Federal Circuit Reinstates Oracle's Copyright Infringement Claims Against Google, Rejecting Fair Use Defense

The fair use defense began as a judge-made doctrine and was codified in Section 107 of the 1976 Copyright Act. Id. at 576. It operates as a limited exception to the copyright holder's exclusive rights and permits use of copyrighted work if it is “for purposes such as criticism, comment, news reporting, teaching …, scholarship, or research.” 17 U.S.C. §107. The “such as” language confirms that the listing “was not intended to be exhaustive,” but nevertheless “give[s] some idea of the sort of activities the courts might regard as fair use under the circumstances.” Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 561 (1985) (citation omitted). (Opinion, pg. 16.)

The court then enumerated the four statutory factors involved in determining whether a fair use exception to copyright infringement in fact applies. Those factors include: 1) “the

purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;” 2) “the nature of the copyrighted work;” 3) “the amount and substantiality of the portion used in relation to the copyrighted work as a whole;” and 4) “the effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. §107. The court also emphasized that because fair use is an affirmative defense to a claim of infringement, Google bore the burden to prove that the statutory factors weigh in its favor. After analyzing each of the four statutory factors at length, the court found that two factors were strongly in Oracle's favor, one was neutral at best, and one slightly favored Google.

The first factor, which looks at “the purpose and character of the use,” attempts to determine in what way the original work is being used in the new work. This factor has two primary components: 1) whether the use is commercial in nature, rather than for educational or public interest purposes; and 2) whether the new work is transformative or simply supplants the original. Regarding the first component, the court agreed with Oracle that “no reasonable jury could have found Android anything but 'overwhelmingly commercial.'” (Opinion, pg. 29.) Regarding the second component, the court explained that “a use is 'transformative' if it 'adds something new, with a further purpose or different character, altering the first with new expression, meaning or message.'” (Id., pg. 30, internal citations omitted.) The court further stated that “[t]he critical question is 'whether the new work merely supersede[s] the objects of the original creation … or instead adds something new.'” Id. (citations and internal quotation marks omitted). Here too, the court agreed with Oracle that Google's use was not transformative because it did not alter the APIs with new expression, meaning, or message.

The second factor, which looks at “the nature of the copyrighted work,” turns on whether the work is informational or creative. The court noted that “[c]reative expression 'falls within the core of the copyright's protective purposes.'” (Opinion, pg. 42, citing, Campbell, 510 U.S. at 586.) The court further noted that although software products are not purely creative works, “it is well established that copyright law protects computer software.” Id. Google argued that while the code at issue may have been creative enough to qualify for copyright protection, functional considerations predominated in the design. Oracle, for its part, argued that the fact the APIs have a functional role does not mean they cannot be creative and entitled to protection.

Regarding this factor, the court concluded that “[a]lthough it is clear that the 37 API packages at issue involved some level of creativity … reasonable jurors could have concluded that functional considerations were both substantial and important. Based on that assumed factual finding, we conclude that factor two favors a finding of fair use.” (Opinion, pg. 44.) While this factor favored Google, the court cautioned, however, that “that this second factor typically has not been terribly significant in the overall fair use balancing.” (Id., internal quotations and citations omitted.) The court further noted 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.” (Id.) The court therefore emphasized that this factor has “less significance to the overall analysis” of fair use than the other factors. (Id.)

The third factor, which looks at “the amount and substantiality of the portion used in relation to the copyrighted work as a whole,” is a flexible factor “rather than a simple determination of the percentage of the copyrighted work used.” (Id., pg. 45.) As explained by the court, “this third factor looks to the quantitative amount and qualitative value of the original work used in relation to the justification for its use.” (Id.) In this case, the court noted that while the parties stipulated that only 170 lines of code were necessary to write in the Java language, Google copied 11,500 lines of code, 11,330 more lines than necessary to write in Java, which the court felt weighed against fair use. In its defense, Google had argued that it sought to capitalize on the fact that software developers were already trained and experienced in using the Java API packages at issue.

The court stressed, however, that “there is no inherent right to copy in order to capitalize on the popularity of the copyrighted work …. Taking those aspects of the copyrighted material that were familiar to software developers to create a similar work designed to be popular with those same developers is not fair use.” (Id., pg. 47.) Regarding this factor, the court concluded that “[f]or these reasons, we find that the third factor is, at best, neutral in the fair use inquiry, and arguably weighs against such a finding.”

Finally, the fourth factor focuses on “the effect of the use upon the potential market for or value of the copyrighted work.” As explained by the court, “[t]his factor reflects the idea that fair use is limited to copying by others which does not materially impair the marketability of the work which is copied.” (Id., pg. 48, internal quotations and citations omitted.) The court also noted that, per the Supreme Court, the fourth factor is “undoubtedly the single most important element of fair use.” Id., citing Harper & Row, 471 U.S. at 566.

According to the Federal Circuit, in evaluating the fourth factor, courts consider not only harm to the actual or potential market for the copyrighted work, but also harm to the market for potential derivative uses, including “those that creators of original works would in general develop or license others to develop.” (Opinion, pg. 50.) In this instance, Oracle argued that the evidence of actual and potential harm stemming from Google's copying was “overwhelming,” and the court agreed. Specifically, the record contained substantial evidence that Android was used as a substitute for Java SE and had a direct market impact. The court also noted that “fair use focuses on potential, not just actual, market harm.” (Id., pg. 52, emphasis in original.) While the district court had focused on actual harm, the Federal Circuit court opined that “it should have considered how Google's copying affected potential markets Oracle might enter or derivative works it might create or license others to create.” (Id.)

Taking all four factors into consideration, the court concluded that “[t]here is nothing fair about taking a copyrighted work verbatim and using it for the same purpose and function as the original in a competing platform.” (Id., pg. 54.) As the court noted: “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.) The court therefore reversed the district court's decisions denying Oracle's motions for JMOL and remanded for a trial on damages, which Oracle has said may have reached $8.8 billion.

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Nathan D. Renov is an Associate in the Patent Group, Patent Litigation Group, and U.S. Patent Office Litigation Group, at Pearl Cohen's New York office. A member of this newsletter's Board of Editors, Nathan advises clients in all aspects of IP protection, and his practice focuses on patent portfolio management and development, litigation, post-grant proceedings, and opinion work relating to a variety of technologies and industries. Nathan can be reached at [email protected]. The opinions expressed in this article are those of the author and do not necessarily reflect the views of the firm or its clients.