleveland Museum of Art allowed to use 50% of income from trusts for expansion; 1st time in Ohio since 1955.

A follow up to my posts (here and here) regarding the power of museums to deviate from the terms of a donor’s limitations on the use of money donated:

Last week, the Cleveland Museum of Art won permission from a Cuyahoga County Probate Court judge to use 49.99% of the income (not the principal) from 4 trusts over a period of 10 years (up to an amount not to exceed $75 million) to finance the museum’s ongoing renovation and expansion. The 4 trusts were established in 1920, 1935, 1938, and 1952. It is the first time since 1955 that the museum has sought such relief from the terms of a donor’s trust, which is also the last time such relief has been sought by any museum in Ohio.

These facts plainly do not justify the fears the museum’s critics hold up as the consequence of such rulings.

ADDENDUM: The Art Law Blog was right on top of this, and also has written, commented upon, and linked to articles about the background.

How do we decide how a long buried corpse would want his art treated? And is the corpse’s former intent all we care about?

My post last week about art museums and the doctrine of deviation provoked in the comments precisely the kind of discussion/argument that I tried to point out is the whole point: how do we decide how to apply rules or other written expressions when they are applied in contexts that have radically changed. To literally apply the words written by a donor that restrict the use of a gift by an art museum when doing so would threaten the entire point of the gift (a thriving art museum) seems pretty absurd to me. If what we’re trying to do is discern a donor’s intent, shouldn’t we be a little more flexible?

Thus, I am particularly pleased to note Donn Zaretsky’s reference to the Philadelphia Inquirer’s conclusion that the new Barnes Foundation building (the subject of a couple of those comments to my original post) shows “obvious respect for Barnes’ legacy – for his idiosyncratic view of how art should be displayed and appreciated – should reassure supporters of the move.” That’s precisely the point: Barnes’ original bequest might have forbidden the move, but the result of his restriction, 60 years after his death, was the closing off of a multi-billion dollar collection of art to the wider public, strife between the Foundation and its neighbors, and a threat to the very existence of the Foundation itself. Isn’t it at least arguable that satisfying much of Barnes’ obvious intent — precisely how the art is housed and shown — while making it accessible to the world in a location where it is welcome is a reasonable effort to accommodate what he would have wanted? And isn’t it appropriate that we have institutions like courts to decide whether that reasonable argument or the opposing one (Barnes stated in his bequest the collection should never be moved, so it should never be moved, even if there are circumstances now that he did not anticipate and we could not predict his reaction to)?

And that’s not even to mention that there is a public interest involved. Are we to so honor “property” rights that we would sacrifice billions of dollars of the world’s culture to the whim of the owner? As Zaretsky asks in another post:

What if Barnes’s Will had provided that the works were to be exhibited in Merion for exactly 50 years — and then were to be burned in a big bonfire?

Should we honor donor intent in that case?

Or can we agree that sometimes the public interest trumps the donor’s intent?

Want to become a practicing lawyer? Don’t go to Harvard! Nesson and Tenenbaum again.

Some of my favorite and most respected former colleagues in practice went to Harvard Law School, but, based on what I’ve been seeing out Charlie Nesson in his role defending Joel Tenenbaum in Sony BMG Music v. Tenenbaum, I have to seriously wonder what Harvard is teaching about the actual practice of law.

I took Nesson to task recently for using his role as lawyer in the case to fight a crusade against the music industry, not to give his client the best defense possible. That attitude alone destroys my confidence in Nesson’s ability to train anyone to be a lawyer.

Now Nesson has proven he can’t write a brief. Yesterday on behalf of Tenenbaum he filed in the court that produced the $675,000 judgment against his client a document entitled Defendant’s Opposition to Entry of Judgment and Injunction (pdf)(the “Brief”). There are some non-frivolous arguments somewhere in that self-righteous screed, but they’re so buried in Nesson’s preference for rhetorical flourish over lawyerly detail that, as a responsibility to the students I am teaching to be lawyers, I have to call him out on his incompetence. A lawyer’s job is to win the judge to his client’s side through persuasive reason and argument; it is not to throw a mess at the judge that may or may not contain winning arguments and leave it to the judge to find those winning arguments.

It’s a dirty little secret that lawyers don’t like to make too much of: lawyers, not judges, win and lose cases. Lawyers don’t like to make too much of it because they want judges to believe they’re the ones from on high pronouncing judgment. But if you convince the judge you’re right and give him the tools to rule your way, you’ll win. It is remarkably pleasing to get an order from a judge ruling in your client’s favor and realize the order is merely a cut-and-pasted version of your brief. Why shouldn’t the judge steal my words if they explain his result as well as he can figure out how to explain them, and why should he trouble himself trying to find better ways to do so?

But Nesson doesn’t give the judge he’s seeking to persuade anything to work with. First, he’s asking the judge not to enter an order that would impose the jury’s verdict and the injunction against his client. But on what basis? Is he asking for judgment notwithstanding the verdict? What procedural rule is he filing his opposition to the entry of the judgment on? His Brief sure doesn’t explain the basis. Nor does it explain what he is asking the judge to do in lieu of entering the order? Dismiss the case? Lower the damages? Lift the injunction? Any or all?

Listen, students: when you write to the judge make sure she knows what you’re asking her to do and the legal basis she has for doing it.

I won’t get into all of the merits of Nesson’s arguments. I think he may well have a due process argument on the excessiveness of the statutory penalties, but even that one is a stretch.

But the argument he considers “first and foremost” is that “the statute in question does not permit a lawsuit against an individual consumer for statutory damages.” Brief at 1-2 (emphasis added). Having not graduated from Harvard myself, perhaps I am missing something. The operative statute, 17 U.S.C. Section 504(c), provides that “the copyright owner may elect . . . to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, . . . .” (emphasis added)

Nor is there anything in any authority to suggest that Nesson’s incomprehensible conclusion that the statute does not contemplate imposing statutory damages on individuals is founded in sources to obscure for me to know.

Nimmer on Copyright, Section 14.04[a] provides: “Under the current Act, the copyright owner may elect to recover statutory damages, instead of actual damages and defendant’s profits. He may, moreover, make such an election regardless of the adequacy of the evidence offered as to his actual damages and the amount of defendant’s profits, and even if he has intentionally declined to offer such evidence, although it was available. . . . The availability of statutory damages under the current Act, even under circumstances in which plaintiff’s damages or defendant’s profits are susceptible to precise evaluation, represents a departure from the pertinent provisions of the 1909 Act.Under that former law, the availability of statutory damages was to a degree discretionary with the court and turned largely upon the proof of actual damages and defendant’s profits.” (citations and internal quotation marks omitted)

Patry on Copyright, Section 22:153 states: “Statutory damages are damages whose assessment has been fixed by the legislature. They have existed in U.S. copyright laws since preconstitutional days and stand in contrast to common law actual damages and an accounting of defendant’s profits. Recovery of actual damages or profits varies according to the harm suffered or the benefit received, without an upper limit on the recovery. Statutory damages have been believed to be particularly valuable where such relief is difficult to prove. The purpose of statutory damages has been noted a number of times by the Supreme Court.”

Thus, the court in In re Mann, 410 B.R. 43, 49 (Bkr. C.D. Cal. 2009), quoting Columbia Pictures Television, Inc. v. Krypton Broadcasting of Birmingham, Inc., 259 F.3d 1186, 1194 (9th Cir.2001) (quoting Nimmer at § 1404[A] ), stated: “However, a plaintiff may elect statutory damages for copyright infringement ‘regardless of the adequacy of the evidence offered as to his actual damages and the amount of defendant’s profits.’” In Raydiola Music v. Revelation Rob, Inc., 729 F. Supp. 369, 374 (D. Del. 1990), the court explained that “the purpose of statutory damages is to remedy a wrong which would otherwise go unremedied if actual damages could not be proven.” See also Broadcast Music, Inc. v. Papa John’s Inc., 201 U.S.P.Q. at 305 (“Statutory damages were provided by Congress to create a remedy where actual damages [or profits] are not provable at law, but yet where it is proven that a violation of the copyright has occurred.”).”

In short, the plaintiff in a copyright infringement case has an alternative: he can prove and recover actual damages or seek the amounts allowed by statute. Such alternatives are common in situations in which it might be difficult for plaintiffs, even after having established statutory violations, to quantify their economic harm. It might even be argued that illegal downloading is precisely such a case — how can Sony BMG possibly quantify the sales, if any, it lost as a result of Tenenbaum’s unauthorized downloading of copyrighted songs.

Could I be wrong? Of course, but Nesson hasn’t begun to explain to me why. Instead, he’s made himself out to be someone who makes arguments that are patently false.

