Month: August 2020

Categories
CPIP Roundup

CPIP Roundup – August 31, 2020

Greetings from CPIP Executive Director Sean O’Connor

Sean O'Connor

August has seen the beginning of a highly unusual school year, but I hope everyone is continuing to stay safe. And, since even a pandemic can’t keep the world from having a busy back-to-school month, I’ll keep this month’s note short.

First, we’re gearing up for The Evolving Music Ecosystem conference on September 9-11, 2020. The conference will be held via Zoom and feature a keynote address by singer, songwriter, and author Rosanne Cash. Registration is still open, and we hope you’ll join us!

Second, I’d like to welcome University of Missouri-Kansas City School of Law Professor Chris Holman as CPIP’s new Senior Fellow for Life Sciences. He will be taking over the role from Professor Erika Lietzan of University of Missouri School of Law, who has been supporting CPIP in that capacity for the past year. (Clearly, we have an affinity for the Show-Me State!) We’re excited to have him join us, and by way of an introduction, we encourage you to check out his recent guest column for The Phoenix advocating for protection of new uses for old medicines.

Third, we are finalizing the schedule for our Eighth Annual Fall Conference, to be held via Zoom on October 7-8, 2020. This year’s theme is 5G at the Nexus of IP, Antitrust, and Technology Leadership.

In other news, CPIP Senior Fellow for Innovation Policy Jonathan Barnett is now blogging at Truth on the Market, a platform for academics and economists to discuss various aspects of business law. You can read his inaugural post here. CPIP Senior Scholar Erika Lietzan has been appointed a Public Member at the Administrative Conference of the United States (ACUS), which focuses on improving the administrative process. CPIP Director of Copyright Research and Policy Sandra Aistars spoke this past month on a copyright licensing panel hosted by Artomatic with the goal of informing visual artists about essential aspects of copyright law. It has also been a busy month for CPIP Senior Scholars Kristen Osenga and Mark Schultz—I encourage you to keep reading below to keep up with their recent news!

Registration Closing Soon for Evolving Music Ecosystem Conference with Rosanne Cash on September 9-11

Rosanne Cash

Please join us for The Evolving Music Ecosystem conference, which will be held online from Antonin Scalia Law School in Arlington, Virginia, on September 9-11, 2020. The event features three days of panel presentations by leading experts and a keynote address by Grammy-winning singer, songwriter, and author Rosanne Cash.

This unique conference continues a dialogue on the music ecosystem begun by CPIP Executive Director Sean O’Connor while at the University of Washington School of Law in Seattle. In its inaugural year in the D.C. area, the conference aims to bring together musicians, music fans, lawyers, artist advocates, business leaders, government policymakers, and anyone interested in supporting thriving music ecosystems in the U.S. and beyond.

For more information, and to register, please click here.

Spotlight on Scholarship

a pair of glasses, an apple, and a stack of books

Kristen Osenga, Patent-Eligible Subject Matter… Still Wielding the Wrong Weapon–12 Years Later, 60 IDEA: L. Rev. Franklin Pierce Center for Intell. Prop. 104 (2020)

CPIP Senior Scholar Kristen Osenga has published a new paper on patent-eligible subject matter at IDEA entitled Patent-Eligible Subject Matter… Still Wielding the Wrong Weapon–12 Years Later. The paper looks at changes to patent eligibility that have developed since Prof. Osenga published an article on the same subject in 2007. At the time, she concluded that the Patent Office was using the “elephant gun” of new guidelines on the “ants” of patent eligibility. In the new paper, Prof. Osenga traverses the Supreme Court’s subsequent Section 101 decisions that drove the courts and Patent Office to continue wielding an “outsized elephant gun” when it comes to patent eligibility. However, she does note that recent activities at the Patent Office and Congress offer some hope that things may be changing for the better.

