Oral Arguments

pg. 1









v. Case No. 94-1778








11 Oral Arguments in the above-entitled cause

12 on September 15, 1995, before Judge McKay, Judge Nelson, and

13 Judge Ryan, transcribed by Cheryl McDowell, CSR-2662, a Notary

14 Public in and for the County of Livingston.



(By: Mr. Ronald S. Rachberg)

17 1585 Broadway

New York, New York 10036

18 Appearing on behalf of the Plaintiffs-Appellees.


20 (By: Ms. Susan M. Kornfield) 110 Miller, Suite 300

21 Ann Arbor, Michigan 48104

22 Appearing on behalf of the Defendants-Appellants.









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1 September 15, 1995

2 – – –

3 MS. KORNFIELD: Good morning, Your Honors.

4 My name is Susan Kornfield, and I represent the

5 defendants, Michigan Document Services and Jim Smith.

6 Mr. Smith is in the courtroom today. I’d like to

7 reserve three minutes of my time for rebuttal.

8 JUDGE: Fine.

9 MS. KORNFIELD: The defendants appeal the

10 order of the District Court granting summary judgment

11 to the publishers in this fair use case. That order

12 prohibits students and professors from receiving from

13 Michigan Document Services the kind of photocopy

14 services they had been receiving for fifteen years.

15 We ask that the court reverse that grant of summary

16 judgment and enter summary judgment for the defendants.

17 In our briefs we raise a number of

18 issues and a number of defenses. Today I’d like to

19 focus on three points. The first point is the meaning

20 of the phrase the use of the work in the Fair Use

21 Statute. The second point is a proper analysis of the

22 fourth statutory factor, and the third point is the

23 social value of defendants’ services and the fact that

24 the students and the professors cannot receive those

25 services from the publishers.






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1 The use of the work is both a factual

2 context and a legal context, and we have briefed the

3 issue of the way in which the professors take the

4 responsibility for selecting the works that are going

5 to be used by the students that semester, determine

6 which books are going to be required reading, which

7 works, if any, are going to be excerpted, the length

8 of the excerpt, the purpose for which the work is

9 excerpted, determines the order in which the materials

10 will appear if there are going to be a number of

11 materials for the classroom reading. The professor

12 then physically takes those materials to Michigan

13 Document Services and instructs MDS as to the number of

14 students who are enrolled in the class that term and

15 any requirements of that professor for those students.

16 MDS makes the copies.

17 The students are then told when they go

18 to class that they can stop by MDS and pick up their

19 personal copy or, if they wish, they can go to the

20 library and make their own copies and where it will

21 cost them about twice as much money. The students

22 who go to MDS pick up their course pack, use it in

23 connection with their classroom activities, reading,

24 studying, analyzing, and discussing.

25 The record shows that these facts are






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1 all in the record, they are not disputed, and that

2 MDS either discards or recycles any leftover course

3 materials and makes no sales to the public, a fact

4 found by the District Court. Then, therefore, this

5 loop which begins with the professors making the

6 determinations about the classroom materials through

7 the excerpting, through making the copies of the

8 excerpts by the professors, dropping those off at MDS

9 who then makes the copies for the students, is a closed

10 loop which is the factual context for the use of the

11 work in this case.

12 Then we have the legal context. The

13 legal context for the use of the work begins with the

14 plain language of Section 107. Congress specifically

15 stated that a fair use of a work is not an infringement

16 of copyright. Congress stated that the fair use of a

17 work for purposes such as teaching, including multiple

18 copies for classroom use, was not an infringement of

19 copyright. So that phrase, multiple copies for

20 classroom use, indicated that congress understood the

21 use of the work is in the classroom or in connection

22 with the classroom. The copying of the work is a

23 separate act. It is intrinsic to the student’s ability

24 to make a classroom use of the works.

25 This court in National Rifle Association






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1 versus Handgun Control noted that the legal focus of

2 the use of the work is the use of the work in the hands

3 of the individuals who study it and discuss it. For

4 example, in that case the NRA had prepared a list of

5 two hundred names of legislators. Handgun Control

6 Federation who had views opposite the NRA had two

7 hundred copies of that list made and distributed it to

8 its members.

9 This court analyzed the use of the work

10 by looking at the use of that NRA list in the hands of

11 Handgun Control and its members. This court found that

12 that use was a First Amendment kind of use to discuss

13 issues of public concern, to petition the government.

14 It also found that the use also served an educational

15 function. Had the NRA —

16 JUDGE: Is it, is it your contention, Miss

17 Kornfield, that the reproduction of the copyrighted

18 work for the purpose of teaching is always a fair use?

