The U.S. Supreme Court decided two significant copyright cases in 1994 which impact multimedia and software developers. The first case, Fogerty v. Fantasy, Inc., No. 92-1750 (U.S. March 1, 1994) ("Fogerty"), involved the proper standard for the award of attorney's fees in copyright litigation. The second case, Campbell v. Acuff-Rose Music, Inc., No. 92-1292 (U.S. March 7, 1994) ("Acuff-Rose"), resolved the relationship between parody and the fair use of copyrighted works. While both cases concerned the copying of sound recordings and involved important figures in the musical community, these decisions will have profound affect in all copyright disputes.

I. ATTORNEY'S FEES

In Fogerty, Creedence Clearwater Revival front man John Fogerty wrote the song "Run Through the Jungle" and sold its exclusive rights to a predecessor of Fantasy, which obtained copyright by assignment. Fogerty later published and registered the copyright to another song, "The Old Man Down the Road," on another record label. Fantasy sued for copyright infringement, claiming that Fogerty's later song was merely the earlier one with different words.

At trial, a jury held for Fogerty, who applied for attorney's fees under Section 505 of the Copyright Act, 17 U.S.C. § 505. Section 505 provides that courts may award reasonable attorney's fees to a winning party as part of court costs. The District Court denied the motion because, as a defendant, Fogerty had not demonstrated that Fantasy's suit was frivolous or brought in bad faith.

The Court of Appeals affirmed the District Court, since the Ninth Circuit treats successful plaintiffs and defendants differently to encourage copyright owners to sue on close claims, thereby broadening copyright protection.

The Supreme Court reversed the Ninth Circuit's decision, and required that plaintiffs and defendants be treated equally. The Court also rejected the "British Rule" advocated by Fogerty, which automatically awards attorney's fees to the winner of a lawsuit, in favor of leaving the award to the discretion of the trial court.

Before Fogerty, courts were split between the Ninth Circuit's approach -- awarding fees to plaintiffs as a matter of course, but requiring defendants to show frivolousness or bad faith -- and the approach of other circuits that awarded fees in a more "evenhanded" manner. Fogerty adopted the "evenhanded" approach for two reasons. First, neither the plain language, nor the legislative history, of the Copyright Act treats plaintiffs and defendants differently. Second, allowing defendant copyright holders to advance defenses to mark the boundaries of protection encourages the production of additional works. The Supreme Court rejected application of the British Rule because the automatic award of fees is inconsistent with judicial discretion.

Fogerty is an extremely important legal precedent because it levels the playing field and will alter the factors evaluated in negotiations and in the decision to bring an infringement suit. Formerly, if a party brought a close case and lost, that party would not have to pay attorney's fees, unless the defendants could show that the suit was frivolous or brought in bad faith. In the typical copyright infringement case, attorney's fees are substantial and some cases are extremely close calls. Plaintiffs must now calculate the increased potential exposure of paying defendants' legal fees, as well as their own. As a defendant, however, Fogerty may provide more incentive to litigate, rather than settle cases, since it will now be easier to recover attorney's fees.

II. PARODY & FAIR USE

The parody and fair use case, Acuff-Rose, tested whether 2 Live Crew's commercial parody "Pretty Woman" was a fair use of Roy Orbison's well-known ballad "Oh, Pretty Woman." In 1964, Roy Orbison and William Dees wrote their song and assigned the rights to Acuff-Rose. A quarter century later, Campbell wrote his satirical version. In July, 1989, 2 Live Crew's manager wrote to Acuff-Rose informing them of the parody, explaining that the group was willing to give Acuff-Rose credit for ownership and authorship of the original, and offering to pay a fee for use of the song. Acuff-Rose refused permission, and a year and 250,000 copies later sued 2 Live Crew for copyright infringement.

The District Court found 2 Live Crew's parody to be a fair use, holding that: its commercial purpose was not a bar; it took no more of the Orbison original than was necessary to "conjure up" the original; and it was unlikely that the 2 Live Crew version could adversely affect the market for the Orbison original.

Reasoning that the District Court had placed insufficient emphasis on the commercial nature of 2 Live Crew's work, which was presumptively unfair, the Court of Appeals for the Sixth Circuit reversed. The Sixth Circuit also held that the parody took too much of the "heart" of the original.

The Supreme Court reversed the Sixth Circuit's decision, holding that the parody may be a fair use and sent the case back to the District Court for additional fact-finding.

Whether or not particular copying is a fair use involves intricate weighing of four factors set forth in Section 107 of the Copyright Act: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the part used in relation to the whole; and (4) the effect of the use on the market for or value of the original. Acuff-Rose is more significant for its general analysis of fair use and parody than for its particular focus on the reproduction of the first line and repetition of the bass riff in "Oh, Pretty Woman." The decision also has application to a host of other types of works of authorship, including computer programs, books, art and motion pictures -- whether or not they are parodies.

The Acuff-Rose decision affirms that transformative uses -- copying to create a work that adds something new, rather than substitutes for the original -- are more likely to be fair. Furthermore, although copying for commercial use would tend to be unfair, the Supreme Court's decision indicates that all the Section 107 factors must be considered and the commercial use would be less significant if the resulting work was transformative. For example, copying some protectable elements of a competitor's software program, even to create a competitive work, might be a fair use if the resulting program was a significant improvement over, rather than a substitute for, the original.

Finally, because fair use is an affirmative defense, the defendant must establish that its new work will not harm the market for the original. Market substitution is less certain with transformative uses. The market for potential uses would include normally only those uses that the original creator would develop or license; not, for example, parodies, since creators do not typically license the right to ridicule their creations.

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Computer Digest, May 1994, at 1.