Mark F. Schultz, The Importance of an Effective and Reliable Patent System to Investment in Critical Technologies (USIJ July 2020)

Venture capitalists pouring money into a small startup has become a sort of new American Dream for many innovators. The success stories of big American companies starting with nothing more than an idea have pervaded their way into pop culture, inspiring TV shows, movies, and the like. However, CPIP Senior Scholar Mark Schultz has released a new report for USIJ entitled The Importance of an Effective and Reliable Patent System to Investment in Critical Technologies showing that this dream may be harder to attain today due to recent shifts that have weakened the patent system and driven away venture capital investment. Our blog post summarizing the report is available here, and you can read the summary at IPWatchdog here.

Activities, News, & Events

a lit lightbulb hanging next to unlit bulbs

On August 5, 2020, CPIP Director of Copyright Research and Policy Sandra Aistars joined Jaylen Johnson, Attorney Advisor at the U.S. Copyright Office, and Kim Tignor, Executive Director at the Institute for Intellectual Property & Social Justice (IIPSJ), for a virtual panel presentation on copyright protection for visual artists that was hosted by Artomatic. The panel focused on explaining key concepts of copyright law pertinent to visual artists and sharing resources that they can use to learn more about the basics of copyright protection. It also touched on common pitfalls among visual artists when it comes to protecting their creative works, including those that befall joint authors, and common misconceptions about fair use. Our blog post summarizing the event is available here.

On August 25, 2020, CPIP Senior Fellow for Innovation Policy Jonathan Barnett published a new essay at Truth on the Market entitled Will Montesquieu Rescue Antitrust? In the post, Prof. Barnett examines recent pressure on state and federal regulators to use antitrust laws against firms that have established market dominance, and he praises the genius of the eighteenth-century philosopher Montesquieu for developing the theory of separation of powers that allows the judiciary to police overly zealous antitrust prosecutors today. Traversing recent—and failed—antitrust enforcement actions, including AT&T’s acquisition of Time-Warner, Sabre’s acquisition of Farelogix, and FTC v. Qualcomm, Prof. Barnett explains how the judicial branch has become an important counterbalance to prosecutorial antitrust overreach that betrays the fundamental objective of promoting the public interest in deterring anticompetitive business practices.

On August 25, 2020, CPIP Senior Scholar Kristen Osenga published an op-ed in the Washington Times entitled If We Want Innovation, Companies Must Be Able To Rely on Patent Law To Protect Their Investments. The op-ed explains the importance of effective patent protection for innovative companies to develop and commercialize their new technologies. In particular, Prof. Osenga praises the recent antitrust victory of Qualcomm over the FTC in the Ninth Circuit, noting that a “race that results in innovation that other companies, and the public, dearly desires is exactly the point of competition.” Prof. Osenga also authored a recent op-ed for the Richmond Times-Dispatch, With Biomedical Research, Taxpayers Are Getting a Great Deal, explaining how the critics are wrong to argue that the government should take control of important biomedical inventions like remdesivir. She was also quoted in a recent article at Bloomberg Law entitled Court Split Over Driveshaft Patent Muddies Eligibility Question about the Federal Circuit’s recent 6-6 split on whether to review an important patent-eligibility case en banc.

Categories
Patent Law

Mark Schultz: Weaker Patent Protection Leads to Less Venture Capital Investment

The following post comes from David Ward, a 2L at Scalia Law and a Research Assistant at CPIP.

a lit lightbulb shatteringBy David Ward

Venture capitalists pouring money into a small startup has become a sort of new American Dream for many innovators. The success stories of big American companies starting with nothing more than an idea have pervaded their way into pop culture, inspiring TV shows, movies, and the like. However, CPIP Senior Scholar Mark Schultz has released a new report for USIJ entitled The Importance of an Effective and Reliable Patent System to Investment in Critical Technologies showing that this dream may be harder to attain today due to recent shifts that have weakened the patent system and driven away venture capital investment.

Background

There has been an ongoing debate in the past two decades about whether patents should be stronger or weaker. Proponents of stronger and more effective patents have made the case that they are more valuable, incentivizing investors and innovators to fund and create valuable innovations. On the flip side, critics of the patent system have stated that stronger patents inhibit innovation since they create a web of restrictions and licenses, inhibiting access to important innovations.