19 MS. KORNFIELD: No, Your Honor. We state

20 that it is a designated fair use by congress and by the

21 Supreme Court and indeed by this court. One must still

22 apply the other factors. But since the purpose of the

23 use is a point of reference for analyzing the other

24 four factors, the fact that it was used in this case

25 for teaching is a very relevant purpose.






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1 Had the NRA sued the copy shop, we have

2 no doubt that this court would not have suddenly said,

3 oh, we’re not going to look at the use of the list in

4 the hands of Handgun Control or its members. We’re

5 going to forget the First Amendment purposes and the

6 educational purposes.

7 This is the very same view of the use of

8 the work taken by the Supreme Court as we see in the

9 Acuff Rose case and Sony. In those two cases, for

10 example, in Acuff Rose, the Supreme Court did not care

11 that the CD manufacturer or the manufacturer of the

12 album or the tape had made multiple copies. The

13 Supreme Court’s analysis to determine whether it was a

14 fair use was on the use of the Roy Orbison song, Pretty

15 Woman, in the hands of 2 Live Crew. That was the focus

16 for whether the use was fair.

17 Likewise in Sony, even though Sony

18 is a for-profit corporation and it manufactured for

19 commercial purposes the VCRs, the Supreme Court noted

20 that no home viewers were sued in that case but that

21 the court was required to look at the use of those

22 copies of the broadcasted shows in the hands of the

23 home viewer to determine whether or not it was a fair

24 use, and the court noted that was a noncommercial use.

25 Thus, it’s critically important in this






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1 copyright case to correctly focus on the use of the

2 work because that is going to have an effect then on

3 the analysis of the four factors. We see in going to

4 the first factor that the statute did not ask us to

5 look at the purpose of the copier or the character of

6 the copier. It directs the court’s attention to the

7 use of the work in the hands of the users, and that, of

8 course, are the students and professors.

9 MDS’s role is simply to make copies,

10 and we can see that it is merely a copier because as

11 the facts show, the undisputed facts, MDS charges a

12 per page fee regardless of what material is on that

13 page. Literally whether it is blank, whether it has

14 a table of contents, whether it has an excerpt from a

15 copyrighted work or public domain work, it’s the same

16 nickel a page, just like when I went to have my briefs

17 copied for this case, I went down the street, dropped

18 off my materials, said I needed twenty copies, went

19 back, got twenty copies, was charged a per page fee.

20 I’d like to next move to the proper

21 analysis of the fourth factor. As the court knows,

22 the Supreme Court has held that the effect of the use

23 upon the market is the most important factor. This

24 case establishes that the publishers have failed to

25 introduce any evidence whatsoever that there was even






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1 one lost sale of one work. Instead the publishers

2 have an argument that goes like this. Since we own

3 the copyright on the work, we’re entitled to all of

4 the money that could be made by any use of the work

5 we are willing to charge for.

6 That’s a circular argument which the

7 District Court accepted. The reason this argument is

8 clearly circular is everyone would agree that if a use

9 is fair, no permission need be sought, no fees need be

10 paid. Thus, it is illogical for the publishers to say

11 but we’re willing to charge; therefore, the use can’t

12 be fair. That would eliminate from the realm of fair

13 use the very uses congress has identified because all a

14 publisher or any copyright owner would have to say is

15 we’re willing to charge for that use, and, in fact, in

16 this case we see that the publishers were willing to

17 charge for a fair use and the District Court allowed

18 the publishers to prevail without any evidence

19 whatsoever that the use was an infringement.

20 You can see the circularity that

21 other’s argument will also have the effect of allowing

22 publishers to permission out of existence the kinds of

23 designated fair uses in the first half of Section 107.

24 All they have to say is we’re willing to charge for

25 news reporting, we’re willing to charge for scholarship






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1 and for research and for criticism and commentary. It

2 will allow what the Supreme Court has said cannot be

3 allowed and that is taking the limited statutory

4 monopoly and making it absolute because the professors,

5 the publishers, excuse me, will then have control over

6 the fair use market by simply stating we’re willing to

7 charge, we’ve set up systems to charge for it.

8 Finally, it will allow the publishers to

9 never have to introduce evidence of the impact of the

10 use of the work on the market for the work because all

11 they have to say is we’re willing to sell fragments,

12 and this is not, by the way, a derivative work. It is

13 not as the publishers have claimed a derivative use.

14 Derivative works as we know from the Copyright Act

15 require additional authorship and transformation.

16 This is the words of the statute multiple copies for

17 classroom use for purposes such as teaching.

