IP Alerts
March 30, 2018
On March 27, the Federal Circuit issued its second opinion in Oracle America, Inc. v. Google Inc. In a very significant decision under copyright law, the court held that fair use did not protect Google’s use of Oracle’s software code, thereby exposing Google to potentially billions of dollars of damages. The court’s earlier opinion, issued in May 2014, found that copyright protection can extend to the overall structure, sequence, and organization of software and the Java application programming interface (API) packages. That opinion is discussed in a previous IP alert regarding this case.
Oracle sued Google for copyright and patent infringement and asserted that Google’s Android operating system infringed Oracle’s software patents and copyrights in the API packages. On the copyright claims, Oracle alleged that Google’s Android smartphone included 37 infringing API packages that Google copied from the Java platform relating to mobile devices. Oracle requested billions of dollars in damages.
The API packages copied were prewritten code that developers used so that they would not need to write their own code to perform the associated functions. Thus, while Google wrote its own implementing source code, it copied 7,000 lines of “declaring” source code from Oracle’s API packages verbatim. This declaring source code formed the structure, sequence, and organization of Oracle’s allegedly infringing API packages. In 2014, the Federal Circuit confirmed that Oracle’s declaring code and the structure, sequence, and organization (SSO) of the 37 Java API packages was copyrightable.
After the Federal Circuit’s previous decision finding that the software code was entitled to copyright protection, Google petitioned for review by the Supreme Court. After requesting input from the Solicitor General, who agreed with the Federal Circuit, the Supreme Court subsequently denied certiorari in 2015.
On remand at the Northern District of California, Google argued that its use of the API packages constituted “fair use” under the Copyright Act. The district court agreed, and entered judgment in favor of Google. Oracle appealed, and in this week’s decision the Federal Circuit found in Oracle’s favor.
Background Facts
Well before the parties found themselves in court, Oracle offered license schemes to attract programmers to the Java platform. Although the Java platform is freely available to programmers building applications, Oracle charges a licensing fee to anyone who wants to use the APIs in a competing platform or embed them in an electronic device.
In 2005, Google and Sun (Oracle’s predecessor) discussed the possibility of Google licensing the Java platform for mobile devices, but the parties were unable to come to terms. The Federal Circuit noted that no agreement was reached because Google wanted the device manufacturers to be able to use the APIs in Android for free with no limits on code modification. Oracle insisted on the limitation on modifying the code because Oracle felt that this provision was required to preserve Oracle’s “write once, run anywhere” philosophy. In the end, Google elected to use the Java API packages and the SSO.
Android phones went on sale in 2008 with the Android software platform. Google provided the Android software platform free of charge to smartphone manufacturers, and provided the source code for use under an open-source license. Android, through advertising revenue, has generated over $42 billion. Google’s actions devastated Oracle’s licensing strategy; many customers switched to Android and the customers who remained with Oracle leveraged Android as a reason for requesting discounts.
Standard of Review
In its analysis, the court conducted a fairly lengthy analysis of the standard of review and noted that fair use is a mixed question of law and fact. Accordingly, fair use, being a mixed question, is broken down into its component parts so that the court can review each under the appropriate standard of review.
The court also noted that the question of fair use is primarily legal as it requires a court to asses the inferences to be drawn from the historical facts found in light of the legal standards outlined in the statues and relevant case law and to determine what conclusion those inferences dictate. Further, given the relative predictability of historical facts relevant to fair-use cases and that they are rarely debatable, the court stated that “the exercise of assessing whether a use is fair in one case will help guide resolution of that question in all future cases.”
To that end, the Federal Circuit applied a de novo review to the question of whether the district court applied the correct legal standard to the fair-use inquiry and whether the use is ultimately a fair one, but applied a deferential review to findings relating to any relevant historical facts. The court further observed that historical facts of the fair-use cases typically include origin, history, content, and defendant’s use of the copyrighted work.
The court also discussed the jury’s role in Ninth Circuit fair-use cases and notes that it is limited to determining disputed historical facts, and not inferences or conclusions to be drawn from those facts. Despite the Ninth Circuit’s position, the court is concerned that all aspects of Google’s fair-use defense went to the jury. Accordingly, the court cautions that all jury findings relating to the fair use other than its implied findings of historical fact must be viewed as advisory only.
Four-Factor Test
In their May 2014 decision, the Federal Circuit remanded the case to the district court with instructions to consider Google’s affirmative defenses, with specific guidance on the fair-use defense. The affirmative defense of fair use permits copying of a copyrighted work only for certain purposes such as criticism, comment, news reporting, teaching, scholarship, or research.
A court determines fair use on a case-by-case basis after analyzing (1) the purpose and character of the use (i.e., whether it is commercial); (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 value of the copyrighted work.
The first factor, the purpose and character of the use, has two primary components: whether the use is commercial in nature (which is a question of fact), and whether the new work is transformative or simply supplants the original (which is a question of law).
In this case, Oracle argued that Android is hugely profitable and that Google reaps billions from the use of Java in the platform, whereas Google argued that Android is given away for free under an open-source license and that Google’s revenue flows from the advertisements on its search engine, which preexisted Android.