This ongoing debate has resulted in several landmark changes to our patent laws and rules in recent years. Prof. Schultz points out several key changes:

These changes have weakened patents by making them easier to challenge, less accessible for smaller companies, and harder to obtain overall. However, with all these changes, there is now data to explore whether weaker patents really do allow for more innovation as patent critics have contended.

Weak Patents Don’t Attract Funding

The short answer is the data doesn’t support the patent critics’ contention that weaker patents clear the way for more innovation because investors no longer see many patent-intensive industries as a good investment. From 2004 to 2017, the share of funding received in patent-intensive industries dropped from over 50% to about 28%. Prof. Schultz is cognizant of the fact that correlation is not causation, but there is an ever-growing pile of evidence that points to one simple explanation: weaker patents result in less funding for innovation.

Patents and intellectual property are critical to venture capitalists (VCs) who want more certainty of a return on their investments. Pending patents that have a lower chance of being granted or patents that could be challenged at any moment create uncertainty for both the patents’ validity and the future costs of litigation. Hence, the weaker patent laws of recent years have led to a decrease in funding for many patent-heavy sectors.

Prof. Schultz’s report doesn’t just rely on the data to reach this conclusion. It also includes several case studies, surveys, and interviews with innovators and investors alike. Perhaps the most telling is a survey by Prof. David Taylor of SMU Law investigating how recent patent cases changed VC and private equity behavior. Of the 475 investors surveyed, 74% said that patent eligibility is an important consideration in firms’ investment decisions, and 62% said that their firms were less likely to invest if patent eligibility changes make patents unavailable. Almost one-third of investors who knew about recent court decisions said it had affected investment decisions away from biotech, medical devices, and pharmaceuticals.

The data again backs this up, as Prof. Schultz’s report shows that those industries have seen some of the biggest loses in VC funding since 2004. In a world where biotech, medical devices, and pharmaceuticals could quite literally be the most important sectors needing innovation and funding to tackle the COVID-19 pandemic, this is less than ideal. Typically, medical treatments cost hundreds of millions of dollars and have a 10-year road ahead of them. The prospect of reaching the end of the road without being able to protect the investment with a strong and effective patent has spooked many investors to other sectors. As a result, there has been less innovation in live-saving treatments, and more of a focus on safer, quality-of-life investments.

Looking Ahead

There is some trend in the positive direction, however. Prof. Schultz notes that USPTO Director Andrei Iancu has demonstrated strong support for the role of patents in the economy with several policy changes aimed at strengthening patent protection. It is also of note that many policymakers are realizing the changes have gone too far, and there are now several pending legislative proposals aimed at fixing these issues. These realizations, coupled with Prof. Schultz’s quantitative and qualitative data, paint a clear picture that all but proves a single point: strong patents promote innovation more than weaker patents. In the words of Prof. Schultz: “Society needs its most successful people working on its most compelling problems. The patent system should support such work.”

To read the report, please click here.

Categories
Antitrust Innovation Patent Licensing

Jonathan Barnett on the “License as Tax” Fallacy and the Real-World Benefits of Licensing

The following post comes from David Ward, a rising 2L at Scalia Law and a Research Assistant at CPIP.

the dictionary entry for the word "innovate"By David Ward

“Casual metaphors can have dangerous consequences.” CPIP Senior Fellow for Innovation Policy Jonathan Barnett’s new paper, The ‘License as Tax’ Fallacy, seeks to undo what he considers to be a dangerous, casual metaphor, namely, that intellectual property is a “state-granted monopoly” and therefore licensing is a “monopolistic tax” on consumers. Instead, Prof. Barnett explains that licensing is a tool that creates value for consumers and producers alike.

Historical Roller Coaster

This “IP = monopoly” metaphor has seen a bit of a jurisprudential roller coaster over the past century. Its origin is tied to monopoly-busting antitrust cases, as one might expect, starting around the end of the New Deal era of the late 1930s. Many of the battles were over the practice of “tying” patented products to other products in bundles. For those unaware, in antitrust, “tying” is essentially an arrangement that requires the buyer of one product to buy something else as well, and this often can be viewed as anticompetitive. These patent-tying cases led to the Supreme Court making a hard-and-fast rule in the 1962 case United States v. Loews. The Loews case effectively outlawed tying arrangements in patent licenses as anticompetitive, without having to prove any actual anticompetitive consequences.

