In Swatch Group Management Services Ltd. v. Bloomberg L.P., the US Court of Appeals for the Second Circuit affirmed the US District Court for the Southern District of New York's determination that Bloomberg's publication of Swatch's recorded earnings conference call was fair use under Section 107 of the Copyright Act.
On January 27, 2014, in Swatch Group Management Services v. Bloomberg, the US Court of Appeals for the Second Circuit unanimously affirmed the US District Court for the Southern District of New York's (SDNY) grant of summary judgment to Bloomberg, holding that Bloomberg's publication of Swatch's recording earnings conference call was a fair use under Section 107 of the Copyright Act (Nos. 12–2412–cv, 12–2645–cv, (2d Cir. Jan. 27, 2014)).
Background
The plaintiff, The Swatch Group Management Services Ltd., controls the intellectual property of many well-known watch brands. Its parent, The Swatch Group Ltd., produces, among other things, watches and watch components. The defendant, Bloomberg L.P., is a leading provider of business and financial information. On February 8, 2011, Swatch hosted a conference call to discuss its recent financial results with invited securities analysts. The participants on the call were advised that The Swatch Group was recording the call but that others should not record the call for publication or broadcast. Swatch registered it with the US Copyright Office and asserted that the call qualifies for copyright protection on the basis that its senior executives' comments were an original work of authorship and the recording fixed the work in a tangible medium. Bloomberg was not among the invited participants. However, Bloomberg obtained a recording of the call from a third party transcript service and made the recording available online to its paid subscribers.
On February 10, 2011, Swatch sued Bloomberg for copyright infringement in the SDNY and Bloomberg subsequently raised the fair use affirmative defense. On May 17, 2012, the SDNY granted Bloomberg summary judgment, finding that Bloomberg's use was a protected fair use. For more on the SDNY's decision, see Legal Update, Publication of a Recorded Earnings Conference Call is Fair Use: SDNY. Swatch appealed.
Outcome
On appeal, the Second Circuit affirmed the SDNY's grant of summary judgment to Bloomberg on the fair use defense, holding that the fair use defense exempted Bloomberg from copyright infringement liability under the four factor test set out in the Copyright Act (17 U.S.C. § 107). The court analyzed and determined that the four factors favored fair use, weighing three factors in Bloomberg's favor and one factor as neutral. The court also dismissed Swatch’s cross-appeal on the issue of whether the sound recording was protected by copyright laws in the first place.
The Purpose and Character of the Use
The court found this first factor favored Bloomberg because:
Bloomberg’s purpose in obtaining and disseminating the recording was to make important financial information about Swatch Group available to US investors and analysts.
While Bloomberg is a commercial enterprise and Bloomberg Professional is a pay subscription service, courts discount the commercial nature of the use where the link between the defendant’s commercial gain and the copying is attenuated such that it would be misleading to characterize the use as commercial exploitation. Accordingly, the court assigned reduced weight to Bloomberg's commercial nature.
Bloomberg’s lack of good faith was of little weight because a defendant's good or bad faith generally contributes little to the fair use analysis.
Swatch argued that giving weight to a public interest in dissemination of important financial information would in effect erase foreign issuers’ exemption from Regulation FD. The court rejected this argument and noted that:
The regulation merely provides additional support for the proposition that US investors and analysts have an interest in obtaining important financial information about companies whose securities are traded in US markets.
The fact that the SEC chose not to require foreign issuers to follow certain disclosure rules does not imply that information about foreign issuers is irrelevant to US markets, a fact recognized by Swatch in scheduling the call at a time when US analysts could attend.
For the transformativeness of the use, the court observed that while Bloomberg provided no commentary or analysis of the call, its dissemination of a sound recording (as opposed to a transcript) conveyed not only what executives said, but how they said it and that this type of information is valuable to investors and analysts. In light of the independent informational value in the recording, the fact that Bloomberg did not transform Swatch’s work through additional commentary or analysis did not preclude a finding that the purpose and character of Bloomberg’s use favored fair use.
Nature of the Copyrighted Work
The court found the second factor strongly favored fair use. Although not technically published according to the statutory definition of publication for an audio recording, the recording was made available by Swatch to over 300 investment analysts, out of which over 100 actually attended. Therefore, Swatch was not deprived of the ability to control the first public appearance of its expression including when, where and in what form it appeared. The court noted that:
There is no per se rule barring fair use of unpublished works. Limiting consideration of a work’s publication status to the statutory definition would obscure the purposes of the definition and the “judicial gloss on the nature of the copyrighted work in the context of fair use” which aims to account for the author’s right to control the first public appearance of his expression.
Swatch’s copyright in the earnings call was thin as the call was factual in nature, with its sole purpose being to convey financial information about the company to investors and analysts.
Amount and Substantiality of the Portion Used
The court found this factor was neutral because, while Bloomberg used the entire work, the use of the entire work was reasonable in light of its purpose to disseminate important financial information to US investors and analysts.
Effect Upon the Market for or Value of the Original
The court found the final factor weighed in favor of fair use because the public interest in the dissemination of important financial information outweighed both:
Any potential private royalties that may have been lost by Swatch.
Swatch’s loss of the ability to know and control precisely who heard the call.
Balancing of the Factors
Overall, the court found that the copyright law’s goal of promoting the progress of science and the useful arts would be better served by allowing Bloomberg’s use than preventing it.
Practical Implications
The decision shows that, even where an entire copyrighted work is used, a fair use defense may still be viable if the other fair use factors favor the defendant, particularly the nature and purpose of the use.