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Fair Use and Digital Rights Management: Preliminary Thoughts on the

(Irreconcilable?) Tension between Them
March 11, 2005
March 2005
PDF version of this
paper

RelatedIssues
DRM, Fair Use and
Intellectual Property:
Defending the Balance

Fred von Lohmann

Senior Intellectual Property Attorney
Electronic Frontier Foundation
Digital rights management (DRM) technologiesare aimed at increasing
the kinds and/or scope of control that rights-holderscan assert over
their intellectual property assets. In the wake of the DigitalMillennium

Copyright Act's (DMCA) ban on the circumvention of DRM

technologiesused to control copyrightable works, DRM restrictions are
now backed up withthe force of law. In essence, copyright owners now
have the ability to writetheir own intellectual property regime in
computer code, secure in theknowledge that the DMCA will back the
regime with the force of law.

It's not surprising that in light of thesedevelopments many have

expressed alarm that DRM technologies may be used bycopyright
owners to erode capabilities that had previously been permitted tothe

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public by copyright law under the "fair use" doctrine (or its cousins,
suchas first sale or limited term).
What is the nature of the tension between DRM(as backed by the
DMCA) and fair use? Is the tension irreconcilable? If so,which should
give way?

I.Fair Use: What's It Good For?

While the "four factor test" set out in Section107 of the Copyright

Act[1]is widely known (at least in legal circles), the role of fair use in

thecopyright system is somewhat less settled. Attention to three

aspects of fairuse "in the real world," however, are worth considering
in some detail here:

(1) a wide variety of activities depend uponfair use for legitimacy;

(2) the ambiguous, case-by-case nature of thedoctrine is central to its
role in mediating between new technologies andcopyright; and
(3) fair use has served as a catalyst for innovation and a buttress

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A.Activities that Rely on Fair Use

In any discussion of fair use, it is importantto keep in mind the full

range of activities that depend upon fair use forlegitimacy. Often legal
commentators are tempted to restrict their discussionof fair use to the
uses that have been tested in published court decisions.This mistake
can lead to a crabbed view of the doctrine.
First, consider the reach of copyright law inthe absence of fair use.
The Copyright Act, by its terms, grants to ownersdominion over the
reproduction, public performance and display (a term of artthat
includes transmissions to the public), and distribution of a work, as
wellas a monopoly on the creation of derivative works.

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Given the broad scope of the Copyright Act,copyright would intrude

into everyday life in innumerable ways were it not forthe fair use
doctrine and other exceptions. The First Amendment,

privacypriorities, and common practice would not be able to tolerate a

copyright lawlacking a fair use "safety valve."
Fair use serves a crucial role in limiting thereach of what would

otherwise be an intolerably expansive grant of rights tocopyright

owners. Were it not for the fair use doctrine, each of the
followingactivities would be infringing:
whistling a tune while walking down the street
(publicperformance)
cutting out a New Yorker cartoon and posting it on your office
door (public display)
photocopying a newspaper article for your files(reproduction)
quoting a line from The Simpsons in an email to a coworker
(reproduction)
reverse engineering of computer code (reproduction)
"time-shifting" a radio or television program(reproduction)
playing an excerpt of Roy Orbison's "Pretty Woman" in
acopyright law course (public performance)

quoting from a novel in a review (reproduction)

If they are to preserve fair use in itstraditional form, DRM technologies
must leave room for these unauthorized usesof copyrighted works, as
well as myriad other commonplace uses that have not beentested in
court.

B.Ambiguity as a Feature, not a Bug

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Many DRM vendors express frustration with theimprecision

surrounding fair use. Often they exclaim, with some

exasperation,"Define fair use for me, and we'll express it in the
business rules.'"
Unfortunately, fair use cannot be defined withprecision. The statutory
four factor test, for example, includes concepts like"effect on the
market" and "commercial/noncommercial" concepts that are
noteasily expressed in precise "business rules." The problem is
especially vexingonce you recognize that "fair use" has changed over
time, and that it is vitalthat it continue to be able to evolve.

