Derivative work, as defined in What is a derivative work? Sequels, translations, sound recordings of musical performances, and other kinds of derivative works.
The U.S. Supreme Court will soon hear Andy Warhol Foundation for the Visual Arts v. Goldsmith. Attorney Thomas James explains what is at stake for photographers
The underlying facts in the case, in a nutshell, are these:
Lynn Goldsmith took a photograph of Prince in her studio in 1981. Later, Andy Warhol created a series of silkscreen prints and pencil illustrations based on it. The Andy Warhol Foundation sought a declaratory judgment that the artist’s use of the photograph was “fair use.” Goldsmith counterclaimed for copyright infringement. The district court ruled in favor of the Warhol Foundation and dismissed the photographer’s infringement claim.
The Court of Appeals reversed, holding that the district court misapplied the four “fair use” factors and that the derivative works Warhol created do not qualify as fair use.
The United States Supreme Court granted the Warhol Foundation’s certiorari petition.
The issue
In this case, the U.S. Supreme Court is being called upon to provide guidance on the meaning and scope of “transformative use” as an element of fair use analysis. At what point does an unauthorized, altered copy of a copyrighted work stop being an infringing derivative work and become a “transformative” fair use? This is one of the leading non-AI-related copyright issues I referenced in Enduring (Non-AI) Legal Issues.
The Conundrum
In the chapter on copyright in my book, E-Commerce Law, I predicted a case like this would be coming before the Supreme Court at some point. As I noted there, a tension exists between the Copyright Act’s grant of the exclusive right to authors (or their assignees and licensees) to make modified versions of their works (called “derivative works”), on one hand, and the idea that making modified versions of copyrighted works is transformative fair use, on the other. The notion that making changes to a work that “transform” it into a new work qualifies as fair use obviously threatens to swallow the rule that only the owner of the copyright in a work has the right to make new works based on the work.
Lower courts have not been consistent in their interpretations and approaches to the transformative use concept. The Warhol case presents a wonderful opportunity for the Supreme Court to provide some guidance.
Campell v. Acuff-Rose Music
The “transformative use” saga really begins with the 1994 case, Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994). Unable to secure a license to include “samples” (copies of portions) of the Roy Orbison song, “Oh Pretty Woman” in a new version they recorded, 2 Live Crew proceeded to record and distribute their version with the unauthorized sampling anyway, invoking “fair use.”
In a decision that took many attorneys and legal scholars by surprise, the Supreme Court held that 2 Live Crew did not need permission to copy and distribute the work even though the work they created involved substantial copying of the Orbison song. To reach this conclusion, the Court propounded the notion that copying portions of another work — even substantial portions of it — may be permissible if the resulting work is “transformative.” This, the Court held, could hold true sometimes even if the newly created work is not a parody of the original.
In the years that followed, courts have struggled to determine what is a “transformative” modification of a work and what is a non-transformative modification of it. Some courts have demonstrated a willingness to apply the doctrine in such a way as to nearly nullify the exclusivity of an author’s right to make modified versions of his or her works.
Courts have also demonstrated a lack of consistency with respect to how they incorporate and apply “transformativeness” within the four-factor test for fair use set out in 17 U.S.C. Section 107.
Why It Matters
This might seem like an arcane legal issue of little practical significance, but it really isn’t. People are already pushing the transformative use idea into new realms. For example, some tattoo artists have claimed in court filings that they do not need permission to make stencils from photographs because copying a photograph onto skin is a “transformative use.”
Of course, making and distributing exact copies of a photograph for sale in a stream of commerce that directly competes with the original photograph should not be susceptible to a transformative fair use claim. But how far can the claim be carried? If copying a photograph onto somebody’s skin is “transformative” use, would copying it onto somebody’s shirt also be “transformative”?
Clarity and guidance in this area are sorely needed. Hopefully the Supreme Court will take this opportunity to furnish it.
For a case illustrating how the Supreme Court’s decision in Warhol is playing out in the lower courts now, read Nontransformative Nuge.
I am, of course, late with this. Where other writers have simply listed works by author, title and description, however, this article includes quotations from them. Does it get any better than this? I think not.
Why are they public domain now?
Copyright protection is not eternal. It only lasts for the number of years specified by law. After that, the work is said to have entered the public domain, meaning that anyone may copy, distribute, perform, display or make new works from it.
