IP

G.R. No.
140946 September 13, 2004
MICROSOFT CORPORATION and LOTUS DEVELOPMENT CORPORATION,

petitioners,
vs.
MAXICORP, INC., respondent.
DECISION
CARPIO, J.:
The Case
This petition for review on certiorari1 seeks to reverse the Court of Appeals’ Decision2
dated 23 December 1998 and its Resolution dated 29 November 1999 in CA-G.R. SP
No. 44777. The Court of Appeals reversed the Order3 of the Regional Trial Court,
Branch 23, Manila ("RTC"), denying respondent Maxicorp, Inc.’s ("Maxicorp") motion
to quash the search warrant that the RTC issued against Maxicorp. Petitioners are
the private complainants against Maxicorp for copyright infringement under Section
29 of Presidential Decree No. 49 ("Section 29 of PD 49")4 and for unfair competition
under Article 189 of the Revised Penal Code ("RPC").5
Antecedent Facts
On 25 July 1996, National Bureau of Investigation ("NBI") Agent Dominador Samiano,

Jr. ("NBI Agent Samiano") filed several applications for search warrants in the RTC
against Maxicorp for alleged violation of Section 29 of PD 49 and Article 189 of the
RPC. After conducting a preliminary examination of the applicant and his witnesses,
Judge William M. Bayhon issued Search Warrants Nos. 96-451, 96-452, 96-453 and
96-454, all dated 25 July 1996, against Maxicorp.
Armed with the search warrants, NBI agents conducted on 25 July 1996 a search of
Maxicorp’s premises and seized property fitting the description stated in the search
warrants.
On 2 September 1996, Maxicorp filed a motion to quash the search warrants alleging
that there was no probable cause for their issuance and that the warrants are in the
form of "general warrants." The RTC denied Maxicorp’s motion on 22 January 1997.
The RTC also denied Maxicorp’s motion for reconsideration.
The RTC found probable cause to issue the search warrants after examining NBI
Agent Samiano, John Benedict Sacriz ("Sacriz"), and computer technician Felixberto
Pante ("Pante"). The three testified on what they discovered during their respective
visits to Maxicorp. NBI Agent Samiano also presented certifications from petitioners
that they have not authorized Maxicorp to perform the witnessed activities using
petitioners’ products.
On 24 July 1997, Maxicorp filed a petition for certiorari with the Court of Appeals
seeking to set aside the RTC’s order. On 23 December 1998, the Court of Appeals
reversed the RTC’s order denying Maxicorp’s motion to quash the search warrants.
Petitioners moved for reconsideration. The Court of Appeals denied petitioners’
motion on 29 November 1999.
The Court of Appeals held that NBI Agent Samiano failed to present during the
preliminary examination conclusive evidence that Maxicorp produced or sold the
counterfeit products. The Court of Appeals pointed out that the sales receipt NBI
Agent Samiano presented as evidence that he bought the products from Maxicorp
was in the name of a certain "Joel Diaz."
Hence, this petition.
The Issues
Petitioners seek a reversal and raise the following issues for resolution:
1. WHETHER THE PETITION RAISES QUESTIONS OF LAW;
2. WHETHER PETITIONERS HAVE LEGAL PERSONALITY TO FILE THE PETITION;
3. WHETHER THERE WAS PROBABLE CAUSE TO ISSUE THE SEARCH WARRANTS;
4. WHETHER THE SEARCH WARRANTS ARE "GENERAL WARRANTS."
The Ruling of the Court
The petition has merit.
On Whether the Petition Raises Questions of Law
Maxicorp assails this petition as defective since it failed to raise questions of law.
Maxicorp insists that the arguments petitioners presented are questions of fact, which
this Court should not consider in a Rule 45 petition for review. Petitioners counter
that all the issues they presented in this petition involve questions of law. Petitioners
point out that the facts are not in dispute.
A petition for review under Rule 45 of the Rules of Court should cover questions of
law.6 Questions of fact are not reviewable. As a rule, the findings of fact of the Court
of Appeals are final and conclusive and this Court will not review them on appeal,7
subject to exceptions as when the findings of the appellate court conflict with the
findings of the trial court.8
The distinction between questions of law and questions of fact is settled. A question
of law exists when the doubt or difference centers on what the law is on a certain
state of facts. A question of fact exists if the doubt centers on the truth or falsity of
the alleged facts. Though this delineation seems simple, determining the true nature
and extent of the distinction is sometimes problematic. For example, it is incorrect to
presume that all cases where the facts are not in dispute automatically involve purely
questions of law.
There is a question of law if the issue raised is capable of being resolved without need
of reviewing the probative value of the evidence.9 The resolution of the issue must
rest solely on what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the question posed is
one of fact.10 If the query requires a re-evaluation of the credibility of witnesses, or
the existence or relevance of surrounding circumstances and their relation to each
other, the issue in that query is factual.11 Our ruling in Paterno v. Paterno12 is
illustrative on this point:
Such questions as whether certain items of evidence should be accorded probative

value or weight, or rejected as feeble or spurious, or whether or not the proofs on
one side or the other are clear and convincing and adequate to establish a proposition
in issue, are without doubt questions of fact. Whether or not the body of proofs
presented by a party, weighed and analyzed in relation to contrary evidence
submitted by adverse party, may be said to be strong, clear and convincing; whether
or not certain documents presented by one side should be accorded full faith and
credit in the face of protests as to their spurious character by the other side; whether
or not inconsistencies in the body of proofs of a party are of such gravity as to justify
refusing to give said proofs weight – all these are issues of fact.
It is true that Maxicorp did not contest the facts alleged by petitioners. But this
situation does not automatically transform all issues raised in the petition into
questions of law. The issues must meet the tests outlined in Paterno.
Of the three main issues raised in this petition – the legal personality of the
petitioners, the nature of the warrants issued and the presence of probable cause –
only the first two qualify as questions of law. The pivotal issue of whether there was
probable cause to issue the search warrants is a question of fact. At first glance, this
issue appears to involve a question of law since it does not concern itself with the
truth or falsity of certain facts. Still, the resolution of this issue would require this
Court to inquire into the probative value of the evidence presented before the RTC.
For a question to be one of law, it must not involve an examination of the probative
value of the evidence presented by the litigants or any of them.13
Yet, this is precisely what the petitioners ask us to do by raising arguments requiring
an examination of the TSNs and the documentary evidence presented during the
search warrant proceedings. In short, petitioners would have us substitute our own
judgment to that of the RTC and the Court of Appeals by conducting our own
evaluation of the evidence. This is exactly the situation which Section 1, Rule 45 of
the Rules of Court prohibits by requiring the petition to raise only questions of law.
This Court is not a trier of facts. It is not the function of this court to analyze or weigh
evidence.14 When we give due course to such situations, it is solely by way of
exception. Such exceptions apply only in the presence of extremely meritorious
circumstances.15
Indeed, this case falls under one of the exceptions because the findings of the Court
of Appeals conflict with the findings of the RTC.16 Since petitioners properly raised
the conflicting findings of the lower courts, it is proper for this Court to resolve such
contradiction.
On Whether Petitioners have the Legal Personality to File this Petition
Maxicorp argues that petitioners have no legal personality to file this petition since
the proper party to do so in a criminal case is the Office of the Solicitor General as
representative of the People of the Philippines. Maxicorp states the general rule but
the exception governs this case.17 We ruled in Columbia Pictures Entertainment, Inc.
v. Court of Appeals18 that the petitioner-complainant in a petition for review under
Rule 45 could argue its case before this Court in lieu of the Solicitor General if there
is grave error committed by the lower court or lack of due process. This avoids a
situation where a complainant who actively participated in the prosecution of a case
would suddenly find itself powerless to pursue a remedy due to circumstances beyond
its control. The circumstances in Columbia Pictures Entertainment are sufficiently
similar to the present case to warrant the application of this doctrine.
On Whether there was Probable Cause to Issue the Search Warrants
Petitioners argue that the Court of Appeals erred in reversing the RTC based on the
fact that the sales receipt was not in the name of NBI Agent Samiano. Petitioners
point out that the Court of Appeals disregarded the overwhelming evidence that the
RTC considered in determining the existence of probable cause. Maxicorp counters
that the Court of Appeals did not err in reversing the RTC. Maxicorp maintains that
the entire preliminary examination that the RTC conducted was defective.
The Court of Appeals based its reversal on two factual findings of the RTC. First, the
fact that the sales receipt presented by NBI Agent Samiano as proof that he bought
counterfeit goods from Maxicorp was in the name of a certain "Joel Diaz." Second,
the fact that petitioners’ other witness, John Benedict Sacriz, admitted that he did
not buy counterfeit goods from Maxicorp.
We rule that the Court of Appeals erred in reversing the RTC’s findings.
Probable cause means "such reasons, supported by facts and circumstances as will
warrant a cautious man in the belief that his action and the means taken in
prosecuting it are legally just and proper."19 Thus, probable cause for a search
warrant requires such facts and circumstances that would lead a reasonably prudent
man to believe that an offense has been committed and the objects sought in
connection with that offense are in the place to be searched.20
The judge determining probable cause must do so only after personally examining
under oath the complainant and his witnesses. The oath required must refer to "the
truth of the facts within the personal knowledge of the petitioner or his witnesses,
because the purpose thereof is to convince the committing magistrate, not the
individual making the affidavit and seeking the issuance of the warrant, of the
existence of probable cause."21 The applicant must have personal knowledge of the
circumstances. "Reliable information" is insufficient.22 Mere affidavits are not
enough, and the judge must depose in writing the complainant and his witnesses.23
The Court of Appeals’ reversal of the findings of the RTC centers on the fact that the
two witnesses for petitioners during the preliminary examination failed to prove
conclusively that they bought counterfeit software from Maxicorp. The Court of
Appeals ruled that this amounted to a failure to prove the existence of a connection
between the offense charged and the place searched.
The offense charged against Maxicorp is copyright infringement under Section 29 of

PD 49 and unfair competition under Article 189 of the RPC. To support these charges,
petitioners presented the testimonies of NBI Agent Samiano, computer technician
Pante, and Sacriz, a civilian. The offenses that petitioners charged Maxicorp
contemplate several overt acts. The sale of counterfeit products is but one of these
acts. Both NBI Agent Samiano and Sacriz related to the RTC how they personally saw
Maxicorp commit acts of infringement and unfair competition.
During the preliminary examination, the RTC subjected the testimonies of the
witnesses to the requisite examination. NBI Agent Samiano testified that he saw
Maxicorp display and offer for sale counterfeit software in its premises. He also saw
how the counterfeit software were produced and packaged within Maxicorp’s
premises. NBI Agent Samiano categorically stated that he was certain the products
were counterfeit because Maxicorp sold them to its customers without giving the
accompanying ownership manuals, license agreements and certificates of
authenticity.
Sacriz testified that during his visits to Maxicorp, he witnessed several instances when
Maxicorp installed petitioners’ software into computers it had assembled. Sacriz also
testified that he saw the sale of petitioners’ software within Maxicorp’s premises.
Petitioners never authorized Maxicorp to install or sell their software.
The testimonies of these two witnesses, coupled with the object and documentary
evidence they presented, are sufficient to establish the existence of probable cause.
From what they have witnessed, there is reason to believe that Maxicorp engaged in
copyright infringement and unfair competition to the prejudice of petitioners. Both
NBI Agent Samiano and Sacriz were clear and insistent that the counterfeit software
were not only displayed and sold within Maxicorp’s premises, they were also
produced, packaged and in some cases, installed there.
The determination of probable cause does not call for the application of rules and
standards of proof that a judgment of conviction requires after trial on the merits. As
implied by the words themselves, "probable cause" is concerned with probability, not
absolute or even moral certainty. The prosecution need not present at this stage
proof beyond reasonable doubt. The standards of judgment are those of a reasonably
prudent man,24 not the exacting calibrations of a judge after a full-blown trial.
No law or rule states that probable cause requires a specific kind of evidence. No
formula or fixed rule for its determination exists.25 Probable cause is determined in
the light of conditions obtaining in a given situation.26 Thus, it was improper for the
Court of Appeals to reverse the RTC’s findings simply because the sales receipt
evidencing NBI Agent Samiano’s purchase of counterfeit goods is not in his name.
For purposes of determining probable cause, the sales receipt is not the only proof
that the sale of petitioners’ software occurred. During the search warrant application
proceedings, NBI Agent Samiano presented to the judge the computer unit that he
purchased from Maxicorp, in which computer unit Maxicorp had pre-installed
petitioners’ software.27 Sacriz, who was present when NBI Agent Samiano purchased
the computer unit, affirmed that NBI Agent Samiano purchased the computer unit.28
Pante, the computer technician, demonstrated to the judge the presence of
petitioners’ software on the same computer unit.29 There was a comparison between
petitioners’ genuine software and Maxicorp’s software pre-installed in the computer
unit that NBI Agent Sambiano purchased.30 Even if we disregard the sales receipt
issued in the name of "Joel Diaz," which petitioners explained was the alias NBI Agent
Samiano used in the operation, there still remains more than sufficient evidence to
establish probable cause for the issuance of the search warrants.
This also applies to the Court of Appeals’ ruling on Sacriz’s testimony. The fact that
Sacriz did not actually purchase counterfeit software from Maxicorp does not
eliminate the existence of probable cause. Copyright infringement and unfair
competition are not limited to the act of selling counterfeit goods. They cover a whole
range of acts, from copying, assembling, packaging to marketing, including the mere
offering for sale of the counterfeit goods. The clear and firm testimonies of petitioners’
witnesses on such other acts stand untarnished. The Constitution and the Rules of
Court only require that the judge examine personally and thoroughly the applicant
for the warrant and his witnesses to determine probable cause. The RTC complied
adequately with the requirement of the Constitution and the Rules of Court.
Probable cause is dependent largely on the opinion and findings of the judge who
conducted the examination and who had the opportunity to question the applicant
and his witnesses.31 For this reason, the findings of the judge deserve great weight.
The reviewing court should overturn such findings only upon proof that the judge
disregarded the facts before him or ignored the clear dictates of reason.32 Nothing
in the records of the preliminary examination proceedings reveal any impropriety on
the part of the judge in this case. As one can readily see, here the judge examined
thoroughly the applicant and his witnesses. To demand a higher degree of proof is
unnecessary and untimely. The prosecution would be placed in a compromising
situation if it were required to present all its evidence at such preliminary stage. Proof
beyond reasonable doubt is best left for trial.
On Whether the Search Warrants are in the Nature of General Warrants
A search warrant must state particularly the place to be searched and the objects to
be seized. The evident purpose for this requirement is to limit the articles to be seized
only to those particularly described in the search warrant. This is a protection against
potential abuse. It is necessary to leave the officers of the law with no discretion
regarding what articles they shall seize, to the end that no unreasonable searches
and seizures be committed.33
In addition, under Section 4, Rule 126 of the Rules of Criminal Procedure, a search
warrant shall issue "in connection with one specific offense." The articles described
must bear a direct relation to the offense for which the warrant is issued.34 Thus,
this rule requires that the warrant must state that the articles subject of the search
and seizure are used or intended for use in the commission of a specific offense.
Maxicorp argues that the warrants issued against it are too broad in scope and lack
the specificity required with respect to the objects to be seized. After examining the
wording of the warrants issued, the Court of Appeals ruled in favor of Maxicorp and
reversed the RTC’s Order thus:
Under the foregoing language, almost any item in the petitioner’s store can be seized
on the ground that it is "used or intended to be used" in the illegal or unauthorized
copying or reproduction of the private respondents’ software and their manuals.35
The Court of Appeals based its reversal on its perceived infirmity of paragraph (e) of
the search warrants the RTC issued. The appellate court found that similarly worded
warrants, all of which noticeably employ the phrase "used or intended to be used,"
were previously held void by this Court.36 The disputed text of the search warrants
in this case states:
a) Complete or partially complete reproductions or copies of Microsoft software

bearing the Microsoft copyrights and/or trademarks owned by MICROSOFT
CORPORATION contained in CD-ROMs, diskettes and hard disks;
b) Complete or partially complete reproductions or copies of Microsoft instruction

manuals and/or literature bearing the Microsoft copyrights and/or trademarks owned
by MICROSOFT CORPORATION;
c) Sundry items such as labels, boxes, prints, packages, wrappers, receptacles,

advertisements and other paraphernalia bearing the copyrights and/or trademarks
owned by MICROSOFT CORPORATION;
d) Sales invoices, delivery receipts, official receipts, ledgers, journals, purchase

orders and all other books of accounts and documents used in the recording of the
reproduction and/or assembly, distribution and sales, and other transactions in
connection with fake or counterfeit products bearing the Microsoft copyrights and/or
trademarks owned by MICROSOFT CORPORATION;
e) Computer hardware, including central processing units including hard disks, CD-
ROM drives, keyboards, monitor screens and diskettes, photocopying machines and
other equipment or paraphernalia used or intended to be used in the illegal and
unauthorized copying or reproduction of Microsoft software and their manuals, or
which contain, display or otherwise exhibit, without the authority of MICROSOFT
CORPORATION, any and all Microsoft trademarks and copyrights; and
f) Documents relating to any passwords or protocols in order to access all computer

hard drives, data bases and other information storage devices containing
unauthorized Microsoft software.37 (Emphasis supplied)
It is only required that a search warrant be specific as far as the circumstances will
ordinarily allow.38 The description of the property to be seized need not be technically
accurate or precise. The nature of the description should vary according to whether
the identity of the property or its character is a matter of concern.39 Measured
against this standard we find that paragraph (e) is not a general warrant. The articles
to be seized were not only sufficiently identified physically, they were also specifically
identified by stating their relation to the offense charged. Paragraph (e) specifically
refers to those articles used or intended for use in the illegal and unauthorized
copying of petitioners’ software. This language meets the test of specificity.40
The cases cited by the Court of Appeals are inapplicable. In those cases, the Court
found the warrants too broad because of particular circumstances, not because of the
mere use of the phrase "used or intended to be used." In Columbia Pictures, Inc. v.
Flores, the warrants ordering the seizure of "television sets, video cassette recorders,
rewinders and tape cleaners x x x" were found too broad since the defendant there
was a licensed distributor of video tapes.41 The mere presence of counterfeit video
tapes in the defendant’s store does not mean that the machines were used to produce
the counterfeit tapes. The situation in this case is different. Maxicorp is not a licensed
distributor of petitioners. In Bache & Co. (Phil.), Inc., et al. v. Judge Ruiz, et al., the
Court voided the warrants because they authorized the seizure of records pertaining
to "all business transactions" of the defendant.42 And in 20th Century Fox Film Corp.
v. Court of Appeals, the Court quashed the warrant because it merely gave a list of
articles to be seized, aggravated by the fact that such appliances are "generally
connected with the legitimate business of renting out betamax tapes."43
However, we find paragraph (c) of the search warrants lacking in particularity.

Paragraph (c) states:
c) Sundry items such as labels, boxes, prints, packages, wrappers, receptacles,

advertisements and other paraphernalia bearing the copyrights and/or trademarks
owned by MICROSOFT CORPORATION;
The scope of this description is all-embracing since it covers property used for
personal or other purposes not related to copyright infringement or unfair
competition. Moreover, the description covers property that Maxicorp may have
bought legitimately from Microsoft or its licensed distributors. Paragraph (c) simply
calls for the seizure of all items bearing the Microsoft logo, whether legitimately
possessed or not. Neither does it limit the seizure to products used in copyright
infringement or unfair competition.
Still, no provision of law exists which requires that a warrant, partially defective in
specifying some items sought to be seized yet particular with respect to the other
items, should be nullified as a whole. A partially defective warrant remains valid as
to the items specifically described in the warrant.44 A search warrant is severable,
the items not sufficiently described may be cut off without destroying the whole
warrant.45 The exclusionary rule found in Section 3(2) of Article III of the
Constitution renders inadmissible in any proceeding all evidence obtained through
unreasonable searches and seizure. Thus, all items seized under paragraph (c) of the
search warrants, not falling under paragraphs a, b, d, e or f, should be returned to
Maxicorp.
WHEREFORE, we PARTIALLY GRANT the instant petition. The Decision of the Court of
Appeals dated 23 December 1998 and its Resolution dated 29 November 1999 in CA-
G.R. SP No. 44777 are REVERSED and SET ASIDE except with respect to articles
seized under paragraph (c) of Search Warrants Nos. 96-451, 96-452, 96-453 and
96-454. All articles seized under paragraph (c) of the search warrants, not falling
under paragraphs a, b, d, e or f, are ordered returned to Maxicorp, Inc. immediately.
SO ORDERED.
Davide, Jr., Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

G.R. No. 195835, March 14, 2016
SISON OLA�O, SERGIO T. ONG, MARILYN O. GO, AND JAP FUK
HAI, Petitioners, v. LIM ENG CO, Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court,
assailing the Decision2dated July 9, 2010 and Resolution3 dated February 24, 2011
of the Court of Appeals (CA) in CA-G.R. SP No. 95471, which annulled the Resolutions
dated March 10, 20064 and May 25, 20065 of the Department of Justice (DOJ) in I.S.
No. 2004-925, finding no probable cause for copyright infringement against Sison
Olano, Sergio Ong, Marilyn Go and Jap Fuk Hai (petitioners) and directing the
withdrawal of the criminal information filed against them.
The Antecedents
The petitioners are the officers and/or directors of Metrotech Steel Industries, Inc.
(Metrotech).6 Lim Eng Co (respondent), on the other hand, is the Chairman of LEC
Steel Manufacturing Corporation (LEC), a company which specializes in architectural
metal manufacturing.7
Sometime in 2002, LEC was invited by the architects of the Manansala Project
(Project), a high-end residential building in Rockwell Center, Makati City, to submit
design/drawings and specifications for interior and exterior hatch doors. LEC complied
by submitting on July 16, 2002, shop plans/drawings, including the diskette therefor,
embodying the designs and specifications required for the metal hatch doors. 8
After a series of consultations and revisions, the final shop plans/drawings were
submitted by LEC on January 15, 2004 and thereafter copied and transferred to the
title block of Ski-First Balfour Joint Venture (SKI-FB), the Project's contractor, and
then stamped approved for construction on February 3, 2004. 9
LEC was thereafter subcontracted by SKI-FB, to manufacture and install interior and
exterior hatch doors for the 7th to 22nd floors of the Project based on the final shop
plans/drawings.10
Sometime thereafter, LEC learned that Metrotech was also subcontracted to install
interior and exterior hatch doors for the Project's 23rd to 41st floors.11
On June 24, 2004, LEC demanded Metrotech to cease from infringing its intellectual
property rights. Metrotech, however, insisted that no copyright infringement was
committed because the hatch doors it manufactured were patterned in accordance
with the drawings provided by SKI-FB.12
On July 2, 2004, LEC deposited with the National Library the final shop
plans/drawings of the designs and specifications for the interior and exterior hatch
doors of the Project.13 On July 6, 2004, LEC was issued a Certificate of Copyright
Registration and Deposit showing that it is the registered owner of plans/drawings
for interior and exterior hatch doors under Registration Nos. 1-2004-13 and 1-2004-
14, respectively.14 This copyright pertains to class work "I" under Section 172 of
Republic Act (R.A.) No. 8293, The Intellectual Property Code of the Philippines, which
covers "illustrations, maps, plans, sketches, charts and three-dimensional works
relative to geography, topography, architecture or science."
On December 9, 2004, LEC was issued another Certificate of Copyright Registration

and Deposit showing that it is the registered owner of plans/drawings for interior and
exterior hatch doors under Registration Nos. H-2004-566 and H-2004-56715 which is
classified under Section 172(h) of R.A. No. 8293 as "original ornamental designs or
models for articles of manufacture, whether or not registrable as an industrial design,
and other works of applied art."
When Metrotech still refused to stop fabricating hatch doors based on LEC's shop
plans/drawings, the latter sought the assistance of the National Bureau of
Investigation (NBI) which in turn applied for a search warrant before the Regional
Trial Court (RTC) of Quezon City, Branch 24. The application was granted on August
13, 2004 thus resulting in the confiscation of finished and unfinished metal hatch
doors as well as machines used in fabricating and manufacturing hatch doors from
the premises of Metrotech.16
On August 13, 2004, the respondent filed a Complaint-Affidavit17 before the DOJ
against the petitioners for copyright infringement. In the meantime or on September
8, 2004, the RTC quashed the search warrant on the ground that copyright
infringement was not established.18
Traversing the complaint, the petitioners admitted manufacturing hatch doors for the
Project. They denied, however, that they committed copyright infringement and
averred that the hatch doors they manufactured were functional inventions that are
proper subjects of patents and that the records of the Intellectual Property Office
reveal that there is no patent, industrial design or utility model registration on LEC's
hatch doors. Metrotech further argued that the manufacturing of hatch doors per
se is not copyright infringement because copyright protection does not extend to the
objects depicted in the illustrations and plans. Moreover, there is no artistic or
ornamental expression embodied in the subject hatch doors that would subject them
to copyright protection.19
Resolutions of the DOJ
In a Resolution20 dated August 18, 2005, the investigating prosecutor dismissed the
respondent's complaint based on inadequate evidence showing that: (1) the
petitioners committed the prohibited acts under Section 177 of R.A. No. 8293; and
(2) the interior and exterior hatch doors of the petitioners are among the classes of
copyrightable work enumerated in Sections 172 and 173 of the same law. 21
Adamant, the respondent filed a petition for review before the DOJ but it was also
denied due course in the Resolution22 dated November 16, 2005.
Upon the respondent's motion for reconsideration, however, the Resolution 23 dated
January 27, 2006 of the DOJ reversed and set aside the Resolution dated August 18,
2005 and directed the Chief State Prosecutor to file the appropriate information for
copyright infringement against the petitioners. 24 The DOJ reasoned that the pieces of
evidence adduced show that the subject hatch doors are artistic or ornamental with
distinctive hinges, door and jamb, among others. The petitioners were not able to
sufficiently rebut these allegations and merely insisted on the non-artistic nature of
the hatch doors. The DOJ further held that probable cause was established insofar as
the artistic nature of the hatch doors and based thereon the act of the petitioners in
manufacturing or causing to manufacture hatch doors similar to those of the
respondent can be considered as unauthorized reproduction; hence, copyright
infringement under Section 177.1 in relation to Section 216 of R.A. No.
8293.25cralawred
Aggrieved, the petitioners moved for reconsideration. This time, the DOJ made a
complete turn around by granting the motion, vacating its Resolution dated January
27, 2006 and declaring that the evidence on record did not establish probable cause
because the subject hatch doors were plainly metal doors with functional components
devoid of any aesthetic or artistic features. Accordingly, the DOJ Resolution 26dated
March 10, 2006 disposed as follows:
chanRoblesvirtualLawlibrary
WHEREFORE, finding cogent reason to reverse the assailed resolution, the motion
for reconsideration is GRANTED finding no probable cause against the [petitioners].
Consequently, the City Prosecutor of Manila is hereby directed to cause the
withdrawal of the information, if any has been filed in court, and to report the action
taken thereon within TEN (10) DAYS from receipt hereof.
SO ORDERED.27ChanRoblesVirtualawlibrary
The respondent thereafter filed a motion for reconsideration of the foregoing
resolution but it was denied28 on May 25, 2006. The respondent then sought recourse
before the CA via a petition for certiorari29 ascribing grave abuse of discretion on the
part of the DOJ.
In its assailed Decision30 dated July 9, 2010, the CA granted the petition. The CA held
that the vacillating findings of the DOJ on the presence or lack of probable cause
manifest capricious and arbitrary exercise of discretion especially since its opposite
findings were based on the same factual evidence and arguments.
The CA then proceeded to make its own finding of probable cause and held that:
[F]or probable cause for copyright infringement to exist, essentially, it must be shown
that the violator reproduced the works without the consent of the owner of the
copyright.
In the present case before Us, [the petitioners] do not dispute that: (1) LEG was
issued copyrights for the illustrations of the hatch doors under Section 171.i, and for
the hatch doors themselves as ornamental design or model for articles of
manufacture pursuant to Section 171.h of R.A. [No.] 8293; and (2) they
manufactured hatch doors based on drawings and design furnished by SKI-FB, which
consists of LEC works subject of copyrights. These two (2) circumstances, taken
together, are sufficient to excite the belief in a reasonable mind that [the petitioners]
are probably guilty of copyright infringement. First, LEC has indubitably established
that it is the owner of the copyright for both the illustrations of the hatch doors and
[the] hatch doors themselves, and second, [the petitioners] manufactured hatch
doors based on LEC's works, sans EEC's consent.
x x x x
[T]he fact that LEC enjoys ownership of copyright not only on the illustrations of the
hatch doors but on the hatch doors itself and that [the petitioners] manufactured the
same is sufficient to warrant a finding of probable cause for copyright infringement.
x x x.31ChanRoblesVirtualawlibrary
The CA further ruled that any allegation on the non-existence of ornamental or artistic
values on the hatch doors are matters of evidence which are best ventilated in a full-
blown trial rather than during the preliminary investigation stage. Accordingly, the
CA disposed as follows:
WHEREFORE, considering the foregoing premises, the present Petition
is GRANTED, and accordingly, the assailed Resolutions dated 10 March 2006 and 25
May 2006 are ANNULLED and SET ASIDE. The Resolution of the Secretory of
Justice dated 27 January 2006 finding probable cause against [the petitioners],
is REINSTATED.
SO ORDERED.32ChanRoblesVirtualawlibrary
The CA reiterated the above ruling in its Resolution33 dated February 24, 2011 when
it denied the petitioners' motion for reconsideration. Hence, the present appeal,
arguing that:
I. There was no evidence of actual reproduction of the hatch doors during the
preliminary investigation that would lead the investigating prosecutor to
declare the existence of probable cause;34
II. Even assuming that the petitioners manufactured hatch doors based on the
illustrations and plans covered by the respondent's Certificate of Registration
Nos. 1-2004-13 and 1-2004-14, the petitioners could not have committed
copyright infringement. Certificate of Registration Nos. 1-2004-13 and 1-2004-
14 are classified under Section 172(i) which pertains to "illustrations, maps,
plans, sketches, charts and three-dimensional works relative to geography,
topography, architecture or science." Hence the original works that are
copyrighted are the illustrations and plans of interior hatch doors and exterior
hatch doors. Thus, it is the reproduction of the illustrations and plans covered
by the copyright registration that amounts to copyright infringement. The
petitioners did not reproduce the illustrations and plans covered under
Certificate of Registration Nos. 1-2004-13 and 1-2004-14.
The manufacturing of hatch doors per se does not fall within the purview of
copyright infringement because copyright protection does not extend to the
objects depicted in the illustrations and plans;35 and
III. LEC's copyright registration certificates are not conclusive proofs that the items
covered thereby are copyrightable. The issuance of registration certificate and
acceptance of deposit by the National Library is ministerial in nature and does
not involve a determination of whether the item deposited is copyrightable or
not. Certificates of registration and deposit serve merely as a notice of
recording and registration of the work but do not confer any right or title upon
the registered copyright owner or automatically put his work under the
protective mantle of the copyright law.36
Ruling of the Court
It is a settled judicial policy that courts do not reverse the Secretary of Justice's
findings and conclusions on the matter of probable cause. Courts are not empowered
to substitute their judgment for that of the executive branch upon which full
discretionary authority has been delegated in the determination of probable cause
during a preliminary investigation. Courts may, however, look into whether the
exercise of such discretionary authority was attended with grave abuse of
discretion.37
Otherwise speaking, "judicial review of the resolution of the Secretary of Justice is

limited to a determination of whether there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction."38
The CA anchored its act of reversing the DOJ Resolution dated March 10, 2006 upon
the foregoing tenets. Thus, the Court's task in the present petition is only to
determine if the CA erred in concluding that the DOJ committed grave abuse of
discretion in directing the withdrawal of any criminal information filed against the
petitioners.
Grave abuse of discretion has been defined as "such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction. The abuse of discretion
must be grave as where the power is exercised in an arbitrary or despotic manner by
reason of passion or personal hostility and must be so patent and gross as to amount
to an evasion of positive duty or to a virtual refusal to perform the duty enjoined by
or to act at all in contemplation of law."39 "'Capricious,' usually used in tandem with
the term 'arbitrary,' conveys the notion of willful and unreasoning action."40cralawred
According to the CA, the DOJ's erratic findings on the presence or absence of probable
cause constitute grave abuse of discretion. The CA explained:
This, to Our minds, in itself creates a nagging, persistent doubt as to whether [the
DOJ Secretary] issued the said resolutions untainted with a whimsical and arbitrary
use of his discretion. For one cannot rule that there is reason to overturn the
investigating prosecutor's findings at the first instance and then go on to rule that
ample evidence exists showing that the hatch doors possess artistic and ornamental
elements at the second instance and proceed to rule that no such artistry can be
found on the purely utilitarian hatch doors at the last instance. x x
x.41ChanRoblesVirtualawlibrary
The Court disagrees. It has been held that the issuance by the DOJ of several
resolutions with varying findings of fact and conclusions of law on the existence of
probable cause, by itself, is not indicative of grave abuse of discretion. 42
Inconsistent findings and conclusions on the part of the DOJ will denote grave abuse
of discretion only if coupled with gross misapprehension of facts, 43 which, after a
circumspect review of the records, is not attendant in the present case.
The facts upon which the resolutions issued by the investigating prosecutor and the
DOJ were actually uniform, viz:
(a) LEC is the registered owner of plans/drawings for interior and exterior hatch
doors under Certificate of Registration Nos. 1-2004-13 and 1-2004-14
classified under Section 172(i) of R.A. No. 8293 as pertaining to "illustrations,
maps, plans, sketches, charts and three-dimensional works relative to
geography, topography, architecture or science";
(b) LEC is also the registered owner of plans/drawings for interior and exterior
hatch doors under Certificate of Registration Nos. H-2004-566 and H-2004-
567 classified under Section 172(h) of R.A. No. 8293 as to "original
ornamental designs or models for articles of manufacture, whether or not
registrable as an industrial design, and other works of applied art";
(c) LEC as the subcontractor of SKI-FB in the Project first manufactured and
installed the interior and exterior hatch doors at the Manansala Tower in
Rockwell Center, Makati City, from the 7 th to 22nd floors. The hatch doors
were based on the plans/drawings submitted by LEC to SKI-FB and subject
of the above copyright registration numbers; and
(d) thereafter, Metrotech fabricated and installed hatch doors at the same
building's 23rd to 41st floor based on the drawings and specifications provided
by SKI-FB.44
The positions taken by the DOJ and the investigating prosecutor differed only in the
issues tackled and the conclusions arrived at.
It may be observed that in the Resolution dated August 18, 2005 issued by the
investigating prosecutor, the primary issue was whether the hatch doors of LEC fall
within copyrightable works. This was resolved by ruling that hatch doors themselves
are not covered by LEC's Certificate of Registration Nos. 1-2004-13 and 1-2004-14
issued on the plans/drawing depicting them. The DOJ reversed this ruling in its
Resolution dated January 27, 2006 wherein the issue was streamlined to whether the
illustrations of the hatch doors under LEC's Certificate of Registration Nos. H-2004-
566 and H-2004-567 bore artistic ornamental designs.
This situation does not amount to grave abuse of discretion but rather a mere
manifestation of the intricate issues involved in the case which thus resulted in
varying conclusions of law. Nevertheless, the DOJ ultimately pronounced its definite
construal of copyright laws and their application to the evidence on record through
its Resolution dated March 10, 2006 when it granted the petitioners' motion for
reconsideration. Such construal, no matter how erroneous to the CA's estimation, did
not amount to grave abuse of discretion. "[I]t is elementary that not every erroneous
conclusion of law or fact is an abuse of discretion." 45
More importantly, the Court finds that no grave abuse of discretion was committed
by the DOJ in directing the withdrawal of the criminal information against the
respondents because a finding of probable cause contradicts the evidence on record,
law, and jurisprudence.
"Probable cause has been defined as the existence of such facts and circumstances
as would excite the belief in a reasonable mind, acting on the facts within the
knowledge of the prosecutor, that the person charged was guilty of the crime for
which he was prosecuted. It is a reasonable ground of presumption that a matter is,
or may be, well-founded on such a state of facts in the mind of the prosecutor as
would lead a person of ordinary caution and prudence to believe, or entertain an
honest or strong suspicion, that a thing is so."46
"The term does not mean actual and positive cause nor does it import absolute
certainty. It is merely based on opinion and reasonable belief. Thus, a finding of
probable cause does not require an inquiry into whether there is sufficient evidence
to procure a conviction. It is enough that it is believed that the act or omission
complained of constitutes the offense charged."47
"In order that probable cause to file a criminal case may be arrived at, or in order to
engender the well-founded belief that a crime has been committed, the elements of
the crime charged should be present. This is based on the principle that every crime
is defined by its elements, without which there should be - at the most - no criminal
offense."48
A copyright refers to "the right granted by a statute to the proprietor of an intellectual

production to its exclusive use and enjoyment to the extent specified in the
statute."49 Under Section 177 of R.A. No. 8293, the Copyright or Economic Rights
consist of the exclusive right to carry out, authorize or prevent the following acts:
177.1 Reproduction of the work or substantial portion of the work;
177.2 Dramatization, translation, adaptation, abridgment, arrangement or other

transformation of the work;
177.3 The first public distribution of the original and each copy of the work by
sale or other forms of transfer of ownership;
177.4 Rental of the original or a copy of an audiovisual or cinematographic work,

a work embodied in a sound recording, a computer program, a compilation
of data and other materials or a musical work in graphic form, irrespective
of the ownership of the original or the copy which is the subject of the
rental;
177.5 Public display of the original or a copy of the work;
177.6 Public performance of the work; and
177.7 Other communication to the public of the work.
Copyright infringement is thus committed by any person who shall use original
literary or artistic works, or derivative works, without the copyright owner's consent
in such a manner as to violate the foregoing copy and economic rights. For a claim
of copyright infringement to prevail, the evidence on record must demonstrate: (1)
ownership of a validly copyrighted material by the complainant; and (2) infringement
of the copyright by the respondent.50
While both elements subsist in the records, they did not simultaneously concur so as
to substantiate infringement of LEC's two sets of copyright registrations.
The respondent failed to substantiate the alleged reproduction of the

drawings/sketches of hatch doors copyrighted under Certificate of Registration Nos.
1-2004-13 and 1-2004-14. There is no proof that the respondents reprinted the
copyrighted sketches/drawings of LEC's hatch doors. The raid conducted by the NBI
on Metrotech's premises yielded no copies or reproduction of LEC's copyrighted
sketches/drawings of hatch doors. What were discovered instead were finished and
unfinished hatch doors.
Certificate of Registration Nos. 1-2004-13 and 1-2004-14 pertain to class work "I"
under Section 172 of R.A. No. 8293 which covers "illustrations, maps, plans,
sketches, charts and three-dimensional works relative to geography, topography,
architecture or science."51 As such, LEC's copyright protection there under covered
only the hatch door sketches/drawings and not the actual hatch door they depict. 52
As the Court held in Pearl and Dean (Philippines), Incorporated v. Shoemart,

Incorporated:53
Copyright, in the strict sense of the term, is purely a statutory right. Being a mere
statutory grant, the rights are limited to what the statute confers. It may be obtained
and enjoyed only with respect to the subjects and by the persons, and on terms and
conditions specified in the statute. Accordingly, it can cover only the works falling
within the statutory enumeration or description.54 (Citations omitted and italics in the
original)
Since the hatch doors cannot be considered as either illustrations, maps, plans,
sketches, charts and three-dimensional works relative to geography, topography,
architecture or science, to be properly classified as a copyrightable class "I" work,
what was copyrighted were their sketches/drawings only, and not the actual hatch
doors themselves. To constitute infringement, the usurper must have copied or
appropriated the original work of an author or copyright proprietor, absent copying,
there can be no infringement of copyright.55
"Unlike a patent, a copyright gives no exclusive right to the art disclosed; protection
is given only to the expression of the idea � not the idea itself."56
The respondent claimed that the petitioners committed copyright infringement when
they fabricated/manufactured hatch doors identical to those installed by LEC. The
petitioners could not have manufactured such hatch doors in substantial quantities
had they not reproduced the copyrighted plans/drawings submitted by LEC to SK1-
FB. This insinuation, without more, does not suffice to establish probable cause for
infringement against the petitioners. "[Although the determination of probable cause
requires less than evidence which would justify conviction, it should at least be more
than mere suspicion."57
Anent, LEC's Certificate of Registration Nos. H-2004-566 and H-2004-567, the Court
finds that the ownership thereof was not established by the evidence on record
because the element of copyrightability is absent.
"Ownership of copyrighted material is shown by proof of originality and

copyrightability."58 While it is true that where the complainant presents a copyright
certificate in support of the claim of infringement, the validity and ownership of the
copyright is presumed. This presumption, however, is rebuttable and it cannot be
sustained where other evidence in the record casts doubt on the question of
ownership,59 as in the instant case.
Moreover, "[t]he presumption of validity to a certificate of copyright registration
merely orders the burden of proof. The applicant should not ordinarily be forced, in
the first instance, to prove all the multiple facts that underline the validity of the
copyright unless the respondent, effectively challenging them, shifts the burden of
doing so to the applicant."60
Here, evidence negating originality and copyrightability as elements of copyright

ownership was satisfactorily proffered against LEC's certificate of registration.
The following averments were not successfully rebuffed by LEC:

[T]he hinges on LEC's "hatch doors" have no ornamental or artistic value. In fact,
they are just similar to hinges found in truck doors that had been in common use
since the 1960's. The gaskets on LEC's "hatch doors", aside from not being
ornamental or artistic, were merely procured from a company named Pemko and are
not original creations of LEC. The locking device in LEC's "hatch doors" are ordinary
drawer locks commonly used in furniture and office
desks.61ChanRoblesVirtualawlibrary
In defending the copyrightability of its hatch doors' design, LEC merely claimed:
LEC's Hatch Doors were particularly designed to blend in with the floor of the units in
which they are installed and, therefore, appeal to the aesthetic sense of the owner of
units or any visitors thereto[;]
LEC's Hatch Doors have a distinct set of hinges, a distinct door a distinct jamb, all of
which are both functional or utilitarian and artistic or ornamental at the same time[;]
and
Moreover, the Project is a high-end residential building located in the Rockwell

Center, a very prime area in Metro Manila. As such, the owner of the Project is not
expected to settle for Hatch Doors that simply live up to their function as such. The
owner would require, as is the case for the Project, Hatch Doors that not only fulfill
their utilitarian purposes but also appeal to the artistic or ornamental sense of their
beholders.62ChanRoblesVirtualawlibrary
From the foregoing description, it is clear that the hatch doors were not artistic works
within the meaning of copyright laws. A copyrightable work refers to literary and
artistic works defined as original intellectual creations in the literary and artistic
domain.63
A hatch door, by its nature is an object of utility. It is defined as a small door, small
gate or an opening that resembles a window equipped with an escape for use in case
of fire or emergency.64 It is thus by nature, functional and utilitarian serving as egress
access during emergency. It is not primarily an artistic creation but rather an object
of utility designed to have aesthetic appeal. It is intrinsically a useful article, which,
as a whole, is not eligible for copyright.
A "useful article" defined as an article "having an intrinsic utilitarian function that is
not merely to portray the appearance of the article or to convey information" is
excluded from copyright eligibility.65
The only instance when a useful article may be the subject of copyright protection is
when it incorporates a design element that is physically or conceptually separable
from the underlying product. This means that the utilitarian article can function
without the design element. In such an instance, the design element is eligible for
copyright protection.66
The design of a useful article shall be considered a pictorial, graphic, or sculptural

work only if, and only to the extent that, such design incorporates pictorial, graphic,
or sculptural features that can be identified separately from, and are capable of
existing independently of, the utilitarian aspects of the article. 67
A belt, being an object utility with the function of preventing one's pants from falling
down, is in itself not copyrightable. However, an ornately designed belt buckle which
is irrelevant to or did not enhance the belt's function hence, conceptually separable
from the belt, is eligible for copyright. It is copyrightable as a sculptural work with
independent aesthetic value, and not as an integral element of the belt's
functionality.68
A table lamp is not copyrightable because it is a functional object intended for the
purpose of providing illumination in a room. The general shape of a table lamp is
likewise not copyrightable because it contributes to the lamp's ability to illuminate
the reaches of a room. But, a lamp base in the form of a statue of male and female
dancing figures made of semi vitreous china is copyrightable as a work of art because
it is unrelated to the lamp's utilitarian function as a device used to combat darkness.69
In the present case, LEC's hatch doors bore no design elements that are physically
and conceptually separable, independent and distinguishable from the hatch door
itself. The allegedly distinct set of hinges and distinct jamb, were related and
necessary hence, not physically or conceptually separable from the hatch door's
utilitarian function as an apparatus for emergency egress. Without them, the hatch
door will not function.
More importantly, they are already existing articles of manufacture sourced from
different suppliers. Based on the records, it is unrebutted that: (a) the hinges are
similar to those used in truck doors; (b) the gaskets were procured from a company
named Pemko and are not original creations of LEC; and (c) the locking device are
ordinary drawer locks commonly used in furniture and office desks.
Being articles of manufacture already in existence, they cannot be deemed as original

creations. As earlier stated, valid copyright ownership denotes originality of the
copyrighted material. Originality means that the material was not copied, evidences
at least minimal creativity and was independently created by the author. 70 It
connotes production as a result of independent labor.71 LEC did not produce the door
jambs and hinges; it bought or acquired them from suppliers and thereafter affixed
them to the hatch doors. No independent original creation can be deduced from such
acts.
The same is true with respect to the design on the door's panel. As LEC has stated,
the panels were "designed to blend in with the floor of the units in which they [were]
installed."72 Photos of the panels indeed show that their color and pattern design were
similar to the wooden floor parquet of the condominium units.73 This means that the
design on the hatch door panel was not a product of LEC's independent artistic
judgment and discretion but rather a mere reproduction of an already existing design.
Verily then, the CA erred in holding that a probable cause for copyright infringement
is imputable against the petitioners. Absent originality and copyrightability as
elements of a valid copyright ownership, no infringement can subsist.chanrobleslaw
WHEREFORE, premises considered, the petition is hereby GRANTED. The Decision

dated July 9, 2010 and Resolution dated February 24, 2011 of the Court of Appeals
in CA-G.R. SP No. 95471 are REVERSEDand SET ASIDE. The Resolutions dated
March 10, 2006 and May 25, 2006 of the Department of Justice in I.S. No. 2004-925
dismissing the complaint for copyright infringement are REINSTATED.
SO ORDERED.
Velasco, Jr., (Chairperson), Peralta, Perez, and Jardeleza, JJ., concur.

A&M RECORDS, Inc. v. NAPSTER, INC., 239 F.3d 1004 (9th Cir. 2001)
Before: SCHROEDER, Chief Judge, BEEZER and PAEZ, Circuit Judges.
BEEZER, Circuit Judge:

