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    4. SCOTUS reins in the fair-use defense in the commercial context

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    Alert / Intellectual Property

    SCOTUS reins in the fair-use defense in the commercial context

    May 22, 2023

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    By Erica Van Loon and Thaddeus Stauber

    The ruling provides clarity to both creators and individuals or organizations who draw on others’ artistic works.

    What’s the impact?

    • Goldsmith does not overhaul the fair-use doctrine, but instead clarifies its limitations within the realm of commercial use.
    • Creators could see an increase in the relevance and incidence of early stage licensing agreements for their works.
    • The decision may impact industries like fashion, music, and advertising, which frequently source and use others’ original artistic works.

    DOWNLOAD

    PDF: SCOTUS fair-use decision

    In a 7–2 decision on May 18, 2023, the Supreme Court decided Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith et al., No. 21-869, which centered around the concept of transformative fair use in copyright law, The court held the “purpose and character” of the commercial use of Andy Warhol’s silkscreen prints depicting rock star Prince Rogers Nelson could not survive under a transformative fair-use defense. While the long-awaited decision is not groundbreaking by any means, the Supreme Court’s reining in of the limited fair use defense to copyright infringement in the realm of visual art will be welcome news to many, including artists who may have previously been unsure of their ability to reap the monetary benefits for the unauthorized downstream use of their original creative works. Moving forward, individuals or organizations interested in commercially leveraging the original work of another should strongly consider obtaining the necessary copyright permissions and licenses. Merely relying on the extent to which the original work has been transformed or reimagined may no longer be a sufficient defense. The court's emphasis on the transformative nature of the use highlights the importance of obtaining proper licenses and permissions to avoid potential copyright infringement issues. 

    How did the dispute arise?

    The Goldsmith dispute arose from an initial licensing deal between celebrity photographer Lynn Goldsmith and Vanity Fair magazine. The deal was that Vanity Fair would license one of Goldsmith’s Prince photographs for use as an “artist reference” on a single-use or “one time” basis. The artist Vanity Fair hired was Andy Warhol. Warhol made a silkscreen using Goldsmith’s photo, and Vanity Fair published the resulting image alongside an article about Prince.

    Warhol then created fifteen additional works based on the Goldsmith photograph. Twelve of the physical copies Warhol created now belong to collectors and have been displayed in museums and galleries around the world, and the works themselves have been reproduced in various books, magazines, and promotional materials.

    It was not until 2016 that Goldsmith learned of the fifteen additional unlicensed works Warhol created when the Andy Warhol Foundation for the Visual Arts, Inc. (AWF) licensed one of those works to Condé Nast, again, for the purpose of illustrating a magazine story about Prince. AWF came away with $10,000, and Goldsmith—the creator of the initial work—received nothing.

    The next year, Goldsmith and the AWF sued one another in U.S. District Court in the Southern District of New York where AWF successfully prevailed on its copyright fair use defense. However, the Second Circuit reversed the lower court, leading AWF to petition the Supreme Court to set the record straight and provide guidance as to the transformative fair use doctrine as the decisions of lower courts were riddled with inconsistencies in applying the test.

    Reining in the transformative fair use doctrine

    Goldsmith marks the Supreme Court’s first analysis of the transformative fair use doctrine since 1994, and its decision comes at a crucial time, providing much-needed clarity in the realm of fair use copyright fair use. Grounded in its 1994 decision in Campbell v. Acuff-Rose Music, Inc., the Goldsmith opinion focuses exclusively on the first fair use factor, “the purpose and character” of the use of the copyrighted work, and it places a particular emphasis on “whether such use is of a commercial nature or is for nonprofit educational purposes.” 17 U.S.C. 107(1). The Court explained that if an original work and secondary use share a similar purpose and the secondary use is commercial, the factor is likely to weigh against fair use.