Don’t get me wrong here. I’m not on Sony BMG’s side. I think the music industry’s legal and business approaches to the technological revolution that has entirely undermined their old business models have been disasters, and I certainly don’t think Joel Tenenbaum should have to pay Sony BMG $675,000.

My problem is that Nesson is Tenenbaum’s lawyer and he hasn’t given me a good reason to believe he can get Tenenbaum free from that monumental verdict.

Preaching to the converted or trying to convince the unconvinced? They’re very different activities, and the former may well undermine the latter.

One does not persuade the undecided by means of name-calling and comparing oneself to the oppressed — one persuades the undecided with reasoned argument.

I’m not talking about healthcare — I’m talking about copyright and music again.

Ten days ago, a federal court granted Veoh’s motion for summary judgment and dismissed Universal Music Group’s (“UMG”) lawsuit alleging that Veoh, which, like YouTube, allows users to share videos free of charge, for contributing to and inducing copyright infringement as a result of the uploading by Veoh users of copyrighted videos. A copy of the decision is available here.

The court concluded that Veoh’s efforts and policies to limit incidents of infringement and to work diligently to keep infringing works off its website satisfy the “safe harbor provisions” that shield it from liability under the Digital Millennium Copyright Act (the “DMCA”). I am no expert on the DMCA’s safe harbor provisions (an FAQ on those provisions is available here), but the decision strikes me as a rather thorough exploration of the legal issues and of the evidence. Moreover, some of UMG’s arguments are downright specious, including what the court characterizes as its “first.” Typically — in fact, universally among effective lawyers — a lawyer makes his client’s strongest argument first.

UMG’s first argument was that  Veoh is not entitled to the safe harbor protections of the DMCA because it had “actual knowledge” that Veoh knew there were copyrighted videos on its website. UMG “proof” Veoh’s actual knowledge was that Veoh “knew that it was hosting an entire category of content—music—that was subject to copyright protection.” Slip op. at 14. The proof was hardly sufficient to the court, for reasons that seem, to me, persuasive:

First, the mere fact that Veoh was hosting material contributed by users that could be infringing cannot be proof of “actual knowledge” that there are infringing materials on the service because otherwise there would be no purpose to the safe harbor Congress created in the DMCA. “[V]ast portions of content on the internet are eligible for copyright protection (including plenty of materials posted on this site). Id. If one held providers like mine liable for allowing the use of materials by its users that could, if used improperly, be infringing, the internet as we know it would end.

In addition, it is unreasonable to interpret the DMCA to permit such proof to establish “actual knowledge” of infringement because if one were to accept UMG’s theory the DMCA’s notice-and-takedown provisions would be “completely superfluous because any service provider that hosted copyrighted material would be disqualified from the section . . . safe harbor regardless of whether the copyright holder gave notice or whether the service provider otherwise acquired actual or constructive knowledge of specific infringements.” Courts will typically interpret statutes so that their interpretations will not make other parts of the statute meaningless. If Congress intended to create the notice-and-takedown procedures in one part of the statute, it wouldn’t be reasonable to interpret another part of the statute to make them meaningless.

Moreover, UMG made arguments that were refuted by the evidence, including the argument that “Veoh, of course, knew that it never had a license from any major music company to display music content and thus knew that all such content was unauthorized.” Id. (emphasis added) Unfortunately for UMG, its own evidence showed that “[a]mong the types of videos subject to copyright protection but lawfully available on Veoh’s system were videos with music created by users and videos that Veoh provided pursuant to arrangements it reached with major copyright holders, such as SonyBMG.”

Let me be clear — I have not researched the takedown-and-notice provisions of the DMCA to the degree that would make me feel reasonably certain that the court was correct in the decision it reached, but I am certainly persuaded by the reasoning it set forth in its opinion (and what I do know about those provisions) to be well along the way to that conclusion. I am, however, quite open to being convinced by those who would argue otherwise.

I am not convinced at all, however, by Chris Castle (a self-described journalist in the media and communications fields), who’s “first observations” about the decision consist entirely of name-calling, far-fetched analogies, and arguments I know are unfounded. He titles his post “Gideon’s Remix” and explains that he is comparing “independent artists and songwriters” hurt by the court’s decision to the defendant in Gideon v. Wainwright, the landmark Supreme Court decision that established the right of criminal defendants to legal representation in their criminal proceedings. The defendant in Gideon had been sentenced to five years in prison for allegedly stealing about $55 and a few bottles of beer from a pool room. He had been forced, due to his inability to afford a lawyer, to defend himself against the charges.

You better have some evidence of real hardship before you start comparing “independent artists and songwriters” to Clarence Earl Gideon, and you better realize that there is a world of difference between losing your freedom for 5 years and not being entitled to deny the opportunity for current technology to do the myriad of legitimate and enormously beneficial things it does.

Castle next writes that “[i]f the decision [is allowed] to stand, copyright becomes a Constitutional right without a remedy.” That’s odd. The law provides plenty of remedies for copyright infringement, including statutory awards that do not even require evidence that establishes any financial harm arising from the infringement.

I think Castle’s reasoning that Veoh’s activities allow infringement without a remedy might be illuminated by 2 other assertions he makes. First, he suggests that copyright infringement is no different than the theft of personal or real property:

And why limit the decision to the online world–why not extend the notice and shakedown concept to the physical world, too? Why not apply it to cars, or homes, or personal property generally? Why not make our offline economy into one big squat?

This argument is just plain silly. If someone steals a car, the damage is obvious — the owner no longer has the car to use or sell. If someone squats in an apartment you own, that’s property you cannot rent to someone else. But the fact that someone might have improperly posted a copyrighted song on Veoh doesn’t eliminate the fact that the vast majority of videos posted on Veoh are not infringing and are beneficial to Veoh’s users. Moreover, the “independent artists and songwriters” whose “property” is allegedly being misused have the legal power to stop the misuse, the right to sue the infringing Veoh user for damages (without showing harm), and the possession of the thing itself allegedly “stolen.”

Castle states too that leaving the recording companies (and the “independent artists and songwriters” he seems to equate to UMG) to find infringing materials is too great a burden to expect of them:

It seems an entirely unreasonable burden to force independent artists, songwriters, unions, directors, writers, record companies and film studios to search the Internet 24 hours a day, 7 days a week to find infringing copies of works that have not been licensed or approved for use.

I’m not convinced it is an unreasonable burden. It’s easy for me to find online any reference to me or my writings. And it may well be reasonable to impose that burden on me and all those “independent artists” (one might forget UMG was the plaintiff in the lawsuit) in exchange for the benefit of having sites like YouTube and Veoh and the like. Most importantly, the decision on whether, given the benefits provided to society by requiring copyright holders to send takedown notices to services like Veoh (rather than imposing on Veoh the burden of pre-clearing everything posted on its service) is a decision Congress made. If Castle thinks it was a bad judgment, his beef is with Congress, not the court that decided the Veoh case.

Castle also dismisses as a “canard” without any suggestion that there are merits to it the argument that the fair use of copyrighted materials on which a lot of the value on blogs, hosting sites, and search engines is grounded in the constitutional right to free speech. The plain fact is that copyright is a limitation on free speech — without the rights accorded for a limited time and for limited purposes to copyrighted materials, their use would be constitutionally protected by the First Amendment. Thus, the rights accorded by copyright necessarily must be balanced against free speech rights, and this principle is one that is no “canard” — it is well- and long-established as the basis of fair use.

Finally, Castle resorts to name calling. He calls Google “childish” for re-posting videos that it has removed the soundtrack from — something that as far as I can tell is a perfectly legitimate response to a legitimate takedown notice from the owner of the copyright in the soundtrack. He also calls Lawrence Lessig “creepy,” which I suppose is a step up from another post in which he calls Lessig “Lyndon Larouche.”

Again, though, you only gratify those who already believe Lessig is a creepy fascist by tossing around names like that, and anyone who does not already find glee in such ignorance will at best be unpersuaded; more likely, they’ll be turned off.

So is Veoh correctly decided? Castle has only made me feel more strongly that it was. But I remain open to reason.

Few people read them, but some online agreements are enforceable, and some aren’t; it’s a mess.

Just 3 days ago I wrote about two conflicting decisions concerning the enforceability of online contract provisions that do not require consumers to affirmatively click an “I agree” button. Well, today techdirt points me to a new court decision invalidating such a provision: according to MediaPost, the court “ruled that Internet retailer Overstock can’t enforce the manadatory arbitration agreement set out in its online terms and conditions because there is no evidence that consumers read the policy.” According to the decision, the plaintiff  ”lacked notice of the terms and conditions because the website did not prompt her to review the terms and conditions and because the link to the terms and conditions was not prominently displayed.”

As I wrote the other day, under all the court decisions I am aware of online sellers can ensure that their contracts are not invalidated on these grounds merely by requiring the affirmative act of clicking on an “I agree” button. As I read all of these decisions, online agreements that require the consumer to click “I agree” are enforceable despite the fact that consumers generally do not read the agreements.

