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Coursepacks and fair use: Issues raised by the Michigan Document Services case

In February of 1996, the Sixth Circuit, reversing a lower court opinion, found that defendant Michigan Document Services, Inc. ("MDS") made a fair use of plaintiff publishers' materials in the creation of coursepacks for professors and students at nearby universities. On facts very similar to the Kinko's case, 1 this court came to the opposite conclusion about whether coursepacks were fair use. In April of the same year, however, the Sixth Circuit withdrew its opinion in response to a request for a rehearing en banc, and issued a new opinion in November of 1996.

The appellate history of this case reflects the intense debate around the issue of fair use. The opinion has been appealed to the Supreme Court, so the final chapter may not be written for some time.

Facts of the case

MDS creates coursepacks for professors and students at nearby universities. Coursepacks may contain journal articles, newspaper articles, course notes, syllabi, sample test questions and excerpts from books. MDS adds a table of contents identifying each work by author and name of the work, and gives the coursepack page numbers and a binding. MDS charges a per page fee that is the same regardless of the content or copyright status of the pages and sells its coursepacks only to students for particular courses.

The court examined six excerpts from plaintiffs' publications ranging in size from five percent to thirty percent of the materials in each publication. Each plaintiff operates a permissions department and has an established procedure for evalulating requests, granting permission and charging fees. Indeed, in one case, the publisher stated that it would not have given permission to copy but would have insisted that students buy the entire book because the requested portion was too large and the price of the book was modest. MDS did not, however, seek permission or pay royalties for any of its copies.

Professors stated that they received no economic benefit from delivering coursepack materials to MDS and that in each case, they would not have otherwise assigned the various readings if students had to buy the entire publication.

The lower court found that MDS's activities were not fair use, entered summary judgment against MDS and granted the publishers a permanent injunction against MDS's making any use of any of their works, those existing now and in the future, without their permission. The first opinion issued by the Sixth Circuit (the "Three-judge MDS opinion") reversed the lower court's decision, finding that the copying was a fair use. The second opinion (the "En Banc MDS opinion") affirmed the lower court's finding of infringement, but not its finding of willfulness.

The three-judge panel's analysis of fair use

The court began by stating all of the principles that have been laid down for consideration in fair use cases, the 'guideposts' by which it would conduct its analysis. There were no surprises here. But the court got off to a shocking start when it began to perform the fair use analysis: it completely rejected the Classroom Guidelines as irrelevant, noting that if Congress had wanted to enact the Guidelines as law, it could have, but it did not. The court then proceded to the four fair use factors.

The four fair use factors

Section 107 provides that

"Notwithstanding the provisions of section 106, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, 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 a 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." Emphasis added.

The first factor: Purpose and character of the use

The court found that the use was nonprofit, educational and transformative, placing the first factor firmly on the side of fair use in this balancing test.

Publishers had argued that the educational use of the end product was not relevant; that the only relevant use was the commercial sale of the coursepacks to students. The court, however, gave great deference to the fact that multiple copies for classroom use is specifically mentioned in the statute as an example of a fair use and that ignoring that aspect of the nature of this use would be like looking at the copying in a vacuum. As the court saw it, the mechanics of copying were a natural part of an enumerated fair use so that both the mechanics of copying and the classroom use would have to be considered together. Since none of the publishers argued that the same copying by a professor or a student would not be fair use, the court concluded that their copying, carried out by an efficient service provider at the instance of the educational user, was also a fair use. The court took care to distinguish what it saw as the exploitation of duplicating services from the exploitation of the publishers' copyrights by noting that the fee for each page was the same regardless of what, if any, content appeared on the page.

The second factor: Nature of the copyrighted work

The court did not discuss this factor at length, but only established that the works were protected.

The third factor: Amount and substantiality of the part used

Even though in one case thirty percent (30%) of a work was excerpted (though parts of the excerpt were public domain materials), the court found that the excerpts did not substitute for sales of the originals, nor were they the heart of the works because the professors would not have assigned the works if students had to buy the whole publication.

The fourth factor: Effect on the original and derivative markets for the work

This factor turns on the result of the analysis up to this point, so determinations made under the first factor critically affect the outcome of this factor. In this case, the court noted that where the use has been determined to be nonprofit educational under the first factor, the burden of proof on the issue of market harm falls on the person alleging infringement. This means that plaintiffs will get no "presumption" that there is market harm, as they would if the use had been determined to be commercial. Instead, they have to produce proof: they must show by a preponderance of the evidence that some meaningful likelihood of future harm exists.

Plaintiffs could have but did not produce evidence of 1) harm to the market for the original works, 2) harm to the market for derivative works (like published anthologies) or even 3) any meaningful likelihood of future harm. Instead they alleged that their harm was in lost permission fees. The court did not accept this evidence as bearing on market effect because it would have been circular to take lost permission fees into account in trying to determine whether permission fees were actually due: If the use is fair, no fees would be lost because no fees would have been due. 2 Thus, the court concluded that there was no evidence of market effect and so the fourth factor weighed "decisively" in favor of fair use.

Other factors

The court went on to consider other factors as it has the prerogative to do, noting that the record revealed that more than 100 authors had indicated that monetary reward was only a secondary consideration in their production of higher education materials. In fact, wide distribution of their works, as facilitated by coursepacks, improved their chances for recognition, which is their primary reward. Thus, MDS's activities contributed to the incentives to create new works, thereby advancing the progress of science and the useful arts, which is the purpose of Copyright Law.