[1] Plaintiffs are engaged in the commercial recording, distribution and sale of
copyrighted musical compositions and sound recordings. The complaint alleges that
Napster, Inc. (�Napster�) is a contributory and vicarious copyright infringer. On July
26, 2000, the district court granted plaintiffs� motion for a preliminary injunction.
The injunction was slightly modified by written opinion on August 10, 2000. A&M
Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896 (N.D. Cal. 2000). The district
court preliminarily enjoined Napster �from engaging in, or facilitating others in
copying, downloading, uploading, transmitting, or distributing plaintiffs' copyrighted
musical compositions and sound recordings, protected by either federal or state law,
without express permission of the rights owner.� Id. at 927. Federal Rule of Civil
Procedure 65(c) requires successful plaintiffs to post a bond for damages incurred by
the enjoined party in the event that the injunction was wrongfully issued. The district
court set bond in this case at $5 million.
[2] We entered a temporary stay of the preliminary injunction pending resolution of
this appeal. We have jurisdiction pursuant to 28 U.S.C. � 1292(a)(1). We affirm in
part, reverse in part and remand.
I
[3] We have examined the papers submitted in support of and in response to the
injunction application and it appears that Napster has designed and operates a
system which permits the transmission and retention of sound recordings employing
digital technology.
[4] In 1987, the Moving Picture Experts Group set a standard file format for the
storage of audio recordings in a digital format called MPEG-3, abbreviated as �MP3.�
Digital MP3 files are created through a process colloquially called �ripping.� Ripping
software allows a computer owner to copy an audio compact disk (�audio CD�)
directly onto a computer�s hard drive by compressing the audio information on the
CD into the MP3 format. The MP3's compressed format allows for rapid transmission
of digital audio files from one computer to another by electronic mail or any other file
transfer protocol.
[5] Napster facilitates the transmission of MP3 files between and among its users.
Through a process commonly called �peer-to-peer� file sharing, Napster allows its
users to: (1) make MP3 music files stored on individual computer hard drives
available for copying by other Napster users; (2) search for MP3 music files stored
on other users� computers; and (3) transfer exact copies of the contents of other
users� MP3 files from one computer to another via the Internet. These functions are
made possible by Napster�s MusicShare software, available free of charge from
Napster�s Internet site, and Napster�s network servers and server-side software.
Napster provides technical support for the indexing and searching of MP3 files, as
well as for its other functions, including a �chat room,� where users can meet to
discuss music, and a directory where participating artists can provide information
about their music.
A. Accessing the System
[6] In order to copy MP3 files through the Napster system, a user must first access
Napster�s Internet site and download [n1] the MusicShare software to his individual
computer. See http://www.Napster.com. Once the software is installed, the user can
access the Napster system. A first-time user is required to register with the Napster
system by creating a �user name� and password.
B. Listing Available Files
[7] If a registered user wants to list available files stored in his computer�s hard
drive on Napster for others to access, he must first create a �user library� directory
on his computer�s hard drive. The user then saves his MP3 files in the library
directory, using self-designated file names. He next must log into the Napster system
using his user name and password. His MusicShare software then searches his user
library and verifies that the available files are properly formatted. If in the correct
MP3 format, the names of the MP3 files will be uploaded from the user�s computer
to the Napster servers. The content of the MP3 files remains stored in the user�s
computer.
[8] Once uploaded to the Napster servers, the user�s MP3 file names are stored in
a server-side �library� under the user�s name and become part of a �collective
directory� of files available for transfer during the time the user is logged onto the
Napster system. The collective directory is fluid; it tracks users who are connected in
real time, displaying only file names that are immediately accessible.
C. Searching For Available Files
[9] Napster allows a user to locate other users� MP3 files in two ways: through
Napster�s search function and through its �hotlist� function.
[10] Software located on the Napster servers maintains a �search index� of
Napster�s collective directory. To search the files available from Napster users
currently connected to the network servers, the individual user accesses a form in
the MusicShare software stored in his computer and enters either the name of a song
or an artist as the object of the search. The form is then transmitted to a Napster
server and automatically compared to the MP3 file names listed in the server�s
search index. Napster�s server compiles a list of all MP3 file names pulled from the
search index which include the same search terms entered on the search form and
transmits the list to the searching user. The Napster server does not search the
contents of any MP3 file; rather, the search is limited to �a text search of the file
names indexed in a particular cluster. Those file names may contain typographical
errors or otherwise inaccurate descriptions of the content of the files since they are
designated by other users.� Napster, 114 F. Supp. 2d at 906.
[11] To use the �hotlist� function, the Napster user creates a list of other users�
names from whom he has obtained MP3 files in the past. When logged onto
Napster�s servers, the system alerts the user if any user on his list (a �hotlisted
user�) is also logged onto the system. If so, the user can access an index of all MP3
file names in a particular hotlisted user�s library and request a file in the library by
selecting the file name. The contents of the hotlisted user�s MP3 file are not stored
on the Napster system.
D. Transferring Copies of an MP3 file
[12] To transfer a copy of the contents of a requested MP3 file, the Napster server
software obtains the Internet address of the requesting user and the Internet address
of the �host user� (the user with the available files). See generally Brookfield
Communications, Inc. v. West Coast Entm�t Corp., 174 F.3d 1036, 1044 (9th Cir.
1999) (describing, in detail, the structure of the Internet). The Napster servers then
communicate the host user�s Internet address to the requesting user. The
requesting user�s computer uses this information to establish a connection with the
host user and downloads a copy of the contents of the MP3 file from one computer
to the other over the Internet, �peer-to-peer.� A downloaded MP3 file can be played
directly from the user�s hard drive using Napster�s MusicShare program or other
software. The file may also be transferred back onto an audio CD if the user has
access to equipment designed for that purpose. In both cases, the quality of the
original sound recording is slightly diminished by transfer to the MP3 format.
[13] This architecture is described in some detail to promote an understanding of
transmission mechanics as opposed to the content of the transmissions. The content
is the subject of our copyright infringement analysis.
II
[14] We review a grant or denial of a preliminary injunction for abuse of
discretion. Gorbach v. Reno, 219 F.3d 1087, 1091 (9th Cir. 2000) (en banc).
Application of erroneous legal principles represents an abuse of discretion by the
district court. Rucker v. Davis, __ F.3d __, 2001 WL 55724, at *4 (9th Cir. Jan. 24,
2001) (en banc). If the district court is claimed to have relied on an erroneous legal
premise in reaching its decision to grant or deny a preliminary injunction, we will
review the underlying issue of law de novo. Id. at *4 (citing Does 1-5 v. Chandler,
83 F.3d 1150, 1152 (9th Cir. 1996)).
[15] On review, we are required to determine, �whether the court employed the
appropriate legal standards governing the issuance of a preliminary injunction and
whether the district court correctly apprehended the law with respect to the
underlying issues in the case.� Id. �As long as the district court got the law right,
�it will not be reversed simply because the appellate court would have arrived at a
different result if it had applied the law to the facts of the case.�� Gregorio T. v.
Wilson, 59 F.3d 1002, 1004 (9th Cir. 1995) (quoting Sports Form, Inc. v. United
Press, Int�l, 686 F.2d 750, 752 (9th Cir. 1982)).
[16] Preliminary injunctive relief is available to a party who demonstrates either: (1)
a combination of probable success on the merits and the possibility of irreparable
harm; or (2) that serious questions are raised and the balance of hardships tips in its
favor. Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867, 874
(9th Cir. 2000). �These two formulations represent two points on a sliding scale in
which the required degree of irreparable harm increases as the probability of success
decreases.� Id.
III
[17] Plaintiffs claim Napster users are engaged in the wholesale reproduction and
distribution of copyrighted works, all constituting direct infringement.[n2] The district
court agreed. We note that the district court�s conclusion that plaintiffs have
presented a prima facie case of direct infringement by Napster users is not presently
appealed by Napster. We only need briefly address the threshold requirements.
A. Infringement
[18] Plaintiffs must satisfy two requirements to present a prima facie case of direct
infringement: (1) they must show ownership of the allegedly infringed material and
(2) they must demonstrate that the alleged infringers violate at least one exclusive
right granted to copyright holders under 17 U.S.C. � 106. See 17 U.S.C. � 501(a)
(infringement occurs when alleged infringer engages in activity listed in � 106); see
also Baxter v. MCA, Inc., 812 F.2d 421, 423 (9th Cir. 1987); see, e.g., S.O.S., Inc.
v. Payday, Inc., 886 F.2d 1081, 1085 n.3 (9th Cir. 1989) (�The word �copying� is
shorthand for the infringing of any of the copyright owner's five exclusive rights . . .
.�). Plaintiffs have sufficiently demonstrated ownership. The record supports the
district court�s determination that �as much as eighty-seven percent of the files
available on Napster may be copyrighted and more than seventy percent may be
owned or administered by plaintiffs.� Napster, 114 F. Supp. 2d at 911.
[19] The district court further determined that plaintiffs� exclusive rights under �
106 were violated: �here the evidence establishes that a majority of Napster users
use the service to download and upload copyrighted music. . . . And by doing that, it
constitutes�the uses constitute direct infringement of plaintiffs' musical
compositions, recordings.� A&M Records, Inc. v. Napster, Inc., Nos. 99-5183, 00-
0074, 2000 WL 1009483, at *1 (N.D. Cal. July 26, 2000) (transcript of proceedings).
The district court also noted that �it is pretty much acknowledged . . . by Napster
that this is infringement.� Id. We agree that plaintiffs have shown that Napster users
infringe at least two of the copyright holders� exclusive rights: the rights of
reproduction, � 106(1); and distribution, � 106(3). Napster users who upload file
names to the search index for others to copy violate plaintiffs� distribution rights.
Napster users who download files containing copyrighted music violate plaintiffs�
reproduction rights.
[20] Napster asserts an affirmative defense to the charge that its users directly
infringe plaintiffs� copyrighted musical compositions and sound recordings.
B. Fair Use
[21] Napster contends that its users do not directly infringe plaintiffs� copyrights
because the users are engaged in fair use of the material. See 17 U.S.C. � 107
(�[T]he fair use of a copyrighted work . . . is not an infringement of copyright.�).
Napster identifies three specific alleged fair uses: sampling, where users make
temporary copies of a work before purchasing; space-shifting, where users access a
sound recording through the Napster system that they already own in audio CD
format; and permissive distribution of recordings by both new and established artists.
[22] The district court considered factors listed in 17 U.S.C. � 107, which guide a
court�s fair use determination. These factors are: (1) the purpose and character of
the use; (2) the nature of the copyrighted work; (3) the �amount and substantiality
of the portion used� in relation to the work as a whole; and (4) the effect of the use
upon the potential market for the work or the value of the work. See 17 U.S.C. �
107. The district court first conducted a general analysis of Napster system uses
under � 107, and then applied its reasoning to the alleged fair uses identified by
Napster. The district court concluded that Napster users are not fair users.[n3] We
agree. We first address the court�s overall fair use analysis.
1. Purpose and Character of the Use
[23] This factor focuses on whether the new work merely replaces the object of the
original creation or instead adds a further purpose or different character. In other
words, this factor asks �whether and to what extent the new work is
�transformative.�� See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579
(1994).
[24] The district court first concluded that downloading MP3 files does not transform
the copyrighted work. Napster, 114 F. Supp. 2d at 912. This conclusion is
supportable. Courts have been reluctant to find fair use when an original work is
merely retransmitted in a different medium. See, e.g., Infinity Broadcast Corp. v.
Kirkwood, 150 F.3d 104, 108 (2d Cir. 1994) (concluding that retransmission of radio
broadcast over telephone lines is not transformative); UMG Recordings, Inc. v.
MP3.com, Inc., 92 F. Supp. 2d 349, 351 (S.D.N.Y.) (finding that reproduction of audio
CD into MP3 format does not �transform� the work), certification denied, 2000 WL
710056 (S.D.N.Y. June 1, 2000) (�Defendant's copyright infringement was clear,
and the mere fact that it was clothed in the exotic webbing of the Internet does not
disguise its illegality.�).
[25] This �purpose and character� element also requires the district court to
determine whether the allegedly infringing use is commercial or noncommercial. See
Campbell, 510 U.S. at 584-85. A commercial use weighs against a finding of Napster
users engage in commercial use of the copyrighted materials largely because (1) �a
host user sending a file cannot be said to engage in a personal use when distributing
that file to an anonymous requester� and (2) �Napster users get for free something
they would ordinarily have to buy.� Napster, 114 F. Supp. 2d at 912. The district
court�s findings are not clearly erroneous.
[26] Direct economic benefit is not required to demonstrate a commercial use.
Rather, repeated and exploitative copying of copyrighted works, even if the copies
are not offered for sale, may constitute a commercial use. See Worldwide Church of
God v. Philadelphia Church of God, 227 F.3d 1110, 1118 (9th Cir. 2000) (stating that
church that copied religious text for its members �unquestionably profit[ed]� from
the unauthorized �distribution and use of [the text] without having to account to the
copyright holder�); American Geophysical Union v. Texaco, Inc., 60 F.3d 913, 922
(2d Cir. 1994) (finding that researchers at for-profit laboratory gained indirect
economic advantage by photocopying copyrighted scholarly articles). In the record
before us, commercial use is demonstrated by a showing that repeated and
exploitative unauthorized copies of copyrighted works were made to save the
expense of purchasing authorized copies. See Worldwide Church, 227 F.3d at 1117-
18; Sega Enters. Ltd. v. MAPHIA, 857 F. Supp. 679, 687 (N.D. Cal. 1994) (finding
commercial use when individuals downloaded copies of video games �to avoid having
to buy video game cartridges�); see also American Geophysical, 60 F.3d at 922.
Plaintiffs made such a showing before the district court. [n4]
[27] We also note that the definition of a financially motivated transaction for the
purposes of criminal copyright actions includes trading infringing copies of a work for
other items, �including the receipt of other copyrighted works.� See No Electronic
Theft Act (�NET Act�), Pub. L. No. 105-147, 18 U.S.C. � 101 (defining �Financial
Gain�).
2. The Nature of the Use
[28] Works that are creative in nature are �closer to the core of intended copyright
protection� than are more fact-based works. See Campbell, 510 U.S. at 586. The
district court determined that plaintiffs� �copyrighted musical compositions and
sound recordings are creative in nature . . . which cuts against a finding of fair use
under the second factor.� Napster, 114 F. Supp. 2d at 913. We find no error in the
district court�s conclusion.
3. The Portion Used
[29] �While �wholesale copying does not preclude fair use per se,� copying an
entire work �militates against a finding of fair use.�� Worldwide Church, 227 F.3d
at 1118 (quoting Hustler Magazine, Inc. v. Moral Majority, Inc., 796 F.2d 1148, 1155
(9th Cir. 1986)). The district court determined that Napster users engage in
�wholesale copying� of copyrighted work because file transfer necessarily �involves
copying the entirety of the copyrighted work.� Napster, 114 F. Supp. 2d at 913. We
agree. We note, however, that under certain circumstances, a court will conclude that
a use is fair even when the protected work is copied in its entirety. See, e.g., Sony
Corp. v. Universal City Studios, Inc., 464 U.S. 417, 449-50 (1984) (acknowledging
that fair use of time-shifting necessarily involved making a full copy of a protected
work).
4. Effect of Use on Market
[30] �Fair use, when properly applied, is limited to copying by others which does not
materially impair the marketability of the work which is copied.� Harper & Row
Publishers, Inc. v. Nation Enters., 471 U.S. 539, 566-67 (1985). "[T]he importance
of this [fourth] factor will vary, not only with the amount of harm, but also with the
relative strength of the showing on the other factors." Campbell, 510 U.S. at 591
n.21. The proof required to demonstrate present or future market harm varies with
the purpose and character of the use:
A challenge to a noncommercial use of a copyrighted work requires proof either that
the particular use is harmful, or that if it should become widespread, it would
adversely affect the potential market for the copyrighted work. . . . If the intended
use is for commercial gain, that likelihood [of market harm] may be presumed. But
if it is for a noncommercial purpose, the likelihood must be demonstrated.
Sony, 464 U.S. at 451 (emphases added).
[31] Addressing this factor, the district court concluded that Napster harms the
market in �at least� two ways: it reduces audio CD sales among college students
and it �raises barriers to plaintiffs� entry into the market for the digital downloading
of music.� Napster, 114 F. Supp. 2d at 913. The district court relied on evidence
plaintiffs submitted to show that Napster use harms the market for their copyrighted
musical compositions and sound recordings. In a separate memorandum and order
regarding the parties� objections to the expert reports, the district court examined
each report, finding some more appropriate and probative than others. A&M Records,
Inc. v. Napster, Inc., Nos. 99-5183 & 00-0074, 2000 WL 1170106 (N.D. Cal. August
10, 2000). Notably, plaintiffs� expert, Dr. E. Deborah Jay, conducted a survey (the
�Jay Report�) using a random sample of college and university students to track
their reasons for using Napster and the impact Napster had on their music purchases.
Id. at *2. The court recognized that the Jay Report focused on just one segment of
the Napster user population and found �evidence of lost sales attributable to college
use to be probative of irreparable harm for purposes of the preliminary injunction
motion.� Id. at *3.
[32] Plaintiffs also offered a study conducted by Michael Fine, Chief Executive Officer
of Soundscan, (the �Fine Report�) to determine the effect of online sharing of MP3
files in order to show irreparable harm. Fine found that online file sharing had resulted
in a loss of �album� sales within college markets. After reviewing defendant�s
objections to the Fine Report and expressing some concerns regarding the
methodology and findings, the district court refused to exclude the Fine Report insofar
as plaintiffs offered it to show irreparable harm. Id. at *6.
[33] Plaintiffs� expert Dr. David J. Teece studied several issues (�Teece Report�),
including whether plaintiffs had suffered or were likely to suffer harm in their existing
and planned businesses due to Napster use. Id. Napster objected that the report had
not undergone peer review. The district court noted that such reports generally are
not subject to such scrutiny and overruled defendant�s objections. Id.
[34] As for defendant�s experts, plaintiffs objected to the report of Dr. Peter S.
Fader, in which the expert concluded that Napster is beneficial to the music industry
because MP3 music file-sharing stimulates more audio CD sales than it displaces. Id.
at *7. The district court found problems in Dr. Fader�s minimal role in overseeing
the administration of the survey and the lack of objective data in his report. The court
decided the generality of the report rendered it �of dubious reliability and value.�
The court did not exclude the report, however, but chose �not to rely on Fader�s
findings in determining the issues of fair use and irreparable harm.� Id. at *8.
[35] The district court cited both the Jay and Fine Reports in support of its finding
that Napster use harms the market for plaintiffs� copyrighted musical compositions
and sound recordings by reducing CD sales among college students. The district court
cited the Teece Report to show the harm Napster use caused in raising barriers to
plaintiffs� entry into the market for digital downloading of music. Napster, 114 F.
Supp. 2d at 910. The district court�s careful consideration of defendant�s objections
to these reports and decision to rely on the reports for specific issues demonstrates
a proper exercise of discretion in addition to a correct application of the fair use
doctrine. Defendant has failed to show any basis for disturbing the district court�s
findings.
[36] We, therefore, conclude that the district court made sound findings related to
Napster�s deleterious effect on the present and future digital download market.
Moreover, lack of harm to an established market cannot deprive the copyright holder
of the right to develop alternative markets for the works. See L.A. Times v. Free
Republic, 54 U.S.P.Q.2d 1453, 1469-71 (C.D. Cal. 2000) (stating that online market
for plaintiff newspapers� articles was harmed because plaintiffs demonstrated that
�[defendants] are attempting to exploit the market for viewing their articles
online�); see also UMG Recordings, 92 F. Supp. 2d at 352 (�Any allegedly positive
impact of defendant�s activities on plaintiffs� prior market in no way frees
defendant to usurp a further market that directly derives from reproduction of the
plaintiffs� copyrighted works.�). Here, similar to L.A. Times and UMG Recordings,
the record supports the district court�s finding that the �record company plaintiffs
have already expended considerable funds and effort to commence Internet sales
and licensing for digital downloads.� 114 F. Supp. 2d at 915. Having digital
downloads available for free on the Napster system necessarily harms the copyright
holders� attempts to charge for the same downloads.
[37] Judge Patel did not abuse her discretion in reaching the above fair use
conclusions, nor were the findings of fact with respect to fair use considerations
clearly erroneous. We next address Napster�s identified uses of sampling and space-
shifting.
5. Identified Uses
[38] Napster maintains that its identified uses of sampling and space-shifting were
wrongly excluded as fair uses by the district court.
a. Sampling
[39] Napster contends that its users download MP3 files to �sample� the music in
order to decide whether to purchase the recording. Napster argues that the district
court: (1) erred in concluding that sampling is a commercial use because it conflated
a noncommercial use with a personal use; (2) erred in determining that sampling
adversely affects the market for plaintiffs� copyrighted music, a requirement if the
use is noncommercial; and (3) erroneously concluded that sampling is not a fair use
because it determined that samplers may also engage in other infringing activity.
[40] The district court determined that sampling remains a commercial use even if
some users eventually purchase the music. We find no error in the district court�s
determination. Plaintiffs have established that they are likely to succeed in proving
that even authorized temporary downloading of individual songs for sampling
purposes is commercial in nature. See Napster, 114 F. Supp. 2d at 913. The record
supports a finding that free promotional downloads are highly regulated by the record
company plaintiffs and that the companies collect royalties for song samples available
on retail Internet sites. Id. Evidence relied on by the district court demonstrates that
the free downloads provided by the record companies consist of thirty-to-sixty second
samples or are full songs programmed to �time out,� that is, exist only for a short
time on the downloader�s computer. Id. at 913-14. In comparison, Napster users
download a full, free and permanent copy of the recording. Id. at 914-15. The
determination by the district court as to the commercial purpose and character of
sampling is not clearly erroneous.
[41] The district court further found that both the market for audio CDs and market
for online distribution are adversely affected by Napster�s service. As stated in our
discussion of the district court�s general fair use analysis: the court did not abuse
its discretion when it found that, overall, Napster has an adverse impact on the audio
CD and digital download markets. Contrary to Napster�s assertion that the district
court failed to specifically address the market impact of sampling, the district court
determined that �[e]ven if the type of sampling supposedly done on Napster were a
non-commercial use, plaintiffs have demonstrated a substantial likelihood that it
would adversely affect the potential market for their copyrighted works if it became
widespread.� Napster, 114 F. Supp. 2d at 914. The record supports the district
court�s preliminary determinations that: (1) the more music that sampling users
download, the less likely they are to eventually purchase the recordings on audio CD;
and (2) even if the audio CD market is not harmed, Napster has adverse effects on
the developing digital download market.
[42] Napster further argues that the district court erred in rejecting its evidence that
the users� downloading of �samples� increases or tends to increase audio CD sales.
The district court, however, correctly noted that �any potential enhancement of
plaintiffs� sales . . . would not tip the fair use analysis conclusively in favor of
defendant.� Id. at 914. We agree that increased sales of copyrighted material
attributable to unauthorized use should not deprive the copyright holder of the right
to license the material. See Campbell, 510 U.S. at 591 n.21 (�Even favorable
evidence, without more, is no guarantee of fairness. Judge Leval gives the example
of the film producer's appropriation of a composer's previously unknown song that
turns the song into a commercial success; the boon to the song does not make the
film's simple copying fair.�); see also L.A. Times, 54 U.S.P.Q.2d at 1471-72. Nor
does positive impact in one market, here the audio CD market, deprive the copyright
holder of the right to develop identified alternative markets, here the digital download
market. See id. at 1469-71.
[43] We find no error in the district court�s factual findings or abuse of discretion in
the court�s conclusion that plaintiffs will likely prevail in establishing that sampling
does not constitute a fair use.
b. Space-Shifting
[44] Napster also maintains that space-shifting is a fair use. Space-shifting occurs
when a Napster user downloads MP3 music files in order to listen to music he already
owns on audio CD. See id. at 915-16. Napster asserts that we have already held that
space-shifting of musical compositions and sound recordings is a fair use. See
Recording Indus. Ass�n of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072,
1079 (9th Cir. 1999) (�Rio [a portable MP3 player] merely makes copies in order to
render portable, or �space-shift,� those files that already reside on a user�s hard
drive. . . . Such copying is a paradigmatic noncommercial personal use.�). See also
generally Sony, 464 U.S. at 423 (holding that �time-shifting,� where a video tape
recorder owner records a television show for later viewing, is a fair use).
[45] We conclude that the district court did not err when it refused to apply the
�shifting� analyses of Sony and Diamond. Both Diamond and Sony are inapposite
because the methods of shifting in these cases did not also simultaneously involve
distribution of the copyrighted material to the general public; the time or space-
shifting of copyrighted material exposed the material only to the original user.
In Diamond, for example, the copyrighted music was transferred from the user�s
computer hard drive to the user�s portable MP3 player. So too Sony, where �the
majority of VCR purchasers . . . did not distribute taped television broadcasts, but
merely enjoyed them at home.� Napster, 114 F. Supp. 2d at 913. Conversely, it is
obvious that once a user lists a copy of music he already owns on the Napster system
in order to access the music from another location, the song becomes �available to
millions of other individuals,� not just the original CD owner. See UMG Recordings,
92 F. Supp. 2d at 351-52 (finding space-shifting of MP3 files not a fair use even when
previous ownership is demonstrated before a download is allowed); cf. Religious
Tech. Ctr. v. Lerma, No. 95-1107A, 1996 WL 633131, at *6 (E.D. Va. Oct. 4, 1996)
(suggesting that storing copyrighted material on computer disk for later review is not
a fair use).
c. Other Uses
[46] Permissive reproduction by either independent or established artists is the final
fair use claim made by Napster. The district court noted that plaintiffs did not seek
to enjoin this and any other noninfringing use of the Napster system, including: chat
rooms, message boards and Napster�s New Artist Program. Napster, 114 F. Supp.
2d at 917. Plaintiffs do not challenge these uses on appeal.
[47] We find no error in the district court�s determination that plaintiffs will likely
succeed in establishing that Napster users do not have a fair use defense.
Accordingly, we next address whether Napster is secondarily liable for the direct
infringement under two doctrines of copyright law: contributory copyright
infringement and vicarious copyright infringement.
IV
[48] We first address plaintiffs� claim that Napster is liable for contributory copyright
infringement. Traditionally, �one who, with knowledge of the infringing activity,
induces, causes or materially contributes to the infringing conduct of another, may
be held liable as a �contributory� infringer.� Gershwin Publ�g Corp. v. Columbia
Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971); see also Fonovisa, Inc. v.
Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir. 1996). Put differently, liability exists
if the defendant engages in �personal conduct that encourages or assists the
infringement.� Matthew Bender & Co. v. West Publ�g Co., 158 F.3d 693, 706 (2d
Cir. 1998).
[49] The district court determined that plaintiffs in all likelihood would establish
Napster�s liability as a contributory infringer. The district court did not err; Napster,
by its conduct, knowingly encourages and assists the infringement of plaintiffs�
copyrights.
A. Knowledge
[50] Contributory liability requires that the secondary infringer �know or have reason
to know� of direct infringement. Cable/Home Communication Corp. Network Prods.,
Inc., 902 F.2d 829, 845 & 846 n.29 (11th Cir. 1990); Religious Tech. Ctr. v. Netcom
On-Line Communication Servs., Inc., 907 F. Supp. 1361, 1373-74 (N.D. Cal. 1995)
(framing issue as �whether Netcom knew or should have known of� the infringing
activities). The district court found that Napster had both actual and constructive
knowledge that its users exchanged copyrighted music. The district court also
concluded that the law does not require knowledge of �specific acts of infringement�
and rejected Napster�s contention that because the company cannot distinguish
infringing from noninfringing files, it does not �know� of the direct infringement.
114 F. Supp. 2d at 917.
[51] It is apparent from the record that Napster has knowledge, both actual and
constructive,[n5] of direct infringement. Napster claims that it is nevertheless
protected from contributory liability by the teaching of Sony Corp. v. Universal City
Studios, Inc., 464 U.S. 417 (1984). We disagree. We observe that Napster�s actual,
specific knowledge of direct infringement renders Sony�s holding of limited
assistance to Napster. We are compelled to make a clear distinction between the
architecture of the Napster system and Napster�s conduct in relation to the
operational capacity of the system.
[52] The Sony Court refused to hold the manufacturer and retailers of video tape
recorders liable for contributory infringement despite evidence that such machines
could be and were used to infringe plaintiffs� copyrighted television shows. Sony
stated that if liability �is to be imposed on petitioners in this case, it must rest on
the fact that they have sold equipment with constructive knowledge of the fact that
their customers may use that equipment to make unauthorized copies of copyrighted
material.� Id. at 439 (emphasis added). The Sony Court declined to impute the
requisite level of knowledge where the defendants made and sold equipment capable
of both infringing and �substantial noninfringing uses.� Id. at 442 (adopting a
modified �staple article of commerce� doctrine from patent law). See also Universal
City Studios, Inc. v. Sony Corp., 480 F. Supp. 429, 459 (C.D. Cal. 1979) (�This court
agrees with defendants that their knowledge was insufficient to make them
contributory infringers.�), rev�d, 659 F.2d 963 (9th Cir. 1981), rev�d, 464 U.S.
417 (1984); Alfred C. Yen, Internet Service Provider Liability for Subscriber Copyright
Infringement, Enterprise Liability, and the First Amendment, 88 Geo. L.J. 1833, 1874
& 1893 n.210 (2000) (suggesting that, after Sony, most Internet service providers
lack �the requisite level of knowledge� for the imposition of contributory liability).
[53] We are bound to follow Sony, and will not impute the requisite level of
knowledge to Napster merely because peer-to-peer file sharing technology may be
used to infringe plaintiffs� copyrights. See 464 U.S. at 436 (rejecting argument that
merely supplying the ��means� to accomplish an infringing activity� leads to
imposition of liability). We depart from the reasoning of the district court that Napster
failed to demonstrate that its system is capable of commercially significant
noninfringing uses. See Napster, 114 F. Supp. 2d at 916, 917-18. The district court
improperly confined the use analysis to current uses, ignoring the system�s
capabilities. See generally Sony, 464 U.S. at 442-43 (framing inquiry as whether the
video tape recorder is �capable of commercially significant noninfringing uses�)
(emphasis added). Consequently, the district court placed undue weight on the
proportion of current infringing use as compared to current and future noninfringing
use. See generally Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 264-67 (5th
Cir. 1997) (single noninfringing use implicated Sony). Nonetheless, whether we
might arrive at a different result is not the issue here. See Sports Form, Inc. v. United
Press Int�l, Inc., 686 F.2d 750, 752 (9th Cir. 1982). The instant appeal occurs at an
early point in the proceedings and �the fully developed factual record may be
materially different from that initially before the district court . . . .� Id. at 753.
Regardless of the number of Napster�s infringing versus noninfringing uses, the
evidentiary record here supported the district court�s finding that plaintiffs would
likely prevail in establishing that Napster knew or had reason to know of its users�
infringement of plaintiffs� copyrights.
[54] This analysis is similar to that of Religious Technology Center v. Netcom On-Line
Communication Services, Inc., which suggests that in an online context, evidence of
actual knowledge of specific acts of infringement is required to hold a computer
system operator liable for contributory copyright infringement. 907 F. Supp. at
1371. Netcom considered the potential contributory copyright liability of a computer
bulletin board operator whose system supported the posting of infringing
material. Id. at 1374. The court, in denying Netcom�s motion for summary judgment
of noninfringement and plaintiff�s motion for judgment on the pleadings, found that
a disputed issue of fact existed as to whether the operator had sufficient knowledge
of infringing activity. Id. at 1374-75.
[55] The court determined that for the operator to have sufficient knowledge, the
copyright holder must �provide the necessary documentation to show there is likely
infringement.� 907 F. Supp. at 1374; cf. Cubby, Inc. v. Compuserve, Inc., 776 F.
Supp. 135, 141 (S.D.N.Y. 1991) (recognizing that online service provider does not
and cannot examine every hyperlink for potentially defamatory material). If such
documentation was provided, the court reasoned that Netcom would be liable for
contributory infringement because its failure to remove the material �and thereby
stop an infringing copy from being distributed worldwide constitutes substantial
participation� in distribution of copyrighted material. Id.
[56] We agree that if a computer system operator learns of specific infringing material
available on his system and fails to purge such material from the system, the operator
knows of and contributes to direct infringement. See Netcom, 907 F. Supp. at 1374.
Conversely, absent any specific information which identifies infringing activity, a
computer system operator cannot be liable for contributory infringement merely
because the structure of the system allows for the exchange of copyrighted
material. See Sony, 464 U.S. at 436, 442-43. To enjoin simply because a computer
network allows for infringing use would, in our opinion, violate Sony and potentially
restrict activity unrelated to infringing use.
[57] We nevertheless conclude that sufficient knowledge exists to impose
contributory liability when linked to demonstrated infringing use of the Napster
system. See Napster, 114 F. Supp. 2d at 919 (�Religious Technology Center would
not mandate a determination that Napster, Inc. lacks the knowledge requisite to
contributory infringement.�). The record supports the district court�s finding that
Napster has actual knowledge that specific infringing material is available using its
system, that it could block access to the system by suppliers of the infringing
material, and that it failed to remove the material. See Napster, 114 F. Supp. 2d at
918, 920-21. [n6]
B. Material Contribution
[58] Under the facts as found by the district court, Napster materially contributes to
the infringing activity. Relying on Fonovisa, the district court concluded that
�[w]ithout the support services defendant provides, Napster users could not find and
download the music they want with the ease of which defendant boasts.� Napster,
114 F. Supp. 2d at 919-20 (�Napster is an integrated service designed to enable
users to locate and download MP3 music files.�). We agree that Napster provides
�the site and facilities� for direct infringement. See Fonovisa, 76 F.3d at 264; cf.
Netcom, 907 F. Supp. at 1372 (�Netcom will be liable for contributory infringement
since its failure to cancel [a user�s] infringing message and thereby stop an
infringing copy from being distributed worldwide constitutes substantial
participation.�). The district court correctly applied the reasoning in Fonovisa, and
properly found that Napster materially contributes to direct infringement.
[59] We affirm the district court�s conclusion that plaintiffs have demonstrated a
likelihood of success on the merits of the contributory copyright infringement claim.
We will address the scope of the injunction in part VIII of this opinion.
V
[60] We turn to the question whether Napster engages in vicarious copyright
infringement. Vicarious copyright liability is an �outgrowth� of respondeat
superior. Fonovisa, 76 F.3d at 262. In the context of copyright law, vicarious liability
extends beyond an employer/employee relationship to cases in which a defendant
�has the right and ability to supervise the infringing activity and also has a direct
financial interest in such activities.� Id. (quoting Gershwin, 443 F.2d at 1162); see
also Polygram Int�l Publ�g, Inc. v. Nevada/TIG, Inc., 855 F. Supp. 1314, 1325-26
(D. Mass. 1994) (describing vicarious liability as a form of risk allocation). Before
moving into this discussion, we note that Sony�s �staple article of commerce�
analysis has no application to Napster�s potential liability for vicarious copyright
infringement. See Sony, 464 U.S. at 434-435; see generally Anne Hiaring, Copyright
Infringement Issues on the Internet, 617 PLI/Pat 455, 528 (Sept. 2, 2000) (indicating
that the �staple article of commerce� doctrine �provides a defense only to
contributory infringement, not to vicarious infringement�). The issues of Sony�s
liability under the �doctrines of �direct infringement� and �vicarious liability��
were not before the Supreme Court, although the Court recognized that the �lines
between direct infringement, contributory infringement, and vicarious liability are not
clearly drawn.� Id. at 435 n.17. Consequently, when the Sony Court used the term
�vicarious liability,� it did so broadly and outside of a technical analysis of the
doctrine of vicarious copyright infringement. Id. at 435 (�[V]icarious liability is
imposed in virtually all areas of the law, and the concept of contributory infringement
is merely a species of the broader problem of identifying the circumstances in which
it is just to hold one individual accountable for the actions of another.�); see also
Black�s Law Dictionary 927 (7th ed. 1999) (defining �vicarious liability� in a
manner similar to the definition used in Sony).
A. Financial Benefit
[61] The district court determined that plaintiffs had demonstrated they would likely
succeed in establishing that Napster has a direct financial interest in the infringing
activity. Napster, 114 F. Supp. 2d at 921-22. We agree. Financial benefit exists where
the availability of infringing material �acts as a �draw� for customers.� Fonovisa,
76 F.3d at 263-64 (stating that financial benefit may be shown �where infringing
performances enhance the attractiveness of a venue�). Ample evidence supports the
district court�s finding that Napster�s future revenue is directly dependent upon
�increases in userbase.� More users register with the Napster system as the
�quality and quantity of available music increases.� 114 F. Supp. 2d at 902. We
conclude that the district court did not err in determining that Napster financially
benefits from the availability of protected works on its system.
B. Supervision
[62] The district court determined that Napster has the right and ability to supervise
its users� conduct. Napster, 114 F. Supp. 2d at 920-21 (finding that Napster�s
representations to the court regarding �its improved methods of blocking users
about whom rights holders complain . . . is tantamount to an admission that
defendant can, and sometimes does, police its service�). We agree in part.
[63] The ability to block infringers� access to a particular environment for any reason
whatsoever is evidence of the right and ability to supervise. See Fonovisa, 76 F.3d at
262 (�Cherry Auction had the right to terminate vendors for any reason whatsoever
and through that right had the ability to control the activities of vendors on the
premises.�); cf. Netcom, 907 F. Supp. at 1375-76 (indicating that plaintiff raised a
genuine issue of fact regarding ability to supervise by presenting evidence that an
electronic bulletin board service can suspend subscriber�s accounts). Here, plaintiffs
have demonstrated that Napster retains the right to control access to its system.
Napster has an express reservation of rights policy, stating on its website that it
expressly reserves the �right to refuse service and terminate accounts in [its]
discretion, including, but not limited to, if Napster believes that user conduct violates
applicable law . . . or for any reason in Napster�s sole discretion, with or without
cause.�
[64] To escape imposition of vicarious liability, the reserved right to police must be
exercised to its fullest extent. Turning a blind eye to detectable acts of infringement
for the sake of profit gives rise to liability. See, e.g., Fonovisa, 76 F.3d at 261
(�There is no dispute for the purposes of this appeal that Cherry Auction and its
operators were aware that vendors in their swap meets were selling counterfeit
recordings.�); see also Gershwin, 443 F.2d at 1161-62 (citing Shapiro, Bernstein &
Co. v. H.L. Greene Co., 316 F.2d 304 (2d Cir. 1963), for the proposition that �failure
to police the conduct of the primary infringer� leads to imposition of vicarious liability
for copyright infringement).
[66] The district court correctly determined that Napster had the right and ability to
police its system and failed to exercise that right to prevent the exchange of
copyrighted material. The district court, however, failed to recognize that the
boundaries of the premises that Napster �controls and patrols� are limited. See,
e.g., Fonovisa, 76 F.2d at 262-63 (in addition to having the right to exclude vendors,
defendant �controlled and patrolled� the premises); see also Polygram, 855 F.
Supp. at 1328-29 (in addition to having the contractual right to remove exhibitors,
trade show operator reserved the right to police during the show and had its
�employees walk the aisles to ensure �rules compliance��). Put differently,
Napster�s reserved �right and ability� to police is cabined by the system�s current
architecture. As shown by the record, the Napster system does not �read� the
content of indexed files, other than to check that they are in the proper MP3 format.
[67] Napster, however, has the ability to locate infringing material listed on its search
indices, and the right to terminate users� access to the system. The file name
indices, therefore, are within the �premises� that Napster has the ability to police.
We recognize that the files are user-named and may not match copyrighted material
exactly (for example, the artist or song could be spelled wrong). For Napster to
function effectively, however, file names must reasonably or roughly correspond to
the material contained in the files, otherwise no user could ever locate any desired
music. As a practical matter, Napster, its users and the record company plaintiffs
have equal access to infringing material by employing Napster�s �search function.�
Our review of the record requires us to accept the district court�s conclusion that
plaintiffs have demonstrated a likelihood of success on the merits of the vicarious
copyright infringement claim. Napster�s failure to police the system�s �premises,�
combined with a showing that Napster financially benefits from the continuing
availability of infringing files on its system, leads to the imposition of vicarious
liability. We address the scope of the injunction in part VIII of this opinion.
VI
[68] We next address whether Napster has asserted defenses which would preclude
the entry of a preliminary injunction.
[69] Napster alleges that two statutes insulate it from liability. First, Napster asserts
that its users engage in actions protected by � 1008 of the Audio Home Recording
Act of 1992, 17 U.S.C. � 1008. Second, Napster argues that its liability for
contributory and vicarious infringement is limited by the Digital Millennium Copyright
Act, 17 U.S.C. � 512. We address the application of each statute in turn.
A. Audio Home Recording Act
[70] The statute states in part:
No action may be brought under this title alleging infringement of copyright based on
the manufacture, importation, or distribution of a digital audio recording device, a
digital audio recording medium, an analog recording device, or an analog recording
medium, or based on the noncommercial use by a consumer of such a device or
medium for making digital musical recordings or analog musical recordings.
17 U.S.C. � 1008 (emphases added). Napster contends that MP3 file exchange is the
type of �noncommercial use� protected from infringement actions by the statute.
Napster asserts it cannot be secondarily liable for users� nonactionable exchange of
copyrighted musical recordings.
[71] The district court rejected Napster�s argument, stating that the Audio Home
Recording Act is �irrelevant� to the action because: (1) plaintiffs did not bring claims
under the Audio Home Recording Act; and (2) the Audio Home Recording Act does
not cover the downloading of MP3 files. Napster, 114 F. Supp. 2d at 916 n.19.
[72] We agree with the district court that the Audio Home Recording Act does not
cover the downloading of MP3 files to computer hard drives. First, �[u]nder the plain
meaning of the Act�s definition of digital audio recording devices, computers (and
their hard drives) are not digital audio recording devices because their �primary
purpose� is not to make digital audio copied recordings.� Recording Indus. Ass�n
of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1078 (9th Cir. 1999).
Second, notwithstanding Napster�s claim that computers are �digital audio
recording devices,� computers do not make �digital music recordings� as defined
by the Audio Home Recording Act. Id. at 1077 (citing S. Rep. 102-294) (�There are
simply no grounds in either the plain language of the definition or in the legislative
history for interpreting the term �digital musical recording� to include songs fixed
on computer hard drives.�).
B. Digital Millennium Copyright Act
[73] Napster also interposes a statutory limitation on liability by asserting the
protections of the �safe harbor� from copyright infringement suits for �Internet
service providers� contained in the Digital Millennium Copyright Act, 17 U.S.C. �
512. See Napster, 114 F. Supp. 2d at 919 n.24. The district court did not give this
statutory limitation any weight favoring a denial of temporary injunctive relief. The
court concluded that Napster �has failed to persuade this court that subsection
512(d) shelters contributory infringers.� Id.
[74] We need not accept a blanket conclusion that � 512 of the Digital Millennium
Copyright Act will never protect secondary infringers. See S. Rep. 105-190, at 40
(1998) (�The limitations in subsections (a) through (d) protect qualifying service
providers from liability for all monetary relief for direct, vicarious, and contributory
infringement.�), reprinted in Melville B. Nimmer & David Nimmer, Nimmer on
Copyright: Congressional Committee Reports on the Digital Millennium Copyright Act
and Concurrent Amendments (2000); see also Charles S. Wright, Actual Versus
Legal Control: Reading Vicarious Liability for Copyright Infringement Into the Digital
Millennium Copyright Act of 1998, 75 Wash. L. Rev. 1005, 1028-31 (July 2000)
(�[T]he committee reports leave no doubt that Congress intended to provide some
relief from vicarious liability�).
[75] We do not agree that Napster�s potential liability for contributory and vicarious
infringement renders the Digital Millennium Copyright Act inapplicable per se. We
instead recognize that this issue will be more fully developed at trial. At this stage of
the litigation, plaintiffs raise serious questions regarding Napster�s ability to obtain
shelter under � 512, and plaintiffs also demonstrate that the balance of hardships
tips in their favor. See Prudential Real Estate, 204 F.3d at 874; see also Micro Star
v. Formgen, Inc., 154 F.3d 1107, 1109 (9th Cir. 1998) (�A party seeking a
preliminary injunction must show . . . �that serious questions going to the merits
were raised and the balance of hardships tips sharply in its favor.��).
[76] Plaintiffs have raised and continue to raise significant questions under this
statute, including: (1) whether Napster is an Internet service provider as defined by
17 U.S.C. � 512(d); (2) whether copyright owners must give a service provider
�official� notice of infringing activity in order for it to have knowledge or awareness
of infringing activity on its system; and (3) whether Napster complies with � 512(i),
which requires a service provider to timely establish a detailed copyright compliance
policy. See A&M Records, Inc. v. Napster, Inc., No. 99-05183, 2000 WL 573136 (N.D.
Cal. May 12, 2000) (denying summary judgment to Napster under a different
subsection of the Digital Millennium Copyright Act, � 512(a)).
[77] The district court considered ample evidence to support its determination that
the balance of hardships tips in plaintiffs� favor:
Any destruction of Napster, Inc. by a preliminary injunction is speculative compared
to the statistical evidence of massive, unauthorized downloading and uploading of
plaintiffs� copyrighted works�as many as 10,000 files per second by defendant�s
own admission. See Kessler Dec. � 29. The court has every reason to believe that,
without a preliminary injunction, these numbers will mushroom as Napster users,
and newcomers attracted by the publicity, scramble to obtain as much free music as
possible before trial.
114 F. Supp. 2d at 926.
VII
[78] Napster contends that even if the district court�s preliminary determinations
that it is liable for facilitating copyright infringement are correct, the district court
improperly rejected valid affirmative defenses of waiver, implied license and
copyright misuse. We address the defenses in turn.
A. Waiver
[79] �Waiver is the intentional relinquishment of a known right with knowledge of
its existence and the intent to relinquish it.� United States v. King Features Entm�t,
Inc., 843 F.2d 394, 399 (9th Cir. 1988). In copyright, waiver or abandonment of
copyright �occurs only if there is an intent by the copyright proprietor to surrender
rights in his work.� 4 Melville B. Nimmer & David Nimmer, Nimmer On Copyright �
13.06 (2000); see also Micro Star v. Formgen, Inc., 154 F.3d 1107, 1114 (9th Cir.
1998) (discussing abandonment).
[80] Napster argues that the district court erred in finding that plaintiffs knowingly
provided consumers with technology designed to copy and distribute MP3 files over
the Internet and, thus, waived any legal authority to exercise exclusive control over
creation and distribution of MP3 files. The district court, however, was not convinced
�that the record companies created the monster that is now devouring their
intellectual property rights.� Napster, 114 F. Supp. 2d at 924. We find no error in
the district court�s finding that �in hastening the proliferation of MP3 files, plaintiffs
did [nothing] more than seek partners for their commercial downloading ventures
and develop music players for files they planned to sell over the Internet.� Id.[n7]
B. Implied License
[81] Napster also argues that plaintiffs granted the company an implied license by
encouraging MP3 file exchange over the Internet. Courts have found implied licenses
only in "narrow" circumstances where one party "created a work at [the other's]
request and handed it over, intending that [the other] copy and distribute
it." SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharms., Inc., 211
F.3d 21, 25 (2d Cir. 2000) (quoting Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558
(9th Cir. 1990)), cert. denied, 121 S. Ct. 173 (2000). The district court observed that
no evidence exists to support this defense: �indeed, the RIAA gave defendant
express notice that it objected to the availability of its members� copyrighted music
on Napster.� Napster, 114 F. Supp. 2d at 924-25. The record supports this
conclusion.
C. Misuse
[82] The defense of copyright misuse forbids a copyright holder from �secur[ing] an
exclusive right or limited monopoly not granted by the Copyright Office.� Lasercomb
Am., Inc. v. Reynolds, 911 F.2d 970, 977-79 (4th Cir. 1990), quoted in Practice
Mgmt. Info. Corp. v. American Med. Ass�n, 121 F.3d 516, 520 (9th Cir.), amended
by 133 F.3d 1140 (9th Cir. 1997). Napster alleges that online distribution is not within
the copyright monopoly. According to Napster, plaintiffs have colluded to �use their
copyrights to extend their control to online distributions.�
[83] We find no error in the district court�s preliminary rejection of this affirmative
defense. The misuse defense prevents copyright holders from leveraging their limited
monopoly to allow them control of areas outside the monopoly. See Lasercomb, 911
F.2d 970 at 976-77; see also Religious Tech. Ctr. v. Lerma, No. 95-1107A, 1996 WL
633131, at *11 (E.D. Va. Oct. 4, 1996) (listing circumstances which indicate improper
leverage).[n8] There is no evidence here that plaintiffs seek to control areas outside
of their grant of monopoly. Rather, plaintiffs seek to control reproduction and
distribution of their copyrighted works, exclusive rights of copyright holders. 17
U.S.C. � 106; see also, e.g., UMG Recordings, 92 F. Supp. 2d at 351 (�A [copyright
holder's] �exclusive� rights, derived from the Constitution and the Copyright Act,
include the right, within broad limits, to curb the development of such a derivative
market by refusing to license a copyrighted work or by doing so only on terms the
copyright owner finds acceptable.�). That the copyrighted works are transmitted in
another medium�MP3 format rather than audio CD�has no bearing on our
analysis. See id. at 351 (finding that reproduction of audio CD into MP3 format does
not �transform� the work).
VIII
[84] The district court correctly recognized that a preliminary injunction against
Napster�s participation in copyright infringement is not only warranted but required.
We believe, however, that the scope of the injunction needs modification in light of
our opinion. Specifically, we reiterate that contributory liability may potentially be
imposed only to the extent that Napster: (1) receives reasonable knowledge of
specific infringing files with copyrighted musical compositions and sound recordings;
(2) knows or should know that such files are available on the Napster system; and
(3) fails to act to prevent viral distribution of the works. See Netcom, 907 F. Supp.
at 1374-75. The mere existence of the Napster system, absent actual notice and
Napster�s demonstrated failure to remove the offending material, is insufficient to
impose contributory liability. See Sony, 464 U.S. at 442-43.
[85] Conversely, Napster may be vicariously liable when it fails to affirmatively use
its ability to patrol its system and preclude access to potentially infringing files listed
in its search index. Napster has both the ability to use its search function to identify
infringing musical recordings and the right to bar participation of users who engage
in the transmission of infringing files.
[86] The preliminary injunction which we stayed is overbroad because it places on
Napster the entire burden of ensuring that no �copying, downloading, uploading,
transmitting, or distributing� of plaintiffs� works occur on the system. As stated,
we place the burden on plaintiffs to provide notice to Napster of copyrighted works
and files containing such works available on the Napster system before Napster has
the duty to disable access to the offending content. Napster, however, also bears the
burden of policing the system within the limits of the system. Here, we recognize that
this is not an exact science in that the files are user named. In crafting the injunction
on remand, the district court should recognize that Napster�s system does not
currently appear to allow Napster access to users� MP3 files.
[87] Based on our decision to remand, Napster�s additional arguments on appeal
going to the scope of the injunction need not be addressed. We, however, briefly
address Napster�s First Amendment argument so that it is not reasserted on
remand. Napster contends that the present injunction violates the First Amendment
because it is broader than necessary. The company asserts two distinct free speech
rights: (1) its right to publish a �directory� (here, the search index) and (2) its
users� right to exchange information. We note that First Amendment concerns in
copyright are allayed by the presence of the fair use doctrine. See 17 U.S.C. �
107; see generally Nihon Keizai Shimbun v. Comline Business Data, Inc., 166 F.3d
65, 74 (2d Cir. 1999); Netcom, 923 F. Supp. at 1258 (stating that the Copyright Act
balances First Amendment concerns with the rights of copyright holders). There was
a preliminary determination here that Napster users are not fair users. Uses of
copyrighted material that are not fair uses are rightfully enjoined. See Dr. Seuss
Enters. v. Penguin Books USA, Inc., 109 F.3d 1394, 1403 (9th Cir. 1997) (rejecting
defendants� claim that injunction would constitute a prior restraint in violation of the
First Amendment).
IX
[88] We address Napster�s remaining arguments: (1) that the court erred in setting
a $5 million bond, and (2) that the district court should have imposed a constructive
royalty payment structure in lieu of an injunction.
A. Bond
[89] Napster argues that the $5 million bond is insufficient because the company�s
value is between $1.5 and $2 billion. We review objections to the amount of a bond
for abuse of discretion. Walczak v. EPL Prolong, Inc., 198 F.3d 725 (9th Cir. 1999).
[90] We are reluctant to dramatically raise bond amounts on appeal. See GoTo.com,
Inc. v. The Walt Disney Co., 202 F.3d 1199, 1211 (9th Cir. 2000); see also Fed. R.
Civ. P. 65(c). The district court considered competing evidence of Napster�s value
and the deleterious effect that any injunction would have upon the Napster system.
We cannot say that Judge Patel abused her discretion when she fixed the penal sum
required for the bond.
B. Royalties
[91] Napster contends that the district court should have imposed a monetary penalty
by way of a compulsory royalty in place of an injunction. We are asked to do what
the district court refused.
[92] Napster tells us that �where great public injury would be worked by an
injunction, the courts might . . . award damages or a continuing royalty instead of an
injunction in such special circumstances.�Abend v. MCA, Inc., 863 F.2d 1465, 1479
(9th Cir. 1988) (quoting 3 Melville B. Nimmer & David Nimmer, Nimmer On
Copyright � 14.06[B] (1988)), aff�d, 495 U.S. 207 (1990). We are at a total loss to
find any �special circumstances� simply because this case requires us to apply well-
established doctrines of copyright law to a new technology. Neither do we agree with
Napster that an injunction would cause �great public injury.� Further, we narrowly
construe any suggestion that compulsory royalties are appropriate in this context
because Congress has arguably limited the application of compulsory royalties to
specific circumstances, none of which are present here. See 17 U.S.C. � 115.
[93] The Copyright Act provides for various sanctions for infringers. See, e.g., 17
U.S.C. �� 502 (injunctions); 504 (damages); and 506 (criminal penalties); see
also 18 U.S.C. � 2319A (criminal penalties for the unauthorized fixation of and
trafficking in sound recordings and music videos of live musical performances). These
statutory sanctions represent a more than adequate legislative solution to the
problem created by copyright infringement.
[94] Imposing a compulsory royalty payment schedule would give Napster an �easy
out� of this case. If such royalties were imposed, Napster would avoid penalties for
any future violation of an injunction, statutory copyright damages and any possible
criminal penalties for continuing infringement. The royalty structure would also grant
Napster the luxury of either choosing to continue and pay royalties or shut down. On
the other hand, the wronged parties would be forced to do business with a company
that profits from the wrongful use of intellectual properties. Plaintiffs would lose the
power to control their intellectual property: they could not make a business
decision not to license their property to Napster, and, in the event they planned to
do business with Napster, compulsory royalties would take away the copyright
holders� ability to negotiate the terms of any contractual arrangement.
X
[95] We affirm in part, reverse in part and remand.
[96] We direct that the preliminary injunction fashioned by the district court prior to
this appeal shall remain stayed until it is modified by the district court to conform to
the requirements of this opinion. We order a partial remand of this case on the date
of the filing of this opinion for the limited purpose of permitting the district court to
proceed with the settlement and entry of the modified preliminary injunction.
[97] Even though the preliminary injunction requires modification, appellees have
substantially and primarily prevailed on appeal. Appellees shall recover their
statutory costs on appeal. See Fed. R. App. P. 39(a)(4) (�[i]f a judgment is affirmed
in part, reversed in part, modified, or vacated, costs are taxed only as the court
orders.�).
[98] AFFIRMED IN PART, REVERSED IN PART AND REMANDED.
1. �To download means to receive information, typically a file, from another

computer to yours via your modem . . . . The opposite term is upload, which means
to send a file to another computer.� United States v. Mohrbacher, 182 F.3d 1041,
1048 (9th Cir. 1999) (quoting Robin Williams, Jargon, An Informal Dictionary of
Computer Terms 170-71 (1993)).
2. Secondary liability for copyright infringement does not exist in the absence of
direct infringement by a third party. Religious Tech. Ctr. v. Netcom On-Line
Communication Servs., Inc., 907 F. Supp. 1361, 1371 (N.D. Cal. 1995) (�[T]here
can be no contributory infringement by a defendant without direct infringement by
another.�). It follows that Napster does not facilitate infringement of the copyright
laws in the absence of direct infringement by its users.
3. Napster asserts that because plaintiffs seek injunctive relief, they have the burden
of showing a likelihood that they would prevail against any affirmative defenses
raised by Napster, including its fair use defense under 17 U.S.C. � 107. See Atari
Games Corp. v. Nintendo, 975 F.2d 832, 837 (Fed. Cir. 1992) (following Ninth Circuit
law, and stating that plaintiff must show likelihood of success on prima facie copyright
infringement case and likelihood that it would overcome copyright misuse
defense); see also Dr. Seuss Enters. v. Penguin Books USA, 924 F. Supp. 1559, 1562
(S.D. Cal. 1996) (�The plaintiff's burden of showing a likelihood of success on the
merits includes the burden of showing a likelihood that it would prevail against any
affirmative defenses raised by the defendant.�), aff�d, 109 F.3d 1394 (9th Cir.
1997); Religious Tech. Ctr. v. Netcom On-Line Communication Servs., 923 F. Supp.
1231, 1242 n.12 (1995) (same); 2 William W. Schwarzer et al., California Practice
Guide, Federal Civil Procedure Before Trial � 13:47 (2000) (advising that when a
preliminary injunction is sought �plaintiff must demonstrate a likelihood of prevailing
on any affirmative defense as well as on plaintiff�s case in chief�). But see Fair Use
of Copyrighted Works, H.R. Rep. 102- 836 n.3 (criticizing a Northern District of New
York case in which �the district court erroneously held that where the copyright
owner seeks a preliminary injunction, the copyright owner bears the burden of
disproving the [fair use] defense�); see also 1 William F. Patry, Copyright Law &
Practice, 725, 725 n.27 (1994) (citing cases placing burden on defendant at
preliminary injunction stage).
The district court stated that �defendant bears the burden of proving . . . affirmative
defenses.� Napster, 114 F. Supp. 2d at 912. Plaintiffs assert that the district court
did not err in placing the burden on Napster. We conclude that even if plaintiffs bear
the burden of establishing that they would likely prevail against Napster�s
affirmative defenses at the preliminary injunction stage, the record supports the
district court�s conclusion that Napster users do not engage in fair use of the
copyrighted materials.
4. Napster counters that even if certain users engage in commercial use by
downloading instead of purchasing the music, space-shifting and sampling are
nevertheless noncommercial in nature. We address this contention in our discussion
of these specific uses, infra.
5. The district court found actual knowledge because: (1) a document authored by
Napster co-founder Sean Parker mentioned �the need to remain ignorant of users�
real names and IP addresses �since they are exchanging pirated music��; and (2)
the Recording Industry Association of America (�RIAA�) informed Napster of more
than 12,000 infringing files, some of which are still available. 114 F. Supp. 2d at 918.
The district court found constructive knowledge because: (a) Napster executives have
recording industry experience; (b) they have enforced intellectual property rights in
other instances; (c) Napster executives have downloaded copyrighted songs from the
system; and (d) they have promoted the site with �screen shots listing infringing
files.� Id. at 919.
6. As stated by the district court:
Plaintiff[s] . . . demonstrate that defendant had actual notice of direct infringement
because the RIAA informed it of more than 12,000 infringing files. See Creighton
12/3/99 Dec., Exh. D. Although Napster, Inc. purportedly terminated the users
offering these files, the songs are still available using the Napster service, as are the
copyrighted works which the record company plaintiffs identified in Schedules A and
B of their complaint.
See Creighton Supp. Dec. PP 3-4. 114 F. Supp. 2d at 918.
7. Napster additionally asserts that the district court improperly refused to allow
additional discovery into affirmative defenses and also erroneously failed to hold an
evidentiary hearing. The denial of an evidentiary hearing is reviewed for abuse of
discretion, Kenneally v. Lungren, 967 F.2d 329, 335 (9th Cir. 1992), as is the court�s
decision to deny further discovery. See Sablan v. Dep�t of Finance, 856 F.2d 1317,
1321 (9th Cir. 1988) (stating that decision to deny discovery will not be disturbed
except upon a clear showing �that the denial of discovery results in actual and
substantial prejudice�). We conclude that the court did not abuse its discretion in
denying further discovery and refusing to conduct an evidentiary hearing.
8. The district court correctly stated that �most of the cases� that recognize the
affirmative defense of copyright misuse involve unduly restrictive licensing
schemes. See Napster, 114 F. Supp. 2d at 923; see also Lasercomb, 911 F.2d at 973
(stating that �a misuse of copyright defense is inherent in the law of copyright�).
We have also suggested, however, that a unilateral refusal to license a copyright may
constitute wrongful exclusionary conduct giving rise to a claim of misuse, but assume
that the �desire to exclude others . . . is a presumptively valid business justification
for any immediate harm to consumers.� See Image Tech. Servs. v. Eastman Kodak
Co., 125 F.3d 1195, 1218 (9th Cir. 1997). But see Intergraph Corp. v. Intel Corp.,
195 F.3d 1346, 1362 (Fed. Cir. 1999) (�[M]arket power does not �impose on the
intellectual property owner an obligation to license the use of that property to
others.�� (quoting United States Dep�t of Justice & Fed. Trade Comm�n,Antitrust
Guidelines for the Licensing of Intellectual Property 4 (1995)).
METRO-GOLDWYN-MAYER STUDIOS INC. et al. v. GROKSTER, LTD., et al.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH
CIRCUIT
No. 04-480.Argued March 29, 2005--Decided June 27, 2005
Respondent companies distribute free software that allows computer users to share
electronic files through peer-to-peer networks, so called because the computers
communicate directly with each other, not through central servers. Although such
networks can be used to share any type of digital file, recipients of respondents'
software have mostly used them to share copyrighted music and video files without
authorization. Seeking damages and an injunction, a group of movie studios and
other copyright holders (hereinafter MGM) sued respondents for their users' copyright
infringements, alleging that respondents knowingly and intentionally distributed their
software to enable users to infringe copyrighted works in violation of the Copyright
Act.
Discovery revealed that billions of files are shared across peer-to-peer networks each
month. Respondents are aware that users employ their software primarily to
download copyrighted files, although the decentralized networks do not reveal which
files are copied, and when. Respondents have sometimes learned about the
infringement directly when users have e-mailed questions regarding copyrighted
works, and respondents have replied with guidance. Respondents are not merely
passive recipients of information about infringement. The record is replete with
evidence that when they began to distribute their free software, each of them clearly
voiced the objective that recipients use the software to download copyrighted works
and took active steps to encourage infringement. After the notorious file-sharing
service, Napster, was sued by copyright holders for facilitating copyright
infringement, both respondents promoted and marketed themselves as Napster
alternatives. They receive no revenue from users, but, instead, generate income by
selling advertising space, then streaming the advertising to their users. As the
number of users increases, advertising opportunities are worth more. There is no
evidence that either respondent made an effort to filter copyrighted material from
users' downloads or otherwise to impede the sharing of copyrighted files.
While acknowledging that respondents' users had directly infringed MGM's copyrights,
the District Court nonetheless granted respondents summary judgment as to liability
arising from distribution of their software. The Ninth Circuit affirmed. It read Sony
Corp. of America v. Universal City Studios, Inc., 464 U. S. 417, as holding that the
distribution of a commercial product capable of substantial noninfringing uses could
not give rise to contributory liability for infringement unless the distributor had actual
knowledge of specific instances of infringement and failed to act on that knowledge.
Because the appeals court found respondents' software to be capable of substantial
noninfringing uses and because respondents had no actual knowledge of infringement
owing to the software's decentralized architecture, the court held that they were not
liable. It also held that they did not materially contribute to their users' infringement
because the users themselves searched for, retrieved, and stored the infringing files,
with no involvement by respondents beyond providing the software in the first place.
Finally, the court held that respondents could not be held liable under a vicarious
infringement theory because they did not monitor or control the software's use, had
no agreed-upon right or current ability to supervise its use, and had no independent
duty to police infringement.
Held: One who distributes a device with the object of promoting its use to infringe
copyright, as shown by clear expression or other affirmative steps taken to foster
infringement, going beyond mere distribution with knowledge of third-party action,
is liable for the resulting acts of infringement by third parties using the device,
regardless of the device's lawful uses. Pp. 10-24.
(a) The tension between the competing values of supporting creativity through
copyright protection and promoting technological innovation by limiting infringement
liability is the subject of this case. Despite offsetting considerations, the argument
for imposing indirect liability here is powerful, given the number of infringing
downloads that occur daily using respondents' software. When a widely shared
product is used to commit infringement, it may be impossible to enforce rights in the
protected work effectively against all direct infringers, so that the only practical
alternative is to go against the device's distributor for secondary liability on a theory
of contributory or vicarious infringement. One infringes contributorily by intentionally
inducing or encouraging direct infringement, and infringes vicariously by profiting
from direct infringement while declining to exercise the right to stop or limit it.
Although "[t]he Copyright Act does not expressly render anyone liable for [another's]
infringement," Sony, 464 U. S., at 434, these secondary liability doctrines emerged
from common law principles and are well established in the law, e.g., id., at 486. Pp.
10-13.
(b) Sony addressed a claim that secondary liability for infringement can arise from
the very distribution of a commercial product. There, copyright holders sued Sony,
the manufacturer of videocassette recorders, claiming that it was contributorily liable
for the infringement that occurred when VCR owners taped copyrighted programs.
The evidence showed that the VCR's principal use was "time-shifting," i.e., taping a
program for later viewing at a more convenient time, which the Court found to be a
fair, noninfringing use. 464 U. S., at 423-424. Moreover, there was no evidence that
Sony had desired to bring about taping in violation of copyright or taken active steps
to increase its profits from unlawful taping. Id., at 438. On those facts, the only
conceivable basis for liability was on a theory of contributory infringement through
distribution of a product. Id., at 439. Because the VCR was "capable of commercially
significant noninfringing uses," the Court held that Sony was not liable. Id., at 442.
This theory reflected patent law's traditional staple article of commerce doctrine that
distribution of a component of a patented device will not violate the patent if it is
suitable for use in other ways. 35 U. S. C §271(c). The doctrine absolves the equivocal
conduct of selling an item with lawful and unlawful uses and limits liability to instances
of more acute fault. In this case, the Ninth Circuit misread Sony to mean that when
a product is capable of substantial lawful use, the producer cannot be held
contributorily liable for third parties' infringing use of it, even when an actual purpose
to cause infringing use is shown, unless the distributors had specific knowledge of
infringement at a time when they contributed to the infringement and failed to act
upon that information. Sony did not displace other secondary liability theories. Pp.
13-17.
(c) Nothing in Sony requires courts to ignore evidence of intent to promote
infringement if such evidence exists. It was never meant to foreclose rules of fault-
based liability derived from the common law. 464 U. S., at 439. Where evidence goes
beyond a product's characteristics or the knowledge that it may be put to infringing
uses, and shows statements or actions directed to promoting infringement, Sony's
staple-article rule will not preclude liability. At common law a copyright or patent
defendant who "not only expected but invoked [infringing use] by advertisement"
was liable for infringement. Kalem Co. v. Harper Brothers, 222 U. S. 55, 62-63. The
rule on inducement of infringement as developed in the early cases is no different
today. Evidence of active steps taken to encourage direct infringement, such as
advertising an infringing use or instructing how to engage in an infringing use, shows
an affirmative intent that the product be used to infringe, and overcomes the law's
reluctance to find liability when a defendant merely sells a commercial product
suitable for some lawful use. A rule that premises liability on purposeful, culpable
expression and conduct does nothing to compromise legitimate commerce or
discourage innovation having a lawful promise. Pp. 17-20.
(d) On the record presented, respondents' unlawful objective is unmistakable. The
classic instance of inducement is by advertisement or solicitation that broadcasts a
message designed to stimulate others to commit violations. MGM argues persuasively
that such a message is shown here. Three features of the evidence of intent are
particularly notable. First, each of the respondents showed itself to be aiming to
satisfy a known source of demand for copyright infringement, the market comprising
former Napster users. Respondents' efforts to supply services to former Napster users
indicate a principal, if not exclusive, intent to bring about infringement. Second,
neither respondent attempted to develop filtering tools or other mechanisms to
diminish the infringing activity using their software. While the Ninth Circuit treated
that failure as irrelevant because respondents lacked an independent duty to monitor
their users' activity, this evidence underscores their intentional facilitation of their
users' infringement. Third, respondents make money by selling advertising space,
then by directing ads to the screens of computers employing their software. The more
their software is used, the more ads are sent out and the greater the advertising
revenue. Since the extent of the software's use determines the gain to the
distributors, the commercial sense of their enterprise turns on high-volume use,
which the record shows is infringing. This evidence alone would not justify an
inference of unlawful intent, but its import is clear in the entire record's context. Pp.
20-23.
(e) In addition to intent to bring about infringement and distribution of a device
suitable for infringing use, the inducement theory requires evidence of actual
infringement by recipients of the device, the software in this case. There is evidence
of such infringement on a gigantic scale. Because substantial evidence supports MGM
on all elements, summary judgment for respondents was error. On remand,
reconsideration of MGM's summary judgment motion will be in order. Pp. 23-24.
380 F. 3d 1154, vacated and remanded.
Souter, J., delivered the opinion for a unanimous Court. Ginsburg, J., filed a
concurring opinion, in which Rehnquist, C.J.,and Kennedy, J., joined. Breyer, J., filed
a concurring opinion, in which Stevens and O'Connor, JJ., joined.
METRO-GOLDWYN-MAYER STUDIOS INC., et al.,
PETITIONERS v. GROKSTER, LTD., et al.
on writ of certiorari to the united states court of
appeals for the ninth circuit
[June 27, 2005]
Justice Souter delivered the opinion of the Court.

The question is under what circumstances the distributor of a product capable of both
lawful and unlawful use is liable for acts of copyright infringement by third parties
using the product. We hold that one who distributes a device with the object of
promoting its use to infringe copyright, as shown by clear expression or other
affirmative steps taken to foster infringement, is liable for the resulting acts of
infringement by third parties.
I
A
Respondents, Grokster, Ltd., and StreamCast Networks, Inc., defendants in the trial
court, distribute free software products that allow computer users to share electronic
files through peer-to-peer networks, so called because users' computers
communicate directly with each other, not through central servers. The advantage of
peer-to-peer networks over information networks of other types shows up in their
substantial and growing popularity. Because they need no central computer server
to mediate the exchange of information or files among users, the high-bandwidth
communications capacity for a server may be dispensed with, and the need for costly
server storage space is eliminated. Since copies of a file (particularly a popular one)
are available on many users' computers, file requests and retrievals may be faster
than on other types of networks, and since file exchanges do not travel through a
server, communications can take place between any computers that remain
connected to the network without risk that a glitch in the server will disable the
network in its entirety. Given these benefits in security, cost, and efficiency, peer-to-
peer networks are employed to store and distribute electronic files by universities,
government agencies, corporations, and libraries, among others. 1
Other users of peer-to-peer networks include individual recipients of Grokster's and
StreamCast's software, and although the networks that they enjoy through using the
software can be used to share any type of digital file, they have prominently
employed those networks in sharing copyrighted music and video files without
authorization. A group of copyright holders (MGM for short, but including motion
picture studios, recording companies, songwriters, and music publishers) sued
Grokster and StreamCast for their users' copyright infringements, alleging that they
knowingly and intentionally distributed their software to enable users to reproduce
and distribute the copyrighted works in violation of the Copyright Act, 17 U. S. C.
§101 et seq. (2000 ed. and Supp. II).2 MGM sought damages and an injunction.
Discovery during the litigation revealed the way the software worked, the business
aims of each defendant company, and the predilections of the users. Grokster's
eponymous software employs what is known as FastTrack technology, a protocol
developed by others and licensed to Grokster. StreamCast distributes a very similar
product except that its software, called Morpheus, relies on what is known as Gnutella
technology.3 A user who downloads and installs either software possesses the
protocol to send requests for files directly to the computers of others using software
compatible with FastTrack or Gnutella. On the FastTrack network opened by the
Grokster software, the user's request goes to a computer given an indexing capacity
by the software and designated a supernode, or to some other computer with
comparable power and capacity to collect temporary indexes of the files available on
the computers of users connected to it. The supernode (or indexing computer)
searches its own index and may communicate the search request to other
supernodes. If the file is found, the supernode discloses its location to the computer
requesting it, and the requesting user can download the file directly from the
computer located. The copied file is placed in a designated sharing folder on the
requesting user's computer, where it is available for other users to download in turn,
along with any other file in that folder.
In the Gnutella network made available by Morpheus, the process is mostly the same,
except that in some versions of the Gnutella protocol there are no supernodes. In
these versions, peer computers using the protocol communicate directly with each
other. When a user enters a search request into the Morpheus software, it sends the
request to computers connected with it, which in turn pass the request along to other
connected peers. The search results are communicated to the requesting computer,
and the user can download desired files directly from peers' computers. As this
description indicates, Grokster and StreamCast use no servers to intercept the
content of the search requests or to mediate the file transfers conducted by users of
the software, there being no central point through which the substance of the
communications passes in either direction.4
Although Grokster and StreamCast do not therefore know when particular files are
copied, a few searches using their software would show what is available on the
networks the software reaches. MGM commissioned a statistician to conduct a
systematic search, and his study showed that nearly 90% of the files available for
download on the FastTrack system were copyrighted works.5 Grokster and
StreamCast dispute this figure, raising methodological problems and arguing that
free copying even of copyrighted works may be authorized by the rightholders. They
also argue that potential noninfringing uses of their software are significant in kind,
even if infrequent in practice. Some musical performers, for example, have gained
new audiences by distributing their copyrighted works for free across peer-to-peer
networks, and some distributors of unprotected content have used peer-to-peer
networks to disseminate files, Shakespeare being an example. Indeed, StreamCast
has given Morpheus users the opportunity to download the briefs in this very case,
though their popularity has not been quantified.
As for quantification, the parties' anecdotal and statistical evidence entered thus far
to show the content available on the FastTrack and Gnutella networks does not say
much about which files are actually downloaded by users, and no one can say how
often the software is used to obtain copies of unprotected material. But MGM's
evidence gives reason to think that the vast majority of users' downloads are acts of
infringement, and because well over 100 million copies of the software in question
are known to have been downloaded, and billions of files are shared across the
FastTrack and Gnutella networks each month, the probable scope of copyright
infringement is staggering.
Grokster and StreamCast concede the infringement in most downloads, Brief for
Respondents 10, n. 6, and it is uncontested that they are aware that users employ
their software primarily to download copyrighted files, even if the decentralized
FastTrack and Gnutella networks fail to reveal which files are being copied, and when.
From time to time, moreover, the companies have learned about their users'
infringement directly, as from users who have sent e-mail to each company with
questions about playing copyrighted movies they had downloaded, to whom the
companies have responded with guidance.6 App. 559-563, 808-816, 939-954. And
MGM notified the companies of 8 million copyrighted files that could be obtained using
their software.
Grokster and StreamCast are not, however, merely passive recipients of information
about infringing use. The record is replete with evidence that from the moment
Grokster and StreamCast began to distribute their free software, each one clearly
voiced the objective that recipients use it to download copyrighted works, and each
took active steps to encourage infringement.
After the notorious file-sharing service, Napster, was sued by copyright holders for
facilitation of copyright infringement, A & M Records, Inc. v. Napster, Inc., 114 F.
Supp. 2d 896 (ND Cal. 2000), aff'd in part, rev'd in part, 239 F. 3d 1004 (CA9 2001),
StreamCast gave away a software program of a kind known as OpenNap, designed
as compatible with the Napster program and open to Napster users for downloading
files from other Napster and OpenNap users' computers. Evidence indicates that "[i]t
was always [StreamCast's] intent to use [its OpenNap network] to be able to capture
email addresses of [its] initial target market so that [it] could promote [its]
StreamCast Morpheus interface to them," App. 861; indeed, the OpenNap program
was engineered " 'to leverage Napster's 50 million user base,' " id., at 746.
StreamCast monitored both the number of users downloading its OpenNap program
and the number of music files they downloaded. Id., at 859, 863, 866. It also used
the resulting OpenNap network to distribute copies of the Morpheus software and to
encourage users to adopt it. Id., at 861, 867, 1039. Internal company documents
indicate that StreamCast hoped to attract large numbers of former Napster users if
that company was shut down by court order or otherwise, and that StreamCast
planned to be the next Napster. Id., at 861. A kit developed by StreamCast to be
delivered to advertisers, for example, contained press articles about StreamCast's
potential to capture former Napster users, id., at 568-572, and it introduced itself to
some potential advertisers as a company "which is similar to what Napster was," id.,
at 884. It broadcast banner advertisements to users of other Napster-compatible
software, urging them to adopt its OpenNap. Id., at 586. An internal e-mail from a
company executive stated: " 'We have put this network in place so that when Napster
pulls the plug on their free service ... or if the Court orders them shut down prior to
that ... we will be positioned to capture the flood of their 32 million users that will be
actively looking for an alternative.' " Id., at 588-589, 861.
Thus, StreamCast developed promotional materials to market its service as the best
Napster alternative. One proposed advertisement read: "Napster Inc. has announced
that it will soon begin charging you a fee. That's if the courts don't order it shut down
first. What will you do to get around it&&&" Id., at 897. Another proposed ad touted
StreamCast's software as the "#1 alternative to Napster" and asked "[w]hen the
lights went off at Napster ... where did the users go&&&" Id., at 836 (ellipsis in
original).7 StreamCast even planned to flaunt the illegal uses of its software; when it
launched the OpenNap network, the chief technology officer of the company averred
that "[t]he goal is to get in trouble with the law and get sued. It's the best way to
get in the new[s]." Id., at 916.
The evidence that Grokster sought to capture the market of former Napster users is
sparser but revealing, for Grokster launched its own OpenNap system called Swaptor
and inserted digital codes into its Web site so that computer users using Web search
engines to look for "Napster" or "[f]ree filesharing" would be directed to the Grokster
Web site, where they could download the Grokster software. Id., at 992-993. And
Grokster's name is an apparent derivative of Napster.
StreamCast's executives monitored the number of songs by certain commercial
artists available on their networks, and an internal communication indicates they
aimed to have a larger number of copyrighted songs available on their networks than
other file-sharing networks. Id., at 868. The point, of course, would be to attract
users of a mind to infringe, just as it would be with their promotional materials
developed showing copyrighted songs as examples of the kinds of files available
through Morpheus. Id., at 848. Morpheus in fact allowed users to search specifically
for "Top 40" songs, id., at 735, which were inevitably copyrighted. Similarly, Grokster
sent users a newsletter promoting its ability to provide particular, popular
copyrighted materials. Brief for Motion Picture Studio and Recording Company
Petitioners 7-8.
In addition to this evidence of express promotion, marketing, and intent to promote
further, the business models employed by Grokster and StreamCast confirm that
their principal object was use of their software to download copyrighted works.
Grokster and StreamCast receive no revenue from users, who obtain the software
itself for nothing. Instead, both companies generate income by selling advertising
space, and they stream the advertising to Grokster and Morpheus users while they
are employing the programs. As the number of users of each program increases,
advertising opportunities become worth more. Cf. App. 539, 804. While there is
doubtless some demand for free Shakespeare, the evidence shows that substantive
volume is a function of free access to copyrighted work. Users seeking Top 40 songs,
for example, or the latest release by Modest Mouse, are certain to be far more
numerous than those seeking a free Decameron, and Grokster and StreamCast
translated that demand into dollars.
Finally, there is no evidence that either company made an effort to filter copyrighted
material from users' downloads or otherwise impede the sharing of copyrighted files.
Although Grokster appears to have sent e-mails warning users about infringing
content when it received threatening notice from the copyright holders, it never
blocked anyone from continuing to use its software to share copyrighted files. Id., at
75-76. StreamCast not only rejected another company's offer of help to monitor
infringement, id., at 928-929, but blocked the Internet Protocol addresses of entities
it believed were trying to engage in such monitoring on its networks, id., at 917-922.
B
After discovery, the parties on each side of the case cross-moved for summary
judgment. The District Court limited its consideration to the asserted liability of
Grokster and StreamCast for distributing the current versions of their software,
leaving aside whether either was liable "for damages arising from past versions of
their software, or from other past activities." 259 F. Supp. 2d 1029, 1033 (CD Cal.
2003). The District Court held that those who used the Grokster and Morpheus
software to download copyrighted media files directly infringed MGM's copyrights, a
conclusion not contested on appeal, but the court nonetheless granted summary
judgment in favor of Grokster and StreamCast as to any liability arising from
distribution of the then current versions of their software. Distributing that software
gave rise to no liability in the court's view, because its use did not provide the
distributors with actual knowledge of specific acts of infringement. Case No. CV 01
08541 SVW (PJWx) (CD Cal., June 18, 2003), App. 1213.
The Court of Appeals affirmed. 380 F. 3d 1154 (CA9 2004). In the court's analysis, a
defendant was liable as a contributory infringer when it had knowledge of direct
infringement and materially contributed to the infringement. But the court read Sony
Corp. of America v. Universal City Studios, Inc., 464 U. S. 417 (1984), as holding
that distribution of a commercial product capable of substantial noninfringing uses
could not give rise to contributory liability for infringement unless the distributor had
actual knowledge of specific instances of infringement and failed to act on that
knowledge. The fact that the software was capable of substantial noninfringing uses
in the Ninth Circuit's view meant that Grokster and StreamCast were not liable,
because they had no such actual knowledge, owing to the decentralized architecture
of their software. The court also held that Grokster and StreamCast did not materially
contribute to their users' infringement because it was the users themselves who
searched for, retrieved, and stored the infringing files, with no involvement by the
defendants beyond providing the software in the first place.
The Ninth Circuit also considered whether Grokster and StreamCast could be liable
under a theory of vicarious infringement. The court held against liability because the
defendants did not monitor or control the use of the software, had no agreed-upon
right or current ability to supervise its use, and had no independent duty to police
infringement. We granted certiorari. 543 U. S. ___ (2004).
II
A
MGM and many of the amici fault the Court of Appeals's holding for upsetting a sound
balance between the respective values of supporting creative pursuits through
copyright protection and promoting innovation in new communication technologies
by limiting the incidence of liability for copyright infringement. The more artistic
protection is favored, the more technological innovation may be discouraged; the
administration of copyright law is an exercise in managing the trade-off. See Sony
Corp. v. Universal City Studios, supra, at 442; see generally Ginsburg, Copyright and
Control Over New Technologies of Dissemination, 101 Colum. L. Rev. 1613 (2001);
Lichtman & Landes, Indirect Liability for Copyright Infringement: An Economic
Perspective, 16 Harv. J. L. & Tech. 395 (2003).
The tension between the two values is the subject of this case, with its claim that
digital distribution of copyrighted material threatens copyright holders as never
before, because every copy is identical to the original, copying is easy, and many
people (especially the young) use file-sharing software to download copyrighted
works. This very breadth of the software's use may well draw the public directly into
the debate over copyright policy, Peters, Brace Memorial Lecture: Copyright Enters
the Public Domain, 51 J. Copyright Soc. 701, 705-717 (2004) (address by Register
of Copyrights), and the indications are that the ease of copying songs or movies using
software like Grokster's and Napster's is fostering disdain for copyright protection,
Wu, When Code Isn't Law, 89 Va. L. Rev. 679, 724-726 (2003). As the case has been
presented to us, these fears are said to be offset by the different concern that
imposing liability, not only on infringers but on distributors of software based on its
potential for unlawful use, could limit further development of beneficial technologies.
See, e.g., Lemley & Reese, Reducing Digital Copyright Infringement Without
Restricting Innovation, 56 Stan. L. Rev. 1345, 1386-1390 (2004); Brief for
Innovation Scholars and Economists as Amici Curiae 15-20; Brief for Emerging
Technology Companies as Amici Curiae 19-25; Brief for Intel Corporation as Amicus
Curiae 20-22.8
The argument for imposing indirect liability in this case is, however, a powerful one,
given the number of infringing downloads that occur every day using StreamCast's
and Grokster's software. When a widely shared service or product is used to commit
infringement, it may be impossible to enforce rights in the protected work effectively
against all direct infringers, the only practical alternative being to go against the
distributor of the copying device for secondary liability on a theory of contributory or
vicarious infringement. See In re Aimster Copyright Litigation, 334 F. 3d 643, 645-
646 (CA7 2003).
One infringes contributorily by intentionally inducing or encouraging direct
infringement, see Gershwin Pub. Corp. v. Columbia Artists Management, Inc., 443 F.
2d 1159, 1162 (CA2 1971), and infringes vicariously by profiting from direct
infringement while declining to exercise a right to stop or limit it, Shapiro, Bernstein
& Co. v. H. L. Green Co., 316 F. 2d 304, 307 (CA2 1963).9 Although "[t]he Copyright
Act does not expressly render anyone liable for infringement committed by
another," Sony Corp. v. Universal City Studios, 464 U. S., at 434, these doctrines of
secondary liability emerged from common law principles and are well established in
the law, id., at 486 (Blackmun, J., dissenting); Kalem Co. v. Harper Brothers, 222 U.
S. 55, 62-63 (1911); Gershwin Pub. Corp. v. Columbia Artists Management, supra,
at 1162; 3 M. Nimmer & D. Nimmer, Copyright, §12.04[A] (2005).
B
Despite the currency of these principles of secondary liability, this Court has dealt
with secondary copyright infringement in only one recent case, and because MGM
has tailored its principal claim to our opinion there, a look at our earlier holding is in
order. In Sony Corp. v. Universal City Studios, supra, this Court addressed a claim
that secondary liability for infringement can arise from the very distribution of a
commercial product. There, the product, novel at the time, was what we know today
as the videocassette recorder or VCR. Copyright holders sued Sony as the
manufacturer, claiming it was contributorily liable for infringement that occurred
when VCR owners taped copyrighted programs because it supplied the means used
to infringe, and it had constructive knowledge that infringement would occur. At the
trial on the merits, the evidence showed that the principal use of the VCR was for "
'time-shifting,' " or taping a program for later viewing at a more convenient time,
which the Court found to be a fair, not an infringing, use. Id., at 423-424. There was
no evidence that Sony had expressed an object of bringing about taping in violation
of copyright or had taken active steps to increase its profits from unlawful taping. Id.,
at 438. Although Sony's advertisements urged consumers to buy the VCR to " 'record
favorite shows' " or " 'build a library' " of recorded programs, id., at 459
(Blackmun, J., dissenting), neither of these uses was necessarily infringing, id., at
424, 454-455.
On those facts, with no evidence of stated or indicated intent to promote infringing
uses, the only conceivable basis for imposing liability was on a theory of contributory
infringement arising from its sale of VCRs to consumers with knowledge that some
would use them to infringe. Id., at 439. But because the VCR was "capable of
commercially significant noninfringing uses," we held the manufacturer could not be
faulted solely on the basis of its distribution. Id., at 442.
This analysis reflected patent law's traditional staple article of commerce doctrine,
now codified, that distribution of a component of a patented device will not violate
the patent if it is suitable for use in other ways. 35 U. S. C. §271(c); Aro Mfg.
Co. v. Convertible Top Replacement Co., 377 U. S. 476, 485 (1964) (noting
codification of cases); id., at 486, n. 6 (same). The doctrine was devised to identify
instances in which it may be presumed from distribution of an article in commerce
that the distributor intended the article to be used to infringe another's patent, and
so may justly be held liable for that infringement. "One who makes and sells articles
which are only adapted to be used in a patented combination will be presumed to
intend the natural consequences of his acts; he will be presumed to intend that they
shall be used in the combination of the patent." New York Scaffolding Co. v. Whitney,
224 F. 452, 459 (CA8 1915); see also James Heekin Co. v. Baker, 138 F. 63, 66 (CA8
1905); Canda v. Michigan Malleable Iron Co., 124 F. 486, 489 (CA6 1903); Thomson-
Houston Electric Co. v. Ohio Brass Co., 80 F. 712, 720-721 (CA6 1897); Red Jacket
Mfg. Co. v. Davis, 82 F. 432, 439 (CA7 1897); Holly v. Vergennes Machine Co., 4 F.
74, 82 (CC Vt. 1880); Renwick v. Pond, 20 F. Cas. 536, 541 (No. 11,702) (CC SDNY
1872).
In sum, where an article is "good for nothing else" but
infringement, Canda v. Michigan Malleable Iron Co., supra, at 489, there is no
legitimate public interest in its unlicensed availability, and there is no injustice in
presuming or imputing an intent to infringe, see Henry v. A. B. Dick Co., 224 U. S.
1, 48 (1912), overruled on other grounds, Motion Picture Patents Co. v. Universal
Film Mfg. Co., 243 U. S. 502 (1917). Conversely, the doctrine absolves the equivocal
conduct of selling an item with substantial lawful as well as unlawful uses, and limits
liability to instances of more acute fault than the mere understanding that some of
one's products will be misused. It leaves breathing room for innovation and a
vigorous commerce. See Sony Corp. v. Universal City Studios, supra, at
442; Dawson Chemical Co. v. Rohm & Haas Co., 448 U. S. 176,
221 (1980); Henry v. A. B. Dick Co., supra, at 48.
The parties and many of the amici in this case think the key to resolving it is
the Sony rule and, in particular, what it means for a product to be "capable of
commercially significant noninfringing uses." Sony Corp. v. Universal City
Studios, supra, at 442. MGM advances the argument that granting summary
judgment to Grokster and StreamCast as to their current activities gave too much
weight to the value of innovative technology, and too little to the copyrights infringed
by users of their software, given that 90% of works available on one of the networks
was shown to be copyrighted. Assuming the remaining 10% to be its noninfringing
use, MGM says this should not qualify as "substantial," and the Court should quantify
Sony to the extent of holding that a product used "principally" for infringement does
not qualify. See Brief for Motion Picture Studio and Recording Company Petitioners
31. As mentioned before, Grokster and StreamCast reply by citing evidence that their
software can be used to reproduce public domain works, and they point to copyright
holders who actually encourage copying. Even if infringement is the principal practice
with their software today, they argue, the noninfringing uses are significant and will
grow.
We agree with MGM that the Court of Appeals misapplied Sony, which it read as
limiting secondary liability quite beyond the circumstances to which the case
applied. Sony barred secondary liability based on presuming or imputing intent to
cause infringement solely from the design or distribution of a product capable of
substantial lawful use, which the distributor knows is in fact used for infringement.
The Ninth Circuit has read Sony's limitation to mean that whenever a product is
capable of substantial lawful use, the producer can never be held contributorily liable
for third parties' infringing use of it; it read the rule as being this broad, even when
an actual purpose to cause infringing use is shown by evidence independent of design
and distribution of the product, unless the distributors had "specific knowledge of
infringement at a time at which they contributed to the infringement, and failed to
act upon that information." 380 F. 3d, at 1162 (internal quotation marks and
alterations omitted). Because the Circuit found the StreamCast and Grokster software
capable of substantial lawful use, it concluded on the basis of its reading of Sony that
neither company could be held liable, since there was no showing that their software,
being without any central server, afforded them knowledge of specific unlawful uses.
This view of Sony, however, was error, converting the case from one about liability
resting on imputed intent to one about liability on any theory. Because Sony did not
displace other theories of secondary liability, and because we find below that it was
error to grant summary judgment to the companies on MGM's inducement claim, we
do not revisit Sonyfurther, as MGM requests, to add a more quantified description of
the point of balance between protection and commerce when liability rests solely on
distribution with knowledge that unlawful use will occur. It is enough to note that the
Ninth Circuit's judgment rested on an erroneous understanding of Sony and to leave
further consideration of the Sony rule for a day when that may be required.
C
Sony's rule limits imputing culpable intent as a matter of law from the characteristics
or uses of a distributed product. But nothing in Sony requires courts to ignore
evidence of intent if there is such evidence, and the case was never meant to
foreclose rules of fault-based liability derived from the common law. 10 Sony
Corp. v. Universal City Studios, 464 U. S., at 439 ("If vicarious liability is to be
imposed on Sony in this case, it must rest on the fact that it has sold equipment with
constructive knowledge" of the potential for infringement). Thus, where evidence
goes beyond a product's characteristics or the knowledge that it may be put to
infringing uses, and shows statements or actions directed to promoting
infringement, Sony's staple-article rule will not preclude liability.
The classic case of direct evidence of unlawful purpose occurs when one induces
commission of infringement by another, or "entic[es] or persuad[es] another" to
infringe, Black's Law Dictionary 790 (8th ed. 2004), as by advertising. Thus at
common law a copyright or patent defendant who "not only expected but invoked
[infringing use] by advertisement" was liable for infringement "on principles
recognized in every part of the law." Kalem Co. v. Harper Brothers, 222 U. S., at 62-
63 (copyright infringement). See also Henry v. A. B. Dick Co., 224 U. S., at 48-49
(contributory liability for patent infringement may be found where a good's "most
conspicuous use is one which will coöperate in an infringement when sale to such
user is invoked by advertisement" of the infringing use); Thomson-Houston Electric
Co. v. Kelsey Electric R. Specialty Co., 75 F. 1005, 1007-1008 (CA2 1896) (relying
on advertisements and displays to find defendant's "willingness ... to aid other
persons in any attempts which they may be disposed to make towards [patent]
infringement"); Rumford Chemical Works v. Hecker, 20 F. Cas. 1342, 1346 (No.
12,133) (CC N. J. 1876) (demonstrations of infringing activity along with "avowals of
the [infringing] purpose and use for which it was made" supported liability for patent
infringement).
The rule on inducement of infringement as developed in the early cases is no different
today.11 Evidence of "active steps ... taken to encourage direct infringement," Oak
Industries, Inc. v. Zenith Electronics Corp., 697 F. Supp. 988, 992 (ND Ill. 1988),
such as advertising an infringing use or instructing how to engage in an infringing
use, show an affirmative intent that the product be used to infringe, and a showing
that infringement was encouraged overcomes the law's reluctance to find liability
when a defendant merely sells a commercial product suitable for some lawful use,
see, e.g.,Water Technologies Corp. v. Calco, Ltd., 850 F. 2d 660, 668 (CA Fed. 1988)
(liability for inducement where one "actively and knowingly aid[s] and abet[s]
another's direct infringement" (emphasis omitted)); Fromberg, Inc. v. Thornhill, 315
F. 2d 407, 412-413 (CA5 1963) (demonstrations by sales staff of infringing uses
supported liability for inducement); Haworth Inc. v. Herman Miller Inc., 37 USPQ 2d
1080, 1090 (WD Mich. 1994) (evidence that defendant "demonstrate[d] and
recommend[ed] infringing configurations" of its product could support inducement
liability); Sims v. Mack Trucks, Inc., 459 F. Supp. 1198, 1215 (ED Pa. 1978) (finding
inducement where the use "depicted by the defendant in its promotional film and
brochures infringes the ... patent"), overruled on other grounds, 608 F. 2d 87 (CA3
1979). Cf. W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law
of Torts 37 (5th ed. 1984) ("There is a definite tendency to impose greater
responsibility upon a defendant whose conduct was intended to do harm, or was
morally wrong").
For the same reasons that Sony took the staple-article doctrine of patent law as a
model for its copyright safe-harbor rule, the inducement rule, too, is a sensible one
for copyright. We adopt it here, holding that one who distributes a device with the
object of promoting its use to infringe copyright, as shown by clear expression or
other affirmative steps taken to foster infringement, is liable for the resulting acts of
infringement by third parties. We are, of course, mindful of the need to keep from
trenching on regular commerce or discouraging the development of technologies with
lawful and unlawful potential. Accordingly, just as Sony did not find intentional
inducement despite the knowledge of the VCR manufacturer that its device could be
used to infringe, 464 U. S., at 439, n. 19, mere knowledge of infringing potential or
of actual infringing uses would not be enough here to subject a distributor to liability.
Nor would ordinary acts incident to product distribution, such as offering customers
technical support or product updates, support liability in themselves. The inducement
rule, instead, premises liability on purposeful, culpable expression and conduct, and
thus does nothing to compromise legitimate commerce or discourage innovation
having a lawful promise.
III
A
The only apparent question about treating MGM's evidence as sufficient to withstand
summary judgment under the theory of inducement goes to the need on MGM's part
to adduce evidence that StreamCast and Grokster communicated an inducing
message to their software users. The classic instance of inducement is by
advertisement or solicitation that broadcasts a message designed to stimulate others
to commit violations. MGM claims that such a message is shown here. It is undisputed
that StreamCast beamed onto the computer screens of users of Napster-compatible
programs ads urging the adoption of its OpenNap program, which was designed, as
its name implied, to invite the custom of patrons of Napster, then under attack in the
courts for facilitating massive infringement. Those who accepted StreamCast's
OpenNap program were offered software to perform the same services, which a
factfinder could conclude would readily have been understood in the Napster market
as the ability to download copyrighted music files. Grokster distributed an electronic
newsletter containing links to articles promoting its software's ability to access
popular copyrighted music. And anyone whose Napster or free file-sharing searches
turned up a link to Grokster would have understood Grokster to be offering the same
file-sharing ability as Napster, and to the same people who probably used Napster
for infringing downloads; that would also have been the understanding of anyone
offered Grokster's suggestively named Swaptor software, its version of OpenNap.
And both companies communicated a clear message by responding affirmatively to
requests for help in locating and playing copyrighted materials.
In StreamCast's case, of course, the evidence just described was supplemented by
other unequivocal indications of unlawful purpose in the internal communications and
advertising designs aimed at Napster users ("When the lights went off at Napster ...
where did the users go&&&" App. 836 (ellipsis in original)). Whether the messages
were communicated is not to the point on this record. The function of the message
in the theory of inducement is to prove by a defendant's own statements that his
unlawful purpose disqualifies him from claiming protection (and incidentally to point
to actual violators likely to be found among those who hear or read the message).
See supra, at 17-19. Proving that a message was sent out, then, is the preeminent
but not exclusive way of showing that active steps were taken with the purpose of
bringing about infringing acts, and of showing that infringing acts took place by using
the device distributed. Here, the summary judgment record is replete with other
evidence that Grokster and StreamCast, unlike the manufacturer and distributor
in Sony, acted with a purpose to cause copyright violations by use of software suitable
for illegal use. See supra, at 6-9.
Three features of this evidence of intent are particularly notable. First, each company
showed itself to be aiming to satisfy a known source of demand for copyright
infringement, the market comprising former Napster users. StreamCast's internal
documents made constant reference to Napster, it initially distributed its Morpheus
software through an OpenNap program compatible with Napster, it advertised its
OpenNap program to Napster users, and its Morpheus software functions as Napster
did except that it could be used to distribute more kinds of files, including copyrighted
movies and software programs. Grokster's name is apparently derived from Napster,
it too initially offered an OpenNap program, its software's function is likewise
comparable to Napster's, and it attempted to divert queries for Napster onto its own
Web site. Grokster and StreamCast's efforts to supply services to former Napster
users, deprived of a mechanism to copy and distribute what were overwhelmingly
infringing files, indicate a principal, if not exclusive, intent on the part of each to bring
about infringement.
Second, this evidence of unlawful objective is given added significance by MGM's
showing that neither company attempted to develop filtering tools or other
mechanisms to diminish the infringing activity using their software. While the Ninth
Circuit treated the defendants' failure to develop such tools as irrelevant because
they lacked an independent duty to monitor their users' activity, we think this
evidence underscores Grokster's and StreamCast's intentional facilitation of their
users' infringement.12
Third, there is a further complement to the direct evidence of unlawful objective. It
is useful to recall that StreamCast and Grokster make money by selling advertising
space, by directing ads to the screens of computers employing their software. As the
record shows, the more the software is used, the more ads are sent out and the
greater the advertising revenue becomes. Since the extent of the software's use
determines the gain to the distributors, the commercial sense of their enterprise turns
on high-volume use, which the record shows is infringing.13 This evidence alone
would not justify an inference of unlawful intent, but viewed in the context of the
entire record its import is clear.
The unlawful objective is unmistakable.
B
In addition to intent to bring about infringement and distribution of a device suitable
for infringing use, the inducement theory of course requires evidence of actual
infringement by recipients of the device, the software in this case. As the account of
the facts indicates, there is evidence of infringement on a gigantic scale, and there is
no serious issue of the adequacy of MGM's showing on this point in order to survive
the companies' summary judgment requests. Although an exact calculation of
infringing use, as a basis for a claim of damages, is subject to dispute, there is no
question that the summary judgment evidence is at least adequate to entitle MGM to
go forward with claims for damages and equitable relief.
***
In sum, this case is significantly different from Sony and reliance on that case to rule
in favor of StreamCast and Grokster was error. Sony dealt with a claim of liability
based solely on distributing a product with alternative lawful and unlawful uses, with
knowledge that some users would follow the unlawful course. The case struck a
balance between the interests of protection and innovation by holding that the
product's capability of substantial lawful employment should bar the imputation of
fault and consequent secondary liability for the unlawful acts of others.
MGM's evidence in this case most obviously addresses a different basis of liability for
distributing a product open to alternative uses. Here, evidence of the distributors'
words and deeds going beyond distribution as such shows a purpose to cause and
profit from third-party acts of copyright infringement. If liability for inducing
infringement is ultimately found, it will not be on the basis of presuming or imputing
fault, but from inferring a patently illegal objective from statements and actions
showing what that objective was.
There is substantial evidence in MGM's favor on all elements of inducement, and
summary judgment in favor of Grokster and StreamCast was error. On remand,
reconsideration of MGM's motion for summary judgment will be in order.
The judgment of the Court of Appeals is vacated, and the case is remanded for further
proceedings consistent with this opinion.
It is so ordered.