To rule otherwise would overturn ages of decisions imposing on the consumer a “duty to read” that binds them to agreements they express agreement to even if they don’t understand what they are agreeing to. It would also leave open to dispute any online transaction that the consumer decided he or she didn’t like, a result that would mire our economy and courts in a mess to deep to contemplate.

There is a solution, however, and it’s one that hit a high gear 50 years ago only to peter out in the wake of our more recent passion for unregulated free markets — consumer protection laws that dictate what terms can and cannot be imposed on consumers. As the situation now stands, we are left with a patchwork effort to find traditional contract rules to come up with fair results (such as invalidating mandatory arbitration clauses that deprive consumers of any meaningful remedies for wrongdoing by online sellers).

In the meantime, I can only repeat what I wrote the other day:

Online sellers: if you want to be maximize the likelihood your agreements are enforceable, do what most online sites do — require your customers to click on a button that expresses their agreement before the transaction is complete.

Online buyers: be careful. Don’t believe that you’re getting what you think you’re getting. You’re only getting what the fine print says you’re getting. But if you do get screwed, remember too that even when you sign something it might be so unfair it is unenforceable.

Legal rules, convenient fictions, and figuring out when you’ve agreed to something you haven’t read.

I wrote on Friday about one legal fiction — that a corporation is a “person” entitled to First Amendment free speech rights — and today I can write about another: that contractual relationships are founded on agreement.

I can get one level of the point out of the way quickly. As first year law students learn right at the beginning of their first year contracts course, it is the objective manifestation of agreement that matters, not the subjective intent. You cannot agree to buy a “white” horse and then argue that delivery of a white horse is a breach of your agreement because you subjectively intended “white” to mean black. To suppose otherwise would create a practical nightmare — every contractual dispute potentially would have to be resolved by determining which party to the contract was a liar.

But how do you determine the “objective” meaning of someone’s expressed intent? As a general rule, if you sign an agreement that says you’ve agreed to X, a court will rule you agreed to X. In the online world, if you click on a button that says “I agree,” a court will rule that you agreed even if, as is likely, you didn’t read the agreement.

But there are more complicated possibilities. In Specht v. Netscape Communications Corp. (pdf)(S.D.N.Y. 2001), Judge Alvin K. Hellerstein (someone I once, many years ago, worked for) ruled that an agreement to arbitrate contained in an online agreement Netscape purported to bind anyone who downloaded a certain program from the internet was not enforceable. Why? Because under California law (which the court had determined was applicable to the dispute), someone, “‘regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious. . . . ‘” Slip op. at 16 (citation omitted).

In Specht, Judge Hellerstein found that the provision in dispute was too inconspicuous to be enforced because the person downloading the program could have done so without even knowing he was agreeing to contractual terms that would limit him in certain ways. Why? Because the language indicating that there even was such an agreement could have been entirely missed — it appeared via a link that could not even be seen unless the user scrolled down on the appropriate page. In other words, the user could click through to the download page without even seeing language indicating that his download represented an agreement to terms he could find by clicking on a link. Id. at 17.

Judge Hellerstein clearly preferred online agreements that require the affirmative act by the user of clicking on a button that says “I agree” and made plain that Netscape’s failure to do that in itself (even if the link to the applicable terms had been visible without scrolling down a page) was enough to undermine its argument that an agreement had been formed:

Netscape argues that the mere act of downloading indicates assent. However, downloading is hardly an unambiguous indication of assent. The primary purpose of downloading is to obtain a product, not to assent to an agreement. In contrast, clicking on an icon stating “I assent” has no meaning or purpose other than to indicate such assent. Netscape’s failure to require users of SmartDownload to indicate assent to its license as a precondition to downloading and using its software is fatal to its argument that a contract has been formed. Id.

Recently, however, as Techdirt pointed out, the court in PDC Laboratories Inc. v. Hach Co., No. 09-1110 (pdf) (C.D. Ill., Aug. 25, 2009), disagreed with Judge Hellerstein and ruled that under Illinois law a contract provision available for viewing behind a hyperlink was an enforceable term in the parties’ contract for the sale of goods.

So, online sellers: if you want to be sure your agreements are enforceable, do what most online sites do — require your customers to click on a button that expresses their agreement before the transaction is complete.

Online buyers: be careful. Don’t believe that you’re getting what you think you’re getting. You’re only getting what the fine print says you’re getting. But if you do get screwed, remember too that even when you sign something it might be so unfair it is unenforceable.

If, like my law students, you’re shaking your head, thinking this guy is not cutting to the bottom line — what does the law say? — understand this: the law is not like the Ten Commandments, setting forth brief rules that are always applicable. Rather, much of the time it gives you guidance on how to minimize your risks. Assume that you’ve minimized your risks as an online seller if you require someone to click on an “I agree” button, and assume you’ve minimized your risks as a buyer if you’ve read and understood the fine print.

Then again, even the Ten Commandments are not as clear cut as most people think. Thou shalt not kill? Unless you’re a Jain, you don’t really believe in the literal truth of that rule.

A tribute to Justice Souter, and his recent speech on civics education

Justice Souter was woefully underestimated. He was reviled by the right because he turned out to be a moderate — someone who, especially given the rightward drift of the Court in the since Reagan was elected, seemed to the right an outright leftist. That he had been appointed by George H.W. Bush, a Republican, made Souter seem to the Right not merely a leftist, but also a traitor. Nor did the Left particularly appreciate him except, perhaps, as a man they recognized as independent in his thought.

But perhaps Souter’s biggest failure as a public figure was that his style did not fit his time. Souter did what I learned judges are to do: strive hard to do justice in each individual case. His opinions reflected his strenuous effort to make sure the law was interpreted to ensure that the parties to the lawsuits he was judging were treated justly.

Unfortunately, however, he served during a time when overreaching ideologies became the fashionable way to judge problems, especially legal problems. Law and Economics, a legal movement that interprets law entirely through the lens of a purported judgment as to its ability to efficiently allocate economic resources, has grown during my professional career from one approach among many to, arguably, the most dominant mode of legal thought in those circles that are concerned with delineating theoretical approaches to law. Since Ronald Reagan was elected, we’ve raised an entire generation that accepts without any consideration of the realities that anything government does it does incompetently and that labor unions are corrupt institutions that entrench incompetence. You’d never know that the era of the greatest American affluence (an affluence shared far, far widely than the wealth the U.S. has today) followed thirty years of big government and the rise of labor unions to the apex of their power. You’d never know that my father, the son of immigrants who grew up in poverty (which he didn’t even dream of as poverty) in the Depression, served in WWII, and was a POW in Germany, attributes his success (which, of course, is entirely resonsible for mine) to the fact the goverment paid entirely for his higher education by way of the G.I. Bill (imagine: investing in your country’s future!). He attributes his remarkable good health at 85 to health care he receives from the Veterans’ Administration, which he says is as good as better as the health care anyone he knows receives.

So when Justice Souter told the attendees at the American Bar Association’s annual meeting earlier this month that we need better civics education in our schools, he spoke the truth. We also need far, far better history instruction.

/p>

Doing justice is not calling balls and strikes, and to say it is is un-American.

Law is not a matter of “calling balls and strikes.” Rules in baseball define the strike zone, and there is no reason to suppose those rules should change from game to game or batter to batter.

As I need to begin explaining on Monday to my new law students, to suppose that all one needs to do is know the rules and apply them to the infinite complexities of life to come up with decisions, they are sorely mistaken. Edward H. Levi, in a 1948 law review article later expanded into a seminal book, An Introduction to Legal Reasoning, introduces the complexities of legal analysis as well as anyone I have ever read. As he explains, rules announced in earlier cases are applied as is or changed depending on the degree to which the later case is similar or different than the earlier case in which the rule was originally announced:

Thus it cannot be said that the legal process is the application of known rules to diverse facts. Yet it is a system of rules; the rules are discovered in the process of determining similarity or difference. But if attention is directed toward the finding of similarity or difference, other peculiarities appear. The problem for the law is: When will it be just to treat different cases as though they were the same? A working legal system must therefore be willing to pick out key similarities and to reason from them to the justice of applying a common classification. . . .

Edward H. Levi, An Introduction to Legal Reasoning, 15 U. Chi. L. Rev. 501, 501-03 (Spring 1948)(emphasis added; citations omitted).

So if it turns out that a court is ruling in a case in which a criminal defendant who has been convicted of murder but in the twenty years since the crime “[seven] key witnesses have . . . recanted, and several people have charged that the main prosecution witness was the shooter,” it would seem worthwhile before executing the defendant to hold a hearing to determine whether in fact he is innocent. Certainly there must be some amount of evidence that could turn up years after a murder conviction that would convince just about anyone of the convicted man’s innocence.