This pivotal case cemented a metaphorical assumption that intellectual property is a state-granted monopoly. Further evolution of this mindset led to an effective halt of many licensing transaction options that were once available to sellers in the IP market. Prof. Barnett points out that this ended up harming consumers rather than protecting them. Sellers wishing to license their intellectual property, but restrict how it was used, would often not sell rather than risk getting hit with an antitrust lawsuit under the not-so-IP-friendly antitrust rules in the courts. And those that did license charged higher prices since they could not enforce value-saving restrictions.

The roller coaster didn’t stop there, though, as the late 1970s Supreme Court moved away from the stifling hard-and-fast rules in two new decisions, U.S. Steel and Sylvania. Instead of assuming that many IP license provisions (such as tying) were anticompetitive on their face, the Court began requiring proof that the provision in question was actually anticompetitive—just as in nearly every other antitrust case. This more license-friendly trend toward requiring proof of anticompetitive IP practices culminated in the 1995 U.S. Department of Justice Antitrust Guidelines for Licensing of Intellectual Property, which concluded that antitrust challenges to licensing transactions have to provide evidence of harm to the market. The bright line licensing rules of the past were effectively gone.

Recent Years: The Lexmark Case

But the coaster did not stop there either, as the mid-2000s and recent years have seen a resurgence of more hard-and-fast IP licensing rules. A great example of the resurgence of these rules is the 2017 case Impression Products v. Lexmark International, which involved the oft-dreaded purchasing of printer ink cartridges. Lexmark sold two types of ink cartridges: expensive ones that users could refill, and cheap ones that users were not allowed to refill. The cheap cartridges included a licensing provision that did not allow users to refill the cartridge in exchange for the lower cost. Impression Products, however, bought the empty, cheap cartridges from third party resellers, refilled them, and sold them for a profit, despite being aware of this license provision that prohibited refilling them.

Impression Products leaned on what is called the “patent exhaustion doctrine” to win the case. This doctrine can end a patent owner’s right to control a product once it has been sold, much in the same way that used bookstores don’t have to get a copyright license to sell a used book. However, the Court overturned a long-standing, fact-specific rule that required examining the market impact of such provisions in patent reseller cases. Instead, it adopted a hard-line rule that does not allow patent owners to enforce their licensing provisions on products that have already been sold, without any analysis on the market impact.

This illustrative example of a return to the hard-and-fast rules of the past is exactly what Prof. Barnett warns against. In the instance of printer ink cartridges, companies now provide fewer options at a higher price since they can’t enforce a provision that allows them to offer a lower-value, lower-cost alternative. But the anticompetitive implications of the Lexmark decision can have far-reaching effects on intellectual property as a whole; hard-line rules that prohibit the enforcement of licensing provisions without any analysis of the impact on the market creates less choice and higher cost for consumers. This, of course, is exactly the opposite of the aim of the antitrust laws.

The Need for Evidence

It’s important to note that Prof. Barnett acknowledges that intellectual property can cause anticompetitive practices that harm consumers. But he contends that there needs to be evidence showing that specific intellectual property licenses have anti-consumer implications, as there is in most other antitrust cases. The theoretical fear of intellectual property licensing clogging up markets with exorbitant rates (the “licensing tax”), if it has any merit, should be backed up by evidence.

A great case study for this issue comes from the smartphone market. In the smartphone industry, there are countless “standards” for wireless signals and products, such as 4G, that are required for our many devices to interact in a uniform manner. The inventors of these standards have what are called “standard essential patents,” or SEPs. There is a great fear that these patents, being quite literally essential to smartphone manufacturers, will allow their owners to exploit markets and charge anticompetitive pricing.

The great mystery is that, despite this, there isn’t evidence that this hypothetical scenario exists. Prof. Barnett examines three decades of market performance in this industry and shows that SEP licensing royalties account for a modest three to five percent of global handset revenues. This is in stark contrast to the hypothetical models that anticipated double-digit royalty percentages because of the “IP licensing tax.”

