The Code and Structure Google Copied Were Not Entitled to Copyright Protection

B. Fair Use

As noted, the jury hung on Google’s fair use defense, and the district court declined to order a new trial given its conclusion that the code and structure Google copied were not entitled to copyright protection. On appeal, Oracle argues that: (1) a remand to decide fair use “is pointless”; and (2) this court should find, as a matter of law, that “Google’s commercial use of Oracle’s work in a market where Oracle already competed was not fair use.” Appellant Br. 68.

Fair use is an affirmative defense to copyright infringement and is codified in Section 107 of the Copyright Act. Golan, 132 S. Ct. at 890 (“[T]he fair use defense, is codified at 17 U.S.C. § 107.”). Section 107 permits use of copyrighted work if it is “for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research.” 17 U.S.C. § 107. The fair use doctrine has been referred to as “‘the most troublesome in the whole law of copyright.’” Monge v. Maya Magazines, Inc., 688 F.3d 1164, 1170 (9th Cir. 2012) (quoting Dellar v. Samuel Goldwyn, Inc., 104 F.2d 661, 662 (2d Cir. 1939) (per curiam)). It both permits and requires “courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster.” Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577 (1994) (quoting Stewart v. Abend, 495 U.S. 207, 236 (1990)).

“Section 107 requires a case-by-case determination whether a particular use is fair, and the statute notes four nonexclusive factors to be considered.” Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 549 (1985). Those factors are: (1) “the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;” (2) “the nature of the copyrighted work;” (3) “the amount and substantiality of the portion used in relation to the copyrighted work as a whole;” and (4) “the effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. § 107. The Supreme Court has explained that all of the statutory factors “are to be explored, and the results weighed together, in light of the purpose[] of copyright,” which is “[t]o promote the Progress of Science and useful Arts.” Campbell, 510 U.S. at 578, 575 (internal citations omitted).

“Fair use is a mixed question of law and fact.” Harper & Row, 471 U.S. at 560. Thus, while subsidiary and controverted findings of fact must be reviewed for clear error under Rule 52 of the Federal Rules of Civil Procedure, the Ninth Circuit reviews the ultimate application of those facts de novo. See Seltzer v. Green Day, Inc., 725 F.3d 1170, 1175 (9th Cir. 2013) (citing SOFA Entm’t, Inc. v. Dodger Prods., Inc., 709 F.3d 1273, 1277 (9th Cir. 2013)). Where there are no material facts at issue and “the parties dispute only the ultimate conclusions to be drawn from those facts, we may draw those conclusions without usurping the function of the jury.” Id. (citing Fisher v. Dees, 794 F.2d 432, 436 (9th Cir. 1986)). Indeed, the Supreme Court has specifically recognized that, “[w]here the district court has found facts sufficient to evaluate each of the statutory factors, an appellate court ‘need not remand for further factfinding . . . [but] may conclude as a matter of law that [the challenged use] [does] not qualify as a fair use of the copyrighted work.’” Harper & Row, 471 U.S. at 560 (citation omitted).

Of course, the corollary to this point is true as well— where there are material facts in dispute and those facts have not yet been resolved by the trier of fact, appellate courts may not make findings of fact in the first instance. See Shawmut Bank, N.A. v. Kress Assocs., 33 F.3d 1477, 1504 (9th Cir. 1994) (“[W]e must avoid finding facts in the first instance.”); see also Golden Bridge Tech., Inc. v. Nokia, Inc., 527 F.3d 1318, 1323 (Fed. Cir. 2008) (“Appellate courts review district court judgments; we do not find facts.”). Here, it is undisputed that neither the jury nor the district court made findings of fact to which we can refer in assessing the question of whether Google’s use of the API packages at issue was a “fair use” within the meaning of Section 107. Oracle urges resolution of the fair use question by arguing that the trial court should have decided the question as a matter of law based on the undisputed facts developed at trial, and that we can do so as well. Google, on the other hand, argues that many critical facts regarding fair use are in dispute. It asserts that the fact that the jury could not reach a resolution on the fair use defense indicates that at least some presumably reasonable jurors found its use to be fair. And, Google asserts that, even if it is true that the district court erred in discussing concepts of “interoperability” when considering copyrightability, those concepts are still relevant to its fair use defense. We turn first to a more detailed examination of fair use.

