Chapter Twenty One | Intellectual Property: Copyrights

Purpose Of Copyrights

Copyright law, as with all laws made pursuant to the authority granted by Article 1, Section 8 of the Constitution, is “… [t]o promote the Progress of Science and useful Arts …”. Justice Douglas, writing for the majority in U.S. v. Paramount Pictures, wrote “The copyright law, like the patent statutes, makes reward to the owner a secondary consideration.” In Fox Film Corp. v. Doyal, 286 U.S. 123, 127, (1932) Chief Justice Hughes spoke as follows respecting the copyright monopoly granted by Congress, “The sole interest of the United States and the primary object in conferring the monopoly lie in the general benefits derived by the public from the labors of authors.”

Justice Douglas continued, “It is said that reward to the author or artist serves to induce release to the public of the products of his creative genius. But the reward does not serve its public purpose if it is not related to the quality of the copyright. Where a high quality film greatly desired is licensed only if an inferior one is taken, the latter borrows quality from the former and strengthens its monopoly by drawing on the other. The practice tends to equalize rather than differentiate the reward for the individual copyrights.” (See U.S. v. Paramount Pictures, 334 U.S. 131, 158 (1948)).

Copyright law protects “… original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” A work of authorship includes (1) literary works; (2) musical works, including any accompanying words; (3) dramatic works, including any accompanying music; (4) pantomimes and choreographic works; (5) pictorial, graphic, and sculptural works; (6) motion pictures and other audiovisual works; (7) sound recordings; and (8) architectural works (17 U.S.C. §102(a)).

The owner of a copyright has “… the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.” (17 U.S.C. §106).

Limitations

There are, however, limitations on how far that protection extends beyond the original work. According to the statute, copyright protection does not “… extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied …” that is embodied in such an original work (17 U.S.C. §102(b)).

Subject Matter

The subject matter of a copyright, as described above, includes “… compilations and derivative works …” but protection of “… preexisting material in which copyright subsists does not extend to any part of the work in which such material has been used unlawfully.” Protection of such works only includes material “… contributed by the author …” rather than “… preexisting material employed in the work, and does not imply any exclusive right in the preexisting material.” (17 U.S.C. §103(a) and (b)).

Reproduction And Derivatives

The owner of a copyright has exclusive rights to reproduce, prepare derivative works based upon the copyrighted work, distribute copies by sale or other transfer of ownership, or by rental, lease, or lending, perform the copyrighted work publicly, display the copyrighted work publicly, and perform the copyrighted work publicly by means of a digital audio transmission (17 U.S.C. §106).

Ownership

Anyone who creates a work is considered the author of that work. In the event that the work is created as a “work for hire” then the organization that sponsored the work is considered the author. A “work made for hire” is defined in §101 as “a work prepared by an employee within the scope of his or her employment …” For example, the coders who created the MacOS did so as employees or independent contractors of Apple. As a result, their work and the cumulative product outcome known as MacOS are considered “works made for hire” pursuant to §101 of the Copyright Act. Thus, the “author” of the MacOS is considered to be Apple.

However, remember an important distinction, copyright embraces only the original expression not any extensions of the original idea. The Feist case examines the necessity of originality when granting a copyright.

 

Case Study

Feist Publications, Inc. v. Rural Telephone Service Co., Inc.

Supreme Court Of The United States, 499 U.S. 340 (1991)

Procedural Posture

Petitioner publishing company sought review by certiorari of a judgment of the United States Court of Appeals for the Tenth Circuit, which affirmed a grant of summary judgment in favor of respondent phone company in a suit by respondent against petitioner for copyright infringement that arose after petitioner published a directory compiled with information taken from the white pages compiled and published by respondent.

Overview

Respondent sued petitioner for copyright infringement because petitioner had used information contained in its white pages in the compilation of its own directory. The court reversed a grant of summary judgment in favor of respondent because the selection, coordination, and arrangement of respondent’s white pages did not satisfy the minimum constitutional standards for copyright protection. Specifically, the court found that respondent’s white pages, which contained only factual information, i.e., phone numbers, addresses, and names listed in alphabetical order, lacked the requisite originality because respondent had not selected, coordinated, or arranged the uncopyrightable facts in any original way.

Summary

A telephone company that was a certified public utility providing telephone service to several communities in Kansas, and that was subject to a state regulation requiring all telephone companies operating in the state to issue annually an updated telephone directory, published a typical telephone directory, consisting of white pages and yellow pages. The white pages listed in alphabetical order the names of the telephone company’s subscribers, together with their towns and telephone numbers. The telephone company obtained the data for its white pages from the company’s subscribers, who were required to provide their names and addresses when applying for telephone service from the company. A publishing company, which specialized in areawide telephone directories covering a much larger geographical range than did directories such as that of the telephone company, offered to pay the telephone company for the right to use its white pages listings, but the telephone company refused to license its listings to the publishing company. Subsequently, the publishing company used the telephone company’s white pages listings without the telephone company’s consent. Although the publishing company sought to obtain additional information, such as street addresses, for the listings that it took from the telephone company’s white pages, many of the listings in the publishing company’s areawide directory that covered part of the telephone company’s service area were identical to listings in the telephone company’s white pages. In a copyright infringement suit brought by the telephone company against the publishing company, the United States District Court for the District of Kansas, explaining that courts had consistently held that telephone directories were copyrightable, granted summary judgment to the telephone company (663 F Supp 214). The United States Court of Appeals for the Tenth Circuit, in an unpublished opinion, affirmed the District Court judgment for substantially the reasons given by the District Court (916 F2d 718).

On certiorari, *** it was held that (1) the names, towns, and telephone numbers listed in the white pages were not protected by the telephone company’s copyright in its combined white and yellow pages directory, because the listings in the white pages were not original to the telephone company, since (a) the listings, rather than owing their origin to the telephone company, were uncopyrightable facts, and (b) the telephone company has not selected, coordinated, or arranged these uncopyrightable facts in an original way sufficient to satisfy the minimum standards for copyright protection–under either the Federal Constitution’s Article I, 8, cl 8, which authorizes Congress to secure for limited times to authors the exclusive right to their respective writings, or the Copyright Act of 1976 (17 USCS 101 et seq.), which provides copyright protection for original works of authorship–given that the telephone company’s selection and alphabetical arrangement of the listings lacked the creativity necessary to demonstrate originality; and (2) because the telephone company’s white pages listings lacked the requisite originality for copyright protection, the publishing company’s use of the listings could not constitute copyright infringement.

Decision

Alphabetical listings of names, accompanied by towns and telephone numbers, in telephone book white pages held not copyrightable; thus, nonconsensual copying of listings held not to infringe on copyright.

Outcome

The court reversed the judgment.