The dissent

Judge David A. Nelson dissented in part by arguing that the use should have been characterized under the first factor as commercial. That would have put the burden of proof under the fourth factor on the alleged infringer, MDS, making it MDS's responsibility to show why the use is fair rather than on the publishers to show how they were hurt.

Further, Judge Nelson rejected the idea that taking permission fees into account is circular (fourth factor). He argued that the permissions market exists and is hurt by MDS's copying and that should be enough to negate fair use.

He also argued that too much material was taken in many cases; that the Classroom guidelines should have been taken into consideration; that the professor's statements that they would not have asked students to buy the whole book did not go far enough, for they failed to answer the question whether they would have assigned the readings if they had to pay a permission fee; and he discounted the statements of the academic authors that unlicensed copying of coursepacks enhanced incentives to create works, noting that publishers' incentives are important to the distribution of works. On this last point, he acknowledged, although somewhat skeptically, that electronic scholarly publication may provide some means for authors to avoid the consequences of the majority's holding: some academic presses may find it harder to publish authors' works without permission fees as a source of revenues.

The appeal

The case was reheard by the Sixth Circuit on June 12, 1996; the opinion discussed above was withdrawn. In November, 1996, the entire Sixth Circuit (acting en banc) issued a new opinion that reversed the three-judge panel!

How does this kind of thing happen?

Two courts considering identical fact situations have come to opposite conclusions. Fundamentally different points of view usually underlie such dramatic disagreements. In this case, two different theories about the function of fair use in copyright law, its reason for existing, and what it should cover, that is, its scope, are responsible for the different results. Neither of these cases actually explains its underying point of view, but the recent Texaco case that addressed research copies contained very helpful explanations in its majority decision and in its dissent. The best explanations of these divergent points of view is contained in the briefs filed by the parties and by friend of the courts, interested groups who are not parties, but who are permitted to file briefs because the outcome of the case is very important to them.

In Texaco and in the En Banc MDS decision, the "market failure" theory of fair use prevailed. Under this theory, fair use exists to fill a legitimate need that the market cannot fulfill. Thus as the market gets better, in other words as it becomes easier to ask and pay for permission, the scope of fair use should decrease. Ultimately, if it can be licensed, it should be licensed. This theory is reflected in the Texaco court's heavy reliance on the ability of the Copyright Clearance Center to make licensing easy: the court said that better access to works, even for a price, had reduced the need for fair use.

In the Three-judge MDS opinion, a different theory prevailed. Under what I will call the "Constitutional" theory of fair use, there are other reasons for the existence of fair use so the market's ability to provide access for a price is only part of the story and does not justify reducing the scope for fair use. Specifically, the Constitutional theory says that our need for fair use is rooted in the Constitutional provision that authorizes Congress to create the copyright law. That provision gives Congress the power to grant exclusive rights to authors not simply to enrich them, but for a broader reason: to promote progress in science and the useful arts, or to promote the growth of knowledge and ideas.

This requirement at times requires that the desires of the public for access to ideas be balanced against the exclusive rights to control the use of their works by authors and publishers. Fair use embodies that balance point. Under this theory then, consideration of the scope of fair use is quite a bit more complicated than just inquiring whether the material can be accessed for a price.

The concern is that if publishers can require that every use be licensed, they may exercise control over materials within their copyrighted works that are themselves in the public domain or that are not protected by copyright, such as facts and ideas. More generally, if the right to control the making of copies is not limited by the right of fair use, the limited monopoly that the Constitition sets up becomes unlimited and the ability of the copyright law to achieve its public purpose would be impaired.

The dissent in Texaco and the majority in the three-judge MDS opinion rejected the market failure theory and relied on the Constitutional theory of fair use. As you might guess, the market failure theory underlies the three-judge MDS's dissenting opinion and the majority en b anc MDS opinion: both of these were written by Judge Nelson. Both theories are reasonable explanations of the function of fair use, and neither can be dismissed out of hand, though the market failure theory is enjoying remarkable success against commercial infringers. It may take a Supreme Court decision and perhaps even legislation to ultimately determine which theory will prevail under what circumstances.

Effect on University of Texas System

U.T. System Rules of Thumb before MDS

Our U. T. System Rules of Thumb have for some time provided the following guidance to help our Copy Centers and faculty, staff and students determine whether research copies are fair use or what part of a coursepack, if any, is fair use and not subject to the obligation to seek permission or pay license fees:

Amounts in excess of these require a full fair use analysis and may require permission and payment of fees if they are beyond the bounds of fair use.

Thus, even in light of the Kinko's and Texaco decisions, we determined that our faculty, staff and students and our Copy Centers, being nonprofit service entities created for the express purpose of facilitating educational purposes, were entitled to rely upon fair use in the preparation of copies for coursepacks, research and private study. Thus, for on-campus nonprofit copy services, the issue is the scope of fair use rather than whether it applies at all to the creation of coursepacks.

It is important to note that none of the publishers involved in this case argued that the very same coursepacks, prepared by faculty or students themselves, would not be a fair use of their copyrighted materials; they argued only that the for-profit copyshop's use was not fair.

Footnotes:

1 Basic Books, Inc. v. Kinko's Graphics Corp., 758 F. Supp. 1522 (S.D.N.Y. 1991).

2 Professional fair use after Texaco: Second circuit affirms lower court decision contains further discussion of the circular reasoning issue in the analysis of the interaction among the four fair use factors in the Texaco case.



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