[June 27, 2005]
Justice Ginsburg, with whom The Chief Justice and Justice Kennedy join, concurring
I concur in the Court's decision, which vacates in full the judgment of the Court of
Appeals for the Ninth Circuit, ante, at 24, and write separately to clarify why I
conclude that the Court of Appeals misperceived, and hence misapplied, our holding
in Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417 (1984). There
is here at least a "genuine issue as to [a] material fact," Fed. Rule Civ. Proc. 56(c),
on the liability of Grokster or StreamCast, not only for actively inducing copyright
infringement, but also or alternatively, based on the distribution of their software
products, for contributory copyright infringement. On neither score was summary
judgment for Grokster and StreamCast warranted.
At bottom, however labeled, the question in this case is whether Grokster and
StreamCast are liable for the direct infringing acts of others. Liability under our
jurisprudence may be predicated on actively encouraging (or inducing) infringement
through specific acts (as the Court's opinion develops) or on distributing a product
distributees use to infringe copyrights, if the product is not capable of "substantial"
or "commercially significant" noninfringing uses. Sony, 464 U. S., at 442; see also 3
M. Nimmer & D. Nimmer, Nimmer on Copyright §12.04[A][2] (2005). While the two
categories overlap, they capture different culpable behavior. Long coexisting, both
are now codified in patent law. Compare 35 U. S. C. §271(b) (active inducement
liability), with §271(c) (contributory liability for distribution of a product not "suitable
for substantial noninfringing use").
In Sony, 464 U. S. 417, the Court considered Sony's liability for selling the Betamax
video cassette recorder. It did so enlightened by a full trial record. Drawing an
analogy to the staple article of commerce doctrine from patent law, the Sony Court
observed that the "sale of an article ... adapted to [a patent] infringing use" does not
suffice "to make the seller a contributory infringer" if the article "is also adapted to
other and lawful uses." Id., at 441 (quoting Henry v. A. B. Dick Co., 224 U. S. 1,
48 (1912), overruled on other grounds, Motion Picture Patents Co. v. Universal Film
Mfg. Co., 243 U. S. 502, 517 (1917)).
"The staple article of commerce doctrine" applied to copyright, the Court stated,
"must strike a balance between a copyright holder's legitimate demand for effective-
-not merely symbolic--protection of the statutory monopoly, and the rights of others
freely to engage in substantially unrelated areas of commerce." Sony, 464 U. S., at
442. "Accordingly," the Court held, "the sale of copying equipment, like the sale of
other articles of commerce, does not constitute contributory infringement if the
product is widely used for legitimate, unobjectionable purposes. Indeed, it need
merely be capable of substantial noninfringing uses." Ibid. Thus, to resolve
the Sony case, the Court explained, it had to determine "whether the Betamax is
capable of commercially significant noninfringing uses." Ibid.
To answer that question, the Court considered whether "a significant number of
[potential uses of the Betamax were] noninfringing." Ibid. The Court homed in on
one potential use--private, noncommercial time-shifting of television programs in the
home (i.e., recording a broadcast TV program for later personal viewing). Time-
shifting was noninfringing, the Court concluded, because in some cases trial
testimony showed it was authorized by the copyright holder, id., at 443-447, and in
others it qualified as legitimate fair use, id., at 447-455. Most purchasers used the
Betamax principally to engage in time-shifting, id., at 421, 423, a use that "plainly
satisfie[d]" the Court's standard, id.,at 442. Thus, there was no need in Sony to "give
precise content to the question of how much [actual or potential] use is commercially
significant." Ibid.1 Further development was left for later days and cases.
The Ninth Circuit went astray, I will endeavor to explain, when that court granted
summary judgment to Grokster and StreamCast on the charge of contributory liability
based on distribution of their software products. Relying on its earlier opinion in A&M
Records, Inc. v. Napster, Inc., 239 F. 3d 1004 (CA9 2001), the Court of Appeals held
that "if substantial noninfringing use was shown, the copyright owner would be
required to show that the defendant had reasonable knowledge of specific infringing
files." 380 F. 3d 1154, 1161 (CA9 2004). "A careful examination of the record," the
court concluded, "indicates that there is no genuine issue of material fact as to
noninfringing use." Ibid. The appeals court pointed to the band Wilco, which made
one of its albums available for free downloading, to other recording artists who may
have authorized free distribution of their music through the Internet, and to public
domain literary works and films available through Grokster's and StreamCast's
software. Ibid. Although it acknowledged MGM's assertion that "the vast majority of
the software use is for copyright infringement," the court concluded that Grokster's
and StreamCast's proffered evidence met Sony's requirement that "a product need
only be capable of substantial noninfringing uses." 380 F. 3d, at 1162.2
This case differs markedly from Sony. Cf. Peters, Brace Memorial Lecture: Copyright
Enters the Public Domain, 51 J. Copyright Soc. 701, 724 (2004)
("The Grokster panel's reading of Sony is the broadest that any court has given it ...
."). Here, there has been no finding of any fair use and little beyond anecdotal
evidence of noninfringing uses. In finding the Grokster and StreamCast software
products capable of substantial noninfringing uses, the District Court and the Court
of Appeals appear to have relied largely on declarations submitted by the defendants.
These declarations include assertions (some of them hearsay) that a number of
copyright owners authorize distribution of their works on the Internet and that some
public domain material is available through peer-to-peer networks including those
accessed through Grokster's and StreamCast's software. 380 F. 3d, at 1161; 259 F.
Supp. 2d 1029, 1035-1036 (CD Cal. 2003); App. 125-171.
The District Court declared it "undisputed that there are substantial noninfringing
uses for Defendants' software," thus obviating the need for further proceedings. 259
F. Supp. 2d, at 1035. This conclusion appears to rest almost entirely on the collection
of declarations submitted by Grokster and StreamCast. Ibid. Review of these
declarations reveals mostly anecdotal evidence, sometimes obtained second-hand,
of authorized copyrighted works or public domain works available online and shared
through peer-to-peer networks, and general statements about the benefits of peer-
to-peer technology. See, e.g., Decl. of Janis Ian ¶13, App. 128 ("P2P technologies
offer musicians an alternative channel for promotion and distribution."); Decl. of
Gregory Newby ¶12, id., at 136 ("Numerous authorized and public domain Project
Gutenberg eBooks are made available on Morpheus, Kazaa, Gnutella, Grokster, and
similar software products."); Decl. of Aram Sinnreich ¶6, id., at 151 ("file sharing
seems to have a net positive impact on music sales"); Decl. of John Busher ¶8, id.,at
166 ("I estimate that Acoustica generates sales of between $1,000 and $10,000 per
month as a result of the distribution of its trialware software through the Gnutella
and FastTrack Networks."); Decl. of Patricia D. Hoekman ¶¶3-4, id., at 169-170
(search on Morpheus for "President Bush speeches" found several video recordings,
searches for "Declaration of Independence" and "Bible" found various documents and
declarant was able to download a copy of the Declaration); Decl. of Sean L. Mayers
¶11, id., at 67 ("Existing open, decentralized peer-to-peer file-sharing networks ...
offer content owners distinct business advantages over alternate online distribution
technologies."). Compare Decl. of Brewster Kahle ¶20, id., at 142 ("Those who
download the Prelinger films ... are entitled to redistribute those files, and the Archive
welcomes their redistribution by the Morpheus-Grokster-KaZaa community of
users."), with Deposition of Brewster Kahle, id., at 396-403 (Sept. 18, 2002)
(testifying that he has no knowledge of any person downloading a Prelinger film using
Morpheus, Grokster, or KaZaA). Compare also Decl. of Richard Prelinger ¶17, id., at
147 ("[W]e welcome further redistribution of the Prelinger films ... by individuals
using peer-to-peer software products like Morpheus, KaZaA and Grokster."), with
Deposition of Richard Prelinger, id., at 410-411 (Oct. 1, 2002) ("Q. What is your
understanding of Grokster&&& A. I have no understanding of Grokster... . Q. Do you
know whether any user of the Grokster software has made available to share any
Prelinger film&&& A. No."). See also Deposition of Aram Sinnreich, id.,at 390 (Sept.
25, 2002) (testimony about the band Wilco based on "[t]he press and industry news
groups and scuttlebutt."). These declarations do not support summary judgment in
the face of evidence, proffered by MGM, of overwhelming use of Grokster's and
StreamCast's software for infringement.3
Even if the absolute number of noninfringing files copied using the Grokster and
StreamCast software is large, it does not follow that the products are therefore put
to substantial noninfringing uses and are thus immune from liability. The number of
noninfringing copies may be reflective of, and dwarfed by, the huge total volume of
files shared. Further, the District Court and the Court of Appeals did not sharply
distinguish between uses of Grokster's and StreamCast's software products (which
this case is about) and uses of peer-to-peer technology generally (which this case is
not about).
In sum, when the record in this case was developed, there was evidence that
Grokster's and StreamCast's products were, and had been for some time,
overwhelmingly used to infringe, ante, at 4-6; App. 434-439, 476-481, and that this
infringement was the overwhelming source of revenue from the products, ante, at 8-
9; 259 F. Supp. 2d, at 1043-1044. Fairly appraised, the evidence was insufficient to
demonstrate, beyond genuine debate, a reasonable prospect that substantial or
commercially significant noninfringing uses were likely to develop over time. On this
record, the District Court should not have ruled dispositively on the contributory
infringement charge by granting summary judgment to Grokster and StreamCast.4
If, on remand, the case is not resolved on summary judgment in favor of MGM based
on Grokster and StreamCast actively inducing infringement, the Court of Appeals, I
would emphasize, should reconsider, on a fuller record, its interpretation of Sony's
product distribution holding.
[June 27, 2005]
Justice Breyer, with whom Justice Stevens and Justice O'Connor join, concurring.
I agree with the Court that the distributor of a dual-use technology may be liable for
the infringing activities of third parties where he or she actively seeks to advance the
infringement. Ante, at 1. I further agree that, in light of our holding today, we need
not now "revisit" Sony Corp. of America v. Universal City Studios, Inc., 464 U. S.
417 (1984). Ante, at 17. Other Members of the Court, however, take up
the Sony question: whether Grokster's product is "capable of 'substantial' or
'commercially significant' noninfringing uses." Ante, at 1 (Ginsburg, J., concurring)
(quoting Sony, supra, at 442). And they answer that question by stating that the
Court of Appeals was wrong when it granted summary judgment on the issue in
Grokster's favor. Ante, at 4. I write to explain why I disagree with them on this
matter.
I
The Court's opinion in Sony and the record evidence (as described and analyzed in
the many briefs before us) together convince me that the Court of Appeals' conclusion
has adequate legal support.
A
I begin with Sony's standard. In Sony, the Court considered the potential copyright
liability of a company that did not itself illegally copy protected material, but rather
sold a machine--a Video Cassette Recorder (VCR)--that could be used to do so. A
buyer could use that machine for noninfringing purposes, such as recording for later
viewing (sometimes called " 'time-shifting,' " Sony, 464 U. S., at 421) uncopyrighted
television programs or copyrighted programs with a copyright holder's permission.
The buyer could use the machine for infringing purposes as well, such as building
libraries of taped copyrighted programs. Or, the buyer might use the machine to
record copyrighted programs under circumstances in which the legal status of the act
of recording was uncertain (i.e., where the copying may, or may not, have constituted
a "fair use," id., at 425-426). Sony knew many customers would use its VCRs to
engage in unauthorized copying and " 'library-building.' " Id., at 458-459
(Blackmun, J., dissenting). But that fact, said the Court, was insufficient to make
Sony itself an infringer. And the Court ultimately held that Sony was not liable for its
customers' acts of infringement.
In reaching this conclusion, the Court recognized the need for the law, in
fixing secondary copyright liability, to "strike a balance between a copyright holder's
legitimate demand for effective--not merely symbolic--protection of the statutory
monopoly, and the rights of others freely to engage in substantially unrelated areas
of commerce." Id., at 442. It pointed to patent law's "staple article of commerce"
doctrine, ibid., under which a distributor of a product is not liable for patent
infringement by its customers unless that product is "unsuited for any commercial
noninfringing use." Dawson Chemical Co. v. Rohm & Haas Co., 448 U. S. 176,
198 (1980). The Court wrote that the sale of copying equipment, "like the sale of
other articles of commerce, does not constitute contributory infringement if the
product is widely used for legitimate, unobjectionable purposes. Indeed, it need
merely be capable of substantial noninfringing uses." Sony, 464 U. S., at 442
(emphasis added). The Court ultimately characterized the legal "question" in the
particular case as "whether [Sony's VCR] is capable of commercially significant
noninfringing uses" (while declining to give "precise content" to these terms). Ibid.
(emphasis added).
It then applied this standard. The Court had before it a survey (commissioned by the
District Court and then prepared by the respondents) showing that roughly 9% of all
VCR recordings were of the type--namely, religious, educational, and sports
programming--owned by producers and distributors testifying on Sony's behalf who
did not object to time-shifting. See Brief for Respondent Universal Studios et al. O.
T. 1983, No. 81-1687, pp. 52-53; see also Sony, supra, at 424 (7.3% of all Sony
VCR use is to record sports programs; representatives of the sports leagues do not
object). A much higher percentage of VCR users had at one point taped an authorized
program, in addition to taping unauthorized programs. And the plaintiffs--not a large
class of content providers as in this case--owned only a small percentage of the total
available unauthorized programming. See ante, at 6-7, and n. 3 (Ginsburg, J.,
concurring). But of all the taping actually done by Sony's customers, only around 9%
was of the sort the Court referred to as authorized.
The Court found that the magnitude of authorized programming was "significant,"
and it also noted the "significant potential for future authorized copying." 464 U. S.,
at 444. The Court supported this conclusion by referencing the trial testimony of
professional sports league officials and a religious broadcasting representative. Id.,
at 444, and n. 24. It also discussed (1) a Los Angeles educational station affiliated
with the Public Broadcasting Service that made many of its programs available for
home taping, and (2) Mr. Rogers' Neighborhood, a widely watched children's
program. Id., at 445. On the basis of this testimony and other similar evidence, the
Court determined that producers of this kind had authorized duplication of their
copyrighted programs "in significant enough numbers to create a substantial market
for a noninfringing use of the" VCR. Id., at 447, n. 28 (emphasis added).
The Court, in using the key word "substantial," indicated that these circumstances
alone constituted a sufficient basis for rejecting the imposition of secondary liability.
See id., at 456 ("Sony demonstrated a significant likelihood that substantial numbers
of copyright holders" would not object to time-shifting (emphasis added)).
Nonetheless, the Court buttressed its conclusion by finding separately that, in any
event, unauthorized time- shifting often constituted not infringement, but "fair
use." Id., at 447-456.
B
When measured against Sony's underlying evidence and analysis, the evidence now
before us shows that Grokster passes Sony's test--that is, whether the company's
product is capable of substantial or commercially significant noninfringing uses. Id.,
at 442. For one thing, petitioners' (hereinafter MGM) own expert declared that 75%
of currentfiles available on Grokster are infringing and 15% are "likely infringing."
See App. 436-439, ¶¶6-17 (Decl. of Dr. Ingram Olkin); cf. ante, at 4 (opinion of the
Court). That leaves some number of files near 10% that apparently are noninfringing,
a figure very similar to the 9% or so of authorized time-shifting uses of the VCR that
the Court faced in Sony.
As in Sony, witnesses here explained the nature of the noninfringing files on
Grokster's network without detailed quantification. Those files include:
--Authorized copies of music by artists such as Wilco, Janis Ian, Pearl Jam, Dave
Matthews, John Mayer, and others. See App. at 152-153, ¶¶9-13 (Decl. of Aram
Sinnreich) (Wilco's "lesson has already been adopted by artists still signed to their
major labels"); id., at 170, ¶¶5-7 (Decl. of Patricia D. Hoekman) (locating "numerous
audio recordings" that were authorized for swapping); id., at 74, ¶10 (Decl. of Daniel
B. Rung) (describing Grokster's partnership with a company that hosts music from
thousands of independent artists)
--Free electronic books and other works from various online publishers, including
Project Gutenberg. See id., at 136, ¶12 (Decl. of Gregory B. Newby) ("Numerous
authorized and public domain Project Gutenberg eBooks are made available" on
Grokster. Project Gutenberg "welcomes this widespread sharing ... using these
software products [,] since they assist us in meeting our objectives"); id., at 159-
160, ¶32 (Decl. of Sinnreich)
--Public domain and authorized software, such as WinZip 8.1. Id., at 170, ¶8 (Decl.
of Hoekman); id., at 165, ¶¶4-7 (Decl. of John Busher)
--Licensed music videos and television and movie segments distributed via digital
video packaging with the permission of the copyright holder. Id., at 70, ¶24 (Decl. of
Sean L. Mayers)
The nature of these and other lawfully swapped files is such that it is reasonable to
infer quantities of current lawful use roughly approximate to those at issue
in Sony. At least, MGM has offered no evidence sufficient to survive summary
judgment that could plausibly demonstrate a significant quantitative difference.
See ante, at 4 (opinion of the Court); see also Brief for Motion Picture Studio and
Recording Company Petitioners i (referring to "at least 90% of the total use of the
services"); but see ante, at 6-7, n. 3 (Ginsburg, J., concurring). To be sure, in
quantitative terms these uses account for only a small percentage of the total number
of uses of Grokster's product. But the same was true in Sony, which characterized
the relatively limited authorized copying market as "substantial." (The Court made
clear as well in Sonythat the amount of material then presently available for lawful
copying--if not actually copied--was significant, see 464 U. S., at 444, and the same
is certainly true in this case.)
Importantly, Sony also used the word "capable," asking whether the product is
"capable of" substantial noninfringing uses. Its language and analysis suggest that a
figure like 10%, if fixed for all time, might well prove insufficient, but that such a
figure serves as an adequate foundation where there is a reasonable prospect of
expanded legitimate uses over time. See ibid. (noting a "significant potential for
future authorized copying"). And its language also indicates the appropriateness of
looking to potential future uses of the product to determine its "capability."
Here the record reveals a significant future market for noninfringing uses of Grokster-
type peer-to-peer software. Such software permits the exchange of any sort of digital
file--whether that file does, or does not, contain copyrighted material. As more and
more uncopyrighted information is stored in swappable form, it seems a likely
inference that lawful peer-to-peer sharing will become increasingly prevalent.
See, e.g., App. 142, ¶20 (Decl. of Brewster Kahle) ("The [Internet Archive] welcomes
[the] redistribution [of authorized films] by the Morpheus-Grokster-KaZaa
community of users"); id., at 166, ¶8 (Decl. of Busher) (sales figures of $1,000 to
$10,000 per month through peer-to-peer networks "will increase in the future as
Acoustica's trialware is more widely distributed through these networks"); id., at 156-
164, ¶¶21-40 (Decl. of Sinnreich).
And that is just what is happening. Such legitimate noninfringing uses are coming to
include the swapping of: research information (the initial purpose of many peer-to-
peer networks); public domain films (e.g., those owned by the Prelinger
Archive); historical recordings and digital educational materials (e.g., those stored
on the Internet Archive); digital photos (OurPictures, for example, is starting a P2P
photo-swapping service); "shareware" and "freeware" (e.g., Linux and certain
Windows software); secure licensed music and movie files (Intent MediaWorks, for
example, protects licensed content sent across P2P networks); news broadcasts past
and present (the BBC Creative Archive lets users "rip, mix and share the BBC"); user-
created audio and video files (including "podcasts" that may be distributed through
P2P software); and all manner of free "open content" works collected by Creative
Commons (one can search for Creative Commons material on StreamCast). See Brief
for Distributed Computing Industry Association as Amicus Curiae 15-26; Merges, A
New Dynamism in the Public Domain, 71 U. Chi. L. Rev. 183 (2004). I can find nothing
in the record that suggests that this course of events will not continue to flow
naturally as a consequence of the character of the software taken together with the
foreseeable development of the Internet and of information technology. Cf. ante, at
1-2 (opinion of the Court) (discussing the significant benefits of peer-to-peer
technology).
There may be other now-unforeseen noninfringing uses that develop for peer-to-peer
software, just as the home-video rental industry (unmentioned in Sony) developed
for the VCR. But the foreseeable development of such uses, when taken together
with an estimated 10% noninfringing material, is sufficient to meet Sony's standard.
And while Sony considered the record following a trial, there are no facts asserted by
MGM in its summary judgment filings that lead me to believe the outcome after a
trial here could be any different. The lower courts reached the same conclusion.
Of course, Grokster itself may not want to develop these other noninfringing uses.
But Sony's standard seeks to protect not the Groksters of this world (which in any
event may well be liable under today's holding), but the development of technology
more generally. And Grokster's desires in this respect are beside the point.
II
The real question here, I believe, is not whether the record evidence
satisfies Sony. As I have interpreted the standard set forth in that case, it does. And
of the Courts of Appeals that have considered the matter, only one has proposed
interpreting Sony more strictly than I would do--in a case where the product might
have failed under any standard. In re Aimster Copyright Litigation, 334 F. 3d 643,
653 (CA7 2003) (defendant "failed to show that its service is ever used for any
purpose other than to infringe" copyrights (emphasis added)); see Matthew Bender
& Co., Inc. v. West Pub. Co., 158 F. 3d 693, 706-707 (CA2 1998) (court did
not require that noninfringing uses be "predominant," it merely found that
they were predominant, and therefore provided no analysis of Sony's boundaries);
but see ante, at 3 n. 1 (Ginsburg, J., concurring); see also A&M Records v. Napster,
Inc., 239 F. 3d 1004, 1020 (CA9 2001) (discussing Sony); Cable/Home
Communication Corp. v. Network Productions, Inc., 902 F. 2d 829, 842-847 (CA11
1990) (same); Vault Corp. v. Quaid Software, Ltd., 847 F. 2d 255, 262 (CA5 1988)
(same); cf. Dynacore Holdings Corp. v. U. S. Philips Corp., 363 F. 3d 1263, 1275 (CA
Fed. 2004) (same); see also Doe v. GTE Corp., 347 F. 3d 655, 661 (CA7 2003) ("A
person may be liable as a contributory infringer if the product or service it sells has
no (or only slight) legal use").
Instead, the real question is whether we should modify the Sony standard, as MGM
requests, or interpret Sony more strictly, as I believe Justice Ginsburg's approach
would do in practice. Compare ante, at 4-8 (concurring) (insufficient evidence in this
case of both present lawful uses and of a reasonable prospect that substantial
noninfringing uses would develop over time), with Sony, 464 U. S., at 442-447
(basing conclusion as to the likely existence of a substantial market for authorized
copying upon general declarations, some survey data, and common sense).
As I have said, Sony itself sought to "strike a balance between a copyright holder's
legitimate demand for effective--not merely symbolic--protection of the statutory
monopoly, and the rights of others freely to engage in substantially unrelated areas
of commerce." Id., at 442. Thus, to determine whether modification, or a strict
interpretation, of Sony is needed, I would ask whether MGM has shown
that Sony incorrectly balanced copyright and new-technology interests. In particular:
(1) Has Sony (as I interpret it) worked to protect new technology&&& (2) If so, would
modification or strict interpretation significantly weaken that protection&&& (3) If so,
would new or necessary copyright-related benefits outweigh any such weakening&&&
A
The first question is the easiest to answer. Sony's rule, as I interpret it, has provided
entrepreneurs with needed assurance that they will be shielded from copyright
liability as they bring valuable new technologies to market.
Sony's rule is clear. That clarity allows those who develop new products that are
capable of substantial noninfringing uses to know, ex ante, that distribution of their
product will not yield massive monetary liability. At the same time, it helps deter
them from distributing products that have no other real function than--or that are
specifically intended for--copyright infringement, deterrence that the Court's holding
today reinforces (by adding a weapon to the copyright holder's legal arsenal).
Sony's rule is strongly technology protecting. The rule deliberately makes it difficult
for courts to find secondary liability where new technology is at issue. It establishes
that the law will not impose copyright liability upon the distributors of dual-use
technologies (who do not themselves engage in unauthorized copying) unless the
product in question will be used almost exclusively to infringe copyrights (or unless
they actively induce infringements as we today describe). Sony thereby recognizes
that the copyright laws are not intended to discourage or to control the emergence
of new technologies, including (perhaps especially) those that help disseminate
information and ideas more broadly or more efficiently. Thus Sony's rule shelters
VCRs, typewriters, tape recorders, photocopiers, computers, cassette players,
compact disc burners, digital video recorders, MP3 players, Internet search engines,
and peer-to-peer software. But Sony's rule does not shelter descramblers, even if
one could theoretically use a descrambler in a noninfringing way. 464 U. S., at 441-
442; Compare Cable/Home Communication Corp., supra, at 837-850 (developer
liable for advertising television signal descrambler), with Vault Corp., supra, at
262 (primary use infringing but a substantial noninfringing use).
Sony's rule is forward looking. It does not confine its scope to a static snapshot of a
product's current uses (thereby threatening technologies that have undeveloped
future markets). Rather, as the VCR example makes clear, a product's market can
evolve dramatically over time. And Sony--by referring to a capacity for substantial
noninfringing uses--recognizes that fact. Sony's word "capable" refers to a
plausible, not simply a theoretical, likelihood that such uses will come to pass, and
that fact anchors Sony in practical reality. Cf. Aimster, supra, at 651.
Sony's rule is mindful of the limitations facing judges where matters of technology
are concerned. Judges have no specialized technical ability to answer questions about
present or future technological feasibilility or commercial viability where technology
professionals, engineers, and venture capitalists themselves may radically disagree
and where answers may differ depending upon whether one focuses upon the time
of product development or the time of distribution. Consider, for example, the
question whether devices can be added to Grokster's software that will filter out
infringing files. MGM tells us this is easy enough to do, as do several amici that
produce and sell the filtering technology. See, e.g., Brief for Motion Picture Studio
Petitioners 11; Brief for Audible Magic Corp. et al. as Amicus Curiae 3-10. Grokster
says it is not at all easy to do, and not an efficient solution in any event, and several
apparently disinterested computer science professors agree. See Brief for
Respondents 31; Brief for Computer Science Professors as Amicus Curiae 6-10, 14-
18. Which account should a judge credit&&& Sony says that the judge will not
necessarily have to decide.
Given the nature of the Sony rule, it is not surprising that in the last 20 years, there
have been relatively few contributory infringement suits--based on a product
distribution theory--brought against technology providers (a small handful of federal
appellate court cases and perhaps fewer than two dozen District Court cases in the
last 20 years). I have found nothing in the briefs or the record that shows
that Sony has failed to achieve its innovation-protecting objective.
B
The second, more difficult, question is whether a modified Sony rule (or a strict
interpretation) would significantly weaken the law's ability to protect new
technology. Justice Ginsburg's approach would require defendants to produce
considerably more concrete evidence--more than was presented here--to
earn Sony's shelter. That heavier evidentiary demand, and especially the more
dramatic (case-by-case balancing) modifications that MGM and the Government
seek, would, I believe, undercut the protection that Sony now offers.
To require defendants to provide, for example, detailed evidence--say business plans,
profitability estimates, projected technological modifications, and so forth--would
doubtless make life easier for copyrightholder plaintiffs. But it would simultaneously
increase the legal uncertainty that surrounds the creation or development of a new
technology capable of being put to infringing uses. Inventors and entrepreneurs (in
the garage, the dorm room, the corporate lab, or the boardroom) would have to fear
(and in many cases endure) costly and extensive trials when they create, produce,
or distribute the sort of information technology that can be used for copyright
infringement. They would often be left guessing as to how a court, upon later review
of the product and its uses, would decide when necessarily rough estimates amounted
to sufficient evidence. They would have no way to predict how courts would weigh
the respective values of infringing and noninfringing uses; determine the efficiency
and advisability of technological changes; or assess a product's potential future
markets. The price of a wrong guess--even if it involves a good-faith effort to assess
technical and commercial viability--could be large statutory damages (not less than
$750 and up to $30,000 per infringed work). 17 U. S. C. §504(c)(1). The additional
risk and uncertainty would mean a consequent additional chill of technological
development.
C
The third question--whether a positive copyright impact would outweigh any
technology-related loss--I find the most difficult of the three. I do not doubt that a
more intrusive Sony test would generally provide greater revenue security for
copyright holders. But it is harder to conclude that the gains on the copyright swings
would exceed the losses on the technology roundabouts.
For one thing, the law disfavors equating the two different kinds of gain and loss;
rather, it leans in favor of protecting technology. As Sony itself makes clear, the
producer of a technology which permits unlawful copying does not himself engage in
unlawful copying--a fact that makes the attachment of copyright liability to the
creation, production, or distribution of the technology an exceptional thing. See 464
U. S., at 431 (courts "must be circumspect" in construing the copyright laws to
preclude distribution of new technologies). Moreover, Sony has been the law for
some time. And that fact imposes a serious burden upon copyright holders like MGM
to show a need for change in the current rules of the game, including a more strict
interpretation of the test. See, e.g., Brief for Motion Picture Studio Petitioners 31
(Sonyshould not protect products when the "primary or principal" use is infringing).
In any event, the evidence now available does not, in my view, make out a sufficiently
strong case for change. To say this is not to doubt the basic need to protect
copyrighted material from infringement. The Constitution itself stresses the vital role
that copyright plays in advancing the "useful Arts." Art. I, §8, cl. 8. No one disputes
that "reward to the author or artist serves to induce release to the public of the
products of his creative genius." United States v. Paramount Pictures, Inc., 334 U. S.
131, 158 (1948). And deliberate unlawful copying is no less an unlawful taking of
property than garden-variety theft. See, e.g., 18 U. S. C. §2319 (criminal copyright
infringement); §1961(1)(B) (copyright infringement can be a predicate act under the
Racketeer Influenced and Corrupt Organizations Act); §1956(c)(7)(D) (money
laundering includes the receipt of proceeds from copyright infringement). But these
highly general principles cannot by themselves tell us how to balance the interests at
issue in Sony or whether Sony's standard needs modification. And at certain key
points, information is lacking.
Will an unmodified Sony lead to a significant diminution in the amount or quality of
creative work produced&&& Since copyright's basic objective is creation and its
revenue objectives but a means to that end, this is the underlying copyright question.
See Twentieth Century Music Corp. v. Aiken, 422 U. S. 151, 156 (1975) ("Creative
work is to be encouraged and rewarded, but private motivation must ultimately serve
the cause of promoting broad public availability of literature, music, and the other
arts"). And its answer is far from clear.
Unauthorized copying likely diminishes industry
revenue, though it is not clear by how much. Compare
S. Liebowitz, Will MP3 Downloads Annihilate the
Record Industry&&& The Evidence So Far, p. 2 (June 2003),
http://www.utdallas.edu/~liebowit/intprop/records.pdf
(all Internet materials as visited June 24, 2005, and available in Clerk of Court's case
file) (file sharing
has caused a decline in music sales), and Press Release, Informa Media Group Report
(citing Music on the Internet (5th ed. 2004)) (estimating total lost sales to the music
industry in the range of $2 billion annually),
at http://www.informatm.com, with F. Oberholzer
& K. Strumpf, The Effect of File Sharing on Record
Sales: An Empirical Analysis, p. 24 (Mar. 2004),
www.unc.edu/~cigar/papers/FileSharing_March2004.pdf (academic study
concluding that "file sharing has
no statistically significant effect on purchases of the
average album"), and McGuire, Study: File-Sharing
No Threat to Music Sales (Mar. 29, 2004), http://www.washingtonpost.com/ac2/wp-
dyn/A34300-2004
Mar29&&&language=printer (discussing mixed evidence).
The extent to which related production has actually and resultingly declined remains
uncertain, though there is good reason to believe that the decline, if any, is not
substantial. See, e.g., M. Madden, Pew Internet & American Life Project, Artists,
Musicians, and the Internet, p. 21,
http://www.pewinternet.org/pdfs/PIP_Artists.Musicians_
Report.pdf (nearly 70% of musicians believe that file sharing is a minor threat or no
threat at all to creative industries); Benkler, Sharing Nicely: On Shareable Goods and
the Emergence of Sharing as a Modality of Economic Production, 114 Yale L. J. 273,
351-352 (2004) ("Much of the actual flow of revenue to artists--from performances
and other sources--is stable even assuming a complete displacement of the CD
market by peer-to-peer distribution ... . [I]t would be silly to think that music, a
cultural form without which no human society has existed, will cease to be in our
world [because of illegal file swapping]").
More importantly, copyright holders at least potentially have other tools available to
reduce piracy and to abate whatever threat it poses to creative production. As today's
opinion makes clear, a copyright holder may proceed against a technology provider
where a provable specific intent to infringe (of the kind the Court describes) is
present. Ante, at 24 (opinion of the Court). Services like Grokster may well be liable
under an inducement theory.
In addition, a copyright holder has always had the legal authority to bring a traditional
infringement suit against one who wrongfully copies. Indeed, since September 2003,
the Recording Industry Association of America (RIAA) has filed "thousands of suits
against people for sharing copyrighted material." Walker, New Movement Hits
Universities: Get Legal Music, Washington Post, Mar. 17, 2005, p. E1. These suits
have provided copyright holders with damages; have served as a teaching tool,
making clear that much file sharing, if done without permission, is unlawful; and
apparently have had a real and significant deterrent effect. See, e.g., L. Rainie, M.
Madden, D. Hess, & G. Mudd, Pew Internet Project and comScore Media Metrix Data
Memo: The state of music downloading
and file-sharing online, pp. 2, 4, 6, 10 (Apr. 2004),
www.pewinternet.org/pdfs/PIP_Filesharing_April_04.pdf (number of people
downloading files fell from a peak of roughly 35 million to roughly 23 million in the
year following the first suits; 38% of current downloaders report downloading fewer
files because of the suits); M. Madden & L. Rainie, Pew Internet Project Data Memo:
Music and video downloading moves beyond P2P, p. 7 (March 2005),
www.pewinternet.org/pdfs/PIP_Filesharing_March05.pdf
(number of downloaders has "inched up" but "continues to rest well below the peak
level"); Groennings, Note, Costs and Benefits of the Recording Industry's Litigation
Against Individuals, 20 Berkeley Technology L. J. 571 (2005); but see Evangelista,
Downloading Music and Movie Files is as Popular as Ever, San Francisco Chronicle,
Mar. 28, 2005, p. E1 (referring to the continuing "tide of rampant copyright
infringement," while noting that the RIAA says it believes the "campaign of lawsuits
and public education has at least contained the problem").
Further, copyright holders may develop new technological devices that will help curb
unlawful infringement. Some new technology, called "digital 'watermarking' " and
"digital fingerprint[ing]," can encode within the file information about the author and
the copyright scope and date, which "fingerprints" can help to expose infringers.
RIAA Reveals Method to Madness, Wired News, Aug. 28, 2003,
http://www.wired.com/news/digiwood/0,1412,60222,00.php; Besek, Anti-
Circumvention Laws and Copyright: A Report from the Kernochan Center for Law,
Media and the
Arts, 27 Colum. J. L. & Arts 385, 391, 451 (2004). Other technology can, through
encryption, potentially restrict users' ability to make a digital copy. See J. Borland,
Tripping the Rippers, C/net News.com (Sept. 28, 2001),
http://news.com.com/Tripping+the+rippers/2009=1023_3=273619.php; but see
Brief for Bridgemar Services Ltd. as Amicus Curiae 5-8 (arguing that peer-to-peer
service providers can more easily block unlawful swapping).
At the same time, advances in technology have discouraged unlawful copying by
making lawful copying (e.g., downloading music with the copyright holder's
permission) cheaper and easier to achieve. Several services now sell music for less
than $1 per song. (Walmart.com, for example, charges $0.88 each). Consequently,
many consumers initially attracted to the convenience and flexibility of services like
Grokster are now migrating to lawful paid services (services with copying permission)
where they can enjoy at little cost even greater convenience and flexibility without
engaging in unlawful swapping. See Wu, When Code Isn't Law, 89 Va. L. Rev. 679,
731-735 (2003) (noting the prevalence of technological problems on unpaid
swapping sites); K. Dean, P2P Tilts Toward Legitimacy, wired.com, Wired News (Nov.
24, 2004), http://
www.wired.com/news/digiwood/0,1412,65836,00.php; M. Madden & L. Rainie,
March 2005 Data Memo, supra, at 6-7 (percentage of current downloaders who have
used paid services rose from 24% to 43% in a year; number using free services fell
from 58% to 41%).
Thus, lawful music downloading services--those that charge the customer for
downloading music and pay royalties to the copyright holder--have continued to grow
and to produce substantial revenue. See Brief for Internet Law Faculty as Amici
Curiae 5-20; Bruno, Digital Entertainment: Piracy Fight Shows Encouraging Signs
(Mar. 5, 2005), available at LEXIS, News Library, Billboard File (in 2004, consumers
worldwide purchased more than 10 times the number of digital tracks purchased in
2003; global digital music market of $330 million in 2004 expected to double in
2005); Press Release, Informa Media Report, supra (global digital revenues will likely
exceed $3 billion in 2010); Ashton, [International Federation of the Phonographic
Industry] Predicts Downloads Will Hit the Mainstream, Music Week, Jan. 29, 2005, p.
6 (legal music sites and portable MP3 players "are helping transform the digital music
market" into "an everyday consumer experience"). And more advanced types of non-
music-oriented P2P networks have also started to develop, drawing in part on the
lessons of Grokster.
Finally, as Sony recognized, the legislative option remains available. Courts are less
well suited than Congress to the task of "accommodat[ing] fully the varied
permutations of competing interests that are inevitably implicated by such new
technology." Sony, 464 U. S., at 431; see, e.g., Audio Home Recording Act of 1992,
106 Stat. 4237 (adding 17 U. S. C., ch. 10); Protecting Innovation and Art While
Preventing Piracy: Hearing Before the Senate Comm. on the Judiciary, 108th Cong.,
2d Sess. (July 22, 2004).
I do not know whether these developments and similar alternatives will prove
sufficient, but I am reasonably certain that, given their existence, a strong
demonstrated need for modifying Sony (or for interpreting Sony's standard more
strictly) has not yet been shown. That fact, along with the added risks that
modification (or strict interpretation) would impose upon technological innovation,
leads me to the conclusion that we should maintain Sony, reading its standard as I
have read it. As so read, it requires affirmance of the Ninth Circuit's determination of
the relevant aspects of the Sony question.
***
For these reasons, I disagree with Justice Ginsburg, but I agree with the Court and
join its opinion.
Harper & Row v. Nation Enterprises, 471 U.S. 539 (1985)
Harper & Row, Publishers, Inc. v. Nation Enterprises
No. 83-1632
Argued November 6, 1984
Decided May 20, 1985
471 U.S. 539
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE
SECOND CIRCUIT
Syllabus
In 1977, former President Ford contracted with petitioners to publish his as yet
unwritten memoirs. The agreement gave petitioners the exclusive first serial right to
license prepublication excerpts. Two years later, as the memoirs were nearing
completion, petitioners, as the copyright holders, negotiated a prepublication
licensing agreement with Time Magazine under which Time agreed to pay $25,000
($12,500 in advance and the balance at publication) in exchange for the right to
excerpt 7,500 words from Mr. Ford's account of his pardon of former President Nixon.
Shortly before the Time article's scheduled release, an unauthorized source provided
The Nation Magazine with the unpublished Ford manuscript. Working directly from
this manuscript, an editor of The Nation produced a 2,250-word article, at least 300
to 400 words of which consisted of verbatim quotes of copyrighted expression taken
from the manuscript. It was timed to "scoop" the Time article. As a result of the
publication of The Nation's article, Time canceled its article and refused to pay the
remaining $12,500 to petitioners. Petitioners then brought suit in Federal District
Court against respondent publishers of The Nation, alleging, inter alia, violations of
the Copyright Act (Act). The District Court held that the Ford memoirs were protected
by copyright at the time of The Nation publication, and that respondents' use of the
copyrighted material constituted an infringement under the Act, and the court
awarded actual damages of $12,500. The Court of Appeals reversed, holding that
The Nation's publication of the 300 to 400 words it identified as copyrightable
expression was sanctioned as a "fair use" of the copyrighted material under § 107 of
the Act. Section 107 provides that, notwithstanding the provisions of § 106 giving a
copyright owner the exclusive right to reproduce the copyrighted work and to prepare
derivative works based on the copyrighted work, the fair use of a copyrighted work
for purposes such as comment and news reporting is not an infringement of
copyright. Section 107 further provides that, in determining whether the use was fair,
the factors to be considered shall include: (1) the purpose and character of the use;
(2) the nature of the copyrighted work; (3) the substantiality of the portion used in
relation to the chanroblesvirtualawlibrary
Page 471 U. S. 540
copyrighted work as a whole; and (4) the effect on the potential market for or value
of the copyrighted work.
Held: The Nation's article was not a "fair use" sanctioned by § 107. Pp. 471 U. S.
542-569.
(a) In using generous verbatim excerpts of Mr. Ford's unpublished expression to lend
authenticity to its account of the forthcoming memoirs, The Nation effectively
arrogated to itself the right of first publication, an important marketable subsidiary
right. Pp. 471 U. S. 545-549.
(b) Though the right of first publication, like other rights enumerated in § 106, is
expressly made subject to the fair use provisions of 107, fair use analysis must always
be tailored to the individual case. The nature of the interest at stake is highly relevant
to whether a given use is fair. The unpublished nature of a work is a key, though not
necessarily determinative, factor tending to negate a defense of fair use. And under
ordinary circumstances, the author's right to control the first public appearance of his
undisseminated expression will outweigh a claim of fair use. Pp. 471 U. S. 549-555.
(c) In view of the First Amendment's protections embodied in the Act's distinction
between copyrightable expression and uncopyrightable facts and ideas, and the
latitude for scholarship and comment traditionally afforded by fair use, there is no
warrant for expanding, as respondents contend should be done, the fair use doctrine
to what amounts to a public figure exception to copyright. Whether verbatim copying
from a public figure's manuscript in a given case is or is not fair must be judged
according to the traditional equities of fair use. Pp. 471 U. S. 555-560.
(d) Taking into account the four factors enumerated in § 107 as especially relevant
in determining fair use leads to the conclusion that the use in question here was not
fair. (i) The fact that news reporting was the general purpose of The Nation's use is
simply one factor. While The Nation had every right to be the first to publish the
information, it went beyond simply reporting uncopyrightable information and
actively sought to exploit the headline value of its infringement, making a "news
event" out of its unauthorized first publication. The fact that the publication was
commercial, as opposed to nonprofit, is a separate factor tending to weigh against a
finding of fair use. Fair use presupposes good faith. The Nation's unauthorized use of
the undisseminated manuscript had not merely the incidental effect, but the intended
purpose, of supplanting the copyright holders' commercially valuable right of first
publication. (ii) While there may be a greater need to disseminate works of fact than
works of fiction, The Nation's taking of copyrighted expression exceeded that
necessary to disseminate the facts, and infringed the copyright holders' interests in
confidentiality and creative control over the first public appearance of the work. (iii)
Although the verbatim quotes chanroblesvirtualawlibrary
Page 471 U. S. 541
in question were an insubstantial portion of the Ford manuscript, they qualitatively
embodied Mr. Ford's distinctive expression, and played a key role in the infringing
article. (iv) As to the effect of The Nation's article on the market for the copyrighted
work, Time's cancellation of its projected article and its refusal to pay $12,500 were
the direct effect of the infringing publication. Once a copyright holder establishes a
causal connection between the infringement and loss of revenue, the burden shifts
to the infringer to show that the damage would have occurred had there been no
taking of copyrighted expression. Petitioners established a prima facie case of actual
damage that respondents failed to rebut. More important, to negate a claim of fair
use, it need only be shown that, if the challenged use should become widespread, it
would adversely affect the potential market for the copyrighted work. Here, The
Nation's liberal use of verbatim excerpts posed substantial potential for damage to
the marketability of first serialization rights in the copyrighted work. Pp. 471 U. S.
560-569.
723 F.2d 195, reversed and remanded.
O'CONNOR, J., delivered the opinion of the Court, in which BURGER, C.J.,and
BLACKMUN, POWELL, REHNQUIST, and STEVENS, JJ., joined. BRENNAN, J., filed a
dissenting opinion, in which WHITE and MARSHALL, JJ., joined, post, p. 471 U. S.
579.
JUSTICE O'CONNOR delivered the opinion of the Court.
This case requires us to consider to what extent the "fair use" provision of the
Copyright Revision Act of 1976 (hereinafter chanroblesvirtualawlibrary
Page 471 U. S. 542
the Copyright Act), 17 U.S.C. § 107, sanctions the unauthorized use of quotations
from a public figure's unpublished manuscript. In March, 1979, an undisclosed source
provided The Nation Magazine with the unpublished manuscript of "A Time to Heal:
The Autobiography of Gerald R. Ford." Working directly from the purloined
manuscript, an editor of The Nation produced a short piece entitled "The Ford
Memoirs -- Behind the Nixon Pardon." The piece was timed to "scoop" an article
scheduled shortly to appear in Time Magazine. Time had agreed to purchase the
exclusive right to print prepublication excerpts from the copyright holders, Harper &
Row Publishers, Inc. (hereinafter Harper & Row), and Reader's Digest Association,
Inc. (hereinafter Reader's Digest). As a result of The Nation article, Time canceled its
agreement. Petitioners brought a successful copyright action against The Nation. On
appeal, the Second Circuit reversed the lower court's finding of infringement, holding
that The Nation's act was sanctioned as a "fair use" of the copyrighted material. We
granted certiorari, 467 U.S. 1214 (1984), and we now reverse.
I
In February, 1977, shortly after leaving the White House, former President Gerald R.
Ford contracted with petitioners Harper & Row and Reader's Digest, to publish his as
yet unwritten memoirs. The memoirs were to contain "significant hitherto
unpublished material" concerning the Watergate crisis, Mr. Ford's pardon of former
President Nixon, and "Mr. Ford's reflections on this period of history, and the morality
and personalities involved." App. to Pet. for Cert. C-14 - C-15. In addition to the right
to publish the Ford memoirs in book form, the agreement gave petitioners the
exclusive right to license prepublication excerpts, known in the trade as "first serial
rights." Two years later, as the memoirs were nearing completion, petitioners
negotiated a prepublication licensing agreement with Time, a weekly news magazine.
Time agreed to pay $25,000, $12,500 in advance and an chanroblesvirtualawlibrary
Page 471 U. S. 543
additional $12,500 at publication, in exchange for the right to excerpt 7,500 words
from Mr. Ford's account of the Nixon pardon. The issue featuring the excerpts was
timed to appear approximately one week before shipment of the full-length book
version to bookstores. Exclusivity was an important consideration; Harper & Row
instituted procedures designed to maintain the confidentiality of the manuscript, and
Time retained the right to renegotiate the second payment should the material appear
in print prior to its release of the excerpts.
Two to three weeks before the Time article's scheduled release, an unidentified
person secretly brought a copy of the Ford manuscript to Victor Navasky, editor of
The Nation, a political commentary magazine. Mr. Navasky knew that his possession
of the manuscript was not authorized, and that the manuscript must be returned
quickly to his "source" to avoid discovery. 557 F.Supp. 1067, 1069 (SDNY 1983). He
hastily put together what he believed was "a real hot news story" composed of
quotes, paraphrases, and facts drawn exclusively from the manuscript. Ibid. Mr.
Navasky attempted no independent commentary, research or criticism, in part
because of the need for speed if he was to "make news" by "publish[ing] in advance
of publication of the Ford book." App. 416-417. The 2,250-word article, reprinted in
the 471 U. S. appeared on April 3, 1979. As a result of The Nation's article, Time
canceled its piece and refused to pay the remaining $12,500.
Petitioners brought suit in the District Court for the Southern District of New York,
alleging conversion, tortious interference with contract, and violations of the
Copyright Act. After a 6-day bench trial, the District Judge found that "A Time to
Heal" was protected by copyright at the time of The Nation publication and that
respondents' use of the copyrighted material constituted an infringement under the
Copyright Act, §§ 106(1), (2), and (3), protecting respectively the right to reproduce
the work, the right to license preparation of derivative works, and the right of first
distribution of chanroblesvirtualawlibrary
Page 471 U. S. 544
the copyrighted work to the public. App. to Pet. for Cert. C-29 - C-30. The District
Court rejected respondents' argument that The Nation's piece was a "fair use"
sanctioned by § 107 of the Act. Though billed as "hot news," the article contained no
new facts. The magazine had "published its article for profit," taking "the heart" of "a
soon-to-be published" work. This unauthorized use "caused the Time agreement to
be aborted, and thus diminished the value of the copyright." 557 F.Supp. at 1072.
Although certain elements of the Ford memoirs, such as historical facts and
memoranda, were not per se copyrightable, the District Court held that it was
"the totality of these facts and memoranda collected, together with Ford's reflections,
that made them of value to The Nation, [and] this . . . totality . . . is protected by
the copyright laws."
Id. at 1072-1073. The court awarded actual damages of $12,500.
A divided panel of the Court of Appeals for the Second Circuit reversed. The majority
recognized that Mr. Ford's verbatim "reflections" were original "expression" protected
by copyright. But it held that the District Court had erred in assuming the "coupling
[of these reflections] with uncopyrightable fact transformed that information into a
copyrighted totality.'"723 F.2d 195, 205 (1983). The majority noted that copyright
attaches to expression, not facts or ideas. It concluded that, to avoid granting a
copyright monopoly over the facts underlying history and news, "èxpression' [in
such works must be confined] to its barest elements -- the ordering and choice of
the words themselves." Id. at 204. Thus similarities between the original and the
challenged work traceable to the copying or paraphrasing of uncopyrightable
material, such as historical facts, memoranda and other public documents, and
quoted remarks of third parties, must be disregarded in evaluating whether the
second author's use was fair or infringing.
"When the uncopyrighted material is stripped away, the article in The
Nation contains, at most, approximately
Page 471 U. S. 545
300 words that are copyrighted. These remaining paragraphs and scattered phrases
are all verbatim quotations from the memoirs which had not appeared previously in
other publications. They include a short segment of Ford's conversations with Henry
Kissinger and several other individuals. Ford's impressionistic depictions of Nixon, ill
with phlebitis after the resignation and pardon, and of Nixon's character, constitute
the major portion of this material. It is these parts of the magazine piece on which
[the court] must focus in [its] examination of the question whether there was a 'fair
use' of copyrighted matter."
Id. at 206. Examining the four factors enumerated in § 107, see infra at 471 U. S.
547, n. 2, the majority found the purpose of the article was "news reporting," the
original work was essentially factual in nature, the 300 words appropriated were
insubstantial in relation to the 2,250-word piece, and the impact on the market for
the original was minimal, as "the evidence [did] not support a finding that it was the
very limited use of expression per se which led to Time's decision not to print the
excerpt." The Nation's borrowing of verbatim quotations merely "len[t] authenticity
to this politically significant material . . . complementing the reporting of the
facts." 723 F.2d 208. The Court of Appeals was especially influenced by the "politically
significant" nature of the subject matter and its conviction that it is not "the purpose
of the Copyright Act to impede that harvest of knowledge so necessary to a
democratic state" or "chill the activities of the press by forbidding a circumscribed
use of copyrighted words." Id. at 197, 209.
II
We agree with the Court of Appeals that copyright is intended to increase, and not to
impede, the harvest of knowledge. But we believe the Second Circuit gave insufficient
deference to the scheme established by the Copyright Act
for chanroblesvirtualawlibrary
Page 471 U. S. 546
fostering the original works that provide the seed and substance of this harvest. The
rights conferred by copyright are designed to assure contributors to the store of
knowledge a fair return for their labors. Twentieth Century Music Corp. v. Aiken, 422
U. S. 151, 422 U. S. 156 (1975).
Article I, § 8, of the Constitution provides:
"The Congress shall have Power . . . to Promote the Progress of Science and useful
Arts, by securing for limited Times to Authors and Inventors the exclusive Right to
their respective Writings and Discoveries."
As we noted last Term:
"[This] limited grant is a means by which an important public purpose may be
achieved. It is intended to motivate the creative activity of authors and inventors by
the provision of a special reward, and to allow the public access to the products of
their genius after the limited period of exclusive control has expired."
Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417, 464 U. S.
429 (1984). "The monopoly created by copyright thus rewards the individual author
in order to benefit the public." Id. at 464 U. S. 477 (dissenting opinion). This principle
applies equally to works of fiction and nonfiction. The book at issue here, for example,
was two years in the making, and began with a contract giving the author's copyright
to the publishers in exchange for their services in producing and marketing the work.
In preparing the book, Mr. Ford drafted essays and word portraits of public figures
and participated in hundreds of taped interviews that were later distilled to chronicle
his personal viewpoint. It is evident that the monopoly granted by copyright actively
served its intended purpose of inducing the creation of new material of potential
historical value.
Section 106 of the Copyright Act confers a bundle of exclusive rights to the owner of
the copyright. [Footnote 1] Under the Copyright chanroblesvirtualawlibrary
Page 471 U. S. 547
Act, these rights -- to publish, copy, and distribute the author's work -- vest in the
author of an original work from the time of its creation. § 106. In practice, the author
commonly sells his rights to publishers who offer royalties in exchange for their
services in producing and marketing the author's work. The copyright owner's rights,
however, are subject to certain statutory exceptions. §§ 107-118. Among these is §
107, which codifies the traditional privilege of other authors to make "fair use" of an
earlier writer's work. [Footnote 2] In addition, no author may copyright facts or ideas.
§ 102. The copyright is limited to those aspects of the work -- termed "expression" -
- that display the stamp of the author's originality.
Creation of a nonfiction work, even a compilation of pure fact, entails originality. See,
e.g., Schroeder v. William Morrow & Co., 566 F.2d 3 (CA7 1977) (copyright in
gardening directory); cf. Burrow-Giles Lithographic Co. v. Sarony, 111 U. S. 53, 111
U. S. 58 (1884) (originator of a photograph may claim copyright in his work). The
copyright holders of "A Time to Heal" complied with the relevant statutory notice and
registration chanroblesvirtualawlibrary
Page 471 U. S. 548
procedures. See §§ 106, 401, 408; App. to Pet. for Cert. C-20. Thus there is no
dispute that the unpublished manuscript of "A Time to Heal," as a whole, was
protected by § 106 from unauthorized reproduction. Nor do respondents dispute that
verbatim copying of excerpts of the manuscript's original form of expression would
constitute infringement unless excused as fair use. See 1 M. Nimmer, Copyright §
2.11[B], p. 2-159 (1984) (hereinafter Nimmer). Yet copyright does not prevent
subsequent users from copying from a prior author's work those constituent elements
that are not original -- for example, quotations borrowed under the rubric of fair use
from other copyrighted works, facts, or materials in the public domain -- as long as
such use does not unfairly appropriate the author's original contributions. Ibid.; A.
Latman, Fair Use of Copyrighted Works (1958), reprinted as Study No. 14 in
Copyright Law Revision Studies Nos. 1416, prepared for the Senate Committee on
the Judiciary, 86th Cong., 2d Sess., 7 (1960) (hereinafter Latman). Perhaps the
controversy between the lower courts in this case over copyrightability is more aptly
styled a dispute over whether The Nation's appropriation of unoriginal and
uncopyrightable elements encroached on the originality embodied in the work as a
whole. Especially in the realm of factual narrative, the law is currently unsettled
regarding the ways in which uncopyrightable elements combine with the author's
original contributions to form protected expression. Compare Wainwright Securities
Inc. v. Wall Street Transcript Corp., 558 F.2d 91 (CA2 1977) (protection accorded
author's analysis, structuring of material and marshaling of facts), with Hoehling v.
Universal City Studios, Inc., 618 F.2d 972(CA2 1980) (limiting protection to ordering
and choice of words). See, e.g., 1 Nimmer § 2.11[D], at 2-164 - 2-165.
We need not reach these issues, however, as The Nation has admitted to lifting
verbatim quotes of the author's original language totaling between 300 and 400
words and constituting some 13% of The Nation article. In using
generous chanroblesvirtualawlibrary
Page 471 U. S. 549
verbatim excerpts of Mr. Ford's unpublished manuscript to lend authenticity to its
account of the forthcoming memoirs, The Nation effectively arrogated to itself the
right of first publication, an important marketable subsidiary right. For the reasons
set forth below, we find that this use of the copyrighted manuscript, even stripped to
the verbatim quotes conceded by The Nation to be copyrightable expression, was not
a fair use within the meaning of the Copyright Act.
III
A
Fair use was traditionally defined as "a privilege in others than the owner of the
copyright to use the copyrighted material in a reasonable manner without his
consent." H. Ball, Law of Copyright and Literary Property 260 (1944) (hereinafter
Ball). The statutory formulation of the defense of fair use in the Copyright Act reflects
the intent of Congress to codify the common law doctrine. 3 Nimmer § 13.05. Section
107 requires a case-by-case determination whether a particular use is fair, and the
statute notes four nonexclusive factors to be considered. This approach was
"intended to restate the [preexisting] judicial doctrine of fair use, not to change,
narrow, or enlarge it in any way." H.R.Rep. No. 94-1476, p. 66 (1976) (hereinafter
House Report).
"[T]he author's consent to a reasonable use of his copyrighted works ha[d] always
been implied by the courts as a necessary incident of the constitutional policy of
promoting the progress of science and the useful arts, since a prohibition of such use
would inhibit subsequent writers from attempting to improve upon prior works, and
thus . . . frustrate the very ends sought to be attained."
Ball 260. Professor Latman, in a study of the doctrine of fair use commissioned by
Congress for the revision effort, see Sony Corp. of America v. Universal City Studios,
Inc., 464 U.S. at 464 U. S. 462-463, n. 9 (dissenting opinion), summarized prior law
as turning on the
"importance
Page 471 U. S. 550
of the material copied or performed from the point of view of the reasonable copyright
owner. In other words, would the reasonable copyright owner have consented to the
use?"
Latman 15. [Footnote 3]
As early as 1841, Justice Story gave judicial recognition to the doctrine in a case that
concerned the letters of another former President, George Washington.
"[A] reviewer may fairly cite largely from the original work, if his design be really and
truly to use the passages for the purposes of fair and reasonable criticism. On the
other hand, it is as clear that, if he thus cites the most important parts of the work,
with a view not to criticise, but to supersede the use of the original work, and
substitute the review for it, such a use will be deemed in law a piracy."
Folsom v. Marsh, 9 F.Cas. 342, 344-345 (No. 4,901) (CC Mass.) As Justice Story's
hypothetical illustrates, the fair use doctrine has always precluded a use that
"supersede[s] the use of the original." Ibid. Accord, S.Rep. No. 94-473, p. 65 (1975)
(hereinafter Senate Report).
Perhaps because the fair use doctrine was predicated on the author's implied consent
to "reasonable and customary" use when he released his work for public
consumption, fair use traditionally was not recognized as a defense to
charges chanroblesvirtualawlibrary
Page 471 U. S. 551
of copying from an author's as yet unpublished works. [Footnote 4] Under common
law copyright, "the property of the author . . . in his intellectual creation [was]
absolute until he voluntarily part[ed] with the same." American Tobacco Co. v.
Werckmeister, 207 U. S. 284, 207 U. S. 299 (1907); 2 Nimmer § 8.23, at 8-273. This
absolute rule, however, was tempered in practice by the equitable nature of the fair
use doctrine. In a given case, factors such as implied consent through de
facto publication on performance or dissemination of a work may tip the balance of
equities in favor of prepublication use. See Copyright Law Revision -- Part 2:
Discussion and Comments on Report of the Register of Copyrights on General
Revision of the U.S. Copyright Law, 88th Cong., 1st Sess., 27 (H.R. Comm. Print
1963) (discussion suggesting works disseminated to the public in a form not
constituting a technical "publication" should nevertheless be subject to fair use); 3
Nimmer § 13.05, at 13-62, n. 2. But it has never been seriously disputed that "the
fact that the plaintiff's work is unpublished . . . is a factor tending to negate the
defense of fair use." Ibid. Publication of an author's expression before he has
authorized its dissemination seriously infringes the author's right to decide when and
whether it will be made public, a factor not present in fair use of published works.
[Footnote 5] chanroblesvirtualawlibrary
Page 471 U. S. 552
Respondents contend, however, that Congress, in including first publication among
the rights enumerated in § 106, which are expressly subject to fair use under § 107,
intended that fair use would apply in pari materia to published and unpublished
works. The Copyright Act does not support this proposition.
The Copyright Act represents the culmination of a major legislative reexamination of
copyright doctrine. See Mills Music, Inc. v. Snyder, 469 U. S. 153, 469 U. S. 159-160
(1985); Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. at 464 U. S.
462-463, n. 9 (dissenting opinion). Among its other innovations, it eliminated
publication "as a dividing line between common law and statutory protection," House
Report at 129, extending statutory protection to all works from the time of their
creation. It also recognized for the first time a distinct statutory right of first
publication, which had previously been an element of the common law protections
afforded unpublished works. The Report of the House Committee on the Judiciary
confirms that
"Clause (3) of section 106, establishes the exclusive right of publications. . . . Under
this provision, the copyright owner would have the right to control the first public
distribution of an authorized copy . . . of his work."
Id. at 62.
Though the right of first publication, like the other rights enumerated in § 106, is
expressly made subject to the fair use provision of § 107, fair use analysis must
always be tailored to the individual case. Id. at 65; 3 Nimmer § 13.05[A].
The chanroblesvirtualawlibrary
Page 471 U. S. 553
nature of the interest at stake is highly relevant to whether a given use is fair. From
the beginning, those entrusted with the task of revision recognized the
"overbalancing reasons to preserve the common law protection of undisseminated
works until the author or his successor chooses to disclose them."
Copyright Law Revision, Report of the Register of Copyrights on the General Revision
of the U.S. Copyright Law, 87th Cong., 1st Sess., 41 (Comm. Print 1961). The right
of first publication implicates a threshold decision by the author whether and in what
form to release his work. First publication is inherently different from other § 106
rights in that only one person can be the first publisher; as the contract with Time
illustrates, the commercial value of the right lies primarily in exclusivity. Because the
potential damage to the author from judicially enforced "sharing" of the first
publication right with unauthorized users of his manuscript is substantial, the balance
of equities in evaluating such a claim of fair use inevitably shifts.
The Senate Report confirms that Congress intended the unpublished nature of the
work to figure prominently in fair use analysis. In discussing fair use of photocopied
materials in the classroom the Committee Report states:
"A key, though not necessarily determinative, factor in fair use is whether or not the
work is available to the potential user. If the work is 'out of print' and unavailable for
purchase through normal channels, the user may have more justification for
reproducing it. . . . The applicability of the fair use doctrine to unpublished works is
narrowly limited, since, although the work is unavailable, this is the result of a
deliberate choice on the part of the copyright owner. Under ordinary circumstances,
the copyright owner's 'right of first publication' would outweigh any needs of
reproduction for classroom purposes."
Senate Report at 64. Although the Committee selected photocopying of classroom
materials to illustrate fair use, it emphasized that "the
same chanroblesvirtualawlibrary
Page 471 U. S. 554
general standards of fair use are applicable to all kinds of uses of copyrighted
material." Id. at 65. We find unconvincing respondents' contention that the absence
of the quoted passage from the House Report indicates an intent to abandon the
traditional distinction between fair use of published and unpublished works. It
appears instead that the fair use discussion of photocopying of classroom materials
was omitted from the final Report because educators and publishers in the interim
had negotiated a set of guidelines that rendered the discussion obsolete. House
Report at 67. The House Report nevertheless incorporates the discussion by
reference, citing to the Senate Report and stating: "The Committee has reviewed this
discussion, and considers it still has value as an analysis of various aspects of the
[fair use] problem."Ibid.
Even if the legislative history were entirely silent, we would be bound to conclude
from Congress' characterization of § 107 as a "restatement" that its effect was to
preserve existing law concerning fair use of unpublished works as of other types of
protected works, and not to "change, narrow, or enlarge it." Id. at 66. We conclude
that the unpublished nature of a work is "[a] key, though not necessarily
determinative, factor" tending to negate a defense of fair use. Senate Report at
64. See 3 Nimmer § 13.05, at 13-62, n. 2; W. Patry, The Fair Use Privilege in
Copyright Law 125 (1985) (hereinafter Patry).
We also find unpersuasive respondents' argument that fair use may be made of a
soon-to-be-published manuscript on the ground that the author has demonstrated
he has no interest in nonpublication. This argument assumes that the unpublished
nature of copyrighted material is only relevant to letters or other confidential writings
not intended for dissemination. It is true that common law copyright was often
enlisted in the service of personal privacy. See Brandeis & Warren, The Right to
Privacy, 4 Harv.L.Rev.193, 198-199 (1890). In its commercial guise, however, an
author's right to choose when he will publish is no less deserving of
protection. chanroblesvirtualawlibrary
Page 471 U. S. 555
The period encompassing the work's initiation, its preparation, and its grooming for
public dissemination is a crucial one for any literary endeavor. The Copyright Act,
which accords the copyright owner the "right to control the first public distribution"
of his work, House Report at 62, echos the common law's concern that the author or
copyright owner retain control throughout this critical stage. See generally Comment,
The Stage of Publication as a "Fair Use" Factor: Harper & Row, Publishers v. Nation
Enterprises, 58 St. John's L.Rev. 597 (1984). The obvious benefit to author and public
alike of assuring authors the leisure to develop their ideas free from fear of
expropriation outweighs any short-term "news value" to be gained from premature
publication of the author's expression. See Goldstein, Copyright and the First
Amendment, 70 Colum.L.Rev. 983, 1004-1006 (1970) (The absolute protection the
common law accorded to soon-to-be published works "[was] justified by [its] brevity
and expedience"). The author's control of first public distribution implicates not only
his personal interest in creative control, but his property interest in exploitation of
prepublication rights, which are valuable in themselves and serve as a valuable
adjunct to publicity and marketing. See Belshi v. Woodward, 598 F.Supp. 36 (DC
1984) (successful marketing depends on coordination of serialization and release to
public); Marks, Subsidiary Rights and Permissions, in What Happens in Book
Publishing 230 (C. Grannis ed.1967) (exploitation of subsidiary rights is necessary to
financial success of new books). Under ordinary circumstances, the author's right to
control the first public appearance of his undisseminated expression will outweigh a
claim of fair use.
B
Respondents, however, contend that First Amendment values require a different rule
under the circumstances of this case. The thrust of the decision below is that "[t]he
scope of [fair use] is undoubtedly wider when the
information chanroblesvirtualawlibrary
Page 471 U. S. 556
conveyed relates to matters of high public concern." Consumers Union of the United
States, Inc. v. General Signal Corp.,724 F.2d 1044, 1050 (CA2 1983) (construing 723
F.2d 195 (1983) (case below) as allowing advertiser to quote Consumer
Reports), cert. denied, 469 U.S. 823 (1984). Respondents advance the substantial
public import of the subject matter of the Ford memoirs as grounds for excusing a
use that would ordinarily not pass muster as a fair use -- the piracy of verbatim
quotations for the purpose of "scooping" the authorized first serialization.
Respondents explain their copying of Mr. Ford's expression as essential to reporting
the news story it claims the book itself represents. In respondents' view, not only the
facts contained in Mr. Ford's memoirs, but "the precise manner in which [he]
expressed himself [were] as newsworthy as what he had to say." Brief for
Respondents 38-39. Respondents argue that the public's interest in learning this
news as fast as possible outweighs the right of the author to control its first
publication.
The Second Circuit noted, correctly, that copyright's idea/ expression dichotomy
"strike[s] a definitional balance between the First Amendment and the Copyright Act
by permitting free communication of facts while still protecting an author's
expression."
723 F.2d 203. No author may copyright his ideas or the facts he narrates. 17 U.S.C.
§ 102(b). See, e.g., New York Times Co. v. United States, 403 U. S. 713, 403 U. S.
726, n. (1971) (BRENNAN, J., concurring) (Copyright laws are not restrictions on
freedom of speech, as copyright protects only form of expression, and not the ideas
expressed); 1 Nimmer § 1.10[B][2]. As this Court long ago observed:
"[T]he news element -- the information respecting current events contained in the
literary production -- is not the creation of the writer, but is a report of matters that
ordinarily are publici juris; it is the history of the day."
International News Service v. Associated Press, 248 U. S. 215, 248 U. S. 234 (1918).
But copyright assures those who write and publish factual narratives such as "A Time
to Heal" that chanroblesvirtualawlibrary
Page 471 U. S. 557
they may at least enjoy the right to market the original expression contained therein
as just compensation for their investment. Cf. Zacchini v. Scripps-Howard
Broadcasting Co., 433 U. S. 562, 433 U. S. 575 (1977).
Respondents' theory, however, would expand fair use to effectively destroy any
expectation of copyright protection in the work of a public figure. Absent such
protection, there would be little incentive to create or profit in financing such
memoirs, and the public would be denied an important source of significant historical
information. The promise of copyright would be an empty one if it could be avoided
merely by dubbing the infringement a fair use "news report" of the book. See
Wainwright Securities Inc. v. Wall Street Transcript Corp., 558 F.2d 91 (CA2
1977), cert. denied, 434 U.S. 1014 (1978).
Nor do respondents assert any actual necessity for circumventing the copyright
scheme with respect to the types of works and users at issue here. [Footnote 6]
Where an author and publisher have invested extensive resources in creating an
original work and are poised to release it to the public, no legitimate aim is served
by preempting the right of first publication. The fact that the words the author has
chosen to clothe his narrative may of themselves be "newsworthy" is not an
independent justification for unauthorized copying of the author's expression prior to
publication. To paraphrase another recent Second Circuit decision:
"[Respondent] possessed an unfettered right to use any factual information revealed
in [the memoirs] for the purpose of enlightening its audience, but it can claim
Page 471 U. S. 558
no need to 'bodily appropriate' [Mr. Ford's] 'expression' of that information by utilizing
portions of the actual [manuscript]. The public interest in the free flow of information
is assured by the law's refusal to recognize a valid copyright in facts. The fair use
doctrine is not a license for corporate theft, empowering a court to ignore a copyright
whenever it determines the underlying work contains material of possible public
importance."
Iowa State University Research Foundation, Inc. v. American Broadcasting Cos.,
Inc., 621 F.2d 57, 61 (1980) (citations omitted). Accord, Roy Export Co.
Establishment v. Columbia Broadcasting System, Inc., 503 F.Supp. 1137 (SDNY
1980) ("newsworthiness" of material copied does not justify copying), aff'd, 672 F.2d
1095 (CA2), cert. denied, 459 U.S. 826 (1982); Quinto v. Legal Times of
Washington, Inc., 506 F.Supp. 554 (DC 1981) (same).
In our haste to disseminate news, it should not be forgotten that the Framers
intended copyright itself to be the engine of free expression. By establishing a
marketable right to the use of one's expression, copyright supplies the economic
incentive to create and disseminate ideas. This Court stated in Mazer v. Stein, 347
U. S. 201, 209 (1954):
"The economic philosophy behind the clause empowering Congress to grant patents
and copyrights is the conviction that encouragement of individual effort by personal
gain is the best way to advance public welfare through the talents of authors and
inventors in 'science and useful Arts.'"
And again in Twentieth Century Music Corp. v. Aiken:
"The immediate effect of our copyright law is to secure a fair return for an 'author's'
creative labor. But the ultimate aim is, by this incentive, to stimulate [the creation of
useful works] for the general public good."
422 U.S. at 422 U. S. 156. chanroblesvirtualawlibrary
Page 471 U. S. 559
It is fundamentally at odds with the scheme of copyright to accord lesser rights in
those works that are of greatest importance to the public. Such a notion ignores the
major premise of copyright, and injures author and public alike.
"[T]o propose that fair use be imposed whenever the 'social value [of dissemination]
. . . outweighs any detriment to the artist' would be to propose depriving copyright
owners of their right in the property precisely when they encounter those users who
could afford to pay for it."
Gordon, Fair Use as Market Failure: A Structural and Economic Analysis of
the Betamax Case and its Predecessors, 82 Colum.L.Rev. 1600, 1615 (1982). And as
one commentator has noted:
"If every volume that was in the public interest could be pirated away by a competing
publisher, . . . the public [soon] would have nothing worth reading."
Sobel, Copyright and the First Amendment: A Gathering Storm?, 19 ASCAP Copyright
Law Symposium 43, 78 (1971).See generally Comment, Copyright and the First
Amendment; Where Lies the Public Interest?, 59 Tulane L.Rev. 135 (1984).
Moreover, freedom of thought and expression "includes both the right to speak freely
and the right to refrain from speaking at all." Wooley v. Maynard, 430 U. S. 705, 430
U. S. 714 (1977) (BURGER, C.J.). We do not suggest this right not to speak would
sanction abuse of the copyright owner's monopoly as an instrument to suppress facts.
But in the words of New York's Chief Judge Fuld:
"The essential thrust of the First Amendment is to prohibit improper restraints on the
voluntary public expression of ideas; it shields the man who wants to speak or publish
when others wish him to be quiet. There is necessarily, and within suitably defined
areas, a concomitant freedom not to speak publicly, one which serves the same
ultimate end as freedom of speech in its affirmative aspect."
Estate of Hemingway v. Random House, Inc., 23 N.Y.2d 341, 348, 244 N.E.2d 250,
255 (1968). chanroblesvirtualawlibrary
Page 471 U. S. 560
Courts and commentators have recognized that copyright, and the right of first
publication in particular, serve this countervailing First Amendment value. See
Schnapper v. Foley, 215 U.S.App.D.C. 59, 667 F.2d 102 (1981), cert. denied,455
U.S. 948 (1982); 1 Nimmer § 1.10[B], at 1-70, n. 24; Patry 140-142.
In view of the First Amendment protections already embodied in the Copyright Act's
distinction between copyrightable expression and uncopyrightable facts and ideas,
and the latitude for scholarship and comment traditionally afforded by fair use, we
see no warrant for expanding the doctrine of fair use to create what amounts to a
public figure exception to copyright. Whether verbatim copying from a public figure's
manuscript in a given case is or is not fair must be judged according to the traditional
equities of fair use.
IV
Fair use is a mixed question of law and fact. Pacific & Southern Co. v. Duncan, 744
F.2d 1490, 1495, n. 8 (CA11 1984). Where the district court has found facts sufficient
to evaluate each of the statutory factors, an appellate court
"need not remand for further factfinding . . . , [but] may conclude as a matter of law
that [the challenged use] do[es] not qualify as a fair use of the copyrighted work."
Id. at 1495. Thus whether The Nation article constitutes fair use under § 107 must
be reviewed in light of the principles discussed above. The factors enumerated in the
section are not meant to be exclusive:
"[S]ince the doctrine is an equitable rule of reason, no generally applicable definition
is possible, and each case raising the question must be decided on its own facts."
House Report at 65. The four factors identified by Congress as especially relevant in
determining whether the use was fair are: (1) the purpose and character of the use;
(2) the nature of the copyrighted work; (3) the substantiality of the portion used in
relation to the copyrighted work as chanroblesvirtualawlibrary
Page 471 U. S. 561
a whole; (4) the effect on the potential market for or value of the copyrighted work.
We address each one separately.
Purpose of the Use. The Second Circuit correctly identified news reporting as the
general purpose of The Nation's use. News reporting is one of the examples
enumerated in § 107 to "give some idea of the sort of activities the courts might
regard as fair use under the circumstances." Senate Report at 61. This listing was
not intended to be exhaustive, see ibid.; § 101 (definition of "including" and "such
as"), or to single out any particular use as presumptively a "fair" use. The drafters
resisted pressures from special interest groups to create presumptive categories of
fair use, but structured the provision as an affirmative defense requiring a case-by-
case analysis. See H.R.Rep. No. 83, 90th Cong., 1st Sess., 37 (1967); Patry 477, n.
4.
"[W]hether a use referred to in the first sentence of section 107 is a fair use in a
particular case will depend upon the application of the determinative factors,
including those mentioned in the second sentence."
Senate Report at 62. The fact that an article arguably is "news," and therefore a
productive use, is simply one factor in a fair use analysis.
We agree with the Second Circuit that the trial court erred in fixing on whether the
information contained in the memoirs was actually new to the public. As Judge Meskill
wisely noted, "[c]ourts should be chary of deciding what is and what is not news." 723
F.2d 215 (dissenting). Cf. Gertz v. Robert Welch, Inc., 418 U. S. 323, 418 U. S. 345-
346 (1974).
"The issue is not what constitutes 'news,' but whether a claim of newsreporting is a
valid fair use defense to an infringement of copyrightable expression."
Patry 119. The Nation has every right to seek to be the first to publish information.
But The Nation went beyond simply reporting uncopyrightable information and
actively sought to exploit the headline value of its infringement, making a "news
event" out of its unauthorized first publication of a noted figure's copyrighted
expression. chanroblesvirtualawlibrary
Page 471 U. S. 562
The fact that a publication was commercial, as opposed to nonprofit, is a separate
factor that tends to weigh against a finding of fair use.
"[E]very commercial use of copyrighted material is presumptively an unfair
exploitation of the monopoly privilege that belongs to the owner of the copyright."
Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. at 464 U. S. 451. In
arguing that the purpose of news reporting is not purely commercial, The Nation
misses the point entirely. The crux of the profit/nonprofit distinction is not whether
the sole motive of the use is monetary gain, but whether the user stands to profit
from exploitation of the copyrighted material without paying the customary price. See
Roy Export Co. Establishment v. Columbia Broadcasting System, Inc., 503 F.Supp.
at 1144; 3 Nimmer § 13.05[A][1], at 13-71, n. 25.3.
In evaluating character and purpose, we cannot ignore The Nation's stated purpose
of scooping the forthcoming hardcover and Time abstracts. [Footnote 7] App. to Pet.
for Cert. C-27. The Nation's use had not merely the incidental effect, but the intended
purpose, of supplanting the copyright holder's commercially valuable right of first
publication.See Meredith Corp. v. Harper & Row, Publishers, Inc., 378 F.Supp. 686,
690 (SDNY) (purpose of text was to compete with original), aff'd, 500 F.2d
1221 (CA2 1974). Also relevant to the "character" of the use is "the propriety of the
defendant's conduct." 3 Nimmer § 13.05[A], at 13-72. "Fair use presupposes good
faith' and `fair dealing.'" Time Inc. v. Bernard Geis Associates, 293 F.Supp. 130, 146
(SDNY 1968), quoting chanroblesvirtualawlibrary
Page 471 U. S. 563
Schulman, Fair Use and the Revision of the Copyright Act, 53 Iowa L.Rev. 832 (1968).
The trial court found that The Nation knowingly exploited a purloined manuscript.
App. to Pet. for Cert. B-1, C-20 - C-21, C-28 - C-29. Unlike the typical claim of fair
use, The Nation cannot offer up even the fiction of consent as justification. Like its
competitor newsweekly, it was free to bid for the right of abstracting excerpts from
"A Time to Heal." Fair use "distinguishes between à true scholar and a chiseler who
infringes a work for personal profit.'" Wainwright Securities Inc. v. Wall Street
Transcript Corp., 558 F.2d 94, quoting from Hearings on Bills for the General Revision
of the Copyright Law before the House Committee on the Judiciary, 89th Cong., 1st
Sess., ser. 8, pt. 3, p. 1706 (1966) (statement of John Schulman).
Nature of the Copyrighted Work. Second, the Act directs attention to the nature of
the copyrighted work. "A Time to Heal" may be characterized as an unpublished
historical narrative or autobiography. The law generally recognizes a greater need to
disseminate factual works than works of fiction or fantasy. See Gorman, Fact or
Fancy? The Implications for Copyright, 29 J.Copyright Soc. 560, 561 (1982).
"[E]ven within the field of fact works, there are gradations as to the relative
proportion of fact and fancy. One may move from sparsely embellished maps and
directories to elegantly written biography. The extent to which one must permit
expressive language to be copied, in order to assure dissemination of the underlying
facts, will thus vary from case to case."
Id. at 563. Some of the briefer quotes from the memoirs are arguably necessary
adequately to convey the facts; for example, Mr. Ford's characterization of the White
House tapes as the "smoking gun" is perhaps so integral to the idea expressed as to
be inseparable from it. Cf. 1 Nimmer § 1.10[C]. But The Nation did not stop at
isolated phrases, and instead excerpted subjective descriptions and portraits of public
figures whose power lies in the author's individualized expression.
Such chanroblesvirtualawlibrary
Page 471 U. S. 564
use, focusing on the most expressive elements of the work, exceeds that necessary
to disseminate the facts.
The fact that a work is unpublished is a critical element of its "nature." 3 Nimmer §
13.05[A]; Comment, 58 St. John's L.Rev. at 613. Our prior discussion establishes
that the scope of fair use is narrower with respect to unpublished works. While even
substantial quotations might qualify as fair use in a review of a published work or a
news account of a speech that had been delivered to the public or disseminated to
the press, see House Report at 65, the author's right to control the first public
appearance of his expression weighs against such use of the work before its release.
The right of first publication encompasses not only the choice whether to publish at
all, but also the choices of when, where, and in what form first to publish a work.
In the case of Mr. Ford's manuscript, the copyright holders' interest in confidentiality
is irrefutable; the copyright holders had entered into a contractual undertaking to
"keep the manuscript confidential" and required that all those to whom the
manuscript was shown also "sign an agreement to keep the manuscript confidential."
App. to Pet. for Cert. 1C-20. While the copyright holders' contract with Time required
Time to submit its proposed article seven days before publication, The Nation's
clandestine publication afforded no such opportunity for creative or quality
control. Id. at C-18. It was hastily patched together, and contained "a number of
inaccuracies." App. 300b-300c (testimony of Victor Navasky). A use that so clearly
infringes the copyright holder's interests in confidentiality and creative control is
difficult to characterize as "fair."
Amount and Substantiality of the Portion Used. Next, the Act directs us to examine
the amount and substantiality of the portion used in relation to the copyrighted work
as a whole. In absolute terms, the words actually quoted were an insubstantial
portion of "A Time to Heal." The District Court, however, found that "[T]he Nation
took what was chanroblesvirtualawlibrary
Page 471 U. S. 565
essentially the heart of the book." 557 F.Supp. at 1072. We believe the Court of
Appeals erred in overruling the District Judge's evaluation of the qualitative nature of
the taking. See, e.g., Roy Export Co. Establishment v. Columbia Broadcasting
System, Inc., 503 F.Supp. at 1145 (taking of 55 seconds out of 1 hour and 29-minute
film deemed qualitatively substantial). A Time editor described the chapters on the
pardon as "the most interesting and moving parts of the entire manuscript." Reply
Brief for Petitioners 16, n. 8. The portions actually quoted were selected by Mr.
Navasky as among the most powerful passages in those chapters. He testified that
he used verbatim excerpts because simply reciting the information could not
adequately convey the "absolute certainty with which [Ford] expressed himself," App.
303, or show that "this comes from President Ford," id. at 305, or carry the "definitive
quality" of the original, id. at 306. In short, he quoted these passages precisely
because they qualitatively embodied Ford's distinctive expression.
As the statutory language indicates, a taking may not be excused merely because it
is insubstantial with respect to the infringing work. As Judge Learned Hand cogently
remarked, "no plagiarist can excuse the wrong by showing how much of his work he
did not pirate." Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49, 56 (CA2), cert.
denied, 298 U.S. 669 (1936). Conversely, the fact that a substantial portion of the
infringing work was copied verbatim is evidence of the qualitative value of the copied
material, both to the originator and to the plagiarist who seeks to profit from
marketing someone else's copyrighted expression.
Stripped to the verbatim quotes, [Footnote 8] the direct takings from the unpublished
manuscript constitute at least 13% of the infringing chanroblesvirtualawlibrary
Page 471 U. S. 566
article. See Meeropol v. Nizer, 560 F.2d 1061, 1071 (CA2 1977) (copyrighted letters
constituted less than 1% of infringing work but were prominently featured). The
Nation article is structured around the quoted excerpts which serve as its dramatic
focal points. See Appendix to this opinion, post p. 471 U. S. 570. In view of the
expressive value of the excerpts and their key role in the infringing work, we cannot
agree with the Second Circuit that the "magazine took a meager, indeed an
infinitesimal, amount of Ford's original language." 723 F.2d 209.
Effect on the Market. Finally, the Act focuses on "the effect of the use upon the
potential market for or value of the copyrighted work." This last factor is undoubtedly
the single most important element of fair use. [Footnote 9] See 3 Nimmer §
13.05[A], at 13-76, and cases cited therein. "Fair use, when properly applied, is
limited to copying by others which chanroblesvirtualawlibrary
Page 471 U. S. 567
does not materially impair the marketability of the work which is copied." 1 Nimmer
§ l.10[D], at 1-87. The trial court found not merely a potential, but an actual, effect
on the market. Time's cancellation of its projected serialization and its refusal to pay
the $12,500 were the direct effect of the infringement. The Court of Appeals rejected
this factfinding as clearly erroneous, noting that the record did not establish a causal
relation between Time's nonperformance and respondents' unauthorized publication
of Mr. Ford's expression, as opposed to the facts taken from the memoirs. We
disagree. Rarely will a case of copyright infringement present such clear-cut evidence
of actual damage. Petitioners assured Time that there would be no other authorized
publication of any portion of the unpublished manuscript prior to April 23,
1979. Any publication of material from chapters 1 and 3 would permit Time to
renegotiate its final payment. Time cited The Nation's article, which contained
verbatim quotes from the unpublished manuscript, as a reason for its
nonperformance. With respect to apportionment of profits flowing from a copyright
infringement, this Court has held that an infringer who commingles infringing and
noninfringing elements "must abide the consequences, unless he can make a
separation of the profits so as to assure to the injured party all that justly belongs to
him." Sheldon v. Metro-Goldwyn Pictures Corp., 309 U. S. 390, 309 U. S.
406 (1940). Cf. 17 U.S.C. § 504(b) (the infringer is required to prove elements of
profits attributable to other than the infringed work). Similarly, once a copyright
holder establishes with reasonable probability the existence of a causal connection
between the infringement and a loss of revenue, the burden properly shifts to the
infringer to show that this damage would have occurred had there been no taking of
copyrighted expression.See 3 Nimmer § 14.02, at 14-7 - 14-8.1. Petitioners
established a prima facie case of actual damage that respondents failed to rebut. See
Stevens Linen Associates, chanroblesvirtualawlibrary
Page 471 U. S. 568
Inc. v. Mastercraft Corp., 656 F.2d 11, 15 (CA2 1981). The trial court properly
awarded actual damages and accounting of profits. See 17 U.S.C. § 504(b).
More important, to negate fair use, one need only show that, if the challenged use
"should become widespread, it would adversely affect the potential market for the
copyrighted work." Sony Corp. of America v. Universal City Studios, Inc.,464 U.S.
at 464 U. S. 451 (emphasis added); id. at 464 U. S. 484, and n. 36 (collecting cases)
(dissenting opinion). This inquiry must take account not only of harm to the original,
but also of harm to the market for derivative works. See Iowa State University
Research Foundation, Inc. v. American Broadcasting Cos., 621 F.2d 57 (CA2
1980); Meeropol v. Nizer, supra, at 1070; Roy Export v. Columbia Broadcasting
System, Inc., 503 F.Supp. at 1146.
"If the defendant's work adversely affects the value of any of the rights in the
copyrighted work (in this case the adaptation [and serialization] right) the use is not
fair."
3 Nimmer § 13.05[B], at 13-77 - 13-78 (footnote omitted).
It is undisputed that the factual material in the balance of The Nation's article, besides
the verbatim quotes at issue here, was drawn exclusively from the chapters on the
pardon. The excerpts were employed as featured episodes in a story about the Nixon
pardon -- precisely the use petitioners had licensed to Time. The borrowing of these
verbatim quotes from the unpublished manuscript lent The Nation's piece a special
air of authenticity -- as Navasky expressed it, the reader would know it was Ford
speaking, and not The Nation. App. 300c. Thus it directly competed for a share of the
market for prepublication excerpts. The Senate Report states:
"With certain special exceptions . . . a use that supplants any part of the normal
market for a copyrighted work would ordinarily be considered an infringement."
Senate Report at 65. chanroblesvirtualawlibrary
Page 471 U. S. 569
Placed in a broader perspective, a fair use doctrine that permits extensive
prepublication quotations from an unreleased manuscript without the copyright
owner's consent poses substantial potential for damage to the marketability of first
serialization rights in general.
"Isolated instances of minor infringements, when multiplied many times, become in
the aggregate a major inroad on copyright that must be prevented."
Ibid.
V
The Court of Appeals erred in concluding that The Nation's use of the copyrighted
material was excused by the public's interest in the subject matter. It erred, as well,
in overlooking the unpublished nature of the work and the resulting impact on the
potential market for first serial rights of permitting unauthorized prepublication
excerpts under the rubric of fair use. Finally, in finding the taking "infinitesimal," the
Court of Appeals accorded too little weight to the qualitative importance of the quoted
passages of original expression. In sum, the traditional doctrine of fair use, as
embodied in the Copyright Act, does not sanction the use made by The Nation of
these copyrighted materials. Any copyright infringer may claim to benefit the public
by increasing public access to the copyrighted work. See Pacific & Southern Co. v.
Duncan, 744 F.2d 1499-1500. But Congress has not designed, and we see no warrant
for judicially imposing, a "compulsory license" permitting unfettered access to the
unpublished copyrighted expression of public figures.
The Nation conceded that its verbatim copying of some 300 words of direct quotation
from the Ford manuscript would constitute an infringement unless excused as a fair
use. Because we find that The Nation's use of these verbatim excerpts from the
unpublished manuscript was not a fair use, the judgment of the Court of Appeals is
reversed, and the case is remanded for further proceedings consistent with this
opinion.
It is so ordered. chanroblesvirtualawlibrary
Page 471 U. S. 570
[Footnote 1]
Section 106 provides in pertinent part:
"Subject to sections 107 through 118, the owner of copyright under this title has the
exclusive rights to do and authorize any of the following:"
"(1) to reproduce the copyrighted work in copies . . . ;"
"(2) to prepare derivative works based upon the copyrighted work;"
"(3) to distribute copies . . . of the copyrighted work to the public. . . ."
[Footnote 2]
Section 107 states:
"Notwithstanding the provisions of section 106, the fair use of a copyrighted work . .
. for purposes such as criticism, comment, news reporting, teaching (including
multiple copies for classroom use), scholarship, or research, is not an infringement
of copyright. In determining whether the use made of a work in any particular case
is a fair use the factors to be considered shall 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."
[Footnote 3]
Professor Nimmer notes:
"[Perhaps] no more precise guide can be stated than Joseph McDonald's clever
paraphrase of the Golden Rule: 'Take not from others to such an extent and in such
a manner that you would be resentful if they so took from you.'"
3 Nimmer § 13.05[A], at 13-66, quoting McDonald, Non-infringing Uses, 9
Bull.Copyright Soc. 466, 467 (1962). This "equitable rule of reason," Sony Corp. of
America v. Universal City Studios, Inc., 464 U.S. at 464 U. S. 448,
"permits courts to avoid rigid application of the copyright statute when, on occasion,
it would stifle the very creativity which that law is designed to foster."
Iowa State University Research Foundation, Inc. v. American Broadcasting Cos., 621
F.2d 57, 60 (CA2 1980). See generally L. Seltzer, Exemptions and Fair Use in
Copyright 18-48 (1978).
[Footnote 4]
See Latman 7; Strauss, Protection of Unpublished Works (1957), reprinted as Study
No. 29 in Copyright Law Revision Studies Nos. 29-31, prepared for the Senate
Committee on the Judiciary, 86th Cong., 2d Sess., 4, n. 32 (1961) (citing cases); R.
Shaw, Literary Property in the United States 67 (1950) ("[T]here can be no fair use'
of unpublished material"); Ball 260, n. 5 ("[T]he doctrine of fair use does not apply
to unpublished works"); A. Weil, American Copyright Law § 276, p. 115 (1917) (the
author of an unpublished work "has, probably, the right to prevent even a `fair use'
of the work by others"). Cf. M. Flint, A User's Guide to Copyright � 10.06 (1979)
(United Kingdom) ("no fair dealing with unpublished works"); Beloff v. Pressdram
Ltd., [1973] All E.R. 241, 263 (Ch.1972) (same).
[Footnote 5]
See, e.g., 33 U. S. 657 (1834) (distinguishing the author's common law right to
"obtain redress against anyone who . . . by improperly obtaining a copy [of his
unpublished work] endeavors to realize a profit by its publication" from rights in a
published work, which are prescribed by statute); Press Publishing Co. v. Monroe, 73
F.1d 6, 199 (CA2), writ of error dism'd, 164 U. S. 105 (1896); Stanley v. Columbia
Broadcasting System, Inc., 35 Cal.2d 653, 660-661, 221 P.2d 73, 77-78 (1950) (en
banc); Golding v. RKO Radio Pictures, Inc., 193 P.2d 153, 162 (Cal.App.1948) ("An
unauthorized appropriation of [an unpublished work] is not to be neutralized on the
plea that it is such a little one'"), aff'd, 35 Cal.2d 690, 221 P.2d 95 (1950); Fendler
v. Morosco, 253 N.Y. 281, 291, 171 N.E. 56, 59 ("Since plaintiff had not published or
produced her play, perhaps any use that others made of it might be
unfair"), rehearing denied,@ 254 N.Y. 563, 173 N.E. 867 (1930).
[Footnote 6]
It bears noting that Congress in the Copyright Act recognized a public interest
warranting specific exemptions in a number of areas not within traditional fair
use, see, e.g., 17 U.S.C. § 115 (compulsory license for records); § 105 (no copyright
in Government works). No such exemption limits copyright in personal narratives
written by public servants after they leave Government service.
[Footnote 7]
The dissent excuses The Nation's unconsented use of an unpublished manuscript as
"standard journalistic practice," taking judicial notice of New York Times articles
regarding the memoirs of John Erlichman, John Dean's "Blind Ambition," and
Bernstein and Woodward's "The Final Days" as proof of such practice. Post at 471 U.
S. 590-593, and n. 14. Amici curiae sought to bring this alleged practice to the
attention of the Court of Appeals for the Second Circuit, citing these same articles.
The Court of Appeals, at Harper & Row's motion, struck these exhibits for failure of
proof at trial, Record Doc. No.19; thus they are not a proper subject for this Court's
judicial notice.
[Footnote 8]
See Appendix to this opinion, post p. 471 U. S. 570. The Court of Appeals found that
only "approximately 300 words" were copyrightable but did not specify which words.
The court's discussion, however, indicates it excluded from consideration those
portions of The Nation's piece that, although copied verbatim from Ford's manuscript,
were quotes attributed by Ford to third persons and quotations from Government
documents. At oral argument, counsel for The Nation did not dispute that verbatim
quotes and very close paraphrase could constitute infringement. Tr. of Oral Arg. 24-
25. Thus, the Appendix identifies as potentially infringing only verbatim quotes or
very close paraphrase, and excludes from consideration Government documents and
words attributed to third persons. The Appendix is not intended to endorse any
particular rule of copyrightability, but is intended merely as an aid to facilitate our
discussion.
[Footnote 9]
Economists who have addressed the issue believe the fair use exception should come
into play only in those situations in which the market fails or the price the copyright
holder would ask is near zero. See, e.g., T. Brennan, Harper & Row v. The
Nation, Copyrightability and Fair Use, Dept. of Justice Economic Policy Office
Discussion Paper 13-17 (1984); Gordon, Fair Use as Market Failure: A Structural and
Economic Analysis of the Betamax Case and its Predecessors, 82 Colum.L.Rev. 1600,
1615 (1982). As the facts here demonstrate, there is a fully functioning market that
encourages the creation and dissemination of memoirs of public figures. In the
economists' view, permitting "fair use" to displace normal copyright channels disrupts
the copyright market without a commensurate public benefit.
|471 U.S. 539App|
APPENDIX TO OPINION OF THE COURT
The portions of The Nation article which were copied verbatim from "A Time to Heal,"
excepting quotes from Government documents and quotes attributed by Ford to third
persons, are identified in boldface in the text. See ante at 471 U. S. 562, n. 7. The
corresponding passages in the Ford manuscript are footnoted.
THE FORD MEMOIRS
BEHIND THE NIXON PARDON
In his memoirs, A Time To Heal, which Harper & Row will publish in late May or early
June, former President Gerald R. Ford says that the idea of giving a blanket pardon
to Richard M. Nixon was raised before Nixon resigned from the Presidency by Gen.
Alexander Haig, who was then the White House chief of staff.
Ford also writes that, but for a misunderstanding, he might have selected Ronald
Reagan as his 1976 running mate, that Washington lawyer Edward Bennett Williams,
a Democrat, was his choice for head of the Central Intelligence Agency, that Nixon
was the one who first proposed Rockefeller for Vice President, and that he regretted
his "[bb]cowardice[eb]" [Footnote 2/1] in allowing Rockefeller to remove himself
from Vice Presidential contention. Ford also describes his often prickly relations with
Henry Kissinger.
The Nation obtained the 655-page typescript before publication. Advance excerpts
from the book will appear in Time in mid-April and in The Reader's Digest thereafter.
Although the initial print order has not been decided, the figure is tentatively set at
50,000; it could change, depending upon the public reaction to the serialization.
Ford's account of the Nixon pardon contains significant new detail on the negotiations
and considerations that surrounded chanroblesvirtualawlibrary
Page 471 U. S. 571
it. According to Ford's version, the subject was first broached to him by General Haig
on August 1, 1974, a week before Nixon resigned. General Haig revealed that the
newly transcribed White House tapes were the equivalent of the "[bb]smoking
gun[eb]" [Footnote 2/2] and that Ford should prepare himself to become President.
Ford was deeply hurt by Haig's revelation:
"[bb]Over the past several months, Nixon had repeatedly assured me that he was
not involved in Watergate, that the evidence would prove his innocence, that the
matter would fade from view.[eb] [Footnote 2/3]"
Ford had believed him, but he let Haig explain the President's alternatives.
He could "[bb]ride it out[eb]" [Footnote 2/4] or he could resign, Haig said. He then
listed the different ways Nixon might resign, and concluded by pointing out that
[bb]Nixon could agree to leave in return for an agreement that the new President,
Ford, would pardon him.[eb] [Footnote 2/5] Although Ford said it would be improper
for him to make any recommendation, he basically agreed with Haig's assessment
and adds, "[bb]Because of his references to the pardon authority, I did ask Haig
about the extent of a President's pardon power.[eb]" [Footnote 2/6]
"It's my understanding from a White House lawyer," Haig replied, "that a President
does have authority to grant a pardon even before criminal action has been taken
against an individual." chanroblesvirtualawlibrary
Page 471 U. S. 572
But because Ford had neglected to tell Haig he thought the idea of a resignation
conditioned on a pardon was improper, his press aide, Bob Hartmann, suggested that
Haig might well have returned to the White House and told President Nixon that he
had mentioned the idea and Ford seemed comfortable with it. "Silence implies
assent."
Ford then consulted with White House special counsel James St. Clair, who had no
advice one way or the other on the matter more than pointing out that he was not
the lawyer who had given Haig the opinion on the pardon. Ford also discussed the
matter with Jack Marsh, who felt that the mention of a pardon in this context was a
"time bomb," and with Bryce Harlow, who had served six Presidents and who agreed
that [bb]the mere mention of a pardon "could cause a lot of trouble.[eb]" [Footnote
2/7]
As a result of these various conversations, Vice President Ford called Haig and read
him a written statement:
"I want you to understand that I have no intention of recommending what the
President should do about resigning or not resigning and that nothing we talked about
yesterday afternoon should be given any consideration in whatever decision the
President may wish to make."
Despite what Haig had told him about the "smoking gun" tapes, Ford told a Jackson,
Mich., luncheon audience later in the day that [bb]the President was not guilty of an
impeachable offense. "Had I said otherwise at that moment,"[eb] he writes, [bb]"the
whole house of cards might have collapsed."[eb] [Footnote 2/8]
In justifying the pardon, Ford goes out of his way to assure the reader that
[bb]"compassion for Nixon as an individual[eb] chanroblesvirtualawlibrary
Page 471 U. S. 573
[bb]hadn't prompted my decision at all."[eb] [Footnote 2/9] Rather, he did it because
he had [bb]"to get the monkey off my back one way or the other."[eb] [Footnote
2/10]
The precipitating factor in his decision was a series of secret meetings his general
counsel, Phil Buchen, held with Watergate Special Prosecutor Leon Jaworski in the
Jefferson Hotel, where they were both staying at the time. Ford attributes Jaworski
with providing some [bb]"crucial" information"[eb] [Footnote 2/11] -- i.e., that Nixon
was under investigation in ten separate areas, and that [bb]the court process could
"take years."[eb] [Footnote 2/12] Ford cites a memorandum from Jaworski's
assistant, Henry S. Ruth Jr., as being especially persuasive. Ruth had written:
"If you decide to recommend indictment I think it is fair and proper to notify Jack
Miller and the White House sufficiently in advance so that pardon action could be
taken before the indictment."
He went on to say: "One can make a strong argument for leniency, and if President
Ford is so inclined, I think he ought to do it early, rather than late."
Ford decided that court proceedings against Nixon might take six years, that
[bb]Nixon "would not spend time quietly in San Clemente,"[eb] [Footnote 2/13] and
[bb]"it would be virtually impossible for me to direct public attention on anything
else."[eb] [Footnote 2/14]
Buchen, Haig and Henry Kissinger agreed with him. Hartmann was not so
sure. chanroblesvirtualawlibrary
Page 471 U. S. 574
Buchen wanted to condition the pardon on Nixon;s agreeing to settle the question of
who would retain custody and control over the tapes and Presidential papers that
might be relevant to various Watergate proceedings, but Ford was reluctant to do
that.
At one point, a plan was considered whereby the Presidential materials would be kept
in a vault at a Federal facility near San Clemente, but the vault would require two
keys to open it. One would be retained by the General Services Administration, the
other by Richard Nixon.
The White House did, however, want Nixon to make a full confession on the occasion
of his pardon or, at a minimum, express true contrition. Ford tells of the negotiation
with Jack Miller, Nixon's lawyer, over the wording of Nixon's statement. But as Ford
reports Miller's response, Nixon was not likely to yield. [bb]"His few meetings with
his client had shown him that the former President's ability to discuss Watergate
objectively was almost nonexistent."[eb] [Footnote 2/15]
The statement they really wanted was never forthcoming. As soon as Ford's emissary
arrived in San Clemente, he was confronted with an ultimatum by Ron Zeigler,
Nixon's former press secretary. "Lets get one thing straight immediately," Zeigler
said. "President Nixon is not issuing any statement whatsoever regarding Watergate,
whether Jerry Ford pardons him or not." Zeigler proposed a draft, which was turned
down on the ground that [bb]"no statement would be better than that."[eb] [Footnote
2/16] They went through three more drafts before they agreed on the statement
Nixon finally made, which stopped far short of a full confession.
When Ford aide Benton Becker tried to explain to Nixon that acceptance of a pardon
was an admission of guilt, he chanroblesvirtualawlibrary
Page 471 U. S. 575
felt the President wasn't really listening. Instead, Nixon wanted to talk about the
Washington Redskins. And when Becker left, Nixon pressed on him some cuff links
and a tiepin "out of my own jewelry box."
Ultimately, Ford sums up the philosophy underlying his decision as one he picked up
as a student at Yale Law School many years before. [bb]"I learned that public policy
often took precedence over a rule of law. Although I respected the tenet that no man
should be above the law, public policy demanded that I put Nixon -- and Watergate
-- behind us as quickly as possible."[eb] [Footnote 2/17]
Later, when Ford learned that Nixon's phlebitis had acted up and his health was
seriously impaired, he debated whether to pay the ailing former President a visit.
[bb]"If I made the trip, it would remind everybody of Watergate and the pardon. If I
didn't, people would say I lacked compassion."[eb] [Footnote 2/18] Ford went:
[bb]He was stretched out flat on his back. There were tubes in his nose and mouth,
and wires led from his arms, chest and legs to machines with orange lights that
blinked on and off. His face was ashen, and I thought I had never seen anyone closer
to death.[eb] [Footnote 2/19]
The manuscript made available to The Nation includes many references to Henry
Kissinger and other personalities who played a major role during the Ford
years. chanroblesvirtualawlibrary
Page 471 U. S. 576
On Kissinger. Immediately after being informed by Nixon of his intention to resign,
Ford returned to the Executive Office Building and phoned Henry Kissinger to let him
know how he felt. [bb]"Henry,"[eb] he said, [bb]"I need you. The country needs you.
I want you to stay. I'll do every thing I can to work with you."[eb] [Footnote 2/20]
"Sir,' Kissinger replied, 'it is my job to get along with you, and not yours to get along
with me."
[bb]"We'll get along,"[eb] Ford said. [bb]"I know we'll get along."[eb] Referring to
Kissinger's joint jobs as Secretary of State and National Security Adviser to the
President, Ford said, [bb]"I don't want to make any change. I think it's worked out
well, so let's keep it that way."[eb] [Footnote 2/21]
Later, Ford did make the change and relieved Kissinger of his responsibilities as
National Security Adviser at the same time that he fired James Schlesinger as
Secretary of Defense. Shortly thereafter, he reports, Kissinger presented him with a
"draft" letter of resignation, which he said Ford could call upon at will if he felt he
needed it to quiet dissent from conservatives who objected to Kissinger's role in the
firing of Schlesinger.
On John Connally. When Ford was informed that Nixon wanted him to replace Agnew,
he told the President he had [bb]"no ambition to hold office after January, 1977."[eb]
[Footnote 2/22] Nixon replied that that was good, since his own choice for his running
mate in 1976 was John Connally. "He'd be excellent," observed Nixon. Ford says he
had "no problem with that." chanroblesvirtualawlibrary
Page 471 U. S. 577
On the Decision to Run Again. Ford was, he tells us, so sincere in his intention not to
run again that he thought he would announce it and enhance his credibility in the
country and the Congress, as well as keep the promise he had made to his wife,
Betty.
Kissinger talked him out of it.
"You can't do that. It would be disastrous from a foreign policy point of view. For the
next two and a half years, foreign governments would know that they were dealing
with a lame-duck President. All our initiatives would be dead in the water, and I
wouldn't be able to implement your foreign policy. It would probably have the same
consequences in dealing with the Congress on domestic issues. You can't reassert
the authority of the Presidency if you leave yourself hanging out on a dead limb.
You've got to be an affirmative President."
On David Kennerly, the White House photographer. Schlesinger was arguing with
Kissinger and Ford over the appropriate response to the seizure of the Mayaguez. At
issue was whether airstrikes against the Cambodians were desirable; Schlesinger was
opposed to bombings. Following a lull in the conversation, Ford reports, up spoke the
30-year-old White House photographer, David Kennerly, who had been taking
pictures for the last hour.
"Has anyone considered," Kennerly asked, "that this might be the act of a local
Cambodian commander who has just taken it into his own hands to stop any ship
that comes by?" Nobody, apparently, had considered it, but following several seconds
of silence, Ford tells us, the view carried the day. [bb]"Massive airstrikes would
constitute overkill,"[eb] Ford decided. [bb]"It would be far better to have Navy jets
from the Coral Sea make surgical strikes against specific targets."[eb] [Footnote
2/23] chanroblesvirtualawlibrary
Page 471 U. S. 578
On Nixon's Character. [bb]Nixon's flaw,[eb] according to Ford, [bb]was "pride." "A
terribly proud man,"[eb] writes Ford, [bb]"he detested weakness in other people. I'd
often heard him speak disparagingly of those whom he felt to be soft and expedient.
(Curiously, he didn't feel that the press was weak. Reporters, he sensed, were his
adversaries. He knew they didn't like him, and he responded with reciprocal
disdain.)"[eb] [Footnote 2/24]
Nixon felt disdain for the Democratic leadership of the House, whom he also regarded
as weak. According to Ford, [bb]"His pride and personal contempt for weakness had
overcome his ability to tell the difference between right and wrong,"[eb] [Footnote
2/25] all of which leads Ford to wonder whether Nixon had known in advance about
Watergate.
On hearing Nixon's resignation speech, which Ford felt lacked an adequate plea for
forgiveness, he was persuaded that [bb]"Nixon was out of touch with reality."[eb]
[Footnote 2/26]
In February of last year, when The Washington Post obtained and printed advance
excerpts from H.R. Haldeman's memoir, The Ends of Power, on the eve of its
publication by Times Books, The New York Times called The Post's feat "a second-
rate burglary."
The Post disagreed, claiming that its coup represented "first-rate enterprise" and
arguing that it had burglarized nothing, that publication of the Haldeman memoir
came under the Fair Comment doctrine long recognized by
the chanroblesvirtualawlibrary
Page 471 U. S. 579
courts, and that "There is a fundamental journalistic principle here -- a First
Amendment principle that was central to the Pentagon Papers case."
In the issue of The Nation dated May 5, 1979, our special Spring Books number, we
will discuss some of the ethical problems raised by the issue of disclosure.
[Footnote 2/1]
I was angry at myself for showing cowardice in not saying to the ultraconservatives,
"It's going to be Ford and Rockefeller, whatever the consequences." P. 496.
[Footnote 2/2]
[I]t contained the so-called smoking gun. P. 3.
[Footnote 2/3]
[O]ver the past several months Nixon had repeatedly assured me that he was not
involved in Watergate, that the evidence would prove his innocence, that the matter
would fade from view. P. 7.
[Footnote 2/4]
The first [option] was that he could try to "ride it out" by letting impeachment take
its natural course through the House and the Senate trial, fighting against conviction
all the way. P. 4.
[Footnote 2/5]
Finally, Haig said that, according to some on Nixon's White House staff, Nixon could
agree to leave in return for an agreement that the new President -- Gerald Ford --
would pardon him. P. 5.
[Footnote 2/6]
Because of his references to pardon authority, I did ask Haig about the extent of a
President's pardon power. Pp. 5-6.
[Footnote 2/7]
Only after I had finished did [Bryce Harlow] let me know in no uncertain terms that
he agreed with Bob and Jack, that the mere mention of the pardon option could cause
a lot of trouble in the days ahead. P. 18.
[Footnote 2/8]
During the luncheon I repeated my assertion that the President was not guilty of an
impeachable offense. Had I said otherwise at that moment, the whole house of cards
might have collapsed. P. 21.
[Footnote 2/9]
But compassion for Nixon as an individual hadn't prompted my decision at all. P. 266.
[Footnote 2/10]
I had to get the monkey off my back one way or another. P. 236.
[Footnote 2/11]
Jaworski gave Phil several crucial pieces of information. P. 246.
[Footnote 2/12]
And if the verdict was Guilty, one had to assume that Nixon would appeal. That
process would take years. P. 248.
[Footnote 2/13]
The entire process would no doubt require years: a minimum of two, a maximum of
six. And Nixon would not spend time quietly in San Clemente. P. 238.
[Footnote 2/14]
It would be virtually impossible for me to direct public attention on anything else. P.
239.
[Footnote 2/15]
But [Miller] wasn't optimistic about getting such a statement. His few meetings with
his client had shown him that the former President's ability to discuss Watergate
objectively was almost nonexistent. P. 246.
[Footnote 2/16]
When Zeigler asked Becker what he thought of it, Becker replied that no statement
would be better than that. P. 251.
[Footnote 2/17]
Years before, at Yale Law School, I'd learned that public policy often took precedence
over a rule of law. Although I respected the tenet that no man should be above the
law, public policy demanded that I put Nixon -- and Watergate -- behind us as quickly
as possible. P. 256.
[Footnote 2/18]
My staff debated whether or not I ought to visit Nixon at the Long Beach Hospital,
only half an hour away. If I made the trip, it would remind everyone of Watergate
and the pardon. If I didn't, people would say I lacked compassion. I ended their
debate as soon as I found out it had begun. Of course I would go. P. 298.
[Footnote 2/19]
He was stretched out flat on his back. There were tubes in his nose and mouth, and
wires led from his arms, chest and legs to machines with orange lights that blinked
on and off. His face was ashen, and I thought I had never seen anyone closer to
death. P. 299.
[Footnote 2/20]
"Henry," I said when he came on the line, "I need you. The country needs you. I want
you to stay. I'll do everything I can to work with you." P. 46.
[Footnote 2/21]
"We'll get along," I said. "I know we can get along." We talked about the two hats he
wore, as Secretary of State and National Security Adviser to the President. "I don't
want to make any change," I said. "I think it's worked out well, so let's keep it that
way." P. 46.
[Footnote 2/22]
I told him about my promise to Betty, and said that I had no ambitions to hold office
after January 1977. P. 155.
[Footnote 2/23]
Subjectively, I felt that what Kennerly had said made a lot of sense. Massive airstrikes
would constitute overkill. It would be far better to have Navy jets from the Coral
Sea make surgical strikes against specific targets in the vicinity of Kompong Som. P.
416.
[Footnote 2/24]
In Nixon's case, that flaw was pride. A terribly proud man, he detested weakness in
other people. I'd often heard him speak disparagingly of those whom he felt to be
soft and expedient. (Curiously, he didn't feel that the press was weak. Reporters, he
sensed, were his adversaries. He knew they didn't like him, and he responded with
reciprocal disdain.). P. 53.
[Footnote 2/25]
His pride and personal contempt for weakness had overcome his ability to tell the
difference between right and wrong. P. 54.
[Footnote 2/26]
The speech lasted fifteen minutes, and at the end I was convinced Nixon was out of
touch with reality. P. 57.
JUSTICE BRENNAN, with whom JUSTICE WHITE and JUSTICE MARSHALL join,
dissenting.
The Court holds that The Nation's quotation of 300 words from the unpublished
200,000-word manuscript of President Gerald R. Ford infringed the copyright in that
manuscript, even though the quotations related to a historical event of undoubted
significance -- the resignation and pardon of President Richard M. Nixon. Although
the Court pursues the laudable goal of protecting "the economic incentive to create
and disseminate ideas," ante at 471 U. S. 558, this zealous defense of the copyright
owner's prerogative will, I fear, stifle the broad dissemination of ideas and
information copyright is intended to nurture. Protection of the copyright owner's
economic interest is achieved in this case through an exceedingly narrow definition
of the scope of fair use. The progress of arts and sciences and the robust public
debate essential to an enlightened citizenry are ill-served by this constricted reading
of the fair use doctrine. See 17 U.S.C. § 107. I therefore respectfully dissent.
I
A
This case presents two issues. First, did The Nation's use of material from the Ford
manuscript in forms other than direct quotation from that manuscript infringe Harper
& Row's copyright. Second, did the quotation of approximately 300 words from the
manuscript infringe the copyright because this quotation did not constitute "fair use"
within the meaning chanroblesvirtualawlibrary
Page 471 U. S. 580
of § 107 of the Copyright Act. 17 U.S.C. § 107. The Court finds no need to resolve
the threshold copyrightability issue. The use of 300 words of quotation was, the Court
finds, beyond the scope of fair use, and thus a copyright infringement. [Footnote 3/1]
Because I disagree with the Court's fair use holding, it is necessary for me to decide
the threshold copyrightability question.
B
"The enactment of copyright legislation by Congress under the terms of the
Constitution is not based upon any natural right that the author has in his writings .
. . , but upon the ground that the welfare of the public will be served and progress of
science and useful arts will be promoted by securing to authors for limited periods
the exclusive rights to their writings."
H.R.Rep. No. 2222, 60th Cong., 2d Sess., 7 (1909). Congress thus seeks to define
the rights included in copyright so as to serve the public welfare, and not necessarily
so as to maximize an author's control over his or her product. The challenge of
copyright is to strike the
"difficult balance between the interests of authors and inventors in the control and
exploitation of their writings and discoveries, on the one hand, and society's
competing interest in the free flow of ideas, information, and commerce, on the other
hand."
Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417, 464 U. S.
429 (1984).
The "originality" requirement now embodied in § 102 of the Copyright Act is crucial
to maintenance of the appropriate balance between these competing interests.
[Footnote 3/2] Properly interpreted chanroblesvirtualawlibrary
Page 471 U. S. 581
in the light of the legislative history, this section extends copyright protection to an
author's literary form, but permits free use by others of the ideas and information
the author communicates. See S.Rep. No. 93-983, pp. 107-108 (1974) ("Copyright
does not preclude others from using the ideas or information revealed by the author's
work. It pertains to the literary . . . form in which the author expressed intellectual
concepts"); H.R.Rep. No. 94-1476, pp. 56-57 (1976) (same); New York Times Co. v.
United States, 403 U. S. 713, 403 U. S. 726, n. (1971) (BRENNAN, J., concurring)
("[T]he copyright laws, of course, protect only the form of expression, and not the
ideas expressed"). This limitation of protection to literary form precludes any claim
of copyright in facts, including historical narration.
"It is not to be supposed that the framers of the Constitution, when they empowered
Congress"
"to promote the progress of science and useful arts, by securing for limited times to
authors and inventors the exclusive right to their respective writings and discoveries"
"(Const., Art I, § 8, par. 8), intended to confer upon one who might happen to be the
first to report a historic event the exclusive right for any period to spread the
knowledge of it."
International News Service v. Associated Press, 248 U. S. 215, 248 U. S.
234 (1918). Accord, Rosemont Enterprises, Inc. v. Random House, Inc., 366 F.2d
303, 309 (CA2 1966), cert. denied, 385 U.S. 1009 (1967). See 1 Nimmer § 2.11[A],
at 2-158. [Footnote 3/3] chanroblesvirtualawlibrary
Page 471 U. S. 582
The "promotion of science and the useful arts" requires this limit on the scope of an
author's control. Were an author able to prevent subsequent authors from using
concepts, ideas, or facts contained in his or her work, the creative process would
wither and scholars would be forced into unproductive replication of the research of
their predecessors. See Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 979
(CA2 1980). This limitation on copyright also ensures consonance with our most
important First Amendment values. Cf. Zacchini v. Scripps-Howard Broadcasting
Co., 433 U. S. 562, 433 U. S. 577, n. 13 (1977). Our "profound national commitment
to the principle that debate on public issues should be uninhibited, robust, and wide-
open," New York Times Co. v. Sullivan, 376 U. S. 254, 376 U. S. 270 (1964), leaves
no room for a statutory monopoly over information and ideas.
"The arena of public debate would be quiet, indeed, if a politician could copyright his
speeches or a philosopher his treatises, and thus obtain a monopoly on the ideas
they contained."
