The fair use doctrine permits certain uses of copyrighted material that are unauthorized by the copyright holder. In 1984, the Supreme Court decided in Sony v. Universal Studios (Sony) that unauthorized home taping of television programs was a fair use of such programs. Decried by the dissent and frequently contested in ensuing cases, that decision sealed the majority's case that the videotape recorder was capable of substantial non-infringing uses and therefore legal.
In the twenty years since Sony, the dissent's skepticism about the fairness of time-shifting has gotten about as warm a reception in appellate courts as the majority's position. Courts have been sharply divided on how to assess the effect of a contested use on the market for or value of the plaintiff's copyrighted work - a key factor in fair use analysis. The Sony majority broadly considered the effect of the contested use on the value of the copyrighted work overall, rather than narrowly considering its effect on the licensing market most directly affected by the contested use.
Unfortunately, many recent appellate decisions have cut this inquiry short by ignoring the majority's method and only evaluating the effect of the contested use on very narrow licensing markets. If the dissent were correct, this fair use factor would always militate against a fair use finding. Nevertheless, its narrow approach has informed effect on the market analysis in several leading fair uses cases, and proven decisive to their resolutions. The Sony majority has all too often been ignored by appellate courts reluctant to examine the full range of economic effects flowing from a given use.
After introducing the fair use doctrine generally in Part 2, this piece focuses on the debate between the dissent and the majority in Sony over the fourth fair use factor in Part 3. Part 4 sketches an economic rationale for the Sony majority's fourth factor analysis, focusing on network effects, externalities, and the impossibility of forcing compensation for all complementarity in a modern market economy.
Although Grokster may have muddied its authority on issues of secondary liability, Sony's lesson for analysis of the fourth fair use factor is clear. Assessing the effect of a new technology on the value of a copyrighted work always involves the evaluation of several markets for the work - some of which may only be possible due to the technology at issue, and all of which are bound to be affected in different ways and to a different extent if the use becomes widespread. Courts should not cut the analysis short by simply focusing on one negatively affected market.
55 Case Western Reserve Law Review 777 (2005).