Would it make sense in a country that requires “due process of the law” to refuse consideration of the new evidence, no matter how strong? Of course not. It is a justice system. It is fair to say, I think, that it is fundamental to American values that we do not execute people for crimes we know they are innocent of.

But what if a court had never permitted a hearing to prove a convicted man’s innocence before? Should that stop the court from permit the new hearing in the new case? Levy’s account of how the law works makes plain that is not the case. The new case is different than the old one in that the post-conviction evidence of innocence is so strong that it simply isn’t similar enough to all the cases in which new hearings were denied to conclude the court could never order a new hearing.

That, however, is exactly what Justice Scalia, joined by Justice Thomas, wrote yesterday:

This court has never held that the Constitution forbids the execution of a convicted defendant who had a full and fair trial but is later able to convince a habeas court that he is ‘actually’ innocent. (emphasis in original)

My point is that it is irrelevant as a matter of legal analysis that the court has never held that the Constitution forbids the execution of a convicted murderer who can convince a court (via the constitutional right to a writ of habeus corpus) that he is innocent. Scalia, Thomas, and commentators like Andrew Sullivan are simply wrong on this one. The implication of their logic is that if we knew we were executing an innocent man for a murder he had been convicted of the overriding concern with procedural rules, not justice, would prevent our justice system from doing anything.

That’s bullshit. I apologize for my language, and I hope I would never use it in the classroom, but this particular reasoning by Scalia and of those who would justify it is no part of a justice system, and it is no part of the way U.S. courts have always operated.

1L Contracts, the blog: a new educational tool

My law school starts class next week. For my Contracts course, I’ve decided to maintain a blog, 1L Contracts, to givethe class an opportunity to explore the course subject matter in greater depth than 3 hours a week of class permits and the the ways the issues arise every day in everyone’s lives. The initial posts are concerned with, among other things, emphasizing the enormity of the project the students are embarking upon and the proper ways to read case law.

I first used a blog for a class during the 2008-09 academic year. It was a more effective way of getting my students engaged in class subject matter  than few things I’d ever done. That blog, What is Fair Use?,  also garnered some attention in the academic world. People get excited when technology is used in new ways in the classroom. But in the case of that blog, the excitement wasn’t merely a matter of fascination with technology. The blog really made a difference to the level of the student’s engagement with the subject matter. It also happened to be the first forum in which I wrote about copyright and fair use in depth.

And I’m deeply gratified by the kind words about the new blog written by Stephanie West Allen — a lawyer, author, law professor, and expert on the neuroscience of learning — on her terrific law blog, idealawg.

If you’re interested in contract law and in the difficulties of the first year of law school, please read along there too.

The fair use test — some cases are easy, some are hard, and some are somewhere in between. A follow up to the dialog regarding the postage stamp and the Korean War Veterans Memorial.

Donn Zaretsky, unsurpisingly, took exception to the post I wrote yesterday, in which I strongly condemned his assertion that “you can make the traditional four-factor fair use analysis do whatever you want it to do. As Judge Kozinski has said, the analysis can always go in either direction.” (emphasis is Zaretsky’s) The back-and-forth originated in our disagreement about the decision that a postage stamp that is a reproduction of a photograph of a sculpture forming part of the Korean War Veterans Monument on the Mall in Washington, D.C. does not infringe the sculptor’s copyright in the sculpture. There is a reproduction of the stamp and a photograph of the sculpture in my original post. I believe the court was right and that the determination that the stamp is a non-infringing fair use is a pretty easy one. Given that he is invested in his belief the law’s 4-part test to determine fair use is an utterly arbitrary one that in every case can as easily support one position as another, Zaretsky thinks I’m wrong.

In response to his latest post, I sent him the following e-mail (hyperlinks added):

Donn -

As I said, judging the competing merits in any case that results in a lawsuit rational parties are willing to take to trial and even up on appeal is almost always a question of choosing between better and worse arguments, not a matter of mechanically applying rules that result in obviously predictable outcomes. But I still haven’t heard your argument that the postage stamp that uses a impressionistic photograph of the sculpture in the Korean War Veterans Monument is not entitled to fair use beyond (1) your mere assertion, borrowed from an IP lawyer, that the stamp is a “derivative,” not a transformative, use and (2) a few unfounded legal contentions regarding the definition of a derivative work and the relevance of the nature of the allegedly infringed work.

First, any work of appropriation art is by definition “derivative”; plainly, the mere fact one work is derived from another does not make it an infringing “derivative” work not entitled to fair use protection. As William Patry puts it in his treatise, Patry on Copyright, “[t]he derivative right is subject to a number of special limitations and one general exception, fair use.” Id., Section 12:24. In other words, calling a work a “derivative” work does not answer the question whether it is fair use. So you can’t evade evaluating the elements of the fair use right merely by denominating a work an allegedly infringing work a ”derivative one.”

Nor is there any basis for the assertion by the IP lawyer on whose opinion you rely that a transformative work can only be a work whose uses and purposes are different than the uses and purposes of the original copyrighted work. First, it is impossible to define a work’s “uses and purposes” in any reasoned way without making that definition the a priori determination of your conclusion regarding whether those uses and purposes are identical to those of another work. You can define the uses and purposes narrowly (the sculpture is intended as a 3 dimensional work of commemorative art displayed in a public forum visited by millions of people every year) or broadly (the sculpture is an expressive aesthetic work)? Are the uses and purposes of the sculpture public art and the stamp a means of governmental commemoration of the sacrifices of our veterans, the creation of a collectible for philatelists, and a means of collecting revenue. If so, the uses and purposes of the works are entirely different. Or are both works expressive works of art? Then they share identical uses and purposes.

Second, even if you’re going to play that logically incoherent definition game, there are numerous cases ruling that works whose uses and purposes were very similar to the uses and purposes of copyrighted works were nonetheless entitled to fair use protection. In Blanch v. Koons, 467 F.3d 244 (2d Cir. 2006),, Jeff Koons’ painting was a two dimensional image, just as was the photograph he appropriated. The court held that Koons’ painting was sufficiently transformative to be a non-infringing fair use of the photograph. In Campbell v. Acuff-Rose Music, 2 Live Crew’s “Pretty Woman” and Roy Orbison’s “Oh, Pretty Woman” were both songs directed at the popular market. The Supreme Court held that 2 Live Crew’s song, despite borrowing almost the entirety of the melody of Orbison’s song, was a non-infringing fair use. In the Wind Done Gone case, both that novel and Gone with the Wind were novels sold for commercial gain. The court held that The Wind Done Gone was a non-infringing fair use despite the fact it borrowed the characters and a lot of the story line from Gone with the Wind.

I could go on, but I’ve made my point: merely stating that the stamp is derived from the sculpture doesn’t begin to answer whether the stamp is a non-infringing fair use, nor is there any legal authority supporting the thought that a transformative work  must be a for different uses purposes than the uses and purposes of the source work.

Which is also to say that the mere fact that someone, even an IP lawyer, believes my position is wrong doesn’t mean her argument is as convincing as mine. Obviously, you and everyone else must judge for themselves, but please give me reasoned argument, not baseless assertion.

Plainly too it is well established that merely transposing a novel into a film is not transformative. That answers your point about the Harry Potter novel’s adaptation into a film. The statutory grant of rights to a copyright holder in “derivative” works sets forth the types of transpositions that generally are considered not to be fair use: these include works “such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, [or] condensation.”

I see Harry Potter movies and I have no question they’re the same stories with the same characters as the books. Many of the characters in the Harry Potter book also are likely merely as characters to be afforded copyright protection as a result of their individuality. In contrast, however, I look at the stamp and a photo of the sculpture and for all I know they’re derived from a common source or similar common sources, not one from the other. (You can see a picture of the stamp and a straightforward photo of the sculpture in my original post.) Moreover, you could hardly call any of the individual figures in the sculpture ones that in themselves are individualized in such a way that they could be considered copyrightable characters; compare those figures to the characters of Harry, Hermione, Ron, and Dumbledore and consider whether your analogy betwen Harry Potter films/Harry Potter books and the stamp/sculpture really is a very compelling analogy.

Nor can you consider the tranformative nature of the allegedly infringing work (part of the factor pertaining to the purpose and character of the challenged work) apart from the other factors in the 4-part test. Among those other factors, the most significant is the effect of the allegedly infringing work on the market for the copyrighted work. I can’t begin to wonder how the stamp could hurt the market the sculptor can exploit with his copyright in the original work. Talk about different uses and purposes! If we take the sculptor’s copyright (as I think we properly should) to extend to straight, “photorealist” depictions of the sculpture (whether in photographs or in other media) that are sold for commercial gain, I can’t see how the stamp would hurt that market. And the sculpture as a sculpture, of course, has no commercial market. It’s public art!