In the United States, the U.K., Russia, and most of the European Union, a copyright lasts for 70 years after the author’s death. Accordingly, the works of authors who died in 1951 are now in the public domain. In Canada and most of Asia and Africa, copyrights last for 50 years after the author’s death.
Different rules apply to older works. I explain these in more detail in my books. For our purposes here, we can safely say that U.S. works first published in or before 1926 are now in the public domain, and all pre-1923 sound recordings are now in the public domain.
These rules are subject to exceptions. For example, the U.S. terms of copyright for works made for hire are different from the terms of copyright for other kinds of works.
Derivative works might not be in the public domain
I have seen a lot of articles declaring that when a work enters the public domain, people no longer need to worry about being sued for copyright infringement. Technically speaking, this is true, but it is important to clearly identify the version of the work that is in the public domain.
Suppose Arthur Conan Doyle published a “Sherlock Holmes” mystery prior to 1923. Suppose, further, that he published a sequel to it in 1928. In the sequel, he added certain details that did not appear in the previous version. If you were to try your hand at writing a Holmes mystery now, and you included some of the details that first appeared in the 1928 story, then you may be guilty of copyright infringement.
Similarly, the fact that the original Winnie the Pooh story is now in the public domain does not mean that movies based on the book are, too. A derivative work may still be copyright-protected even after the work on which it is based has entered the public domain.
Here is a small sampling of some of the many works that are in the public domain this year.
The Sun Also Rises
“you can’t get away from yourself by moving from one place to another.”
“It is hard to believe that the declaration of antifascism is nowadays any more a mark of sufficient grace in a writer than a declaration against disease would be in a physician or a declaration against accidents would be in a locomotive engineer. The admirable intention in itself is not enough and criticism begins and does not end when the intention is declared.”
“Under the pressure of fanaticism, and with the mob complacently applauding the show,democratic law tends more and more to be grounded upon the maxim that every citizen is,by nature, a traitor, a libertine, and a scoundrel.In order to dissuade him from his evil-doing the police power is extended until it surpasses anything ever heard of in the oriental monarchies of antiquity.”
The rise in popularity of nonfungible tokens (NFTs) has generated considerable controversy and confusion about whether and how copyright law applies to them. In this article, Cokato, Minnesota attorney Thomas James discusses the interplay between NFTs and U.S. copyright law.
The rise in popularity of nonfungible tokens (NFTs) has generated considerable controversy and confusion about whether and how copyright law applies to them. In this article, Cokato, Minnesota attorney Thomas James explains what they are and discusses the interplay between NFTs and U.S. copyright law.
Just for fun, call up an attorney and say, “Hey, I‘ve got a quick question for you. Can I make, sell and buy NFTs without getting into copyright trouble?” Depending on the attorney’s age, area of practice, and musical tastes, the answers you get may be anything from “What makes you think that selling shares of the Nichiyu Forklift Thailand company could raise copyright issues?” to “The answer, my friend, is blowing in the wind” – and many variants in between.
(More probably, someone other than the attorney would answer the phone and ask, “Would you like to set up an appointment?” That, however, would not help to make the point.)
Incidentally, don’t really make a telephone call like this “just for fun.” I was only joking I wouldn’t want you to incur unnecessary legal fees or be accused of making an unwanted or disturbing telephone call.
The point is that many members of the legal profession are scrambling just as much as everybody else is to understand NFTs and how copyright laws apply to them. The aim of this article is to reduce some of the confusion by shedding some light on what NFTs are and how copyright laws may apply to them.
What are NFTs?
NFT stands for “non-fungible token.”
Great. Now what the heck is that? Well, let’s break it down.
Fungible vs. Non-fungible
An item is said to be “fungible” if it is interchangeable with similar items. For example, if a retailer orders 100 pounds of red potatoes from a wholesaler, the contract is most likely one for the purchase of fungible goods. The retailer most likely has not specifically identified any particular potato that must be included in the batch, so long as they’re all of merchantable quality. By contrast, if an art collector enters into a contract to purchase an original painting by Peter Doig, it is almost certainly going to be a contract for a non-fungible product (the painting.) The buyer of a non-fungible item wants a specifically identified item.