The fair use doctrine operates as a "safetyvalve" not just for free
expression, but also to mediate the tension betweencopyright and
new technologies. As new technologies develop, courts generallyhave
the first opportunity to apply copyright law to them, with
Congresslagging behind. This spares the public, technologists, and
copyright ownersfrom having to apply to Congress for a legislative

solution for each newtechnology that is developed. In this way, the fair
use doctrine plays animportant role in preserving a space for
innovation and consumerexperimentation, while leaving the final word
to Congress.
Under this regime, the normal evolution of fairuse proceeds thus: a
technologist or other creative person makes some use ofanother's
work that she believes to be fair. If the rights-holder agrees, the use
continues. If therights-holder disagrees, she can call upon the courts
intervene and rule on theuse. If, however, the use is frustrated from
the outset by a DRM measure (thecircumvention of which is unlawful
under the DMCA), there is no opportunity forthis process to unfold.
Fair use is limited to those uses that the courts havepreviously
affirmed, and new uses cannot evolve.

When the problem is viewed in this light, itbecomes clear that the
ambiguity of the fair use doctrine is not a bug, but acrucial feature. If
DRM systems are to preserve fair use, they must somehowpreserve its
ambiguity, its ability to evolve and embrace as yet unrealizeduses of
copyrighted works. A consideration of technologies past, present
andfuture, and their collisions with the fair use doctrine, illustrates
thevirtues of ambiguity in fair use.

1.
The Past: the VCR
In 1976, Universal City Studios and the WaltDisney Company sued
Sony, seeking to have the Betamax VCR impounded as a toolof piracy.
In their view, there were virtually no noninfringing uses of theVCR,
since home taping of television was thought to violate the
copyrightowner's reproduction right. The Supreme Court in 1984
disagreed, ruling thathome taping of television programs for later
viewing ("time-shifting")constituted a fair use.

Two aspects of the Betamax case are importantfor our purposes. First,
most copyright scholars at the time felt that hometaping should not
constitute fair use.In particular, it was unprecedented for a court to
find a use to be fair where(1) the copyist reproduced the entirety of a
work and (2) did so for a purelyconsumptive, nontransformative
purpose. So, had you considered the shape of thefair use doctrine in
1976, you would probably have concluded that time-shiftingwas not a
fair use. The Supreme Court in 1984 evolved the doctrine in response
to the new possibilities created by theVCR.

Second, if copyright owners had been able toimpose DRM technology

on the VCR in 1976, the Supreme Court would have beendenied the
opportunity to evolve fair use. While the state of DRM technologywas
more primitive in 1976, there were already efforts by motion
picturestudios to control video content. For example, during the

Betamax case, themotion picture studios argued to the court that Sony

should build a sensor intoevery VCR that would detect "no copy"
signals that would be embedded intotelevision broadcasts, thereby
enabling copyright owners to mark their moviesas "not for copying."
Had this DRM solution been adopted, the Supreme Courtwould have
been denied the opportunity to address time-shifting, leaving
thisactivity under the exclusive control of copyright owners.

2.
The Present: MP3 and Ditto.com
More recent examples reinforce the importanceof permitting fair use

to evolve in response to new technologies. Thedevelopment of PC

technology and the MP3 music format has given music fans awide
variety of new capabilities. As a result, electronics manufacturers
havebegun offering new categories of music products, including MP3
jukeboxes, homemusic servers, and Internet radio receivers. Each of
these technologies,however, depends upon copying lawfully-obtained
digital music, an activitythat, unless considered fair use (or otherwise
privileged under the law), wouldinfringe copyright.

The Internet has similarly spawned innovativeservices that have called

on courts to evolve fair use jurisprudence. Forexample, copyright
litigation recently erupted over Ditto.com, a search enginethat
catalogs photographs and other images that can be found on the
Internet.Prior court decisions regarding fair use provided only
ambiguous guidance. TheNinth Circuit Court of Appeals recently
concluded that the reproduction ofimages involved in this activity
should be considered a fair use.

Had DRM technologies blocked these unauthorizedexperiments from

arising in the first place, the opportunity to further developthe fair use
doctrine would never have presented themselves. The public
wouldnever have had the benefit of these new technological
capabilities, or wouldonly have received them if copyright owners
could be persuaded to authorizethem.

