An economic analysis of the fair use defense.

• Author: Eisenstein, Matthew A.
• Position: Case Note

"Fair use should be perceived not as a disorderly basket of exceptions to the rules of copyright, nor as a departure from the principles governing that body of law, but rather as a rational, integral part of copyright, whose observance is necessary to achieve the objectives of that law."(1)

"Intellectual property is a natural field for economic analysis of law."(2)

INTRODUCTION

In Leibovitz v. Paramount Pictures Corp., the Court of Appeals for the Second Circuit determined whether the use of a copyrighted photograph of pregnant actress Demi Moore constituted "fair use."(3) The plaintiff, Annie Leibovitz, is a well-known photographer whose works often depict celebrities in uncommon poses. One of her most recognized works appeared on the cover of the August 1991 issue of the monthly magazine, Vanity Fair. The work depicted the nude, pregnant body of actress Demi Moore, in profile, with her right arm covering her breasts, and her left hand supporting her stomach.(4) The issue became one of the "best selling issues" of Vanity Fair.(5)

Early in 1994, the defendant, Paramount Pictures, ran an advertising campaign for its upcoming comedy motion picture, Naked Gun 33 1/3: The Final Insult. As part of the campaign, Paramount produced a poster displaying the face of the movie's star, Leslie Nielson, on the nude body of a pregnant woman, with the slogan "DUE THIS MARCH."(6) Paramount did not mechanically copy Leibovitz's picture but rather commissioned a photographer to pose a pregnant, nude body, designed to emulate the photograph of Moore.(7) "Great effort was made to ensure that the photograph resembled in meticulous detail the one taken by Leibovitz."(8) Leibovitz "protested the use" and subsequently brought an action for copyright infringement.(9)

The District Court for the Southern District of New York entered summary judgment for the alleged infringer, Paramount.(10) Applying both the statutory four-pronged fair use analysis,(11) and the Supreme Court's recent analysis in Campbell v. Acuff-Rose Music, Inc.,(12) the district court held that use of Leibovitz's photograph by Paramount was fair.(13) Leibovitz appealed, contending that even if the advertisement was appropriately considered a parody of her photograph, Paramount used the work for "commercial purposes" and utilized more than necessary for the parody.(14) Leibovitz thus claimed "that the District Court erred in granting Paramount's motion for summary judgment."(15) The Second Circuit affirmed, however, holding that Paramount Picture's advertisement of the forthcoming movie was a fair use of the plaintiff's work.(16) Like the district court, the appellate court based its reasoning on the four statutory factors defining fair use and the Supreme Court's analysis in Campbell, in which the Court addressed the fair use defense for works of parody.(17)

This Comment will demonstrate that lower courts have struggled with the fair use defense, especially for works of parody, and continue to struggle even after the Supreme Court's decision in Campbell, An economic approach will provide a useful framework for analyzing this doctrine. Part I provides an overview of the fair use defense, focusing on parody as a fair use and revealing the difficulties that lower courts have encountered in dealing with the issue. I then discuss the Campbell decision and the uncertainty authors and parodists may continue to face. In addition, Part I explains the benefits of an economic approach to a fair use analysis. Part II describes basic economic principles and applies them to relevant aspects of copyright law. I then propose an economic model based on a survey of existing scholarly models to evaluate parody in fair use and discuss the limitations of the model. Finally, Part III explains the Second Circuit's decision in Leibovitz and explores whether the decision is consistent with the economic model. The Comment closes with the conclusion that the Second Circuit's decision is hot consistent with the results reached by an economic approach to the fair use defense for works of parody.