Lee v. Runge, 404 U. S. 887, 893 (1971) (Douglas, J., dissenting from denial of
certiorari). A broad dissemination of principles, ideas, and factual information is
crucial to the robust public debate and informed citizenry that are "the essence of
self-government." Garrison v. Louisiana, 379 U. S. 64, 379 U. S. 74-75 (1964). And
every citizen must be permitted freely to marshal ideas and facts in the advocacy of
particular political choices. [Footnote 3/4]
It follows that infringement of copyright must be based on a taking of literary form,
as opposed to the ideas or information contained in a copyrighted work. Deciding
whether an infringing appropriation of literary form has occurred is difficult for at
least two reasons. First, the distinction between chanroblesvirtualawlibrary
Page 471 U. S. 583
literary form and information or ideas is often elusive in practice. Second,
infringement must be based on a substantial appropriation of literary form. This
determination is equally challenging. Not surprisingly, the test for infringement has
defied precise formulation. [Footnote 3/5] In general, though, the inquiry proceeds
along two axes: how closely has the second author tracked the first author's
particular language and structure of presentation; and how much of the first author's
language and structure has the second author appropriated. [Footnote 3/6]
In the present case the infringement analysis must be applied to a historical
biography in which the author has chronicled the events of his White House tenure
and commented on those events from his unique perspective. Apart from the
quotations, virtually all of the material in The Nation's article indirectly recounted Mr.
Ford's factual narrative of the Nixon resignation and pardon, his latter-day reflections
on some events of his Presidency, and his perceptions of the personalities at the
center of those events. See ante at 471 U. S. 570-579. No copyright can be claimed
in this information qua information. Infringement would thus have to be
based chanroblesvirtualawlibrary
Page 471 U. S. 584
on too close and substantial a tracking of Mr. Ford's expression of this information.
[Footnote 3/7]
The Language. Much of the information The Nation conveyed was not in the form of
paraphrase at all, but took the form of synopsis of lengthy discussions in the Ford
manuscript. [Footnote 3/8] In the course of this summary presentation,
The chanroblesvirtualawlibrary
Page 471 U. S. 585
Nation did use occasional sentences that closely resembled language in the original
Ford manuscript. [Footnote 3/9] But these linguistic similarities are insufficient to
constitute an infringement for three reasons. First, some leeway must be given to
subsequent authors seeking to convey facts because those "wishing to express the
ideas contained in a factual work chanroblesvirtualawlibrary
Page 471 U. S. 586
often can choose from only a narrow range of expression." Landsbeg v. Scrabble
Crossword Game Players, Inc., 736 F.2d 485, 488 (CA9 1984). Second, much of what
The Nation paraphrased was material in which Harper & Row could claim no copyright.
[Footnote 3/10] Third, The Nation paraphrased nothing approximating the totality of
a single paragraph, much less a chapter or the work as a whole. At most, The Nation
paraphrased disparate isolated sentences from the original. A finding of infringement
based on paraphrase generally requires far more close and substantial a tracking of
the original language than occurred in this case. See, e.g., Wainwright Securities Inc.
v. Wall Street Transcript Corp., 558 F.2d 91(CA2 1977).
The Structure of Presentation. The article does not mimic Mr. Ford's structure. The
information The Nation presents is drawn from scattered sections of the Ford work,
and does not appear in the sequence in which Mr. Ford presented it. [Footnote 3/11]
Some of The Nation's discussion of the pardon does roughly track the order in which
the Ford manuscript presents information about the pardon. With respect to this
similarity, however, Mr. Ford has done no more than present the
facts chanroblesvirtualawlibrary
Page 471 U. S. 587
chronologically and cannot claim infringement when a subsequent author similarly
presents the facts of history in a chronological manner. Also, it is difficult to suggest
that a 2,000-word article could bodily appropriate the structure of a 200,000-word
book. Most of what Mr. Ford created, and most of the history he recounted, were
simply not represented in The Nation's article. [Footnote 3/12]
When The Nation was not quoting Mr. Ford, therefore, its efforts to convey the
historical information in the Ford manuscript did not so closely and substantially track
Mr. Ford's language and structure as to constitute an appropriation of literary form.
II
The Nation is thus liable in copyright only if the quotation of 300 words infringed any
of Harper & Row's exclusive rights under § 106 of the Act. Section 106 explicitly
makes the grant of exclusive rights "[s]ubject to section 107 through 118." 17 U.S.C.
§ 106. Section 107 states:
"Notwithstanding the provisions of section 106, the fair use of a copyrighted work . .
. for purposes such as criticism, comment, news reporting, teaching (including
multiple copies for classroom use), scholarship or research, is not an infringement of
copyright."
The question here is whether The Nation's chanroblesvirtualawlibrary
Page 471 U. S. 588
quotation was a noninfringing fair use within the meaning of § 107.
Congress "eschewed a rigid, bright-line approach to fair use." Sony Corp. of America
v. Universal City Studios, Inc., 464 U.S. at 464 U. S. 449, n. 31. A court is to apply
an "equitable rule of reason" analysis, id. at 464 U. S. 448, guided by four statutorily
prescribed factors:
"(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. These factors are not necessarily the exclusive determinants of the
fair use inquiry, and do not mechanistically resolve fair use issues; "no generally
applicable definition is possible, and each case raising the question must be decided
on its own facts." H.R.Rep. No. 94-1476, at 65. See also id. at 66 ("[T]he endless
variety of situations and combinations of circumstances that can arise in particular
cases precludes the formulation of exact rules in the statute"); S.Rep. No. 94-473,
p. 62 (1975). The statutory factors do, however, provide substantial guidance to
courts undertaking the proper fact-specific inquiry.
With respect to a work of history, particularly the memoirs of a public official, the
statutorily prescribed analysis cannot properly be conducted without constant
attention to copyright's crucial distinction between protected literary form and
unprotected information or ideas. The question must always be: was the subsequent
author's use of literary form a fair use within the meaning of § 107, in light of the
purpose for the use, the nature of the copyrighted work, the amount of literary
form used, and the effect of this use of literary form on the value of or market for
the original? chanroblesvirtualawlibrary
Page 471 U. S. 589
Limiting the inquiry to the propriety of a subsequent author's use of the copyright
owner's literary form is not easy in the case of a work of history. Protection against
only substantial appropriation of literary form does not ensure historians a return
commensurate with the full value of their labors. The literary form contained in works
like "A Time to Heal" reflects only a part of the labor that goes into the book. It is the
labor of collecting, sifting, organizing, and reflecting that predominates in the creation
of works of history such as this one. The value this labor produces lies primarily in
the information and ideas revealed, and not in the particular collocation of words
through which the information and ideas are expressed. Copyright thus does not
protect that which is often of most value in a work of history, and courts must resist
the tendency to reject the fair use defense on the basis of their feeling that an author
of history has been deprived of the full value of his or her labor. A subsequent author's
taking of information and ideas is in no sense piratical, because copyright law simply
does not create any property interest in information and ideas.
The urge to compensate for subsequent use of information and ideas is perhaps
understandable. An inequity seems to lurk in the idea that much of the fruit of the
historian's labor may be used without compensation. This, however, is not some
unforeseen byproduct of a statutory scheme intended primarily to ensure a return for
works of the imagination. Congress made the affirmative choice that the copyright
laws should apply in this way:
"Copyright does not preclude others from using the ideas or information revealed by
the author's work. It pertains to the literary . . . form in which the author expressed
intellectual concepts."
H.R.Rep. No. 94-1476, at 56-57. This distinction is at the essence of copyright. The
copyright laws serve as the "engine of free expression," ante at 471 U. S. 558, only
when the statutory monopoly does not choke off multifarious indirect uses and
consequent broad dissemination of information and ideas. To ensure the progress of
arts and sciences and the integrity chanroblesvirtualawlibrary
Page 471 U. S. 590
of First Amendment values, ideas and information must not be freighted with claims
of proprietary right. [Footnote 3/13]
In my judgment, the Court's fair use analysis has fallen to the temptation to find
copyright violation based on a minimal use of literary form in order to provide
compensation for the appropriation of information from a work of history. The failure
to distinguish between information and literary form permeates every aspect of the
Court's fair use analysis, and leads the Court to the wrong result in this case.
Application of the statutorily prescribed analysis with attention to the distinction
between information and literary form leads to a straightforward finding of fair use
within the meaning of § 107.
The Purpose of the Use. The Nation's purpose in quoting 300 words of the Ford
manuscript was, as the Court acknowledges, news reporting. See ante at 471 U. S.
561. The Ford work contained information about important events of recent history.
Two principals, Mr. Ford and General Alexander Haig, were, at the time of The
Nation's publication in 1979, widely thought to be candidates for the Presidency. That
The Nation objectively reported the information in the Ford manuscript without
independent commentary in no way diminishes the conclusion that it was reporting
news. A typical news story differs from an editorial precisely in that it presents
newsworthy information in a straightforward and unelaborated manner. Nor does the
source of the information render The Nation's article any less a news report. Often
books and manuscripts, solicited and unsolicited, are chanroblesvirtualawlibrary
Page 471 U. S. 591
the subject matter of news reports. E.g., New York Time Co. v. United States, 403 U.
S. 713 (1971). Frequently, the manuscripts are unpublished at the time of the news
report. [Footnote 3/14]
Section 107 lists news reporting as a prime example of fair use of another's
expression. Like criticism and all other purposes Congress explicitly approved in §
107, news reporting informs the public; the language of § 107 makes clear that
Congress saw the spread of knowledge and information as the strongest justification
for a properly limited appropriation of expression. The Court of Appeals was therefore
correct to conclude that the purpose of The Nation's use -- dissemination of the
information contained in the quotations of Mr. Ford's work -- furthered the public
interest. 723 F.2d 195, 207-208 (CA2 1983). In light of the explicit congressional
endorsement in § 107, the purpose for which Ford's literary form was borrowed
strongly favors a finding of fair use.
The Court concedes the validity of the news reporting purpose, [Footnote 3/15] but
then quickly offsets it against three purportedly countervailing considerations. First,
the Court asserts that, because The Nation publishes for profit, its publication
of chanroblesvirtualawlibrary
Page 471 U. S. 592
the Ford quotes is a presumptively unfair commercial use. Second, the Court claims
that The Nation's stated desire to create a "news event" signaled an illegitimate
purpose of supplanting the copyright owner's right of first publication. Anteat 471 U.
S. 562-563. Third, The Nation acted in bad faith, the Court claims, because its editor
"knowingly exploited a purloined manuscript." Ante at 471 U. S. 563.
The Court's reliance on the commercial nature of The Nation's use as "a separate
factor that tends to weigh against a finding of fair use," ante at 471 U. S. 562, is
inappropriate in the present context. Many uses § 107 lists as paradigmatic examples
of fair use, including criticism, comment, and news reporting, are generally
conducted for profit in this country, a fact of which Congress was obviously aware
when it enacted § 107. To negate any argument favoring fair use based on news
reporting or criticism because that reporting or criticism was published for profit is to
render meaningless the congressional imprimatur placed on such uses. [Footnote
3/16]
Nor should The Nation's intent to create a "news event" weigh against a finding of
fair use. Such a rule, like the chanroblesvirtualawlibrary
Page 471 U. S. 593
Court's automatic presumption against news reporting for profit, would undermine
the congressional validation of the news reporting purpose. A news business earns
its reputation, and therefore its readership, through consistent prompt publication of
news -- and often through "scooping" rivals. More importantly, the Court's failure to
maintain the distinction between information and literary form colors the analysis of
this point. Because Harper & Row had no legitimate copyright interest in the
information and ideas in the Ford manuscript, The Nation had every right to seek to
be the first to disclose these facts and ideas to the public. The record suggests only
that The Nation sought to be the first to reveal the information in the Ford manuscript.
The Nation's stated purpose of scooping the competition should, under those
circumstances, have no negative bearing on the claim of fair use. Indeed the Court's
reliance on this factor would seem to amount to little more than distaste for the
standard journalistic practice of seeking to be the first to publish news.
The Court's reliance on The Nation's putative bad faith is equally unwarranted. No
court has found that The Nation possessed the Ford manuscript illegally or in violation
of any common law interest of Harper & Row; all common law causes of action have
been abandoned or dismissed in this case. 723 F.2d 199-201. Even if the manuscript
had been "purloined" by someone, nothing in this record imputes culpability to The
Nation. [Footnote 3/17] On the basis of the record in this case, the most that can be
said is that The Nation made use of the contents of the manuscript knowing the
copyright owner would not sanction the use. chanroblesvirtualawlibrary
Page 471 U. S. 594
At several points the Court brands this conduct thievery. See, e.g., ante at 471 U. S.
556, 471 U. S. 563. This judgment is unsupportable, and is perhaps influenced by
the Court's unspoken tendency in this case to find infringement based on the taking
of information and ideas. With respect to the appropriation of information and ideas
other than the quoted words, The Nation's use was perfectly legitimate, despite the
copyright owner's objection, because no copyright can be claimed in ideas or
information. Whether the quotation of 300 words was an infringement or a fair use
within the meaning of § 107 is a close question that has produced sharp division in
both this Court and the Court of Appeals. If the Copyright Act were held not to prohibit
the use, then the copyright owner would have had no basis in law for objecting. The
Nation's awareness of an objection that has a significant chance of being adjudged
unfounded cannot amount to bad faith. Imputing bad faith on the basis of no more
than knowledge of such an objection, the Court impermissibly prejudices the inquiry
and impedes arrival at the proper conclusion that the "purpose" factor of the
statutorily prescribed analysis strongly favors a finding of fair use in this case.
The Nature of the Copyrighted Work. In Sony Corp. of America v. Universal City
Studios, Inc., we stated that "not . . . all copyrights are fungible" and that "[c]opying
a news broadcast may have a stronger claim to fair use than copying a motion
picture." 464 U.S. at 464 U. S. 455, n. 40. These statements reflect the principle,
suggested in § 107(2) of the Act, that the scope of fair use is generally broader when
the source of borrowed expression is a factual or historical work.See 3 Nimmer §
13.05[A][2], at 13-73 - 13-74. "[I]nformational works," like the Ford manuscript,
"that readily lend themselves to productive use by others, are less protected." Sony
Corp. of America v. Universal City Studios, Inc., 464 U.S. at 464 U. S. 496-497
(BLACKMUN, J., dissenting). Thus the second statutory factor also favors a finding of
fair use in this case. chanroblesvirtualawlibrary
Page 471 U. S. 595
The Court acknowledges that "[t]he law generally recognizes a greater need to
disseminate factual works than works of fiction or fantasy," ante at 471 U. S. 563,
and that "[s]ome of the briefer quotations from the memoir are arguably necessary
to convey the facts," ibid. But the Court discounts the force of this consideration,
primarily on the ground that "[t]he fact that a work is unpublished is a crucial element
of its nature.'" Ante at 471 U. S. 564. [Footnote 3/18] At this point, the Court
introduces into analysis of this case a categorical presumption against prepublication
fair use. See anteat 471 U. S. 555 ("Under ordinary circumstances, the author's right
to control the first public appearance of his undisseminated expression will outweigh
a claim of fair use").
This categorical presumption is unwarranted on its own terms and unfaithful to
congressional intent. [Footnote 3/19] Whether a chanroblesvirtualawlibrary
Page 471 U. S. 596
particular prepublication use will impair any interest the Court identifies as
encompassed within the right of first publication, see ante at 471 U. S. 552-555,
[Footnote 3/20] will depend on the nature of the copyrighted work, the timing of
prepublication use, the amount of expression used, and the medium in which the
second author communicates. Also, certain uses might be tolerable for some
purposes but not for others. See Sony Corp. of America v. Universal City Studios,
Inc., supra, at 464 U. S. 490, n. 40. The Court is ambiguous as to whether it relies
on the force of the presumption against prepublication fair use or an analysis of the
purpose and effect of this particular use. Compare anteat 471 U. S. 552-555, with
ante at 471 U. S. 564. To the extent the Court relies on the presumption, it presumes
intolerable chanroblesvirtualawlibrary
Page 471 U. S. 597
injury -- in particular the usurpation of the economic interest [Footnote 3/21] --
based on no more than a quick litmus test for prepublication timing. Because
"Congress has plainly instructed us that fair use analysis calls for a sensitive balancing
of interests," we held last Term that the fair use inquiry could never be resolved on
the basis of such a "two-dimensional" categorical approach. See Sony Corp. of
America v. Universal City Studios, Inc., 464 U.S. at 464 U. S. 455, n. 40 (rejecting
categorical requirement of "productive use").
To the extent the Court purports to evaluate the facts of this case, its analysis relies
on sheer speculation. The quotation of 300 words from the manuscript infringed no
privacy interest of Mr. Ford. This author intended the words in the manuscript to be
a public statement about his Presidency. Lacking, therefore, is the "deliberate choice
on the part of the copyright owner" to keep expression confidential, a consideration
that the Senate Report -- in the passage on which the Court places great reliance, see
ante at 553 --recognized as the impetus behind narrowing fair use for unpublished
works. See S.Rep. No. 94-473, at 64. See also 3 Nimmer § 13.05[A], at 13-73
("[T]he scope of the fair use doctrine is considerably narrower with respect to
unpublished works which are held confidential by their copyright owners") (emphasis
added). What the Court depicts as the copyright owner's "confidentiality"
interest, see ante at 471 U. S. 564, is not a privacy interest at all. Rather, it is no
more than an economic interest in capturing the full value of initial release of
information to chanroblesvirtualawlibrary
Page 471 U. S. 598
the public, and is properly analyzed as such. See infra at 471 U. S. 602-603. Lacking
too is any suggestion that The Nation's use interfered with the copyright owner's
interest in editorial control of the manuscript. The Nation made use of the Ford quotes
on the eve of official publication.
Thus, the only interest The Nation's prepublication use might have infringed is the
copyright owner's interest in capturing the full economic value of initial release. By
considering this interest as a component of the "nature" of the copyrighted work, the
Court's analysis deflates The Nation's claim that the informational nature of the work
supports fair use without any inquiry into the actual or potential economic harm of
The Nation's particular prepublication use. For this reason, the question of economic
harm is properly considered under the fourth statutory factor -- the effect on the
value of or market for the copyrighted work, 17 U.S.C. § 107(4) -- and not as a
presumed element of the "nature" of the copyright.
The Amount and Substantiality of the Portion Used. More difficult questions arise with
respect to judgments about the importance to this case of the amount and
substantiality of the quotations used. The Nation quoted only approximately 300
words from a manuscript of more than 200,000 words, and the quotes are drawn
from isolated passages in disparate sections of the work. The judgment that this
taking was quantitatively "infinitesimal," 723 F.2d 209, does not dispose of the
inquiry, however. An evaluation of substantiality in qualitative terms is also required.
Much of the quoted material was Mr. Ford's matter-of-fact representation of the
words of others in conversations with him; such quotations are "arguably necessary
adequately to convey the facts," ante at 471 U. S. 563, and are not rich in expressive
content. Beyond these quotations, a portion of the quoted material was drawn from
the most poignant expression in the Ford manuscript; in particular The Nation made
use of six examples of Mr. Ford's expression of his reflections
on chanroblesvirtualawlibrary
Page 471 U. S. 599
events or perceptions about President Nixon. [Footnote 3/22] The fair use inquiry
turns on the propriety of the use of these quotations with admittedly strong
expressive content.
The Court holds that, "in view of the expressive value of the excerpts and their key
role in the infringing work," this third statutory factor disfavors a finding of fair use.
[Footnote 3/23] To support chanroblesvirtualawlibrary
Page 471 U. S. 600
this conclusion, the Court purports to rely on the District Court factual findings that
The Nation had taken "the heart of the book." 557 F.Supp. 1062, 1072 (SDNY 1983).
This reliance is misplaced, and would appear to be another result of the Court's failure
to distinguish between information and literary form. When the District Court made
this finding, it was evaluating not the quoted words at issue here, but the "totality"
of the information and reflective commentary in the Ford work. Ibid. The vast
majority of what the District Court considered the heart of the Ford work, therefore,
consisted of ideas and information The Nation was free to use. It may well be that,
as a qualitative matter, most of the value of the manuscript did lie in the information
and ideas The Nation used. But appropriation of the "heart" of the manuscript in this
sense is irrelevant to copyright analysis because copyright does not preclude a second
author's use of information and ideas.
Perhaps tacitly recognizing that reliance on the District Court finding is unjustifiable,
the Court goes on to evaluate independently the quality of the expression appearing
in The Nation's article. The Court states that "[t]he portions actually quoted were
selected by Mr. Navasky as among the most powerful passages." Ante at 471 U. S.
565. On the basis of no more than this observation, and perhaps also inference from
the fact that the quotes were important to The Nation's article, [Footnote 3/24] the
Court adheres to its conclusion that The Nation appropriated the heart of the Ford
manuscript. chanroblesvirtualawlibrary
Page 471 U. S. 601
At least with respect to the six particular quotes of Mr. Ford's observations and
reflections about President Nixon, I agree with the Court's conclusion that The Nation
appropriated some literary form of substantial quality. I do not agree, however, that
the substantiality of the expression taken was clearly excessive or inappropriate to
The Nation's news reporting purpose.
Had these quotations been used in the context of a critical book review of the Ford
work, there is little question that such a use would be fair use within the meaning of
§ 107 of the Act. The amount and substantiality of the use -- in both quantitative and
qualitative terms -- would have certainly been appropriate to the purpose of such a
use. It is difficult to see how the use of these quoted words in a news report is less
appropriate. The Court acknowledges as much:
"[E]ven substantial quotations might qualify as a fair use in a review of a published
work or a news account of a speech that had been delivered to the public."
See ante at 471 U. S. 564. With respect to the motivation for the pardon and the
insights into the psyche of the fallen President, for example, Mr. Ford's reflections
and perceptions are so laden with emotion and deeply personal value judgments that
full understanding is immeasurably enhanced by reproducing a limited portion of Mr.
Ford's own words. The importance of the work, after all, lies not only in revelation of
previously unknown fact, but also in revelation of the thoughts, ideas, motivations,
and fears of two Presidents at a critical moment in our national history. Thus, while
the question is not easily resolved, it is difficult to say that the use of the six
quotations was gratuitous in relation to the news reporting purpose.
Conceding that even substantial quotation is appropriate in a news report of
a published work, the Court would seem to agree that this quotation was not clearly
inappropriate in relation to The Nation's news reporting purpose. For the Court, the
determinative factor is again that the substantiality of the use was inappropriate in
relation to the prepublication chanroblesvirtualawlibrary
Page 471 U. S. 602
timing of that use. That is really an objection to the effect of this use on the market
for the copyrighted work, and is properly evaluated as such.
The Effect on the Market. The Court correctly notes that the effect on the market "is
undoubtedly the single most important element of fair use." Ante at 471 U. S. 566,
citing 3 Nimmer § 13.05[A], at 13-76, and the Court properly focuses on whether
The Nation's use adversely affected Harper & Row's serialization potential and not
merely the market for sales of the Ford work itself. Ante at 471 U. S. 566-567.
Unfortunately, the Court's failure to distinguish between the use of information and
the appropriation of literary form badly skews its analysis of this factor.
For purposes of fair use analysis, the Court holds, it is sufficient that the entire
article containing the quotes eroded the serialization market potential of Mr. Ford's
work. Ante at 471 U. S. 567. On the basis of Time's cancellation of its serialization
agreement, the Court finds that "[r]arely will a case of copyright infringement present
such clear-cut evidence of actual damage." Ibid. In essence, the Court finds that, by
using some quotes in a story about the Nixon pardon, The Nation "competed for a
share of the market of prepublication excerpts" ante at 471 U. S. 568, because Time
planned to excerpt from the chapters about the pardon.
The Nation's publication indisputably precipitated Time's eventual cancellation. But
that does not mean that The Nation's use of the 300 quoted words caused this injury
to Harper & Row. Wholly apart from these quoted words, The Nation published
significant information and ideas from the Ford manuscript. If it was this publication
of information, and not the publication of the few quotations, that caused Time to
abrogate its serialization agreement, then whatever the negative effect on the
serialization market, that effect was the product of wholly legitimate activity.
The Court of Appeals specifically held that "the evidence does not support a finding
that it was the very limited use of expression per se which led to Time's decision not
to print excerpts." chanroblesvirtualawlibrary
Page 471 U. S. 603
723 F.2d 208. I fully agree with this holding. If The Nation competed with Time, the
competition was not for a share of the market in excerpts of literary form, but for a
share of the market in the new information in the Ford work. That the information,
and not the literary form, represents most of the real value of the work in this case
is perhaps best revealed by the following provision in the contract between Harper &
Row and Mr. Ford:
"Author acknowledges that the value of the rights granted to publisher hereunder
would be substantially diminished by Author's public discussion of the unique
information not previously disclosed about Author's career and personal life which
will be included in the Work, and Author agrees that Author will endeavor not to
disseminate any such information in any media, including television, radio and
newspaper and magazine interviews prior to the first publication of the work
hereunder."
App. 484. The contract thus makes clear that Harper & Row sought to benefit
substantially from monopolizing the initial revelation of information known only to
Ford.
Because The Nation was the first to convey the information in this case, it did perhaps
take from Harper & Row some of the value that publisher sought to garner for itself
through the contractual arrangement with Ford and the license to Time. Harper &
Row had every right to seek to monopolize revenue from that potential market
through contractual arrangements, but it has no right to set up copyright as a shield
from competition in that market, because copyright does not protect information. The
Nation had every right to seek to be the first to publish that information. [Footnote
3/25] chanroblesvirtualawlibrary
Page 471 U. S. 604
Balancing the Interests. Once the distinction between information and literary form
is made clear, the statutorily prescribed process of weighing the four statutory fair
use factors discussed above leads naturally to a conclusion that The Nation's limited
use of literary form was not an infringement. Both the purpose of the use and the
nature of the copyrighted work strongly favor the fair use defense here. The Nation
appropriated Mr. Ford's expression for a purpose Congress expressly authorized in §
107 and borrowed from a work whose nature justifies some appropriation to facilitate
the spread of information. The factor that is perhaps least favorable to the claim of
fair use is the amount and substantiality of the expression used. Without question, a
portion of the expression appropriated was among the most poignant in the Ford
manuscript. But it is difficult to conclude that this taking was excessive in relation to
the news reporting purpose. In any event, because the appropriation of literary form
-- as opposed to the use of information -- was not shown to injure Harper & Row's
economic interest, any uncertainty with respect to the propriety of the amount of
expression borrowed should be resolved in favor of a finding of fair use. [Footnote
3/26] In light of the circumscribed scope of the quotation in The Nation's article and
the undoubted validity of the purpose chanroblesvirtualawlibrary
Page 471 U. S. 605
motivating that quotation, I must conclude that the Court has simply adopted an
exceedingly narrow view of fair use in order to impose liability for what was in essence
a taking of unprotected information.
III
The Court's exceedingly narrow approach to fair use permits Harper & Row to
monopolize information. This holding "effect[s] an important extension of property
rights and a corresponding curtailment in the free use of knowledge and of
ideas." International News Service v. Associated Press, 248 U.S. at 248 U. S.
263 (Brandeis, J., dissenting). The Court has perhaps advanced the ability of the
historian -- or at least the public official who has recently left office -- to capture the
full economic value of information in his or her possession. But the Court does so
only by risking the robust debate of public issues that is the "essence of self-
government." Garrison v. Louisiana, 379 U.S. at 379 U. S. 74-75. The Nation was
providing the grist for that robust debate. The Court imposes liability upon The Nation
for no other reason than that The Nation succeeded in being the first to provide
certain information to the public. I dissent.
[Footnote 3/1]
In bypassing the threshold issue, the Court certainly does not intimate that The
Nation's use of ideas and information other than the quoted material would constitute
a violation of the copyright laws. At one point in its opinion, the Court correctly states
the governing principles with respect to the copyrightability question. See
ante at 471 U. S. 556 ("No author may copyright his ideas or the facts he narrates").
[Footnote 3/2]
Section 102(b) states:
"In no case does copyright protection for an original work of authorship extend to
any idea, procedure, process, system, method of operation, concept, principle, or
discovery, regardless of the form in which it is described, explained, illustrated, or
embodied in such work."
17 U.S.C. § 102(b). The doctrines of fair use, see 17 U.S.C. § 107, and substantial
similarity, see 3 M. Nimmer, Copyright § 13.05 (1984) (hereinafter Nimmer), also
function to accommodate these competing considerations. See generallyGorman,
Fact or Fancy? The Implications for Copyright, 29 J. Copyright Soc. 560 (1982).
[Footnote 3/3]
By the same token, an author may not claim copyright in statements made by others
and reported verbatim in the author's work. See Suid v. Newsweek Magazine, 503
F.Supp. 146, 148 (DC 1980); Rokeach v. Avco Embassy Pictures Corp., 197 USPQ
155, 161 (SDNY 1978).
[Footnote 3/4]
It would be perverse to prohibit government from limiting the financial resources
upon which a political speaker may draw, see FEC v. National Conservative Political
Action Committee, 470 U. S. 480 (1985), but to permit government to limit the
intellectual resources upon which that speaker may draw.
[Footnote 3/5]
The protection of literary form must proscribe more than merely word-for-word
appropriation of substantial portions of an author's work. Otherwise, a plagiarist could
avoid infringement by immaterial variations. Nichols v. Universal Pictures Corp., 45
F.2d 119, 121 (CA2 1930). The step beyond the narrow and clear prohibition of
wholesale copying is, however, a venture onto somewhat uncertain terrain. Compare
Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 974 (CA2 1980), with
Wainwright Securities Inc. v. Wall Street Transcript Corp., 558 F.2d 91 (CA2
1977). See also 1 Nimmer § 1.10B, at 1-73 - 1-74 ("It is the particular selection and
arrangement of ideas, as well as a given specificity in the form of their expression,
which warrants protection"); Chafee, Reflections on the Law of Copyright: I, 45
Colum.L.Rev. 503, 513 (1945) ("[T]he line . . . lie[s] somewhere between the
author's idea and the precise form in which he wrote it down. . . . [T]he protection
covers the pattern' of the work"); Gorman, supra, at 593 ("too literal and substantial
copying and paraphrasing of . . . language").
[Footnote 3/6]
The inquiry into the substantiality of appropriation has a quantitative and a qualitative
aspect.
[Footnote 3/7]
Neither the District Court nor the dissent in the Court of Appeals approached the
question in this way. Despite recognizing that this material was not "per
se copyrightable," the District Court held that the "totality of these facts and
memoranda collected together with Mr. Ford's reflections . . . is protected by the
copyright laws." 557 F.Supp. 1067, 1072-1073 (SDNY 1983). The dissent in the Court
of Appeals signaled approval of this approach. 723 F.2d 195, 213-214 (CA2 1983)
(Meskill, J., dissenting). Such an approach must be rejected. Copyright protection
cannot be extended to factual information whenever that information is interwoven
with protected expression (purportedly in this case Mr. Ford's reflections) into an
expressive "totality." Most works of history or biography blend factual narrative and
reflective or speculative commentary in this way. Precluding subsequent use of facts
so presented cannot be squared with the specific legislative intent, expressed in both
House and Senate Reports, that "[c]opyright does not preclude others from using the
. . . information revealed by the author's work." See S.Rep. No. 93-983, pp. 107-108
(1974); H.R.Rep. No. 94-1476, pp. 56-57 (1976). The core purposes of copyright
would be thwarted and serious First Amendment concerns would arise. An author
could obtain a monopoly on narration of historical events simply by being the first to
discuss them in a reflective or analytical manner.
[Footnote 3/8]
For example, the Ford manuscript expends several hundred words discussing
relations between Mr. Ford and Ronald Reagan in the weeks before the Republican
Convention of 1976:
"About a month before the convention, my aides had met with Reagan's
representatives to discuss the need for party unity. And they had reached an
agreement. At the end of the Presidential balloting, the winner would go to the loser's
hotel suite and congratulate his opponent for waging a fine campaign. Together, they
would appear at a press conference and urge all Republicans to put aside their
differences and rally behind the ticket. That was the only way we could leave Kansas
City with a hope of victory. When it appeared I was going to win, Sears contacted
Cheney and refined the scenario. He insisted on two conditions. The first was that I
had to see Reagan alone; there could be no aides from either camp in the room.
Secondly, under no circumstances should I offer him the nomination to be Vice
President. Reagan had said all along that he wasn't interested in the job. He had
meant what he said. If I tried to talk him out of it, he would have to turn me down,
and that would be embarrassing, because it would appear that he was refusing to
help the GOP. When Cheney relayed those conditions to me, I agreed to go along
with them. I would need Reagan's assistance in the fall campaign. It would be stupid
to anger him or his followers at this moment."
"Later I was told that, just before my arrival at the Californian's hotel, one of his
closest advisors, businessman Justin Dart, had urged him to say yes if I asked him
to be my running mate, Regardless of anything he'd said before, Dart had insisted,
it was his patriotic duty to accept the number two post. Finally, according to Dart,
Reagan had agreed. But at the time, no one mentioned this new development to me.
Had I been aware of the Dart-Reagan conversation, would I have chosen him? I can't
say for sure -- I thought his challenge had been divisive, and that it would probably
hurt the party in the fall campaign; additionally, I resented some of the things that
he'd been saying about me and my Administration's policies -- but I certainly would
have considered him."
App. 628-629. The Nation encapsulated this discussion in the following sentence:
"Ford also writes that, but for a misunderstanding, he might have selected Ronald
Reagan as his 1976 running mate." Id. at 627. In most other instances, a single
sentence or brief paragraph in The Nation's article similarly conveys the gist of a
discussion in the Ford manuscript that runs into the hundreds of words. See
generally Addendum B to Defendant's Post-Trial Memorandum, id.at 627-704.
[Footnote 3/9]
For example, at one point The Nation's article reads: "Ford told a Jackson, Mich.,
luncheon audience later in the day that the President was not guilty of an impeachable
offense." Ante at 471 U. S. 572. The portion of the Ford manuscript discussed stated:
"Representative Thad Cochran . . . escorted me to a luncheon at the Jackson Hilton
Hotel. During the luncheon, I repeated my assertion that the President was not guilty
of an impeachable offense."
App. 649. In several other places, the language in The Nation's article parallels Mr.
Ford's original expression to a similar degree. Compare ante at 471 U. S. 570-
579, with App. 627-704.
[Footnote 3/10]
Often the paraphrasing was of statements others had made to Mr. Ford. E.g.,
ante at 471 U. S. 571 ("He could ride it out' or he could resign, Haig said"). See
generally ante at 471 U. S. 570-579. No copyright can be asserted in the verbatim
representation of such statements of others. 17 U.S.C. § 102. See Suid v. Newsweek
Magazine, 503 F.Supp. at 148; Rokeach v. Avco Embassy Pictures Corp., 197 USPQ
at 161. Other paraphrased material came from Government documents in which no
copyright interest can be claimed. For example, the article quotes from a
memorandum prepared by Henry S. Ruth, Jr., in his official capacity as assistant to
Watergate Special Prosecutor Leon Jaworski. See ante at 471 U. S. 573. This
document is a work of the United States Government. See 17 U.S.C. § 105.
[Footnote 3/11]
According to an exhibit Harper & Row introduced at trial the pages in the Ford
manuscript that correspond to consecutive sections of the article are as follows: 607-
608, 401, 44, 496, 1, 2-3, 4, 8, 7, 4-5, 5, 5-6, 8, 14, 15, 16, 16, 18, 19, 21, 266,
236, 246, 248, 249, 238-239, 239, 243, 245, 246, 250, 250-251, 251, 252, 253,
254, 256, 298, 299, 46, 494, 537, 155-156, 216, 415, 416, 416, 53-54, 57. See App.
to Pet. for Cert. E-l to E-41.
[Footnote 3/12]
In one sense, The Nation "copied" Mr. Ford's selection of facts, because it reported
on only those facts Mr. Ford chose to select for presentation. But this tracking of a
historian's selection of facts generally should not supply the basis for a finding of
infringement. See Myers v. Mail & Express Co., 36 Copyright Off.Bull. 478 (SDNY
1919) (L. Hand, J.). To hold otherwise would be to require a second author to
duplicate the research of the first author so as to avoid reliance on the first author's
judgment as to what facts are particularly pertinent. "
I
t is just such wasted effort that the proscription against the copyright of ideas and
facts . . . are designed to prevent.'"Miller v. Universal City Studios, Inc., 650 F.2d
1365, 1371 (CA5 1981), quoting Rosemont Enterprises, Inc. v. Random House,
Inc., 366 F.2d 303, 310 (CA2 1966). See Gorman, 29 J.Copyright Soc. at 594-595.
[Footnote 3/13]
This congressional limitation on the scope of copyright does not threaten the
production of history. That this limitation results in significant diminution of economic
incentives is far from apparent. In any event, noneconomic incentives motivate much
historical research and writing. For example, former public officials often have great
incentive to "tell their side of the story." And much history is the product of academic
scholarship. Perhaps most importantly, the urge to preserve the past is as old as
humankind.
[Footnote 3/14]
E.g., N.Y. Times, Aug. 2, 1984, p. C20, col. 5 (article about revelations in forthcoming
biography of Cardinal Spellman); N.Y. Times, Dec. 10, 1981, p. A18, col. 1 (article
about revelations in forthcoming book by John Erlichman); N.Y. Times, Sept. 29,
1976, p. 1, col. 2 (article about revelations in forthcoming autobiography of President
Nixon); N.Y. Times, Mar. 27, 1976, p. 9, col. 1 (article about revelations concerning
President Nixon's resignation in forthcoming book The Final Days); N.Y. Times, Sept.
23, 1976, p. 36, col. 1 (article about revelations concerning President Ford in
forthcoming book Blind Ambition by John Dean).
[Footnote 3/15]
The Court properly rejects the argument that this is not legitimate news. Courts have
no business making such evaluations of journalistic quality. See ante at 471 U. S.
561. The Court also properly rejects the argument that this use is nonproductive. See
ibid. News reporting, which encompasses journalistic judgment with respect to
selection, organization, and presentation of facts and ideas, is certainly a productive
use. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. at 464 U. S.
478-479 (BLACKMUN, J., dissenting).
[Footnote 3/16]
To support this claim, the Court refers to some language in Sony Corp. of America v.
Universal City Studios, Inc., supra,to the effect that "every commercial use of
copyrighted material is presumptively an unfair exploitation." Id. at 464 U. S.
451. See ante at 471 U. S. 562. Properly understood, this language does not support
the Court's position in this case. The Court in Sony Corp. dealt with a use -- video
recording of copyrighted television programs for personal use about which Congress
had expressed no policy judgment. When a court evaluates uses that Congress has
not specifically addressed, the presumption articulated in Sony Corp. is appropriate
to effectuate the congressional instruction to consider "whether such use is of a
commercial nature." 17 U.S.C. § 107(1). Also, the Court made that statement in the
course of evaluating a use that appropriated the entirety of the copyrighted work in
a form identical to that of the original; the presumption articulated may well have
been intended to apply to takings under these circumstances. But, in light of the
specific language of § 107, this presumption is not appropriately employed to negate
the weight Congress explicitly gave to news reporting as a justification for limited use
of another's expression.
[Footnote 3/17]
This case is a far cry from Time Inc. v. Bernard Geis Associates, 293 F. Supp. 130,
146 (SDNY 1968), the only case the Court cites to support consideration of The
Nation's purported bad faith. In that case, the publisher claiming fair use had
personally stolen film negatives from the offices of Time and then published graphic
representations of the stolen photographic images. And the court found fair use
despite these circumstances. Ibid.
[Footnote 3/18]
The Court also discounts this factor in part because the appropriation of The Nation,
"focusing on the most expressive elements of the work, exceeds that necessary to
disseminate the facts." Ante at 471 U. S. 564. Whatever the propriety of this view of
The Nation's use, it is properly analyzed under the third statutory fair use factor --
the amount and substantiality of the expression taken in relation to the copyrighted
work as a whole, 17 U.S.C. § 107(3) -- and will be analyzed as such in this opinion.
[Footnote 3/19]
The Court lays claim to specific congressional intent supporting the presumption
against prepublication fair use. See anteat 471 U. S. 553, quoting S.Rep. No. 94-
473, p. 64 (1975); ante at 471 U. S. 551, n. 4, 471 U. S. 553-554. The argument
based on congressional intent is unpersuasive for three reasons.
First, the face of the statute clearly allows for prepublication fair use. The right of
first publication, like all other rights § 106 of the Act specifically grants copyright
owners, is explicitly made "subject to section 107," the statutory fair use
provision. See 17 U.S.C. § 106.
Second, the language from the Senate Report on which the Court relies so
heavily, see ante at 471 U. S. 553, simply will not bear the weight the Court places
on it. The Senate Report merely suggests that prepublication photocopying for
classroom purposes will not generally constitute fair use when the author has an
interest in the confidentiality of the unpublished work, evidenced by the author's
"deliberate choice" not to publish. Given that the face of § 106 specifically allows for
prepublication fair use, it would be unfaithful to the intent of Congress to draw from
this circumscribed suggestion in the Senate Report a blanket presumption against
any amount of prepublication fair use for any purpose and irrespective of the effect
of that use on the copyright owner's privacy, editorial, or economic interests.
Third, the Court's reliance on congressional adoption of the common law is also
unpersuasive. The common law did not set up the monolithic barrier to prepublication
fair use that the Court wishes it did. See, e.g., Estate of Hemingway v. Random
House, Inc., 53 Misc.2d 462, 279 N.Y.S.2d 51 (S.Ct.N.Y.Cty.), aff'd, 29 App.Div.2d
633, 285 N.Y.S.2d 568 (1st Jud.Dept.1967), aff'd on other grounds, 23 N.Y.2d 341,
244 N.E.2d 250 (1968). The statements of general principle the Court cites to support
its contrary representation of the common law, see ante at 471 U. S. 551, n. 4, are
themselves unsupported by reference to substantial judicial authority. Congressional
endorsement of the common law of fair use should not be read as adoption of any
rigid presumption against prepublication use. If read that way, the broad statement
that the Copyright Act was intended to incorporate the common law would, in effect,
be given the force of nullifying Congress' repeated methodological prescription that
definite rules are inappropriate and fact-specific analysis is required. The broad
language adopting the common law approach to fair use is best understood as an
endorsement of the essential fact-specificity and case-by-case methodology of the
common law of fair use.
[Footnote 3/20]
The Court finds the right of first publication particularly weighty because it
encompasses three important interests: (i) a privacy interest in whether to make
expression public at all; (ii) an editorial interest in ensuring control over the work
while it is being groomed for public dissemination; and (iii) an economic interest in
capturing the full remunerative potential of initial release to the public. Ante at 471
U. S. 552-555.
[Footnote 3/21]
Perhaps most inappropriate is the Court's apocalyptic prophesy that permitting any
prepublication use for news reporting will "effectively destroy any expectation of
copyright protection in the work of a public figure." Ante at 471 U. S. 557. The impact
of a prepublication use for purposes of news reporting will obviously vary with the
circumstances. A claim of news reporting should not be a fig leaf for substantial
plagiarism, see Wainwright Securities Inc. v. Wall Street Transcript Corp., 558 F.2d
91 (CA2 1977), but there is no warrant for concluding that prepublication quotation
of a few sentences will usually drain all value from a copyright owner's right of first
publication.
[Footnote 3/22]
These six quotes are:
"(1) "[C]ompassion for Nixon as an individual hadn't prompted my decision at all.'
Rather, he did it because he had `to get the monkey off my back one way or the
other.'" Ante at 471 U. S. 572-573."
"(2) "Nixon would not spend the time quietly in San Clemente,' and ìt would be
virtually impossible for me to direct public attention on anything else.'" Ante at 471
U. S. 573."
"(3) '
I
learned that public policy often took precedence over a rule of law. Although I
respected the tenet that no man should be above the law, public policy demanded
that I put Nixon -- and Watergate -- behind us as quickly as possible.'' Ante at471 U.
S. 575."
"(4) ''If I made the trip, it would remind everybody of Watergate and the pardon. If
I didn't, people would say I lacked compassion.'' Ibid."
"(5) 'He was stretched out flat on his back. There were tubes in his nose and mouth,
and wires led from his arms, chest and legs to machines with orange lights that
blinked on and off. His face was ashen, and I thought I had never seen anyone closer
to death.' Ibid."
"(6) "A terribly proud man,' writes Ford, `he detested weakness in other people. I'd
often heard him speak disparagingly of those whom he felt to be soft and expedient.
(Curiously, he didn't feel that the press was weak. Reporters, he sensed, were his
adversaries. He knew they didn't like him, and he responded with reciprocal disdain.)'
. . . `His pride and personal contempt for weakness had overcome his ability to tell
the difference between right and wrong.' . . .' Nixon was out of touch with
reality.'" Ante at 471 U. S. 578."
[Footnote 3/23]
The Court places some emphasis on the fact that the quotations from the Ford work
constituted a substantial portion of The Nation's article. Superficially, the Court would
thus appear to be evaluating The Nation's quotation of 300 words in relation to the
amount and substantiality of expression used in relation to the second author's work
as a whole. The statute directs the inquiry into "the amount and substantiality of the
portion used in relation to the copyrighted work as a whole," 17 U.S.C. § 107(3)
(emphasis added). As the statutory directive implies, it matters little whether the
second author's use is 1- or 100-percent appropriated expression if the taking of that
expression had no adverse effect on the copyrighted work. See Sony Corp. of America
v. Universal City Studios, Inc., 464 U. S. 417 (1984) (100% of expression taken). I
presume, therefore, that the Court considered the role of the expression "in the
infringing work" only as indirect evidence of the qualitative value of the expression
taken in this case. If read this way, the point dovetails with the Court's major
argument that The Nation appropriated the most valuable sentences of the work.
[Footnote 3/24]
See n. 471 U. S. 23, supra.
[Footnote 3/25]
The Court's reliance on the principle that "an infringer who mingles infringing and
noninfringing elements must abide the consequences,'" ante at 471 U. S.
567 (citation omitted), is misconceived. Once infringement of a § 106 exclusive right
has been shown, it is entirely appropriate to shift to the infringer the burden of
showing that the infringement did not cause all the damages shown. But the question
in this case is whether this particular use infringed any § 106 rights. Harper & Row
may have shown actual damage flowing from The Nation's use of information, but
they have not shown actual damage flowing from an infringement of a § 106 exclusive
right.
[Footnote 3/26]
Had The Nation sought to justify a more substantial appropriation of expression on a
news reporting rationale, a different case might be presented. The substantiality of
the taking would certainly dilute the claim of need to use the first author's exact
words to convey a particular thought or sentiment. Even if the claim of need were
plausible, the equities would have to favor the copyright owner in order to prevent
erosion of virtually all copyright protection for works of former public officials. In this
case, however, the need is manifest and the integrity of copyright protection for the
works of public officials is not threatened.
The AUTHORS GUILD, Betty Miles, Jim Bouton, Joseph Goulden,
individually and on behalf of all others similarly situated, Plaintiff–
Appellants, Herbert Mitgang, Daniel Hoffman, individually and on behalf of
all others similarly situated, Paul Dickson, The McGraw–Hill Companies, Inc.,
Pearson Education, Inc., Simon & Schuster, Inc., Association of
AmericanPublishers, Inc., Canadian Standard Association, John Wiley &
Sons, Inc., individually and on behalf of all others similarly situated,
Plaintiffs, v. GOOGLE, INC., Defendant–Appellee.
Docket No. 13–4829–cv.
Decided: October 16, 2015
Before LEVAL, CABRANES, PARKER, Circuit Judges.Paul M. Smith, Jenner & Block LLP,
Washington, DC (Edward H. Rosenthal, Jeremy S. Goldman, Anna Kadyshevich,
Andrew D. Jacobs, Frankfurt Kurnit Klein & Selz PC, New York, NY, on the brief), for
Plaintiff–Appellants. Seth P. Waxman, Wilmer Cutler Pickering Hale and Dorr LLP,
Washington, D.C. (Louis R. Cohen, Daniel P. Kearney, Jr., Weili J. Shaw, Wilmer
Cutler Pickering Hale and Dorr LLP, Washington D.C & Daralyn J. Durie, Joseph C.
Gratz, Durie Tangri LLP, San Francisco, CA, on the brief), for Defendant–Appellee.
This copyright dispute tests the boundaries of fair use. Plaintiffs, who are authors of
published books under copyright, sued Google, Inc. (“Google”) for copyright
infringement in the United States District Court for the Southern District of New York
(Chin, J.). They appeal from the grant of summary judgment in Google's favor.
Through its Library Project and its Google Books project, acting without permission
of rights holders, Google has made digital copies of tens of millions of books, including
Plaintiffs', that were submitted to it for that purpose by major libraries. Google has
scanned the digital copies and established a publicly available search function. An
Internet user can use this function to search without charge to determine whether
the book contains a specified word or term and also see “snippets” of text containing
the searched-for terms. In addition, Google has allowed the participating libraries to
download and retain digital copies of the books they submit, under agreements which
commit the libraries not to use their digital copies in violation of the copyright laws.
These activities of Google are alleged to constitute infringement of Plaintiffs'
copyrights. Plaintiffs sought injunctive and declaratory relief as well as damages.
Google defended on the ground that its actions constitute “fair use,” which, under 17
U.S.C. § 107, is “not an infringement.” The district court agreed. Authors Guild, Inc.
v. Google Inc., 954 F.Supp.2d 282, 294 (S.D.N.Y.2013). Plaintiffs brought this
appeal.
Plaintiffs contend the district court's ruling was flawed in several respects. They
argue: (1) Google's digital copying of entire books, allowing users through the snippet
function to read portions, is not a “transformative use” within the meaning of
Campbell v. Acuff–Rose Music, Inc., 510 U.S. 569, 578–585 (1994), and provides a
substitute for Plaintiffs' works; (2) notwithstanding that Google provides public
access to the search and snippet functions without charge and without advertising,
its ultimate commercial profit motivation and its derivation of revenue from its
dominance of the world-wide Internet search market to which the books project
contributes, preclude a finding of fair use; (3) even if Google's copying and
revelations of text do not infringe plaintiffs' books, they infringe Plaintiffs' derivative
rights in search functions, depriving Plaintiffs of revenues or other benefits they would
gain from licensed search markets; (4) Google's storage of digital copies exposes
Plaintiffs to the risk that hackers will make their books freely (or cheaply) available
on the Internet, destroying the value of their copyrights; and (5) Google's distribution
of digital copies to participant libraries is not a transformative use, and it subjects
Plaintiffs to the risk of loss of copyright revenues through access allowed by libraries.
We reject these arguments and conclude that the district court correctly sustained
Google's fair use defense.
Google's making of a digital copy to provide a search function is a transformative
use, which augments public knowledge by making available information about
Plaintiffs' books without providing the public with a substantial substitute for matter
protected by the Plaintiffs' copyright interests in the original works or derivatives of
them. The same is true, at least under present conditions, of Google's provision of
the snippet function. Plaintiffs' contention that Google has usurped their opportunity
to access paid and unpaid licensing markets for substantially the same functions that
Google provides fails, in part because the licensing markets in fact involve very
different functions than those that Google provides, and in part because an author's
derivative rights do not include an exclusive right to supply information (of the sort
provided by Google) about her works. Google's profit motivation does not in these
circumstances justify denial of fair use. Google's program does not, at this time and
on the record before us, expose Plaintiffs to an unreasonable risk of loss of copyright
value through incursions of hackers. Finally, Google's provision of digital copies to
participating libraries, authorizing them to make non-infringing uses, is non-
infringing, and the mere speculative possibility that the libraries might allow use of
their copies in an infringing manner does not make Google a contributory infringer.
Plaintiffs have failed to show a material issue of fact in dispute.
We affirm the judgment.
BACKGROUND
I. Plaintiffs
The author-plaintiffs are Jim Bouton, author of Ball Four; Betty Miles, author of The
Trouble with Thirteen; and Joseph Goulden, author of The Superlawyers: The Small
and Powerful World of the Great Washington Law Firms. Each of them has a legal or
beneficial ownership in the copyright for his or her book. 1 Their books have been
scanned without their permission by Google, which made them available to Internet
users for search and snippet view on Google's website.2
II. Google Books and the Google Library Project
Google's Library Project, which began in 2004, involves bi-lateral agreements
between Google and a number of the world's major research libraries. 3 Under these
agreements, the participating libraries select books from their collections to submit
to Google for inclusion in the project. Google makes a digital scan of each book,
extracts a machine-readable text, and creates an index of the machine-readable text
of each book. Google retains the original scanned image of each book, in part so as
to improve the accuracy of the machine-readable texts and indices as image-to-text
conversion technologies improve.
Since 2004, Google has scanned, rendered machine-readable, and indexed more than
20 million books, including both copyrighted works and works in the public domain.
The vast majority of the books are non-fiction, and most are out of print. All of the
digital information created by Google in the process is stored on servers protected by
the same security systems Google uses to shield its own confidential information.
The digital corpus created by the scanning of these millions of books enables the
Google Books search engine. Members of the public who access the Google Books
website can enter search words or terms of their own choice, receiving in response a
list of all books in the database in which those terms appear, as well as the number
of times the term appears in each book. A brief description of each book, entitled
“About the Book,” gives some rudimentary additional information, including a list of
the words and terms that appear with most frequency in the book. It sometimes
provides links to buy the book online and identifies libraries where the book can be
found .4 The search tool permits a researcher to identify those books, out of millions,
that do, as well as those that do not, use the terms selected by the researcher. Google
notes that this identifying information instantaneously supplied would otherwise not
be obtainable in lifetimes of searching.
No advertising is displayed to a user of the search function. Nor does Google receive
payment by reason of the searcher's use of Google's link to purchase the book.
The search engine also makes possible new forms of research, known as “text mining”
and “data mining.” Google's “ngrams” research tool draws on the Google Library
Project corpus to furnish statistical information to Internet users about the frequency
of word and phrase usage over centuries. 5 This tool permits users to discern
fluctuations of interest in a particular subject over time and space by showing
increases and decreases in the frequency of reference and usage in different periods
and different linguistic regions. It also allows researchers to comb over the tens of
millions of books Google has scanned in order to examine “word frequencies,
syntactic patterns, and thematic markers” and to derive information on how
nomenclature, linguistic usage, and literary style have changed over time. Authors
Guild, Inc., 954 F.Supp.2d at 287. The district court gave as an example “track[ing]
the frequency of references to the United States as a single entity (‘the United States
is') versus references to the United States in the plural (‘the United States are’) and
how that usage has changed over time.” Id.6
The Google Books search function also allows the user a limited viewing of text. In
addition to telling the number of times the word or term selected by the searcher
appears in the book, the search function will display a maximum of three “snippets”
containing it. A snippet is a horizontal segment comprising ordinarily an eighth of a
page. Each page of a conventionally formatted book7 in the Google Books database
is divided into eight non-overlapping horizontal segments, each such horizontal
segment being a snippet. (Thus, for such a book with 24 lines to a page, each snippet
is comprised of three lines of text.) Each search for a particular word or term within
a book will reveal the same three snippets, regardless of the number of computers
from which the search is launched. Only the first usage of the term on a given page
is displayed. Thus, if the top snippet of a page contains two (or more) words for which
the user searches, and Google's program is fixed to reveal that particular snippet in
response to a search for either term, the second search will duplicate the snippet
already revealed by the first search, rather than moving to reveal a different snippet
containing the word because the first snippet was already revealed. Google's program
does not allow a searcher to increase the number of snippets revealed by repeated
entry of the same search term or by entering searches from different computers. A
searcher can view more than three snippets of a book by entering additional searches
for different terms. However, Google makes permanently unavailable for snippet view
one snippet on each page and one complete page out of every ten—a process Google
calls “blacklisting.”
Google also disables snippet view entirely for types of books for which a single snippet
is likely to satisfy the searcher's present need for the book, such as dictionaries,
cookbooks, and books of short poems. Finally, since 2005, Google will exclude any
book altogether from snippet view at the request of the rights holder by the
submission of an online form.
Under its contracts with the participating libraries, Google allows each library to
download copies—of both the digital image and machine-readable versions—of the
books that library submitted to Google for scanning (but not of books submitted by
other libraries). This is done by giving each participating library access to the Google
Return Interface (“GRIN”). The agreements between Google and the libraries,
although not in all respects uniform, require the libraries to abide by copyright law in
utilizing the digital copies they download and to take precautions to prevent
dissemination of their digital copies to the public at large.8 Through the GRIN facility,
participant libraries have downloaded at least 2.7 million digital copies of their own
volumes.
III. Procedural History
Plaintiffs brought this suit on September 20, 2005, as a putative class action on behalf
of similarly situated, rights-owning authors.9 After several years of negotiation, the
parties reached a proposed settlement that would have resolved the claims on a
class-wide basis. The proposed settlement allowed Google to make substantially
more extensive use of its scans of copyrighted books than contemplated under the
present judgment, and provided that Google would make payments to the rights
holders in return. On March 22, 2011, however, the district court rejected the
proposed settlement as unfair to the class members who relied on the named
plaintiffs to represent their interests. Authors Guild v. Google Inc., 770 F.Supp.2d
666, 679–680 (S.D.N.Y.2011).
On October 14, 2011, Plaintiffs filed a fourth amended class action complaint, which
is the operative complaint for this appeal. See Dist. Ct. Docket No. 985. The district
court certified a class on May 31, 2012. Authors Guild v. Google Inc., 282 F.R.D. 384
(S.D.N.Y.2012). Google appealed from the certification, and moved in the district
court for summary judgment on its fair use defense. Plaintiffs cross-moved in the
district court for summary judgment. On the appeal from the class certification, our
court—questioning whether it was reasonable to infer that the putative class of
authors favored the relief sought by the named plaintiffs—provisionally vacated that
class certification without addressing the merits of the issue, concluding instead that
“resolution of Google's fair use defense in the first instance will necessarily inform
and perhaps moot our analysis of many class certification issues.” Authors Guild, Inc.
v. Google Inc., 721 F.3d 132, 134 (2d Cir.2013).
On November 14, 2013, the district court granted Google's motion for summary
judgment, concluding that the uses made by Google of copyrighted books were fair
uses, protected by § 107. Authors Guild, 954 F.Supp.2d at 284. Upon consideration
of the four statutory factors of § 107, the district court found that Google's uses were
transformative, that its display of copyrighted material was properly limited, and that
the Google Books program did not impermissibly serve as a market substitute for the
original works. Id. at 290. The court entered judgment initially on November 27,
2013, followed by an amended judgment on December 10, 2013, dismissing Plaintiffs'
claims with prejudice. Plaintiffs filed timely notice of appeal.
DISCUSSION10
I. The Law of Fair Use
The ultimate goal of copyright is to expand public knowledge and understanding,
which copyright seeks to achieve by giving potential creators exclusive control over
copying of their works, thus giving them a financial incentive to create informative,
intellectually enriching works for public consumption. This objective is clearly
reflected in the Constitution's empowerment of Congress “To promote the Progress
of Science ․ by securing for limited Times to Authors ․ the exclusive Right to their
respective Writings.” U.S. Const., Art. I, § 8, cl. 8) (emphasis added).11 Thus, while
authors are undoubtedly important intended beneficiaries of copyright, the ultimate,
primary intended beneficiary is the public, whose access to knowledge copyright
seeks to advance by providing rewards for authorship.
For nearly three hundred years, since shortly after the birth of copyright in England
in 1710, 12 courts have recognized that, in certain circumstances, giving authors
absolute control over all copying from their works would tend in some circumstances
to limit, rather than expand, public knowledge. In the words of Lord Ellenborough,
“[W]hile I shall think myself bound to secure every man in the enjoyment of his copy-
right, one must not put manacles upon science.” Cary v. Kearsley, 170 Eng. Rep.
679, 681, 4 Esp. 168, 170 (1802). Courts thus developed the doctrine, eventually
named fair use, which permits unauthorized copying in some circumstances, so as to
further “copyright's very purpose, ‘[t]o promote the Progress of Science and useful
Arts.’ “ Campbell v. Acuff–Rose Music, Inc., 510 U.S. 569, 575 (1994) (quoting U.S.
Const., Art. I, § 8, cl. 8). Although well established in the common law development
of copyright, fair use was not recognized in the terms of our statute until the adoption
of § 107 in the Copyright Act of 1976. 17 U.S.C. §§ 101 et seq.
Section 107, in its present form,13 provides:
[T]he fair use of a copyrighted work ․ for purposes such as criticism, comment, news
reporting, teaching (including multiple copies for classroom use), scholarship, or
research, is not an infringement of copyright. In determining whether the use made
of a work in any particular case is a fair use the factors to be considered shall
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.
The fact that a work is unpublished shall not itself bar a finding of fair use if such
finding is made upon consideration of all the above factors.
17 U.S.C. § 107. As the Supreme Court has designated fair use an affirmative
defense, see Campbell, 510 U.S. at 590, the party asserting fair use bears the burden
of proof, Am. Geophysical Union v. Texaco Inc., 60 F.3d 913, 918 (2d Cir.1994).
The statute's wording, derived from a brief observation of Justice Joseph Story in
Folsom v. Marsh,14 does not furnish standards for recognition of fair use. Its
instruction to consider the “purpose and character” of the secondary use and the
“nature” of the copyrighted work does not explain what types of “purpose and
character” or “nature” favor a finding of fair use and which do not. In fact, as the
Supreme Court observed in Campbell, the House Report makes clear that, in passing
the statute, Congress had no intention of normatively dictating fair use policy. The
purpose of the enactment was to give recognition in the statute itself to such an
important part of copyright law developed by the courts through the common law
process. “Congress meant § 107 ‘to restate the present judicial doctrine of fair use,
not to change, narrow, or enlarge it an any way,’ and intended that courts continue
the common-law tradition of fair use adjudication.” Campbell, 510 U.S. at 577
(quoting H.R.Rep. No. 94–1476, at 66 (1976), S.Rep. No. 94–473, at 62 (1975),
U.S.Code Cong. & Admin. News 5659, 5679 (1976)). Furthermore, notwithstanding
fair use's long common-law history, not until the Campbell ruling in 1994 did courts
undertake to explain the standards for finding fair use.
The Campbell Court undertook a comprehensive analysis of fair use's requirements,
discussing every segment of § 107. Beginning with the examples of purposes set
forth in the statute's preamble, the Court made clear that they are “illustrative and
not limitative” and “provide only general guidance about the sorts of copying that
courts and Congress most commonly ha[ve] found to be fair uses.” 510 U.S. at 577–
578 (internal quotations and citations omitted). The statute “calls for case-by-case
analysis” and “is not to be simplified with bright-line rules.” Id. at 577. Section 107's
four factors are not to “be treated in isolation, one from another. All are to be
explored, and the results weighed together, in light of the purposes of copyright.” Id.
at 578. Each factor thus stands as part of a multifaceted assessment of the crucial
question: how to define the boundary limit of the original author's exclusive rights in
order to best serve the overall objectives of the copyright law to expand public
learning while protecting the incentives of authors to create for the public good.
At the same time, the Supreme Court has made clear that some of the statute's four
listed factors are more significant than others. The Court observed in Harper & Row
Publishers, Inc. v. Nation Enterprises that the fourth factor, which assesses the harm
the secondary use can cause to the market for, or the value of, the copyright for the
original, “is undoubtedly the single most important element of fair use.” 471 U.S.
539, 566 (1985) (citing Melville B. Nimmer, 3 Nimmer on Copyright § 13.05[A], at
13–76 (1984)). This is consistent with the fact that the copyright is a commercial
right, intended to protect the ability of authors to profit from the exclusive right to
merchandise their own work.
In Campbell, the Court stressed also the importance of the first factor, the “purpose
and character of the secondary use.” 17 U.S.C. § 107(1). The more the appropriator
is using the copied material for new, transformative purposes, the more it serves
copyright's goal of enriching public knowledge and the less likely it is that the
appropriation will serve as a substitute for the original or its plausible derivatives,
shrinking the protected market opportunities of the copyrighted work. 510 U.S. at
591 (noting that, when the secondary use is transformative, “market substitution is
at least less certain, and market harm may not be so readily inferred.”).
With this background, we proceed to discuss each of the statutory factors, as
illuminated by Campbell and subsequent case law, in relation to the issues here in
dispute.
II. The Search and Snippet View Functions
A. Factor One
(1) Transformative purpose. Campbell 's explanation of the first factor's inquiry into
the “purpose and character” of the secondary use focuses on whether the new work,
“in Justice Story's words, ․ merely ‘supersede[s] the objects' of the original creation,
․ or instead adds something new, with a further purpose․ [I]t asks, in other words,
whether and to what extent the new work is ‘transformative.’ “ 510 U.S. at 578–579
(citations omitted). While recognizing that a transformative use is “not absolutely
necessary for a finding of fair use,” the opinion further explains that the “goal of
copyright, to promote science and the arts, is generally furthered by the creation of
transformative works” and that “[s]uch works thus lie at the heart of the fair use
doctrine's guarantee of breathing space within the confines of copyright.” Id. at 579.
In other words, transformative uses tend to favor a fair use finding because a
transformative use is one that communicates something new and different from the
original or expands its utility, thus serving copyright's overall objective of contributing
to public knowledge.
The word “transformative” cannot be taken too literally as a sufficient key to
understanding the elements of fair use. It is rather a suggestive symbol for a complex
thought, and does not mean that any and all changes made to an author's original
text will necessarily support a finding of fair use. The Supreme Court's discussion in
Campbell gave important guidance on assessing when a transformative use tends to
support a conclusion of fair use. The defendant in that case defended on the ground
that its work was a parody of the original and that parody is a time-honored category
of fair use. Explaining why parody makes a stronger, or in any event more obvious,
claim of fair use than satire, the Court stated,
[T]he heart of any parodist's claim to quote from existing material ․ is the use of ․ a
prior author's composition to ․ comment[ ] on that author's works ․ If, on the
contrary, the commentary has no critical bearing on the substance or style of the
original composition, which the alleged infringer merely uses to get attention or to
avoid the drudgery in working up something fresh, the claim to fairness in borrowing
from another's work diminishes accordingly (if it does not vanish)․ Parody needs to
mimic an original to make its point, and so has some claim to use the creation of its
victim's ․ imagination, whereas satire can stand on its own two feet and so requires
justification for the very act of borrowing.
Id. at 580–81 (emphasis added). In other words, the would-be fair user of another's
work must have justification for the taking. A secondary author is not necessarily at
liberty to make wholesale takings of the original author's expression merely because
of how well the original author's expression would convey the secondary author's
different message. Among the best recognized justifications for copying from
another's work is to provide comment on it or criticism of it. A taking from another
author's work for the purpose of making points that have no bearing on the original
may well be fair use, but the taker would need to show a justification. This part of
the Supreme Court's discussion is significant in assessing Google's claim of fair use
because, as discussed extensively below, Google's claim of transformative purpose
for copying from the works of others is to provide otherwise unavailable information
about the originals.
A further complication that can result from oversimplified reliance on whether the
copying involves transformation is that the word “transform” also plays a role in
defining “derivative works,” over which the original rights holder retains exclusive
control. Section 106 of the Act specifies the “exclusive right[ ]” of the copyright owner
“(2) to prepare derivative works based upon the copyrighted work.” See 17 U.S.C. §
106. The statute defines derivative works largely by example, rather than
explanation. The examples include “translation, musical arrangement, dramatization,
fictionalization, motion picture version, sound recording, art reproduction,
abridgement, condensation,” to which list the statute adds “any other form in which
a work may be ․ transformed.” 17 U.S.C. § 101 (emphasis added).15 As we noted in
Authors Guild, Inc. v. HathiTrust, “[p]aradigmatic examples of derivative works
include the translation of a novel into another language, the adaptation of a novel
into a movie or play, or the recasting of a novel as an e-book or an audiobook.” 755
F.3d 87, 95 (2d Cir.2014). While such changes can be described as transformations,
they do not involve the kind of transformative purpose that favors a fair use finding.
The statutory definition suggests that derivative works generally involve
transformations in the nature of changes of form. 17 U.S .C. § 101. By contrast,
copying from an original for the purpose of criticism or commentary on the
original16 or provision of information about it,17tends most clearly to satisfy Campbell
's notion of the “transformative” purpose involved in the analysis of Factor One.18
With these considerations in mind, we first consider whether Google's search and
snippet views functions satisfy the first fair use factor with respect to Plaintiffs' rights
in their books. (The question whether these functions might infringe upon Plaintiffs'
derivative rights is discussed in the next Part.)
(2) Search Function. We have no difficulty concluding that Google's making of a
digital copy of Plaintiffs' books for the purpose of enabling a search for identification
of books containing a term of interest to the searcher involves a highly transformative
purpose, in the sense intended by Campbell. Our court's exemplary discussion in
HathiTrust informs our ruling. That case involved a dispute that is closely related,
although not identical, to this one. Authors brought claims of copyright infringement
against HathiTrust, an entity formed by libraries participating in the Google Library
Project to pool the digital copies of their books created for them by Google. The suit
challenged various usages HathiTrust made of the digital copies. Among the
challenged uses was HathiTrust's offer to its patrons of “full-text searches,” which,
very much like the search offered by Google Books to Internet users, permitted
patrons of the libraries to locate in which of the digitized books specific words or
phrases appeared. 755 F.3d at 98. (HathiTrust's search facility did not include the
snippet view function, or any other display of text.) We concluded that both the
making of the digital copies and the use of those copies to offer the search tool were
fair uses. Id. at 105.
Notwithstanding that the libraries had downloaded and stored complete digital copies
of entire books, we noted that such copying was essential to permit searchers to
identify and locate the books in which words or phrases of interest to them appeared.
Id. at 97. We concluded “that the creation of a full-text searchable database is a
quintessentially transformative use ․ [as] the result of a word search is different in
purpose, character, expression, meaning, and message from the page (and the book)
from which it is drawn.” Id. We cited A.V. ex rel. Vanderhye v. iParadigms, LLC, 562
F.3d 630, 639–40 (4th Cir.2009), Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d
1146, 1165 (9th Cir.2007), and Kelly v. Arriba Soft Corp., 336 F.3d 811, 819 (9th
Cir.2003) as examples of cases in which courts had similarly found the creation of
complete digital copies of copyrighted works to be transformative fair uses when the
copies “served a different function from the original.” HathiTrust, 755 F.3d at 97.
As with HathiTrust (and iParadigms ), the purpose of Google's copying of the original
copyrighted books is to make available significant information about those books,
permitting a searcher to identify those that contain a word or term of interest, as well
as those that do not include reference to it. In addition, through the ngrams tool,
Google allows readers to learn the frequency of usage of selected words in the
aggregate corpus of published books in different historical periods. We have no doubt
that the purpose of this copying is the sort of transformative purpose described in
Campbell as strongly favoring satisfaction of the first factor.
We recognize that our case differs from HathiTrust in two potentially significant
respects. First, HathiTrust did not “display to the user any text from the underlying
copyrighted work,” 755 F.3d at 91, whereas Google Books provides the searcher with
snippets containing the word that is the subject of the search. Second, HathiTrust
was a nonprofit educational entity, while Google is a profit-motivated commercial
corporation. We discuss those differences below.
(3) Snippet View. Plaintiffs correctly point out that this case is significantly different
from HathiTrust in that the Google Books search function allows searchers to read
snippets from the book searched, whereas HathiTrust did not allow searchers to view
any part of the book. Snippet view adds important value to the basic transformative
search function, which tells only whether and how often the searched term appears
in the book. Merely knowing that a term of interest appears in a book does not
necessarily tell the searcher whether she needs to obtain the book, because it does
not reveal whether the term is discussed in a manner or context falling within the
scope of the searcher's interest. For example, a searcher seeking books that explore
Einstein's theories, who finds that a particular book includes 39 usages of “Einstein,”
will nonetheless conclude she can skip that book if the snippets reveal that the book
speaks of “Einstein” because that is the name of the author's cat. In contrast, the
snippet will tell the searcher that this is a book she needs to obtain if the snippet
shows that the author is engaging with Einstein's theories.
Google's division of the page into tiny snippets is designed to show the searcher just
enough context surrounding the searched term to help her evaluate whether the book
falls within the scope of her interest (without revealing so much as to threaten the
author's copyright interests). Snippet view thus adds importantly to the highly
transformative purpose of identifying books of interest to the searcher. With respect
to the first factor test, it favors a finding of fair use (unless the value of its
transformative purpose is overcome by its providing text in a manner that offers a
competing substitute for Plaintiffs' books, which we discuss under factors three and
four below).
(4) Google's Commercial Motivation. Plaintiffs also contend that Google's commercial
motivation weighs in their favor under the first factor. Google's commercial
motivation distinguishes this case from HathiTrust, as the defendant in that case was
a non-profit entity founded by, and acting as the representative of, libraries. Although
Google has no revenues flowing directly from its operation of the Google Books
functions, Plaintiffs stress that Google is profit-motivated and seeks to use its
dominance of book search to fortify its overall dominance of the Internet search
market, and that thereby Google indirectly reaps profits from the Google Books
functions.
For these arguments Plaintiffs rely primarily on two sources. First is Congress's
specification in spelling out the first fair use factor in the text of § 107 that
consideration of the “purpose and character of the [secondary] use” should
“include[e] whether such use is of a commercial nature or is for nonprofit educational
purposes.” Second is the Supreme Court's assertion in dictum in Sony Corporation of
America v. Universal City Studios, Inc, that “every commercial use of copyrighted
material is presumptively ․ unfair.” 464 U.S. 417, 451 (1984). If that were the extent
of precedential authority on the relevance of commercial motivation, Plaintiffs'
arguments would muster impressive support. However, while the commercial
motivation of the secondary use can undoubtedly weigh against a finding of fair use
in some circumstances, the Supreme Court, our court, and others have eventually
recognized that the Sony dictum was enormously overstated.19
The Sixth Circuit took the Sony dictum at its word in Acuff–Rose Music, Inc. v.
Campbell, concluding that, because the defendant rap music group's spoof of the
plaintiff's ballad was done for profit, it could not be fair use. 972 F.2d 1429, 1436–
1437 (6th Cir.1992). The Supreme Court reversed on this very point, observing that
“Congress could not have intended” such a broad presumption against commercial
fair uses, as “nearly all of the illustrative uses listed in the preamble paragraph of §
107 ․ are generally conducted for profit in this country.” Campbell, 510 U.S. at 584
(internal quotation marks and citations omitted). The Court emphasized Congress's
statement in the House Report to the effect that the commercial or nonprofit
character of a work is “not conclusive” but merely “a fact to be ‘weighed along with
other[s] in fair use decisions.” Id. at 585 (quoting H.R.Rep. No. 94–1476, at 66
(1976)). In explaining the first fair use factor, the Court clarified that “the more
transformative the [secondary] work, the less will be the significance of other factors,
like commercialism, that may weigh against a finding of fair use.” Id. at 579.
Our court has since repeatedly rejected the contention that commercial motivation
should outweigh a convincing transformative purpose and absence of significant
substitutive competition with the original. See Cariou v. Prince, 714 F.3d 694, 708
(2d Cir.2013), cert. denied, 134 S.Ct. 618 (2013) (“The commercial/nonprofit
dichotomy concerns the unfairness that arises when a secondary user makes
unauthorized use of copyrighted material to capture significant revenues as a direct
consequence of copying the original work. This factor must be applied with caution
because, as the Supreme Court has recognized, Congress could not have intended a
rule that commercial uses are presumptively unfair. Instead, the 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.”) (internal quotation marks, citations,
and alterations omitted); Castle Rock Entm't, Inc. v. Carol Pub. Grp., Inc., 150 F.3d
132, 141–42 (2d Cir.1998) (“We ․ do not give much weight to the fact that the
secondary use was for commercial gain. The more critical inquiry under the first factor
and in fair use analysis generally is whether the allegedly infringing work merely
supersedes the original work or instead adds something new, with a further purpose
or different character, altering the first with new meaning or message, in other words
whether and to what extent the new work is transformative.”) (internal quotation
marks, citations, and alterations omitted).
While we recognize that in some circumstances, a commercial motivation on the part
of the secondary user will weigh against her, especially, as the Supreme Court
suggested, when a persuasive transformative purpose is lacking, Campbell, 510 U.S.
at 579, we see no reason in this case why Google's overall profit motivation should
prevail as a reason for denying fair use over its highly convincing transformative
purpose, together with the absence of significant substitutive competition, as reasons
for granting fair use. Many of the most universally accepted forms of fair use, such
as news reporting and commentary, quotation in historical or analytic books, reviews
of books, and performances, as well as parody, are all normally done commercially
for profit.20
B. Factor Two
The second fair use factor directs consideration of the “nature of the copyrighted
work.” While the “transformative purpose” inquiry discussed above is conventionally
treated as a part of first factor analysis, it inevitably involves the second factor as
well. One cannot assess whether the copying work has an objective that differs from
the original without considering both works, and their respective objectives.
The second factor has rarely played a significant role in the determination of a fair
use dispute. See William F. Patry, Patry On Fair Use § 4.1 (2015). The Supreme Court
in Harper & Row made a passing observation in dictum that, “[t]he law generally
recognizes a greater need to disseminate factual works than works of fiction or
fantasy.” 471 U.S. 539, 563 (1985). Courts have sometimes speculated that this
might mean that a finding of fair use is more favored when the copying is of factual
works than when copying is from works of fiction. However, while the copyright does
not protect facts or ideas set forth in a work, it does protect that author's manner of
expressing those facts and ideas. At least unless a persuasive fair use justification is
involved, authors of factual works, like authors of fiction, should be entitled to
copyright protection of their protected expression. The mere fact that the original is
a factual work therefore should not imply that others may freely copy it. Those who
report the news undoubtedly create factual works. It cannot seriously be argued that,
for that reason, others may freely copy and re-disseminate news reports.21
In considering the second factor in HathiTrust, we concluded that it was “not
dispositive,” 755 F.3d at 98, commenting that courts have hardly ever found that the
second factor in isolation played a large role in explaining a fair use decision. The
same is true here. While each of the three Plaintiffs' books in this case is factual, we
do not consider that as a boost to Google's claim of fair use. If one (or all) of the
plaintiff works were fiction, we do not think that would change in any way our
appraisal. Nothing in this case influences us one way or the other with respect to the
second factor considered in isolation. To the extent that the “nature” of the original
copyrighted work necessarily combines with the “purpose and character” of the
secondary work to permit assessment of whether the secondary work uses the
original in a “transformative” manner, as the term is used in Campbell, the second
factor favors fair use not because Plaintiffs' works are factual, but because the
secondary use transformatively provides valuable information about the original,
rather than replicating protected expression in a manner that provides a meaningful
substitute for the original.
C. Factor Three
The third statutory factor instructs us to consider “the amount and substantiality of
the portion used in relation to the copyrighted work as a whole.” The clear implication
of the third factor is that a finding of fair use is more likely when small amounts, or
less important passages, are copied than when the copying is extensive, or
encompasses the most important parts of the original. 22 The obvious reason for this
lies in the relationship between the third and the fourth factors. The larger the
amount, or the more important the part, of the original that is copied, the greater
the likelihood that the secondary work might serve as an effectively competing
substitute for the original, and might therefore diminish the original rights holder's
sales and profits.
(1) Search Function. The Google Books program has made a digital copy of the
entirety of each of Plaintiffs' books. Notwithstanding the reasonable implication of
Factor Three that fair use is more likely to be favored by the copying of smaller,
rather than larger, portions of the original, courts have rejected any categorical rule
that a copying of the entirety cannot be a fair use. 23 Complete unchanged copying
has repeatedly been found justified as fair use when the copying was reasonably
appropriate to achieve the copier's transformative purpose and was done in such a
manner that it did not offer a competing substitute for the original . 24 The Supreme
Court said in Campbell that “the extent of permissible copying varies with the purpose
and character of the use” and characterized the relevant questions as whether “the
amount and substantiality of the portion used ․ are reasonable in relation to the
purpose of the copying,” Campbell, 510 U.S. at 586–587, noting that the answer to
that question will be affected by “the degree to which the [copying work] may serve
as a market substitute for the original or potentially licensed derivatives,” id. at 587–
588 (finding that, in the case of a parodic song, “how much ․ is reasonable will
depend, say, on the extent to which the song's overriding purpose and character is
to parody the original or, in contrast, the likelihood that the parody may serve as a
market substitute for the original”).
In HathiTrust, our court concluded in its discussion of the third factor that “[b]ecause
it was reasonably necessary for the [HathiTrust Digital Library] to make use of the
entirety of the works in order to enable the full-text search function, we do not believe
the copying was excessive.” 755 F.3d at 98. As with HathiTrust, not only is the
copying of the totality of the original reasonably appropriate to Google's
transformative purpose, it is literally necessary to achieve that purpose. If Google
copied less than the totality of the originals, its search function could not advise
searchers reliably whether their searched term appears in a book (or how many
times).
While Google makes an unauthorized digital copy of the entire book, it does not reveal
that digital copy to the public. The copy is made to enable the search functions to
reveal limited, important information about the books. With respect to the search
function, Google satisfies the third factor test, as illuminated by the Supreme Court
in Campbell.
(2) Snippet View. Google's provision of snippet view makes our third factor inquiry
different from that inquiry in HathiTrust . What matters in such cases is not so much
“the amount and substantiality of the portion used” in making a copy, but rather the
amount and substantiality of what is thereby made accessible to a public for which it
may serve as a competing substitute. In HathiTrust, notwithstanding the defendant's
full-text copying, the search function revealed virtually nothing of the text of the
originals to the public. Here, through the snippet view, more is revealed to searchers
than in HathiTrust.
Without doubt, enabling searchers to see portions of the copied texts could have
determinative effect on the fair use analysis. The larger the quantity of the
copyrighted text the searcher can see and the more control the searcher can exercise
over what part of the text she sees, the greater the likelihood that those revelations
could serve her as an effective, free substitute for the purchase of the plaintiff's book.
We nonetheless conclude that, at least as presently structured by Google, the snippet
view does not reveal matter that offers the marketplace a significantly competing
substitute for the copyrighted work.
Google has constructed the snippet feature in a manner that substantially protects
against its serving as an effectively competing substitute for Plaintiffs' books. In the
Background section of this opinion, we describe a variety of limitations Google
imposes on the snippet function. These include the small size of the snippets
(normally one eighth of a page), the blacklisting of one snippet per page and of one
page in every ten, the fact that no more than three snippets are shown—and no more
than one per page—for each term searched, and the fact that the same snippets are
shown for a searched term no matter how many times, or from how many different
computers, the term is searched. In addition, Google does not provide snippet view
for types of books, such as dictionaries and cookbooks, for which viewing a small
segment is likely to satisfy the searcher's need. The result of these restrictions is, so
far as the record demonstrates, that a searcher cannot succeed, even after long
extended effort to multiply what can be revealed, in revealing through a snippet
search what could usefully serve as a competing substitute for the original.
The blacklisting, which permanently blocks about 22% of a book's text from snippet
view, is by no means the most important of the obstacles Google has designed. While
it is true that the blacklisting of 22% leaves 78% of a book theoretically accessible
to a searcher, it does not follow that any large part of that 78% is in fact accessible.
The other restrictions built into the program work together to ensure that, even after
protracted effort over a substantial period of time, only small and randomly scattered
portions of a book will be accessible. In an effort to show what large portions of text
searchers can read through persistently augmented snippet searches, Plaintiffs'
counsel employed researchers over a period of weeks to do multiple word searches
on Plaintiffs' books. In no case were they able to access as much as 16% of the text,
and the snippets collected were usually not sequential but scattered randomly
throughout the book. Because Google's snippets are arbitrarily and uniformly divided
by lines of text, and not by complete sentences, paragraphs, or any measure dictated
by content, a searcher would have great difficulty constructing a search so as to
provide any extensive information about the book's use of that term. As snippet view
never reveals more than one snippet per page in response to repeated searches for
the same term, it is at least difficult, and often impossible, for a searcher to gain
access to more than a single snippet's worth of an extended, continuous discussion
of the term.
The fact that Plaintiffs' searchers managed to reveal nearly 16% of the text of
Plaintiffs' books overstates the degree to which snippet view can provide a meaningful
substitute. At least as important as the percentage of words of a book that are
revealed is the manner and order in which they are revealed. Even if the search
function revealed 100% of the words of the copyrighted book, this would be of little
substitutive value if the words were revealed in alphabetical order, or any order other
than the order they follow in the original book. It cannot be said that a revelation is
“substantial” in the sense intended by the statute's third factor if the revelation is in
a form that communicates little of the sense of the original. The fragmentary and
scattered nature of the snippets revealed, even after a determined, assiduous, time-
consuming search, results in a revelation that is not “substantial,” even if it includes
an aggregate 16% of the text of the book. If snippet view could be used to reveal a
coherent block amounting to 16% of a book, that would raise a very different question
beyond the scope of our inquiry.
D. Factor Four
The fourth fair use factor, “the effect of the [copying] use upon the potential market
for or value of the copyrighted work,” focuses on whether the copy brings to the
marketplace a competing substitute for the original, or its derivative, so as to deprive
the rights holder of significant revenues because of the likelihood that potential
purchasers may opt to acquire the copy in preference to the original. Because
copyright is a commercial doctrine whose objective is to stimulate creativity among
potential authors by enabling them to earn money from their creations, the fourth
factor is of great importance in making a fair use assessment. See Harper & Row,
471 U.S. at 566 (describing the fourth factor as “undoubtedly the single most
important element of fair use”).
Campbell stressed the close linkage between the first and fourth factors, in that the
more the copying is done to achieve a purpose that differs from the purpose of the
original, the less likely it is that the copy will serve as a satisfactory substitute for the
original. 510 U.S. at 591. Consistent with that observation, the HathiTrust court found
that the fourth factor favored the defendant and supported a finding of fair use
because the ability to search the text of the book to determine whether it includes
selected words “does not serve as a substitute for the books that are being searched.”
755 F.3d at 100.
However, Campbell 's observation as to the likelihood of a secondary use serving as
an effective substitute goes only so far. Even if the purpose of the copying is for a
valuably transformative purpose, such copying might nonetheless harm the value of
the copyrighted original if done in a manner that results in widespread revelation of
sufficiently significant portions of the original as to make available a significantly
competing substitute. The question for us is whether snippet view, notwithstanding
its transformative purpose, does that. We conclude that, at least as snippet view is
presently constructed, it does not.
Especially in view of the fact that the normal purchase price of a book is relatively
low in relation to the cost of manpower needed to secure an arbitrary assortment of
randomly scattered snippets, we conclude that the snippet function does not give
searchers access to effectively competing substitutes. Snippet view, at best and after
a large commitment of manpower, produces discontinuous, tiny fragments,
amounting in the aggregate to no more than 16% of a book. This does not threaten
the rights holders with any significant harm to the value of their copyrights or
diminish their harvest of copyright revenue.
We recognize that the snippet function can cause some loss of sales. There are surely
instances in which a searcher's need for access to a text will be satisfied by the
snippet view, resulting in either the loss of a sale to that searcher, or reduction of
demand on libraries for that title, which might have resulted in libraries purchasing
additional copies. But the possibility, or even the probability or certainty, of some
loss of sales does not suffice to make the copy an effectively competing substitute
that would tilt the weighty fourth factor in favor of the rights holder in the original.
There must be a meaningful or significant effect “upon the potential market for or
value of the copyrighted work.” 17 U.S .C. § 107(4).
Furthermore, the type of loss of sale envisioned above will generally occur in relation
to interests that are not protected by the copyright. A snippet's capacity to satisfy a
searcher's need for access to a copyrighted book will at times be because the snippet
conveys a historical fact that the searcher needs to ascertain. For example, a student
writing a paper on Franklin D. Roosevelt might need to learn the year Roosevelt was
stricken with polio. By entering “Roosevelt polio” in a Google Books search, the
student would be taken to (among numerous sites) a snippet from page 31 of Richard
Thayer Goldberg's The Making of Franklin D. Roosevelt (1981), telling that the polio
attack occurred in 1921. This would satisfy the searcher's need for the book,
eliminating any need to purchase it or acquire it from a library. But what the searcher
derived from the snippet was a historical fact. Author Goldberg's copyright does not
extend to the facts communicated by his book. It protects only the author's manner
of expression. Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 974 (2d
Cir.1980) (“A grant of copyright in a published work secures for its author a limited
monopoly over the expression it contains.”) (emphasis added). Google would be
entitled, without infringement of Goldberg's copyright, to answer the student's query
about the year Roosevelt was afflicted, taking the information from Goldberg's book.
The fact that, in the case of the student's snippet search, the information came
embedded in three lines of Goldberg's writing, which were superfluous to the
searcher's needs, would not change the taking of an unprotected fact into a copyright
infringement.
Even if the snippet reveals some authorial expression, because of the brevity of a
single snippet and the cumbersome, disjointed, and incomplete nature of the
aggregation of snippets made available through snippet view, we think it would be a
rare case in which the searcher's interest in the protected aspect of the author's work
would be satisfied by what is available from snippet view, and rarer still—because of
the cumbersome, disjointed, and incomplete nature of the aggregation of snippets
made available through snippet view—that snippet view could provide a significant
substitute for the purchase of the author's book.
Accordingly, considering the four fair use factors in light of the goals of copyright, we
conclude that Google's making of a complete digital copy of Plaintiffs' works for the
purpose of providing the public with its search and snippet view functions (at least
as snippet view is presently designed) is a fair use and does not infringe Plaintiffs'
copyrights in their books.
III. Derivative Rights in Search and Snippet View
Plaintiffs next contend that, under Section 106(2), they have a derivative right in the
application of search and snippet view functions to their works, and that Google has
usurped their exclusive market for such derivatives.
There is no merit to this argument. As explained above, Google does not infringe
Plaintiffs' copyright in their works by making digital copies of them, where the copies
are used to enable the public to get information about the works, such as whether,
and how often they use specified words or terms (together with peripheral snippets
of text, sufficient to show the context in which the word is used but too small to
provide a meaningful substitute for the work's copyrighted expression). The copyright
resulting from the Plaintiffs' authorship of their works does not include an exclusive
right to furnish the kind of information about the works that Google's programs
provide to the public. For substantially the same reasons, the copyright that protects
Plaintiffs' works does not include an exclusive derivative right to supply such
information through query of a digitized copy.
The extension of copyright protection beyond the copying of the work in its original
form to cover also the copying of a derivative reflects a clear and logical policy choice.
An author's right to control and profit from the dissemination of her work ought not
to be evaded by conversion of the work into a different form. The author of a book
written in English should be entitled to control also the dissemination of the same
book translated into other languages, or a conversion of the book into a film. The
copyright of a composer of a symphony or song should cover also conversions of the
piece into scores for different instrumentation, as well as into recordings of
performances.
This policy is reflected in the statutory definition, which explains the scope of the
“derivative” largely by examples—including “a translation, musical arrangement,
dramatization, fictionalization, motion picture version, sound recording, art
reproduction, abridgement, [or] condensation”—before adding, “or any other form in
which a work may be recast, transformed, or adapted.” 17 U.S.C. § 101. 25 As noted
above, this definition, while imprecise, strongly implies that derivative works over
which the author of the original enjoys exclusive rights ordinarily are those that re-
present the protected aspects of the original work, i.e., its expressive content,
converted into an altered form, such as the conversion of a novel into a film, the
translation of a writing into a different language, the reproduction of a painting in the
form of a poster or post card, recreation of a cartoon character in the form of a three-
dimensional plush toy, adaptation of a musical composition for different instruments,
or other similar conversions. If Plaintiffs' claim were based on Google's converting
their books into a digitized form and making that digitized version accessible to the
public, their claim would be strong. But as noted above, Google safeguards from
public view the digitized copies it makes and allows access only to the extent of
permitting the public to search for the very limited information accessible through
the search function and snippet view. The program does not allow access in any
substantial way to a book's expressive content. Nothing in the statutory definition of
a derivative work, or of the logic that underlies it, suggests that the author of an
original work enjoys an exclusive derivative right to supply information about that
work of the sort communicated by Google's search functions.
Plaintiffs seek to support their derivative claim by a showing that there exist, or would
have existed, paid licensing markets in digitized works, such as those provided by
the Copyright Clearance Center or the previous, revenue-generating version of the
Google Partners Program. Plaintiffs also point to the proposed settlement agreement
rejected by the district court in this case, according to which Google would have paid
authors for its use of digitized copies of their works. The existence or potential
existence of such paid licensing schemes does not support Plaintiffs' derivative
argument. The access to the expressive content of the original that is or would have
been provided by the paid licensing arrangements Plaintiffs cite is far more extensive
than that which Google's search and snippet view functions provide. Those
arrangements allow or would have allowed public users to read substantial portions
of the book. Such access would most likely constitute copyright infringement if not
licensed by the rights holders. Accordingly, such arrangements have no bearing on
Google's present programs, which, in a non-infringing manner, allow the public to
obtain limited data about the contents of the book, without allowing any substantial
reading of its text.
Plaintiffs also seek to support their derivative claim by a showing that there is a
current unpaid market in licenses for partial viewing of digitized books, such as the
licenses that publishers currently grant to the Google Partners program and Amazon's
Search Inside the Book program to display substantial portions of their books.
Plaintiffs rely on Infinity Broadcast Corporation v. Kirkwood, 150 F.3d 104 (2nd
Cir.1998) and United States v. American Society of Composers, Authors and
Publishers (ASCAP), 599 F.Supp.2d 415 (S.D.N.Y.2009) for the proposition that “a
secondary use that replaces a comparable service licensed by the copyright holder,
even without charge, may cause market harm.” Pls.' Br. at 51. In the cases cited,
however, the purpose of the challenged secondary uses was not the dissemination of
information about the original works, which falls outside the protection of the
copyright, but was rather the re-transmission, or re-dissemination, of their
expressive content. Those precedents do not support the proposition Plaintiffs
assert—namely that the availability of licenses for providing unprotected information
about a copyrighted work, or supplying unprotected services related to it, gives the
copyright holder the right to exclude others from providing such information or
services.
While the telephone ringtones at issue in the ASCAP case Plaintiffs cite are
superficially comparable to Google's snippets in that both consist of brief segments
of the copyrighted work, in a more significant way they are fundamentally different.
While it is true that Google's snippets display a fragment of expressive content, the
fragments it displays result from the appearance of the term selected by the searcher
in an otherwise arbitrarily selected snippet of text. Unlike the reading experience that
the Google Partners program or the Amazon Search Inside the Book program
provides, the snippet function does not provide searchers with any meaningful
experience of the expressive content of the book. Its purpose is not to communicate
copyrighted expression, but rather, by revealing to the searcher a tiny segment
surrounding the searched term, to give some minimal contextual information to help
the searcher learn whether the book's use of that term will be of interest to her. The
segments taken from copyrighted music as ringtones, in contrast, are selected
precisely because they play the most famous, beloved passages of the particular
piece—the expressive content that members of the public want to hear when their
phone rings. The value of the ringtone to the purchaser is not that it provides
information but that it provides a mini-performance of the most appealing segment
of the author's expressive content. There is no reason to think the courts in the cited
cases would have come to the same conclusion if the service being provided by the
secondary user had been simply to identify to a subscriber in what key a selected
composition was written, the year it was written, or the name of the composer. These
cases, and the existence of unpaid licensing schemes for substantial viewing of
digitized works, do not support Plaintiffs' derivative works argument.
IV. Plaintiffs' Exposure to Risks of Hacking of Google's Files
Plaintiffs argue that Google's storage of its digitized copies of Plaintiffs' books exposes
them to the risk that hackers might gain access and make the books widely available,
thus destroying the value of their copyrights. Unlike the Plaintiffs' argument just
considered based on a supposed derivative right to supply information about their
books, this claim has a reasonable theoretical basis. If, in the course of making an
arguable fair use of a copyrighted work, a secondary user unreasonably exposed the
rights holder to destruction of the value of the copyright resulting from the public's
opportunity to employ the secondary use as a substitute for purchase of the original
(even though this was not the intent of the secondary user), this might well furnish
a substantial rebuttal to the secondary user's claim of fair use. For this reason, the
Arriba Soft and Perfect 10 courts, in upholding the secondary user's claim of fair use,
observed that thumbnail images, which transformatively provided an Internet
pathway to the original images, were of sufficiently low resolution that they were not
usable as effective substitutes for the originals. Arriba Soft, 336 F.3d 811 at 819;
Perfect 10, 508 F.3d at 1165.
While Plaintiffs' claim is theoretically sound, it is not supported by the evidence. In
HathiTrust, we faced substantially the same exposure-to-piracy argument. The
record in HathiTrust, however, “document[ed] the extensive security measures [the
secondary user] ha[d] undertaken to safeguard against the risk of a data breach,”
evidence which was unrebutted. 755 F.3d at 100. The HathiTrust court thus found
“no basis ․ on which to conclude that a security breach is likely to occur, much less
one that would result in the public release of the specific copyrighted works belonging
to any of the plaintiffs in this case.” Id. at 100–101 (citing Clapper v. Amnesty Int'l
USA, 133 S.Ct. 1138, 1143 (2013) (finding that risk of future harm must be “certainly
impending,” rather than merely “conjectural” or “hypothetical,” to constitute a
cognizable injury-in-fact), and Sony Corp., 464 U.S. at 453–454 (concluding that
time-shifting using a Betamax is fair use because the copyright owners' “prediction
that live television or movie audiences will decrease” was merely “speculative”)).
Google has documented that Google Books' digital scans are stored on computers
walled off from public Internet access and protected by the same impressive security
measures used by Google to guard its own confidential information. As Google notes,
Plaintiffs' own security expert praised these security systems, remarking that “Google
is fortunate to have ample resources and top-notch technical talents” that enable it
to protect its data. JA 1558, 1570. Nor have Plaintiffs identified any thefts from
Google Books (or from the Google Library Project). Plaintiffs seek to rebut this record
by quoting from Google's July 2012 SEC filing, in which the company made legally
required disclosure of its potential market risks. 26 Google's prudent acknowledgment
that “security breaches could expose [it] to a risk of loss ․ due to the actions of
outside parties, employee error, malfeasance, or otherwise,” however, falls far short
of rebutting Google's demonstration of the effective measures it takes to guard
against piratical hacking. Google has made a sufficient showing of protection of its
digitized copies of Plaintiffs' works to carry its burden on this aspect of its claim of
fair use and thus to shift to Plaintiffs the burden of rebutting Google's showing.
Plaintiffs' effort to do so falls far short.
V. Google's Distribution of Digital Copies to Participant Libraries
Finally, Plaintiffs contend that Google's distribution to a participating library of a
digital copy of Plaintiffs' books is not a fair use and exposes the Plaintiffs to risks of
loss if the library uses its digital copy in an infringing manner, or if the library fails to
maintain security over its digital copy with the consequence that the book may
become freely available as a result of the incursions of hackers. The claim fails.
Although Plaintiffs describe the arrangement between Google and the libraries in
more nefarious terms, those arrangements are essentially that each participant
library has contracted with Google that Google will create for it a digital copy of each
book the library submits to Google, so as to permit the library to use its digital copy
in a non-infringing fair use manner. The libraries propose to use their digital copies
to enable the very kinds of searches that we here hold to be fair uses in connection
with Google's offer of such searches to the Internet public, and which we held in
HathiTrust to be fair uses when offered by HathiTrust to its users. The contract
between Google and each of the participating libraries commits the library to use its
digital copy only in a manner consistent with the copyright law, and to take
precautions to prevent dissemination of their digital copies to the public at large.
In these circumstances, Google's creation for each library of a digital copy of that
library's already owned book in order to permit that library to make fair use through
provision of digital searches is not an infringement. If the library had created its own
digital copy to enable its provision of fair use digital searches, the making of the
digital copy would not have been infringement. Nor does it become an infringement
because, instead of making its own digital copy, the library contracted with Google
that Google would use its expertise and resources to make the digital conversion for
the library's benefit.
We recognize the possibility that libraries may use the digital copies Google created
for them in an infringing manner. If they do, such libraries may be liable to Plaintiffs
for their infringement. It is also possible that, in such a suit, Plaintiffs might adduce
evidence that Google was aware of or encouraged such infringing practices, in which
case Google could be liable as a contributory infringer. But on the present record, the
possibility that libraries may misuse their digital copies is sheer speculation. Nor is
there any basis on the present record to hold Google liable as a contributory infringer
based on the mere speculative possibility that libraries, in addition to, or instead of,
using their digital copies of Plaintiffs' books in a non-infringing manner, may use them
in an infringing manner.
We recognize the additional possibility that the libraries might incur liability by
negligent mishandling of, and failure to protect, their digital copies, leaving them
unreasonably vulnerable to hacking. That also, however, is nothing more than a
speculative possibility. There is no basis in the record to impose liability on Google
for having lawfully made a digital copy for a participating library so as to enable that
library to make non-infringing use of its copy, merely because of the speculative
possibility that the library may fail to guard sufficiently against the dangers of
hacking, as it is contractually obligated to do. Plaintiffs have failed to establish any
basis for holding Google liable for its creation of a digital copy of a book submitted to
it by a participating library so as to enable that library to make fair use of it. 27
In sum, we conclude that: (1) Google's unauthorized digitizing of copyright-protected
works, creation of a search functionality, and display of snippets from those works
are non-infringing fair uses. The purpose of the copying is highly transformative, the
public display of text is limited, and the revelations do not provide a significant market
substitute for the protected aspects of the originals. Google's commercial nature and
profit motivation do not justify denial of fair use. (2) Google's provision of digitized
copies to the libraries that supplied the books, on the understanding that the libraries
will use the copies in a manner consistent with the copyright law, also does not
constitute infringement. Nor, on this record, is Google a contributory infringer.
CONCLUSION
The judgment of the district court is AFFIRMED.
G.R. No. L-38010 December 21, 1933
PATRICK HENRY FRANK and WILLIAM HENRY GOHN, plaintiffs-appellants,
vs.
G. KOSUYAMA, defendant-appellee.
J.W. Ferrier for appellants.
Pablo Lorenzo for appellee.
IMPERIAL, J.:
Patent No. 1519579 (Exhibit 117) on improvement in hemp stripping machines,
issued by the United States Patent Office on December 16,1924, and registered in
the Bureau of Commerce and Industry of the Philippine Islands on March 17,1925,
was the origin of this action brought by the plaintiffs herein who prayed that the
judgment be rendered against the defendant, ordering him thereby to refrain
immediately from the manufacture and sale of machines similar to the one covered
by the patent: to render an accounting of the profits realized from the manufacture
and sale of the machines in question; that in case of refusal or failure to render such
accounting, the defendants be ordered to pay the plaintiffs the sum of P60 as profit
on each machine manufactured or sold by him; that upon approval of the required
bond, said defendant be restrained from continuing the manufacture and sale of the
same kind of machines; that after the trial the preliminary injunction issued therein
be declared permanent and, lastly, that the said defendant be sentenced to pay the
costs and whatever damages the plaintiffs might be able to prove therein. The action
therefore was based upon alleged infringement by the defendant of the rights and
privileges acquired by the plaintiffs over the aforesaid patent through the
manufacture and sale by the former of machines similar to that covered by the
aforesaid patent.
The plaintiffs appealed from the judgment rendered by the trial court dismissing their
complaint, with cost, as well as the defendant's counterclaim of P10,000. The
defendant did not appeal.
In their amended complaint, the plaintiff alleged that their hemp stripping machines,
for which they obtained a patent, have the following characteristics: "A stripping
head, a horizontal table, a stripping knife supported upon such table, a tappering
spindle, a rest holder adjustably secured on the table portion, a lever and means of
compelling the knife to close upon the table, a pallet or rest in the bottom of the
table, a resilient cushion under such palletor rest." In spite of the fact that they filed
an amended complaint from which the "spindle" or conical drum, which was the only
characteristic feature of the machine mentioned in the original complaint, was
eliminated, the plaintiffs insisted that the said part constitutes the essential difference
between the machine in question and other machines and that it was the principal
consideration upon which their patent was issued. The said plaintiffs sustained their
contention on this point even in their printed brief and memorandum filed in this
appeal.
During the trial, both parties presented voluminous evidence from which the trial
court arrived at the following conclusions:
In constructing their machine the plaintiffs did nothing but improve, to a certain
degree, those that were already in vogue and in actual us in hemp producing
provinces. It cannot be said that they have invented the "spindle" inasmuch as this
was already known since the year 1909 or 1910. Neither it can be said that they have
invented the stripping knife and the contrivance which controls the movement and
pressure thereof on the ground that stripping knives together with their control sets
were already in actual use in the different stripping machines long before their
machine appeared. Neither can it be said that they invented the fly wheel because
that part or piece thereof, so essential in every machine from time immemorial, was
already known and actually employed in hemp stripping machines such as those of
Riesgo (Exhibit 4-A), Crumb (Exhibit 1-A), Icsiar (Exhibit A-Suzara), Browne (Exhibit
28-A), McFie, etc., all of which were in use for the benefit of hemp long before the
appearance of the plaintiffs' machines in the market. Much less can it be said that
they invented the pedal to raise the knife in order to allow the hemp to be stripped
to pass under it, on the ground that the use of such contrivance has, likewise, been
known since the invention of the most primitive of hemp stripping machines.
On the other hand, although the plaintiffs alleged in their original complaint that "the
principal and important feature of said machine is a spindle upon which the hemp to
be stripped is wound in the process of stripping," nevertheless, in their amended
complaint of March 3, 1928, which was filed after a portion of the evidence therein
had already been submitted and it was known that the use of the spindle was nothing
new, they still made the allegations appearing in paragraph 3 of their said amended
complaint and reproduced on pages 2,3,4 and 5 hereof, copying the same from the
application which they filed with the United States Patent Office, under which they
obtained their patent in question. The aforesaid application clearly shows that what
they applied for was not a patent for a "pioneer or primary invention" but only for
some "new and useful improvement in hemp stripping machines."
We have carefully reviewed the evidence presented and have had the opportunity of
ascertaining the truth of the conclusions above stated. We agree with the trial court
that, strictly speaking, the hemp stripping machine of the plaintiffs does not
constitute an invention on the ground that it lacks the elements of novelty, originality
and precedence (48 C.J., sec. 101, p. 97, and 102, p. 98). In fact, before the plaintiffs
herein obtained their patent, they themselves had already publicly used the same
kind of machine for some months, at least, and, various other machines, having in
general, the same characteristics and important parts as that of the said plaintiffs,
were known in the Province of Davao. Machines known as Molo, Riesgo, Crumb,
Icsiar, Browne and McFie were already known in that locality and used by the owners
of hemp plantations before the machine of the plaintiffs came into existence. It may
also be noted that Adrian de Icsiar applied for a patent on an invention which resulted
in the rejection by the United States Patent Office of the plaintiffs' original application
for a patent on the so called "spindle" or conical drum which was then in actual use
in the Dringman and Icsiar hemp stripping machines.
Notwithstanding the foregoing facts, the trial court did not decree the annulment of
the plaintiffs' patent and the herein defendant-appellee insists that the patent in
question should be declared null and void. We are of the opinion that it would be
improper and untimely to render a similar judgment, in view of the nature of the
action brought by the plaintiffs and in the absence of a cross-complaint to that effect.
For the purposes of this appeal, suffice it to hold that the defendant is not civilly liable
for alleged infringement of the patent in question.
In the light of sound logic, the plaintiffs cannot insist that the "spindle" was a patented
invention on the ground that said part of the machine was voluntarily omitted by
them from their application, as evidenced by the photographic copy thereof (Exhibit
41) wherein it likewise appears that the patent on Improved Hemp Stripping
Machines was issued minus the "spindle" in question. Were we to stress to this part
of the machine, we would be giving the patent obtained by the plaintiffs a wider range
than it actually has, which is contrary to the principles of interpretation in matters
relating to patents.
In support of their claim the plaintiffs invoke the doctrine laid down by this court in
the case of Frank and Gohn vs. Benito (51 Phil., 712), wherein it was held that the
therein defendant really infringed upon the patent of the therein plaintiffs. It may be
noted that the plaintiffs in the former and those of the latter case are the same and
that the patent then involved is the very same one upon which the present action of
the plaintiffs is based. The above-cited case, however, cannot be invoked as a
precedent to justify a judgment in favor of the plaintiffs-appellants on the ground
that the facts in one case entirely different from those in the other. In the former
case the defendant did not set up the same special defenses as those alleged by the
herein defendant in his answer and the plaintiffs therein confined themselves to
presenting the patent, or rather a copy thereof, wherein the "spindle" was mentioned,
and this court took for granted their claim that it was one of the essential
characteristics thereof which was imitated or copied by the then defendant. Thus it
came to pass that the "spindle" in question was insistently mentioned in the decision
rendered on appeal as the essential part of the plaintiffs' machine allegedly imitated
by the then defendant. In the case under consideration, it is obvious that the "spindle"
is not an integral part of the machine patented by the plaintiffs on the ground that it
was eliminated from their patent inasmuch as it was expressly excluded in their
application, as evidenced by the aforesaid Exhibit 41.
Wherefore, reiterating that the defendant cannot be held civilly liable for alleged
infringement of the patent upon which the present action is based on the ground that
there is no essential part of the machine manufactured and sold by him, which was
unknown to the public in the Province of Davao at the time the plaintiffs applied for
and obtained their patent for improved hemp stripping machines, the judgment
appealed from is hereby affirmed, with the costs against the plaintiffs-appellants. So
ordered.
Avanceña, C.J., Malcolm, Villa-Real, and Hull, JJ., concur.
G.R. No. 14101 September 24, 1919
ANGEL VARGAS, plaintiff-appellant,

