20th Century Fox v CA

Date (19 August 1988) | Ponente: Gutierrez Jr.

Overview: Search warrants were recalled because the NBI and witnesses misrepresented
that they had personal knowledge of the piracy.

Statement of the Case

- The lower court later on lifted the 3 search warrants and ordered the NBI to return the
properties that were seized.
- CA dismissed MRs.

Statement of Facts
- August 26, 1985: a letter-complaint by petitioner 20thCentury Fox Film Corporation
through counsel sought the National Bureau of Investigation's (NBI) assistance in the
conduct of searches and seizures in connection with the latter's anti-film piracy
campaign.
- Specifically, the letter-complaint alleged that certain videotape outlets all over Metro
Manila are engaged in the unauthorized sale and renting out of copyrighted films in
videotape form which constitute a flagrant violation of Presidential Decree No.
49(otherwise known as the Decree on the Protection of Intellectual Property).
- Acting on the letter-complaint, the NBI conductedsurveillance and investigation of the
outlets pinpointed bythe petitioner and subsequently filed three (3) applicationsfor
search warrants.
- September 4, 1985: the lower court issued the desired search warrants.
- The NBI accompanied by the petitioner's agents, raided the video outlets and seized
the items described therein.
- An inventory of the items seized was made and left with the private respondents.
- The lower court later on lifted the 3 search warrants and ordered the NBI to return the
properties that were seized.

Applicable Laws: Section 2, Article Ill, 1987 Constitution.

Issues:
1. Was there grave abuse of discretion on the part of the lower court when it lifted the
search warrants it earlier issued against the private respondents? No.

Rationale
1. In the instant case, the lower court lifted the three questioned search warrants against
the private respondents on the ground that it acted on the application for the issuance
of the said search warrants and granted it on the misrepresentations of applicant
NBI and its witnesses that infringement of copyright or a piracy of a particular film
have been committed
- As found out by the court, the NBI agents who acted as witnesses did not
have personal knowledge of the subject matter of their testimony which
was the alleged commission of the offense by the private respondents.
- Only the petitioner's counsel who was also a witness during the
application for the issuance of the search warrants stated that he had
personal knowledge that the confiscated tapes owned by the private
 respondents were pirated tapes taken from master tapes belonging to the
petitioner. However, the lower court did not give much credence to his
testimony in view of the fact that the master tapes of the allegedly
pirated tapes were not shown to the court during the application.
- The essence of a copyright infringement is the similarity or at least
substantial similarity of the purported pirated works to the copyrighted
work. Hence, the applicant must present to the court the copyrighted
films to compare them with the purchased evidence of the video tapes
allegedly pirated to determine whether the latter is an unauthorized
reproduction of the former. This linkage of the copyrighted films to the
pirated films must be established to satisfy the requirements of probable
cause. Mere allegations as to the existence of the copyrighted films cannot
serve as basis for the issuance of a search warrant.
- Search warrant must contain a specific description of the articles to be
seized. General warrants are constitutionally objectionable.

Judgment: Petition dismissed.

Columbia Pictures v. CA (1996) Regalado, J.

Concept: Foreign Corporations

FACTS:
Columbia Pictures, et al. had lodged a formal complaint with the NBI, vis--vis their anti-film
piracy drive. Eventually, the NBI obtained a search warrant against Sunshine Video seeking
to seize pirated video tapes, among others. The NBI carried out the seizure, and filed a return
with the trial court. However, the trial court eventually granted a motion to lift the order of
search warrant the contention was that the master tapes of the copyrighted films from
which the pirated films were allegedly copied were never presented in the proceedings for the
issuance of the search warrants. The CA dismissed the appeal brought before it. Hence,
Columbia Pictures, et al. brought the case before the SC. Sunshine Video contended that
Columbia Pictures, et al. (being foreign corporations doing business in the
Philippines) should have a license in order to maintain an action in Philippine courts
and without such license, it had no right to ask for the issuance of a search warrant.
Sunshine video submitted that the fact that Columbia Pictures, et al. were copyright owners
or owners of exclusive rights of distribution in the Philippines of copyrighted motion pictures,
AND the fact that Att. Domingo had been appointed as their atty.-in-fact constituted doing
business in the Philippines, under the Rules of the Board of Investments.