1. BACKGROUND

   1. An Overview of Derivative Works and the Fair Use Doctrine

      The Constitution grants Congress the power to "[p]romote the Progress of Science and the useful Arts, by securing for limited Times to Authors... the exclusive Right to their respective Writings."(18) The dual aims of copyright law are to stimulate creativity and to disseminate knowledge in order to enrich culture and foster the growth of learning for the public welfare.(19) Since 1790, Congress has passed a number of copyright statutes to meet these ends.(20) To stimulate creativity, copyright law provides personal economic incentives by granting an author exclusive control over an original, expressive work.(21) Such exclusive control, however, is limited in time to ensure the dissemination of such intellectual works into the public domain.(22) Thus, the law balances the creative incentives to an author by granting a monopoly, with file proper public access to those works by limiting the time of the monopoly status.(23)

      An author usually receives adequate economic incentives to create original works and share them with the public since a copyright monopoly grants exclusive control of the rights to reproduce, distribute, and display a work.(24) The copyright monopoly may stifle creativity in certain circumstances since it also extends to the author the right to prepare derivative works.(25) This might discourage a second author from building upon the work of the original author during the existence of the original copyright.

      A derivative work transforms or adapts one or more preexisting works such that the product constitutes an original work of authorship.(26) A derivative work may be a translation of a book or, as in Leibovitz, a movie poster based on the cover of a magazine. Copyright protection in derivative works extends only for those original elements contributed by the derivative author.(27) As such, a derivative copyright in no way affects the copyright in the underlying work, which rests entirely with the author of that work.(28) Although the amount of contribution necessary to reach the threshold of originality is somewhat ambiguous,(29) courts generally agree that derivative works require more than trivial adaptations to original works to warrant copyright protection.(30)

      The problem of providing an author with control over derivative works thus becomes evident. Since derivative works necessarily are creative and the dissemination of such works enriches the public domain, society should encourage their creation. Yet, the exclusive right to prepare derivative works rests solely with authors who may refuse to allocate such a right.(31) There are two reasons why the copyright monopoly for derivative works may be overly broad.(32) First, "all intellectual creative activity is in part derivative" or secondary.(33) Authors frequently create new works by borrowing or building upon previous works while adding original expression of their own.(34) Second, fundamental areas of intellectual :activity, such as philosophy, criticism, history, and the natural sciences, necessarily require reference to previous works.(35) Stated another way, "[m]onopoly protection of intellectual property that impede[s] referential analysis and the development of new ideas out of old would strangle the creative process."(36) As a result, to achieve an adequate enrichment of culture, some leeway must be given to derivative authors to freely utilize previously created and copyrighted works.

      To address the excessive protection received by an original author to prepare derivative works, copyright law provides the affirmative defense of fair use,(37) which permits a defendant's reasonable use of copyrighted material without an author's consent. Fair use provides the public, and subsequent authors, with socially desirable access to intellectual works while maintaining an author's incentive to create by respecting the author's right to control derivative uses of his creation.(38) Generally speaking, in Leibovitz, the fair use inquiry weighed both the social benefit derived from Paramount's use of Leibovitz's photograph and the proper reward and incentive for her creativity. Of course, evaluating such a delicate balance has never been easy; a panel of three judges that included Judge Learned Hand once described the fair use doctrine as "the most troublesome in the whole law of copyright."(39)

      As a judicially created doctrine, the oft-cited words of Justice Story guided common law adjudication of fair use:

      [W]e must often, in deciding questions of this sort, look to the nature and objects of the selections made, the quantity and value of the materials used, and the degree in which the use may prejudice the sale, or diminish the profits, or supersede the objects, of the original work.(40) Congress, by section 107 of the Copyright Act of 1976, codified Justice Story's language into four statutory factors:

      (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.(41) Congress, however, realized the importance of the developed case law in codifying the fair use provisions(42) and, consequently, left the courts with the task of interpreting the four factors.(43)

   2. Parody as Fair Use

      1. Pre-Campbell Developments

         Parody has been recognized as an independent and important art form for centuries.(44) Defined as "a literary or musical work in which the style of an author or work is closely imitated for comic effect or in ridicule,"(45) a parody is a method of comment and criticism that humorously imitates an underlying work by focusing on its...