Nor is it legitimate if you are engaging in real legal analysis to dismiss as “completely irrelevant”, as you did in your response to my original post, the fact the sculpture was created for and sold to the government for display in a public area visited by millions of people annually. One of the 4 factors in the 4-factor test is explicitly “the nature of the copyrighted work.” Thus, for example, all else being equal, an appropriating work will have a better shot at being fair use if it appropriates a published work rather than an unpublished work. Why? Because the author of an unpublished work has not yet had an opportunity to exploit the commercial market for his work. For example, J.D. Salinger was able to enjoin the publication of a biography of him that contained large portions of unpublished letters he had written. At the time the biography was scheduled to appear, Salinger had not published
anything for about 30 years. Given this long silence and his immense popularity as a writer, there was a market of readers thirsting to buy anything he’d written that they hadn’t already seen. Thus, regardless of its merits as a biography, the biography was going to be sold to that market, the readers who would buy the book simply because it contained big chunks of previously unpublished writing by Salinger.

In short, the “nature” of the sculpture is very relevant to whether the stamp is entitled to fair use protection. The sculpture is a work of public art on view permanently in a location that is one of the most popular tourist destinations in our country. And it was sold to our government — that is, to the public — rather than to a private art museum. Merely dismissing these facts as “irrelevant” is to ignore that your blog is called the art “law” blog. The law doesn’t ignore these factors. [You might note in connection with this factor that I believe the fact that Mark Cuban sent a message via Twitter to all of his followers demonstrated that he didn't have a very strong interest in controlling the use of the words.]

Finally, a “commercial” product is not one that produces revenue. It is a product produced for private commercial gain. Thus, for example, political advertisements plainly directed at raising money are entitled to greater fair use protection than commercial advertisements. And the fact the appropriating work is used by a non-profit entity also
distinguishes it significantly from one used by a commercial entity seeking to raise revenue for the profit of private persons as private persons. I would also suspect that the fact the non-profit use in the case of the postage stamp is a purely public use (rather, than, say, a  use by a private non-profit entity like a foundation) renders it even  less “commercial.”

Finally, you bring up several other cases. I’m not sure how bringing  them up and suggesting they might be difficult cases supports your proposition that the 4-part test is useless and can be equally supportive of any position. Each claim of fair use must be evaluated on its own merits. As you can see in this little back and forth we are having, there are just too many relevant variable to reduce the judgment to simple rules. But again, the fact that the judgments are complex does not mean that, as you implied in your original post, they are arbitrary.

So the fact you might be able to point me to a difficult fair use case doesn’t mean the 4-part test is arbitrary and useless — and that’s what you said. It means that there’s a legal rule under which there are close cases. And there are others that aren’t. Welcome to the law.

But I’ll give you my quick take on each of those cases anyway, and you can make your own judgments (and call me on it when I turn out to be utterly off base).

I can’t really judge the Catcher in the Rye/60 Years On case because, due to the ruling, I have not been able to compare the two works. Nonetheless, having read the decision and the expert opinions in the case, I wouldn’t be shocked if the trial court’s decision is reversed on appeal. The judge who enjoined the publication of 60 Years On largely based her decision on (1) a determination that Holden Caulfield is a copyrighted character, the Holden character in 60 Years On is identical intellectually and emotionally to the Holden character in Catcher in the Rye, and (2) the fact the author and his representatives represented the book as a “sequel” to Catcher in the Rye, only resorting to calling it a ”parody” when they were sued by Salinger. I think one potential defect in her reasoning was her conclusion that the identity of the 2 Holden’s precluded the possibility that 60 Years On commented upon and criticized Catcher in the Rye. What she seemed to miss is the possibility (one that was central to the declaration sworn to in the case by Martha Woodmansee, a very influential and accomplished scholar of conceptions of authorship and the history of copyright) that it was precisely 60 Years On was, precisely, commenting on the observation that Holden showed no emotional or intellectual development in the course of Catcher in the Rye. In other words, depicting the 80 year old Holden as emotionally and intellectually identical to the 16 year old Holden was a commentary on Holden’s failure to change in the course of the original novel. 60 Years On also seems, through the emotional immaturity of Holden and other literary devices, also to critique Salinger for having frozen himself in time in 1964 as far as his reading public is concerned in 1964. Copyright exists to promote creativity. What has Salinger done since 1964 to promote creativity? If anything, he’s only stifled it in himself and in others.

But we’ll see. The Second Circuit will read the two works, review the sworn statements of the experts, and come to its own conclusion. But, as I said above, I wouldn’t be shocked if it reverses the decision of the trial court judge.

As to the Patrick Cariou/Richard Prince case: I strongly suspect Cariou will win. I’ve thought about this case far less than the others you brought up, but I myself don’t find nearly as great a difference between Prince’s collages and Cariou’s photographs as I do between the stamp is of the Korean War Veteran Memorial sculpture. In addition, both Prince and Cariou’s works are graphic, 2-dimensional works made for personal commercial gain by private individuals. Moreover, there appears to be more individual character in the subjects of Cariou’s photographs than in the sculpture’s figures. I would never imagine that Prince’s collages and Cariou’s photographs were derived from a common third source. I myself think there should be much greater latitude given to appropriation art than the law gives, but the way I read the law I feel I’ll stand by my (pretty superficial assessment) that Cariou likely will win.

As to the Shepard Fairey/Manny Garcia dispute, I’m on record with my strong conviction that Fairey will win. You can see what I’ve written in the posts you’ll find here (set forth in reverse chronological order).

Thanks for reading, and for the dialog, and take care,

peter

ADDENDUM: I seem to have gotten under Zaretsky’s skin, which really isn’t my point. I appreciate the dialog. I don’t think I have all the answers. I might be wrong. But I like to see law supporting legal arguments, not unsupported opinions. Before I’d even finished the e-mail above, he had posted another piece, this one arguing I’m wrong to conclude, emphatically, that there’s no way the postage stamp could have an impact on the market the for the sculptor’s copyrighted work. He argues, in essence, that there is an impact on the market for the copyrighted work because if the Postal Service had paid for a license to use an image of his sculpture on their stamp he would have made money and that granting fair use protection to “derivative works” would deprive the copyright holder of the income he is entitled to from derivative works. In support of this argument he relies on a law professor’s statement that “The right way to frame the question [whether a work has an impact on a copyrighted work's market], I think, is whether an artist who creatively appropriates a … photograph needs to pay for a license to do so.”

Again, no cases, no statutes — just opinions. And the point simply doesn’t make sense to me. Maybe someone can make sense of it to me; maybe I’m dense. But, again, this argument seems circular. An artist needs to pay for a license to appropriate a copyrighted work only if the artist’s work is not entitled to fair use protection. The only way to determine whether a work is entitled to fair use protection is to work your way through the 4-part test. If you concluded, for example, that any artist making a collage needed to pay for a license to use any copyrighted work appropriated in the collage, Jeff Koons could not have won in Blanch v. Koons.

While one of the 4 factors in the 4-part test is the impact of the work on the copyrighted work’s markets, it wouldn’t make sense to assume that the copyrighted work’s markets must include the market for all types of works like the challenged one. To do so would be to assume that any appropriating work that produces a revenue stream is not fair use. That is not the law.

Finally, Zaretsky refers again to the decision in the 60 Years On/Catcher in the Rye case. He points out that the judge, in ruling that finding that 60 Years On is entitled to fair use protection would potentially have an impact on the market value inherent in Salinger’s copyright in Catcher in the Rye, stated “it is quite likely that the publishing of 60 Years and similar widespread works could substantially harm the market for a Catcher sequel or other derivative works.”

Besides the fact that I think there is a real possibility that decision will be reversed on appeal, there are a couple of reasons I don’t find this reasoning terribly persuasive. First, the conclusion that there is a potential harm to the market for Catcher sequels or other derivative works assumes the conclusion I suggested above might be the basis of a reversal — the appellate court might well find that 60 Years On is no mere sequel but instead constitues a genuinely creative commentary upon and critique of Catcher in the Rye and Salinger himself.

Second — and this is where I’ll stray much further away from anything I’ve seen in the case law than in anything I’ve written regarding Zaretsky’s statements yesterday or today — this reasoning seems contrary to the entire purpose of copyright: to promote creativity. Let’s suppose copyright law did not prevent people from writing sequels to books by other people and someone wrote a sequel to Catcher in the Rye that in no way, shape, or form consituted a commentary upon or critique of Catcher in the Rye (and let’s assume such a thing were possible). Let’s say too that Salinger himself wrote a sequel to Catcher in the Rye. What would happen? One possibility, the most likely one perhaps, is that the knock-off sequel had no market impact because the market judged it to be a poor substitute for the real thing. In that case Salinger has suffered no harm. Let’s suppose instead that the knock-off was deemed by the market far better than Salinger’s sequel. Then Salinger has suffered harm, but why? Because the audience has determined that the knock-off was better. To prevent its publication, therefore, would be to stifle creativity, not to promote it. The same would be true if the knock-off and other knock-offs competed well but did not overwhelm Salinger’s work. We’d have two or more works the market had judged substantially equal in creative worth. In other words, the market will reward or punish the copyright holder according to the extent he maintains his creative edge. Why should copyright law step in and change that result?