ISSUE:
Do Colombia Pictures, et al. have legal personality to sue in the Philippines?

HELD:
YES. Under the Sec. 133 of the Corp. Code, no foreign corporation shall be permitted to
transact business in the Philippines, as this phrase is understood under the Corporation
Code, unless it shall have the license required by law, and until it complies with the law in
transacting business here, it shall not be permitted to maintain any suit in local courts.
However, such license is not necessary if it is not engaged in business in the Philippines. Any
foreign corporation not doing business in the Philippines may maintain an action in our courts
upon any cause of action, provided that the subject matter and the defendant are within the
jurisdiction of the court.

No general rule or governing principles can be laid down as to what constitutes "doing" or
"engaging in" or "transacting" business. The true tests, however, seem to be whether the
foreign corporation is continuing the body or substance of the business or enterprise for
which it was organized (as distinguished from merely casual, sporadic, or occasional
transactions and isolated acts) or whether it has substantially retired from it and turned it over
to another. Based on Article 133 of the Corporation Code and gauged by statutory
standards, petitioners are not barred from maintaining the present action. There is no
showing that, under our statutory or case law, petitioners are doing, transacting, engaging in
or carrying on business in the Philippines as would require obtention of a license before they
can seek redress from our courts.

As a general rule, a foreign corporation will not be regarded as doing business in the State
simply because it enters into contracts with residents of the State, where such contracts are
consummated outside the State. It has moreover been held that the act of a foreign
corporation in engaging an attorney to represent it in a Federal court sitting in a particular
State is not doing business within the scope of the minimum contact test. The mere institution
and prosecution or defense of a suit, particularly if the transaction which is the basis of the
suit took place out of the State, do not amount to the doing of business in the State.

Laktaw vs. Paglinawan, 44 Phil. 855 (1918)

Facts Laktaw is the registered owner and author of a literary work entitled Diccionario
Hispano-Tagalog (Spanish-Tagalog Dictionary) published in the City of Manila in 1889 by the
printing establishment La Opinion. Paglinawan without the consent of Laktaw, reproduced
said literary work, improperly copied the greater part thereof in the work published by him and
entitled Diccionariong Kastila-Tagalog (SpanishTagalog Dictionary). The act of Pagliwanan is
a violation of article 7 of the Law of January 10, 1879, on Intellectual Property, caused
irreparable injuries to Laktaw who was surprised when, on publishing his new work entitled
Diccionario Tagalog-Hispano (Tagalog-Spanish Dictionary) he learned of the fact, and (4)
that the damages occasioned to him by the publication of Paglinawan's work amounted to
$10,000. Laktaw prayed the court to order the Paglinawan to withdraw from sale all stock of
the work of Paglinawan to pay him the sum of $10,000, with costs. Paglinawan in his answer
denied generally each and every allegation of the complaint and prayed the court to absolve
him from the complaint. Law Article 7 of the Law of January 10, 1879, on Intellectual
Property: Nobody may reproduce another person's work without the owner's consent, even
merely to annotate or add anything to it, or improve any edition thereof.

Issue Whether or not Paglinawan violated Article 7 of the Intellectual Property Law (1879)?