The first factor in the fair use inquiry involves “the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes.” 17 U.S.C. § 107(1). This factor involves two sub-issues: (1) “whether and to what extent the new work is transformative,” Campbell, 510 U.S. at 579 (citation and internal quotation marks omitted); and (2) whether the use serves a commercial purpose.

A use is “transformative” if it “adds something new, with a further purpose or different character, altering the first with new expression, meaning or message.” Id. The critical question is “whether the new work merely supersede[s] the objects of the original creation . . . or instead adds something new.” Id. (citations and internal quotation marks omitted). This inquiry “may be guided by the examples given in the preamble to § 107, looking to whether the use is for criticism, or comment, or news reporting, and the like.” Id. at 578-79. “The Supreme Court has recognized that parodic works, like other works that comment and criticize, are by their nature often sufficiently transformative to fit clearly under the fair use exception.” Mattel Inc. v. Walking Mountain Prods., 353 F.3d 792, 800 (9th Cir. 2003) (citing Campbell, 510 U.S. at 579).

Courts have described new works as “transformative” when “the works use copy-righted material for purposes distinct from the purpose of the original material.” Elvis Presley Enters., Inc. v. Passport Video, 349 F.3d 622, 629 (9th Cir. 2003) (“Here, Passport’s use of many of the television clips is transformative because they are cited as historical reference points in the life of a remarkable entertainer.”), overruled on other grounds by Flexible Lifeline Sys., Inc. v. Precision Lift, Inc., 654 F.3d 989, 995 (9th Cir. 2011) (per curiam); see also Bouchat v. Baltimore Ravens Ltd. P’ship, 619 F.3d 301, 309-10 (4th Cir. 2010) (quoting A.V. ex rel. Vanderhyge v. iParadigms, LLC, 562 F.3d 630, 638 (4th Cir. 2009) (“[A] transformative use is one that ‘employ[s] the quoted matter in a different manner or for a different purpose from the original.’”)). “A use is considered transformative only where a defendant changes a plaintiff’s copyrighted work or uses the plaintiff’s copyrighted work in a different context such that the plaintiff’s work is transformed into a new creation.” Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1165 (9th Cir. 2007) (quoting Wall Data Inc. v. L.A. County Sheriff’s Dep’t, 447 F.3d 769, 778 (9th Cir. 2006), and finding that Google’s use of thumbnail images in its search engine was “highly transformative”).

A work is not transformative where the user “makes no alteration to the expressive content or message of the original work.” Seltzer, 725 F.3d at 1177; see also Wall Data, 447 F.3d at 778 (“The Sheriff’s Department created exact copies of RUMBA’s software. It then put those copies to the identical purpose as the original software. Such a use cannot be considered transformative.”); Monge, 688 F.3d at 1176 (finding that a magazine’s publication of photographs of a secret celebrity wedding “sprinkled with written commentary” was “at best minimally transformative” where the magazine “did not transform the photos into a new work . . . or incorporate the photos as part of a broader work”); Elvis Presley Enters., 349 F.3d at 629 (finding that use of copyrighted clips of Elvis’s television appearances was not transformative where “some of the clips [we]re played without much interruption, if any . . . [and] instead serve[d] the same intrinsic entertainment value that is protected by Plaintiffs’ copyrights.”). Where the use “is for the same intrinsic purpose as [the copyright holder’s] . . . such use seriously weakens a claimed fair use.” Worldwide Church of God v. Phila. Church of God, Inc., 227 F.3d 1110, 1117 (9th Cir. 2000) (quoting Weissmann v. Freeman, 868 F.2d 1313, 1324 (2d Cir. 1989)).