The Supreme Court in Feist affirmed that owners’ original expression is not only protected but also that copyright “… encourages others to build freely upon the ideas and information conveyed by a work.” The Court noted that the principle known as the idea/expression or fact/expression dichotomy, is appropriately applied to all works of authorship. And, where applied to a factual compilation, “… assuming the absence of original written expression, only the compiler’s selection and arrangement may be protected; the raw facts may be copied at will. This result is neither unfair nor unfortunate. It is the means by which copyright advances the progress of science and art.” (See Feist, 499 U.S. 340 at 349-350).

Sources of Law

The Copyright Act of 1790, passed by the Second U.S. Congress, was the first federal copyright statute and established U.S. copyright protection with term of 14 years and provided living owners with an option for one 14-year renewal. This act provided protection only to U.S. citizens. The Copyright Act of 1831 was the first major statutory revision of copyright law. It added musical compositions to the list of protected works and extended the initial term of protection to 28 years with an option for one 14 year renewal. The Copyright Act of 1909 represented a substantial revision, extending the initial term to 28 years with the option of renewal for one additional 28-year term. The Townsend Amendment of 1912 added a new form of expression, motion pictures, to the list pf protected works. Although the 1909 Act was revised by the Copyright Act of 1976, it remains the effective for all copyrights granted before the 1976 Act took effect.

The Copyright Act of 1976 (17 U.S.C. §102, et seq.) remains the primary federal law governing copyrights and has been amended several times. The Act regularized the term of copyright protection by eliminating the potential of multiple terms and creating a system of one term running from the work’s creation and continuing for a term consisting of the life of the author plus 70 years after the author’s death. The Act also provides protection for unpublished works and preempts state laws governing copyright. (17 U.S.C. §301, 303).

Two more amendments to the 1976 acre have been adopted by Congress. The Copyright Renewal Act of 1992 eliminated the need for affirmative action by the copyright holder, i.e., filing a renewal application. This amendment had the effect of providing protection for the full term available without the owner’s action. The Copyright Term Extension Act of 1998 (CTEA), often ridiculed as the “Mickey Mouse Protection Act,” extended copyright protection terms to 95/120 years or life plus 70 years. So, the term of protection for works “… created on or after January 1, 1978 …” there is presently “… a term consisting of the life of the author and 70 years after the author’s death.” In the case of a joint work prepared by two or more authors who did not work for hire the Act provides “… a term consisting of the life of the last surviving author and 70 years after such last surviving author’s death.” And, for anonymous works, pseudonymous works, or works made for hire the Act provides “… a term of 95 years from the year of its first publication, or a term of 120 years from the year of its creation, whichever expires first.” (17 U.S.C. §302).

Notice, Registration and Enforcement

Copyright protection of a work arises automatically at the moment of fixation; in other words, as soon as the work appears in some fixed and tangible form. “A work is “fixed” in a tangible medium of expression when its embodiment … is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” (17 U.S.C. §101).

Pursuant to the Berne Convention, signed by the U.S. in 1989, there is no requirement for completion of a registration process. However, completion of the federal registration process provides some distinct advantages. Certain damages are only available where the work was registered within ninety days of initial publication or prior to any alleged infringement.

Even though a work is protected once it is created and fixed in a tangible form, there are advantages to registration. Registration establishes a public record of the copyright claim and is necessary for works of U.S. origin before an infringement suit may be filed in court. If registration is completed before or within five years of publication, it establishes prima facie evidence in court of the validity of the copyright. Statutory damages and attorney’s fees will be available to the copyright owner in court actions if registration is made within three months after publication of the work or prior to an infringement of the work. If not, only an award of actual damages and profits will be available to the copyright owner.

The inclusion of a copyright notice on materials distributed in the U.S. is optional. If a notice is included on the work, §401 requires that it be “… affixed … in such manner and location as to give reasonable notice of the claim of copyright” and must include:

  1. the symbol © (the letter C in a circle), or
  2. the word “Copyright, or
  3. the abbreviation “Copr.”; and
  4. the year of first publication of the work; in the case of compilations, or derivative works incorporating previously published material, the year date of first publication of the compilation or derivative work is sufficient. The year date may be omitted where a pictorial, graphic, or sculptural work, with accompanying text matter, if any, is reproduced in or on greeting cards, postcards, stationery, jewelry, dolls, toys, or any useful articles; and
    the name of the owner of copyright in the work, or an abbreviation by which the name can be recognized, or a generally known alternative designation of the owner. (17 U.S.C. §401).

Correct examples of copyright notices would include:

  • © 2017, I A.M. Owner, or
  • Copyright 2017, I A.M. Owner, or
  • Copr. 2017, I A.M. Owner

Infringement

Any copyright owner has the right to bring a legal action against an alleged infringer. Copyright infringement arises whenever a work is distributed, copied, displayed, modified, a derivative is prepared work or performed in public. “In order to establish infringement, two elements must be proven: (1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original.” (See Feist, 499 U.S. 340, 362).

Direct Infringement

Direct infringement arises when a person deliberately, and without authorization, engages in the activities described above. For example, if you make a copy of this textbook without the copyright owner’s permission, you will have violated the exclusive right to reproduce and have therefore committed copyright infringement. Likewise, if a music listener makes a copy of a digital music file and shares it with friends, a violation of the exclusive right to reproduce and distribute has occurred. (See A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (2001). Of course, proof of infringement may be difficult, particularly with digital materials. For instance, a copyright owner would be required to show that the alleged infringer both had access to the original work and that they were substantially similar.

The Aereo case resolved a dispute between a provider of an innovative rebroadcasting technology and traditional broadcast media providers. Aereo’s service allowed its subscribers to view over-the-air television on Internet-connected devices. The Court found that the service violated the copyrights of the owners.

 

Case Study

American Broadcasting Companies, Inc. v. Aereo, Inc.

Supreme Court Of The United States, 134 S. Ct. 2498 (2014)

Procedural Posture

Petitioners, a group of television producers, distributors, and broadcasters, sued respondent, an entity that streamed petitioners’ programs to subscribers over the Internet, claiming copyright infringement. The district court denied petitioners’ request for an order enjoining respondent from providing copyrighted programs to subscribers, and the U.S. Court of Appeals for the Second Circuit affirmed. The U.S. Supreme Court granted certiorari.

Overview

Petitioners claimed that respondent violated their rights under the Copyright Act by selling a service that allowed subscribers to watch television programs over the Internet at about the same time the programs were broadcast over the air. A divided panel of the Second Circuit found that respondent did not perform “publicly” within the meaning of the Transmit Clause of the Copyright Act, 17 U.S.C.S. § 101, because it used technology which allowed it to stream programs to each subscriber by sending a private transmission that was available only to that subscriber. The U.S. Supreme Court disagreed. Changes Congress made to the Copyright Act in 1976 were intended to overturn the Supreme Court’s decisions in Fortnightly Corp. v. United Artists Television, Inc. and Teleprompter Corp. v. Columbia Broadcasting System, Inc., and under those changes respondent performed petitioners’ copyrighted works publicly when it streamed the works to subscribers.