Currency is a good illustration of the difference. When you cash a check at a bank, you don’t really care which particular bills and coins you are given in exchange for the check, so long as the amount you are given is equal to the amount specified on the check. The currency in this situation is fungible. By contrast, if you present a check for $4 million dollars to a rare coin vendor to purchase a 1913 Liberty V nickel, you would not consider it acceptable for the vendor to give you a standard-issue 2019 nickel in its place. The rare coin in this example is not fungible, i.e., it is non-fungible.
Tokens
A token is something that represents or stands for something else. New York City old-timers may recall subway tokens – small, coin-shaped objects representing the right of access to a subway train. Casino chips are tokens representing specified amounts of money.
A digital token is a programmable digital unit that is recorded on a digital ledger using blockchain technology. There are a lot of different kinds of digital tokens. They can represent physical goods or digital goods.
Bitcoins are examples of fungible digital tokens. Digital NFTs, on the other hand, most commonly represent art, a photograph, music, a video, a meme, or a digitized scan of some other kind. Cryptopunks, pixelated images of characters each one of which is unique and different from others, are some of the earliest NFTs, but many other examples abound.
Ethereum has developed standards for digital tokens. The ERC-721 standard governs digital NFTs. Under this standard, every NFT must have a tokenID. The tokenID is generated when the token is created. Every NFT also must have a contract address. This is a blockchain address that can be viewed using a blockchain scanner. The combination of tokenID and contract address is unique for each NFT.
Blockchains
Both fungible and nonfungible tokens are built and reside on blockchains. A blockchain is simply a database that stores information in digital format. Think of them as digital ledgers. They are called “block” chains because information is stored in groups (“blocks”). When a block reaches its storage capacity, it is closed and linked to the previously filled block. A new block will be formed for any new data that is added later. As this process repeats, a chain of records is created. Hence the “chain” in blockchain. Each block is time-stamped.
Blockchains are simply record-keeping mechanisms. They work well for many, but not all, kinds of digital files. They play a significant role in cryptocurrency systems, as they maintain a secure, decentralized record of transactions. They are not as efficient, however, for large digital files like artwork, videos, sound recordings, and so on. In these cases, a nonfungible token, not the actual file, can be made a part of the chain. This is why, in addition to a tokenID and contract address, an NFT will frequently contain the creator’s wallet address and a link to the work the token represents.
One of the most important things to remember about NFTs, for purposes of copyright law, is that although they might contain a creative work within them, more typically they link to a work in some way. They are pieces of code containing a link; they are not typically the works themselves.
Copyright issues
Transfers of NFTs vs. transfers of copyrights
NFTs representing artwork sometimes sell for millions of dollars. Perhaps this explains the popular misconception that the copyright in the work the NFT represents gets transferred along with the NFT. No, buying an NFT representing a work of art does not, by itself, give the buyer the rights of a copyright owner. You might think that you must be getting something more than a string of code when you buy an NFT, but no. In the United States anyway, an assignment of copyright must be express and made in a writing signed by the copyright owner (or the copyright owner’s authorized agent.)
Of course, if a written contract does expressly provide for the assignment of the copyright, then a transfer of a copyright may co-occur with the transfer of an NFT. In the absence of such a contractual provision, however, buying an NFT does not transfer the copyright in the artwork it represents. Instead, it operates in a way similar to the way buying a copy of a copyrighted book or a print of copyrighted artwork does.
Copyright licensing
The question whether the transfer of an NFT gives the transferee a copyright license is a little more complicated.
In the United States, an exclusive copyright license, like an outright transfer, must be in writing. A non-exclusive license, on the other hand, may be either express or implied. In addition, it is possible to code any type of agreement into a smart contract (an agreement that is written in code and stored on a blockchain.) If the existence of a valid copyright license can be proven, then the nature and extent of the NFT transferee’s rights may be governed by its terms.
A U.S. federal court had occasion to address the subject of implied copyright licenses in the case of Pelaez v. McGraw Hill, 399 F. Supp. 3d 120 (S.D.N.Y. 2019). There, the court ruled that the test for an implied license is whether the parties’ conduct, taken as a whole, demonstrates an intent to grant a license. The court pointed out that an implied license cannot be based on the unilateral expectations of one person. A party’s subjective belief that he or she has been granted a license is not enough. The totality of facts and circumstances must be such that a court could reasonably infer that both parties intended a license.