Analysis of the first factor also requires inquiry into the commercial nature of the use. Use of the copyrighted work that is commercial “tends to weigh against a finding of fair use.” Harper & Row, 471 U.S. at 562 (“The crux of the profit/nonprofit distinction is not whether the sole motive of the use is monetary gain but whether the user stands to profit from exploitation of the copyrighted material without paying the customary price.”). “[T]he more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use.” Campbell, 510 U.S. at 579.

The second factor—the nature of the copyrighted work—“calls for recognition that some works are closer to the core of intended copyright protection than others, with the consequence that fair use is more difficult to establish when the former works are copied.” Id. at 586. This factor “turns on whether the work is informational or creative.” Worldwide Church of God, 227 F.3d at 1118; see also Harper & Row, 471 U.S. at 563 (“The law generally recognizes a greater need to disseminate factual works than works of fiction or fantasy.”). Creative expression “falls within the core of the copyright’s protective purposes.” Campbell, 510 U.S. at 586. Because computer programs have both functional and expressive components, however, where the functional components are themselves unprotected (because, e.g., they are dictated by considerations of efficiency or other external factors), those elements should be afforded “a lower degree of protection than more traditional literary works.” Sega, 977 F.2d at 1526. Thus, where the nature of the work is such that purely functional elements exist in the work and it is necessary to copy the expressive elements in order to perform those functions, consideration of this second factor arguably supports a finding that the use is fair.

The third factor asks the court to examine “the amount and substantiality of the portion used in relation to the copyrighted work as a whole.” 17 U.S.C. § 107(3). Analysis of this factor is viewed in the context of the copyrighted work, not the infringing work. Indeed, the statutory language makes clear that “a taking may not be excused merely because it is insubstantial with respect to the infringing work.” Harper & Row, 471 U.S. at 565. “As Judge Learned Hand cogently remarked, ‘no plagiarist can excuse the wrong by showing how much of his work he did not pirate.’” Id. (quoting Sheldon v. MetroGoldwyn Pictures Corp., 81 F.2d 49, 56 (2d Cir. 1936)). In contrast, “the fact that a substantial portion of the infringing work was copied verbatim is evidence of the qualitative value of the copied material, both to the originator and to the plagiarist who seeks to profit from marketing someone else’s copyrighted expression.” Id. The Ninth Circuit has recognized that, while “wholesale copying does not preclude fair use per se, copying an entire work militates against a finding of fair use.” Worldwide Church of God, 227 F.3d at 1118 (internal citation and quotation omitted). “If the secondary user only copies as much as is necessary for his or her intended use, then this factor will not weigh against him or her.” Kelly v. Arriba Soft Corp., 336 F.3d 811, 820-21 (9th Cir. 2003). Under this factor, “attention turns to the persuasiveness of a parodist’s justification for the particular copying done, and the enquiry will harken back to the first of the statutory factors . . . [because] the extent of permissible copying varies with the purpose and character of the use.” Campbell, 510 U.S. at 586-87.

The fourth and final factor focuses on “the effect of the use upon the potential market for or value of the copyrighted work.” Harper & Row, 471 U.S. at 566. This factor reflects the idea that fair use “is limited to copying by others which does not materially impair the marketability of the work which is copied.” Id. at 566-67. The Supreme Court has said that this factor is “undoubtedly the single most important element of fair use.” Id. at 566. It requires that courts “consider not only the extent of market harm caused by the particular actions of the alleged infringer, but also whether unrestricted and widespread conduct of the sort engaged in by the defendant . . . would result in a substantially adverse impact on the potential market for the original.” Campbell, 510 U.S. at 590 (citation and quotation marks omitted). “Market harm is a matter of degree, and the importance of this factor will vary, not only with the amount of harm, but also with the relative strength of the showing on the other factors.” Id. at 590 n.21.

Oracle asserts that all of these factors support its position that Google’s use was not “fair use”—Google knowingly and illicitly copied a creative work to further its own commercial purposes, did so verbatim, and did so to the detriment of Oracle’s market position. These undisputable facts, according to Oracle, should end the fair use inquiry. Oracle’s position is not without force. On many of these points, Google does not debate Oracle’s characterization of its conduct, nor could it on the record evidence.