The Copyright Act of 1976 gives a copyright owner the exclusive right to perform a copyrighted work publicly. 17 U.S.C.S. § 106(4). The Act’s Transmit Clause defines that exclusive right as including the right to transmit or otherwise communicate a performance of a copyrighted work to the public, by means of any device or process, whether the members of the public capable of receiving the performance receive it in the same place or in separate places and at the same time or at different times. 17 U.S.C.S. § 101.

Decision

Business that sold service which allowed subscribers to watch television programs over Internet at about same time programs were broadcast held to violate copyrights of television producers and broadcasters.

Outcome

The Supreme Court reversed the Second Circuit’s judgment and remanded the case. 6-3 Decision; 1 dissent.

The question before the Court in Aereo was whether the copyright clause of the Constitution allows a company to transmit television programs to its paying viewers over the internet without the permission of the broadcasting network being viewed. The Court found that Aereo’s actions violated the rights of the owner of the copyrights in question.

Contributory Infringement

Contributory infringement is really a form of secondary liability for direct infringement. A person need not engage in behavior that directly infringes on another’s copyright, “… one infringes contributorily by intentionally inducing or encouraging direct infringement, (see Gershwin Pub. Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (CA2 1971), and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it,” (see Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F.2d 304, 307 (CA2 1963)). Although “[t]he Copyright Act does not expressly render anyone liable for infringement committed by another, these doctrines of secondary liability emerged from common law principles and are well established in the law… .” (see Sony Corp. v. Universal City Studios, 464 U.S., at 434, 486).

The Sony case resolved one of the early disputes raised by the introduction of a disruptive technology that posed a challenge to an entrenched system and addressed the issues of contributory infringement.

 

Case Study

Sony Corporation Of America v. Universal City Studios, Inc.

Supreme Court Of The United States, 464 U.S. 417 (1984)

Procedural Posture

Petitioners appealed a judgment of the United States Court of Appeals for the Ninth Circuit holding petitioners liable for contributory infringement in respondents’ suit against petitioners for copyright infringement in violation of the Copyright Act, 17 U.S.C.S. § 101 et seq.

Overview

Petitioners manufactured and sold home video tape recorders. Respondents owned the copyrights to television programs broadcast on public airwaves. Respondents sued petitioners for copyright infringement, alleging that because consumers used petitioners’ recorders to record respondents’ copyrighted works, petitioners were liable for the copyright infringement allegedly committed by those consumers in violation of the Copyright Act, 17 U.S.C.S. § 101 et seq. The district court held in favor of petitioners. The appellate court reversed. The U.S. Supreme Court held that petitioners demonstrated a significant likelihood that substantial numbers of copyright holders that licensed works for broadcast on free television would not object to having such broadcasts recorded for later viewing by private viewers. The recorders were therefore capable of substantial non-infringing uses and respondents’ sale of the recorders to the general public did not constitute copyright infringement.

Decision

Sale of home video tape recorders to the general public did not constitute contributory infringement of copyrights on television programs since there was a significant likelihood that substantial numbers of copyright holders who license their works for broadcast on free television would not object to having their broadcasts time-shifted by private viewers and the plaintiff copyright holders did not demonstrate that time-shifting would cause any likelihood of non-minimal harm to the potential market for, or the value of, their copyrighted works.

Outcome

The judgment in favor of respondents was reversed where petitioners, as manufacturers of video recorders, did not infringe copyrights.

Vicarious Infringement

Vicarious infringement is another form of secondary liability for direct infringement. A party “… is vicariously liable for the actions of a primary infringer where the defendant (1) has the right and ability to control the infringer’s conduct, and (2) receives a direct financial benefit from the infringement.” (see Fonovisa, Inc. v. Cherry Auction, Inc.; Richard Pilegard, Et Al, 76 F.3d 259 (1996)).

Shapiro is a landmark case on vicarious liability. The court there was faced with a copyright infringement suit against the owner of a chain of department stores where a concessionaire was selling counterfeit recordings.

 

Case Study

Shapiro, Bernstein & Co., Inc., Et Al. v. H. L. Green Company, Inc.

United States Court Of Appeals For The Second Circuit, 316 F.2D 304 (1963)

Procedural Posture

Plaintiffs challenged a district court’s dismissal of their claims against defendant, a record seller accused of copyright infringement.

Overview

Plaintiffs were the copyright proprietors of several musical compositions. Defendant was a company with a record department in each of its stores. Third party defendant was a record manufacturer and dealer who sold records in defendant’s stores. Plaintiffs sued third party defendant for manufacturing knock off records, which were copies of plaintiffs’ records, and selling them without a license. Plaintiffs prevailed on their claims against third party defendant but their suit against defendant was dismissed. The appellate court held defendant liable for illegal sales, even in the absence of intent to infringe, on the basis that knowledge was imputed to defendant. The court further stated that defendant’s liability would stem from a finding that third party defendant was also liable for unlawful sales. The case was reversed and remanded.

Outcome

The court granted plaintiffs’ claim for relief from the district court’s dismissal of their claims against defendant, a record seller accused of copyright infringement, and the case was remanded for further proceedings on the issue of illegal sales.

Inducing Infringement

Inducement arises when a person persuades or influences someone to act. Grokster developed a second generation peer-to-peer file sharing software that allowed users to share digital music, and other types of digital files, knowingly providing the means for users to engage in infringing behavior. The Court found that Grokster facilitated copyright infringement. This case addresses an issue raised by the rise of new and different ways to infringe on copyrights.

 

Case Study

Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd.

Supreme Court Of The United States, 545 U.S. 913 (2005)

Procedural Posture

Petitioner copyright holders sued respondent software distributors, alleging that the distributors were liable for copyright infringement because the software of the distributors was intended to allow users to infringe copyrighted works. Upon the grant of a writ of certiorari, the holders appealed the judgment of the United States Court of Appeals for the Ninth Circuit which affirmed summary judgment in favor of the distributors.

Summary

Two companies that distributed free software, which allowed computer users to share electronic files through peer-to-peer networks (that is, directly with each other, rather than through central servers), were sued by a group of copyright holders–who (1) alleged that the distributors had knowingly and intentionally distributed their software to enable users to infringe copyrighted works in violation of the Copyright Act (17 U.S.C.S. §§ 101 et seq.), and (2) sought damages and an injunction–where, although the distributors’ software could be used to share any type of digital file, users of the software had mostly used it for unauthorized sharing of copyrighted music and video files.