3.The Future: DTV

With these earlier examples in mind, we canbetter understand the
threat that DRM technologies pose to the future of fairuse. If fair use

is to continue to evolve, to create space for free expression,innovation

and new uses of copyrighted works, DRM technologies must
somehowaccommodate the ambiguity of fair use. Unless the public
has the opportunity toexperiment with new technologies, courts will
not have the opportunity to testthem against the fair use doctrine. If
innovators and consumers arepresumptively barred from
experimenting without copyright owner authorization,fair use will
become increasingly irrelevant. After all, how useful is a rightto time
shift analog television in a world where all broadcasts are digital
andprotected by DRM technologies?

This is not a hypothetical question. Aninter-industry group called the

Broadcast Protection Discussion Group (BPDG) iscurrently drafting
standards for mandatory DRM systems for digital broadcasttelevision
(DTV). While these systems may attempt to preserve time-shifting
asdefined by the Supreme Court in the 1984 Betamax decision, they
will fail toprotect the full range of future fairuses that will be made
possible by DTV. What those fair uses might be isdifficult to imagine
in advance, just as time-shifting was difficult to imaginein the era
before VCRs. Nevertheless, unless DRM technologies make room
forthese future fair uses, fair use will have lost much of its ability to
protectthe public's side of the copyright bargain.

C.Fair Use, Innovation and Competition

Fair use has repeatedly been invoked to preventcopyright owners from
misusing their copyrights in order to stifle legitimatemarketplace
competition. For example, courts have concluded that
intermediatereproductions of software made in the course of reverse
engineering can qualifyas fair uses. The fair use doctrine thus
operates to limit copyright in orderto preserve competition.

The fair use doctrine also plays an importantrole by providing a

reservoir of incentives to spur innovation. For example,where the

public is permitted to use copyrighted works freely, a

powerfulincentive arises to develop technologies and services that
help the public getthe most from media content.

This incentive explains the rapid innovationsurrounding the VCR. To

the extent time-shifting television was considered afair use,
electronics companies saw a market for devices that would

allowconsumers to get the most from time-shifting. The same

incentive continues todrive the new "PVR" industry, led by TiVo and
ReplayTV.

Similarly, the MP3 industry is fueled by thereservoir of incentives that

arises from another activity considered to be afair use: "spaceshifting." Millions of Americans have a large music library ofCDs.

Technology companies have an incentive to develop devices that will

helpthe music lover to get more value from the CDs she has already
purchased. TheApple iPod, for example, emerged to meet that
demand.

In other words, wherever an activity has beendeemed a fair use (and

often even before, so long as a company is willing togamble that it will

be deemed a fair use), innovation flowers as technologycompanies
help the public to make the most of copyrighted works.

Examplesinclude the photocopier, the audio cassette deck, the CD-RW

drive, the webbrowser, among others.
Of course, this is not the only road toinnovation innovation can also
flow from activities that depend onauthorization from copyright
owners (e.g., DVD). But innovation generallyproceeds most rapidly in

an environment where copyright owners do not have aveto over new

technologies, and where free competition between technologists isthe
rule.

Some may object that this view unfairly forcescopyright owners to

subsidize innovation. After all, part of the value of a VCRis rooted in

the fact that it can be used to make copies of copyrighted
workswithout the payment of a royalty. To put it another way,

consumers would payless for a VCR if it could not record copyrighted

works. While that additionalincremental value certainly operates as an
incentive for innovation, why shouldthe VCR manufacturer capture it,
rather than the copyright owners?
This argument neglects two importantconsequences that flow from

innovation in a competitive marketplace. First,copyrighted works and

the new technologies that interact with them are complementary
products. For example, while the VCR may haveencouraged some

piracy in the short run, in the long run it vastly increasedthe value of
"back catalog" films by creating a new market for them. So, ifcopyright
owners are entitled to demand the portion of the VCR's value that

isrooted in its ability to copy movies, then VCR manufacturers should

be entitledto that portion of the value of Warner Bros. film vault that is
rooted in videosales and rentals.