Easy Case: Postage Stamp is Fair Use of Korean War Veterans Memorial

Over at the Art Law Blog, Donn Zaretsky points to Gaylord v. U.S. (pdf), in which the court held that a postage stamp (pictured at right) that reproduces a photograph of many of the 19 stainless steel soldier sculptures that are part of the Korean War Veterans Memorial (pictured at left below) located n Washington, D.C. did not infringe the copyright in the sculptures.

The court found that the stamp was transformative enough to merit fair use protection because the photograph it used “transformed [the sculpture's] expressionand message, creating a surrealistic environment with snow and subdued lighting.” Zaretsky writes that this is “[n]ot a particularly tough standardto meet.” The first problem with the post is that regardless of whetherZaretsky believes the standard is “tough” enough, it is the standard courts apply in determining the “originality” of an allegedly infringing work.

Worse, though, Zaretsky states that the case is “another good example of how you can make the traditional four-factor fair use analysis do whatever you want it to do.” He cites as authority for this damnation of the law Judge Kozinski of the 7th Circuit Court of appeals, who has said that the 4-factor test applied to fair use “can always go in either direction.”

I think Zaretsky’s be;ief that the 4-factor test can support any position is ridiculous. Granted, determinations on the edge are difficult and plainly depend on a case by case judgment, but judgments as to whether (a) the new work is sufficiently transformative to stand on its own without exploiting the market created by the original work and (2) whether the new work has or threatens an adverse impact on the market for the original work are not the arbitrary decisions you assert they are. That’s the way much of law works — it’s a function of better and worse arguments, not bright lines that offer easy predictability. To accept Kozinski’s statement as the truth is to dismiss an enormous amount of law as the utterly rudderless and arbitrary imposition of power. I’ve practiced and taught law too long to believe that’s what it is.

Moreover, the sculpture allegedly infringed by the stamp, called “The Column,” is not, as Zaretsky asserts, a “good example” of the 4-factor test’s arbitrary nature. In fact, it’s an excellent example of a situation in which the 4-factor test leads pretty easily to the conclusion reached by the court. The court’s conclusion that the stamp significantly reworks the sculpture is pretty convincing. Looking at the stamp you can’t tell you’re looking at figures that originate in a sculpture, and other than the figures themselves the entire image set forth on the stamp is not present in the sculpture. Moreover, it’s laughable to suggest the stamp adversely affects the value of the sculpture. And if you want to look at the other factors, those too are pretty convincingly on the side of fair use: the sculpture is public art and therefore is constantly viewed for free. Moreover, it was done for the government, which, last I heard, is one of the people, by the people, and for the people. Finally, the stamp itself is a governmental product — in other words, it’s a non-profit product.

In making the accusation that the fair use analysis employed by the courts is entirely arbitrary without having engaged in any analysis of his own to suggest the ways in which the analysis might support the sculptor Zaretsky may be acting in a disingenuous fashion. But I suspect what he is really bemoaning is that the fair use test is so case specific it is difficult for artists to know exactly whether, in appropriating copyrighted works, they are acting in legitimate or infringing ways. It is a very fair common complaint. I have yet to see, however, any test that would better draw the line. More importantly, the test is one developed by our courts on a case by case basis for over one hundred years. While it is now embodied as a statute in the 1976 Copyright Act, the legislative history of that act makes clear that the statutory language is meant to incorporate that court-made common law, not supplant it, and courts are not limited to considering those 4 factors in making their fair use determinations.

Don’t forget to call your mashup a reflection and critique of the works it appropriates!

In determining whether a work that appropriates a copyrighted work is a non-infringing fair use, the fundamental issue is whether the new work transforms the copyrighted work to a degree that makes the new work so creative it stands on its own. One thing that puzzles me is the degree to which courts rely on the artist’s expressed intent in deciding whether the new work is transformative. Are we really supposed to ground our determination of whether a work is “transformative” in the artist’s own expressed purposes?

To do so poses all sorts of problems. As Sister Wendy Beckett explains in the Encyclopedia Britannica Online in words that are so well accepted they are almost trite,

The passageway provided by art is very wide. No single interpretation of art is ever “right,” not even the artist’s own. He or she can tell us the intent of the work, but the actual meaning and significance of the art, what the artist achieved, is a very different matter. (It is pitiable to hear the grandiose discussions of artists’ work by the least talented of our contemporaries.) We should listen to the appreciations of others, but then we should put them aside and advance toward a work of art in the loneliness of our own truth. Each of us encounters the work alone, and how much we receive from it is wholly the effect of our will to accept this responsibility.

What was Jackson Pollock’s purpose in painting Lavender Mist? Van Gogh’s in painting The Irises? Haven’t we accepted by now the limitations focus on artistic intention would impose on our appreciation of art?

Not only does art live in its relationship with its audience, not in its creator’s mind, but to explore questions of intent in determining a work’s originality inevitably will raise questions of an artist’s stature. Is Jeff Koons original? According to Wikipedia, ‘[s]upporters claim (for Balloon Dog) “an awesome presence… a massive durable monument’ (Amy Dempsey, ed. Styles, Schools and Movements, 2002, Thames & Hudson), and for other work that it is possible to be ‘wowed by the technical virtuosity and eye-popping visual blast’ (Jerry Saltz, art critic). On the other hand, “Mark Stevens of The New Republic dismissed [Koons] as a ‘decadent artist [who] lacks the imaginative will to do more than trivialize and italicise his themes and the tradition in which he works… He is another of those who serve the tacky rich.’ Michael Kimmelman of The New York Times saw ‘one last, pathetic gasp of the sort of self-promoting hype and sensationalism that characterized the worst of the 1980s’ and threw in for good measure “artificial,” cheap” and “unabashedly cynical.”‘”

It seems likely a lot of people would have a difficult time considering anything by Koons original.

Yet, in Blanch v. Koons, 467 F.3d 244, 252-53 (2d Cir. 2007)(emphasis added), the U.S. Court of Appeals for the Second Circuit, in holding that Koons’ appropriation of a copyrighted photograph constituted fair use, based its conclusion that the new work was “transformative” precisely on Koons’ statements regarding what he intended:

Koons asserts — and Blanch does not deny — that his purposes in using Blanch’s image are sharply different from Blanch’s goals in creating it. Compare Koons Aff. at P4 (“I want the viewer to think about his/her personal experience with these objects, products, and images and at the same time gain new insight into how these affect our lives.”) with Blanch Dep. at 112-113 (“I wanted to show some sort of erotic sense[;] . . . to get . . . more of a sexuality to the photographs.”). The sharply different objectives that Koons had in using, and Blanch had in creating, “Silk Sandals” confirms the transformative nature of the use. See Bill Graham Archives, 448 F.3d at 609 (finding transformative use when defendant’s purpose in using copyrighted concert poster was “plainly different from the [*253] original purpose for which they were created”); see also 17 U.S.C. § 107(1) (first fair-use factor is the “purpose and character of the use” (emphasis added)).

Koons is, by his own undisputed description, using Blanch’s image as fodder for his commentary on the social and aesthetic consequences of mass media. Castle Rock Entm’t, 150 F.3d at 142 (quoting Leval, supra, 103 Harv. L. Rev, at 1111). When, as here, the copyrighted work is used as “raw material,” Castle Rock Entm’t, 150 F.3d at 142 (internal quotation marks and citation omitted), in the furtherance of distinct creative or communicative objectives, the use is transformative. Id.; see also Bill Graham Archives, 448 F.3d at 609 (use of concert posters “as historical artifacts” in a biography was transformative); Leibovitz v. Paramount Pictures Corp., 137 F.3d 109, 113 (2d Cir. 1998) (parody of a photograph in a movie poster was transformative when “the ad [was] not merely different; it differ[ed] in a way that may reasonably be perceived as commenting” on the original). His stated objective is thus not to repackage Blanch’s “Silk Sandals,” but to employ it “‘in the creation of new information, new aesthetics, new insights and understandings.’”