Discovery revealed that (1) billions of files were shared across peer-to-peer networks each month; and (2) the distributors were aware that users of their software used it primarily to download copyrighted files. Moreover, the record included evidence that the distributors (1) clearly had voiced the objective that software recipients use the software to download copyrighted works; and (2) had actively encouraged infringement by, for example, promoting themselves as alternatives to another file-sharing service that had been sued by copyright holders for allegedly facilitating copyright infringement.

Although the distributors received no revenue from users of their software, the distributors generated income by selling advertising space, and then streaming the advertising to the users (so that, as the number of users increased, the value of the distributors’ advertising opportunities increased). There was no evidence that the distributors had tried to filter copyrighted material from users’ downloads or otherwise to impede the sharing of copyrighted files. ***

Overview

The distributors were aware that users employed their free software primarily to download copyrighted files, but the distributors contended that they could not be contributorily liable for the users’ infringements since the software was capable of substantial noninfringing uses such as downloading works in the public domain. The U.S. Supreme Court unanimously held, however, that the distributors could be liable for contributory infringement, regardless of the software’s lawful uses, based on evidence that the software was distributed with the principal, if not exclusive, object of promoting its use to infringe copyright. In addition to the distributors’ knowledge of extensive infringement, the distributors expressly communicated to users the ability of the software to copy works and clearly expressed their intent to target former users of a similar service which was being challenged in court for facilitating copyright infringement. Further, the distributors made no attempt to develop filtering tools or mechanisms to diminish infringing activity, and the distributors’ profit from advertisers clearly depended on high-volume use which was known to be infringing.

Under the “inducement rule” being adopted, for copyright, by the United States Supreme Court in the case at hand, one who distributed a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, going beyond mere distribution with knowledge of third-party action, was liable for the resulting acts of infringement by third parties using the device, regardless of the device’s lawful uses, as:

(1) One infringed contributorily by intentionally inducing or encouraging direct infringement–and infringed vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it–for, although the Copyright Act (17 U.S.C.S. §§ 101 et seq.) did not expressly render anyone liable for infringement committed by another, these doctrines of secondary liability had emerged from common-law principles and were well established.

(2) Although Sony Corp. of America v. Universal City Studios, Inc. (1984) 464 U.S. 417 *** in which the Supreme Court had absolved a distributor of video cassette recorders (which the court had found capable of substantial noninfringing uses) from copyright liability for third parties’ use of the recorders–limited imputing culpable intent as a matter of law from the characteristics or uses of a distributed product, (a) nothing in Sony required courts to ignore evidence of intent if there was such evidence; and (b) the case had not been meant to foreclose rules of fault-based liability derived from common law.

(3) Thus, where evidence went beyond a product’s characteristics or the knowledge that the product might be put to infringing uses–and showed statements or actions, such as advertising, a directed to promoting infringement–Sony’s “staple-article rule” would not preclude liability.

(4) Because the inducement rule premised liability on purposeful, culpable expression and conduct, the rule did nothing to compromise legitimate commerce or discourage innovation having a lawful promise, for under the rule a distributor would not be subjected to liability for merely (a) knowing of infringing potential or of actual infringing uses; or (b) performing ordinary acts incident to product distribution, such as offering customers technical support or product updates.

Decision

One who distributes product, capable of lawful and unlawful use, with clearly shown object of promoting copyright infringement held liable for copyright infringement by third parties using product.

Outcome

The judgment affirming the grant of summary judgment to the distributors was vacated, and the case was remanded for further proceedings.

Defenses to Infringement

The “Fair Use” and the “First Sale” doctrines are defenses to claims of copyright infringement. §107 of the Copyright Act states that the “… fair use of a copyrighted work … for purposes such as criticism, comment, news reporting, teaching, scholarship, or research …” is not copyright infringement. The determination of fair use must consider:

  1. the purpose and character of the use, including whether such use is commercial,
  2. the nature of the copyrighted work,
  3. the amount and substantiality of the portion used, and
  4. the effect of the use on the potential market for the copyrighted work.

The Campbell case evaluated whether the commercial nature of a parody of a Roy Orbison song was fatal to the application of the fair use standard.

 

Case Study

Campbell v. Acuff-Rose Music, Inc.

Supreme Court of the United States, 510 U.S. 569 (1994)

Procedural Posture

Petitioners, a rap music group being sued by respondent, the corporate owner of an original rock ballad, sought review of the judgment of the United States Court of Appeals for the Sixth Circuit, which reversed a grant of summary judgment in favor of petitioners after finding the commercial purpose of petitioners’ parody of respondent’s song had prevented it from being a fair use under the Copyright Act of 1976, 17 U.S.C.S. § 107.

Overview

Petitioners, a rap music group, were sued by respondent, the corporate owner of an original rock ballad, for copyright infringement. Petitioners claimed the song was a parody entitled to fair use protection under the Copyright Act of 1976, 17 U.S.C.S. § 107. The court below found the commercial purpose of petitioner’s parody had prevented it from being a fair use. That judgment was reversed on appeal because the Court found it was error for the court below to have concluded that the commercial nature of petitioners’ parody had rendered it presumptively unfair. The Court held that no such evidentiary presumption was available to address either § 107(1), the character and purpose of the use, or § 107(4), market harm, in determining whether transformative use, such as parody, was a fair one. The Court held that a parody’s commercial character, which tended to weigh against a finding of fair use, was only one element that should be weighed in a fair use enquiry. Therefore, the court below was found to have given insufficient consideration to the nature of the parody under the fair use factors as set forth in § 107 in weighing the degree of copying.

Outcome

The judgment was reversed and remanded upon the Court’s finding that the court below had erred in concluding the commercial nature of petitioners’ parody had rendered it presumptively unfair. The Court held that a parody’s commercial character was only one element that should be weighed in a fair use enquiry.

The “First Sale” Doctrine also limited the rights of copyright owners. §109(a) of the Act describes an exception to the exclusive right to distribute copies of the protected work. Essentially, this doctrine limits the ability of the copyright owner to its resale, transfer, or use by a purchaser. That said, it only limits the distribution right, not any of the others, including copy, public performance, creation of derivative works, etc. In order for the doctrine to apply ownership is necessary. The doctrine does not “… extend to any person who has acquired possession of the copy or phonorecord from the copyright owner, by rental, lease, loan, or otherwise, without acquiring ownership of it.” (17 U.S.C. §109(d)).

Of course, as with many things, the advent of digital versions of various products present challenges to the existing legal regime. There are two important questions to address when considering the “sale” of a digital work.

First, is it a sale of the original work or just a transfer of a copy. In other words, digital works can be copied easily and at near-zero cost. So, if the purchaser of the physical music record, or physical book for that matter, sells or gifts their copy, they would be delivering their original, and only, owned copy. In the digital space, however, the purchaser of a music file from iTunes or an eBook from Amazon could simply make a copy of that digital file and sell that duplicate rather the original.