vs.
F. M. YAPTICO & CO. (Ltd.), defendant-appellee.
Charles C. Cohn for appellants .

John Bordman for appellee.
MALCOLM, J.:
Rude wooden implements for tilling the soil have been in use in the Philippines,
possibly not since the Israelites "went down to sharpen every man his share and his
coulter," but certainly for many years. Iron plows called "Urquijo" and "Pony" have
latterly been the vogue.
Angel Vargas, a farmer acquainted with local conditions and alive to the commercial
possibilities, took it upon himself to produce, with the native plow as the model, an
improved, adjustable plow. On July 22, 1910, he made application for a United States
patent to cover his so-called invention. On March 12, 1912, letters patent were issued
by the United States Patent Office in favor of Vargas .On April 24, 1912, a certified
copy of the patent was filed in the Division of Patents, Copyrights, and Trademarks
of the Executive Bureau, Government of the Philippine Islands. The patent and its
registry was also published in the newspaper, El Tiempo.
Since 1910, Vargas has engaged in the manufacture of these plows in the city of
Iloilo, Philippine Islands. On the plows there was first stamped the words "Patent
Applied For," later after the patent had been granted, changed to "Patented Mar. 12,
1912." Ninety per cent of the plows in use in the Visayas (Iloilo and vicinity) are said
to be Vargas plows.
During this same period, the firm of F. M. Yaptico & Co. (Ltd.), was engaged in the
foundry business in the City of Iloilo. It openly held itself out as a manufacturer of
plow parts. It has in fact produced points, shares, shoes, and heel pieces in a
considerable amount adapted to replace worn-out parts of the Vargas plow.
Such was the existing situation when, in the early part of 1918, the owner of the
patent, and thus the proper party to institute judicial proceedings, began action in
the Court of First Instance of Iloilo to enjoin the alleged infringement of U.S. Patent
No. 1020232 by the defendant F. M Yaptico & Co. (Ltd.), and to recover the damages
suffered by reason of this infringement. The court issued the preliminary injunction
as prayed for. The defendant, in addition to a general denial, alleged, as special
defenses, that the patent lacked novelty or invention, that there was no priority of
ideas or device in the principle and construction of the plow, and that the plow, whose
manufacture it was sought to have enjoined by the plaintiff, had already been in
public use for more than two years before the application of the plaintiff for his patent.
The parties subsequently entered into a stipulation that the court should first resolve
the question of whether or not there had been an infraction of the patent, reserving
the resultant question of damages for later decision. After the taking of evidence,
including the presentation of exhibits, the trial judge, the Honorable Antonio Villareal,
in a very exhaustive and learned decision, rendered judgment in favor of the
defendant and against the plaintiff, declaring null and without effect the patent in
question and dismissing the suit with costs against the plaintiff .The preliminary
injunction theretofore issued was dissolved.
From this judgment the plaintiff has appealed, specifying five errors. The principal
assignment No. 1 is, that the trial court erred in finding that the patented invention
of the plaintiff is lacking in novelty and invention. Defendant, in reply, relies on three
propositions, namely: (1) The judgment of the trial court in finding the patent granted
plaintiff void for lack of novelty and invention should be affirmed; (2) The patent
granted plaintiff is void from the public use of his plow for over two years prior to his
application for a patent, and (3) If the patent is valid, there has been no contributory
infringement by defendant.
Before resolving these rival contentions, we should have before us the relevant law.
Act No. 2235 of the Philippine Legislature, enacted on February 10, 1913, in effect
makes the United States Patent Laws applicable in the Philippine Islands. It provides
that "owners of patents, including design patents, which have been issued or may
hereafter be issued, duly registered in the United States Patent Office under the laws
of the United States relating to the grant of patents, shall receive in the Philippine
Islands the protection accorded them in the United States under said laws." (Sec. 1.)
Turning to the United States Patent Laws, we find the Act of Congress of March 3,
1897, amendatory of section 4886 of the United States Revised Statutes, reading as
follows:
Any person who has invented or discovered any new and useful art, machine,
manufacture, or composition of matter, or any new an useful improvements thereof,
not known or used by others in this country, before his invention or discovery thereof,
and not patented or described in any printed publication in this or any foreign country,
before his invention or discovery thereof, or more than two years prior to his
application, and not in public use or on sale in this country for more than two years
prior to his application, unless the same is proved to have been abandoned, may
upon payment of the fees required by law, and other due proceeding had, obtain a
patent therefor. (29 Stat. L., 692, 7 Fed .Stat. Ann. [2d Ed.], p. 23.)
When a patent is sought to be enforced, "the question of invention, novelty, or prior