Held Yes, Paglinawan violated Article 7 of Intellectual Property Law. It is not necessary that a
work should be an improper copy of another work previously published. It is enough that
another's work has been reproduced without the consent of the owner, even though it be only
to annotate, add something to it, or improve any edition thereof.
Habana vs. Robles G.R. No. 131522, July 19, 1999

Facts Habana is the author of the copyrighted book entitled College English for Today (CET).
Robles and GoodWill is the author and publisher of the book entitled Developing English
Proficiency (DEP). When Habana et al. try to revise their work they encountered by chance
that the work of Robles (DEP) is similar of the contents, scheme of presentation, illustrations
and illustrative examples in their own book. After an itemized examination and comparison of
the two books (CET and DEP), Habana found that several pages of the Robles book are
similar, if not all together a copy of Habanas book, which is a case of plagiarism and
copyright infringement. Habana then made demands for damages against respondents and
also demanded that they cease and desist from further selling and distributing to the general
public the infringed copies of Robles works. However, Robles ignored the demands, hence,
Habana et al. filed with the Regional Trial Court, Makati, a complaint for Infringement and/or
unfair competition with damages against private respondents.

Issues Whether or not, despite the apparent textual, thematic and sequential similarity
between DEP and CET, Robles committed no copyright infringement?

Held No, Robles still committed copyright infringement. Robles act of lifting from the book of
petitioners substantial portions of discussions and examples, and her failure to acknowledge
the same in her book is an infringement of petitioners copyrights. In cases of infringement,
copying alone is not what is prohibited. The copying must produce an injurious effect. Here,
the injury consists in that Robles lifted from Habanas book materials that were the result of
the latters research work and compilation and misrepresented them as her own. She
circulated the book DEP for commercial use and did not acknowledge Habana as her source.
Hence, there is a clear case of appropriation of copyrighted work for her benefit that Robles
committed. Habanas work as authors is the product of their long and assiduous research and
for another to represent it as her own is injury enough. In copyrighting books the purpose is to
give protection to the intellectual product of an author. This is precisely what the law on
copyright protected, under Section 184.1 (b). Quotations from a published work if they are
compatible with fair use and only to the extent justified by the purpose, including quotations
from newspaper articles and periodicals in the form of press summaries are allowed provided
that the source and the name of the author, if appearing on the work, are mentioned. Notes
When is there a substantial reproduction of a book? It does not necessarily require that the
entire copyrighted work, or even a large portion of it, be copied. If so much is taken that the
value of the original work is substantially diminished, there is an infringement of copyright and
to an injurious extent, the work is appropriated. In determining the question of infringement,
the amount of matter copied from the copyrighted work is an important consideration. To
constitute infringement, it is not necessary that the whole or even a large portion of the work
shall have been copied. If so much is taken that the value of the original is sensibly
diminished, or the labors of the original author are substantially and to an injurious extent
appropriated by another, that is sufficient in point of law to constitute piracy. The essence of
intellectual piracy should be essayed in conceptual terms in order to underscore its gravity by
an appropriate understanding thereof. Infringement of a copyright is a trespass on a private
domain owned and occupied by the owner of the copyright, and, therefore, protected by law,
and infringement of copyright, or piracy, which is a synonymous term in this connection,
consists in the doing by any person, without the consent of the owner of the copyright, of
anything the sole right to do which is conferred by statute on the owner of the copyright.

Joaquin, Jr. vs. Drilon, 302 SCRA 225 (1999)

Facts:
Petitioner BJ Productions, Inc. (BJPI) is the holder/grantee of Certificate of Copyright No.
M922, dated January 28, 1971, of Rhoda and Me, a dating game show aired from 1970 to
1977. On June 28, 1973, petitioner BJPI submitted to the National Library an addendum to its
certificate of copyright specifying the shows format and style of presentation. On July 14,
1991, while watching television, petitioner Francisco Joaquin, Jr., president of BJPI, saw on
RPN Channel 9 an episode of Its a Date, which was produced by IXL Productions, Inc. (IXL).
On July 18, 1991, he wrote a letter to private respondent Gabriel M. Zosa, president and
general manager of IXL, informing Zosa that BJPI had a copyright to Rhoda and Me and
demanding that IXL discontinue airing Its a Date. In a letter, dated July 19, 1991, private
respondent Zosa apologized to petitioner Joaquin and requested a meeting to discuss a
possible settlement. IXL, however, continued airing Its a Date, prompting petitioner Joaquin
to send a second letter on July 25, 1991 in which he reiterated his demand and warned that,
if IXL did not comply, he would endorse the matter to his attorneys for proper legal action.
Meanwhile, private respondent Zosa sought to register IXLs copyright to the first episode of
Its a Date for which it was issued by the National Library a certificate of copyright on August
14, 1991. Upon complaint of petitioners, information for violation of P.D. No. 49 was filed
against private respondent Zosa together with certain officers of RPN Channel 9, namely,
William Esposo, Felipe Medina, and Casey Francisco, in the Regional Trial Court of Quezon
City.