The test for whether “Niagara’s” use of “Silk Sandals” is “transformative,” then, is whether it “merely supersedes the objects of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.” Campbell, 510 U.S. at 579 (internal quotation marks and citation omitted, alteration incorporated); Davis, 246 F.3d at 174 (same). The test almost perfectly describes Koons’s adaptation of “Silk Sandals”: the use of a fashion photograph created for publication in a glossy American “lifestyles” magazine — with changes of its colors, the background against which it is portrayed, the medium, the size of the objects pictured, the objects’ details and, crucially, their entirely different purpose and meaning — as part of a massive painting commissioned for exhibition in a German art-gallery space. We therefore conclude that the use in question was transformative.

Given the focus on an artist’s expressed intent in making a work of art, it would seem wise for appropriation artists to be versed in the proper lingo. Call your work “a reflection and criticism of the themes evoked by the original.” You might even want to call your work a “parody” of the original, but doing so might be a little too blatant. It is plain that in the recent decision enjoining the publication of a “sequel” to The Catcher in the Rye, the judge was significantly influenced by the fact the author and his representatives had described the work in words that didn’t fit the legal standard they wanted to meet. The judge’s opinion seems in fact to indicate that if only the author had used the magic words to describe his work the outcome might have been different:

Until the present lawsuit was filed, Defendants made no indication that 60 Years [the new work] was in any way a parody or critique of Catcher [in the Rye]. Quite to the contrary, the original jacket of 60 Years states that it is “. . . a marvelous sequel t one of our most beloved classics.” . . . Additionally, when initially confronted with the similarities between the two works, rather than explaining that 60 Years was a parody or critique of Catcher, Colting’s [the new work’s author] literary agent, Mr. Sane, contended that 60 Years “is a completely freestanding novel that has nothing to do with the original Catcher in the Rye.”

Opinion and Order at 16, n. 3.

Colting, obviously, should have called his work a parody and critique, not a sequel or a “freestanding novel.” It’s odd to think that makes a difference, though. No matter what he said, his work would be the same.

Applying the law to the facts — where empathy must be part of judging.

There’s been a lot of argument recently about President Obama’s rather innocuous statement that “empathy” is a big part of judging. Thus, I wasn’t surprised that Sonia Sotomayor insisted that all she does is apply the law to the facts in acting as a judge. And, in fact, one of the things I’ve been impressed by in her decisions and statements is her emphasis on facts. Too many law professors and commentators focus on the law as a set of abstract principles and theories rather than what it is — the judgment of how the laws apply to the specific circumstances of the specific case they happen to be judging.

But I think it’s precisely in the importance of facts that empathy does play a part. One judge will consider a given fact crucial, while another judge won’t, and that difference will make a difference in judicial outcomes. In 2008, the Supreme Court upheld Indiana’s requirement of a government-issued identification card to vote. The majority opinion, written by Justice Stevens and joined by Justice Kennedy and Chief Justice Roberts (he who told the Senate in his confirmation hearings that he judges by merely “calling balls and strikes”), stated that “the fact that public transportation is not available in some Indiana counties tells us nothing about how often elderly and indigent citizens have an opportunity to obtain a photo identification at the BMV, either during a routine outing with family or friends or during a special visit to the BMV arranged by a civic or political group such as the League of Women Voters or a political party.” In his concurring opinion, Justice Scalia, joined by Justices Thomas and Alito, wrote that “[t]he burden of acquiring, possessing, and showing a free photo identification is simply not severe, because it does not “‘even represent a significant increase over the usual burdens of voting.’”

In contrast, in one of the dissenting opinions in the case, Justice Breyer considered the burden imposed by the voter i.d. requirement far more significant, seeming to perhaps even “emphasize” with specific types of voters:

For one thing, an Indiana nondriver, most likely to be poor, elderly, or disabled, will find it difficult and expensive to travel to the Bureau of Motor Vehicles, particularly if he or she resides in one of the many Indiana counties lacking a public transportation system. See ante, at 6-7 (Souter, J., dissenting) (noting that out of Indiana’s 92 counties, 21 have no public transportation system at all and 32 others restrict public transportation to regional county service). For another, many of these individuals may be uncertain about how to obtain the underlying documentation, usually a passport or a birth certificate, upon which the statute insists. And some may find the costs associated with these documents unduly burdensome (up to $12 for a copy of a birth certificate; up to $100 for a passport). By way of comparison, this Court previously found unconstitutionally burdensome a poll tax of $1.50 (less than $10 today, inflation-adjusted). See Harper v. Virginia Bd. of Elections, 383 U. S. 663, 664 n. 1, 666 (1966); ante, at 30 (Souter, J., dissenting). Further, Indiana’s exception for voters who cannot afford this cost imposes its own burden: a postelection trip to the county clerk or county election board to sign an indigency affidavit after each election. See ante, at 8-10 (same).

Both sides are looking at facts. Both sides are applying the same rules (which require, among other things, looking at the burden imposed by the state by its requirements for voters). They are coming to very different views of the matter. Is empathy at work? Of course it is, but it is inescapable too.

Did Apple Mislead Investors Regarding Steve Jobs’ Health? Almost certainly, yes. Then why did it not disclose the medical facts? (Part I)

Steve Jobs had a liver transplant last week, and, the L.A. times and others report, the “doctor who led the transplant team said this week that Jobs was ‘the sickest patient on the waiting list’ at the time a donor liver became available.” All Apple had earlier disclosed to the public regarding Jobs’ health was set forth in 2 statements written by Jobs and posted on Apple’s website posted last January. The first, in connection with his widely reported drastic weight loss in 2008, stated that “my doctors think they have found the cause—a hormone imbalance that has been ‘robbing’ me of the proteins my body needs to be healthy. Sophisticated blood tests have confirmed this diagnosis. The remedy for this nutritional problem is relatively simple and straightforward, and I’ve already begun treatment. But, just like I didn’t lose this much weight and body mass in a week or a month, my doctors expect it will take me until late this Spring to regain it. I will continue as Apple’s CEO during my recovery.” (emphasis added) The second letter, posted one week later, stated that “during the past week I have learned that my health-related issues are more complex than I originally thought. In order to . . . focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June.” (emphasis added) In April, “[a]ccording to unnamed sources . . . Jobs continue[d] to work on the “most important strategies and products from home,” though Apple’s only official statement was that “Steve continues to look forward to returning to Apple at the end of June.”

Inevitably, people are asking a question lawyers representing a company whose stock is traded on public exchanges always have to ask themsevles about any facts that might affect the company’s’ value: is the information “material”? On the one hand, the L.A. Times story states: “Companies are not required to divulge medical details about executives, lawyers said.” But the story also quotes a lawyer stating that “If [Apple] tried to lessen the disclosure and make it misleading by omission, that’s just as bad as telling something that flat isn’t true . . . . ” And Warren Buffet is quoted stating: “Certainly Steve Jobs is important to Apple. . . Whether he is facing serious surgery or not is a material fact.” (emphasis added).

What’s going on? What information is “material” and therefore has to be disclosed to the public by a publicly traded company? Well, Neil Lipschutz is right that “something is material if ‘there is a substantial likelihood that a reasonable shareholder would consider it important” in making an investment decision. Also, if there was a substantial likelihood a reasonable investor would think the information ‘significantly altered the total mix of information available’ about a company.’”

Do we have anything better to guide us than (1) what seems a terribly subjective test, (2) the gut reactions of lawyers and of Warren Buffett, and (3) the almost certain fact that Apple, after close consideration of the facts and the law by its lawyers, made the business decision that the risks and probabilities of disclosure last January (or at any time between when Jobs first got sick and now) were outweighed by the risks and probabilities of liability for securities fraud if and when its lack of candor became known?

Well, if what you’re seeking is guidance in the way beginning law students and most non-lawyers want the law to provide guidance — articulation of rule that makes it easy to decide the question — the answer is a resounding NO. These are judgment calls based on the specific evidence of each case. In order to determine if a set of facts would matter to an investor, you need to look at those specific facts. And plainly I have not had available to me all the evidence that might eventually be considered to judge the question in this case. But there is a lot available, and based on only that, I have to agree with Warren Buffet that the fact Steve Jobs was so ill he required a liver transplant certainly is material.

But, again, my certainty is not a product of pointing to a “law” and having you nod your head in agreement. I have to look at the specific evidence regarding Apple, the law, and the facts in the cases in which courts have concluded that events are material and in which courts have concluded the events are not material. By doing that, I hope I can convince you that my certainty is well founded. That’s the best I can do.

Moreover, that’s not the end of the lawyer’s job. Even if the lawyers concluded that the facts regarding Jobs’ health prior became “material” at any time before the next week would not mean Apple necessarily would disclose those facts. Apple’s lawyers would have to consider what potential downside its failure to disclose those facts would present and the likelihood that downside would occur. Then Apple, not the lawyers, would have to decide if those risks and probabilities would outweigh the likelihood and degree of the impact disclosure would have on Apple’s value.