use, and each of them, are open to judicial examination." The burden of proof to
substantiate a charge of infringement is with the plaintiff. Where, however, the
plaintiff introduces the patent in evidence, if it is in due form, it affords a prima facie
presumption of its correctness and validity. The decision of the Commissioner of
Patents in granting the patent is always presumed to be correct. The burden then
shifts to the defendant to overcome by competent evidence this legal presumption
.With all due respect, therefore, for the critical and expert examination of the
invention by the United States Patent Office, the question of the validity of the patent
is one for judicial determination, and since a patent has been submitted, the exact
question is whether the defendant has assumed the burden of proof as to anyone of
his defenses. (See Agawan Co. vs. Jordan [1869], 7 Wall., 583; Blanchard vs .Putnam
[1869], 8 Wall., 420; Seymour vs. Osborne [1871], 11 Wall., 516; Reckendorfer vs.
Faber [1876], 92 U.S., 347; 20 R. C. L., 1112, 1168, 1169.)
As herein before stated, the defendant relies on three special defenses. One such
defense, on which the judgment of the lower court is principally grounded, and to
which appellant devotes the major portion of his vigorous argument, concerns the
element of novelty, invention, or discovery, that gives existence to the right to a
patent. On this point the trial court reached the conclusion that "the patented plow
of the plaintiff, Exhibit D, is not different from the native plow, Exhibit 2, except in
the material, in the form, in the weight and the grade of the result, the said
differences giving it neither a new function nor a new result distinct from the function
and the result obtained from the native plow; consequently, its production does not
presuppose the exercise of the inventive faculty but merely of mechanical skill, which
does not give a right to a patent of an invention under the provisions of the Patent
Law." In thus finding, the court may have been right, since the Vargas plow does not
appear to be such a "combination" as contains a novel assemblage of parts exhibiting
invention. (See Stimpson vs. Woodman [1870], 10 Wall., 117 — rollers; Hicks vs.
Kelsey [1874], 20 Wall., 353 — stoves; Washburn & Moen Mfg. Co. vs. Beat 'Em All
Barbed Wire Co. [1892], 143 U.S., 275 — barbed wire; Lynch vs .Dryden [1873], C.
D., 73 — walking cultivators; Torrey vs. Hancock [1910], 184 Fed., 61 — rotary
plows.)
A second line of defense relates to the fact that defendant has never made a complete
Vargas plow, but only points, shares, shoes, and heel pieces, to serve as repairs.
Defendant's contention is, that in common with other foundries, he has for years cast
large numbers of plow points and shares suitable for use either on the native wooden
plow, or on the Vargas plow. A difference has long been recognized between repairing
and reconstructing a machine. If, for instance, partial injuries, whether they occur
from accident or from wear and tear, to a machine for agricultural purposes, are
made this is only re-fitting the machine for use, and thus permissible. (Wilson vs.
Simpson [1850], 9 How., 109.) Even under the more rigorous doctrine of Leeds &
Catlin Co. vs. Victor Talking Machine Co. ([1909], 213 U.S., 325), it may be possible
that all the defendant has done is to manufacture and sell isolated parts to be used
to replace worn-out parts.
The third defense is, that under the provisions of the statute, an inventor's creation
must not have been in public use or on sale in the United States (and the Philippine
Islands) for more than two years prior to his application .Without, therefore,
committing ourselves as to the first two defenses, we propose to base our decision
on the one just suggested as more easily disposing of the case. (See 20 R. C. L.,
1140-1142.) We do so with full consciousness of the doubt which arose in the mind
of the trial court, but with the belief that since it has been shown that the invention
was used in public at Iloilo by others than Vargas, the inventor, more than two years
before the application for the patent, the patent is invalid.
Although we have spent some time in arriving at this point, yet having reached it,
the question in the case is single and can be brought to a narrow compass. Under
the English Statute of Monopolies (21 Jac. Ch., 3), and under the United States Patent
Act of February 21, 1793, later amended to be as herein quoted, it was always the
rule, as stated by Lord Coke, Justice Story and other authorities, that to entitle a man
to a patent, the invention must be new to the world. (Pennock and Sellers vs.
Dialogue [1829], 2 Pet., 1.) As said by the United States Supreme Court, "it has been
repeatedly held by this court that a single instance of public use of the invention by
a patentee for more than two years before the date of his application for his patent
will be fatal to the validity of the patent when issued." (Worley vs. Lower Tobacco Co
.[1882], 104 U. S., 340; McClurg vs. Kingsland [1843], I How., 202; Consolidated
Fruit Jar Co. vs. Wright [1877], 94 U. S., 92; Egbert vs. Lippmann [1881], 104 U. S.,
333; Coffin vs. Ogden [1874], 18 Wall., 120; Manning vs. Cape Ann Isinglass and
Glue Co. [1883], 108 U. S., 462; Andrews vs. Hovey [1887], 123 U. S., 267;
Campbell vs. City of New York [1881], 1 L. R. A., 48.)
On the facts, we think the testimony shows such a public use of the Vargas plow as
to render the patent invalid Nicolas Roces, a farmer, testified that he had bought
twenty Vargas plows, of which Exhibit 5 was one, in December, 1907; and Exhibit 5,
the court found, was a plow completely identical with that for which the plaintiff had
received a patent. The minor exception, and this in itself corroborative of Roces'
testimony, is that the handle of plow Exhibit 5 is marked with the letters "A V" and
not with the words "Patent Applied For" or "Patented Mar.12, 1912." Salvador
Lizarraga, a clerk in a business house, testified that he had received plows similar to
Exhibits D, 5, and 4, for sale on commission on May, 1908, from Bonifacio Araneta,
partner of Vargas in the plow business. Ko Pao Ko, a blacksmith, testified that he had
made fifty plow frames in 1905 for Vargas and Araneta, of which Exhibit 4 is one;
Exhibit 4, the court found, is a plow identical with that patented by Vargas, but
without share and mould-board. Alfred Berwin, an employee in the office of Attorney
John Bordman, testified that on September 21, 1908, he had knowledge of a
transaction wherein Vargas and Araneta desired to obtain money to invest in a plow
factory. George Ramon Saul, a mechanic of the "Taller Visayas" of Strachan and
MacMurray, testified that he had made Vargas plow points and shares of the present
form upon order of Araneta and Vargas in 1906 and 1907 .William MacMurray,
proprietor of the "Taller Visayas," corroborated the evidence of the witness Saul by
the exhibition of the account against Vargas and Araneta wherein, under date of
December 13, 1906, appears the item "12 new soft steel plow shares forged and
bored for rivets as per sample." Against all this, was the testimony of the plaintiff
Angel Vargas who denied that Saul could have been seen the Vargas plow in 1907
and 1907, who denied that Roces purchased the Vargas plow in 1907, who denied
that Lizarraga could have acted as an agent to sell two plows in November, 1908,
who denied any remembrance of the loan mentioned by Berwin as having been
negotiated in September, 1908, who denied that Ko Pao Ko made fifty plows one of
which is Exhibit 4, for Araneta and Vargas in 1905. Plaintiff introduced his books to
substantiate his oral testimony .It is hardly believable that five or six witnesses for
the defense would deliberately perjure themselves under oath. One might, but that
all together, of different nationalities, would enter into such a conspiracy, is to
suppose the improbable.
Tested by the principles which go to make the law, we think a preponderance of the
evidence is to the effect that for more than two years before the application for the
original letters patent, or before July 22, 1908, there was, by the consent and
allowance of Vargas, a public use of the invention covered by them.
To conclude, we are not certain but that appellee has proved every one of his
defenses. We are certain that he has at least demonstrated the public use of the
Vargas plow over two years prior to the application for a patent. Such being the case,
although on a different ground, we must sustain the judgment of the lower court,
without prejudice to the determination of the damages resulting from the granting of
the injunction, with the costs of this instance against the appellant. So ordered.
Arellano, C.J. Torres, Johnson, Araullo, Street, Avanceña and Moir, JJ., concur.
G.R. No. 167715 November 17, 2010
PHIL PHARMAWEALTH, INC., Petitioner,

vs.
PFIZER, INC. and PFIZER (PHIL.) INC., Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari seeking to annul and set aside
the Resolutions dated January 18, 20051 and April 11, 20052 by the Court of Appeals
(CA) in CA-G.R. SP No. 82734.
The instant case arose from a Complaint3 for patent infringement filed against
petitioner Phil Pharmawealth, Inc. by respondent companies, Pfizer, Inc. and Pfizer
(Phil.), Inc., with the Bureau of Legal Affairs of the Intellectual Property Office (BLA-
IPO). The Complaint alleged as follows:
xxxx
6. Pfizer is the registered owner of Philippine Letters Patent No. 21116 (the "Patent")
which was issued by this Honorable Office on July 16, 1987. The patent is valid until
July 16, 2004. The claims of this Patent are directed to "a method of increasing the
effectiveness of a beta-lactam antibiotic in a mammalian subject, which comprises
co-administering to said subject a beta-lactam antibiotic effectiveness increasing
amount of a compound of the formula IA." The scope of the claims of the Patent
extends to a combination of penicillin such as ampicillin sodium and beta-lactam
antibiotic like sulbactam sodium.
7. Patent No. 21116 thus covers ampicillin sodium/sulbactam sodium (hereafter

"Sulbactam Ampicillin"). Ampicillin sodium is a specific example of the broad beta-
lactam antibiotic disclosed and claimed in the Patent. It is the compound which
efficacy is being enhanced by co-administering the same with sulbactam sodium.
Sulbactam sodium, on the other hand, is a specific compound of the formula IA
disclosed and claimed in the Patent.
8. Pfizer is marketing Sulbactam Ampicillin under the brand name "Unasyn." Pfizer's
"Unasyn" products, which come in oral and IV formulas, are covered by Certificates
of Product Registration ("CPR") issued by the Bureau of Food and Drugs ("BFAD")
under the name of complainants. The sole and exclusive distributor of "Unasyn"
products in the Philippines is Zuellig Pharma Corporation, pursuant to a Distribution
Services Agreement it executed with Pfizer Phils. on January 23, 2001.
9. Sometime in January and February 2003, complainants came to know that

respondent [herein petitioner] submitted bids for the supply of Sulbactam Ampicillin
to several hospitals without the consent of complainants and in violation of the
complainants' intellectual property rights. x x x
xxxx
10. Complainants thus wrote the above hospitals and demanded that the latter
immediately cease and desist from accepting bids for the supply [of] Sulbactam
Ampicillin or awarding the same to entities other than complainants. Complainants,
in the same letters sent through undersigned counsel, also demanded that
respondent immediately withdraw its bids to supply Sulbactam Ampicillin.
11. In gross and evident bad faith, respondent and the hospitals named in paragraph
9 hereof, willfully ignored complainants' just, plain and valid demands, refused to
comply therewith and continued to infringe the Patent, all to the damage and
prejudice of complainants. As registered owner of the Patent, Pfizer is entitled to
protection under Section 76 of the IP Code.
x x x x4
Respondents prayed for permanent injunction, damages and the forfeiture and
impounding of the alleged infringing products. They also asked for the issuance of a
temporary restraining order and a preliminary injunction that would prevent herein
petitioner, its agents, representatives and assigns, from importing, distributing,
selling or offering the subject product for sale to any entity in the Philippines.
In an Order5 dated July 15, 2003 the BLA-IPO issued a preliminary injunction which
was effective for ninety days from petitioner's receipt of the said Order.
Prior to the expiration of the ninety-day period, respondents filed a Motion for
Extension of Writ of Preliminary Injunction6 which, however, was denied by the BLA-
IPO in an Order7 dated October 15, 2003.
Respondents filed a Motion for Reconsideration but the same was also denied by the
BLA-IPO in a Resolution8 dated January 23, 2004.
Respondents then filed a special civil action for certiorari with the CA assailing the
October 15, 2003 and January 23, 2004 Resolutions of the BLA-IPO. Respondents
also prayed for the issuance of a preliminary mandatory injunction for the
reinstatement and extension of the writ of preliminary injunction issued by the BLA-
IPO.
While the case was pending before the CA, respondents filed a Complaint9 with the
Regional Trial Court (RTC) of Makati City for infringement and unfair competition with
damages against herein petitioner. In said case, respondents prayed for the issuance
of a temporary restraining order and preliminary injunction to prevent herein
petitioner from importing, distributing, selling or offering for sale sulbactam ampicillin
products to any entity in the Philippines. Respondents asked the trial court that, after
trial, judgment be rendered awarding damages in their favor and making the
injunction permanent.
On August 24, 2004, the RTC of Makati City issued an Order10 directing the issuance
of a temporary restraining order conditioned upon respondents' filing of a bond.
In a subsequent Order11 dated April 6, 2005, the same RTC directed the issuance of
a writ of preliminary injunction "prohibiting and restraining [petitioner], its agents,
representatives and assigns from importing, distributing or selling Sulbactam
Ampicillin products to any entity in the Philippines."
Meanwhile, on November 16, 2004, petitioner filed a Motion to Dismiss12 the petition
filed with the CA on the ground of forum shopping, contending that the case filed
with the RTC has the same objective as the petition filed with the CA, which is to
obtain an injunction prohibiting petitioner from importing, distributing and selling
Sulbactam Ampicillin products.
On January 18, 2005, the CA issued its questioned Resolution13 approving the bond
posted by respondents pursuant to the Resolution issued by the appellate court on
March 23, 2004 which directed the issuance of a temporary restraining order
conditioned upon the filing of a bond. On even date, the CA issued a temporary
restraining order14 which prohibited petitioner "from importing, distributing, selling
or offering for sale Sulbactam Ampicillin products to any hospital or to any other
entity in the Philippines, or from infringing Pfizer Inc.'s Philippine Patent No. 21116
and impounding all the sales invoices and other documents evidencing sales by
[petitioner] of Sulbactam Ampicillin products."
On February 7, 2005, petitioner again filed a Motion to Dismiss15 the case for being
moot and academic, contending that respondents' patent had already lapsed. In the
same manner, petitioner also moved for the reconsideration of the temporary
restraining order issued by the CA on the same basis that the patent right sought to
be protected has been extinguished due to the lapse of the patent license and on the
ground that the CA has no jurisdiction to review the order of the BLA-IPO as said
jurisdiction is vested by law in the Office of the Director General of the IPO.
On April 11, 2005, the CA rendered its presently assailed Resolution denying the
Motion to Dismiss, dated November 16, 2004, and the motion for reconsideration, as
well as Motion to Dismiss, both dated February 7, 2005.
Hence, the present petition raising the following issues:
a) Can an injunctive relief be issued based on an action of patent infringement when

the patent allegedly infringed has already lapsed?
b) What tribunal has jurisdiction to review the decisions of the Director of Legal Affairs
of the Intellectual Property Office?
c) Is there forum shopping when a party files two actions with two seemingly different
causes of action and yet pray for the same relief?16
In the first issue raised, petitioner argues that respondents' exclusive right to
monopolize the subject matter of the patent exists only within the term of the patent.
Petitioner claims that since respondents' patent expired on July 16, 2004, the latter
no longer possess any right of monopoly and, as such, there is no more basis for the
issuance of a restraining order or injunction against petitioner insofar as the disputed
patent is concerned.
The Court agrees.
Section 37 of Republic Act No. (RA) 165,17 which was the governing law at the time
of the issuance of respondents' patent, provides:
Section 37. Rights of patentees. A patentee shall have the exclusive right to make,
use and sell the patented machine, article or product, and to use the patented process
for the purpose of industry or commerce, throughout the territory of the Philippines
for the term of the patent; and such making, using, or selling by any person without
the authorization of the patentee constitutes infringement of the patent.18
It is clear from the above-quoted provision of law that the exclusive right of a
patentee to make, use and sell a patented product, article or process exists only
during the term of the patent. In the instant case, Philippine Letters Patent No.
21116, which was the basis of respondents in filing their complaint with the BLA-IPO,
was issued on July 16, 1987. This fact was admitted by respondents themselves in
their complaint. They also admitted that the validity of the said patent is until July
16, 2004, which is in conformity with Section 21 of RA 165, providing that the term
of a patent shall be seventeen (17) years from the date of issuance thereof. Section
4, Rule 129 of the Rules of Court provides that an admission, verbal or written, made
by a party in the course of the proceedings in the same case, does not require proof
and that the admission may be contradicted only by showing that it was made
through palpable mistake or that no such admission was made. In the present case,
there is no dispute as to respondents' admission that the term of their patent expired
on July 16, 2004. Neither is there evidence to show that their admission was made
through palpable mistake. Hence, contrary to the pronouncement of the CA, there is
no longer any need to present evidence on the issue of expiration of respondents'
patent.
On the basis of the foregoing, the Court agrees with petitioner that after July 16,
2004, respondents no longer possess the exclusive right to make, use and sell the
articles or products covered by Philippine Letters Patent No. 21116.
Section 3, Rule 58, of the Rules of Court lays down the requirements for the issuance
of a writ of preliminary injunction, viz:
(a) That the applicant is entitled to the relief demanded, and the whole or part of
such relief consists in restraining the commission or continuance of the acts
complained of, or in requiring the performance of an act or acts, either for a limited
period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts

complained of during the litigation would probably work injustice to the applicant; or
(c) That a party, court, or agency or a person is doing, threatening, or attempting to

do, or is procuring or suffering to be done, some act or acts probably in violation of
the rights of the applicant respecting the subject of the action or proceeding, and
tending to render the judgment ineffectual.
In this connection, pertinent portions of Section 5, Rule 58 of the same Rules provide
that if the matter is of extreme urgency and the applicant will suffer grave injustice
and irreparable injury, a temporary restraining order may be issued ex parte.
From the foregoing, it can be inferred that two requisites must exist to warrant the
issuance of an injunctive relief, namely: (1) the existence of a clear and unmistakable
right that must be protected; and (2) an urgent and paramount necessity for the writ
to prevent serious damage.19
In the instant case, it is clear that when the CA issued its January 18, 2005 Resolution
approving the bond filed by respondents, the latter no longer had a right that must
be protected, considering that Philippine Letters Patent No. 21116 which was issued
to them already expired on July 16, 2004. Hence, the issuance by the CA of a
temporary restraining order in favor of the respondents is not proper.
In fact, the CA should have granted petitioner's motion to dismiss the petition for
certiorari filed before it as the only issue raised therein is the propriety of extending
the writ of preliminary injunction issued by the BLA-IPO. Since the patent which was
the basis for issuing the injunction, was no longer valid, any issue as to the propriety
of extending the life of the injunction was already rendered moot and academic.
As to the second issue raised, the Court, is not persuaded by petitioner's argument
that, pursuant to the doctrine of primary jurisdiction, the Director General of the IPO
and not the CA has jurisdiction to review the questioned Orders of the Director of the
BLA-IPO.
It is true that under Section 7(b) of RA 8293, otherwise known as the Intellectual
Property Code of the Philippines, which is the presently prevailing law, the Director
General of the IPO exercises exclusive appellate jurisdiction over all decisions
rendered by the Director of the BLA-IPO. However, what is being questioned before
the CA is not a decision, but an interlocutory order of the BLA-IPO denying
respondents' motion to extend the life of the preliminary injunction issued in their
favor.
RA 8293 is silent with respect to any remedy available to litigants who intend to
question an interlocutory order issued by the BLA-IPO. Moreover, Section 1(c), Rule
14 of the Rules and Regulations on Administrative Complaints for Violation of Laws
Involving Intellectual Property Rights simply provides that interlocutory orders shall
not be appealable. The said Rules and Regulations do not prescribe a procedure within
the administrative machinery to be followed in assailing orders issued by the BLA-
IPO pending final resolution of a case filed with them. Hence, in the absence of such
a remedy, the provisions of the Rules of Court shall apply in a suppletory manner, as
provided under Section 3, Rule 1 of the same Rules and Regulations. Hence, in the
present case, respondents correctly resorted to the filing of a special civil action for
certiorari with the CA to question the assailed Orders of the BLA-IPO, as they cannot
appeal therefrom and they have no other plain, speedy and adequate remedy in the
ordinary course of law. This is consistent with Sections 120 and 4,21 Rule 65 of the
Rules of Court, as amended.
In the first place, respondents' act of filing their complaint originally with the BLA-
IPO is already in consonance with the doctrine of primary jurisdiction.
This Court has held that:
[i]n cases involving specialized disputes, the practice has been to refer the same to
an administrative agency of special competence in observance of the doctrine of
primary jurisdiction. The Court has ratiocinated that it cannot or will not determine a
controversy involving a question which is within the jurisdiction of the administrative
tribunal prior to the resolution of that question by the administrative tribunal, where
the question demands the exercise of sound administrative discretion requiring the
special knowledge, experience and services of the administrative tribunal to
determine technical and intricate matters of fact, and a uniformity of ruling is
essential to comply with the premises of the regulatory statute administered. The
objective of the doctrine of primary jurisdiction is to guide a court in determining
whether it should refrain from exercising its jurisdiction until after an administrative
agency has determined some question or some aspect of some question arising in
the proceeding before the court. It applies where the claim is originally cognizable in
the courts and comes into play whenever enforcement of the claim requires the
resolution of issues which, under a regulatory scheme, has been placed within the
special competence of an administrative body; in such case, the judicial process is
suspended pending referral of such issues to the administrative body for its view.22
Based on the foregoing, the Court finds that respondents' initial filing of their
complaint with the BLA-IPO, instead of the regular courts, is in keeping with the
doctrine of primary jurisdiction owing to the fact that the determination of the basic
issue of whether petitioner violated respondents' patent rights requires the exercise
by the IPO of sound administrative discretion which is based on the agency's special
competence, knowledge and experience.
However, the propriety of extending the life of the writ of preliminary injunction
issued by the BLA-IPO in the exercise of its quasi-judicial power is no longer a matter
that falls within the jurisdiction of the said administrative agency, particularly that of
its Director General. The resolution of this issue which was raised before the CA does
not demand the exercise by the IPO of sound administrative discretion requiring
special knowledge, experience and services in determining technical and intricate
matters of fact. It is settled that one of the exceptions to the doctrine of primary
jurisdiction is where the question involved is purely legal and will ultimately have to
be decided by the courts of justice.23 This is the case with respect to the issue raised
in the petition filed with the CA.
Moreover, as discussed earlier, RA 8293 and its implementing rules and regulations
do not provide for a procedural remedy to question interlocutory orders issued by the
BLA-IPO. In this regard, it bears to reiterate that the judicial power of the courts, as
provided for under the Constitution, includes the authority of the courts to determine
in an appropriate action the validity of the acts of the political departments.24 Judicial
power also includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
Government.25 Hence, the CA, and not the IPO Director General, has jurisdiction to
determine whether the BLA-IPO committed grave abuse of discretion in denying
respondents' motion to extend the effectivity of the writ of preliminary injunction
which the said office earlier issued.
Lastly, petitioner avers that respondents are guilty of forum shopping for having filed
separate actions before the IPO and the RTC praying for the same relief.
The Court agrees.
Forum shopping is defined as the act of a party against whom an adverse judgment
has been rendered in one forum, of seeking another (and possibly favorable) opinion
in another forum (other than by appeal or the special civil action of certiorari), or the
institution of two (2) or more actions or proceedings grounded on the same cause on
the supposition that one or the other court would make a favorable disposition.26
The elements of forum shopping are: (a) identity of parties, or at least such parties
that represent the same interests in both actions; (b) identity of rights asserted and
reliefs prayed for, the reliefs being founded on the same facts; (c) identity of the two
preceding particulars, such that any judgment rendered in the other action will,
regardless of which party is successful, amount to res judicata in the action under
consideration.27
There is no question as to the identity of parties in the complaints filed with the IPO
and the RTC.
Respondents argue that they cannot be held guilty of forum shopping because their
complaints are based on different causes of action as shown by the fact that the said
complaints are founded on violations of different patents.
The Court is not persuaded.
Section 2, Rule 2 of the Rules of Court defines a cause of action as the act or omission
by which a party violates a right of another. In the instant case, respondents' cause
of action in their complaint filed with the IPO is the alleged act of petitioner in
importing, distributing, selling or offering for sale Sulbactam Ampicillin products, acts
that are supposedly violative of respondents' right to the exclusive sale of the said
products which are covered by the latter's patent. However, a careful reading of the
complaint filed with the RTC of Makati City would show that respondents have the
same cause of action as in their complaint filed with the IPO. They claim that they
have the exclusive right to make, use and sell Sulbactam Ampicillin products and that
petitioner violated this right. Thus, it does not matter that the patents upon which
the complaints were based are different. The fact remains that in both complaints the
rights violated and the acts violative of such rights are identical.
In fact, respondents seek substantially the same reliefs in their separate complaints
with the IPO and the RTC for the purpose of accomplishing the same objective.
It is settled by this Court in several cases that the filing by a party of two apparently
different actions but with the same objective constitutes forum shopping.28 The
Court discussed this species of forum shopping as follows:
Very simply stated, the original complaint in the court a quo which gave rise to the
instant petition was filed by the buyer (herein private respondent and his
predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged
perfected sale of real estate. On the other hand, the complaint in the Second Case
seeks to declare such purported sale involving the same real property "as
unenforceable as against the Bank," which is the petitioner herein. In other words,
in the Second Case, the majority stockholders, in representation of the Bank, are
seeking to accomplish what the Bank itself failed to do in the original case in the trial
court. In brief, the objective or the relief being sought, though worded differently, is
the same, namely, to enable the petitioner Bank to escape from the obligation to sell
the property to respondent.29
In Danville Maritime, Inc. v. Commission on Audit,30 the Court ruled as follows:
In the attempt to make the two actions appear to be different, petitioner impleaded
different respondents therein – PNOC in the case before the lower court and the COA
in the case before this Court and sought what seems to be different reliefs. Petitioner
asks this Court to set aside the questioned letter-directive of the COA dated October
10, 1988 and to direct said body to approve the Memorandum of Agreement entered
into by and between the PNOC and petitioner, while in the complaint before the lower
court petitioner seeks to enjoin the PNOC from conducting a rebidding and from
selling to other parties the vessel "T/T Andres Bonifacio," and for an extension of
time for it to comply with the paragraph 1 of the memorandum of agreement and
damages. One can see that although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the same, that is, the
approval of the sale of vessel in favor of petitioner, and to overturn the letter directive
of the COA of October 10, 1988 disapproving the sale.31
In the instant case, the prayer of respondents in their complaint filed with the IPO is
as follows:
A. Immediately upon the filing of this action, issue an ex parte order (a) temporarily
restraining respondent, its agents, representatives and assigns from importing,
distributing, selling or offering for sale Sulbactam Ampicillin products to the hospitals
named in paragraph 9 of this Complaint or to any other entity in the Philippines, or
from otherwise infringing Pfizer Inc.'s Philippine Patent No. 21116; and (b)
impounding all the sales invoices and other documents evidencing sales by
respondent of Sulbactam Ampicillin products.
B. After hearing, issue a writ of preliminary injunction enjoining respondent, its

agents, representatives and assigns from importing, distributing, selling or offering
for sale Sulbactam Ampicillin products to the hospitals named in paragraph 9 of the
Complaint or to any other entity in the Philippines, or from otherwise infringing Pfizer
Inc.'s Philippine Patent No. 21116; and
C. After trial, render judgment:
(i) declaring that respondent has infringed Pfizer Inc.'s Philippine Patent No. 21116
and that respondent has no right whatsoever over complainant's patent;
(ii) ordering respondent to pay complainants the following amounts:
(a) at least ₱1,000,000.00 as actual damages;
(b) ₱700,000.00 as attorney's fees and litigation expenses;
(d) ₱1,000,000.00 as exemplary damages; and
(d) costs of this suit.
(iii) ordering the condemnation, seizure or forfeiture of respondent's infringing goods

or products, wherever they may be found, including the materials and implements
used in the commission of infringement, to be disposed of in such manner as may be
deemed appropriate by this Honorable Office; and
(iv) making the injunction permanent.32
In an almost identical manner, respondents prayed for the following in their complaint
filed with the RTC:
(a) Immediately upon the filing of this action, issue an ex parte order:
(1) temporarily restraining Pharmawealth, its agents, representatives and assigns

from importing, distributing, selling or offering for sale infringing sulbactam ampicillin
products to various government and private hospitals or to any other entity in the
Philippines, or from otherwise infringing Pfizer Inc.'s Philippine Patent No. 26810.
(2) impounding all the sales invoices and other documents evidencing sales by
pharmawealth of sulbactam ampicillin products; and
(3) disposing of the infringing goods outside the channels of commerce.
(b) After hearing, issue a writ of preliminary injunction:
(1) enjoining Pharmawealth, its agents, representatives and assigns from importing,
distributing, selling or offering for sale infringing sulbactam ampicillin products to
various government hospitals or to any other entity in the Philippines, or from
otherwise infringing Patent No. 26810;
(2) impounding all the sales invoices and other documents evidencing sales by
Pharmawealth of sulbactam ampicillin products; and
(3) disposing of the infringing goods outside the channels of commerce.
(c) After trial, render judgment:
(1) finding Pharmawealth to have infringed Patent No. 26810 and declaring
Pharmawealth to have no right whatsoever over plaintiff's patent;
(2) ordering Pharmawealth to pay plaintiffs the following amounts:
(i) at least ₱3,000,000.00 as actual damages;
(ii) ₱500,000.00 as attorney's fees and ₱1,000,000.00 as litigation expenses;
(iii) ₱3,000,000.00 as exemplary damages; and
(iv) costs of this suit.
(3) ordering the condemnation, seizure or forfeiture of Pharmawealth's infringing

goods or products, wherever they may be found, including the materials and
implements used in the commission of infringement, to be disposed of in such manner
as may be deemed appropriate by this Honorable Court; and
(4) making the injunction permanent.33
It is clear from the foregoing that the ultimate objective which respondents seek to
achieve in their separate complaints filed with the RTC and the IPO, is to ask for
damages for the alleged violation of their right to exclusively sell Sulbactam Ampicillin
products and to permanently prevent or prohibit petitioner from selling said products
to any entity. Owing to the substantial identity of parties, reliefs and issues in the
IPO and RTC cases, a decision in one case will necessarily amount to res judicata in
the other action.
It bears to reiterate that what is truly important to consider in determining whether
forum shopping exists or not is the vexation caused the courts and parties-litigant by
a party who asks different courts and/or administrative agencies to rule on the same
or related causes and/or to grant the same or substantially the same reliefs, in the
process creating the possibility of conflicting decisions being rendered by the different
fora upon the same issue.341avvphi1
Thus, the Court agrees with petitioner that respondents are indeed guilty of forum
shopping.
Jurisprudence holds that if the forum shopping is not considered willful and
deliberate, the subsequent case shall be dismissed without prejudice, on the ground
of either litis pendentia or res judicata.35 However, if the forum shopping is willful
and deliberate, both (or all, if there are more than two) actions shall be dismissed
with prejudice.36 In the present case, the Court finds that respondents did not
deliberately violate the rule on non-forum shopping. Respondents may not be totally
blamed for erroneously believing that they can file separate actions simply on the
basis of different patents. Moreover, in the suit filed with the RTC of Makati City,
respondents were candid enough to inform the trial court of the pendency of the
complaint filed with the BLA-IPO as well as the petition for certiorari filed with the
CA. On these bases, only Civil Case No. 04-754 should be dismissed on the ground
of litis pendentia.
WHEREFORE, the petition is PARTLY GRANTED. The assailed Resolutions of the Court
of Appeals, dated January 18, 2005 and April 11, 2005, in CA-G.R. No. 82734, are
REVERSED and SET ASIDE. The petition for certiorari filed with the Court of Appeals
is DISMISSED for being moot and academic.
Civil Case No. 04-754, filed with the Regional Trial Court of Makati City, Branch 138,
is likewise DISMISSED on the ground of litis pendentia.
SO ORDERED.
G.R. No. 174379
E.I DUPONT DE NEMOURS AND CO., (assignee of inventors Carino, Duncia and
Wong), Petitioner
vs.
DIRECTOR EMMA C. FRANCISCO (in ger capacity as DIRECTOR GENERAL OF THE
INTELLECTUAL PROPERTY OFFICE), DIRECTOR EPIFANIO M. VELASCO (in his
capacity as the DIRECTOR OF THE BUREAU OF PATENTS, and THERAPHARMA, INC.,
Respondents
DECISION
LEONEN, J.:
A patent is granted to provide rights and protection to the inventor after an invention
is disclosed to the public. It also seeks to restrain and prevent unauthorized persons
from unjustly profiting from a protected invention. However, ideas not covered by a
patent are free for the public to use and exploit. Thus, there are procedural rules on
the application and grant of patents established to protect against any infringement.
To balance the public interests involved, failure to comply with strict procedural rules
will result in the failure to obtain a patent.
This resolves a Petition for Review on Certiorari 1 assailing the Court of Appeals
Amended Decision2 dated August 30, 2006, which denied the revival of Philippine
Patent Application No. 35526, and the Court of Appeals Resolution3 dated January
31, 2006, which granted the intervention of Therapharma, Inc. in the revival
proceedings.
E.I. Dupont Nemours and Company (E.I. Dupont Nemours) is an American

corporation organized under the laws of the State of Delaware. 4 It is the assignee
of inv~ntors David John Carini, John Jonas Vytautas Duncia, and Pancras Chor Bun
Wong, all citizens of the United States of America.5
On July 10, 1987, E.I. Dupont Nemours filed Philippine Patent Application No. 35526
before the Bureau of Patents, Trademarks, and Technology Transfer.6 The application
was for Angiotensin II Receptor Blocking Imidazole (losartan), an invention related
to the treatment of hypertension and congestive heart failure.7 The product was
produced and marketed by Merck, Sharpe, and Dohme Corporation (Merck), E.I.
Dupont Nemours' licensee, under the brand names Cozaar and Hyzaar.8
The patent application was handled by Atty. Nicanor D. Mapili (Atty. Mapili), a local
resident agent who handled a majority of E.I. Dupont Nemours' patent applications
in the Philippines from 1972 to 1996.9
On December 19, 2000, E.I. Dupont Nemours' new counsel, Ortega, Del Castillo,
Bacorro, Odulio, Calma, and Carbonell,10 sent the Intellectual Property Office11 a
letter requesting that an office action be issued on Philippine Patent Application No.
35526. 12
In response, Patent Examiner Precila O. Bulihan of Intellectual Property Office sent

an office action marked Paper No. 2 on January 30, 2002,13 which stated:
The appointed attorney on record was the late Atty. Nicanor D. Mapili. The
reconstituted documents provided no documents that will show that the authority to
prosecute the instant application is now transferred to the present counsel. No official
revocation on record is available.
Therefore, an official revocation of the Power of Attorney of the former counsel and
the appointment of the present by the applicant is therefore required before further
action can be undertaken.
....
1. Contrary to what was alleged, the Chemical Examining Division's (CED) record will
show that as far as the said division is concern[ ed], it did not fail to issue the proper
and timely action on the instant application. CED record shows that the subject
application was assigned to the examiner on June 7, 1988. A month after that was
July 19, 1988, the first Office Action was mailed but was declared abandoned as of
September 20, 1988 for applicant's failure to respond within the period as prescribed
under Rule 112. Since then, no other official transactions were recorded. Tlris record
is complemented by the Examiner-in-charge's own record ....
....
2. It was noted that it took thirteen (13) long years for the applicant to request for
such Office Action. This is not expected of the applicant since it is an acceptable fact
that almost all inventors/ applicants wish for the early disposition for their
applications.14
On May 29, 2002, E.I. Dupont Nemours replied to the office action by submitting a
Power of Attorney executed by Miriam Meconnahey, authorizing Ortega, Castillo, Del
Castillo, Bacorro, Odulio, Calma, and Carbonell to prosecute and handle its patent
applications. 15 On the same day, it also filed a Petition for Revival with Cost of
Philippine Patent Application No. 35526. 16
In its Petition for Revival, E.I. Dupont Nemours argued that its former counsel, Atty.
Mapili, did not inform it about the abandonment of the application, and it was not
aware that Atty. Mapili had already died. 17 It argued that it discovered Atty. Mapili's
death when its senior-level patent attorney visited the Philippines in 1996. 18 It
argued that it only had actual notice of the abandonment on January 30, 2002, the
date of Paper No. 2. 19 Thus, it argued that its Petition for Revival was properly filed
under Section 113 of the 1962 Revised Rules of Practice before the Philippines Patent
Office in Patent Cases (1962 Revised Rules of Practice).20
On April 18, 2002, the Director of Patents denied the Petition for Revival for having
been filed out of time.21 The Resolution22 stated:
Propriety dictates that the well-settled rule on agency should be applied to this case
to maintain the objectivity and discipline of the Office. Therefore, for cases such as
the instant case, let the Office maintain its position that mistakes of the counsel bind
the client,' regardless of the degree of negligence committed by the former counsel.
Although it appears that the former counsel, Atty. Nicanor Mapili was remiss in his
obligations as counsel for the applicants, the Office cannot revive the abandoned
application because of the limitations provided in Rule 115. Clearly, the Petition for
Revival was filed beyond the reglementary period. Since the law and rules do not
give the Director of Patents the discretion to stretch the period for revival, the Office
is constrained to apply Rule 115 to the instant case.
In view of the foregoing considerations, applicants' petition to revive the subject