Prof. Barnett attributes this disconnect to several factors, but most importantly he points to the fact that regulators, legislatures, and judges should be focusing on real-world impacts from actual evidence and data when contemplating new rules and regulations.

The Real-World Benefits of Licensing

Although some assume that licensing will create anticompetitive environments, there is ample evidence to show that licensing enables competition and diverse markets. Prof. Barnett uses several real-life models to demonstrate this point.

The first model is the “Hub-and-Spoke” structure, where several smaller intellectual property owners license their IP to large companies with commercial power and reach. The best example of this is in the movie business, where outside production companies license their works to large studios. Each party specializes in something different, and a mutually beneficial relationship occurs. If IP licensing agreements cannot be enforced, such as in Impression Products, then content production would consolidate vertically to larger in-house organizations as firms look to protect their creative property. Essentially, not allowing licensing enforcement in this setting actually consolidates the market, rather than diversifying it.

The second model is the reverse of this, where large, usually research-based, firms license their innovations to many different commercialized entities. A prime example of this is Qualcomm, which licenses its wireless communications technology to many smartphone device manufacturers. Rather than hoard their technologies, these firms want to use licensing mechanisms to reach as many users as possible; more users equal more royalties, so there is an incentive to license to many manufacturers at affordable rates. This creates a positive feedback for more R&D and innovation, rather than an “IP = monopoly” hypothetical scenario where innovators gouge licensees.

The third model involves hybrid pooling and anti-licenses. Patent pools and other aggregate entities like music performing rights organizations create ecosystems of mutual benefit to help navigate dense “thickets” of intellectual property. For instance, rather than needing to get a license for every song played at a music venue, the venue can simply get one “blanket license” from a performing rights organization that licenses thousands of songs from the organization’s musicians at once. And somewhat more surprising is the complete lack of licenses at all. Many IT companies give away licenses for free to build a consumer base of users as an early adoption strategy. Contrary to the license-as-tax view, there is no necessary basis to even assume licenses are always used or even the best option for an owner.

Licenses Aren’t Taxes

The theoretical boogeyman of IP licensing creating monopolistic “taxes” has not held up to the intense scrutiny of the evidence, Prof. Barnett concludes. Any restrictions of IP licensing should be based in evidence and not be a knee-jerk reaction to hypothetical scenarios that have not come to pass, such as in the smartphone industry. There is far more evidence to show that licensing creates value for the market than there is evidence to show it “taxes” the market. And thus, this dangerous, common metaphor of “IP = monopoly” should be put to rest.

Categories
Copyright

CPIP’s Sandra Aistars Joins Artomatic Panel on Copyright Protection for Visual Artists

The following post comes from Liz Velander, a recent graduate of Scalia Law and a Research Assistant at CPIP.

the word "copyright" written on a typewriterBy Liz Velander

As part of its ongoing series about the copyright licensing process, Artomatic hosted a virtual panel for visual artists last week to discuss how to protect their creative works. The panel focused on explaining key concepts of copyright law pertinent to visual artists and sharing resources that they can use to learn more about the basics of copyright protection. It also touched on common pitfalls among visual artists when it comes to protecting their creative works, including those that befall joint authors, and common misconceptions about fair use.

The panelists included CPIP Director of Copyright Research and Policy Sandra Aistars and Jaylen Johnson, Attorney Advisor at the U.S. Copyright Office, and it was moderated by Kim Tignor, Executive Director at the Institute for Intellectual Property & Social Justice.

Prof. Aistars explained that there are three important things visual artists should know about copyright law. First, the requirements for copyright protection. Copyright law protects original works of authorship that are fixed in a tangible medium. An “original” work means that it was created independently and not copied from somebody else. Prof. Aistars noted that “this doesn’t mean the work has to be absolutely novel—if you have two artists who independently create something that is substantially similar, without copying from each other, both of those works are protected by copyright.”