18 JUDGE: Counsel, have they — does the record

19 reflect that they’ve said they are willing to sell

20 portions or that they’re willing to license the sale

21 of portions?

22 MS. KORNFIELD: Your Honor, it’s the same

23 thing. Well, it’s the same thing in that —

24 JUDGE: No, it isn’t the same thing. If they

25 are willing to produce it in their shop and sell it,






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1 that’s different than being willing to license your

2 client to produce it and sell it.

3 MS. KORNFIELD: Your Honor, at the record on

4 page thirty-seven oh one, the publishers testified they

5 are not in the same business as Michigan Document

6 Services. Professors cannot go to them to have

7 materials like this.

8 JUDGE: That’s all I wanted to know.

9 MS. KORNFIELD: We can see then that the

10 failure to read the plain language of Section 107 by

11 the District Court, its decision to actually amend

12 the statute by inserting a new requirement and that

13 is that a fair user may not go to a copy shop to have

14 the copies made, the refusal of the District Court

15 to consider the testimony of the students and the

16 professors as relevant to a case involving the use by

17 the students and professors of these excerpts, the

18 fact that the District Court was willing to allow the

19 publishers to fail to meet the burden on the fourth

20 factor by merely reciting that they’re willing to

21 charge people to make these copies, and the failure

22 of the District Court to understand the distinction

23 between the copy of the work and the use of the work

24 requires the reversal of the grant of summary judgment.

25 And we can see then that the District Court’s focus on






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1 money in this case, thinking that because Michigan

2 Document Services charges a fee to make copies, it was

3 somehow using the work, allowed the District Court then

4 to conclude that Mr. Smith was, and, yes, we’re not

5 only infringers, they were willful infringers because

6 the court said it was unreasonable for them to conclude

7 that their activities were lawful when they fit within

8 the terms of the statute.

9 Since that court’s opinion as this court

10 knows, in November there was a filing of an Amicus

11 brief by eleven copyright scholars. Those scholars

12 stated that not only is Mr. Smith’s conduct perfectly

13 lawful and been clearly not willful but the conduct of

14 the publishers is unlawful. We think the filing of

15 that brief by the Amici scholars certainly at a minimum

16 takes care of the issue of willful infringement.

17 The third point I wanted to make was

18 that the students and professors cannot receive from

19 the publishers the services they receive from MDS which

20 gets to your point, Judge McKay. The dissent in this

21 court’s decision in Acuff Rose pointed out that there

22 are certain factors a court may consider even though

23 they are not a part of the four statutory factors, and

24 the dissent in that opinion stated the social value of

25 parity was something to be considered.






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1 Here the social value is the education

2 of America’s students. In a situation where the

3 professors have already testified these excerpts were

4 not a substitute for the work, the professors were not

5 going to assign the work, it was a substitute in this

6 case for the students going to the library and making

7 their own copies of the work at twice the price. It’s

8 a case where the professors have testified that they

9 are authors, they desire that their works be excerpted

10 when the professor has elected to not assign that work

11 to the students. In this case the professors have

12 testified it’s an incentive for them to create works

13 when they will be excerpted and will be available to

14 students for study and analysis and commentary and,

15 furthermore, that the publishers’ tactics are a

16 disincentive for them to create additional works of

17 authorship.

18 There’s also social value to the fact

19 that Michigan Document Services conforms its practices

20 to the Copyright Act. As you note in Mr. Smith’s

21 affidavit, he has gone through great lengths to get

22 an understanding of the copyright law. He’s not a

23 lawyer, he’s not a copyright lawyer, he’s not a college

24 graduate, but he did read Section 107 of the Copyright

25 Act, 1985 or 1986. He is very familiar with how the






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1 professors excerpt works and how his services are

2 provided to the students. The publishers, on the

3 other hand, have testified that their policies are

4 established without regard to the Copyright Act.

5 The court then compounded its error by

6 entering a clearly unconstitutional injunction. I have

7 apparently the only client in the country who cannot

8 copy the Declaration of Independence when it appears

9 in the papers of Thomas Jefferson, a work that is

10 published by Princeton University Press, and that’s

11 because Judge Hackett held that Michigan Document

12 Services and Mr. Smith may not copy any portion of any

13 work that is published by these three publishers

14 without going through whatever process the publishers

15 feel is appropriate or that they want Mr. Smith to go

16 through.