Second, it is worth remembering that, generallyspeaking, the "fair use

portion" of a VCR's value does not end up in thepockets of the VCR
maker. For example, JVC will not be able to increase theprice of its

VCR to capture the value that the recording function offers

toconsumers, because Sony (or any other VCR maker) would then be

able to reducethe price of competing VCRs. To put it in economic

terms, in most mass-markettechnology markets, price is relentlessly

driven to marginal cost. Because thefair use value is not part of the
marginal cost of production, technologyvendors are unable to capture
it in a competitive marketplace.

So who pockets the marginal value derived fromcopyrighted works?

The public, in the form of lower technology prices andenhanced
capabilities. Since copyright exists for the benefit of the public,this
appears to be an appropriate result.

II.The Copyright Bargain Restruck: Trading Fair Use for DRM

In light of the purposes of fair use discussedabove, it seems unlikely
that any DRM technology (at least one that will beembraced by the
copyright industries for their products) will be able toaccommodate
the full range of fair use.

If this is true, the question then becomeswhether some quantum of

fair use shouldbe sacrificed in order to stem the disruption caused by
new technologies toexisting media company business models. Or, to
put it more bluntly, should thepublic be required to give up some
measure of fair use in order to solve the"piracy" problem?

A.What's in it for the Public? Quelling "Pirates."

In evaluating this question whether the publicshould give up some
quantum of fair use in order to quell digitalinfringement it may be
useful to remind ourselves of the purpose of copyrightlaw.

Copyright law represents a bargain between thepublic and copyright

owners. The public grants certain limited exclusive rightsto copyright
owners in order to create an incentive for the production, and
amarketplace for the distribution, of creative works.

In order to evaluate whether the law is servingthis end, then, it may be

helpful to imagine yourself as an advisor to thepublic. In Jessica
Litman's words, imagine you are a lawyer, attempting to getfor the
public the best possible copyright bargain.

So what do DRM technologies (and the legalmandates that support

them, like the DMCA) offer the public? Of course, DRMtechnologies

are often touted as reducing copyright infringement

(sometimesequated pejoratively with "piracy"). The public, however,

has no directinterest in reducing infringement for its own sake. Why

should the public beconcerned about infringement?

Rampant piracy, so the argument goes,undermines the incentives that

make it worthwhile to create new content. If,because of infringement,

copyright owners cannot make a return on theirinvestments in content

creation, they will stop investing in new content (orthe continued
exploitation of old content, for that matter). Taken to theextreme,
rampant infringement will result in the collapse of the music,
movieand publishing industries, say copyright owners.

If you were the public's lawyer, you wouldlikely treat this argument

with some skepticism. While unlawful copying is (andalways has been)

a problem, no one is proposing that copyright law beeliminated.
Accordingly, copyright-based incentives for continued production

ofcreative works will remain. Nor is there any compelling empirical

evidence that"piracy" is bringing copyright industries to their knees
today. Band are stillbeing signed, movies are still being "greenlighted," and writers are stillreceiving advances. In fact, 2002

promises to be for major movie studios thebest U.S. summer box

office season in history. Of course, the digital futureposes serious

challenges, but many of those challenges have not yetmaterialized in
any economically substantial way. As the public's lawyer, youwill be
hesitant to give something up in the face of these claims,

especiallybecause you will remember the many other occasions where

the copyrightindustries "cried wolf" the VCR, cable television, the
audio cassette, radio,the player piano.

Also, as the public's lawyer, you will rememberthat incentives in the

form of an airtight monopoly may not be as necessary ascopyright
owners would have you believe. In the1995 National

InformationInfrastructure proceedings, for example, copyright owners

claimed that the"information superhighway" would remain barren until
they could be assured ofstrong copyright protection on the Internet.
As it happened, the Internetbecame a vibrant place for new publishers
both noncommercial andcommercial without the assistance of
Hollywood. In fact, when media companiesfinally joined the party (not

because of increased copyright protection, butrather out of

commercial necessity), some found that their content simply couldnot
compete with the new kinds of media being created on the web.

A tough-minded lawyer for the public will alsorecall that creative

content can proliferate even in the face of widespreadinfringement.

For example, the software industry has long tolerated and thrivedin a
marketplace with much higher piracy rates than those faced by the
musicand movie industries. The film industry in India, the world's
most prolific,manages to attract continued investment

notwithstanding extremely high rates oftrue commercial piracy. So, as

the public's lawyer, you will be skeptical ofclaims that content will not
be made in the absence of ever-stronger copyrightprotections.