Prof. Aistars also clarified the distinction between ideas and expression, noting that copyright law only protects the expression of ideas, not the ideas themselves. Visual artists cannot “copyright the idea of painting a field of sunflowers,” but they can protect “the precise rendering of that work, the nuances of brushstroke, the layering of the paint on the canvas” because those are all elements of expression. A work must also be fixed in a tangible medium of expression, Prof. Aistars continued, which could include paper, canvas, or a digital medium. If a work meets all these elements, it is protected by copyright and the visual artist obtains a variety of exclusive rights that allow her to make a living from her creative pursuits.

The second important thing to know about copyright law, according to Prof. Aistars, is that copyright protection is automatic. A visual artist does not need to register a work with the Copyright Office to receive protection. Instead, copyright protection exists from the moment the artist sets a work down in a tangible medium of expression. However, Prof. Aistars noted that it is a good practice for visual artists to register their works with the Copyright Office. Registration gives copyright owners additional benefits and makes it easier for people to find the copyright owner to license her works.

Finally, Prof. Aistars explained that it is important to understand that a visual artist retains the copyright in a work when she sells a copy of it, even if it is the only copy she has ever created. Selling a copy does not transfer the underlying rights the artist enjoys as a copyright owner. Prof. Aistars pointed out that “you’re not transferring the rights to make copies of the work, print them up on t-shirts and postcards, and sell them on the internet to whoever buys the copy of your work—unless you enter into a separate agreement with that person.”

Ms. Johnson noted that the Copyright Office is an excellent resource for visual artists who want to learn more about copyright protection. As the primary agency in charge of administering copyright law, the Office advises Congress, facilitates rulemaking, assists in litigation efforts, serves on international delegations, and administers the nation’s registration and recordation system. In celebration of its 150th anniversary, the Office recently launched a new initiative called Engage Your Creativity that pulls together a variety of resources for creators. Ms. Johnson stated that the initiative is a great way to become familiar with the many resources available to the public through the Office’s website.

The panelists also identified common pitfalls visual artists encounter during the creative process. Many occur because artists are not sure what qualifies as fair use of a copyrighted work. Prof. Aistars explained that “fair use exists so artists can build and comment on existing works in their own work, and in so doing add to our cultural dialogue and engage with one another in artistic conversations.” She advised artists to treat fair use as the Golden Rule: “Think about the way you would feel if someone uses your work the way you’re proposing to use someone else’s work, and then be very honest.”

The courts have four factors that they evaluate together to determine whether a use is fair or not. Codified in Section 107 of the Copyright Act, the four factors are: (1) the purpose and character of the use, including whether such use is commercial or educational; (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. However, since these factors are neither dispositive nor exhaustive, courts typically explore fair use claims in an open-ended, case-by-case manner. This is an area where artists run into trouble, Prof. Aistars explained, because “there are no bright lines. There’s not a set rule that you can use this much, but no more. Artists are trying to make the best decisions they can, and sometimes that isn’t the decision the court would’ve made.”

The panelists noted that another common pitfall arises with jointly created works. Under the Copyright Act, the authors of a joint work are co-owners of the copyright in a work. Each author can do whatever she wants with the work, as long as she accounts to the other. This is a problem when a collaborative relationship goes south, or if one author wants to use the work in a way that the other author disagrees with. Prof. Aistars advised visual artists to put an agreement in writing prior to starting a collaborative relationship.

Copyright law may seem like daunting subject to visual artists, but it can be easily understood with the right information. In closing, Ms. Johnson emphasized the importance of making resources accessible and engaging in public outreach because “copyright is for everybody.”

Categories
Copyright

Senate IP Subcommittee Hearing Addresses Intersection of DMCA and Fair Use

The following post comes from Yumi Oda, an LLM Candidate at Scalia Law and a Research Assistant at CPIP.