17 Thus, there’s no requirement in the

18 District Court’s injunction that the work be original,

19 there’s no requirement that it be owned by these

20 publishers, only that it be published by them. There

21 is no focus on whether the work is in the public domain

22 or whether it’s a third-party work. There’s no focus

23 on the nature of the work as to whether or not it is a

24 factual and informational work or at the other end of

25 the continuum and is largely a creative work. There’s






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1 no requirement now for a case-by-case analysis as the

2 Supreme Court requires. There’s no examination into

3 the statutory factors or other defenses or other

4 factors. There’s no need for these publishers now to

5 comply with the requirements of the Copyright Act and

6 actually register their works, and it gives perpetual

7 copyright. Currently all works before 1918 are in the

8 public domain in the United States. My client would be

9 prohibited from copying any of those if they appeared

10 in a work by these three publishers. This injunction

11 injures not only the students and the professors; it

12 injures authors, it injures society, and it injures

13 legitimate business.

14 Thus, the facts in the record

15 demonstrate that the District Court could never have

16 granted summary judgment for the publishers in this

17 case. There are no facts that support that this is an

18 infringement because as we walk through each of the

19 four statutory factors as we did in our brief, the use

20 by the professors and the students falls squarely

21 within the literal terms of the statute and how those

22 terms have been interpreted by the Supreme Court.

23 The District Court’s grant of summary

24 judgment for the plaintiffs violated all of the rules

25 about granting summary judgment. The evidence of






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1 Michigan Document Services and of Mr. Smith was to be

2 believed and was not to be discredited or ignored or

3 disputed.

4 JUDGE: You’re kind of approaching the end.

5 You’ve gone a little over your time.

6 MS. KORNFIELD: I am, in fact, on my last

7 paragraph, Your Honor.

8 JUDGE: Okay.

9 MS. KORNFIELD: The — all justifiable

10 inferences were to be drawn in favor of MDS and in

11 favor of Mr. Smith. The District Court was not to

12 weigh the evidence or to determine the truth of the

13 matter which is exactly what the District Court did,

14 and while it could have granted summary judgment to the

15 defendants, at a minimum it had to deny the publishers’

16 motion and set this case for a jury trial.

17 Our closing quote, Your Honor, is from

18 Judge Hackett. Judge Hackett stated copyright law must

19 be protected, and although she wrote that sentence at

20 the time that she found against my clients, we quote

21 that sentence today to ask this court to protect

22 copyright law and to enforce Section 107 as written and

23 to reverse the order of the District Court and grant

24 summary judgment for the defendants. Thank you.

25 JUDGE: Thank you, ma’am.






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1 Counsel, if it will assist you in

2 planning your presentation, if you’d like to take

3 twenty minutes or a little bit longer, please feel free

4 to do so.

5 MR. RACHBERG: Thank you, Your Honor. My

6 name is Ronald Rachberg, and I represent the plaintiff-

7 appellees in this matter.

8 The undisputed facts in this case at

9 their core show that both the plaintiffs and the

10 defendants are engaged in the business of selling

11 educational materials to students and attempting to

12 make some profits in those sales. I accept Princeton

13 University Press, one of the plaintiffs, which

14 ultimately is a not-for-profit company pursuing a

15 scholarly mission, but it, too, is in the business

16 in its pursuit of its mission in trying to sell

17 educational materials to students.

18 Princeton, Macmillan, St. Martin’s Press

19 all publish textbooks, anthologies, compilations of

20 other readings, scholarly works and other works that

21 they hope will find a market among students. So,

22 too, the defendant publishes books, compilations of

23 readings, he calls them course packs but they are

24 books, anthologies, three of them are in the record,

25 and the defendant sells those books to students, and






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1 so the defendants, too, are trying to obtain some

2 portion of the substantial market that exists among

3 students at colleges and universities for educational

4 works.

5 JUDGE: Counsel, let me ask you a sequential

6 question. Do you dispute that a professor could copy

7 this material as it is on a rented copy machine rented

8 from Xerox?

9 MR. RACHBERG: I don’t think that question

10 has to be answered in this case.

11 JUDGE: I want the answer to it.

12 MR. RACHBERG: Well, the publishers have

13 not — I understand Your Honor wants the answer and —

14 JUDGE: Are you arguing that this, there’s

15 something about this material that would prevent a

16 professor from copying it without violating the

17 copyright laws?

18 MR. RACHBERG: If the question is could a

19 professor produce a book like this or could a

20 university prepare a book like this and sell it to

21 students in the same way that Michigan Document Service

22 does, I would point out that it may well be that the

23 answer is no. There are classroom guidelines that were

24 adopted by the congress as part of the legislative

25 history of the Copyright Act that express what congress






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1 said is the congressional intent in defining the extent

2 of fair use of copying for purposes of education, that

3 describe how far a —

4 JUDGE: Have you asserted in the trial court

5 or in your brief here that this material is material

6 that the university, that a professor could not

7 duplicate on a rented copy machine in the professor’s

8 office?