Google contends, however, that, although it admittedly copied portions of the API packages and did so for what were purely commercial purposes, a reasonable juror still could find that: (1) Google’s use was transformative; (2) the Java API packages are entitled only to weak protection; (3) Google’s use was necessary to work within a language that had become an industry standard; and (4) the market impact on Oracle was not substantial.

On balance, we find that due respect for the limit of our appellate function requires that we remand the fair use question for a new trial. First, although it is undisputed that Google’s use of the API packages is commercial, the parties disagree on whether its use is “transformative.” Google argues that it is, because it wrote its own implementing code, created its own virtual machine, and incorporated the packages into a smartphone platform. For its part, Oracle maintains that Google’s use is not transformative because: (1) “[t]he same code in Android . . . enables programmers to invoke the same pre-programmed functions in exactly the same way;” and (2) Google’s use of the declaring code and packages does not serve a different function from Java. Appellant Reply Br. 47. While Google overstates what activities can be deemed transformative under a correct application of the law, we cannot say that there are no material facts in dispute on the question of whether Google’s use is “transformative,” even under a correct reading of the law. As such, we are unable to resolve this issue on appeal.

Next, while we have concluded that it was error for the trial court to focus unduly on the functional aspects of the packages, and on Google’s competitive desire to achieve commercial “interoperability” when deciding whether Oracle’s API packages are entitled to copyright protection, we expressly noted that these factors may be relevant to a fair use analysis. While the trial court erred in concluding that these factors were sufficient to overcome Oracle’s threshold claim of copyrightability, reasonable jurors might find that they are relevant to Google’s fair use defense under the second and third factors of the inquiry. See Sega, 977 F.2d at 1524-25 (discussing the Second Circuit’s approach to “break[ing] down a computer program into its component subroutines and subsubroutines and then identif[ying] the idea or core functional element of each” in the context of the second fair use factor: the nature of the copyrighted work). We find this particularly true with respect to those core packages which it seems may be necessary for anyone to copy if they are to write programs in the Java language. And, it may be that others of the packages were similarly essential components of any Java language-based program. So far, that type of filtration analysis has not occurred.

Finally, as to market impact, the district court found that “Sun and Oracle never successfully developed its own smartphone platform using Java technology.” Copyrightability Decision, 872 F. Supp. 2d at 978. But Oracle argues that, when Google copied the API packages, Oracle was licensing in the mobile and smartphone markets, and that Android’s release substantially harmed those commercial opportunities as well as the potential market for a Java smartphone device. Because there are material facts in dispute on this factor as well, remand is necessary.

Ultimately, we conclude that this is not a case in which the record contains sufficient factual findings upon which we could base a de novo assessment of Google’s affirmative defense of fair use. Accordingly, we remand this question to the district court for further proceedings. On remand, the district court should revisit and revise its jury instructions on fair use consistent with this opinion so as to provide the jury with a clear and appropriate picture of the fair use defense.[17]

[17] Google argues that, if we allow it to retry its fair use defense on remand, it is entitled to a retrial on infringement as well. We disagree. The question of whether Google’s copying constituted infringement of a copyrighted work is “distinct and separable” from the question of whether Google can establish a fair use defense to its copying. See Gasoline Prods. Co. v. Champlin Refining Co., 283 U.S. 494, 500 (1931) (“Where the practice permits a partial new trial, it may not properly be resorted to unless it clearly appears that the issue to be retried is so distinct and separable from the others that a trial of it alone may be had without injustice.”). Indeed, we have emphasized more than once in this opinion the extent to which the questions are separable, and the confusion and error caused when they are blurred. The issues are not “interwoven” and it would not create “confusion and uncertainty” to reinstate the infringement verdict and submit fair use to a different jury. Id. We note, moreover, that, because Google only mentions this point in passing, with no development of an argument in support of it, under our case law, it has not been properly raised. See SmithKline Beecham Corp. v. Apotex Corp., 439 F.3d 1312, 1320 (Fed. Cir. 2006) (when a party provides no developed argument on a point, we treat that argument as waived) (collecting cases).