Issue Whether the format or mechanics of Joaquins television show is entitled to copyright
protection?

Held No, the format or mechanics of a television show is not included in the list of protected
works in 2 of P.D. No. 49. For this reason, the protection afforded by the law cannot be
extended to cover them. The essence of copyright infringement is the copying, in whole or in
part, of copyrightable materials as defined and enumerated in Section 2 of PD. No. 49. Apart
from the manner in which it is actually expressed, however, the idea of a dating game show
is, in the opinion of this Office, a non-copyrightable material. Ideas, concepts, formats, or
schemes in their abstract form clearly do not fall within the class of works or materials
susceptible of copyright registration as provided in PD. No. 49. Copyright, in the strict sense
of the term, is purely a statutory right. It is a new or independent right granted by the statute,
and not simply a pre-existing right regulated by the statute. Being a statutory grant, the rights
are only such as the statute confers, and may be obtained and enjoyed only with respect to
the subjects and by the persons, and on terms and conditions specified in the statute. P.D.
No. 49, 2, in enumerating what are subject to copyright, refers to finished works and not to
concepts. The copyright does not extend to an idea, procedure, process, system, method of
operation, concept, principle, or discovery, regardless of the form in which it is described,
explained, illustrated, or embodied in such work. What then is the subject matter of
petitioners copyright? TheCourt is of the opinion that petitioner BJPIs copyright covers
audiovisual recordings of each episode of Rhoda and Me, as falling within the class of works
mentioned in P.D. 49, 2(M), to wit: Cinematographic works and works produced by a
process analogous to cinematography or any process for making audio-visual recordings;
Law Sec. 175. Unprotected Subject Matter. - Notwithstanding the provisions of Sections 172
and 173, no protection shall extend, under this law, to any idea, procedure, system, method
or operation, concept, principle, discovery or mere data as such, even if they are expressed,
explained, illustrated or embodied in a work; news of the day and other miscellaneous facts
having the character of mere items of press information; or any official text of a legislative,
administrative or legal nature, as well as any official translation thereof.

Pearl & Dean v. Shoemart, 409 SCRA 231 (2003)

Pearl & Dean (Phil), Inc. is a corporation engaged in the manufacture of advertising display
units called light boxes. In January 1981, Pearl & Dean was able to acquire copyrights over
the designs of the display units. In 1988, their trademark application for Poster Ads was
approved; they used the same trademark to advertise their light boxes.
In 1985, Pearl & Dean negotiated with Shoemart, Inc. (SM) so that the former may be
contracted to install light boxes in the ad spaces of SM. Eventually, SM rejected Pearl
& Deans proposal.
Two years later, Pearl & Dean received report that light boxes, exactly the same as theirs,
were being used by SM in their ad spaces. They demanded SM to stop using the light boxes
and at the same time asked for damages amounting to P20 M. SM refused to pay damages
though they removed the light boxes. Pearl & Dean eventually sued SM. SM argued that it
did not infringe on Pearl & Deans trademark because Pearl & Deans trademark is only
applicable to envelopes and stationeries and not to the type of ad spaces owned by SM. SM
also averred that Poster Ads is a generic term hence it is not subject to trademark
registration. SM also averred that the actual light boxes are not copyrightable. The RTC ruled
in favor of Pearl & Dean. But the Court of Appeals ruled in favor of SM.
ISSUE: Whether or not the Court of Appeals is correct.
HELD: Yes. The light boxes cannot, by any stretch of the imagination, be considered as
either prints, pictorial illustrations, advertising copies, labels, tags or box wraps, to be properly
classified as a copyrightable; what was copyrighted were the technical drawings only, and not
the light boxes themselves. In other cases, it was held that there is no copyright infringement
when one who, without being authorized, uses a copyrighted architectural plan to construct a
structure. This is because the copyright does not extend to the structures themselves.
On the trademark infringement allegation, the words Poster Ads are a simple contraction of
the generic term poster advertising. In the absence of any convincing proof that Poster Ads
has acquired a secondary meaning in this jurisdiction, Pearl & Deans exclusive right to the
use of Poster Ads is limited to what is written in its certificate of registration, namely,
stationeries.