The second question that must be addressed relates to whether a “purchaser” of a digital work is actually taking an ownership interest when the work is sold. In the pre-digital age, the purchase of a product, e.g., a book, record, or picture, would actually mean taking possession of a physical manifestation of that product. The sale would represent a transfer of ownership from the seller to the buyer thus meeting the statutory requirement of “ownership” mentioned above. In a digital marketplace, most commercial sellers of digital content use an End User License Agreement (EULA). The use of the EULA means that the transaction grants a license to use the digital product rather than a transfer of ownership. Since the transaction is not a “sale” but the grant of a “license,” the First Sale Doctrine will not apply.

Remedies for Infringement

The Copyright Act prescribes certain remedies for infringement including injunctions and money damages.

§502 authorizes “Any court having jurisdiction of a civil action …” under the Act to “… grant temporary and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright.” A plaintiff might seek a temporary injunction in an effort to prevent the infringing behaviors and reduce the damage those behaviors might cause to the plaintiff’s office. The temporary injunction might become permanent if the plaintiff prevails.

While an infringement action is pending, §503 allows a court to take into its custody any infringing copies of the protected works, any articles that may have been used to produce the infringing copies, and any records documenting the manufacture, sale, or receipt of things involved in the alleged infringement.

Infringers are liable for “… actual damages and any additional profits of the infringer … “ or statutory damages under §504. In order to establish to “… the infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.” These kinds of damages may be difficult to prove so §504 provides for statutory damages “… in a sum of not less than $750 or more than $30,000 as the court considers just.” In the event that the infringement is committed willfully, the court in its discretion “… may increase the award of statutory damages to a sum of not more than $150,000.” Further, §505 authorizes the court, in its discretion, to allow “… the recovery of full costs by or against any party …” and reasonable attorney’s fees as part of the costs.

The Act also provides for criminal penalties where the infringement was committed willfully:

  • for purposes of commercial advantage or private financial gain;
  • by the reproduction or distribution, including by electronic means, during any 180–day period, of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1,000; or
  • by the distribution of a work being prepared for commercial distribution, by making it available on a computer network accessible to members of the public, if such person knew or should have known that the work was intended for commercial distribution. (17 U.S.C. §506).

Digital Issues in Copyright

The transition to a digital economy has, and will, continue to impact copyright law. There are several statutes that address these digital developments.

No Electronic Theft Act of 1997 (NET Act)

Congress, in an effort to address increasing claims of “piracy”, i.e., infringement of digital copyright protected works, amended the Copyright Act with passage of the NET Act. These amendments addressed a loophole in the criminal penalties available under the Copyright Act by amending §506 to make criminal prosecution available even where there was no “… commercial advantage or private financial gain …” shown. (17 U.S.C. §506). It is a federal crime to reproduce, distribute, or share copies of electronic copyrighted works even if the person acts without commercial purpose and/or receives no private financial gain. Prior to the NET Act, intentional infringers of digital works over the Internet did not face criminal penalties unless they enjoyed “… commercial advantage or private financial gain …” (17 U.S.C. §506). Copyright infringement by electronic means now carries a maximum penalty of three years in prison and a $250,000 fine.

Digital Millennium Copyright Act of 1998 (DMCA)

The DMCA addressed several issues of importance in the digital space. It amended the Copyright Act to bring it into conformance with two World Intellectual Property Organizations (WIPO) treaties, the Copyright Treaty and the WIPO Performances and Phonograms Treaty.

It also added Chapter 12, Copyright Protection and Management Systems to the Copyright Act. This chapter prohibits person(s) from circumventing “… a technological measure that effectively controls access to a work …” and producing and sharing “… any technology, product, service, device, component, or part thereof, that is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work …” protected by the Act. The term “… to “circumvent a technological measure” means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner …”

In other words, the revisions make the creation or uses of anything that allows a person to hack the Digital Rights Management (DRM) controls that limit access to digital products subject to civil and criminal penalties, even if no actual infringement occurs.

Most notable, though, is the creation of “safe harbors” for online service providers (OSP) and internet service providers (ISP). One of the great strengths of the internet is its use as a platform to share information. Of course, that strength provides nearly unlimited opportunities for infringement of copyright protected works.

Pursuant to the DMCA, a service provider is “… an entity offering the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of material of the user’s choosing, without modification to the content of the material as sent or received…” or “… a provider of online services or network access, or the operator of facilities therefor …“ (17 U.S.C. §512(k)).

Service providers “… shall not be liable for monetary relief, or … for injunctive or other equitable relief, for infringement of copyright by reason of the provider’s transmitting, routing, or providing connections for, material through a system or network controlled or operated by or for the service provider …” (17 U.S.C. §512(a)). For example, if an OSP or ISP acts only as a conduit, meaning they do modify the user’s traffic, they are free from liability.

Service providers will also not be liable where they provide “… storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider, if the service provider does not have actual knowledge that the material or an activity using the material on the system or network is infringing … is not aware of facts or circumstances from which infringing activity is apparent; or upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material …” Note, the service provider cannot receive a financial benefit directly related to the infringing activity. If or when a service provider is notified of claimed infringement, pursuant to the “notice and takedown” provision in the Act, the provider must respond “… expeditiously to remove, or disable access to, the material that is claimed to be infringing …” (17 U.S.C. §512(c)).

 

Ethical Considerations

Blackwood’s Book

Professor Blackwood has worked all summer to curate the supplementary materials for her new course, Climate Change: Hoax or Catastrophe. She has, to a large degree, relied on only two sources for her curation work. She has reproduced, and plans to use, materials that are only remotely related to the specific subject matter of her course. Also, unfortunately, she has not made a concerted effort to accurately source those materials and will likely be unable to offer attribution for most of the curated materials. What ethical issues are present in these circumstances?

 

Questions

  1. What is the purpose of a copyright?
  2. What are the exclusive rights of the owner of a copyright?
  3. When does a work become fixed?
  4. What is the difference between direct and contributory infringement of a copyright?
  5. Why is the DMCA important?

Chapter One | The Legal System

Sources of American Law

To a large part, the roots of our legal heritage can be traced to England, although the American legal system also has roots in Spanish and Dutch law. Once a British colony ruled by King George III through his appointed governors, the United States adopted the greatest share of our laws and legal traditions from the English. For all intents, English law began with the Norman invasion of England in 1066. William the Conqueror and his successors established the king’s court (Curia Regis) to help create a unified nation. Before the Norman Conquest, disputes were settled according to local tribal customs. The king’s court began to develop a common or uniform set of customs applica­ble to the whole population. This evolved into what became known as the common law, so named because it was intended to be common to the entire British kingdom.