U.S. Capitol buildingBy Yumi Oda

As part of its year-long review of the Digital Millennium Copyright Act (DMCA), the Senate Subcommittee on Intellectual Property tackled yet another contentious issue in our copyright system—fair use. A virtual online hearing, held on July 28 and entitled How Does the DMCA Contemplate Limitations and Exceptions Like Fair Use?, focused on the role of fair use for digital platforms. Calling fair use “a bit of a touchy subject,” Chairman Thom Tillis (R-NC) specifically requested the witnesses’ input on how the original DMCA envisioned fair use and how the reform bill should address it. Ranking Member Chris Coons (D-DE) likewise emphasized the importance of striking a balance to “safeguard free speech and fair use, while also combating digital piracy and ensuring creators are fairly compensated.”

The panelists included: Sherwin Siy, Lead Public Policy Manager of Wikimedia Foundation; Mickey H. Osterreicher, General Counsel of National Press Photographers Association; Jane C. Ginsburg, Morton L. Janklow Professor of Literary and Artistic Property Law at Columbia University School of Law; Christopher Mohr, Vice President for Intellectual Property and General Counsel of Software and Information Industry Association (SIIA); Rick Beato, Songwriter, Producer, Engineer, and Educator; Yolanda Adams, GRAMMY Award-winning artist and Recording Academy Trustee; Joseph C. Gratz, Partner of Durie Tangri LLP; Matthew Sanderson, Co-lead, Political Law Group of Caplin & Drysdale; and Jacqueline Charlesworth, Partner of Alter, Kendrick & Baron LLP. These panelists represented industry and scholarly experts, as well as creators, users, and intermediaries of copyrighted works.

As a limitation to the exclusive rights in creative works, fair use is intended to simultaneously promote free speech and foster authorship and creativity. Taking a hint from case law, Congress codified Section 107 of the Copyright Act, enumerating four factors to be considered in a fair use analysis, namely: (1) the purpose and character of the use, including whether such use is commercial or educational; (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. However, since these factors are neither dispositive nor exhaustive, courts typically explore fair use claims in an open-ended, case-by-case manner.

On the first panel, Mr. Siy, representing the host of Wikipedia and Wikimedia Commons, testified that his Foundation heavily relies on fair use and the DMCA’s safe harbor provisions. Mr. Siy asserted that his Foundation receives approximately 30 DMCA takedown notices annually as risk-averse volunteers remove seemingly infringing content according to its volunteer-created standards, which are stricter than what the law requires. Of those notices, Mr. Siy explained, two-thirds are usually found to be noninfringing uses, such as fair use, thus demonstrating the ease of attacking harmless fair uses under the DMCA.

On the other hand, Mr. Osterreicher, representing visual journalists, pleaded with the Subcommittee to change the current lop-sided, whack-a-mole situation, which places an “insurmountable” burden on photographers, but “little to no responsibility” on online service providers (OSPs) for online infringement. As he pointed out, “the more amorphous the fair use interpretation the better” for OSPs to draw more visitors and advertisers. He argued that copyright infringement, sometimes disguised as fair use, reduces economic incentives, discourages participation in visual journalism, and “devalues photography as both a news medium and art form.”

Next, Prof. Ginsburg explained how Sections 512 and 1201 accommodate copyright limitations and exceptions. She noted that Section 512 has not worked as intended, largely due to the vastly higher number of postings than Congress originally anticipated. Conversely, the seemingly low number of counternotices, she continued, could suggest that “many fair uses are being suppressed,” “the vast majority of postings are in fact infringing,” or “fear or ignorance [are causing] some fair users to decline to send a counternotification.” As a potential solution to the timely counternotification procedure, Prof. Ginsburg proposed an alternative dispute resolution (ADR) mechanism. Moreover, she explained that “by design, [Section] 1201 does not provide a general fair use defense,” and that the triennial rulemakings to identify exempted classes of works have been largely effective.

Mr. Mohr, representing the software industry, provided the last testimony on this panel. He stated that Sections 512 and 1201 have been successful mainly because Congress left fair use out of both. Rather, he considered fair use as “a built-in safety valve” to preclude overly broad assertions of rights.