MGM vs. Gokster

Facts.
 Grokster, LTD and StreamCast Network distributed fee software that allowed the sharing of
files in a peer to peer network. This avoided the need for central servers and costly server
storage and works faster. Since files can go from computer to computer and not through the
server it is safer and cost efficient. This program was used by universities, government
agencies, corporations, libraries and then private users. Private users began sharing
copyrighted music and video files without authorization. Grokster used technology called
FastTrack and Stream Cast used Gnutella. The files shared do not go to a central location so
Grokster and StreamCast did not know when the files were being copied but if they had
searched there software they would see the type of files being shared. It was shown that
StreamCast gave software called OpenNap labeled the best alternative to Napster in the
hopes to take all the Napster users that had to stop using that software after Napster was
sued. Grokster had a program called OpenNap that allowed users to search for Napster files.
Grokster and StreamCast received revenues from posting advertising all over its program
software. MGM was able to show that some 90 percent of the files being shared where
copyrighted files. Also there is no evidence that either company tried to filter or stop copyright
infringement. The district court granted summary judgment in favor of Grokster and Stream
Case because although users of the software did infringe MGMs property there was no proof
there the distributors had actual knowledge of specific acts of infringement. MGM appealed.

Issue. Whether a distributor of a product that is capable of lawful and unlawful use is liable
for copyright infringement by a 3rd party using that product.

Held. Yes. The appeals court stated that since these distributors did not have actual
knowledge, did not partake in, or monitor the file sharing they are not directly liable for the
infringement. However the court erred in finding they were not secondarily liable for the
actions of the users of its products. There is a balance between growing technologies and
copyright protection, but to not make distributors liable will make copyright protections
meaningless. The lower court looked to the commerce doctrine now codified which states
that a product must be capable of commercially significant noninfridging uses and if so, no
secondary liability would follow. This court finds that interpretation too narrow. Here this court
considers the doctrine of inducement to also be relevant. When a distributor promotes using
its device to infringe copyright material, shown by affirmative steps to foster infringement this
is inducement and the distributor will be liable for 3rd party infringement. All the actions of the
companies is enough to show a genuine issue of material fact, thus the court reversed the
summary judgment ruling and remanded the case upon those findings.

Dissent. Justice Breyer states this case is no different from Sony where time-shifting was the
main purpose of users copying shows by VCRS (so they could watch later). The court did not
find Sony responsible there. Also there is such a major market for non-infringement uses for
this software that they shouldnt be stopped from distributing the software. The standard in
Sony should not be adapted as we did it here to add inducement.

Perfect 10, Inc. v. Amazon.com, Inc.