The court was not persuaded by Google’s argument, and noted that offering Android for free did not make Google’s use not commercial. The court further determined that the manner of remuneration is not decisive, i.e., the money does not need to flow directly from the sale of Android. The court, citing Harper & Row Publishers, Inc. v. Nation Enterprises, concedes that the question is not whether the sole motive of the use is monetary gain, but whether the user stands to profit from the exploitation of the copyrighted material without paying the customary price. The court found Google’s use “overwhelmingly commercial.”
The court reasoned that a “transformative use” is one that does more than merely supersedes the object of the original and that to be transformative a secondary work must alter the original with new expression, meaning, or message or serve a new purpose distinct from that of the original work. Further, the more transformative the work, the less significant the other factors. Oracle argued that Google did not alter the APIs with new expression, meaning, or message, whereas Google contends that only a small portion of the Java packages were used in a new work and context.
In this section of its opinion, the court distinguished Sony Computer Entertainment, Inc. v. Connectix Corp., which found fair use in an action involving the copying of computer code. The court noted that the Sony defendant reverse-engineered the code only to access the unprotected functional elements and ensure compatibility. The new, modestly transformative product of the Sony defendant was considered more transformative than Google’s “copy[ing of] code verbatim to attract programmers.”
The court concluded that Google’s use was not transformative because (1) it does not fit within the uses listed in the preamble to § 107 (i.e., criticism, comment, new reporting, and the like); (2) the purpose of the API packages in Android is the same as in the Java platform; (3) Google made no alteration to the expressive content or message of the copyrighted material; and (4) smartphones were not a new context.
In the end, with regard to factor one, the court found that Google’s use was “overwhelmingly” and “highly” commercial and not transformative, which strongly supported a conclusion against a finding of fair use.
The second factor, the nature of the copyrighted work, recognizes that some works are closer to the core of intended copyright protection than others so that fair use is more difficult to establish when the work is closer to the core. Though the court found that factor two favors a finding of fair use, it noted that the Ninth Circuit recognized that this factor rarely plays a significant or decision role in the fair-use analysis, so it has less significance to the overall analysis.
The third factor, the amount and sustainability of the portion copied, focuses on the copyrighted work and not the infringing work. The court, applying Ninth Circuit law, explains that this factor considers the quantitative amount and qualitative value of the original work used in relation to the justification for its use. Accordingly, the percentage of work copied is not dispositive where the portion copied was qualitatively significant.
The court noted that the extent of permissible copying varies with the purpose and character of the use. In discussing Google’s motivations the court contends that Google’s use was not transformative, Google could have written its own APIs, and the purpose of its copying (to attract programmers) was not necessary.
In its analysis, the court did not rely on the percentage of the Java SE libraries copied, but instead compared the number of code lines necessary to write in the Java language (i.e., 170 lines) with the number of lines that Google copied (i.e., 11,500 lines). The court stated that Google had therefore copied 11,300 more lines of code than necessary. Further, it found that no jury could reasonably conclude that the code copied was qualitatively insignificant, particularly when the material copied was important to the creation of the Android platform.
With respect to factor three, the court found this factor was neutral at best and arguably weighed against a finding of fair use.
Finally, the court concluded that the fourth factor, focusing on the effect of the use upon the potential market for or value of the copyrighted work, weighed heavily in favor of Oracle.
The court cited Harper & Row Publishers to support the idea that fair use is limited to copying by others when it does not materially impair the marketability of the copied work. In evaluating this factor, the court identifies not only the extent of market harm as relevant, but also whether unrestricted and widespread conduct of the sort engaged in by the defendant would result in substantial adverse impact on the potential market for the original. Considering another case, Campbell v. Acuff-Rose Music, Inc., the court considered harm to the actual or potential market for the copyrighted work and also the market for potential derivative uses. Oracle argued, and the court found, that evidence of actual and potential harm from Google’s copying was overwhelming.
In regard to the actual harm, the court cited the fact that Android already competed with Java SE in mobile devices and that Android’s release provided Kindle with an alternative to Java SE that permitted it to negotiate a “steep discount.” In short, the court found that Android was used as a substitute for Java SE and had a direct market impact.
In response to Google’s argument that Oracle was not a device maker and had not built its own smartphone platform, the court determined that the relevant potential markets include licensing others to develop derivative works and a potential market remains even where the copyright owner has no immediate plans for market entry or whether or not they are successful in their efforts. The court also cites the lengthy negotiations between Oracle and Google as evidence of interest in licensing their work for mobile devices. The court found that factor four weighs heavily in favor of Oracle because unrestricted and widespread conduct of the sort engaged in by Google would result in a substantially adverse impact on the potential market for the original and its derivatives.
After analyzing each of the factors separately, the court weighed them together in light of the purposes of copyright, pursuant to Campbell, and found that allowing Google to use Oracle’s work would not advance the purposes of copyright. The court contends that it is not fair to take a copyrighted work verbatim and use it for the same purpose and function in a competing platform. In short, factors one and four weighed heavily against a finding of fair use, factor three was, at best, neutral, and factor two weighed in favor of a fair-use finding. Taken together, the court found the factors did not support a finding of fair use as a matter of law.
Because this decision reiterates the copyrightability of software and limits a would-be user’s ability to claim fair use, it is significant for developers and users of software alike. Interestingly, Google no longer relied on the argument regarding interoperability, and the fair-use analysis, especially as it relates to factor three, might look different with interoperability concerns at play.
For more information regarding this case, please contact Fitch Even partner Amanda Lowerre O’Donnell, author of this alert.
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