    Notably, leading up to oral argument in October 2022, the United States and its Solicitor General submitted an amicus brief that underscored the importance of the commercial nature of the use under the first prong of the fair use analysis. The government’s focus on couching the relevant use analysis in the commercial versus non-commercial context was clearly well taken, as the point is reiterated throughout the majority’s opinion. For example, Justice Sotomayor writes that “Goldsmith’s photograph of Prince” and “AWF’s copying use of the photograph . . . share substantially the same commercial purpose[,]” and due to the strong similarities between the two works in this context AWF’s failure to “offer [any] other justification for its unauthorized use of the photograph” ultimately defeats its claim of fair use. Justice Sotomayor goes on to state that to hold otherwise “would potentially authorize a range of commercial copying of photographs, to be used for purposes that are substantially the same as those of the originals.”

    Justice Gorsuch’s concurrence perhaps best illustrates the policy rationale underlying the outcome in this case. Namely, “[n]othing in the law requires judges to try their hand at art criticism and assess the aesthetic character of the resulting work.” As set forth in the concurrence, this approach envisions a “comparatively modest inquiry focused on how and for what reason a person is using a copyrighted work in the world, not on the moods of any artist or the aesthetic quality of any creation.” Warhol’s state of mind and the extent to which his use is a unique and creative depiction of the original is indeed outside the scope of the law and “does not require judges to tangle with questions so far beyond [their] competence.”

    Justice Kagan’s dissent makes several interesting points, all of which focus on a more subjective approach to analyzing the first fair use factor. Specifically, the dissent emphasizes the importance of analyzing the overall “aesthetics and message” of the resulting work and how those factors can serve to distinguish allegedly infringing works “from the original templates.” The dissent coins the majority’s approach as one that “adopt[s] [a] posture of indifference” as to the transformative degree of the works—a question that “[b]efore today” was central to the analysis, and the omission of which “leaves our first-factor inquiry in shambles.”

    In sum, the Goldsmith decision does not represent a complete overhaul of the transformative fair-use doctrine, as many had anticipated. Instead, the decision adequately reins in the transformative fair-use inquiry to focus on the “objective indicia of the use’s purpose and character".

    What are the implications for artists and collectors?

    For photographers and other artists who make a living by licensing their creations for commercial use, the Goldsmith decision is a huge victory as it will undoubtedly increase the relevance and incidence of early-stage licensing agreements for their works. For other artists, especially those that base their own works largely upon pre-existing works, the post-Goldsmith era may be viewed as an alteration to the status quo where the modification of the “aesthetics and message” of an original work (without more) in the commercial context may no longer be enough to claim transformative fair use. Of course, while these general principles can be drawn from the decision, the transformative fair use analysis is a nuanced one and will ultimately be determined on a case-by-case basis in an evolving world where the ease of manipulating sounds, images, and video is more accessible than ever.

    From a collector’s perspective, the Goldsmith decision has the potential to impact downstream liability for holders of art that unknowingly purchase pieces that are later held to be infringing derivative works. While the “first sale” doctrine is a general exception, it may not apply where the first sale itself was not protected, which could impact collector’s ability to publicly display or sell at public auction. Notably the majority expressed “no opinion as to the creation, display, or sale of any of the original Prince Series works”. This leaves open the question of whether other "escape valves" within copyright law's fair use policy, such as transformative fair use, apply to the Prince Series or similar works, which may have far-reaching consequences for the market and secondary sale valuations of these artworks in the future. 

    The Goldsmith decision, which primarily deals with copyright infringement in the domain of visual art, raises the question of its applicability to industries such as fashion, music, and advertising. These industries heavily rely borrowing designs, textiles, language, and sounds. The extent to which the Goldsmith decision will have implications in these creative sectors remains uncertain, making it a crucial point for strategic consideration as transformative fair use jurisprudence continues to develop. It is vital to monitor how this evolving landscape of fair use policy and defense copyright will shape the application of the Goldsmith decision in these industries and potentially influence future copyright practices. 

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    The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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