Senators Tillis and Coons then raised a series of specific questions. In response to a question regarding the extent to which OSPs should consider fair use, Prof. Ginsburg testified that OSPs have no duty to consider fair use and that they can remain mere conduits as long as they comply with the DMCA safe harbor provisions. Moreover, in response to a question regarding the misunderstanding surrounding fair use and newsworthiness, Mr. Osterreicher answered that there is a common misconception that newsworthy materials can be used more freely, which in turn deprives visual journalists of licensing opportunities due to the time-sensitive nature of such materials. Furthermore, in response to a question regarding the recent evolution of fair use, Prof. Ginsburg testified that broader fair use claims wrongly recognized in lower courts have been corrected by the higher courts, thereby demonstrating that courts are better equipped to analyze the inherently malleable fair use doctrine.

Lastly, each panelist was asked to specify which area of the DMCA Congress should look at in drafting a reform bill. Mr. Siy simply called for a holistic review. Mr. Osterreicher recommended clarifying the red flag knowledge standard for OSPs, and he pledged to continue advocating for the ADR system and the currently blocked Copyright Alternative in Small-Claims Enforcement (CASE) Act. Neither Prof. Ginsburg nor Mr. Mohr advocated for a legislative change, but Prof. Ginsburg did recommend that Congress closely monitor the development of the European Union’s approach to see if requiring OSPs to filter and block infringing content could reach a better balance.

On the second panel, witnesses testified how fair use has been applied in practice in their specific areas, many touching on the hot subject of political misappropriation. First to testify was Mr. Beato, a musician and popular YouTube music instructor who uses excerpts from famous songs in his videos. He explained that he never sought fair use claims in response to DMCA notices because it would be a waste of time and money, although he believed a good case could be made considering the new educational role YouTube has been playing. Although he himself successfully stood up against DMCA notices by a major label thanks to his large viewership, he warned that “frivolous” DMCA notices can be used to harass small content creators. Ultimately, he proposed a “Fair Use Registry,” similar to Twitter’s blue check mark, to certify and notate a good actor and to whitelist his or her use.

Another musician’s input came from Ms. Adams, a renowned gospel singer and songwriter who is also known as the “First Lady of Modern Gospel.” She maintained that “if someone’s claim of fair use reduces the artists’ ability to earn a living, it should be treated as infringement, plain and simple.” In addition to this monetization aspect of fair use, Ms. Adams also focused on its moral aspect, stating that “fair use can be very unfair to the artist if it takes our control away.” Reiterating the importance of the long-standing radio performance right issue, Ms. Adams concluded that seeking “permission” is the key when it comes to working with musicians, including use in political campaigns.

In contrast, Mr. Gratz, representing internet intermediaries, defended free speech and fair use, stating “nobody likes to be criticized or have their music used in ways they can’t control, but . . . even more so where the copyright holder does not like the use, fair use is needed to make sure that free expression can thrive even in the presence of copyrighted material.” Additionally, he made the following three points: (1) Section 512 has provided no practical remedy to the serious DMCA abuse; (2) automated filtering including any “staydown” systems should not be mandated; and (3) the current “reasonableness” standard for terminating repeat infringers is the right standard.

Similarly, Mr. Sanderson, who consults election and advocacy organizations, explained that political campaigns receive increasingly more takedown notices from artists who do not wish to be associated with the campaigns’ messages, even when the uses are permitted under performance rights organizations’ blanket licenses.

Finally, Ms. Charlesworth, an attorney representing songwriters and artists, reminded the Subcommittee that “creators, too, [as well as politicians,] are intended beneficiaries of the First Amendment.” She noted that creators’ messages can be appropriated and altered in political campaigns in ways that alienate fans and cause economic damages. Particularly, she argued that a fair use claim in a political campaign should also be analyzed under the regular four-factor test, with the emphasis on the first factor’s focus on whether the use is “transformative.” On this point, she explained that simply attaching a song to a political campaign video would not amount to a “transformative” use. Citing her clients’ experience, Ms. Charlesworth argued that “the current system imposes unjust burdens on creators and small copyright owners . . . without adequate tools or resources at hand when a political ad containing their song suddenly appears” online.

The second panel did not receive as many questions as the first one because the hearing was cut short by a live vote, but Senator Tillis concluded the hearing by thanking each panelist and acknowledging that some issues probably can be addressed without any legislative fix, while others may require congressional action.