9 MR. RACHBERG: No, Your Honor, we have not

10 made that argument.

11 JUDGE: All right. Now, have you disputed

12 that the professor could make multiple copies and

13 distribute them to the students in the class?

14 MR. RACHBERG: We have not made that

15 argument, either.

16 JUDGE: You’ve not made that argument. Do

17 you make that argument now?

18 MR. RACHBERG: No, Your Honor. The argument

19 that —

20 JUDGE: Could the professor, have you made

21 the argument that the professor could not charge the

22 students the per page rental cost of the machine? In

23 other words, if the rental is on a per page basis for

24 the copy machine, that the professor could not charge

25 the students the reimbursement of that cost of






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1 duplicating these exact materials.

2 MR. RACHBERG: We have not made that

3 argument.

4 JUDGE: Okay.

5 MR. RACHBERG: The argument we do make,

6 Your Honor, is the difference between copying by a

7 professor or by a college or by a student which are

8 not-for-profit copies and copying by a commercial copy

9 shop that’s in the business of promoting this kind of

10 activity.

11 JUDGE: Well, let me ask you this. Could you

12 then sue Xerox for renting its machine to the professor

13 on a per page basis?

14 MR. RACHBERG: Well, the question then I

15 suppose would be whether Xerox is a contributory

16 infringer. Xerox is not making the copy; someone

17 else is, in this case MDS. I think the teaching of

18 the Sony case is that if the manufacturer of equipment

19 has a substantial noninfringing purpose, then the

20 manufacturer is not a contributory infringer. So I

21 don’t believe we could sue Xerox. I do believe we can

22 sue the commercial copy shop that’s in the business of

23 advertising and promoting and selling these works.

24 These people, Mr. Smith and MDS, advertise, they send

25 fliers out that promote this service, they write






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1 letters.

2 JUDGE: What service, sir?

3 MR. RACHBERG: The business of making these

4 books and selling them to students. It’s a business

5 that they advertise and sell just as the plaintiffs

6 advertise in order to sell their products.

7 JUDGE: Do they advertise the content of each

8 course pack or any course pack?

9 MR. RACHBERG: The advertisements that we

10 have seen have not advertised the content of the course

11 packs. They’ve advertised the availability of the

12 course packs and the fact that they are substitutes

13 for books published by the plaintiffs. They have

14 advertised that their books can be used in place of

15 textbooks. They say that explicitly in their fliers.

16 JUDGE: I understand. Supposing the

17 professor in Judge McKay’s hypothet has a ne’er-do-well

18 son who can’t get a job and is hanging around the

19 University of Michigan bothering the professor, and so

20 the professor says to the son, look, I’m too busy to be

21 doing what I’ve been doing for these kids, you do it

22 and I’ll ask the kids if they’ll give you fifty cents

23 for each of the course packs. Do you argue that that

24 is forbidden under the Copyright Act?

25 MR. RACHBERG: Your Honor, I think the best






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1 way to answer that question, and, Judge McKay, I think

2 this applies to your questioning as well, is to refer

3 to one of the cases that has considered questions along

4 these exact lines which is Los Angeles News Service

5 against Tullo, a case that went to the Ninth Circuit

6 Court of Appeals and a case that involves excerpts of

7 video broadcasts, news broadcasts that were copied by

8 the defendant and sold to users who were able to claim

9 a fair use just as professors and students may be able

10 to claim a fair use here.

11 But the copying there was not made

12 by the users. The copying was made by Tullo, the

13 defendant, a commercial copier that made the copies and

14 sold them, and the court there drew the distinction

15 between copying that can be made not for profit by the

16 user and copying that’s made commercially by a seller.

17 They gave the example, for example —

18 JUDGE: Mr. Rachberg, how about indulging me

19 by answering my question? Do you want me to put it

20 again?

21 MR. RACHBERG: No, I recall your question,

22 Your Honor.

23 JUDGE: Do you argue that that is forbidden

24 by the Copyright Act?

25 MR. RACHBERG: Your Honor, the only argument






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1 that we make today and that we need to make is the

2 argument that the commercial for-profit sales —

3 JUDGE: No. Pardon me, Mr. Rachberg. It’s

4 customary in this circuit that when one of the members

5 of the court puts a question to counsel, counsel

6 attempts to answer the question even if counsel thinks

7 it’s a dumb question. Would you indulge me by

8 answering the question whether you believe, I’ll change

9 the verb, or think, still another verb, that on the

10 hypothet I put to you, there would be a violation of

11 this section of the Copyright Act?

