Robert J. Bernstein and Robert W. Clarida

On March 27, the Court of Appeals for the Federal Circuit reversed a jury verdict of fair use in a long-running and closely-watched litigation between two giants of the tech industry, Oracle America v. Google, 886 F.3d 1179 (Fed. Cir. 2018). At issue was Google’s unauthorized use of software application programming interfaces (APIs) developed by Oracle’s predecessor, Sun Microsystems, in connection with the Java programming language. For a fee, Oracle licenses these APIs to software developers who wish to write code in Java for use on mobile devices. When Google began developing its Android mobile operating system in 2005, it entered into negotiations for a license to use the Java APIs but no deal was struck. Google’s Android team was unable to develop its own APIs, but “elected to do Java anyway,” id. at 1187, copying verbatim 11,500 lines of Oracle’s code as well as the structure, sequence and organization of 37 Java API packages. The Android system was hugely successful and, the court noted, “devastating” to Oracle’s licensing strategy, as many customers switched to Android and other Java customers, such as Amazon, demanded discounts.

Litigation ensued. In an initial jury trial in 2012, the jury held that Google had copied protectable expression from the APIs, but deadlocked as to whether Google’s use was a fair use under 17 U.S.C. 107. After the verdict, however, the district court held as a matter of law that the APIs were not copyrightable, setting aside the jury’s finding of infringement. The Federal Circuit reversed that ruling in 2014 and remanded for a new trial on the fair use question and, if necessary, on damages. The Supreme Court denied certiorari in 2015. A second jury trial in 2016 resulted in a verdict for Google on fair use, and a denial of Oracle’s motion for JMOL, leading to the appeal just decided on March 27.

Fair Use

Section 107 of the U.S. Copyright Act provides that four non-exclusive factors shall be considered in determining fair use:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

The Supreme Court in Campbell v. Acuff Rose Music, 510 U.S. 569 (1994), made clear that the four statutory factors must not be treated in isolation; rather, “[a]ll are to be explored, and the results weighed together, in light of the purposes of copyright.”

Campbell further characterized the “central purpose” of first factor analysis as follows: to see “whether the new work merely ‘supersede[s] 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; it asks, in other words, whether and to what extent the new work is ‘transformative.’” Campbell also recognized that “transformative use” can significantly influence the inquiries into the third factor (whether the amount copied was reasonable in relation to the purpose and character of the use), the fourth factor (the more transformative the use, the less likely it is to substitute for the original), and in the overall inquiry:

Although such transformative use is not absolutely necessary for a finding of fair use, the goal of copyright, to promote science and the arts, is generally furthered by the creation of transformative works. Such works thus lie at the heart of the fair use doctrine’ s guarantee of breathing space within the confines of copyright, … [T]he more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use.

Campbell, 510 U.S. at 579.

Applying the above principles, the Federal Circuit panel (O’Malley, J.) reversed the jury’s verdict and held unanimously that Google’s use of the APIs was not a fair use. Under §107(1), the court concluded that the use was commercial despite the fact that Google distributes Android free of charge. More significantly, however, the court also found under §107(1) that Google’s use of the APIs was not transformative because it did not alter the Java code with “new expression, meaning or message” as Campbell and its progeny require. Google did not alter the content of the APIs, and it used them for exactly the same purpose in Android as Oracle licensed them for in Java. Moreover, the use of the API code in smartphones was not a new “context” which could qualify as transformative. Even if the context were new, noted the court, “moving material to a new context is not transformative in and of itself—even if it is a sharply different context.” Oracle, 886 F.3d at 1201.

Google argued that its use was transformative because it selected portions of 37 of the Java APIs, from a total of 166, but the court was not persuaded:

[T]aking only select passages of a copyrighted work is, by itself, not transformative. See L.A. News Serv. v. CBS Broad., Inc., 305 F.3d 924, 938-39 (9th Cir. 2002) (“Merely plucking the most visually arresting excerpt from LANS’s nine minutes of footage cannot be said to have added anything new.”). While, as discussed below, the volume of work copied is relevant to the fair use inquiry generally, thought must be given to the quality and importance of the copied material, not just to its relative quantity vis-à-vis the overall work. See Campbell, 510 U.S. at 586-87, 114 S.Ct. 1164. To hold otherwise would mean that verbatim copying could qualify as fair use as long as the plagiarist stops short of taking the entire work. That approach is inconsistent with settled law and is particularly troubling where, as here, the portion copied is qualitatively significant.

Id. at 1200-01.

Turning to the second statutory factor, the nature of the copyrighted work, the Federal Circuit found that it weighed in favor of fair use, because the APIs at issue were largely functional. The court cautioned, however, that:

allowing this one factor to dictate a conclusion of fair use in all cases involving copying of software could effectively negate Congress’s express declaration—continuing unchanged for some forty years—that software is copyrightable. Accordingly, though the jury’s assumed view of the nature of the copyrighted work weighs in favor of finding fair use, it has less significance to the overall analysis.

Id. at 1205.

Under the third factor, because the use was not transformative, and Google did not argue that its copying was functionally necessary to achieve interoperability or “inter-system consistency” between Android and Java, the extent of the copying was at best neutral, and “arguably weighs against” a finding of fair use.

The fourth factor, which looks to market harm, also weighed against fair use because the court found Android and Java to be direct competitors in the market for mobile device software, with Java having been used in smartphones and tablets before Android entered the marketplace. The Ninth Circuit, whose law the Federal Circuit applied in this case, has recently held that market harm can be presumed where the use is commercial but not transformative, Disney Enters. v. VidAngel, 869 F.3d 854, 861 (9th Cir. 2017), but the Federal Circuit declined to apply any such presumption and instead based its market harm finding on the “overwhelming” evidence of actual and potential harm. Oracle, 886 F.3d at 1208. Even ignoring the evidence of a pre-Android smartphone market for Java, “smartphones were undoubtedly a potential market”:

Android’s release effectively replaced Java SE as the supplier of Oracle’s copyrighted works and prevented Oracle from participating in developing markets. This superseding use is inherently unfair.

Id. at 1210.

The Federal Circuit accordingly reversed and remanded for a trial on damages.

Conclusion

With a third jury trial ahead and the stakes for both parties high enough to justify further appeals, the case is far from over. The Federal Circuit’s most recent ruling, however, seems to ensure that the jury will not have another opportunity to weigh in on the fair use question, having previously deadlocked on the issue in 2012 and found in Google’s favor in 2016. Unless, of course, Google succeeds in obtaining an en banc reversal of the panel, for which it has sought an extension of time, or unless a second certiorari petition persuades four Justices that the fair use issue is ripe for Supreme Court consideration.

Robert W. Clarida is a partner at Reitler, Kailas & Rosenblatt and author of the treatise Copyright Law Deskbook (BNA). Robert J. Bernstein practices law in The Law Office of Robert J. Bernstein.