application is hereby denied.
SO ORDERED.23
E.I. Dupont Nemours appealed the denial to the Director-General of the Intellectual
Property Office on August 26, 2002.24 In the Decision25 dated October 22, 2003,
Director-General Emma C. Francisco denied the appeal and affirmed the Resolution
of the Director of Patents.
On November 21, 2003, petitioner filed before the Court of Appeals a Petition for
Review seeking to set aside the Intellectual Property Office's Decision dated October
22, 2003. 26
On August 31, 2004, the Court of Appeals granted the Petition for Review. 27 In
allowing the Petition for Revival, the Court of Appeals stated:
After an exhaustive examination of the records of this case, this Court believes that
there is sufficient justification to relax the application of the above-cited doctrine in
this case, and to afford petitioner some relief from the gross negligence committed
by its former lawyer, Atty. Nicanor D. Mapili[.]28
The Office of the Solicitor General, on behalf of the Intellectual Property Office, moved
for reconsideration of this Decision on September 22, 2004. 29
In the interim, Therapharma, Inc. moved for leave to intervene and admit the
Attached Motion for Reconsideration dated October 11, 200430 and argued that the
Court of Appeals' August 31, 2004 Decision directly affects its "vested" rights to sell
its own product. 31
Therapharma, Inc. alleged that on January 4, 2003, it filed before the Bureau of Food
and Drugs its own application for a losartan product "Lifezar," a medication for
hypertension, which the Bureau granted.32 It argued that it made a search of existing
patent applications for similar products before its application, and that no existing
patent registration was found since E.I. Dupont Nemours' application for its losartan
product was considered abandoned by the Bureau of Patents, Trademarks, and
Technology Transfer.33 It alleged that sometime in 2003 to 2004, there was an
exchange of correspondence between Therapharma, Inc. and Merck. In this
exchange, Merck informed Therapharma, Inc. that it was pursuing a patent on the
losartan products in the Philippines and that it would pursue any legal action
necessary to protect its product.34
On January 31, 2006, the Court of Appeals issued the Resolution35 granting the
Motion· for Leave to Intervene. According to the Court of Appeals, Therapharma, Inc.
had an interest in the revival of E.I. Dupont Nemours' patent application since it was
the local competitor for the losartan product. 36 It stated hat even if the Petition for
Review was premised on the revival of the patent application, Therapharma, Inc.' s
intervention was not premature since E.I. Dupont Nemours, through Merck, already
threatened Therapharma, Inc. with legal action if it continued to market its losartan
product.37
E.I. Dupont Nemours moved for reconsideration on February 22, 2006, assailing the
Court of Appeals' January 31, 2006 Resolution.38
On August 30. 2006, the Court of Appeals resolved both Motions for Reconsideration
and rendered the Amended Decision39 reversing its August 31, 2004 Decision.
The Court of Appeals ruled that the public interest would be prejudiced by the revival
of E.I. Dupont Nemours' application.40 It found that losartan was used to treat
hypertension, "a chronic ailment afflicting an estimated 12.6 million Filipinos,"41 and
noted that the presence of competition lowered the price for losartan products. 42 It
also found that the revival of the application prejudiced Therapharma, Inc.' s interest,
in that it had already invested more than P20,000,000.00 to develop its own losartan
product and that it acted in good faith when it marketed its product.43
The Court of Appeals likewise found that it erroneously based its August 31, 2004
Decision on E.I Dupont Nemours' allegation that it took seven (7) to 13 years for the
Intellectual Property Office to act on a patent application. 44 It stated that while it
might have taken that long to issue the patent, it did not take that long for the
Intellectual Property Office to act on application.45 Citing Schuartz v. Court of
Appeals,46 it found that both E.I. Dupont Nemours and Atty. Mapili were inexcusably
negligent in prosecuting the patent application.47
On October 19, 2006, petitioner E.I. Dupont Nemours filed before this Court this
Petition for Review on Certiorari.48 Both respondents Intellectual Property Office and
Therapharma, Inc. were directed to comment on the comment on the Petition.49
Upon submission of their respective Comments,50 petitioner was directed to file its
Consolidated Reply. 51 Thereafter, the parties were directed to file their respective
memoranda. 52
The arguments of the parties present several issues for this Court's resolution, as
follows:
First, whether the Petition for Review on Certiorari complied with Rule 45, Section 4
of the Rules of Court when petitioner failed to attach certain documents to support
the allegations in the complaint;
Second, whether petitioner should have filed a petition for certiorari under Rule 65
of the Rules of Court;
Third, whether the Petition for Review on Certiorari raises questions of fact;
Fourth, whether the Court of Appeals erred in allowing the intervention of respondent
Therapharma, Inc. in petitioner's appeal;
Fifth, whether the Court of Appeals erred in denying petitioner's appeal for the revival
of its patent application on the grounds that (a) petitioner committed inexcusable
negligence in the prosecution of its patent application; and (b) third-party rights and
the public interest would be prejudiced by the appeal;
Sixth, whether Schuartz applies to this case in that the negligence of a patent
applicant's counsel binds the applicant; and
Lastly, whether the invention has already become part of public domain.
The question of whether the Court of Appeals may resolve a motion for intervention
is a question that assails an interlocutory order and requests a review of a lower
court's exercise of discretion. Generally, a petition for certiorari under Rule 65 of the
Rules of Court will lie to raise this issue in a limited manner. There must be a clear
showing of grave abuse of discretion for writ of certiorari to be issued.
However, when the Court of Appeals has already resolved the question of intervention
and the merits of the case, an appeal through a petition for review on certiorari under
Rule 45 of the Rules of Court is the proper remedy.
Respondent Therapharma, Inc. argues that the Petition should be dismissed outright
for being the wrong mode of appeal.53 It argues that petitioner should have filed a
petition for certiorari under Rule 65 since petitioner was assailing an act done by the
Court of Appeals in the exercise of its discretion. 54 It argues that petitions under
Rule 45 are limited to questions of law, and petitioner raised findings of fact that have
already been affirmed by the Court of Appeals. 55 Petitioner, on the other hand,
argues that Rule 65 is only available when there is no appeal or any plain, speedy
remedy in the ordinary course of law. Since a petition for review under Rule 45 was
still available to it, it argues that it correctly availed itself of this remedy. 56 Petitioner
also argues that there are exceptions to the general rule on the conclusiveness of the
Court of Appeals' findings of fact. 57 It argues that it was necessary for it to discuss
relevant facts in order for it to show that the Court of Appeals made a
misapprehension of facts. 58
The special civil action of certiorari under Rule 65 is intended to correct errors of
jurisdiction. 59 Courts lose competence in relation to an order if it acts in grave abuse
of discretion amounting to lack or excess of jurisdiction.60 A petition for review under
Rule 45, on the other hand, is a mode of appeal intended to correct errors of
judgment.61 Errors of judgment are errors committed by a court within its
jurisdiction.62 This includes a review of the conclusions of law63 of the lower court
and, in appropriate cases, evaluation of the admissibility, weight, and inference from
the evidence presented.
Intervention results in an interlocutory order ancillary to a principal action.64 Its

grant or denial is subject to the sound discretion of the court.65 Interlocutory orders,
or orders that do not make a final disposition of the merits of the main controversy
or cause of action,66 are generally not reviewable.67 The only exception is a limited
one, in that when there is no plain, speedy, and adequate remedy, and where it can
be shown that the court acted without, in excess, or with such grave abuse of
discretion that such action ousts it of jurisdiction.
Judicial economy, or the goal to have cases prosecuted with the least cost to the
parties,68 requires that unnecessary or frivolous reviews of orders by the trial court,
which facilitate the resolution of the main merits of the case, be reviewed together
with the main merits of the case. After all, it would be more efficient for an appellate
court to review a case in its entire context when the case is finally disposed.
The question of whether intervention is proper is a question of law. Settled is the

distinction between a question of law and a question of fact. A question of fact arises
when there is doubt as to the truth or falsity of certain facts.69 A question of law, on
the other hand, arises when "the appeal raises doubt as to the applicable law on a
certain set of facts." 70 The test often used by this Court to determine whether there
is a question of fact or a question of law "is not the appellation given to such question
by the party raising the same; rather, it is whether the appellate court can determine
the issue raised without reviewing or evaluating the evidence, in which case, it is a
question of law; otherwise it is a question of fact."71
Petitioner raises the question of whether Republic Act No. 165 allows the Court of
Appeals to grant a motion for intervention. This necessarily requires a determination
of whether Rule 19 of the Rules of Court 72 applies in appeals of cases filed under
Republic Act No. 165. The determination of this question does not require a review
of re-evaluation of the evidence. It requires a determination of the applicable law.
II
If a petition fails to attach material portions of the record, it may still be given due
course if it falls under certain exceptions. Although Rule 45, Section 4 of the Rules of
Court requires that the petition "be accompanied by ... such material portions of the
record as would support the petition," the failure to do so will not necessarily warrant
the outright dismissal of the complaint. 73
Respondent Therapharma, Inc. argues that the Petition should have been outright
dismissed since it failed to attach certain documents to support its factual allegations
and legal arguments, particularly: the annexes of the Petition for Review it had filed
before the Court of Appeals and the annexes in the Motion for Leave to Intervene it
had filed. 74 It argues that petitioner's failure to attach the documents violates Rule
45, Section 4, which requires the submission of material portions of the record. 75
On the other hand, petitioner argues that it was able to attach the Court of Appeals
Decision dated August 31, 2004, the Resolution dated January 31, 2006, and the
Amended Decision dated August 30, 2006, all of which were sufficient for this Court
to give due course to its Petition. 76
In Magsino v. De Ocampo, 77 this Court applied the procedural guideposts in Galvez

v. Court of Appeals 78 in determining whether the Court of Appeals correctly
dismissed a petition for review under Rule 42 for failure to attach relevant portions
of the record. Thus:
In Galvez v. Court of Appeals, a case that involved the dismissal of a petition for
certiorari to assail an unfavorable ruling brought about by the failure to attach copies
of all pleadings submitted and other material portions of the record in the trial court
(like the complaint, answer and position paper) as would support the allegations of
the petition, the Court recognized three guideposts for the CA to consider in
determining whether or not the rules of procedures should be relaxed, as follows:
First, not all pleadings and parts of case records are required to be attached to the
petition. Only those which are relevant and pertinent must accompany it. The test of
relevancy is whether the document in question will support the material allegations
in the petition, whether said document will make out a prima facie case of grave
abuse of discretion as to convince the court to give due course to the petition.
Second, even if a document is relevant and pertinent to the petition, it need not be
appended if it is shown that the contents thereof can also [sic] found in another
document already attached to the petition. Thus, if the material allegations in a
position paper are summarized in a questioned judgment, it will suffice that only a
certified true copy of the judgment is attached.
Third, a petition lacking an essential pleading or part of the case record may still be
given due course or reinstated (if earlier dismissed) upon showing that petitioner
later submitted the documents required, or that it will serve the higher interest of
justice that the case be decided on the merits.79
Although Magsino referred to a petition for review under Rule 42 before the Court of
Appeals, the procedural guideposts cited in Mafilsino may apply to this case since the
contents of a pleading under Rule 4280 are substantially the same as the contents of
a pleading under Rule 45,81 in that both procedural rules require the submission of
"material portions of the record as would support the allegations of the petition."82
In support of its Petition for Review on Certiorari, petitioner attached the Court of
Appeals Decision dated August 31, 2004, 83 the Resolution dated January 31,
2006,84 and the Amended Decision dated August 30, 2006.85 The Court of Appeals
Resolution and Amended Decision quoted extensive portions of its rollo in support of
its rulings. 86 These conclusions were sufficient to convince this Court not to outright
dismiss the Petition but to require respondents to first comment on the Petition, in
satisfaction of the first and second procedural guideposts in Magsino.
Upon filing of its Consolidated Reply,87 petitioner was able to attach the following
additional documents:
(1) Petition for Review filed before the Court of Appeals;88
(2) Letters dated July 18, 1995, December 12, 1995, and December 29, 1995;89
(3) Declaration of Ms. Miriam Meconnahey dated June 25, 2002;90
(4) Spreadsheet of petitioner's patent applications handled by Atty. Mapili;91
(5) Power of Attorney and Appointment of Resident Agent dated September 26,
1996;92
(6) Letter dated December 19, 2000 requesting an Office Action on Patent Application
No. 35526;93
(7) Paper No. 2 dated January 30, 2002;94
(8) Petition for Revival dated January 30, 2002 with attached Power of Attorney and
Appointment of Resident Agent;95
(9) Resolution dated July 24, 2002 by Director of the Bureau of Patents;96 and
(10) Notice of and Memorandum on Appeal before the DirectorGeneral of the

Intellectual Property Office.97
The third procedural guidepost in Magsino was complied with upon the submission of
these documents. Petitioner, therefore, has substantially complied with Rule 45,
Section 4 of the Rules of Court.
III
Appeal is not a right but a mere privilege granted by statute.98 It may only be
exercised in accordance with the law that grants it.
Accordingly, the Court of Appeals is not bound by the rules of procedure in

administrative agencies. The procedural rules of an administrative agency only
govern proceedings within the agency. Once the Court of Appeals has given due
course to an appeal from a ruling of an administrative agency, the proceedings before
it are governed by the Rules of Court.
However, petitioner argues that intervention should not have been allowed on
appeal99 since the revival of a patent application is ex parte and is "strictly a contest
between the examiner and the applicant"100 under Sections 78101 and 79102 of the
1962 Revised Rules of Practice. 103 It argues that the disallowance of any
intervention is to ensure the confidentiality of the proceedings under Sections 13 and
14 of the 1962 Revised Rules of Practice. 104
Respondents argue that the 1962 Revised Rules of Practice is only applicable before
the Intellectual Property Office. 105 In particular, respondent Therapharma, Inc.
argues that the issue before the Court of Appeals was beyond the realm of patent
examination proceedings since it did not involve the patentability of petitioner's
invention. 106 It further argues that its intervention did not violate the confidentiality
of the patent application proceedings since petitioner was not required to divulge
confidential information regarding its patent application. 107
In the 1962 Revised Rules of Practice, final decisions of the Director of Patents are
appealed to this Court and governed by Republic Act No. 165. In particular:
PARTX
PETITION AND APPEALS
....
CHAPTER IV
APPEALS TO THE SUPREME COURT FROM FINAL ORDERS OR
DECISIONS OF THE DIRECTOR OF PATENTS IN EX PARTE AND
INTER PARTES PROCEEDINGS
265. Appeals to the Supreme Court in ex parte and inter partes proceedings.-Any
person who is dissatisfied with the final decision of the Director of Patents, (affirming
that of a Principal Examiner) denying him a patent for an invention, industrial design
or utility model; any person who is dissatisfied with any final decision of the Director
of Patents (affirming that of the Executive Examiner) in any proceeding; and any
party who is dissatisfied with any final decision of the Director of Patents in an inter
partes proceeding, may appeal such final decision to the Supreme Court within thirty
days from the date he receives a copy of such decision. (Republic Act No. 165, section
16, as amended by section 3, Republic Act No. 864.)
266. Procedure on appeal to the Supreme Court.-For the procedure on appeal to the
Supreme Court, from the final decisions of the Director of Patents, see sections 63 to
73, inclusive, of Republic Act No. 165 (patent law).
Particularly instructive is Section 73 of Republic Act No. 165, which provides:

Section 73. Rules of Court applicable. - In all other matters not herein provided, the
applicable provisions of the Rules of Court shall govern.
Republic Act No. 165 has since been amended by Republic Act No. 8293, otherwise
known as the Intellectual Property Code of the Philippines (Intellectual Property
Code), in 1997. This is the applicable law with regard to the revival of petitioner's
patent application. Section 7 (7.1 )(a) of the Intellectual Property Code states:
SECTION 7. The Director General and Deputies Director General. -
7 .1. Functions. - The Director General shall exercise the following powers and
functions:
....
b. Exercise exclusive appellate jurisdiction over all decisions rendered by the Director
of Legal Affairs, the Director of Patents, the Director of Trademarks, and the Director
of the Documentation, Information and Technology Transfer Bureau. The decisions
of the Director General in the exercise of his appellate jurisdiction in respect of the
decisions of the Director of Patents, and the Director of Trademarks shall be
appealable to the Court of Appeals in accordance with the Rules of Court; and those
in respect of the decisions of the Director of Documentation, Information and
Technology Transfer Bureau shall be appealable to the Secretary of Trade and
Industry[.] (Emphasis supplied)
Thus, it is the Rules of Court, not the 1962 Revised Rules of Practice, which governs
the Court of Appeals' proceedings in appeals from the decisions of the Director-
General of the Intellectual Property Office regarding the revival of patent applications.
Rule 19 of the Rules of Court provides that a court has the discretion to determine
whether to give due course to an intervention. Rule 19, Section 1 states:
RULE 19
INTERVENTION
SECTION 1. Who may intervene. -A person who has a legal interest in the matter in
litigation, or in the success of either of the parties, or an interest against both, or is
so situated as to be adversely affected by a distribution or other disposition of
property in the custody of the court or of an officer thereof may, with leave of court,
be allowed to intervene in the action. The court shall consider whether or not the
intervention will unduly delay or prejudice the adjudication of the rights of the original
parties, and whether or not the intervenor's rights may be fully protected in a
separate proceeding.
The only questions the court need to consider in a motion to intervene are whether
the intervenor has standing to intervene, whether the motion will / unduly delay the
proceedings or prejudice rights already established, and whether the intervenor's
rights may be protected in a separate action.108
If an administrative agency's procedural rules expressly prohibit an intervention by
third parties, the prohibition is limited only to the proceedings before the
administrative agency. Once the matter is brought before the Court of Appeals in a
petition for review, any prior prohibition on intervention does not apply since the only
question to be determined is whether the intervenor has established a right to
intervene under the Rules of Court.
In this case, respondent Therapharma, Inc. filed its Motion for Leave to Intervene
109 before the Court of Appeals, not before the Intellectual Property Office. In
assessing whether to grant the intervention, the Court of Appeals considered
respondent Therapharma, Inc.' s legal interest in the case and its other options for
the protection of its interests. 110 This was within the discretion of the Court of
Appeals under the Rules of Court.
Respondent Therapharma, Inc. was able to show that it had legal interest to intervene
in the appeal of petitioner's revival of its patent application. While its intervention
may have been premature as no patent has been granted yet, petitioner's own
actions gave rise to respondent Therapharma, Inc.' s right to protect its losartan
product.
Respondent Therapharma, Inc. filed an application for product registration before the
Bureau of Food and Drugs on June 4, 2003 and was granted a Certificate of Product
Registration on January 27, 2004. 111 It conducted patent searches from October
15, 1995 and found that no patent application for losartan had been filed either before
the Bureau of Patents, Trademarks, and Technology Transfer or before the
Intellectual Property Office.112
As early as December 11, 2003, petitioner through Merck was already sending
communications threatening legal action if respondent Therapharma, Inc. continued
to develop and market losartan in the Philippines. The letter stated:
Merck is strongly committed to the protection of its valuable intellectual property

rights, including the subject losartan patents. While fair competition by sale of
pharmaceutical products which are domestically produced legally is always welcomed
by Merck and MSD Philippines, Merck will vigorously pursue all available legal
remedies against any unauthorized manufacturer, distributor or supplier of losartan
in countries where its patents are in force and where such activity is prohibited by
law. Thus, Merck is committed to preventing the distribution of losartan in the
Philippines if it originates from, or travels through, a country in which Merck holds
patent rights. 113 (Emphasis supplied)
This letter was presented before the Court of Appeals, which eventually granted the
revival of the patent application in its August 31, 2004 Decision. Petitioner had no
pending patent application for its losartan product when it threatened respondent
Therapharma, Inc. with legal action.114
Respondent Therapharma, Inc. expressed its willingness to enter into a Non-Use and
Confidentiality Contract if there was a pending patent application. 115 After several
negotiations on the clauses of the contract, 116 the parties were unable to come to
an agreement. In its letter dated May 24, 2004, 117 respondent Therapharma, Inc.
expressed its frustration on petitioner's refusal to give a clear answer on whether it
had a pending patent application:
For easy reference, we have reproduced below paragraph 5 of the Confidentiality and
Non-Use Agreement ("Confidentiality Agreement"), underscoring your proposed
amendment:
"THERAPHARMA agrees that upon receipt of Specifications and Claims of Application

No. 35526 or at any time thereafter, before it becomes part of the public domain,
through no fault of THERAPHARMA, it will not, either directly or indirectly, alone, or
through, on behalf of, or in conjunction with any other person or entity, make use of
any information contained therein, particularly the product covered by its claims and
the equivalents thereof, in any manner whatsoever."
We find your proposed insertion odd. What may be confidential, and which we agree
you have every right to protect by way of the Confidentiality Agreement, are the
Specifications and Claims in the patent application, not the product per se. The
product has been in the market for years. Hence, how can it be confidential? Or is
the ambiguity intended to create a legal handle because you have no cause of action
against us should we launch our own version of the losartan product?
....
Finally, the questions we posed in our previous letters are plain and simple - Is the
Philippine Patent Application No. 35526 still pending before the IPO, i.e., it has neither
been withdrawn by your licensor nor denied registration by the IPO for any reason
whatsoever? When did your licensor file said application with the IPO? These
questions are easy to answer, unless there is an intention to mislead. You are also
aware that the IPO is the only government agency that can grant letters patent. This
is why we find disturbing your statement that the pendency of the patent application
before the IPO is "not relevant". Hence, unless we receive unequivocal answers to
the questions above, we regret that we cannot agree to execute the Confidentiality
Agreement; otherwise, we may be acknowledging by contract a right that you do not
have, and never will have, by law. 118 (Emphasis and underscoring in the original)
The threat of legal action against respondent Therapharma, Inc. was real and
imminent. If respondent Therapharma, Inc. waited until petitioner was granted a
patent application so it could file a petition for compulsory licensing and petition for
cancellation of patent under Section 240119 and Section 247 120 of the 1962 Revised
Rules of Practice, 121 its continued marketing of Lifezar would be considered as an
infringement of petitioner's patent.
Even assuming that the Intellectual Property Office granted the revival of Philippine
Patent Application No. 35526 back in 2000, petitioner's claim of absolute
confidentiality in patent proceedings is inaccurate.
In the 1962 Revised Rules of Practice, the Bureau of Patents, Trademarks, and
Technology Transfer previously required secrecy in pending patent applications.
Section 13 states:
13. Pending applications are preserved in secrecy.-No information will be given to

anyone respecting the filing by any particular person of any application for a patent,
the pendency of any particular case before the Office, or the subject matter of any
particular application, unless the same is authorized by the applicant in writing, and
unless it shall be necessary, in the opinion of the Director of Patents for the proper
conduct of business before the Office.
The Intellectual Property Code, however, changed numerous aspects of the old patent
law. The Intellectual Property Code was enacted not only to amend certain provisions
of existing laws on trademark, patent, and copyright, but also to honor the country's
commitments under the World Trade Organization - Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS Agreement), a treaty that entered force
in the Philippines on January 1, 1995.122
The mandatory disclosure requirement in the TRIPS Agreement123 precipitated the

shift from a first-to-invent system to a first-to-file system. The first-to-file system
required citizens of foreign countries to register their patents in the Philippines before
they can sue for infringement. 124
Lawmakers, however, expressed their concern over the extension of the period of
protection for registered patents. 125 Under Section 21 126 of Republic Act No. 165,
a patent had a term of 17 years. The Intellectual Property Code extended the period
to 20 years. 127
During the interpellations before the House of Representatives, then Representative

Neptali Gonzales II (Gonzales) explained that under the Intellectual Property Code,
the period of protection would have been shortened because of the publication
requirement:
MR. TANADA. Under the proposed measure, Your Honor, what is the period of
protection that is given to the holder of the patent registered?
MR. GONZALES. Seventeen years from grant of patent, Mr. Speaker. Unlike before
...
MR. TANADA. Under the present law, Mr. Speaker.
MR. GONZALES. I mean 17 years from filing, Mr. Speaker, unlike before which is 20
years from grant. Okay.
I am sorry, Mr. Speaker. Seventeen years from filing under the existing law, 20 years
from grant under the proposed measure. It would appear, Mr. Speaker, that the
proposed measure seeks to extend the grant of the patent.
MR. TA.NADA. But you have made the period of protection longer, Mr. Speaker.
MR. GONZALES. On the contrary, Mr. Speaker, when a similar question was
previously propounded before, actually Mr. Speaker, it may decrease in fact the
period of protection, Mr. Speaker. Because unlike before 17 years from grant, Mr.
Speaker, now 20 years from application or from filing but actually, Mr. Speaker, it
normally takes three to four years before a patent is actually granted even under the
proposed measure. Because as you can see[,] publication in the BPTTT Gazette would
even taken place after 18 months from filing. In other words, the procedure itself is
such a manner that normally takes a period of about three years to finally grant the
patent. So even if 20 years is given from the time of filing actually in essence it will
be the same, Mr. Speaker, because under the existing law 17 years from grant. But
even under our existing law from the time that a patent application is filed it also
takes about three to four years, Mr. Speaker, to grant the same.
Now, why from filing, Mr. Speaker? Because the patent holder applicant is now
required to publish in a manner easily understood by a person trained or with the
same skill as that of a patent holder. And from that time this is published, this process
covered by the patent is already made available. In fact, from the time that it is
published, any interested person may even examine and go over the records as filed
with the BPTTT and, therefore, this new technology or new invention is now made
available to persons equipped or possessed with the same skills as that of the patent
holder. And that is the reason why the patent is - the time of the patent is now tacked
from the time it is filed because as a compromise it is now mandatory to publish the
said patent together with its description - the description of the process and even
would, at times demand the deposit of sample of the industrial design, Mr. Speaker.
128
Gonzales further clarified that the publication requirements of the Intellectual

Property Code would necessarily shorten the period for confidentiality of patent
applications:
MR. MONFORT. Now, another question is, (another is) you know, the time from the
filing of the date up to publication which is the period of pendency or confidentiality,
may I know how many years will it take, that confidentiality period, variability.
MR. GONZALES. Eighteen months, Mr. Speaker.
MR. MONFORT. How many?
MR. GONZALES. Eighteen months.
MR. MONFORT. I do not think it is 18 months.

MR. GONZALES. It is provided for in the law, Mr. Speaker, because prior to the
publication, naturally, the records become confidential because the essence of a
patent, trademark, or copyright is to give the author or the inventor exclusive right
to work on his own invention. And that is his invention, and naturally, it is but right
that he should have the exclusive right over his invention.
On the other hand, the law requires that after 18 months, it should now be published.
When it is now published, naturally, it ceases to be confidential in character because
it is now ready for examination. It is now ready for possible copying of any interested
person because the application, as we have repeatedly said on the floor, would
require the filing of a description of the invention that can be carried out by a Eerson
similarly trained in the arts and sciences as that of the patent holder.129
Thus, the absolute secrecy required by the 1962 Revised Rules of Practice would not
be applicable to a patent application before the Intellectual Property Office. Section
13 of the 1962 Revised Rules of Practice does not appear in the Intellectual Property
Code, 130 in the Rules and Regulations on Inventions, 131 or in the Revised
Implementing Rules and Regulations for Patents, Utility Models and Industrial Design.
132 The Intellectual Property Code now states that all patent applications must be
published in the Intellectual Property Office Gazette and that any interested party
may inspect all documents submitted to the Intellectual Property Office. The patent
application is only confidential before its publication. Sections 44 and 45 of the
Intellectual Property Code provide:
SECTION 44. Publication of Patent Application. -
44.1. The patent application shall be published in the IPO Gazette together with a
search document established by or on behalf of the Office citing any documents that
reflect prior art, after the expiration of eighteen (18) months from the filing date or
priority date.
44.2. After publication of a patent application, any interested party may inspect the
application documents filed with the Office.
44.3. The Director General, subject to the approval of the Secretary of Trade and
Industry, may prohibit or restrict the publication of an application, if in his opinion,
to do so would be prejudicial to the national security and interests of the Republic of
the Philippines. (n)
SECTION 45. Confidentiality Before Publication. -A patent application, which has not
yet been published, and all related documents, shall not be made available for
inspection without the consent of the applicant.
It was inaccurate, therefore, for petitioner to argue that secrecy in patent applications
prevents any intervention from interested parties. The confidentiality in patent
applications under the Intellectual Property Code is not absolute since a party may
already intervene after the publication of application.
IV
An abandoned patent application may only be revived within four (4) months from
the date of abandonment. No extension of this period is provided by the 1962 Revised
Rules of Practice. Section 113 states:
113. Revival of abandoned application.-An application abandoned for failure to

prosecute may be revived as a pending application if it is shown to the satisfaction of
the Director that the delay was unavoidable. An abandoned application may be
revived as a pending application within four months from the date of abandonment
upon good cause shown and upon the payment of the required fee of ₱25. An
application not revived within the specified period shall be deemed forfeited.
Petitioner argues that it was not negligent in the prosecution of its patent
application133 since it was Atty. Mapili or his heirs who failed to inform it of crucial
developments with regard to its patent application. 134 It argues that as a client in
a foreign country, it does not have immediate supervision over its local counsel so it
should not be bound by its counsel's negligence. 135 In any case, it complied with all
the requirements for the revival of an abandoned application under Rule 113 of the
1962 Revised Rules of Practice. 136
Respondents, on the other hand, argue that petitioner was inexcusably and grossly
negligent in the prosecution of its patent application since it allowed eight (8) years
to pass before asking for a status update on its application. 137 Respondent
Intellectual Property Office argues that petitioner's inaction for eight (8) years
constitutes actual abandonment. 138 It also points out that from the time petitioner
submitted its new Special Power of Attorney on September 29, 1996, it took them
another four (4) years to request a status update on its application. 139
Under Chapter VII, Section 1 ll(a) of the 1962 Revised Rules of Practice, a patent
application is deemed abandoned if the applicant fails to prosecute the application
within four months from the date of the mailing of J the notice of the last action by
the Bureau of Patents, Trademarks, and Technology Transfer, and not from
applicant's actual notice. Section 11 l(a) states:
Chapter VII
TIME FOR RESPONSE BY APPLICANT; ABANDONMENT OF APPLICATION
111. Abandonment for failure to respond within the time limit.-
(a) If an applicant fails to prosecute his application within four months after the date
when the last official notice of action by the Office was mailed to him, or within such
time as may be fixed (rule 112), the application will become abandoned.
According to the records of the Bureau of Patents, Trademarks, and Technology

Transfer Chemical Examining Division, petitioner filed Philippine Patent Application
No. 35526 on July 10, 1987. It was assigned to an examiner on June 7, 1988. An
Office Action was mailed to petitioner's agent, Atty. Mapili, on July 19, 1988. Because
petitioner failed to respond within the allowable period, the application was deemed
abandoned on September 20, 1988.140 Under Section 113, petitioner had until
January 20, 1989 to file for a revival of the patent application. Its Petition for Revival,
however, was filed on May 30, 2002, 141 13 years after the date of abandonment.
Section 113 has since been superseded by Section 133.4 of the Intellectual Property
Code, Rule 930 of the Rules and Regulations on Inventions, and Rule 929 of the
Revised Implementing Rules and Regulations for Patents, Utility Models and Industrial
Design. The period of four (4) months from the date of abandonment, however,
remains unchanged. The Intellectual Property Code even provides for a shorter period
of three (3) months within which to file for revival:
SECTION 133. Examination and Publication. –
....
133.4. An abandoned application may be revived as a pending application within

three (3) months from the date of abandonment, upon good cause shown and the
payment of the required fee.
Rule 930 of the Rules and Regulations on Inventions provides:
Rule 930. Revival of application. - An application deemed withdrawn for failure to

prosecute may be revived as a pending application within a
period of four (4) months from the mailing date of the notice of withdrawal if it is
shown to the satisfaction of the Director that the failure was due to fraud, accident,
mistake or excusable negligence.
A petition to revive an application deemed withdrawn must be accompanied by (1) a

showing of the cause of the failure to prosecute, (2) a complete proposed response,
and (3) the required fee.
An application not revived in accordance with this rule shall be deemed forfeited.
Rule 929 of the Revised Implementing Rules and Regulations for Patents, Utility
Models and Industrial Design provides:
Rule 929. Revival of Application. - An application deemed withdrawn for failure to

prosecute may be revived as a pending application within a period of four (4) months
from the mailing date of the notice of withdrawal if it is shown to the satisfaction of
the Director that the failure was due to fraud, accident, mistake, or excusable
negligence. A petition to revive an application deemed withdrawn shall be
accompanied by:
(a) A showing of a justifiable reason for the failure to prosecute;

(b) A complete proposed response; and
(c) Full payment of the required fee.
No revival shall be granted to an application that has been previously revived with
cost.
An application not revived in accordance with this Rule shall be deemed forfeited.
Even if the delay was unavoidable, or the failure to prosecute was due to fraud,
accident, mistake, or excusable negligence, or the Petition was accompanied by a
complete proposed response, or all fees were paid, the Petition would still be denied
since these regulations only provide a four (4 )- month period within which to file for
the revival of the application. The rules do not provide any exception that could
extend this four (4)-month period to 13 years.
Petitioner’s patent application, therefore, should not be revived since it was filed
beyond the allowable period.
Even assuming that the four (4)-month period could be extended, petitioner was
inexcussably negligent in the prosecution of its patent application.
Negligence is inexcusable if its commission could have been avoided through ordinary
diligence and prudence. 142 It is also settled that negligence of counsel binds the
client as this "ensures against the resulting uncertainty and tentativeness of
proceedings if clients were allowed to merely disown. 143 their counsels' conduct."
Petitioner's resident agent, Atty. Mapili, was undoubtedly negligent in failing to

respond to the Office Action sent by the Bureau of Patents, Trademarks, and
Technology Transfer on June 19, 1988. Because of his negligence, petitioner's patent
application was declared abandoned. He was again negligent when he failed to revive
the abandoned application within four (4) months from the date of abandonment.
Petitioner tries to disown Atty. Mapili 's conduct by arguing that it was not informed
of the abandonment of its patent application or of Atty. Mapili's death. By its own
evidence, however, petitioner requested a status update from Atty. Mapili only on
July 18, 1995, eight (8) years after the filing of its application. 144 It alleged that it
only found out about Atty. Mapili 's death sometime in March 1996, as a result of its
senior patent attorney's visit to the Philippines. 145 Although it was in petitioner's
discretion as a foreign client to put its complete trust and confidence on its local
resident agent, there was a correlative duty on its part to be diligent in keeping itself
updated on the progress of its patent applications. Its failure to be informed of the
abandonment of its patent application was caused by its own lack of prudence.
In Bernardo v. Court of Appeals, 146 "[n]o prudent party will leave the fate of his
case entirely to his lawyer .... It is the duty of a party-litigant to be in contact with
his counsel from time to time in order to be informed of the progress of his case."
147
Even if Atty. Mapili's death prevented petitioner from submitting a petition for revival
on time, it was clearly negligent when it subsequently failed to immediately apprise
itself of the status of its patent application.
Upon learning of Atty. Mapili’s death, petitioner issued a Power of Attorney and
Appointment of Resident Agent in favor of Bito, Lozada, Ortega & Castillo on March
25, 1996. 148 Despite the immediate action in the substitution of its resident agent,
it only requested a status update of Philippine Patent Application No. 35526 from the
Intellectual Property Office on December 14, 2000, 149 or four (4) years after it
learned of Atty. Mapili' s death.
Petitioner attempts to explain that it took them four (4) years to request a status
update because the Bureau of Patents, Trademarks, and Technology Transfer failed
to take any action when it submitted its Power of Attorney and Appointment of
Resident Agent in favor of Bito, Lozada, Ortega & Castillo.150 The Power of Attorney,
however, shows that it was only to inform the Bureau that all notices relating to its
pending patent applications should be sent to it. Philippine Patent Application No.
35526 was declared abandoned on September 20, 1988. As far as the Bureau was
concerned, it was a forfeited application that had already been archived. It was not
the Bureau's duty to resurrect previous notices of forfeited and abandoned
applications to be sent to new resident agents unless a specific status update was
requested. Considering that petitioner only requested a status update on December
14, 2000, it was only then that the Intellectual Property Office would start sending
notices to it.
Contrary to the posturing of petitioner, Schuartz is applicable.
In Schuartz, several foreign inventors seeking to file patent applications in the

Philippines hired the law firm Siguion Reyna, Montecillo and Ongsiako to process their
applications. 151 The Bureau of Patents, Trademarks, and Technology Transfer
mailed the law firm several notices of abandonment on its patent applications from
June 1987 to September 1987. The law firm only found out about this in December
1987, after it dismissed two (2) of its employees in charge of handling
correspondences from the Bureau. 152 The law firm filed petitions for revival of its
patent applications from March 1988, all of which were denied by the Director of the
Bureau of Patents for being filed out of time. 153 An appeal was subsequently filed
before the Court of Appeals but was dismissed for being filed beyond the
reglementary period. 154
This Court found that although the Court of Appeals may have erred in counting the
period for appeal, it could not grant the Petition. This Court stated:
[P]etitioners lost sight of the fact that the petition could not be granted because of
laches. Prior to the filing of the petition for revival of the patent application with the
Bureau of Patents, an unreasonable period of time had lapsed due to the negligence
of petitioners' counsel. By such inaction, petitioners were deemed to have forfeited
their right to revive their applications for patent.
Facts show that the patent attorneys appointed to follow up the applications for
patent registration had been negligent in complying with the rules of practice
prescribed by the Bureau of Patents.1âwphi1 The firm had been notified about the
abandonment as early as June 1987, but it was only after December 7, 1987, when
their employees Bangkas and Rosas had been dismissed, that they came to know
about it. This clearly showed that petitioners' counsel had been remiss in the handling
of their clients' applications.
"A lawyer's fidelity to the cause of his client requires him to be ever mindful of the
responsibilities that should be expected of him. A lawyer shall not neglect a legal
matter entrusted to him." In the instant case, petitioners' patent attorneys not only
failed to take notice of the notices of abandonment, but they failed to revive the
application within the four-month period, as provided in the rules of practice in patent
cases. These applications are deemed forfeited upon the lapse of such period. 155
(Emphasis supplied)
Petitioner attempts to distinguish itself from Schuartz by arguing that the petitioners
in Schuartz had actual notice of abandonment while petitioner here was only able to
have actual notice when it received Paper No. 2.
The four (4 )-month period in Section 111 156of the 1962 Revised Rules of Practice,
however, is not counted from actual notice of abandonment but from mailing of the
notice. Since it appears from the Intellectual Property Office's records that a notice
of abandonment was mailed to petitioner's resident agent on July 19, 1988,157 the
time for taking action is counted from this period. Petitioner's patent application
cannot be revived simply because the period for revival has already lapsed and no
extension of this period is provided for by the 1962 Revised Rules of Practice.
VI
The right of priority given to a patent applicant is only relevant when there are two
or more conflicting patent applications on the same invention. Because a right of
priority does not automatically grant letters patent to an applicant, possession of a
right of priority does not confer any property rights on the applicant in the absence
of an actual patent.
Petitioner argues that its patent application was filed on July 10, 1987, within 12
months from the prior filing of a U.S. patent application on July 11, 1986.158 It
argues that it is protected from becoming part of the public domain because of
convention priority under the Paris Convention for the Protection of Industrial
Property and Section 9 of Republic Act No. 165. 159
Respondent Therapharma, Inc., on the other hand, argues that a mere patent
application does not vest any right in the applicant before the issuance of the
patent.160 It argues that the "priority date" argued by petitioner is only relevant in
determining who has a better right to the patent among the other applicants who
subsequently apply for the same invention. 161
Under Section 31 of the Intellectual Property Code, a right of priority is given to any
patent applicant who has previously applied for a patent in a country that grants the
same privilege to Filipinos. Section 31 states:
SECTION 31. Right of Priority. - An application for patent filed by any person who has
previously applied for the same invention in another country which by treaty,
convention, or law affords similar privileges to Filipino citizens, shall be considered
as filed as of the date of filing the foreign application: Provided, That:
a. the local application expressly claims priority;
b. it is filed within twelve (12) months from the date the earliest foreign application
was filed; and
c. a certified copy of the foreign application together with an English translation is

filed within six (6) months from the date of filing in the Philippines.
A patent applicant with the right of priority is given preference in the grant of a patent
when there are two or more applicants for the same invention. Section 29 of the
Intellectual Property Code provides:
SECTION 29. First to File Rule. - If two (2) or more persons have made the invention
separately and independently of each other, the right to the patent shall belong to
the person who filed an application for such invention, or where two or more
applications are filed for the same invention, to the applicant who has the earliest
filing date or, the earliest priority date.
Since both the United States162 and the Philippines163 are signatories to the Paris
Convention for the Protection of Industrial Property, an applicant who has filed a
patent application in the United States may have a right of priority over the same
invention in a patent application in the Philippines.164 However, this right of priority
does not immediately entitle a patent applicant the grant of a patent. A right of
priority is not equivalent to a patent. Otherwise, a patent holder of any member-state
of the Paris Convention need not apply for patents in other countries where it wishes
to exercise its patent.
It was, therefore, inaccurate for petitioner to argue that its prior patent application
in the United States removed the invention from the public domain in the Philippines.
This argument is only relevant if respondent Therapharma, Inc. had a conflicting
patent application with the Intellectual Property Office. A right of priority has no
bearing in a case for revival of an abandoned patent application.
VII
The grant of a patent is to provide protection to any inventor from any patent
infringement. 165 Once an invention is disclosed to the public, only the patent holder
has the exclusive right to manufacture, utilize, and market the invention.166 In
Creser Precision Systems v. Court of Appeals:167
Under American jurisprudence, an inventor has no common-law right to a monopoly

of his invention. He has the right to make, use and vend his own invention, but if he
voluntarily discloses it, such as by offering it for sale, the world is free to copy and
use it with impunity. A patent, however, gives the inventor the right to exclude all
others. As a patentee, he has the exclusive right of making, using or selling the
invention. 168
Under the Intellectual Property Code, a patent holder has the right to "to restrain,
prohibit and prevent" 169 any unauthorized person or entity from manufacturing,
selling, or importing any product derived from the patent. However, after a patent is
granted and published in the Intellectual Property Office Gazette, 170 any interested
third party "may inspect the complete description, claims, and drawings of the
patent." 171
The grant of a patent provides protection to the patent holder from the indiscriminate
use of the invention. However, its mandatory publication also has the correlative
effect of bringing new ideas into the public consciousness. After the publication of the
patent, any person may examine the invention and develop it into something further
than what the original patent holder may have envisioned. After the lapse of 20 years,
172 the invention becomes part of the public domain and is free for the public to use.
In Pearl and Dean v. Shoemart, Inc.: 173
To be able to effectively and legally preclude others from copying and profiting from
the invention, a patent is a primordial requirement. No patent, no protection. The
ultimate goal of a patent system is to bring new designs and technologies into the
public domain through disclosure. Ideas, once disclosed to the public without the
protection of a valid patent, are subject to appropriation without significant restraint.
On one side of the coin is the public which will benefit from new ideas; on the other
are the inventors who must be protected. As held in Bauer & Cie vs. O'Donnell, "The
act secured to the inventor the exclusive right to make use, and vend the thing
patented, and consequently to prevent others from exercising like privileges without
the consent of the patentee. It was passed for the purpose of encouraging useful
invention and promoting new and useful inventions by the protection and stimulation
new and useful inventions by the protection and stimulation given to inventive genius,
and was intended to secure to the public, after the lapse of the exclusive privileges
granted the benefit of such inventions and improvements."
The law attempts to strike an ideal balance between the interests:

"(The p)atent system thus embodies a carefully varafted bargain for encouraging the
creation and disclosure of new useful and non-obvious advances in technology and
design, in return for the exclusive right to practice the invention for a number of
years. The inventor may keep his invention secret and reap its fruits indefinitely. In
consideration of its disclosure and the consequent benefit to the community, the
patent is granted. An exclusive enjoyment is guaranteed him for 17 years, but upon
the expiration of that period, the knowledge of the invention inures to the people,
who are thus enabled to practice it and profit by its use."
The patent law has a three-fold purpose: "first, patent law seeks to foster and reward
invention; second, it promotes disclosures of inventions to stimulate further
innovation and to permit the public to practice the invention once the patent expires;
third, the stringent requirements for patent protection. seek to ensure that ideas in
the public domain remain there for the free use of the public."
It is only after an exhaustive examination by the patent office that a patent is issued.
Such an in-depth investigation is required because "in rewarding a useful invention,
the rights and welfare of the community must be fairly dealt with and effectively
guarded. To that end, the prerequisites to obtaining a patent are strictly observed
and when a patent is issued, the limitations on its exercise are equally strictly
enforced. To begin with, a genuine invention or discovery must be demonstrated lest
in the constant demand for new appliances, the heavy hand of tribute be laid on each
slight technological advance in art."174 (Emphasis supplied)
In addition, a patent holder of inventions relating to food or medicine does not enjoy
absolute monopoly over the patent. Both Republic Act No. 165 and the Intellectual
Property Code provide for compulsory licensing. Compulsory licensing is defined in
the Intellectual Property Code as the "grant a license to exploit a patented invention,
even without the agreement of the patent owner." 175
Under Republic Act No. 165, a compulsory license may be granted to any applicant
three (3) years after the grant of a patent if the invention relates to food or medicine
necessary for public health or safety. 176 In Smith Kline & French Laboratories, Ltd.
vs. Court of Appeals: 177
Section 34 of R.A. No. 165, even if the Act was enacted prior to the Philippines'
adhesion to the [Paris] Convention, fits well within the aforequoted provisions of
Article 5 of the Paris Convention. In the explanatory note of Bill No. 1156 which
eventually became R.A. No. 165, the legislative intent in the grant of a compulsory
license was not only to afford others an opportunity to provide the public with the
quantity of the patented product, but also to prevent the growth of monopolies.
Certainly, the growth of monopolies was among the abuses which Section A, Article
5 of the Convention foresaw, and which our Congress likewise wished to prevent in
enacting R.A. No. 165. 178
The patent holder’s proprietary right over the patent only lasts for three (3) years
from the grant of the patent, after which any person may be allowed to manufacture,
use or sell the invention subject to the payment of royalties:
The right to exclude others from the manufacturing, using or vending an invention
relating to food or medicine should be conditioned to allowing any person to
manufacture, use or vend the same after a period of three years from the date of the
grant of the letters patent. After all, the patentee is not entirely deprived of any
proprietary right. In fact, he has been given the period of three years of complete
monopoly over the patent. Compulsory licensing of a patent on food or medicine
without regard to the other conditions imposed in Section 34 is not an undue
deprivation of proprietary interests over a patent right because the law sees to it that
even after three years of complete monopoly something is awarded to the inventor
in the form of a bilateral and workable licensing agreement and a reasonable royalty
to be agreed upon by the parties and in default of such agreement, the Director of
Patent may fix the terms and conditions of the license.179
A patent is a monopoly granted only for specific purposes and objectives. Thus, its
procedures must be complied with to attain its social objective. Any request for
leniency in its procedures should be taken in this context. Petitioner, however, has
failed to convince this court that the revival of its patent application would have a
significant impact on the pharmaceutical industry.
Hypertension, or high blood pressure, is considered a "major risk factor for

cardiovascular disease" 180 such as "heart disease, stroke, kidney failure and
blindness." 181 In a study conducted by the World Health Organization, 25% of adults
aged 21 years and older in the Philippines suffer from high blood pressure. 182
According to the Department of Health, heart disease remains the leading cause of
mortality in the Philippines. 183 Angiotensin II Receptor Blocking Imidazole or
"losartan" is one of the medications used for the treatment ofhypertension. 184
In a study conducted by the Philippine Institute for Development Studies,

"affordability of drugs remains a serious problem" 185 in the Philippines. It found
that because of the cost of drugs, accessibility to drugs become prohibitive for the
lowest-earning households and are "even more prohibitive for the u:nemployed and
indigent." 186 Several measures have been enacted by the government to address
the high costs of medicine, among them, parallel drug importation187 and the
passage of Republic Act No. 9502, otherwise known as the Universally Accessible
Cheaper and Quality Medicines Act of 2008. 188 Figures submitted by respondent
Therapharma, Inc., however, also show that the presence of competition in the local
pharmaceutical market may ensure the public access to cheaper medicines.
According to respondent Therapharma, Inc., the retail price of petitioner's losartan

product, Cozaar, decreased within one (1) month of respondent Therapharma, Inc.'
s entry into the market: 189
BRAND TRADER RETAIL PRICE

As of Lifezar's first entry into the market on June 4, 2004 RETAIL PRICE Within one
month from Lifezar's entry or by July 4, 2004
LIFEZAR
Therapharma
50 mg - P20.20
50 mg - P20.20
COZAAR
Merck
50 mg - P39.50
100 mg - P55.00
50 mg - P39.50
100 -P44.00
Respondent Therapharma, Inc. also presented figures showing that there was a 44%
increase in the number of losartan units sold within five (5) months of its entry into
the market. 190 More Filipinos are able to purchase losartan products when there are
two (2) different players providing competitive prices in the market.
Lifezar, and another of respondent Therapharma, Inc.'s products, Combizar, have