12 MR. RACHBERG: Your Honor, may I answer in

13 terms of the arguments that my clients are making? I

14 don’t mean to evade your question and I don’t mean any

15 disrespect. I’m trying to be responsive.

16 In terms of my own belief, I believe

17 that the classroom guidelines would indicate that the

18 copying that you have described would be inconsistent

19 with the copyright law. The vast lengthy, the size

20 of the excerpts, they’re being aggregated into an

21 anthology as opposed to occasional and sporadic

22 individual elements, the fact that they’re more than a

23 thousand words, the amount specified in the classroom

24 guidelines for the safe harbor, the fact that

25 permission is available from the publishers when






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1 sought, all in terms of my belief indicate that such

2 copying even when done by a not-for-profit institution

3 would be a copyright infringement.

4 But, at the same time, I hasten to add

5 that is not the argument that these plaintiffs made

6 below. It is not the arguments these plaintiffs make

7 here. The position that has been advanced in this case

8 has consistently attempted and I attempt today to

9 distinguish between the not-for-profit copying done by

10 professors or students or universities on the one hand

11 and the for-profit copying done by commercial copy

12 shops like Smith that are profiting by selling works

13 that belong to the plaintiffs.

14 JUDGE: What does this rather voluminous

15 record show as to the effect of the for-profit use that

16 you’ve described upon the potential market for or value

17 of the copyrighted work, the fourth statutory factor?

18 MR. RACHBERG: The record is clear in

19 showing, clear and I should say undisputed in showing

20 that each of these three plaintiffs has a permissions

21 department that receives thousands of requests each

22 year for permission to reproduce excerpts from their

23 published works. There is a functioning, viable,

24 established market for requests for and the granting

25 of permission to copy lengthy excerpts from these






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1 works.

2 JUDGE: What you’re arguing is that the fact

3 that your market for permission is what is damaged, not

4 your market for the works from which the excerpts are

5 taken.

6 MR. RACHBERG: We are arguing the damage to

7 the market for permissions, and that market the Supreme

8 Court has repeatedly held is one of the markets that

9 does belong to a copyright holder and it’s one of the

10 markets that when considering the fourth factor in a

11 fair use analysis the Supreme Court has repeatedly

12 referred to. In the Harper & Row case, sales by

13 Harper & Row of its book were not claimed to be

14 affected by the nation’s copying of a few hundred words

15 from the book. The copying by the magazine hurt the

16 ability of Harper & Row to license the publication of

17 an excerpt, and that was harm sufficient to make the

18 use unfair in the Harper & Row case.

19 In Stuart v. Abend, the Supreme Court

20 dealt with the making of a movie based on a short

21 story. Sales of the short story were not harmed. The

22 harm was the loss of the license fee to get a license

23 to make a movie. That was harm and it was fourth

24 factor harm, and it led to a finding of no fair use.

25 So, too, here where these publishers






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1 have an existing market where Mr. Smith’s and MDS’s

2 competitors, the record below shows that most of the

3 competitors, I say most because there’s some as to

4 which there’s no information in the record. To the

5 extent there’s information in the record, all of

6 Mr. Smith’s competitors ask for permission and pay

7 license fees when they make these books. Universities

8 take the position that that’s the way it should be done

9 and universities also apply for permission and pay.

10 JUDGE: In light of the, in light of the

11 Supreme Court decisions you’ve cited, are you

12 contending that it doesn’t make any difference whether

13 your argument on the fourth factor is circular as Miss

14 Kornfield says it is or would you deny that it, in

15 fact, is a circular argument?

16 MR. RACHBERG: I would deny that it’s

17 circular. The suggestion of circularity as argued by

18 my adversary could be made equally to the Harper & Row

19 case. If that was a fair use, then there would have

20 been no loss of licensing income. In Stewart v. Abend,

21 if that was a fair use, there would have been no loss

22 of licensing. That circularity argument is made all

23 the time. In the Texaco case recently, the Second

24 Circuit addressed circularity in specific and said that

25 the argument does not pertain when there exist






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1 reasonable or traditional or even potential markets in

2 which the people who own the copyrights can receive

3 license fees.

4 JUDGE: Counsel, let me —

5 MR. RACHBERG: If I just may finish —

6 JUDGE: I’m sorry.

7 MR. RACHBERG: — the answer to Judge

8 Nelson’s question, there is no circularity here because

9 we’re not trying to establish in this case the right to

10 get license fees. What we have is a longstanding

11 permissions market under which we always have obtained

12 license fees. It’s even referred to in the 1966 House

13 Report cited in our brief, that longstanding market,

14 the fact that authors depend on license fees for the

15 reproduction of excerpts and anthologies, that

16 thousands of permissions and substantial income is

17 what’s threatened by Mr. Smith, and that’s fourth

18 factor harm, not in a circular way. I’m sorry, Judge

19 McKay.

20 JUDGE: Counsel, I want to — I haven’t lived

21 with this law like you have, but there’s some difficult

22 distinctions that need to be made, and my questions are

23 not meant as traps. But I want to give you just one

24 more hypothetical to try to focus on where you perceive

25 the breaking point to be here, at least one more






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1 question.