B.What's in it for the Public? More Choices & Lower Prices.

Some economically-minded DRM advocates claimthat widespread

adoption of DRM technologies will result in more products andlower

prices for consumers. DRM systems, the argument goes, will permit
copyrightowners to engage in more refined forms of price
discrimination, resulting inmore products and lower prices. For

example, a copyright owner who sells a DVDfor $30 today, may be

willing to sell a "single-viewing" version for $5. Untilthe DRM
technology exists to support such a "single-viewing" version,

however,the public can only obtain the $30 DVD. In the absence of
DRM, we all payhigher prices for products that include features we
may not need (e.g.,unlimited repeat viewings).

While this argument seems plausible, would you,as the public's

lawyer, be persuaded? Some skepticism is certainly in order sofar,

DRM systems that enable price discrimination have had only limited
successin the marketplace. The DIVX format for DVDs, for example,
proved unpopular.The MusicNet and pressplay music services have

also been less than successfulin the marketplace. In addition, the use

of DRM technologies may not benecessary to induce reduced prices.

For example, DVD prices have been fallingrapidly, driven by
Hollywood's desire to compete with video rental.

In addition, there is reason to questionwhether truly competitive price

discrimination is likely to occur in themarketplace for copyrighted

works. Many copyright industries show a high degreeof concentration,

giving rise to market distortions that may swamp thedesirable aspects
of price discrimination.

C.
What Does the Public Stand to Lose?
As discussed above, DRM technologies backed bylaws like the DMCA
threaten to undermine fair use in a number of ways. As thepublic's
lawyer seeking to get the best deal for your client, you will need
toweigh these losses against the gains detailed by DRM advocates.
An erosion of fair use in favor of DRM comeswith the following
potential costs:

a reduction in freedom of expression, to the extent

DRMinterferes with review, commentary, scholarship, and

parody;
a reduction in innovation, to the extent that DRMeliminates the
reservoir of incentives that spur companies to
developtechnologies that interact with copyrighted works;

a reduction in innovation, to the extent that DRMdepends on

legislative mandates (whether in the form of the DMCA, a

mandatefrom the Broadcast Protection Discussion Group or the

pending Hollings bill)that interfere with science and technology

development;

an erosion of privacy, to the extent that DRMcompromises user

anonymity;

the "freezing" of fair use, to the extent that DRMsystems will

prevent courts from evolving fair use in response to
newtechnologies;

undermining archives, libraries, and others who storeand

preserve our cultural heritage, to the extent DRM systems
prevent freearchiving of copyrighted content;

lessened competition, to the extent that DRM systemsprevent

companies from engaging in legitimate reverse engineering of

competitors'products.

D.Is DRM the Best Dealfor the Public?

As the public's lawyer, your goal is to get thebest possible deal for the

public. Do DRM technologies, backed governmentmandates, represent

a good bargain for the public?

While it may be too early to draw finalconclusions, it is plain that DRM

technologies, backed by laws like the DMCA,pose a serious potential

threat to fair use. While technical refinements mayaddress or minimize

some of the social costs that stem from an erosion of fairuse, it is
unlikely that they will entirely resolve the tension.

Accordingly, the problem becomes one, not ofreconciliation, but of

trade-offs. A hard-nosed negotiator for the public willask for concrete

empirical evidence to support the promised benefits of
DRMtechnologies, while demanding limiting principles to protect as
much of thepublic's side of the bargain as possible.

Unfortunately, to date, Congress has failed totake up this challenge,

leaving the public without a zealous advocate in thecopyright arena.
Instead, they have delegated copyright law to copyright ownersand

DRM vendors. Whether this will result in a good copyright bargain for
thepublic remains to be seen.

[1] Indetermining whether a challenged activity qualifies as a fair use,

courts employa multi-factor balancing test, including a consideration
of:
1. thepurpose and character of the use, including whether it is
commercial ornoncommercial;

2. thenature of the work (e.g., factual works are entitled to less

protection thanpurely creative works);

3. theamount and substantiality of the portion of the work used;

4. theeffect of the use upon the potential market for the work.
See 17 U.S.C. 107.

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