also been recommended as cheaper alternative losartan medication, since they were
priced "50 percent less than foreign brands." 191
Public interest will be prejudiced if, despite petitioner's inexcusable negligence, its
Petition for Revival is granted.1awp++i1 Even without a pending patent application
and the absence of any exception to extend the period for revival, petitioner was
already threatening to pursue legal action against respondent Therapharma, Inc. if it
continued to develop and market its losartan product, Lifezar. 192 Once petitioner is
granted a patent for its losartan products, Cozaar and Hyzaar, the loss of competition
in the market for losartan products may result in higher prices. For the protection of
public interest, Philippine Patent Application No. 35526 should be considered a
forfeited patent application.
WHEREFORE, the Petition is DENIED. The Resolution dated January 31, 2006 and the
Amended Decision dated August 30, 2006 of the Court of Appeals are AFFIRMED.
SO ORDERED.
[G.R. No. 121867. July 24, 1997]
SMITH KLINE & FRENCH LABORATORIES, LTD., petitioner, vs. COURT OF
APPEALS, BUREAU OF PATENTS, TRADEMARKS AND TECHNOLOGY
TRANSFER and DOCTORS PHARMACEUTICALS, INC. respondents.
DECISION
DAVIDE, JR., J.:
This is an appeal under Rule 45 of the Rules of Court from the decision [1] of 4
November 1994 of the Court of Appeals in CA-G.R. SP No. 33520, which affirmed the
14 February 1994 decision[2] of the Director of the Bureau of Patents, Trademarks
and Technology Transfer (BPTTT) granting a compulsory non-exclusive and non-
transferable license to private respondent to manufacture, use and sell in the
Philippines its own brands of pharmaceutical products containing petitioners patented
pharmaceutical product known as Cimetidine.
Petitioner is a foreign corporation with principal office at Welwyn Garden City,
England. It owns Philippine Letters Patent No. 12207 issued by the BPTTT for the
patent of the drug Cimetidine.
Private respondent is a domestic corporation engaged in the business of
manufacturing and distributing pharmaceutical products. On 30 March 1987, it filed
a petition for compulsory licensing[3] with the BPTTT for authorization to manufacture
its own brand of medicine from the drug Cimetidine and to market the resulting
product in the Philippines. The petition was filed pursuant to the provisions of Section
34 of Republic Act No. 165 (An Act Creating a Patent Office Prescribing Its Powers
and Duties, Regulating the Issuance of Patents, and Appropriating Funds Therefor),
which provides for the compulsory licensing of a particular patent after the expiration
of two years from the grant of the latter if the patented invention relates to, inter
alia, medicine or that which is necessary for public health or public safety. Private
respondent alleged that the grant of Philippine Letters Patent No. 12207 was issued
on 29 November 1978; that the petition was filed beyond the two-year protective
period provided in Section 34 of R.A. No. 165; and that it had the capability to work
the patented product or make use of it in its manufacture of medicine.
Petitioner opposed, arguing that private respondent had no cause of action and lacked
the capability to work the patented product; the petition failed to specifically divulge
how private respondent would use or improve the patented product; and that private
respondent was motivated by the pecuniary gain attendant to the grant of a
compulsory license. Petitioner also maintained that it was capable of satisfying the
demand of the local market in the manufacture and marketing of the medicines
covered by the patented product. Finally, petitioner challenged the constitutionality
of Sections 34 and 35 of R.A. No. 165 for violating the due process and equal
protection clauses of the Constitution.
After appropriate proceedings, the BPTTT handed down its decision on 14 February
1994, with the dispositive portion thereof providing:
NOW, THEREFORE, by virtue of the powers vested in this Office by Republic Act No.
165, as amended by Presidential Decree No. 1263, there is hereby issued a license
in favor of the herein [private respondent], United Laboratories, Inc., [sic] under
Letters Patent No. 12207 issued on November 29, 1978, subject to the following
terms and conditions:
1. That [private respondent] be hereby granted a non-exclusive and non-transferable
license to manufacture, use and sell in the Philippines its own brands of
pharmaceutical products containing [petitioner's] patented invention which is
disclosed and claimed in Letters Patent No. 12207;
2. That the license granted herein shall be for the remaining life of said Letters Patent
No. 12207 unless this license is terminated in the manner hereinafter provided and
that no right or license is hereby granted to [private respondent] under any patent
to [petitioner] or [sic] other than recited herein;
3. By virtue of this license, [private respondent] shall pay [petitioner] a royalty on all
license products containing the patented substance made and sold by [private
respondent] in the amount equivalent to TWO AND ONE HALF PERCENT (2.5%) of
the net sales in Philippine currency. The term "net scale" [sic] means the gross
amount billed for the product pertaining to Letters Patent No. 12207, less --
(a) Transportation charges or allowances, if any, included in such amount;
(b) Trade, quantity or cash discounts and broker's or agent's or distributor's
commissions, if any, allowed or paid;
(c) Credits or allowances, if any, given or made on account of rejection or return of
the patented product previously delivered; and
(d) Any tax, excise or government charge included in such amount, or measured by
the production sale, transportation, use of delivery of the products.
In case [private respondent's] product containing the patented substance shall
contain one or more active ingredients admixed therewith, said product hereinafter
identified as admixed product, the royalty to be paid shall be determined in
accordance with the following formula:
Net Sales on Value of Patented
ROYALTY = Admixed Product x 0.025 x Substance
Value of Patented Value of Other
Substance Active Ingredients
4. The royalties shall be computed after the end of each calendar quarter to all goods
containing the patented substance herein involved, made and sold during the
precedent quarter and to be paid by [private respondent] at its place of business on
or before the thirtieth day of the month following the end of each calendar quarter.
Payments should be made to [petitioner's] authorized representative in the
Philippines;
5. [Private respondent] shall keep records in sufficient detail to enable [petitioner] to
determine the royalties payable and shall further permit its books and records to be
examined from time to time at [private respondent's] premises during office hours,
to the extent necessary to be made at the expense of [petitioner] by a certified public
accountant appointed by [petitioner] and acceptable to [private respondent].
6. [Private respondent] shall adopt and use its own trademark or labels on all its
products containing the patented substance herein involved;
7. [Private respondent] shall comply with the laws on drugs and medicine requiring
previous clinical tests and approval of proper government authorities before selling
to the public its own products manufactured under the license;
8. [Petitioner] shall have the right to terminate the license granted to [private
respondent] by giving the latter thirty (30) days notice in writing to that effect, in
the event that [private respondent] default [sic] in the payment of royalty provided
herein or if [private respondent] shall default in the performance of other covenants
or conditions of this agreement which are to be performed by [private respondent]:
(a) [Private respondent] shall have the right provided it is not in default to payment
or royalties or other obligations under this agreement, to terminate the license
granted to its, [sic]giving [petitioner] thirty (30) days-notice in writing to that effect;
(b) Any termination of this license as provided for above shall not in any way operate
to deny [petitioner] its rights or remedies, either at laws [sic] or equity, or relieve
[private respondent] of the payment of royalties or satisfaction of other obligations
incurred prior to the effective date of such termination; and
(c) Notice of termination of this license shall be filed with the Bureau of Patents,
Trademarks and Technology Transfer.
9. In case of dispute as to the enforcement of the provisions of this license, the matter
shall be submitted for arbitration before the Director of Bureau of Patents,
Trademarks and Technology Transfer or any ranking official of the Bureau of Patents,
Trademarks and Technology Transfer duly delegated by him;
10. This License shall inure to the benefit of each of the parties herein, to the
subsidiaries and assigns of [petitioner] and to the successors and assigns of [private
respondent]; and
11. This license take [sic] effect immediately.[4]
Petitioner then appealed to the Court of Appeals by way of a petition for review, which
was docketed as CA-G.R. SP No. 33520. Petitioner claimed that the appealed decision
was erroneous because:
I
... [IT] VIOLATES INTERNATIONAL LAW AS EMBODIED IN THE PARIS CONVENTION
FOR THE PROTECTION OF INDUSTRIAL PROPERTY AND MUST ACCORDINGLY BE SET
ASIDE AND MODIFIED.
II
... [IT] IS AN INVALID EXERCISE OF POLICE POWER.
III
CONCEDING ARGUENDO THE QUESTIONED DECISIONS VALIDITY, THE BPTTTS
PRONOUNCEMENT FIXING THE ROYALTY AT 2.5% OF THE NET WHOLESALE PRICE
IN PHILIPPINE CURRENCY WAS RENDERED WITHOUT ANY FACTUAL BASIS AND
AMOUNTS TO EXPROPRIATION OF PRIVATE PROPERTY WITHOUT JUST
COMPENSATION WHICH IS VIOLATIVE OF THE CONSTITUTION.
IV
... [IT] SHOULD NOT HAVE PROCEEDED TO DECIDE THE CASE BELOW FOR FAILURE
OF PRIVATE RESPONDENT TO AFFIRMATIVELY PROVE THE JURISDICTIONAL FACT
OF PUBLICATION.[5]
In its decision of 4 November 1994, [6] the Court of Appeals affirmed in toto the
challenged decision. We quote its findings and conclusion upon which the affirmance
is anchored, viz.:
An assiduous scrutiny of the impugned decision of the public respondent reveals that
the same is supported by substantial evidence. It appears that at the time of the
filing of the petition for compulsory license on March 24, 1987, the subject letters
Patent No. 12207 issued on November 29, 1978 has been in effect for more than two
(2) years. The patented invention relates to compound and compositions used in
inhibiting certain actions of the histamine, hence, it relates to medicine. Moreover,
after hearing and careful consideration of the evidence presented, the Director of
Patents ruled that - there is ample evidence to show that [private respondent]
possesses such capability, having competent personnel, machines and equipment as
well as permit to manufacture different drugs containing patented active ingredients
such as ethambutol of American Cyanamid and Ampicillin and Amoxicillin of Beecham
Groups, Ltd.
As to the claim by the petitioner that it has the capacity to work the patented product
although it was not shown that any pretended abuse has been committed, thus the
reason for granting compulsory license is intended not only to give a chance to others
to supply the public with the quantity of the patented article but especially to prevent
the building up of patent monopolities [sic]. [Parke Davis v.Doctors Pharmaceuticals,
Inc., 14 SCRA 1053].
We find that the granting of compulsory license is not simply because Sec. 34 (1) e,
RA 165 allows it in cases where the invention relates to food and medicine. The
Director of Patents also considered in determining that the applicant has the
capability to work or make use of the patented product in the manufacture of a useful
product. In this case, the applicant was able to show that Cimetidine, (subject matter
of latters Patent No. 12207) is necessary for the manufacture of an anti-ulcer
drug/medicine, which is necessary for the promotion of public health. Hence, the
award of compulsory license is a valid exercise of police power.
We do not agree to [sic] petitioners contention that the fixing of the royalty at 2.5%
of the net wholesale price amounted to expropriation of private property without just
compensation.
Paragraph 3, Section 35-B, R.A. No. 165, as amended by P.D. No. 1267, states:
SEC. 35-B. Terms and Conditions of Compulsory License.
(1). x x x
(2). x x x
(3). A compulsory license shall only be granted subject to the payment of adequate
royalties commensurate with the extent to which the invention is worked. However,
royalty payments shall not exceed five percent (5%) of the net wholesale price (as
defined in Section 33-A) of the products manufactured under the license.
If the product, substance, or process subject of the compulsory license is involved in
an industrial project approved by the Board of Investments, the royalty payable to
the patentee or patentees shall not exceed three percent (3%) of the net wholesale
price (as defined in Section 34-A) of the patented commodity and/or commodity
manufactured under the patented process, the same rate of royalty shall be paid
whenever two or more patents are involved, which royalty shall be distributed to the
patentees in rates proportional to the extent of commercial use by the licensee giving
preferential values to the holder of the oldest subsisting product patent.
The foregoing provision grants the Director of Patents the use of his sound discretion
in fixing the percentage for the royalty rate. In the instant case, the Director of
Patents exercised his discretion and ruled that a rate of 2.5% of the net wholesale
price is fair enough for the parties. In Parke Davis & Co. vs. DPI and Tiburcio, [L-
27004, August 6, 1983, 124 SCRA 115] it was held that - liberal treatment in trade
relations should be afforded to local industry for as reasoned out by respondent
company, it is so difficult to compete with the industrial grants [sic] of the drug
industry, among them being the petitioner herein, that it always is necessary that
the local drug companies should sell at much lower (than) the prices of said foreign
drug entities. Besides, foreign produce licensor can later on ask for an increase in
percentage rate of royalty fixed by the Director of Patents if local sales of license
should increase. Further, in Price vs. UNILAB, the award of royalty rate of 2.5% was
deemed to be just and reasonable, to wit [166 SCRA 133]:
Moreover, what UNILAB has with the compulsory license is the bare right to use the
patented chemical compound in the manufacture of a special product, without any
technical assistance from herein respondent-appellant. Besides, the special product
to be manufactured by UNILAB will only be used, distributed, and disposed
locally. Therefore, the royalty rate of 2.5% is just and reasonable.
It appearing that herein petitioner will be paid royalties on the sales of any
products [sic] the licensee may manufacture using any or all of the patented
compounds, the petitioner cannot complain of a deprivation of property rights without
just compensation [Price v. UNILAB, L-82542, September 19, 1988].
We take note of the well-crafted petition submitted by petitioner albeit the legal
milieu and a good number of decided cases militate against the grounds posited by
petitioner. In sum, considering the well-entrenched jurisprudence sustaining the
position of respondents, We reiterate the rule in Basay Mining Corporation vs. SEC,
to the effect that -
The legal presumption is that official duty has been performed. And it is particularly
strong as regards administrative agencies vested with powers said to be quasi-judicial
in nature, in connection with the enforcement of laws affecting particular fields of
activity, the proper regulation and/or promotion of which requires a technical or
special training, aside from a good knowledge and grasp of the overall conditions,
relevant to said field, obtaining in the nations. The policy and practice underlying our
Administrative Law is that courts of justice should respect the findings of fact of said
administrative agencies, unless there is absolutely no evidence in support thereof or
such evidence is clearly, manifestly and patently insubstantial. [G.R. No. 76695,
October 3, 1988, Minute Resolution; Beautifont, Inc., et al. v. Court of Appeals, et
al., G.R. No. 50141, January 29, 1988]
Its motion for reconsideration having been denied in the resolution [7] of 31 August
1995, petitioner filed the instant petition for review on certiorari with the following
assignment of errors:
I
THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BPTTT'S
DECISION VIOLATES INTERNATIONAL LAW AS EMBODIED IN (A) THE PARIS
CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY AND (B) THE GATT
TREATY, URUGUAY ROUND, AND MUST ACCORDINGLY BE SET ASIDE AND
MODIFIED.
II
DECISION IS AN INVALID EXERCISE OF POLICE POWER, ABSENT ANY SHOWING BY
EVIDENCE OF AN OVERWHELMING PUBLIC NEED FOR A COMPULSORY LICENSE
OVER CIMETIDINE IN FAVOR OF PRIVATE RESPONDENT.
III
PRONOUNCEMENT FIXING THE ROYALTY FOR AN INVOLUNTARY LICENSE AT 2.5%
OF THE NET WHOLESALE PRICE IN PHILIPPINE CURRENCY WAS RENDERED
WITHOUT ANY FACTUAL BASIS AND AMOUNTS TO EXPROPRIATION OF PRIVATE
PROPERTY WITHOUT JUST COMPENSATION AND IS IN VIOLATION OF THE
CONSTITUTIONAL RIGHT TO DUE PROCESS.
IV
THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THE BPTTT'S ACTION WAS
RENDERED NULL AND VOID FOR FAILURE OF PRIVATE RESPONDENT TO
AFFIRMATIVELY PROVE THE JURISDICTIONAL FACT OF PUBLICATION AS REQUIRED
BY LAW.
We resolved to give due course to the petition and required the parties to submit
their respective memoranda, which they did, with that of public respondent filed only
on 7 February 1997.
After a careful perusal of the pleadings and evaluation of the arguments adduced by
the parties, we find this petition to be without merit.
In its first assigned error, petitioner invokes Article 5 of the Paris Convention for the
Protection of Industrial Property,[8] or Paris Convention, for short, of which the
Philippines became a party thereto only in 1965. [9] Pertinent portions of said Article
5, Section A, provide:
A. x x x
(2) Each country of the union shall have the right to take legislative measures
providing for the grant of compulsory licenses to prevent the abuses which might
result from the exercise of the exclusive rights conferred by the patent, for example,
failure to work.
xxx
(4) A compulsory license may not be applied for on the ground of failure to work or
insufficient working before the expiration of a period of four years from the date of
filing of the patent application or three years from the date of the grant of the patent,
whichever period expires last; it shall be refused if the patentee justifies his inaction
by legitimate reasons. Such a compulsory license shall be non-exclusive and shall not
be transferable, even in the form of the grant of a sub-license, except with that part
of the enterprise or goodwill which exploits such license.
It is thus clear that Section A(2) of Article 5 above unequivocally and explicitly
respects the right of member countries to adopt legislative measures to provide for
the grant of compulsory licenses to prevent abuses which might result from the
exercise of the exclusive rights conferred by the patent. An example provided of
possible abuses is "failure to work;" however, as such is merely supplied by way of
an example, it is plain that the treaty does not preclude the inclusion of other forms
or categories of abuses.
Section 34 of R.A. No. 165, even if the Act was enacted prior to the Philippines
adhesion to the Convention, fits well within the aforequoted provisions of Article 5 of
the Paris Convention. In the explanatory note of Bill No. 1156 which eventually
became R.A. No. 165, the legislative intent in the grant of a compulsory license was
not only to afford others an opportunity to provide the public with the quantity of the
patented product, but also to prevent the growth of monopolies. [10] Certainly, the
growth of monopolies was among the abuses which Section A, Article 5 of the
Convention foresaw, and which our Congress likewise wished to prevent in enacting
R.A. No. 165.
R.A. No. 165, as amended by Presidential Decree No. 1263, promulgated on 14
December 1977, provides for a system of compulsory licensing under a particular
patent. Sections 34 and 35, Article Two, of Chapter VIII read as follows:
SEC. 34. Grounds for Compulsory Licensing. -- (1) Any person may apply to the
Director for the grant of a license under a particular patent at any time after the
expiration of two years from the date of the grant of the patent, under any of the
following circumstances:
(a) If the patented invention is not being worked within the Philippines on a
commercial scale, although capable of being so worked, without satisfactory reason;
(b) If the demand for the patented article in the Philippines is not being met to an
adequate extent and on reasonable terms;
(c) If, by reason of refusal of the patentee to grant a license or licenses on reasonable
terms, or by reason of the conditions attached by the patentee to licensee or to the
purchase, lease or use of the patented article or working of the patented process or
machine for production, the establishment of any new trade or industry in the
Philippines is prevented, or the trade or industry therein is unduly restrained;
(d) If the working of the invention within the country is being prevented or hindered
by the importation of the patented article; or
(e) If the patented invention or article relates to food or medicine or manufactured
products or substances which can be used as food or medicine, or is necessary for
public health or public safety.
(2) In any of the above cases, a compulsory license shall be granted to the petitioner
provided that he has proved his capability to work the patented product or to make
use of the patented product in the manufacture of a useful product, or to employ the
patented process.
(3) The term "worked" or "working" as used in this section means the manufacture
and sale of the patented article, of the patented machine, or the application of the
patented process for production, in or by means of a definite and substantial
establishment or organization in the Philippines and on a scale which is reasonable
and adequate under the circumstances. Importation shall not constitute "working."
xxx
SEC. 35. Grant of License. -- (1) If the Director finds that a case for the grant is a
license under Section 34 hereof has been made out, he shall, within one hundred
eighty days from the date the petition was filed, order the grant of an appropriate
license. The order shall state the terms and conditions of the license which he himself
must fix in default of an agreement on the matter manifested or submitted by the
parties during the hearing.
(2) A compulsory license sought under Section 34-B shall be issued within one
hundred twenty days from the filing of the proponent's application or receipt of the
Board of Investment's endorsement.
The case at bar refers more particularly to subparagraph (e) of paragraph 1 of Section
34 -- the patented invention or article relates to food or medicine or manufactured
products or substances which can be used as food or medicine, or is necessary for
public health or public safety. And it may not be doubted that the aforequoted
provisions of R.A. No. 165, as amended, are not in derogation of, but are consistent
with, the recognized right of treaty signatories under Article 5, Section A(2) of the
Paris Convention.
Parenthetically, it must be noted that paragraph (4) of Section A, Article 5 of the
Paris Convention setting time limitations in the application for a compulsory license
refers only to an instance where the ground therefor is "failure to work or insufficient
working," and not to any ground or circumstance as the treaty signatories may
reasonably determine.
Neither may petitioner validly invoke what it designates as the GATT Treaty, Uruguay
Round. This act is better known as the Uruguay Final Act signed for the Philippines
on 15 April 1994 by Trade and Industry Secretary Rizalino Navarro.[11] Forming
integral parts thereof are the Agreement Establishing the World Trade Organization,
the Ministerial Declarations and Decisions, and the Understanding on Commitments
in Financial Services.[12] The Agreement establishing the World Trade Organization
includes various agreements and associated legal instruments. It was only on 14
December 1994 that the Philippine Senate, in the exercise of its power under Section
21 of Article VII of the Constitution, adopted Senate Resolution No. 97 concurring in
the ratification by the President of the Agreement. The President signed the
instrument of ratification on 16 December 1994. [13] But plainly, this treaty has no
retroactive effect.Accordingly, since the challenged BPTTT decision was rendered on
14 February 1994, petitioner cannot avail of the provisions of the GATT treaty.
The second and third assigned errors relate more to the factual findings of the Court
of Appeals. Well-established is the principle that the findings of facts of the latter are
conclusive, unless: (1) the conclusion is a finding grounded entirely on speculation
or conjecture; (2) the inference made is manifestly absurd; (3) there is grave abuse
of discretion in the appreciation of facts; (4) the judgment is premised on a
misapprehension of facts; (5) the findings of fact are conflicting; and (6) the Court
of Appeals, in making its findings, went beyond the issues of the case and the same
is contrary to the admissions of both the appellant and appellee.[14] Petitioner has not
convinced us that the instant case falls under any of the exceptions. On the contrary,
we find the findings of fact and conclusions of respondent Court of Appeals and that
of the BPTTT to be fully supported by the evidence and the applicable law and
jurisprudence on the matter.
Petitioners claim of violations of the due process and eminent domain clauses of the
Bill of Rights are mere conclusions which it failed to convincingly support. As to due
the process argument, suffice it to say that full-blown adversarial proceedings were
conducted before the BPTTT pursuant to the Patent Law. We agree with the Court of
Appeals that the BPTTT exhaustively studied the facts and its findings were fully
supported by substantial evidence.
It cannot likewise be claimed that petitioner was unduly deprived of its property
rights, as R.A. No. 165 not only grants the patent holder a protective period of two
years to enjoy his exclusive rights thereto; but subsequently, the law recognizes just
compensation in the form of royalties.[15]
In Parke, Davies & Co. v. Doctors' Pharmaceuticals, Inc.,[16] we held:
The right to exclude others from the manufacturing, using, or vending an invention
relating to, food or medicine should be conditioned to allowing any person to
manufacture, use, or vend the same after a period of three [now two] years from the
date of the grant of the letters patent. After all, the patentee is not entirely deprived
of any proprietary right. In fact, he has been given the period of three years [now
two years] of complete monopoly over the patent. Compulsory licensing of a patent
on food or medicine without regard to the other conditions imposed in Section 34
[now Section 35] is not an undue deprivation of proprietary interests over a patent
right because the law sees to it that even after three years of complete monopoly
something is awarded to the inventor in the form of bilateral and workable licensing
agreement and a reasonable royalty to be agreed upon by the parties and in default
of such an agreement, the Director of Patents may fix the terms and conditions of
the license.
As to the fourth assigned error, we hold that petitioner can no longer assail the
jurisdiction of the BPTTT, raising this issue only for the first time on
appeal. In Pantranco North Express, Inc. v. Court of Appeals,[17] we ruled that where
the issue of jurisdiction is raised for the first time on appeal, the party invoking it is
so barred on the ground of laches or estoppel under the circumstances therein
stated. It is now settled that this rule applies with equal force to quasi-judicial
bodies[18] such as the BPTTT. Here, petitioner have not furnished any cogent reason
to depart from this rule.
WHEREFORE, the petition is hereby DENIED and the challenged decision of the Court
of Appeals in CA-G.R. SP No. 33520 is AFFIRMED in toto.
Costs against petitioner.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.
[G.R. No. 121267. October 23, 2001]
SMITH KLINE & FRENCH LABORATORIES, LTD. plaintiff-appellee, vs. COURT
OF APPEALS and DANLEX RESEARCH LABORATORIES, INC., defendant-
appellant.
DECISION
KAPUNAN, J.:
This petition for review on certiorari assails the Decision dated January 27, 1995 of
the Court of Appeals in CA-G.R. SP No. 33770[1] which affirmed the decision of the
Bureau of Patents, Trademarks and Technology Transfer (BPTTT) granting a
compulsory license to private respondent Danlex Research Laboratories for the use
of the pharmaceutical product Cimetidine. Likewise assailed is the July 25, 1995
Resolution of the Court of Appeals denying the motion for reconsideration filed by
petitioner Smith Kline and French Laboratories, Ltd.
Petitioner is the assignee of Letters Patent No. 12207 covering the pharmaceutical
product Cimetidine, which relates to derivatives of heterocyclicthio or lower alkoxy
or amino lower alkyl thiourea, ureas or guanadines. Said patent was issued by the
BPTTT to Graham John Durant, John Collin Emmett and Robin Genellin on November
29, 1978.[2]
On August 21, 1989, private respondent filed with the BPTTT a petition for
compulsory license to manufacture and produce its own brand of medicines
using Cimetidine. Private respondent invoked Section 34 (1) (e) of Republic Act No.
165,[3] (the Patent Law) the law then governing patents, which states that an
application for the grant of a compulsory license under a particular patent may be
filed with the BPTTT at any time after the lapse of two (2) years from the date of
grant of such patent, if the patented invention or article relates to food or medicine,
or manufactured substances which can be used as food or medicine, or is necessary
for public health or public safety.[4] The petition for compulsory license stated
that Cimetidine is useful as an antihistamine and in the treatment of ulcers, and that
private respondent is capable of using the patented product in the manufacture of a
useful product.[5]
Petitioner opposed the petition for compulsory license, arguing that the private
respondent had no cause of action and failed to allege how it intended to work the
patented product. Petitioner further stated that its manufacture, use and sales
of Cimetidine satisfied the needs of the Philippine market, hence, there was no need
to grant a compulsory license to private respondent to manufacture, use and sell the
same. Finally, petitioner also claimed that the grant of a compulsory license to private
respondent would not promote public safety and that the latter was only motivated
by pecuniary gain.[6]
After both parties were heard, the BPTTT rendered a decision directing the issuance
of a compulsory license to private respondent to use, manufacture and sell in the
Philippines its own brand of pharmaceutical products containing Cimetidine and
ordered the payment by private respondent to petitioner of royalties at the rate of
2.5% of net sales in Philippine currency.[7]
Petitioner thereafter filed with the Court of Appeals a petition for review of the
decision of the BPTTT, raising the following arguments: (1) the BPTTTs decision is
violative of the Paris Convention for the Protection of Industrial Property; (2) said
decision is an invalid exercise of police power; (3) the rate of royalties payable to
petitioner as fixed by the BPTTT was rendered without factual basis and amounts to
an expropriation of private property without just compensation; (4) the petition for
compulsory license should have been dismissed by the BPTTT for failure to prove the
jurisdictional requirement of publication.[8]
On January 27, 1995, the Court of Appeals promulgated its Decision, the dispositive
portion of which states:
WHEREFORE, the petition is DENIED, and the decision of the Bureau of Patents,
Trademarks and Technology Transfer is hereby AFFIRMED, with costs against the
Petitioner.
SO ORDERED.[9]
In affirming the decision of the BPTTT, the appellate court held that the grant of a
compulsory license to private respondent for the manufacture and use
of Cimetidine is in accord with the Patent Law since the patented product is medicinal
in nature, and therefore necessary for the promotion of public health and safety. [10] It
explained further that the provisions of the Patent Law permitting the grant of a
compulsory license are intended not only to give a chance to others to supply the
public with the quantity of the patented article but especially to prevent the building
up of patent monopolies.[11] Neither did the appellate court find the royalty rate of
2.5% of net sales fixed by the BPTTT unreasonable, considering that what was
granted under the compulsory license is only the right to manufacture Cimetidine,
without any technical assistance from petitioner, and royalty rates identical to that
fixed by the BPTTT have been prescribed for the grant of compulsory license in a
good number of patent cases.[12] The Court of Appeals also ruled that contrary to
petitioners claim, private respondent complied with the requirement of publication
under the Patent Law and had submitted proof of such compliance.[13]
Not satisfied with the appellate courts decision, petitioner filed a motion for
reconsideration thereof as well as a motion for the issuance of a temporary
restraining order against private respondents sister company, Montreal
Pharmaceutical, Inc. to refrain from marketing a product similar to Cimetidine, but
both motions were denied by the Court of Appeals in its Resolution of July 25,
1995.[14]
Petitioner thus filed the present petition on September 15, 1995, with the following
assignment of errors:
I. The respondent Court erred in upholding the validity of the decision of public
respondent BPTTT which is an arbitrary exercise of police power and is violative of
international law.
II. The respondent Court erred in holding that compulsory licensing will not create a
confusion that the patented product is the brainchild of private respondent Danlex
and not of petitioner.
III.Assuming that the grant of compulsory license is in order, the respondent Court
still erred in holding that the BPTTT decision fixing the royalty at 2.5% of the net
wholesale price in peso does not amount to expropriation of private property without
just compensation.
IV.The respondent Court erred in finding that the jurisdictional requirement of
publication in a newspaper of general circulation for three (3) consecutive weeks has
been complied with by private respondent Danlex.[15]
While petitioner concedes that the State in the exercise of police power may regulate
the manufacture and use of medicines through the enactment and implementation of
pertinent laws, it states that such exercise is valid only if the means employed are
reasonably necessary for the accomplishment of the purpose and if not unduly
oppressive.[16] According to petitioner, the grant of a compulsory license to private
respondent is an invalid exercise of police power since it was not shown that there is
an overwhelming public necessity for such grant, considering that petitioner is able
to provide an adequate supply of Cimetidine to satisfy the needs of the Philippine
market. Petitioner also claims that the grant of a compulsory license to private
respondent unjustly deprives it of a reasonable return on its investment. [17] It argues
further that the provisions of the Patent Law on compulsory licensing contravene the
Convention of Paris for the Protection of Industrial Property[18] (Paris Convention),
which allegedly permits the granting of a compulsory license over a patented product
only to prevent abuses which might result from the exercise of the exclusive rights
conferred by the patent,[19] or on the ground of failure to work or insufficient working
of the patented product, within four years from the date of filing of the patent
application or three years from the date of grant of the patent, whichever expires
last.[20] Petitioner opines that the inclusion of grounds for the grant of a compulsory
license in Section 34 of the Patent Law other than those provided under the Paris
Convention constitutes a violation of the Philippines obligation to adhere to the
provisions of said treaty.[21]
It is also contended by petitioner that the grant of a compulsory license to private
respondent will allow the latter to liberally manufacture and sell medicinal products
containing Cimetidine without even extending to petitioner due recognition for
pioneering the development and worldwide acceptance of said invention, and will
unreasonably dilute petitioners right over the patent.[22]
Petitioner likewise asseverates that the rate of royalty fixed by the BPTTT at 2.5% of
net sales is grossly inadequate, taking into consideration its huge investments of
money, time and other resources in the research and development, as well as
marketing of Cimetidine. It is further alleged that such rate has no factual basis since
the appellate court and the BPTTT relied solely on analogous cases and did not explain
how such rate was arrived at.[23]
Lastly, petitioner claims that the appellate court erred in ruling that private
respondent had complied with the requirement of publication of the notice of the filing
of the petition for compulsory license because private respondent failed to formally
offer in evidence copies of the notice of filing of the petition and notice of the date of
hearing thereof as published and the affidavits of publication thereof. Thus, it says,
the BPTTT did not properly acquire jurisdiction over the petition for compulsory
license.[24]
In its Comment to the Petition, private respondent adopted the reasoning of the Court
of Appeals in the assailed decision and prayed that the petition be denied for lack of
merit.[25]
The petition has no merit.
The Court of Appeals did not err in affirming the validity of the grant by the BPTTT of
a compulsory license to private respondent for the use, manufacture and sale
of Cimetidine. The said grant is in accord with Section 34 of the Patent Law which
provides:
Grounds for Compulsory Licensing.(1) Any person may apply to the Director for
the grant of a license under a particular patent at any time after the
expiration of two years from the date of the grant of the patent, under any
of the following circumstances:
(a) If the patented invention is not being worked within the Philippines on a
commercial scale, although capable of being so worked, without satisfactory reason;
(b) If the demand of the patented article in the Philippines is not being met to an
adequate extent and on reasonable terms;
(c) If, by reason of refusal of the patentee to grant a license or licenses on reasonable
terms, or by reason of the conditions attached by the patentee to licensee or to the
purchase, lease or use of the patented article or working of the patented process or
machine for production, the establishment of any new trade or industry in the
Philippines is prevented, or the trade or industry therein is unduly restrained;
(d) If the working of the invention within the country is being prevented or hindered
by the importation of the patented article;
(e) If the patented invention or article relates to food or medicine or
manufactured substances which can be used as food or medicine, or is
necessary for public health or public safety.
(2) In any of the above cases, a compulsory license shall be granted to the
petitioner provided that he has proved his capability to work the patented
product or to make use of the patented product in the manufacture of a
useful product, or to employ the patented process.
(3) The term worked or working as used in this section means the manufacture and
sale of the patented article, of patented machine, or the application of the patented
process for production, in or by means of a definite and substantial establishment or
organization in the Philippines and on a scale which is reasonable and adequate under
the circumstances. Importation shall not constitute working. (Emphasis supplied.)
The grant of the compulsory license satisfies the requirements of the foregoing
provision. More than ten years have passed since the patent for Cimetidine was
issued to petitioner and its predecessors-in-interest, and the compulsory license
applied for by private respondent is for the use, manufacture and sale of a medicinal
product. Furthermore, both the appellate court and the BPTTT found that private
respondent had the capability to work Cimetidine or to make use thereof in the
manufacture of a useful product.
Petitioners contention that Section 34 of the Patent Law contravenes the Paris
Convention because the former provides for grounds for the grant of a compulsory
license in addition to those found in the latter, is likewise incorrect. Article 5, Section
A(2) of the Paris Convention states:
Each country of the union shall have the right to take legislative measures providing
for the grant of compulsory licenses to prevent the abuses which might result from
the exercise of the exclusive rights conferred by the patent, for example, failure to
work.[26]
This issue has already been resolved by this Court in the case of Smith Kline & French
Laboratories, Ltd. vs. Court of Appeals,[27] where petitioner herein questioned the
BPTTTs grant of a compulsory license to Doctors Pharmaceuticals, Inc. also for the
manufacture, use and sale of Cimetidine. We found no inconsistency between Section
34 and the Paris Convention and held that:
It is thus clear that Section A(2) of Article 5 [of the Paris Convention]
unequivocally and explicitly respects the right of member countries to adopt
legislative measures to provide for the grant of compulsory licenses to
prevent abuses which might result from the exercise of the exclusive rights
conferred by the patent. An example provided of possible abuses is failure
to work; however, as such, is merely supplied by way of an example, it is
plain that the treaty does not preclude the inclusion of other forms of
categories of abuses.
Section 34 of R.A. No. 165, even if the Act was enacted prior to the Philippines
adhesion to the Convention, fits well within the aforequoted provisions of Article 5 of
the Paris Convention. In the explanatory note of Bill No. 1156 which eventually
became R.A. No. 165, the legislative intent in the grant of a compulsory license
was not only to afford others an opportunity to provide the public with the
quantity of the patented product, but also to prevent the growth of
monopolies [Congressional Record, House of Representatives, 12 May 957,
998]. Certainly, the growth of monopolies was among the abuses which
Section A, Article 5 of the Convention foresaw, and which our Congress
likewise wished to prevent in enacting R.A. No. 165.[28] (Emphasis supplied.)
Neither does the Court agree with petitioner that the grant of the compulsory license
to private respondent was erroneous because the same would lead the public to think
that the Cimetidine is the invention of private respondent and not of petitioner. Such
fears are unfounded since, as the appellate court pointed out in the assailed decision,
by the grant of the compulsory license, private respondent as licensee explicitly
acknowledges that petitioner is the source of the patented
product Cimetidine.[29] Even assuming arguendo that such confusion may indeed
occur, the disadvantage is far outweighed by the benefits resulting from the grant of
the compulsory license, such as an increased supply of pharmaceutical products
containing Cimetidine, and the consequent reduction in the prices thereof.[30]
There is likewise no basis for the allegation that the grant of a compulsory license to
private respondent results in the deprivation of petitioners property without just
compensation. It must be pointed out that as owner of Letters Patent No. 12207,
petitioner had already enjoyed exclusive rights to manufacture, use and
sell Cimetidine for at least two years from its grant in November, 1978. Even if other
entities like private respondent are subsequently allowed to manufacture, use and
sell the patented invention by virtue of a compulsory license, petitioner as owner of
the patent would still receive remuneration for the use of such product in the form of
royalties.
Anent the perceived inadequacy of the royalty awarded to petitioner, the Court of
Appeals correctly held that the rate of 2.5% of net wholesale price fixed by the
Director of the BPTTT is in accord with the Patent Law. Said law provides:
Sec. 35. Grant of License.(1) If the Director finds that a case for the grant of a license
under Section 34 hereof has been made out, he shall, within one hundred eighty days
from the date the petition was filed, order the grant of an appropriate license. The
order shall state the terms and conditions of the license which he himself
must fix in default of an agreement on the matter manifested or submitted
by the parties during the hearing.
xxx
Section 35-B. Terms and Conditions of Compulsory License. (1) A compulsory license
shall be non-exclusive, but this shall be without prejudice to the licensees right to
oppose an application for such a new license.
(2) The terms and conditions of a compulsory license, fixed in accordance with
Section 35, may contain obligations and restrictions both for the licensee and for the
registered owner of the patent.
(3) A compulsory license shall only be granted subject to the payment of
adequate royalties commensurate with the extent to which the invention is
worked. However, royalty payments shall not exceed five percent (5%) of
the net wholesale price (as defined in Section 33-A) of the products manufactured
under the license. If the product, substance, or process subject of the compulsory
license is involved in an industrial project approved by the Board of Investments, the
royalty payable to the patentee or patentees shall not exceed three percent (3%) of
the net wholesale price (as defined in Section 33-A) of the patented commodity/and
or commodity manufactured under the patented process; the same rate of royalty
shall be paid whenever two or more patents are involved; which royalty shall be
distributed to the patentees in rates proportional to the extent of commercial use by
the licensee giving preferential values to the holder of the oldest subsisting product
patent.
xxx
Under the aforequoted provisions, in the absence of any agreement between the
parties with respect to a compulsory license, the Director of the BPTTT may fix the
terms thereof, including the rate of the royalty payable to the licensor. The law
explicitly provides that the rate of royalty shall not exceed five percent (5%) of the
net wholesale price.
The Court agrees with the appellate courts ruling that the rate of royalty payments
fixed by the Director of the BPTTT is reasonable. The appellate court, citing Price vs.
United Laboratories,[31] ruled as such, considering that the compulsory license
awarded to private respondent consists only of the bare right to use the patented
invention in the manufacture of another product, without any technical assistance
from the licensor.[32] Furthermore, this Court had earlier noted in the Price case that
identical royalty rates have been prescribed by the Director of the BPTTT in numerous
patent cases.[33]
There was thus no error on the part of the Court of Appeals in affirming the royalty
rate fixed by the Director of the BPTTT, since it was not shown that the latter erred
or abused his discretion in prescribing said rate. The rule is that factual findings of
administrative bodies, which are considered as experts in their respective fields, are
accorded not only respect but even finality if the same are supported by substantial
evidence.[34]
Finally, as to the alleged lack of jurisdiction of the BPTTT over the petition filed by
private respondent for failure to comply with the publication requirement under
Section 35-F of R.A. No. 165, the Court holds that petitioner is estopped from
questioning the same since it did not raise the issue of lack of jurisdiction at the
earliest possible opportunity, i.e., during the hearings before the BPTTT. [35] The Court
notes that petitioner raised this contention for the first time when it appealed the
case to the appellate court.
WHEREFORE, the petition is hereby DENIED for lack of merit and the Decision of
the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.
G.R. No. L-4720 January 19, 1909
CARLOS GSELL, plaintiff-appellee,

vs.
VALERIANO VELOSO YAP-JUE, defendant-appellant.
Chicote and Miranda, for appellant.

Haussermann and Cohn, for appellee.
CARSON, J.:
This an appeal from a final order of the Court of First Instance of the city of Manila,
in contempt proceedings prosecuted under the provisions of section 172 of the Code
of Civil Procedure. The principal case to which these proceedings are ancillary, was
an action to enjoin infringement of a patented process for the manufacture of curved
handles for canes, parasols, and umbrellas. In that case plaintiff established his title
to a valid patent covering the process in question, and obtained against this
defendant a judgment, granting a perpetual injunction restraining its infringement,
which judgment was affirmed by this court on appeal (6 Phil. Rep., 143.) The order
was couched in the following terms:
It is ordered that the defendant abstain from manufacturing canes and umbrellas
with a curved handle by means of a lamp or blowpipe fed with mineral oil or
petroleum, which process was protected by patent No. 19228, issued in favor of
Henry Gsell, and by him transferred to Carlos Gsell —
and the process therein mentioned is fully described in the following statement which
accompanied the application for the patent:
After the canes have been cut for cane or umbrella handles, the outsides are
thoroughly cleaned. This operation having been performed, they are then trimmed
and the interior cleaned by means of a gimlet of about 15 centimeters in length
operated by a wheel, by means of which the knots inside are broken. There is then
introduced to a depth of about 15 centimeters a piece of very clean bamboo, which
completely fills the hole made by the gimlet, thereby giving to the cane the necessary
strength to resist the heat of the lamp or blowpipe without breaking or cracking.
This operation having been performed, the cane, the end of which is attached to a
fixed point, is given the shape of a hook or some other form by means of fire and
pressure. Once the cane has been shaped as desired, it is allowed to cool, and is then
cleaned, varnished, and ornamented at will.
This industry requires skillful, handiwork, owing to the great risk engendered by the
treatment of such fragile material as a light cane. On the other hand, however, it
affords large profits to the workman.
NOTE. — The patent applied for shall be for the industrial product "cane handles for
walking sticks and umbrellas, curved by means of a small lamp or blowpipe, fed by
petroleum or mineral fuel."
Thereafter the defendant continued to manufacture curved cane handled for walking
sticks and umbrellas by a process in all respectes identical with that used by the
plaintiff under his patent, except only that he be substituted for a lamp fed with
petroleum or mineral oil, lamp fed with alcohol, as appears from a stipulation entered
into between plaintiff and defendant in the following terms:
The plaintiff and defendant agree upon the fact that the defendant has used and is
still using a process for curving handles of canes and umbrellas identical with that
described in the application for the patent by the plaintiff with the exception that he
has substituted for the lamp fed with all other lamp fed with alcohol.
Contempt proceedings were instituted against the defendant in the month of

February, 1904, the plaintiff in the original action alleging that the —
Defendant in disobediencce of the judgment of the same was and is now engaged in
the unlawful manufacture of umbrella handles by the identical process described in
and protected said patent, No. 19228, or a process so like the patented process as
to be indistinguishable.
The trial court found the defendant "not guilty" of contempt as charged; and this
court, on appeal, held that — a character that it could be made patent by the mere
annunciation of the acts performed by the defendant, which are alleged to constitute
the said violation. These acts were not clearly and manifestly contrary to the precise
terms of the prohibition. According to the express language of the judgment, the
prohibition is against the manufacture of canes and umbrellas with curved handles
by means of the use of a cool or mineral oil-burning lamp or blowpipe and the parties
have stipulated that the defendant did not use a coal or mineral oil-burning lamp but
an alcohol-burning lamp.
The question, however, arises as to whether that prohibition included the substitution
of alcohol for coal or mineral oil. In more abstract and general terms, the appellant
propounds this question in his brief, as follows: "The question presented by this
appeal is whether or not the use of a patented process by a third person, without
license or authority therefor, constitutes an infringement when the alleged infringer
has substituted in lieu of some unessential part of the patented process a well-known
mechanical equivalent." It has seen that by its very terms this question implies in the
present case the existence of two fundamental facts which must first be duly
established, viz: (1) That the use of the lamp fed with petroleum or mineral oil was
an unessential part of the patented process the use of which by the accused was
prohibited by the said judgment; and (2) that alcohol is an equivalent and proper
substitute, well known as such, for mineral oil or petroleum in connection with the
said process. The appellant has failed to affirmatively establish either of these two
essential facts. He has merely assumed their existence, without proving the same,
thus begging the whole question. Consequently the contempt with which the accused
is charged has not been fully and satisfactorily proved, and the order appealed from
should accordingly be affirmed in so far as it holds that the defendant is not guilty of
contempt. (7 Phil. Rep., 130).
Thereafter the plaintiff continued the use of the patented process, save only for the
substitutions of a lamp fed by alcohol for a lamp fed by petroleum or mineral oil, and
new proceedings were instituted under the provisions of section 172 for the purpose
of enforcing the original injunction above cited. Substantially the same question is
submitted in these new proceedings as that submitted in the former case, but at the
trial of this case testimony was introduced which, in our opinion, leaves no room for
doubt, first, that alcohol is an equivalent or substitute, well known as such at the
time when the patent was issued, for mineral oil or petroleum, in connection with
blast lamps or blowpipes such as that which plaintiff uses in the patented process,
and, second, that the use of a blast lamp or blowpipe fed with petroleum or mineral
oil, rather than one fed with alcohol, is an unessential part of the patented process
the use of which was prohibited by the said judgment.
It was clearly proven at the trial, that kerosene and alcohol blast lamps are agencies
for producing and applying heat, well known throughout the world long prior to 1906,
the date of the issue of the patent; that it is and for many years has been known that
one may for all ordinary purposes be used in the place of the other, and especially
for the purpose of applying heat in the manner described in the patent; that the only
consideration which determines the employment of one in place of the other is the
convenience of the user and the question of relative cost; and that the principle upon
which both lamps work is substantially identical, the only difference in construction
being occasioned by the application of this principle to oils of different physical and
chemical composition.
The plaintiff does not and can not claim a patent upon the particular lamp used by
him. The patent, however, gives him the exclusive right to the use of "la lamparilla o
soplete, alimentada de petroleo o esencia mineral" (the small lamp or blowpipe fed
with petroleum or mineral oil) in manufacturing curved handles for umbrellas and
canes, to which reference is made in the above-cited descriptive statement and
annexed note. "The small lamp or blowpipe" mentioned in the descriptive statement
and annexed note which accompanied the application for the patent, evidently
referred to the design of a blast lamp which was attached thereto; and in our opinion
both plaintiff and defendant make use of a blast lamp substantially similar, in principle
and design, to that referred to in the descriptive statement and the annexed note,
for the exclusive use of which in the manufacture of curved handles, plaintiff holds a
patent. True, defendant's blast lamp is fed with alcohol, and its shape varies in
unimportant details, for the purpose of accommodating the principle, by which the
flame is secured, to the different physical and chemical composition of the fuel used
therein; but the principle on which it works, its mode of application, and its general
design distinguish it in no essential particular from that used by the plaintiff. If the
original design accompanying the statement had shown a blast lamp made of brass
or delf, he would be a reckless advocate who would claim that the patent might
lawfully be evaded by the use of a lamp made of iron or tin; or if the original design
had shown a blast lamp 6 inches high with a nozzle 4 inches long it would hardly be
seriously contended that the use of lamp 8 inches high with a nozzle 3 inches long
would protect the ingenious individual, who in all other respects borrowed the
patented process, from the consequences of an action for damages for infringement.
But in the light of the evidence of record in this case, the reasoning upon which these
hypothetical claims should be rejected applies with equal force to the contentions of
the defendant, the ground for the rejection of the claims in each case being the same,
and resting on the fact that unessential changes, which do not affect the principle of
the blast lamp used in the patented process, or the mode of application of heat
authorized by the patent, are not sufficient to support a contention that the process
in one case is in any essential particular different from that used in the other.
Counsel for plaintif invokes the doctrine of "mechanical equivalents" in support of his
contention, and indeed that doctrine is strikingly applicable to the facts in this case.
This doctrine is founded upon sound rules of reason and logic, and unless restrained
or modified by law in particular jurisdiction, is of universal application, so that it
matters not whether a patent be issued by one sovereignty or another, the doctrine
may properly be invoked to protect the patentee from colorable invasions of his
patent under the guise of substitution of some part of his invention by some well
known mechanical equivalent. Our attention has not been called to any provision of
the patent law of Spain, which denies to patentees thereunder the just and equitable
protection of the doctrine; and indeed a patent law which failed to recognize this
doctrine would afford scant protection to inventors, for it is difficult if not impossible
to conceive an invention, which is incapable of alteration or change in some
unessential part, so as to bring that part outside of the express terms of any form of
language which might be used in granting a patent for the invention; and has been
well said by counsel for plaintiff, human ingenuity would be taxed beyond its powers
in preparing a grant of a patent so comprehensive in its terms, "as to include within
the express terms of its detailed description every possible alternative of form, size,
shape, material, location, color, weight, etc., of every wheel, rod, bolt, nut, screw,
plate, and other component parts of an invention."
The following citations from various decisions of the Federal Courts of the United
States illustrate the application of the doctrine in that jurisdiction, and clearly point
the way to the proper solution of the questions involved in the case at bar:
Can the defendant have the right of infringement, by substituting in lieu of some
parts of the combination well-known mechanical equivalents? I am quite clear that
be can not, both on principle and authority. It is not to be disputed that the inventor
of an ordinary machine is, by his letters patent, protected against all mere formal
alterations and against the substitution of mere mechanical equivalents. Why should
not the inventor of a new combination receive the same protection? If he can not,
then will his patent not be worth the parchment on which it is written.
If no one can be held to infringe a patent for a combination unless he uses all the
parts of the combination and the identical machinery as that of the patentee, then
will no patent for a combination be infringed; for certainly no one capable of operating
a machine can be incapable of adopting some formal alteration in the machinery, or
of substituting mechanical equivalents. No one infringes a patent for a combination
who does not employ all of the ingredients of the combination; but if he employs all
the ingredients, or adopts mere formal alterations, or substitutes, for one ingredient
another which was well known at the date of the patent as a proper substitute for
the one withdrawn, and which performs substantially the same function as the one
withdrawn, he does infringe. (King vs. Louisville Cement Co., Fed. Cas., 7798.)
Bona fide inventors of a combination are as much entitled to equivalents as the

inventors other patentable improvements; by which is meant that a patentee in such
a case may substitute another ingredient for any one of the ingredients of his
invention, if the ingredient substituted performs the same function as the one omitted
and as well known at the date of his patent as a proper substitute for the one omitted
in the patented combination. Apply that rule and it is clear that an alteration in a
patented combination which merely substitutes another old ingredient for one of the
ingredients in the patented combination, is an infringement of the patent, if the
substitute performs the same function and was well known at the date of the patent
as a proper substitute for the omitted ingredient. (Gould vs. Rees, 82 U.S., 187,
194.)
Mere formal alterations in a combination in letters patent are no defense to the charge
of infringement and the withdrawal of one ingredient from the same and the
substitution of another which was well known at the date of the patent as a proper
substitute for the one withdrawn is a mere formal alteration of the combination if the
ingredient substituted performs substantially the same function as the one
withdrawn.
Bona fide inventors of a combination are as much entitled to suppress every other
combination of the same ingredients to produce the same result, not substantially
different from what they have invented and caused to be patented as to any other
class of inventors. All alike have the right to suppress every colorable invasion of that
which is secured to them by letters patent. (Seymour vs. Osborne, 78 U.S., 516,
556.)
A claim for the particular means and mode of operation described in the specification
extends, by operation of law, to the equivalent of such means — not equivalent simply
because the same result is thereby produced — but equivalent as being substantially
the same device in structure, arrangement and mode of operation. (Burden vs.
Corning, Fed. Cas., 2143. Gottfried vs. Philip Best Brewing Co., Fed. Cas., 5633.)
An equivalent device is such as a mechanic of ordinary skill in construction of similar

machinery, having the forms, specifications and machine before him, could substitute
in the place of the mechanism described without the exercise of the inventive faculty.
(Burden vs. Corning, supra.)
All the elements of the invention in this case are old, and the rule in such cases, as
before explained, undoubtedly is that a purpose can not invoke the doctrine of
equivalents to suppress all other improvements of the old machine, but he is entitled
to treat everyone as an infringer who makes, uses, or vends his patented
improvement without any other change than the employment of a substitute for one
of its elements, well known as such at the date of his invention, and which any
constructor acquainted with the art will know how to comply. The reason for the
qualification of the rule as stated is, that such change — that is, the mere substitution
of a well- known element for another — where it appears that the substituted element
was well known as a usual substitute for the element left out — is merely a formal
one, and nothing better than a colorable evasion of the patent. (Union Sugar Refining
Co. vs. Matthieson, Fed. Cas., 14399.)
Counsel for the defendant insists that, under Spanish law, none of the steps of the
process described in the descriptive statement, save those mentioned in the "note"
thereto attached are included in the patent, and that the patent rights secured
thereunder are strictly limited to the precise language of the "note" attached to the
descriptive statement; while counsel for plaintiff appears to think that the language
of the patent covers any process or device whereby wood or cane may be bent or
curved by the use of heat. But for the purpose of this decision it is not necessary to
consider these questions, further than to hold, as we do, that under the doctrine of
equivalents, the language of the note in the descriptive statement applies to the
operation of applying heat for the purpose of curving handles or canes and umbrellas
by means of a blast lamp fed with alcohol, as well as by means of a blast lamp fed
with petroleum or mineral oil; and the defendant having admitted the fact that he
applied heat for the purpose of curving handles for canes and umbrellas by means of
a blast lamp fed with alcohol, he must be deemed to have contempt of violating the
terms and the injunction issued in the principal case, wherein plaintiff was declared
the owner of the patent in question, and defendant enjoined from its infringement.
The argument of counsel for defendant and appellant, based on the theory that the
questions herein discussed and decided to have been heretofore settled by this court,
and that the subject-matter of this proceeding is res adjudicata between the parties
thereto is sufficiently refuted by the simple reading of the decision of this court in the
case relied upon. (Gsell vs. Veloso, 7 Phil. Rep., 130.)
The judgment of the lower court should be and is hereby affirmed, with the costs of
this instance against the appellant.
Arellano, C.J., Torres, Mapa, Willard, and Tracey, JJ., concur.

G.R. No. 97343 September 13, 1993
PASCUAL GODINES, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, SPECIAL FOURTH DIVISION and SV-
AGRO ENTERPRISES, INC., respondents.
Jesus S. Anonat for petitioner.
Arturo M. Alinio for private respondent.
ROMERO, J.:
Through this petition for review in certiorari of a decision of the Court of Appeals
affirming the decision of the trial court, petitioner Pascual Godines seeks to reverse
the adverse decision of the Court a quo that he was liable for infringement of patent
and unfair competition. The dispositive portion of the assailed decision is hereby
quoted to wit:
WHEREFORE, with the elimination of the award for attorney's fees, the judgment
appealed from is hereby AFFIRMED, with costs against appellant.1
The patent involved in this case is Letters Patent No. UM-2236 issued by the Philippine
Patent Office to one Magdalena S. Villaruz on July 15, 1976. It covers a utility model
for a hand tractor or power tiller, the main components of which are the following:
"(1) a vacuumatic house float; (2) a harrow with adjustable operating handle; (3) a
pair of paddy wheels; (4) a protective water covering for the engine main drive; (5)
a transmission case; (6) an operating handle; (7) an engine foundation on the top
midportion of the vacuumatic housing float to which the main engine drive is
detachedly installed; (8) a frontal frame extension above the quarter — circularly
shaped water covering hold (sic) in place the transmission case; (9) a V-belt
connection to the engine main drive with transmission gear through the pulley, and
(10) an idler pulley installed on the engine foundation."2 The patented hand tractor
works in the following manner: "the engine drives the transmission gear thru the V-
belt, a driven pulley and a transmission shaft. The engine drives the transmission
gear by tensioning of the V-belt which is controlled by the idler pulley. The V-belt
drives the pulley attached to the transmission gear which in turn drives the shaft
where the paddy wheels are attached. The operator handles the hand tractor through
a handle which is inclined upwardly and supported by a pair of substanding pipes and
reinforced by a U-shaped G.I. pipe at the V-shaped end."3
The above mentioned patent was acquired by SV-Agro Industries Enterprises, Inc.,
herein private respondent, from Magdalena Villaruz, its chairman and president, by
virtue of a Deed of Assignment executed by the latter in its favor. On October 31,
1979, SV-Agro Industries caused the publication of the patent in Bulletin Today, a
newspaper of general circulation.
In accordance with the patent, private respondent manufactured and sold the
patented power tillers with the patent imprinted on them. In 1979, SV-Agro
Industries suffered a decline of more than 50% in sales in its Molave, Zamboanga del
Sur branch. Upon investigation, it discovered that power tillers similar to those
patented by private respondent were being manufactured and sold by petitioner
herein. Consequently, private respondent notified Pascual Godines about the existing
patent and demanded that the latter stop selling and manufacturing similar power
tillers. Upon petitioner's failure to comply with the demand, SV-Agro Industries filed
before the Regional Trial Court a complaint for infringement of patent and unfair
competition.
After trial, the court held Pascual Godines liable for infringement of patent and unfair
competition. The dispositive portion of the decision reads as follows:
WHEREFORE, premises considered, JUDGMENT is hereby rendered in favor of the

plaintiff SV-Agro Industries Enterprises, Inc., and against defendant Pascual Godines:
1. Declaring the writ of preliminary injunction issued by this Court against

defendant as permanent;
2. Ordering defendant Pascual Godines to pay plaintiff the sum of Fifty Thousand
Pesos (P50,000.00) as damages to its business reputation and goodwill, plus the
further sum of Eighty Thousand Pesos (P80,000.00) for unrealized profits during the
period defendant was manufacturing and selling copied or imitation floating power
tiller;
3. Ordering the defendant to pay the plaintiff, the further sum of Eight Thousand
Pesos (P8,000.00) as reimbursement of attorney's fees and other expenses of
litigation; and to pay the costs of the suit.
SO ORDERED.4
The decision was affirmed by the appellate court.
Thereafter, this petition was filed. Petitioner maintains the defenses which he raised
before the trial and appellate courts, to wit: that he was not engaged in the
manufacture and sale of the power tillers as he made them only upon the special
order of his customers who gave their own specifications; hence, he could not be
liable for infringement of patent and unfair competition; and that those made by him
were different from those being manufactured and sold by private respondent.
We find no merit in his arguments. The question of whether petitioner was

manufacturing and selling power tillers is a question of fact better addressed to the
lower courts. In dismissing the first argument of petitioner herein, the Court of
Appeals quoted the findings of the court, to wit:
It is the contention of defendant that he did not manufacture or make imitations or

copies of plaintiff's turtle power tiller as what he merely did was to fabricate his
floating power tiller upon specifications and designs of those who ordered them.
However, this contention appears untenable in the light of the following
circumstances: 1) he admits in his Answer that he has been manufacturing power
tillers or hand tractors, selling and distributing them long before plaintiff started
selling its turtle power tiller in Zamboanga del Sur and Misamis Occidental, meaning
that defendant is principally a manufacturer of power tillers, not upon specification
and design of buyers, but upon his own specification and design; 2) it would be
unbelievable that defendant would fabricate power tillers similar to the turtle power
tillers of plaintiff upon specifications of buyers without requiring a job order where
the specification and designs of those ordered are specified. No document was (sic)
ever been presented showing such job orders, and it is rather unusual for defendant
to manufacture something without the specification and designs, considering that he
is an engineer by profession and proprietor of the Ozamis Engineering shop. On the
other hand, it is also highly unusual for buyers to order the fabrication of a power
tiller or hand tractor and allow defendant to manufacture them merely based on their
verbal instructions. This is contrary to the usual business and manufacturing practice.
This is not only time consuming, but costly because it involves a trial and error
method, repeat jobs and material wastage. Defendant judicially admitted two (2)
units of the turtle power tiller sold by him to Policarpio Berondo.5
Of general acceptance is the rule imbedded in our jurisprudence that ". . . the
jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals in
a petition for certiorari under Rule 45 of the Rules of Court is limited to the review of
errors of law, and that said appellate court's findings of fact are conclusive upon this
Court."6
The fact that petitioner herein manufactured and sold power tillers without patentee's
authority has been established by the courts despite petitioner's claims to the
contrary.
The question now arises: Did petitioner's product infringe upon the patent of private
respondent?
Tests have been established to determine infringement. These are (a) literal
infringement; and (b) the doctrine of equivalents.7 In using literal infringement as a
test, ". . . resort must be had, in the first instance, to the words of the claim. If
accused matter clearly falls within the claim, infringement is made out and that is the
end of it."8 To determine whether the particular item falls within the literal meaning
of the patent claims, the court must juxtapose the claims of the patent and the
accused product within the overall context of the claims and specifications, to
determine whether there is exact identity of all material elements.9
The trial court made the following observation:
Samples of the defendant's floating power tiller have been produced and inspected
by the court and compared with that of the turtle power tiller of the plaintiff (see
Exhibits H to H-28). In appearance and form, both the floating power tillers of the
defendant and the turtle power tiller of the plaintiff are virtually the same. Defendant
admitted to the Court that two (2) of the power inspected on March 12, 1984, were
manufactured and sold by him (see TSN, March 12, 1984, p. 7). The three power
tillers were placed alongside with each other. At the center was the turtle power tiller
of plaintiff, and on both sides thereof were the floating power tillers of defendant
(Exhibits H to H-2). Witness Rodrigo took photographs of the same power tillers
(front, side, top and back views for purposes of comparison (see Exhibits H-4 to H-
28). Viewed from any perspective or angle, the power tiller of the defendant is
identical and similar to that of the turtle power tiller of plaintiff in form, configuration,
design and appearance. The parts or components thereof are virtually the same. Both
have the circularly-shaped vacuumatic housing float, a paddy in front, a protective
water covering, a transmission box housing the transmission gears, a handle which
is V-shaped and inclined upwardly, attached to the side of the vacuumatic housing
float and supported by the upstanding G.I. pipes and an engine base at the top
midportion of the vacuumatic housing float to which the engine drive may be
attached. In operation, the floating power tiller of the defendant operates also in
similar manner as the turtle power tiller of plaintiff. This was admitted by the
defendant himself in court that they are operating on the same principles. (TSN,
August 19, 1987, p. 13) 10
Moreover, it is also observed that petitioner also called his power tiller as a floating
power tiller. The patent issued by the Patent Office referred to a "farm implement but
more particularly to a turtle hand tractor having a vacuumatic housing float on which
the engine drive is held in place, the operating handle, the harrow housing with its
operating handle and the paddy wheel protective covering." 11 It appears from the
foregoing observation of the trial court that these claims of the patent and the
features of the patented utility model were copied by petitioner. We are compelled to
arrive at no other conclusion but that there was infringement.
Petitioner's argument that his power tillers were different from private respondent's
is that of a drowning man clutching at straws.
Recognizing that the logical fallback position of one in the place of defendant is to
aver that his product is different from the patented one, courts have adopted the
doctrine of equivalents which recognizes that minor modifications in a patented
invention are sufficient to put the item beyond the scope of literal infringement. 12
Thus, according to this doctrine, "(a)n infringement also occurs when a device
appropriates a prior invention by incorporating its innovative concept and, albeit with
some modification and change, performs substantially the same function in
substantially the same way to achieve substantially the same result." 13 The reason
for the doctrine of equivalents is that to permit the imitation of a patented invention
which does not copy any literal detail would be to convert the protection of the patent
grant into a hollow and useless thing. Such imitation would leave room for — indeed
encourage — the unscrupulous copyist to make unimportant and insubstantial
changes and substitutions in the patent which, though adding nothing, would be
enough to take the copied matter outside the claim, and hence outside the reach of
the law. 14
In this case, the trial court observed:

Defendant's witness Eduardo Cañete, employed for 11 years as welder of the Ozamis
Engineering, and therefore actually involved in the making of the floating power tillers
of defendant tried to explain the difference between the floating power tillers made
by the defendant. But a careful examination between the two power tillers will show
that they will operate on the same fundamental principles. And, according to establish
jurisprudence, in infringement of patent, similarities or differences are to be
determined, not by the names of things, but in the light of what elements do, and
substantial, rather than technical, identity in the test. More specifically, it is necessary
and sufficient to constitute equivalency that the same function can be performed in
substantially the same way or manner, or by the same or substantially the same,
principle or mode of operation; but where these tests are satisfied, mere differences
of form or name are immaterial. . . . 15
It also stated:
To establish an infringement, it is not essential to show that the defendant adopted

the device or process in every particular; Proof of an adoption of the substance of
the thing will be sufficient. "In one sense," said Justice Brown, "it may be said that
no device can be adjudged an infringement that does not substantially correspond
with the patent. But another construction, which would limit these words to exact
mechanism described in the patent, would be so obviously unjust that no court could
be expected to adopt it. . . .
The law will protect a patentee against imitation of his patent by other forms and
proportions. If two devices do the same work in substantially the same way, and
accomplish substantially the same result, they are the same, even though they differ
in name, form, or shape. 16
We pronounce petitioner liable for infringement in accordance with Section 37 of

Republic Act No. 165, as amended, providing, inter alia:
Sec. 37. Right of Patentees. — A patentee shall have the exclusive right to make,
use and sell the patented machine, article or product, and to use the patented process
for the purpose of industry or commerce, throughout the territory of the Philippines
for the terms of the patent; and such making, using, or selling by any person without
the authorization of the Patentee constitutes infringement of the patent. (Emphasis
ours)
As far as the issue regarding unfair competition is concerned, suffice it to say that
Republic Act No. 166, as amended, provides, inter alia:
Sec. 29. Unfair competition, rights and remedies. — . . .
xxx xxx xxx
In particular, and without in any way limiting the scope of unfair competition, the
following shall be deemed guilty of unfair competition:
(a) Any person, who in selling his goods shall give them the general appearance
of goods of another manufacturer or dealer, either as to the goods themselves or in
the wrapping of the packages in which they are contained, or the devices or words
thereon, or in any other feature of their appearance, which would be likely to
influence purchasers that the goods offered are those of a manufacturer or dealer
other than the actual manufacturer or dealer, or who otherwise clothes the goods
with such appearance as shall deceive the public and defraud another of his legitimate
trade. . . .
xxx xxx xxx
Considering the foregoing, we find no reversible error in the decision of the Court of
Appeals affirming with modification the decision of the trial court.
WHEREFORE, premises considered, the decision of the Court of Appeals is hereby

AFFIRMED and this petition DENIED for lack of merit.
Bidin, Melo and Vitug, JJ., concur.
Feliciano, J., is on leave.

G.R. No. 115106 March 15, 1996
ROBERTO L. DEL ROSARIO, petitioner,

vs.
COURT OF APPEALS AND JANITO CORPORATION, respondents.
BELLOSILLO, J.:p
Roberto del Rosario petitions this Court to review the decision of the Court of Appeals
1 which set aside the order of the Regional Trial Court of Makati granting a writ of
preliminary injunction in his favor.
The antecedents: On 18 January 1993 petitioner filed a complaint for patent

infringement against private respondent Janito Corporation.2 Roberto L. del Rosario
alleged that he was a patentee of an audio equipment and improved audio equipment
commonly known as the sing-along System or karaoke under Letters Patent No. UM-
5269 dated 2 June 1983 as well as Letters Patent No. UM-6237 dated 14 November
1986 issued by the Director of Patents. The effectivity of both Letters Patents was for
five (5) years and was extended for another five (5) years starting 2 June 1988 and
14 November 1991, respectively. He described his sing-along system as a handy
multi-purpose compact machine which incorporates an amplifier speaker, one or two
tape mechanisms, optional tuner or radio and microphone mixer with features to
enhance one's voice, such as the echo or reverb to stimulate an opera hall or a studio
sound, with the whole system enclosed in one cabinet casing.
In the early part of 1990 petitioner learned that private respondent was
manufacturing a sing-along system bearing the trademark miyata or miyata karaoke
substantially similar if not identical to the sing-along system covered by the patents
issued in his favor. Thus he sought from .the trial court the issuance of a writ of
preliminary injunction to enjoin private respondent, its officers and everybody
elsewhere acting on its behalf, from using, selling and advertising the miyata or
miyata karaoke brand, the injunction to be made permanent after trial, and praying
for damages, attorney's fees and costs of suit.
On 5 February 1993 the trial court temporarily restrained private respondent from
manufacturing, using and/or selling and advertising the miyata sing-along system or
any sing-along system substantially identical to the sing-along system patented by
petitioner until further orders.
On 24 February 1993 the trial court issued a writ of preliminary injunction upon a
bond on the basis of its finding that petitioner was a holder of a utility model patent
for a sing-along system and that without his approval and consent private respondent
was admittedly manufacturing and selling its own sing-along system under the brand
name miyata which was substantially similar to the patented utility mode 3 of
petitioner.
Private respondent assailed the order of 24 February 1993 directing the issuance of
the writ by way of a petition for certiorari with prayer for the issuance of a writ of
preliminary injunction and a temporary restraining order before respondent Court of
Appeals.
On 15 November 1993 respondent appellate court granted the writ and set aside the
questioned order of the trial court. It expressed the view that there was no
infringement of the patents of petitioner by the fact alone that private respondent
had manufactured the miyata karaoke or audio system, and that the karaoke system
was a universal product manufactured, advertised and marketed in most countries of
the world long before the patents were issued to petitioner. The motion to reconsider
the grant of the writ was denied;4 hence, the instant petition for review.
This petition alleges that: (a) it was improper for the Court of Appeals to consider
questions of fact in a certiorari proceeding; (b) the Court of Appeals erred in taking
judicial notice of private respondent's self-serving presentation of facts; (c) the Court
of Appeals erred in disregarding the findings of fact of the trial court; and, (d) there
was no basis for the Court of Appeals to grant a writ of preliminary injunction in favor
of private respondent.5
Petitioner argues that in a certiorari proceeding questions of fact are not generally
permitted the inquiry being limited essentially to whether the tribunal has acted
without or in excess of jurisdiction or with grave abuse of discretion; that respondent
court should not have disturbed but respected instead the factual findings of the trial
court; that the movant has a clear legal right to be protected and that there is a
violation of such right by private respondent. Thus, petitioner herein claims, he has
satisfied the legal requisites to justify the order of the trial court directing the issuance
of the writ of injunction. On the other hand, in the absence of a patent to justify the
manufacture and sale by private respondent of sing-along systems, it is not entitled
to the injunctive relief granted by respondent appellate court.
The crux of the controversy before us hinges on whether respondent Court of Appeals
erred in finding the trial court to have committed grave abuse of discretion in
enjoining private respondent from manufacturing, selling and advertising the miyata
karaoke brand sing-along system for being substantially similar if not identical to the
audio equipment covered by letters patent issued to petitioner.
Injunction is a preservative remedy for the protection of substantive rights or

interests. It is not a cause of action in itself but merely a provisional remedy, an
adjunct to a main suit. The controlling reason for the existence of the judicial power
to issue the writ is that the court may thereby prevent a threatened or continuous
irremediable injury to some of the parties before their claims can be thoroughly
investigated and advisedly adjudicated. It is to be resorted to only when there is a
pressing necessity to avoid injurious consequences which cannot be remedied under
any standard of compensation. The application of the writ rests upon an alleged
existence of an emergency or of a special reason for such an order before the case
can be regularly heard, and the essential conditions for granting such temporary
injunctive relief are that the complaint alleges facts which appear to be sufficient to
constitute a cause of action for injunction and that on the entire showing from both
sides, it appears, in view of all the circumstances, that the injunction is reasonably
necessary to protect the legal rights of plaintiff pending the litigation.6
A preliminary injunction may be granted at any time after the commencement of the
action and before judgment when it is established that the defendant is doing,
threatens, or is about to do, or is procuring or suffering to be done, some act probably
in violation of the plaintiff's rights. Thus, there are only two requisites to be satisfied
if an injunction is to issue, namely, the existence of the right to be protected, and
that the facts against which the injunction is to be directed are violative of said right.7
For the writ to issue the interest of petitioner in the controversy or the right he seeks
to be protected must be a present right, a legal right which must be shown to be
clear and positive.
In this regard Sec. 55 of R.A. 165 as amended, known as The Patent Law, provides
—
Sec. 55. Design patents and patents for utility models. — (a) Any new, original,
and ornamental design for an article of manufacture and (b) new model or
implements or tools or of any industrial product or of part of the same, which does
not possess the quality of invention but which is of practical utility by reason of its
form, configuration, construction or composition, may be protected by the author
thereof, the former by a patent for a design and the latter by a patent for a utility
model, in the same manner and subject to the same provisions and requirements as
relate to patents for inventions insofar as they are applicable, except as otherwise
herein provide . . . .
Admittedly, petitioner is a holder of Letters Patent No. UM-5629 dated 2 June 1985
issued for a term of five (5) years from the grant of a Utility Model herein described
—
The construction of an audio equipment comprising a substantially cubical casing

having a window at its rear and upper corner fitted with a slightly inclined control
panel, said cubical (casing) having a vertical partition wall therein defining a rear
compartment and a front compartment, and said front compartment serving as a
speaker baffle; a transistorized amplifier circuit having an echo section and writhed
in at least the printed circuit boards placed inside said rear compartment of said
casing and attached to said vertical partition wall, said transistorized amplifier circuit
capable of being operated from outside, through various controls mounted on said
control panel of such casing; a loud speaker fitted inside said front compartment of
said casing and connected to the output of the main audio amplifier section of said
transistorized amplifier circuit and a tape player mounted on the top wall of said
casing and said tape player being connected in conventional manner to said
transistorized amplifier circuit.8
Again, on 14 November 1986 petitioner was granted Letters Patent No. UM-6237 for
a term of five (5) years from the grant of a Utility Model described as —
In an audio equipment consisting of a first cubical casing having an opening at its
rear and upper rear portion and a partition therein forming a rear compartment and
a front compartment serving as a loud speaker baffle, a control panel formed by
vertical and horizontal sections, a transistorized amplifier circuit wired in at least two
printed circuit boards attached at the back of said control panel, a first loud speaker
fitted inside said first compartment of such first casing and connected to the output
of said transistorized amplifier circuit; the improvement wherein said control panel
being removably fitted to said first cubical casing and further comprises a set of tape
recorder and tape player mounted on the vertical section of said control panel and
said recorder and player are likewise connected to said transistorized amplifier circuit;
a second cubical casing having an opening at its rear, said second cubical casing
having (being?) provided with a vertical partition therein defining a rear compartment
and a front compartment, said rear compartment being provided with a door and
enclosing therein a set of tape racks and said front compartment serving as loud
speaker baffle, said second cubical casing being adapted to said first cubical casing
so that said first and second casings are secured together in compact and portable
form; and a second loud speaker fitted inside said front compartment of said casing
and connected to the output of said amplifier circuit.9
The terms of both Letters Patents were extended for another five (5) years each, the
first beginning 2 June 1988 and the second, 14 November 1991.
The Patent Law expressly acknowledges that any new model of implements or tools
of any industrial product even if not possessed of the quality of invention but which
is of practical utility is entitled to a patent for utility model. 10 Here, there is no
dispute that the letters patent issued to petitioner are for utility models of audio
equipment.
In issuing, reissuing or withholding patents and extensions thereof, the Director of

Patents determines whether the patent is new and whether the machine or device is
the proper subject of patent. In passing on an application, the Director decides not
only questions of law but also questions of fact, i.e. whether there has been a prior
public use or sale of the article sought to be patented. 11 Where petitioner introduces
the patent in evidence, if it is in due form, it affords a prima facie presumption of its
correctness and validity. The decision of the Director of Patents in granting the patent
is always presumed to be correct, and the burden then shifts to respondent to
overcome this presumption by competent evidence. 12
Under Sec. 55 of The Patent Law a utility model shall not be considered "new" if
before the application for a patent it has been publicly known or publicly used in this
country or has been described in a printed publication or publications circulated within
the country, or if it is substantially similar to any other utility model so known, used
or described within the country. Respondent corporation failed to present before the
trial court competent evidence that the utility models covered by the Letters Patents
issued to petitioner were not new. This is evident from the testimony of Janito Cua,
President of respondent Janito Corporation, during the hearing on the issuance of the
injunction, to wit —
Q. Mr. Cua, you testified that there are (sic) so many other companies which
already have (sic) the sing-along system even before the patent application of Mr.
del Rosario and as a matter of fact you mentioned Sanyo, Sony and Sharp, is that
right?
A. Musicmate and Asahi.
Q. Now do you recall that your lawyer filed with this Honorable Court an Urgent
Motion to Lift Temporary Restraining Order of this Honorable Court. I am sure you
were the one who provided him with the information about the many other companies
selling the sing-along system, is that right? These 18 which you enumerated here.
A. More than that because. . . .
Q. Now you will agree with me that in your statement Sharp you put the date as
1985 agreed?
A. No.
Q. You mean your lawyer was wrong when he put the word Sharp 1985?
A. Maybe I informed him already.
xxx xxx xxx
Q. You mean your lawyer was wrong in alleging to this Court that Sharp
manufactured and sold (in) 1985 as found in the Urgent Motion?
A. Since it is urgent it is more or less.
Q. The same also with Sanyo 1985 which you put, more or less?
A. Sanyo is wrong.
Q. It is not 1985?
A. Sanyo is 1979 I think.
Q. So this is also wrong. Panasonic 1986 is also wrong?
A. Panasonic I think.
Q. So you don't think this is also correct.
A. The date?
Q. So you don't think also that this allegation here that they manufactured in
1986 is correct?
A. Wrong. Earlier.
Q. National by Precision Electronic 1986 this is also wrong?
A. I think earlier.
Q. So that means all your allegations here from 2 to 5 are wrong? OK. By Philipps
Philippines 1986, this is also correct or wrong?
A. More or less. We said more or less.
Q. Nakabutshi by Asahi Electronics that is also wrong?
A. No that is 1979.
Q. Electone by DICO 1989 is this correct or wrong?
A. Correct. More or less.
Q. Skylers 1985 is that correct or wrong?
A. It is more or less because it is urgent. We don't have time to exact the date.
Q. Musicmate of G.A. Yupangco 1981 this is more or less? You are not also sure?
A. 95% sure.
Q. Now you are sure 1981.
A. This one because. . . .
Q. Mr. Witness so you are now trying to tell this Honorable Court that all your
allegations here of the dates in this Urgent Motion except for Musicmate which you
are only 95% sure they are all wrong or they are also more or less or not sure, is
that right?
A. More or less.
Q. Now do you have any proof, any advertisement, anything in writing that would
show that all these instruments are in the market, do you have it.
A. No I don't have it because. . . .

Q. No I am satisfied with your answer. Now Mr. Witness, you don't also have a
proof that Akai instrument that you said was also in the market before 1982? You
don't have any written proof, any advertisement?
A. I have the product.
Q. But you have not brought the product in (sic) this Honorable Court, right?
A. No. 13
As may be gleaned herein, the rights of petitioner as a patentee have been sufficiently
established, contrary to the findings and conclusions of respondent Court of Appeals.
Consequently, under Sec. 37 of The Patent law, petitioner as a patentee shall have
the exclusive right to make, use and sell the patented machine, article or product for
the purpose of industry or commerce, throughout the territory of the Philippines for
the term of the patent, and such making, using or selling by any person without
authorization of the patentee constitutes infringement of his patent.
Petitioner established before the trial court that respondent Janito Corporation was
manufacturing a similar sing-along system bearing the trademark miyata which
infringed his patented models. He also alleged that both his own patented audio
equipment and respondent's sing-along system were constructed in a casing with a
control panel, the casing having a vertical partition wall defining the rear
compartment from the front compartment, with the front compartment consisting of
a loud speaker baffle, both containing a transistorized amplifier circuit capable of
being operated from outside through various controls mounted on the control panel,
and that both had loud speakers fitted inside the front compartment of the casing
and connected to the output of the main audio amplifier section both having a tape
recorder and a tape player mounted on the control panel with the tape recorder and
tape player being both connected to the transistorized amplifier circuit. 14
Respondent Janito Corporation denied that there was any violation of petitioner's
patent rights, and cited the differences between its miyata equipment and petitioner's
audio equipment. But, it must be emphasized, respondent only confined its
comparison to the first model, Utility Model No. 5269, and completely disregarded
Utility Model No. 6237 which improved on the first. As described by respondent
corporation, 15 these differences are —
First. Under Utility Model 5269, the unit is a substantially cubical casing with a
window at its rear and upper corner fitted with slightly inclined control panel, while
the miyata equipment is a substantially rectangular casing with panel vertically
positioned.
Second. Under Utility Model 5269, the cubical casing has a vertical partition wall
defining a rear compartment and a front compartment serving as a speaker baffle,
while the miyata equipment has no rear compartment and front compartment in its
rectangular casing; it has only a front compartment horizontally divided into 3
compartments like a 3-storey building, the 1st compartment being a kit, the 2nd also
the speaker, and the 3rd are kits.
Third. Under Utility Model No. 5269, a transistorized amplifier circuit with an echo
section wired in at least 2 printed circuit boards is placed inside the rear compartment
of the casing and attached to the vertical partition wall, the printed circuit board
having 1 amplifier and 1 echo, while in the miyata equipment the amplifier is mainly
IC (Integrated Circuit) — powered with 8 printed circuit boards almost all of which
are IC controlled, with 1 amplifier with power supply, 1 main tuner, 1 equalizer (3-
band), 1 IC controlled volume control, 1 echo IC, 1 tape pream, 1 instrument and 1
wireless microphone.
Fourth. Under Utility Model 5269, 4 printed circuits are placed inside the
compartment of its casing attached to the vertical partition wall, while in the miyata,
the 7 printed circuit boards (PCB) are attached to the front panel and 1 attached to
the horizontal divider.
Fifth. Under Utility Model 5269, there are various controls mounted on the control
panel of the casing, while in miyata, the various controls are all separated from the
printed circuit boards and the various controls are all attached thereto.
Sixth. Under Utility Model 5269, a loud speaker fitted inside the front compartment
of the casing is connected to the output of the main audio amplifier section of the
transistorized amplifier circuit, while in miyata, there is no other way but to use 2
loud speakers connected to the amplifier.
Seventh. Under Utility Model 5269, a tape player is mounted on the top wall of
the casing, while in miyata, 2 tape players are used mounted side by side at the
front.
It is elementary that a patent may be infringed where the essential or substantial

features of the patented invention are taken or appropriated, or the device, machine
or other subject matter alleged to infringe is substantially identical with the patented
invention. In order to infringe a patent, a machine or device must perform the same
function, or accomplish the same result by identical or substantially identical means
and the principle or mode of operation must be substantially the same. 16
It may be noted that respondent corporation failed to present before the trial court a
clear, competent and reliable comparison between its own model and that of
petitioner, and disregarded completely petitioner's utility Model No. 6237 which
improved on his first patented model. Notwithstanding the differences cited by
respondent corporation, it did not refute and disprove the allegations of petitioner
before the trial court that: (a) both are used by a singer to sing and amplify his voice;
(b) both are used to sing with a minus-one or multiplex tapes, or that both are used
to play minus-one or standard cassette tapes for singing or for listening to; (c) both
are used to sing with a minus-one tape and multiplex tape and to record the singing
and the accompaniment; (d) both are used to sing with live accompaniment and to
record the same; (e) both are used to enhance the voice of the singer using echo
effect, treble, bass and other controls; (g) both are equipped with cassette tape decks
which are installed with one being used for playback and the other, for recording the
singer and the accompaniment, and both may also be used to record a speaker's
voice or instrumental playing, like the guitar and other instruments; (h) both are
encased in a box-like cabinets; and, (i) both can be used with one or more
microphones. 17
Clearly, therefore, both petitioner's and respondent's models involve substantially

the same modes of operation and produce substantially the same if not identical
results when used.
In view thereof, we find that petitioner had established before the trial court prima
facie proof of violation of his rights as patentee to justify the issuance of a writ of
preliminary injunction in his favor during the pendency of the main suit for damages
resulting from the alleged infringement.
WHEREFORE, the Decision of the Court of Appeals dated 15 November 1993 is

REVERSED and SET ASIDE and the Order of the trial court dated 24 February 1993
granting petitioner the writ of injunction is REINSTATED.
The trial court is directed to continue with the proceedings on the main action pending
before it in order to resolve with dispatch the issues therein presented.
SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

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G.R. No.

140946 September 13, 2004

MICROSOFT CORPORATION and LOTUS DEVELOPMENT CORPORATION,

On 25 July 1996, National Bureau of Investigation ("NBI") Agent Dominador Samiano,

Hence, this petition.

1. WHETHER THE PETITION RAISES QUESTIONS OF LAW;

2. WHETHER PETITIONERS HAVE LEGAL PERSONALITY TO FILE THE PETITION;

3. WHETHER THERE WAS PROBABLE CAUSE TO ISSUE THE SEARCH WARRANTS;

4. WHETHER THE SEARCH WARRANTS ARE "GENERAL WARRANTS."

The Ruling of the Court

The petition has merit.

On Whether the Petition Raises Questions of Law

Such questions as whether certain items of evidence should be accorded probative

On Whether Petitioners have the Legal Personality to File this Petition

On Whether there was Probable Cause to Issue the Search Warrants

The offense charged against Maxicorp is copyright infringement under Section 29 of

On Whether the Search Warrants are in the Nature of General Warrants

a) Complete or partially complete reproductions or copies of Microsoft software

b) Complete or partially complete reproductions or copies of Microsoft instruction

c) Sundry items such as labels, boxes, prints, packages, wrappers, receptacles,

d) Sales invoices, delivery receipts, official receipts, ledgers, journals, purchase

f) Documents relating to any passwords or protocols in order to access all computer

However, we find paragraph (c) of the search warrants lacking in particularity.

c) Sundry items such as labels, boxes, prints, packages, wrappers, receptacles,

Davide, Jr., Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

On December 9, 2004, LEC was issued another Certificate of Copyright Registration

Otherwise speaking, "judicial review of the resolution of the Secretary of Justice is

A copyright refers to "the right granted by a statute to the proprietor of an intellectual

177.1 Reproduction of the work or substantial portion of the work;

177.2 Dramatization, translation, adaptation, abridgment, arrangement or other

177.4 Rental of the original or a copy of an audiovisual or cinematographic work,

177.5 Public display of the original or a copy of the work;

177.6 Public performance of the work; and

177.7 Other communication to the public of the work.

The respondent failed to substantiate the alleged reproduction of the

As the Court held in Pearl and Dean (Philippines), Incorporated v. Shoemart,

"Ownership of copyrighted material is shown by proof of originality and

Here, evidence negating originality and copyrightability as elements of copyright

The following averments were not successfully rebuffed by LEC:

Moreover, the Project is a high-end residential building located in the Rockwell

The design of a useful article shall be considered a pictorial, graphic, or sculptural

Being articles of manufacture already in existence, they cannot be deemed as original

WHEREFORE, premises considered, the petition is hereby GRANTED. The Decision

Velasco, Jr., (Chairperson), Peralta, Perez, and Jardeleza, JJ., concur.

BEEZER, Circuit Judge:

1. �To download means to receive information, typically a file, from another

Justice Souter delivered the opinion of the Court.

METRO-GOLDWYN-MAYER STUDIOS INC., et al.,

ANGEL VARGAS, plaintiff-appellant,

Charles C. Cohn for appellants .

When a patent is sought to be enforced, "the question of invention, novelty, or prior

PHIL PHARMAWEALTH, INC., Petitioner,

7. Patent No. 21116 thus covers ampicillin sodium/sulbactam sodium (hereafter

9. Sometime in January and February 2003, complainants came to know that

Hence, the present petition raising the following issues:

a) Can an injunctive relief be issued based on an action of patent infringement when

The Court agrees.

(b) That the commission, continuance or non-performance of the act or acts

(c) That a party, court, or agency or a person is doing, threatening, or attempting to