The fair use defense to copyright infringement has always had its limits. These limits became a little more defined earlier this year, when the U.S. Court of Appeals for the Second Circuit ruled for the defendant in the case of The Swatch Group Mgmt. Services Ltd. v. Bloomberg L.P., Nos. 12–2412–cv, 12–2645–cv, Jan. 27, 2014 (Fed. Cir.).
Sounding the alarm
Several hours after Swiss watchmaker The Swatch Group released its 2010 earnings report, it held a conference call with a group of financial analysts (as permitted by Swiss law). It had invited 333 analysts, and about 132 joined the call. No journalists or press organizations were invited, and the analysts were informed that no recordings for publication were permitted.
Nonetheless, within several minutes of the call’s conclusion, financial information provider Bloomberg obtained a recording and transcript of it. Bloomberg made both available, without alteration or editorial commentary, to subscribers to its online financial research service.
Swatch sued Bloomberg, alleging infringement of Swatch’s copyright in the recording. Bloomberg claimed that its copying and dissemination of the call was fair use. The district court agreed and dismissed the case before trial. Swatch appealed.
Ticking off fair use factors
The federal Copyright Act provides that “the fair use of a copyrighted work … for purposes such as criticism, comments, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright.” The following nonexclusive factors are considered in a fair use analysis:
- Purpose and character of the use, including whether it’s of a commercial nature,
- Nature of the copyrighted work,
- Amount and substantiality of the portion used in relation to the copyrighted work as a whole, and
- Effect of the use on the potential for or value of the copyrighted work.
Defendants don’t need to establish that each factor weighs in its favor.
Facing off in court
The Second Circuit determined that three of the four factors favored a finding of fair use, with the fourth factor being neutral. The court’s findings were as follows:
Purpose and character of the use. The Second Circuit conceded that Bloomberg’s use was commercial, which typically weighs against fair use. Further, it wasn’t “transformative” because Bloomberg disseminated exact copies.
But the court found that Bloomberg’s purpose in disseminating the recording was to make important financial information available to American investors and analysts. Such use, the court said, is very closely analogous to “news reporting.” And in light of the independent informational value inherent in an exact recording of an earnings call, the lack of transformation didn’t preclude a finding that the purpose and character of the use favored fair use.
Nature of the work. Although the recording wasn’t “published” within the meaning of the Copyright Act, which generally weighs against fair use, Swatch invited hundreds of analysts to the call. So the watchmaker wasn’t deprived of the ability to control its first public appearance. The court also noted the call was of a “manifestly factual nature.” Factual words tend to be afforded a narrower scope of copyright protection.
Amount and substantiality. The Second Circuit deemed this factor neutral. Bloomberg used all of the work, but its use was reasonable in light of the company’s purpose of distributing important financial information.
Effect on the market or value. The court pointed out that the value of earnings calls lies in disseminating financial information to investors and analysts. Bloomberg’s use only furthered this goal.
Handing out a victory
The Second Circuit’s ruling hands a victory to news and similar organizations. Now, they can redistribute and sell earnings call information to their customers and the public without fear of infringement liability. And if they’re sued, such parties can simply claim protection under the fair use defense, as Bloomberg did.