Blockchain as copyright registration?
Copyright ownership arises at the time an original, creative, expressive work is fixed in a tangible medium. Registration is not required. Despite this feature of copyright law, some countries make registration of the copyright a prerequisite to enforcing it in court. The United States is such a country.
Some people believe that because blockchain operates as an unalterable record of ownership, it serves as a substitute for registration with the U.S. Copyright Office. This is not the case.
The U.S. Copyright Act requires the copyright in a domestic work to be registered with the Copyright Office before an infringement claim may be filed in court. 17 U.S.C. § 411. It does not make an exception for cases in which ownership is sought to be proven by a “poor man’s copyright” (i.e., submitting into evidence the postmark on an envelope in which you have mailed a copy of the work to yourself), much less for a digital NFT.
Of course, a registration certificate only creates a presumption of copyright ownership. The presumption is rebuttable. Could evidence such as the date on which an NFT representing the work was created and written into the blockchain be used to rebut that presumption? Possibly. Then again, how probative is that evidence? Anyone can make a false ownership claim and write it into the blockchain, just as anyone can mail an infringing copy of a work to themselves.
Unless Congress amends the Copyright Act to make blockchain a substitute for registration with the Copyright Office, it would be foolhardy to rely on blockchain as a registration alternative.
Infringement
Is minting an NFT associated with a copyrighted work, without permission, infringement? The answer to this question is not as simple as you might think.
The exclusive rights of a copyright owner include reproduction, distribution, public display, public performance, and the making of derivative works. An NFT containing only a tokenID, contract address and a link to a work is merely a string of code associated with a work; it is not the work itself. If an NFT only contains a link to the work, not the work itself, then it is difficult to see how minting an NFT would violate any of the exclusive rights of a copyright owner.
Of course, if the NFT itself contains copyright-protected elements of the work (and this would have to be something more than the title, artist name and a link), then it might be a reproduction or a derivative of the work. In this situation, creating an NFT without the copyright owner’s permission could constitute infringement, since the copyright owner has the exclusive right to make copies and derivatives of the work.
If the link points to a copy or derivative work that the link creator created in violation of the copyright owner’s exclusive rights to make copies and derivative works, then the link creator could incur two kinds of infringement liability. Even if minting an NFT does not itself infringe a copyright, including in it a link to an infringing copy of a copyright-protected work could result in contributory liability for infringement if that person knows or should know that it will facilitate or encourage unauthorized copying (or other unauthorized use) of a copyrighted work. And of course, there would be direct liability for making the copy or the derivative work without the copyright owner’s permission.
The first sale doctrine
Under U.S. copyright law, the purchaser of a lawfully acquired copy of a copyrighted work may resell that copy without first getting the copyright owner’s permission, unless a contract governing the acquisition of the copy provides otherwise. This is why purchasing a paperback copy of The Andromeda Strain on Amazon.com and later reselling it at a garage sale will not subject you to liability for infringing the copyright owner’s exclusive right to distribute copies of the work.
Does the first sale doctrine also apply to NFTs?
The first sale doctrine generally does not apply to resales of digital goods. This is because a sale of a digital file normally will require making a copy of the file. That would violate the copyright owner’s exclusive right to reproduce his or her work. See, e.g., Capitol Records LLC v. ReDigi Inc. (2d Cir. 2018) (refusing to apply the first sale doctrine to the resale of an MP3 file because the resale would require making an unauthorized reproduction of the original MP3 file).
NFTs, however, arguably are distinguishable from MP3 files. A purchaser of an NFT does not buy the digital file containing the copyright-protected work. An NFT buyer simply purchases a token. Reselling a token does not involve reproducing the work itself. cf. Disney Enterprises Inc. v. Redbox Automated Retail LLC (C.D. Cal. Feb. 20, 2018 (first sale doctrine inapplicable to digital download codes because they are options to create a physical copy, not actual sales of copies).
If the transferee of an NFT uses it to access the copyrighted work, and in the course of doing so, the work is reproduced or distributed, then it would seem that the transferee could, at that point, be liable for copyright infringement. There would also appear to be a potential risk of liability for contributory infringement on the part of the NFT seller, at least in some cases.
Of course, this should not be a problem if the copyright owner has authorized resales by NFT buyers.