As the number of courts and disputes increased, the more important rulings made each year were compiled into Year Books. Judges referred to these Year Books as a source of guidance in settling cases similar to those already decided. If a dispute was unique (called a case of first impression), judges had to create new law, but they attempted to base their decisions on previously established legal principles as much as possible. Today we still rely on this body of judge-made law developed over the centuries. It is called common law or case law in the United States.

The common law was carried to the colonies by the first English settlers and used by courts during the pre-Revolutionary War period. Common law continued to be applied after the Revolution and during the writing of the U.S. Constitution. It is still a valuable source of law, especially in tort, contract, and agency law. States have also codified some parts of the common law, such as the penal code in criminal law, the probate code in estate law, or the Uniform Commercial Code (UCC), which codifies much of the common law relating to the sale of goods.

The Doctrine of Stare Decisis

In cases governed by the common law, courts follow the doctrine of stare decisis. Stare decisis literally means, “to adhere to decided cases” and holds that similar cases should be decided in a similar manner and should yield a similar result. Precedent is the legal decision or holdings from a prior case that courts use to determine the outcome of a similar case or a similar question of law. If a court determines that the facts in the precedent case are not the same as those in the case before it and, therefore, should not control the ruling, the court may distinguish the current case from the precedent. Courts also can, but rarely do, overrule their prior decisions. Courts strive to avoid overruling earlier cases because it upsets the principle of stare decisis and the reliance people place on settled law in planning business and personal affairs.

Constitutional Law

The United States Constitution is the seminal legal document in this country. A state’s constitution holds similar importance within its borders. A constitution establishes the structure of government for the political unit (federal or state) by providing for the branches, subdivisions, and functions of government and by conferring and denying powers to each part. The U.S. Constitution created three branches of government: legislative, executive, and judicial. The Constitution provides each with unique powers that theoretically make each branch equal to the other two.  The doctrine of separation of powers provides a system of checks and balances so that one branch may not trammel over the rights and prerogatives of the others. Thus, the Constitution establishes a Congress to make laws, a president to enforce the laws, and a judiciary to interpret them. It also delegates to the states certain powers and casts a basic relationship between the states and the federal government. The relationship created is by definition a federal form of government. Each state possesses a limited amount of sovereignty, but the law of the federal government is supreme and applicable to all of the states.

The U.S. Constitution
Articles I to VII

Article I — Creates in the legislature [the Congress] the authority to enact laws. Article I defines the functions, powers, and role of Congress. Section 8 relates directly to matters affecting business in the United States: the power to lay and collect taxes; to regulate commerce with foreign nations and the states; to promulgate uniform bankruptcy laws; and to establish courts inferior to the U.S. Supreme Court. Section 9 also affects business affairs, states may not impose a tax on exports to a foreign country and they may not give preference to one state over another by regulating commerce.

Article II — The subject of this article is the executive power. The President has the duty to enforce all federal laws. It establishes the President’s term of office, the requirements to become President, and sets forth the presidential election process. It identifies the President as Commander in Chief of the Armed Forces, confers in the President the power to make treaties with the advice and consent of the Senate, and permits the President to make executive agreements with other nations without the advice and consent of the Senate. At the root of this power is the President’s authority to speak and act on behalf of the country in matters of foreign relations.

Article III — Article III establishes the judicial branch of the government. Article III authorizes the establishment of the U.S. Supreme Court and other federal courts. It confers the power to interpret laws and adjudicate certain disputes to the courts. Article III also provides for trials by jury for crimes and contains a definition of treason. The power of the courts was affirmed in the precedent case of Marbury v. Madison.

Article IV — Concerns the relationships between the states. Each state is bound to recognize the public acts and proceedings of the other states through the “full faith and credit” clause. The power to extradite a criminal from one state to another is also found here.

Article V — Lays out the means by which the U.S. Constitution may be amended.

Article VI — Confers supremacy of the U.S. Constitution, federal laws, and treaties over all other laws. All officials – federal and state – are sworn under oath to uphold the U.S. Constitution.

Article VII — Includes original acceptance of the U.S. Constitution by the states.

Constitutional Amendments

The Bill of Rights is the collective name of the first ten amendments to the U.S. Constitution. The Bill of Rights contains the freedoms of speech, press, religion, and assembly; the requirement that law enforcement authorities must possess a warrant in order to perform a search and seizure; provisions for protection from self-incrimination; the establishment of a grand jury for capital offenses; requirements for just compensation in eminent domain cases; a prohibition against double jeopardy; and, important provisions for “due process of law.”

The Fourteenth Amendment — While each amendment to the U.S. Constitution is intrinsically and equally important, the Fourteenth Amendment may be considered the “first among equals” in that it makes most of the fundamental guarantees of the Bill of Rights applicable to the states.

Supremacy of the U.S. Constitution

Since the 1930s and the presidency of Franklin D. Roosevelt, the U.S. Constitution has been interpreted to allow the federal government to become involved in the conduct of many areas of our daily lives. The regulation of some activities may also be relegated or delegated to the states. In this situation, any federal law that conflicts with a state law on the same subject matter takes precedence over and preempts the state law, unless, of course the federal action is ruled unconstitutional. Should Congress determine that federal law takes priority, its decision generally will be accepted. If Congress is silent on the matter, a court of competent jurisdiction would apply the following analysis to the federal law to determine whether it takes precedence over a state enactment:

  • Does the U.S. Constitution permit the federal government to regulate the area of law in which this particular law resides? If yes, the federal law will likely prevail.
  • Does the federal law violate a right guaranteed by the U.S. Constitution, for example, the right to a speedy trial? If yes, the federal law is preempted by the U.S. Constitution.
  • If not, does a state law address the same subject mater? If so, is there an inconsistency between the two laws? If one exists, the federal law prevails.

If both the federal and state laws are not contradictory, and Congress has not specifically preempted state action, the state law is said to be concurrent with federal law and may be applied.

State Constitutions

Powers not delegated to the federal government are retained by the states unless prohibited in the states’ own constitutions. Therefore, laws on the same subject matter can differ from one state to another in many ways. Businesses need to be aware of these distinctions, including differences between federal and state authority. Conflicting perceptions may appear with respect to the point at which federal power ends and so-called “state rights” begin.

Statutory Law

Statutes are written laws enacted by Congress or a state legislature for the purpose of declaring, ordering, or prohibiting something. Counties, cities, and towns may enact laws, as well. These “local laws” are generally called ordinances. Neither statutes nor ordinances can violate the U.S. Constitution or the applicable state constitution.

State statutory law varies throughout the country, partly because of cultural and geographical differences, and partly because of diverging needs. For example, eight western states enacted marital property statutes, called community property laws, originally derived from the Spanish legal system that originated in Mexico. Louisiana has laws that originated under the Napoleonic Code, because the French initially settled that area and brought with them their system of law. New York has adopted aspects of Dutch property law as it relates to condominium and co-op ownership.