2 If the professor has designated on a

3 slip of paper these materials and says to the students

4 it’s up to you to either use the two or three reserve

5 copies I have or to go get them Xeroxed and they take

6 them to this defendant, the students individually take

7 them to the defendant and pay this defendant to copy

8 and collate and bind them, is that a violation by this

9 defendant as you understand the analysis under existing

10 cases?

11 MR. RACHBERG: Yes, I believe it would be. I

12 believe that for a commercial copy shop to copy

13 copyrighted material —

14 JUDGE: Then would you give me an analytical

15 distinction between why that activity would be a

16 violation and it would not be a violation for Xerox

17 to rent machines to professors on a per page basis?

18 MR. RACHBERG: I believe when Xerox rents a

19 machine to a university, it does not retain control

20 over what the university copies on that machine. The

21 university might make infringing copies and the

22 university might make noninfringing copies. Xerox

23 can’t control that and, therefore, Xerox doesn’t have

24 that responsibility. Since there is a substantial

25 opportunity for that machine to be used in a






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1 noninfringing way, Xerox can’t be charged if someone

2 instead misuses it in an infringing way. That’s my

3 understanding of the holding of the —

4 JUDGE: But what I’m just looking at is,

5 trying to understand is whether making a profit from

6 the replication of otherwise exempt materials, however

7 it is made, is the breaking point in this case.

8 MR. RACHBERG: I think I would state it

9 slightly differently.

10 JUDGE: Whether it’s the duplication or it’s

11 the making of the copy because I assume the professor

12 could go pay this copy shop to make copies for the

13 professor if the professor wanted to on a per page

14 basis or are you arguing it couldn’t?

15 MR. RACHBERG: What I’m, what I’m arguing is

16 that leaving aside the possibility that not-for-profit

17 educational copying can be infringing for the moment

18 because it can be and the cases, the cases that have

19 considered educational copying —

20 JUDGE: But I take it this case did not go

21 off on that ground that this would be an infringement

22 for the professor to make these copies individually.

23 MR. RACHBERG: Well, as I said, let’s assume

24 for the sake of your question, Your Honor, that the

25 copying if done by the professor on a copy machine






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1 that belonged to him or the university would be

2 noninfringing. For purposes of the question, I

3 accept that.

4 I am then arguing that if instead of

5 the copying being done that way at the not-for-profit

6 institute of the college, if instead a student goes to

7 a copy shop that’s in the business of making money by

8 duplicating and they make money by duplicating

9 copyrighted materials, then you’ve got the commercial

10 motives, the profiting, and the copying all in one

11 place, and I think that’s a violation of the Copyright

12 Act and that’s what we argue here, and I also believe

13 that that’s consistent with, with congressional intent

14 and with the decided cases.

15 The congress distinguished between

16 not-for-profit copying and copying for profit in the

17 legislative history. The congress distinguished

18 between the not-for-profit copying that an educational

19 institution could do and the possibility that the

20 educational institution would ask a for-profit copying

21 establishment to do the copying, and this is quoted in

22 our brief, and said those are different cases. What

23 can be done by not-for-profits can’t be done for

24 profit.

25 So I think to focus on a breaking






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1 point, I think that’s the breaking point; whatever is

2 permissible to the not-for-profit is not permissible

3 to those who are in money, who are trying to make

4 money out of it.

5 JUDGE: Miss Kornfield suggests that in

6 addition to the four statutory factors, we are entitled

7 to consider nonstatutory factors as well. In referring

8 to my dissent in Acuff Rose, she suggests that social

9 utility could be such a factor. Could you say a word

10 on the social utility of what it is that this copy shop

11 though operating for profit is actually doing?

12 MR. RACHBERG: I, of course, agree that other

13 factors may be considered including social utility, but

14 I don’t believe that the social utility of course packs

15 is at issue here.