Facts. Perfect 10, Inc. (Plaintiff) markets and sells copyrighted images of nude models, and
operates a subscription website on the Internet accessible to subscribers who pay a monthly
fee. Members may view images of Perfect 10 (Plaintiff) in a members only area of the site
by using a personal password required to log-in. Plaintiff has also licensed copyrighted
images in a reduced size for download and use on cell phones. Google, Inc. (Defendant)
operates a search engine, a software program that automatically accesses thousands of
websites (collections of web pages) on the Internet and indexes them within a database
stored on Defendants computers. When a Google (Defendant) user accesses Defendants
website and types in a search query, Defendants software searches its database for
websites that respond to the particular search query. Defendant then sends relevant
information from its index of websites to the users computer. Defendants search engines
can provide results in the form of text, images, or videos. The Google (Defendant) search
engine that provides responses in the form of images is called Google Image Search.
Google Image Search identifies text in its database responsive to the query and then
communicates to users the images associated with the relevant text. Defendants software
cannot identify and index the images themselves. Google Image Search provides search
results as a web page of small images called thumbails, which are stored in Googles
(Defendant) servers. The thumbnail images are reduced, lower-resolution versions of full-
sized images stored on third-party computers. When a user clicks on a thumbnail image,
Defendants software directs the users browser to create on the users computer screen a
small rectangular box that contains the Google (Defendant) thumbnail and a larger box that
contains the full-size image, which the users computer has been instructed to access from
the third-party site that houses that image. Defendant does not store the images that fill this
larger box and does not communicate the images to the user. The two boxes together appear
to be coming from the same source, since they are in the same frame, but they actually come
from two sourcesGoogle (Defendant) and the third-party website. The process the web
pages use to direct a users browser to incorporate content from different computers into a
single window is referred to as in-line linking. The term framing refers to the process by
which information from one computer appears to frame and annotate the in-line linked
content from another computer. Defendant also stores web page content in its cache, which
ultimately means that Defendants cache copy can provide a users browser with valid
directions to an infringing image even though the updated web page no longer includes that
infringing image. Google (Defendant) also generates revenue through a business program
called AdSense. Under this program, a website owner can register with Google (Defendant)
to become an AdSense partner. The owner then places HTML instructions on its web pages
that signal Googles (Defendant) server to place advertising on the web pages that is relevant
to the web pages content Googles (Defendant) computer program picks the advertising
automatically by using an algorithm, and the AdSense participants share the revenues that
result from such advertising with D. Some website publishers pirated Plaintiffs images and
Defendants search engine automatically indexed the web pages containing the pirated
images and provided thumbnail versions of the images in response to user inquiries. Perfect
10 (Plaintiff) repeatedly informed Google (Defendant) that its thumbnail images and in-line
linking to the full-size images infringed Plaintiffs copyright and when Defendant continued its
search engine practices, Plaintiff filed a copyright infringement action against Defendant, and
sought a preliminary injunction to prevent Google (Defendant) from infringing Plaintiffs
copyright in its images and linking to websites that provide full-size infringing versions of
Plaintiffs photographs. The district court granted the preliminary injunction, finding harm to
the derivative market for Plaintiffs reduced-size images. The court also ruled that
Defendants search engine likely infringed Plaintiffs display right with regards to the infringing
thumbnails, but that Plaintiff was not likely to succeed on its claim that Google (Defendant)
violated Perfect 10s (Plaintiff) display or distribution right regarding its full-size infringing
images. The district court used a server test in reaching these conclusions, reasoning that a
computer owner that stores an image as electronic information and serves that electronic
information directly to the user is displaying the electronic information in violation of a
copyright holders exclusive display right. Also, however, the court reasoned that the owner of
a computer that does not store and serve the electronic information to a user is not displaying
that information, even if such owner in-line links to or frames the electronic information. The
district court also reasoned that distribution requires an actual dissemination of a copy, and
since Google (Defendant) did not communicate the full0size images to the sers computer,
Defendant did not distribute these images. Defendant raised the affirmative defense that its
use was a fair use, but the district court rejected this defense. The court of appeals granted
review.

Issue. (1) Does a computer owner that stores an image as electronic information and
provides that electronic information directly to a user violates the copyright holders exclusive
right to display the image? (2) Does a computer owner that in-line links to or frames a full-size
image does not infringe the distribution right of the images copyright owner when the image
is displayed on the computer screen of a user? (3) Is a search engines owners appropriation
of a copyrighted image for use as an indexed thumbnail picture is a protected fair use under
the copyright law where the balance of the statutory fair use factors favors the owner of the
search engine?