Throughout the text, you will encounter various state and federal statutes. As you read these statutes, you will begin to understand the difficulty in interpreting and applying them. A large portion of the work that modern courts do consists of interpreting what the legislators meant when they passed a law and applying that understanding or meaning to the current circumstances. In this task, a court may be guided by consulting the legislative history of any law, in order to ascertain the intention of the writers of any statute.

Equity

Equity is that body of law that carries out justice when the law itself fails to provide a fair or adequate remedy or no remedy at all. Equity originated in medieval England. During this period, the existing common law rules were highly technical and rigid. The remedies available in the common law courts were scarce. As a result, a prevailing party might not be able to obtain adequate relief in many courts. To rectify this problem, the chancellor, the king’s highest-ranking advisor, heard cases that could not be settled satisfactorily. The Court of Chancery, an offshoot of the Curia Regis, was the court of the king’s chancellor. The most famous chancellor in British history was perhaps Sir Thomas More.

The American colonies adopted the principles of equity along with the common law. Eventually, law and equity became merged, so that today, the majority of states have eliminated separate equity (chancery) and law courts. The same court handles both types of claims. Further, courts may award both monetary damages (“a remedy in law”) and an equitable remedy in specific cases.

Actions at law and suits in equity resolve issues using different procedures. In actions at law, disputes are generally resolved by the application of statutes and previously decided cases. Suits in equity are decided by principles of fairness and equity.

Examples of equitable principles include the doctrines of laches and the “Clean Hands” doctrine. Laches is the product of the maxim that “equity aids the vigilant and not those that slumber on their rights.” This means that if one neglects or omits to do what one should do in a timely fashion it is presumed that he has abandoned his right or claim. The “Clean Hands” doctrine means that the court will not provide an equitable remedy to one who has violated conscience or good faith or other equitable principles. Simply stated, it means that “he who seeks equity must do equity.”

Equitable decisions are called decrees. Unlike legal relief, which involves awards of money or something else of value, equity decrees order a party to do or refrain from doing something. For example, the remedy may come in the form of an injunction—either temporary or permanent—prohibiting one party from doing an act or commanding a party to perform an act. Another type of equitable relief is that of specific performance, where the losing party is ordered to perform the contractual promise he or she made. It is imposed when monetary damages are inadequate. For example, Ross offers to buy Joan’s building for his motorcycle shop and Joan accepts. Joan later changes her mind and decides to keep the property. Since real estate is considered to be unique, and there is no other piece of property or building exactly like Joan’s, a court may order specific performance on the contract. Joan would be compelled to go through with the sale.

Additional equitable remedies include rescission (canceling a contract, thereby putting the parties to the contract in the same position they were in before the contract was formed), restitution (returning property or money to a party), and reformation (where the court of equity will rewrite all or part of a contract to reflect the parties’ actual intentions).

Administrative Law

Congress or a state legislature will oftentimes enact a statute using general language leaving it up to the appropriate administrative agency to create more detailed rules.  Federal and state regulatory agencies (for example, the Environmental Protection Agency and the Federal Trade Commission) promulgate their own “rules and regulations” to implement the statutes enacted by the legislatures.  These regulations generally have the same impact as a statute, and therefore are often termed administrative laws.    

Administrative Agencies

As the United States became industrialized in the latter half of the 19th century, the need arose to create divisions of government that could handle the ever-complex situations that evolved. Congress and state legislatures began to establish administrative agencies. The duties that Congress could not perform in regulating certain activities because of the lack of time and specialized knowledge were delegated to these agencies.

To date, Congress and the executive branch have created over 100 administrative agencies to make, interpret, and enforce laws. These agencies provide a forum where complex issues and disputes can be adjudicated with efficiency, expertise, and fairness. Administrative agencies are authorities in their particular areas of law. Their expertise is critical given the complexities of the law and the complexities of the areas of business the laws seek to regulate.

Administrative agencies exist at every level of the government and they derive their power from the particular branch of the government that created them. For example, Congress creates federal agencies, state legislatures create state agencies, and city councils create their cities’ administrative agencies. An example of a federal agency is the Securities and Exchange Commission (SEC), which is authorized to enforce the federal securities laws that apply to issuers and persons who trade in securities. The New Jersey Department of Environmental Protection is an example of a state agency. It regulates air and water quality, wetlands, solid and hazardous waste management, parks and forestry, fish and wildlife. An example of local agency is the Business Integrity Commission of New York City. This agency regulates the trade waste industry, shipboard gambling industry, Fulton Fish Market distribution area and other seafood distribution areas, and public wholesale markets.

Legislative supervision over agencies may be minimal; however, administrative agencies are subject to the Administrative Procedure Act (APA) which requires agencies to follow uniform procedures in making rules and establishes basic notice and hearing requirements, which are collectively known as “due process” rights.

While the vast majority of administrative actions are processed informally, certain administrative agencies have been assigned quasi-judicial authority to adjudicate cases through an administrative proceeding. These proceedings are not identical to court trials; however, the agency must comply with the Due Process Clause of the U.S. Constitution. In other words, the individual or business must be given adequate notice and a meaningful opportunity to be heard, and fair trial procedures must be utilized in making administrative determinations. Administrative actions may also be challenged by claiming that an agency has acted ultra vires, that is, beyond the scope of their own power and authority.

Administrative law judges (ALJs) preside over administrative proceedings. There is no jury. Counsel may represent the administrative agency and the respondent and may call witnesses and introduce evidence. Upon hearing the case, the ALJ will render a decision in the form of an order that will state “the findings of fact and the conclusions of law” upon which the decision is based. The order becomes final if it is not appealed. If either party is dissatisfied with the decision, it may seek an appeal that consists of a review by the agency or perhaps by a court. In some cases, a successful appeal will result in a completely new or “de novo” hearing on the merits of the case. In other cases, the scope of appellate review is limited. A court will defer to the findings of the ALJ and only decide whether those findings could reasonably have been reached on sufficient or substantial credible evidence present in the record.

Treaties

According to the U.S. Constitution, a treaty is made by the President with the head of a foreign country. It must be ratified by two-thirds of the Senate. It then becomes “the supreme law of the land.” A conflict of law between a treaty and a state or federal law causes that law to become invalid.

Basis of Commercial Law

The area of law pertaining to commercial dealings is called commercial or business law. It includes aspects of contract law, sales, corporations, agency, partnerships, and other subjects included in this text.

Uniform Laws

Since each state is a sovereign, with a different set of laws, the differences created issues for commerce between the states. Beginning in the late 18th century, a group of legal scholars formed the National Conference of Commissioners on Uniform State Laws (NCCUSL) and began meeting to draft uniform statutes. State legislatures were encouraged to adopt the uniform law. In addition to the NCCUSL the American Law Institute [ALI], founded in 1923, has also developed a number of comprehensive codes of law. Each state may adopt all or part (or none, for that matter) of a uniform law. Therefore, the law on any particular subject is not “uniform” throughout the country.    