There are a number of rules under which a publicly traded company is obligated to disclose “material” information to the public or face criminal and civil liability, but the definition of “materiality” is the same under all of them. One is a regulation known in the trade as “Rule 10b-5″ [17 CFR 240.10b-5], which makes it a crime and a civil wrong for any a company or an individual purchasing or selling stock “to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, . . ” As the United States Court of Appeals for the 2d Circuit stated in SEC v. Texas Gulf Sulphur Co., 401 F.2d at 833, 848 (2d Cir. 1968), this requirement to disclose material facts is based “on the justifiable expectation of the securities marketplace that all investors trading on impersonal exchanges have relatively equal access to material information . . . .” The requirement originates in the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)), one of the keystones of the New Deal passed in response to the practices prevalent on Wall Street that had led to the 1929 stock market crash.

As the court further stated in Texas Gulf Sulfur, “[t]he basic test of materiality * * * is whether a reasonable man would attach importance * * * in determining his choice of action in the transaction in question.” Thus, material facts include any facts “which affect the probable future of the company and those which may affect the desire of investors to buy, sell, or hold the company’s securities.”

The defendants in Texas Gulf Sulfur had argued that tests showing one of their company’s mines was likely a rich one were not material because there was nothing certain to report until mining had actually begun and there was more certainty than the tests could provide.  The Second Circuit rejectted their argument, ruling that even possibilities that never occur might be material. One must look at the probability the fact would have an impact on the company’s value and the magnitude of that potential impact: “whether facts are material . . . will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity.” 401 F.2d at 849. Thus, the court reversed the trial court’s decison to dismiss the criminal charges against the defedants because, the Second Circuit decided, they would be guilty if it were true that they had failed to disclose “the possibility, which surely was more than marginal, of the existence of a mine of the vast magnitude” as a result of a “remarkably rich” sample taken  ”close to the surface (suggesting mineability by the less expensive openpit method) within the confines of a large anomaly (suggesting an extensive region of mineralization).” That mere “suggestion . . . would certainly have been an important fact to a reasonable, if speculative,  investor in deciding whether he should buy, sell, or hold” stock in the mining company the defendants controlled. Id. at 849-50 (emphasis added).

The U.S. Supreme Court expressly adopted the Second Circuit’s test in 1988 in Basic, Inc. v. Levinson, 485 U.S. 224 (1988), a case in which the Court determined that corporate insiders might have had the duty to disclose negotiations for a corporate merger before the merger was concluded. Some courts outside the 2d Circuit prior to that time had ruled that a deal didn’t have to be disclosed until it was a binding deal. The Supreme Court rejected the reasoning of those courts and made plain that an event that might not ever happen nevertheless might at some point be likely enough and big enough that it would affect a reasonble investor’s investment decisions.

So the questions Apple’s lawyers had to be asking themselves all the time ever since they learned in 2004 that Jobs had pancreatic cancer, are the following:

(1) Is Jobs so important to Apple that an investor would make a decision to sell, buy, or hold on to Apple stock based on his ability to do his job?

(2) Do the medical facts demonstrate with sufficient probability that Jobs’ condition is threatened enough that those facts would cause an investor to sell, buy, or hold on to Apple stock?

(3) Did Apple’s words or omissions mislead reasonable investors in evaluating whether Jobs could continue to do his job well enough to not affect their investment decisions.

Let’s get the easy stuff out of the way. Jobs’ health and its impact on his ability to do his job  are so plainly material that to argue otherwise wouldn’t pass the “giggle test.”  I would therefore, if I were representing Apple in litigation, advise the company simply to admit this point in the answer to any complaint anyone filed. To admit the point would at least minimize attention to something that, if Apple did dispute it, would only increase attention to a weakness in the company’s case. But just in case you think I don’t understand when it’s smart lawyering to concede a point, remember these things — someone’s own words are taken by a court as “admissions.” In other words, if someone admits something that is harmful to his legal position, the court will assume the facts are at least that bad. In the letter posted online last January, addressed to the “Apple Community,” Jobs ended with this: “So now I’ve said more than I wanted to say, and all that I am going to say, about this.” I’d love to ask him in a deposition why, if he didn’t want to write what he wrote, he did. The probelm, if Apple had decided to dispute the materiality of Jobs to the company’s value, is that he’d have to deny and dance around the obvous: his lawyers told him he had to write the letter because his health and its impact on his capacity to do his job is material to Apple’s shareholders and potential shareholders.

Don’t assume I haven’t considered the arguments I could make on Apple’s behalf on this point — I could point out, for example, as MacNewsWord did yesterday, that since January, when Jobs wrote the letter he didn’t want to write, Apple stock has almost doubled in value. The Apple loving outlet implied that market shows that investors have been confident that Apple was fine without Jobs:  ”This could be due to general belief among investors that Apple has a good management team in place which has kept the company running on an even keel despite the CEO’s absence.”  Or it could mean the market had already accounted for Jobs’ illness.  Or it could be that the market is driven by unreasonable investors.  It could be for any number of reasons. Regardless, I am convinced  that a strategy to fight a securities fraud case on the grounds that Jobs isn’t important enough to be material to Apple is not going to make winning the case more likely. I could go on and on . . . Last October, just to take at random one piece of evidence easy to find via a mere Google search, (according to CSnews) “Some individual had posted a fake report . . . claiming Steve Jobs had suffered from a heart attack and was rushed into the hospital. As a result, Apple’s stock made a 10% nosedive.”

NEXT: (a) was Jobs’ health so dire its specifics would have made a difference to people thinking about buying, selling or holding on to Apple stock, (b) did Apple’s statment’s or silences mislead investors about Jobs’ health, and (c) why would Apple choose not to disclose specifics regarding Jobs’ health even if its lawyers were telling it that those were material facts?

Liberally construing potato chips.

Britain’s Supreme Court of Judicature has concluded that Proctor & Gamble owes $160 million in taxes becase Pringles are either “potato chips” or “similar products made from the potato, or from potato flour.” The court reached its conclusion because its “overall impression” of Pringles was that they are sufficiently similar to potato chips to be considered a “similar product.”  As the New York Times explains.

Conservatives like to insist that their judges are strict constructionists, giving the Constitution and statutes their precise meaning and no more, while judges like Ms. Sotomayor are activists. But there is no magic right way to interpret terms like “free speech” or “due process” – or potato chip. Nor is either ideological camp wholly strict or wholly activist. Liberal judges tend to be expansive about things like equal protection, while conservatives read more into ones like “the right to bear arms.”

Is Holden Caulfield still only J.D. Salinger’s character?

J.D. Salinger recently filed a lawsuit (complaint (pdf)) seeking to block the publication of 60 Years Later: Coming through the Rye, an unathorized sequel to Catcher in the Rye, on the grounds it infringes Salinger’s copyright in the novel and in Holden Caulfield, the “narrator and essence of that novel.”

It’s an interesting case.  In SunTrust Bank v Houghton Mifflin Co., 268 F.3d 1257, 60 U.S.P.Q. 2d 1225, 14 F.L.W. Fed. C, 1391 (2001, 11th Cir.), rehearing denied en ban, 275 F3d 58 (11th Cir. 2001), the owners of the copyright to Gone With the Wind sued the publisher that owned the rights toThe Wind Done Gone, a critique of the depiction of slavery and the Civil-War era American South and that used and drew upon the characters and story line from Gone with the Wind.  The court ordered the lawsuit dismissed because The Wind Done Gone‘s use of the characters and story line from Gone with the Wind constituted fair use.  The court’s conclusion was that TWDG was a protected parody of GWTW because one of its principal purposes was to critique the worldview advanced  by GWTW:

TWDG is more than an abstract, pure f ictional work. It is principally and purposefully a critical statement that seeks to rebut and destroy the perspective, judgments, and mythology of GWTW. Randall’s literary goal is to explode the romantic, idealized portrait of the antebellum South during and after the Civil War. In the world of GWTW, the white characters comprise a noble aristocracy whose idyllic existence is upset only by the intrusion of Yankee soldiers, and, eventually, by the liberation of the black slaves. Through her characters as well as through direct narration, Mitchell describes how both blacks and whites were purportedly better off in the days of slavery: “The more I see of emancipation the more criminal I think it is. It’s just ruined the darkies,” says Scarlett O’Hara.GWTW at 639. Free blacks are described as “creatures of small intelligence . . . [l]ike monkeys or small children turned loose among treasured objects whose value is beyond their comprehension, they ran wild – either from perverse pleasure in destruction or simply because of their ignorance.” Id. at 654. Blacks elected to the legislature are described as spending “most of their time eating goobers and easing their unaccustomed feet into and out of new shoes.” Id. at 904.

It seems that any sequel is bound to comment on the original in one way or another. Does that mean any sequel is a non-infringing fair use of the original work? I doubt it, but where would the line go between a sequel sufficiently critical of the original and a sequel that merely exploits the value the author created in the original?