Held. (Ikuta, J.) (1) Yes. A computer owner that stores an image as electronic information
and provides that electronic information directly to a user violates the copyright holders
exclusive right to display the image. The district courts reasoning and server test comport
with the language in the Copyright Act, and, therefore, its ruling is correct as far as Perfect
10s (Plaintiff) display rights. Based on the plain language of the statute, a person displays a
photographic image by using a computer to fill a computer screen with a copy of the
photographic image fixed in the memory of the computer. Googles (Defendant) computers
store thumbnail versions of Plaintiffs copyrighted images and communicate copies of those
thumbnails to Defendants users. Therefore, Plaintiff has made a prima facie case that
Defendants communication of its stored thumbnail images directly infringes Plaintiffs display
right. Conversely, Defendants computers do not store the full0siuze photographic images,
but merely in-line links to, and frames, those images. Therefore, Google (Defendant) does
not have a copy of the images for purposes of the Copyright Act, i.e., it does not have any
material objects . . . in which a work is fixed . . . and from which the work can be perceived,
reproduced, or otherwise communicated and therefore Google (Defendant) cannot
communicate a copy as defined under 17 U.S.C. 101. While Google (Defendant) may
facilitate access to infringing copies, such assistance only implicates contributory liability for
copyright infringement, not direct liability. Even if such in-line linking and framing may cause
some computer users to believe they are viewing a single Google (Defendant) web page, the
Copyright Act, unlike the Trademark Act, does not protect a copyright holder against acts that
cause consumer confusion. Finally, the same analysis is applicable to Defendants cache.

(2) No. A computer owner that in-line links to or frames a full-size image does not infringe the
distribution right of the images copyright owner when the image is displayed on the computer
screen of a user. Again, the district courts ruling is consistent with the language of the
Copyright Act. Under 106(3), a copyright owner has the exclusive right to distribute copies.
. . . Copies means material objects . . . in which a work is fixed, and the Supreme Court
has indicated that in the electronic context, copies may be distributed electronically. Because
the full-size images are not on Defendants computers, it cannot distribute them. It is the
third-party website publishers computer that distributes copies of the images by transmitting
the photographic image electronically to the users computer. Plus, Plaintiffs argument that
merely making the images available constitutes distribution is not supported. A deemed
distribution rule that is applicable in other contexts is inapplicable to Defendant because
Defendant does not own a collection of Plaintiffs full-size images and does not communicate
these images to the computers of people using Defendants search engine; it only indexes
the images Google (Defendant) therefore cannot be deemed to distribute copies of these
images.