Examples of uniform laws include the Model Business Corporation Act, the Uniform Gifts to Minors Act, the Uniform Arbitration Act, and the Uniform Federal Lien Registration Act. A number of other uniform laws have been written as well. Students of business law become familiar with the Uniform Commercial Code or “UCC,” one of the most important legal codes.

The Uniform Commercial Code

The UCC is a unified body of statutes governing nearly all commercial transactions. Nevertheless, the interpretations of the UCC are found in case law, or the reported decisions of the courts. By providing uniformity and stability among the states, the UCC encourages the advancement of business and assures businesspeople that their legal contracts will be carried out and enforced by the courts.

The UCC did not result in drastic changes in the basic principles of commercial law. There are, however, important differences from the common law. While the common law was guided, to a large extent, by the principle of caveat emptor or “let the buyer beware,” the UCC envisions a different role of a merchant in commercial transactions. Merchants are held to a very high standard of performance and must act to act in good faith within the commercial sphere.  UCC § 2-103 defines good faith as “honesty in fact” and the “observance of reasonable commercial standards of fair dealing in the trade.” This is a far cry from caveat emptor!

The UCC defines and explains important and sometimes commonly misunderstood legal and business terms, thus assisting parties in the drafting of contracts and aiding courts in their interpretation and enforcement. For example, courts may rule that certain contracts or terms within a contract are unconscionable and therefore unenforceable. The case law governing contracts in one state has persuasive value in courts of other states because adoption of the UCC results in “uniformity.”

All fifty states have adopted the UCC, as well as, the District of Columbia, the Virgin Islands, and Guam. Louisiana was the last state to adopt the UCC. Why do you think Louisiana was so late in adopting the UCC?

Classification of Law

Laws may be classified into three different groupings. They are: (1) criminal law and civil law; (2) substantive law and procedural law; and (3) public law and private law.

Criminal and Civil Law

Philosophically, a crime may be considered a wrong committed against society. Federal and state prosecutors who bring the case against the defendant, or the person committing the wrongdoing, represent society. The respective criminal law applies in these cases. In certain instances, a city or municipality may initiate a criminal action, such as charging a person with theft, assault, public disorderliness, or some other criminal offense. The formal charge is made in the name of the state in which the alleged violation took place. In some cases, “persons” may include corporations and other types of business entities. Crimes are punishable by imprisonment and/or fines, and in some cases, the making of restitution to the victim of a crime.

In general terms, civil law is applied when an injured party, or a plaintiff, brings an action against another party, a defendant, because the defendant did not meet or breached a legal duty owed to the plaintiff. Anyone may be a party to a civil suit—individuals, business entities, and government entities. If the defendant loses a civil case, the plaintiff is usually awarded some form of damages (money, property) or some form of equitable relief.

At times, the same behavior may violate both criminal and civil laws. For example, a car thief may be charged for violating a criminal statute and may also be sued in a civil court by the owner of the car for money damages.

Substantive and Procedural Law

Laws that prescribe the rights and obligations of people in their everyday lives are called substantive laws. A statute that makes theft illegal is a substantive law.

Procedural laws establish the means and rules by which substantive laws are applied. For example, in federal civil suits all individuals involved (judge, defendant, jury, plaintiff, etc.) act in compliance with the rules set down in the Federal Rules of Civil Procedure. By way of example, one such rule sets forth time limits for the filing of law suits in federal courts.

Public and Private Law

Public law is law enacted by an authorized government body. Examples include the U.S. Constitution, state constitutions, federal aviation laws, state laws of incorporation, municipal parking ordinances, and zoning laws.

Private law develops from a relationship between parties and creates a framework of rules to establish rights and obligations of the parties. For example, an employment contract creates a legal relationship between the employer and employee. The terms of the contract are a type of private law to be obeyed by the parties. The requirements for executing the contract and the means for enforcing the contract are a matter of public law; however, the terms for performance are private law created by the parties to the employment contract.

Primary and Secondary Sources of Law

Primary sources of law, or binding authority, are those sources of law a court must follow when deciding cases. Primary sources include, constitutions, statutes, regulations, and case law. Secondary sources of law, or persuasive authority, include case law from other jurisdictions, legal dictionaries, law review articles, and treatises.  Secondary sources of law are not binding on the court but may help guide the court in deciding a case.

Schools of Jurisprudential Thought

The Natural Law School

The natural law school is one of the oldest legal philosophies, at least dating back the days of Aristotle.  He noted the natural law applies to all humankind.  There is a higher and universal law transcending all creation, and the human law, or civil law, aspires to embody these general, universal principles.  Every human being has an inclination to discern good from bad, right from wrong.  The notion of “natural rights” comes from the natural law.

The Positivist School

The adherents to the legal positivist school do not believe natural rights come from a higher form of law.  Instead, laws are created by societies.  Whether there are good laws or bad laws does not matter.  Under their philosophy, all laws must be obeyed until they are changed.

The Historical School

Followers of the historical school look to history, tradition, or customs.  They look to what legal doctrines have withstood the passage of time—what works and what does not work.  Adherents to the historical school will look to past cases for guidance and follow those decisions.

Legal Realism

Legal realists will look outside the statutory framework, as they believe the law cannot always be applied with total uniformity.  Judges are permitted to bring in their own psychological, economic, and political predispositions into their decisions.  They believe that law is not a scientific enterprise in which deductive reasoning can be applied consistently to reach an outcome in every case.  Instead, judges must resolve cases by balancing the interests of the parties with that of society.

 

Questions

    1. How did the common law develop?
    2. What is a “case of first impression”?
    3. Explain the principle of “stare decisis.”
    4. Why is the U.S. Constitution so important in this country?
    5. What are the various rights protected in the Bill of Rights?
    6. Explain the federal powers conferred in Articles I, II, and III. What is the doctrine of separation of powers?
    7. Differentiate between courts of equity and law. Why are each needed?
    8. What is preemption and when is a state law preempted by a federal law?
    9. What role do administrative agencies play in government? Name a federal agency and a state agency.
    10. What is the difference between a state constitution and the federal constitution?
    11. How would a secondary source of law guide a court?
    12. Explain what a treaty is and when the courts have to follow it.
    13. What is the difference between statutory law and constitutional law?
    14. What is the difference between public and private law? Give examples.
    15. Give an example of substantive law. How does the procedural law compliment the substantive law?
    16. Who brings the charges against the accused in a criminal matter?
    17. Why are uniform laws important? What is the UCC?
    18. What is the definition of “good faith” under the UCC?
    19. What is the difference between civil law and criminal law?
    20. What are the differences between the various schools of jurisprudential thought? Which is more convincing?

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