(3) Yes. A search engines owners appropriation of a copyrighted image for use as an
indexed thumbnail picture is a protected fair use under the copyright law where the balance
of the statutory fair use factors favors the owner of the search engine. Although Perfect 10
(Plaintiff) would likely prevail in its prima facie case that Googles (Defendant) thumbnail
images infringe its display rights, Plaintiff has the burden to show a likelihood that it will
prevail against an affirmative fair use defense by Defendant. The first fair use factor, 17
U.S.C. 107(1), requires a court to consider the purpose and character of the use, including
whether such use is of a commercial nature or is for nonprofit educational purposes. A
transformative work is one that alters the original work with new expression, meaning, or
message. In this case, Defendants use of thumbnails is highly transformative. Defendants
search engine provides social benefit by incorporating an original work into a new work that
serves as an electronic reference tool, thereby providing an entirely new use for the original
work. The district court concluded that since Defendants use of the thumbnails could
supersede Plaintiffs cellphone download use and because the use was commercial as
Googles (Defendant) thumbnails lead users to sites that directly benefit Googles bottom
line through the AdSense program, this fair use factor weighed slightly in favor of Perfect
10 (Plaintiff). The district courts conclusion on this factor is erroneous because the
superseding use was nonexistent insofar as the district court did not find that any downloads
for mobile phone use had taken place, and because there was no evidence that AdSense
websites containing infringing images significantly contributed to Defendants bottom line.
Accordingly, the significantly transformative nature of Defendants search engine, particularly
in light of its public benefit, outweighs Defendants superseding and commercial uses of the
thumbnails in this case. A weighing of these considerations must promote flexibility and
account for the rule that the 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.
The second fair use factor is the nature of the copyrighted work, 17 U.S.C. 107(2). Perfect
10s (Plaintiff) images are creative in nature and therefore closer to the core of intended
copyright protection than are more fact-based works. However, because the photos
appeared on the Internet before Google (Defendant) used thumbnail versions in its search
engine results, this factor weighs only slightly in favor of Plaintiff. The third fair use factor, 17
U.S.C. 107(3), asks whether the amount and substantiality of the portion used in relation to
the copyrighted work as a whole are reasonable in relation to the purpose of the copying.
Here, this factor is neutral and does not weigh in favor of either party because Googles
(Defendant) use of the entire photographic image was reasonable in light of the purpose of a
search engine and since using less than the entire image would be less helpful to a computer
user. The fourth fair use factor is the effect of the use upon the potential market for or value
of the copyrighted work. The district court in this case correctly held that Defendants use of
thumbnails did not damage Plaintiffs market for full-size images. Plaintiff argues that the
district court erred because the likelihood of market harm may be presumed if an images
intended use is for commercial gain. However, this presumption does not arise when a work
is transformative because market substitution is at least less certain, and market harm may
not be so readily inferred. As already discussed, Defendants thumbnail images were highly
transformative, and there was no evidence that Plaintiffs market for full-size images was
harmed. Therefore, the district court did not err as far as this ruling. However, the district
court did err in determining that Googles (Defendant) thumbnails would harm the market for
reduced-size images, since Perfect 10 (Plaintiff) adduced no evidence that actual sales of
such images had been made for cell phone use. Any potential harm to Plaintiffs market
remains hypothetical, and, therefore, this factor does not favor either party. Weighing the fair
use factors leads to the conclusion that Defendants use was a fair use, especially with the
public utility served by its search engine and the transformative nature of its use. Plaintiff is
unlikely to be able to overcome Defendants fair use defense. And so, the preliminary
injunction regarding Googles (Defendant) use of thumbnail images is vacated. Reversed as
to this issue.

Sheldon v. Metro Goldwyn Pictures Corp. 309 US 390 (1940)

Facts. Sheldon (Plaintiff) wrote and copyrighted Dishonored Lady, the play based on a true
story of Madeleine Smith, who was tried for the murder of her lover in Scotland in 1857.
Metro-Goldwyn Pictures Corp. (M-G Pictures) (Defendant) had entered into negotiations to
buy the rights to the play in order to produce a movie, but the negotiations fell through , and
Defendant produced a movie entitled Letty Lynton which was based on a novel about the
same subject. Sheldon (Plaintiff) charged infringement of his play and sought an injunction
and an accounting of profit. The court of appeals ruled against Defendant, concluding that it
had infringed upon the copyright of Plaintiffs play. They had a further dispute over how much
of the movies profits should be awarded to Sheldon (Plaintiff).

Issue. In the apportionment of an award of profits for copyright infringement, may the
apportionment be prorated to give the author only the part of the profits attributable to the use
of the infringed material?

Held. (Hughes, C.J.) Yes. In the apportionment of an award of profits for copyright
infringement, may the apportionment be prorated to give the author only the part of the profits
attributable to the use of the infringed material. The purpose of awarding profits to Sheldon
(Plaintiff), whose work has been infringed upon, is just compensation for the violation by
Metro-Goldwyn Pictures Corp. (Defendant). An award such as this is not intended to impose
a penalty on Defendant by giving Plaintiff profits which are not attributable to the
infringement, but to prevent Defendant from unjust enrichment. There is nothing in either the
Copyright Act of 1909 or in subsequent case law that would allow a court to award profits for
which there has been no showing of being due to the infringement itself.