16 It is, of course, correct that these

17 books have social utility. They are useful in

18 education. There’s no question about it. The reason

19 that they are useful in education is that an enormous

20 amount of intellectual effort by authors has gone into

21 creating the copyrighted works that are found in this

22 book sold by MDS, and those, and the copyright owners

23 of the product of that intellectual labor have the

24 exclusive right to profit by selling copies of the

25 copyrighted work. So I would certainly agree that






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1 this book has social utility, just as the plaintiffs’

2 works have social utility. But that doesn’t, that

3 doesn’t lead to the conclusion that they can be copied

4 at will.

5 Course packs are created by companies

6 that pay royalties. Course packs are created by

7 companies that act consistently with the copyright

8 law, ask for permission, and pay royalties. To the

9 extent we know about the seven copy shops that compete

10 with MDS in the Ann Arbor area, they all apply for

11 permission and pay royalties and they’re still in

12 business. The record reflects in the documents

13 submitted by Wayne State University in which they

14 stated university policy that copyrighted excerpts

15 should not be included in course packs unless

16 permission is obtained. They stated that

17 Barnes & Noble has assured the university that it

18 will produce the course parks and get the permissions

19 acting through a national permission service.

20 So the issue is not will students get

21 course packs or not. The issue is not will professors

22 get course packs or not. Students and professors will

23 get course packs because there are people who are in

24 the business of providing those course packs who pay

25 royalties to the copyright holders who are responsible






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1 for the intellectual labor that gives them the value.

2 The issue is whether Mr. Smith and his company, MDS,

3 can have a competitive advantage over all those who are

4 in the same business that he is and who are —

5 JUDGE: Is that an issue, Mr. Rachberg?

6 MR. RACHBERG: I beg your pardon?

7 JUDGE: Is that an issue or does that merely

8 beg the question?

9 MR. RACHBERG: I believe that’s at the heart

10 of the issue. The heart of the issue is that there is

11 an existing permissions market. People do pay

12 royalties, the publishers, the copyright holders are

13 being compensated for the intellectual property with

14 the exception of Mr. Smith. I think that’s what shows

15 the fourth factor harm and, therefore, shows why

16 there’s copyright infringement here.

17 JUDGE: Excuse me. I’m troubled how a

18 showing that there are copy shops who pay the requested

19 permission fee helps us to decide whether the law

20 requires the requested permission fee must be paid.

21 MR. RACHBERG: It’s back in a sense to the

22 circularity point I believe that Miss Kornfield tried

23 to argue, and as my answer consistent with the Second

24 Circuit’s opinion in the Texaco case is that it is not

25 circular to refer to a longstanding, well-established,






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1 existing market in which publishers are paid license

2 fees for the creation of works that are based on their

3 copyrighted works, and when instead of receiving those

4 license fees someone just takes the copyrighted works

5 without permission and without paying the fees that

6 publishers ordinarily charge, then I think there has

7 been a disruption of the ordinary, usual markets, an

8 interruption of the flow of monies that ordinarily come

9 to the copyright holder for the intellectual labor,

10 and, therefore, harm, economic harm to the work and

11 fourth factor harm as well. It’s in that sense that I

12 believe the case law does establish that you can

13 consider these, these royalty payments.

14 JUDGE: Fifteen minutes is getting pretty

15 long in the tooth, Mr. Rachberg. Would that be a

16 convenient place for you to stop or do you have a brief

17 conclusion you’d like to give us?

18 MR. RACHBERG: I’d like to add just a

19 word on the point that the injunction here was

20 unconstitutional. The injunction here does not extend

21 to the copying of uncopyrighted works. It is an

22 injunction that expressly prohibits only the copying

23 of copyrighted works. So the idea that the Declaration

24 of Independence can’t be copied or anything like that

25 is simply a fiction in this case. The injunction only






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1 prohibits the copying of the copyrighted works of these

2 plaintiffs. I thought it was important to —

3 JUDGE: Let me mirror that just a little,

4 counsel. If they use your book as the source of the

5 constitution, do you take the position that that, that

6 is covered —

7 MR. RACHBERG: No, Your Honor.

8 JUDGE: — by the injunction?

9 MR. RACHBERG: No, Your Honor. If one of our

10 works reproduces the constitution, the constitution, it

11 would not be a copyright infringement to copy those

12 pages of the book, period. No question about that.

13 JUDGE: Thank you, sir.

14 Miss Kornfield?

15 MS. KORNFIELD: Your Honor, as we can see

16 by the argument by opposing counsel, they are back

17 to arguing issues that they did not allege in the

18 pleadings. They did not allege that they owned

19 copyrights in course pack books. They allege they

20 own copyrights in six works. The fact that they

21 happen to be bound with other materials is a matter

22 of convenience for the students.

23 MDS does not create and does not sell

24 books, and we trust that the court understands the

25 distinction between what a book is and what a






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1 collection of selected readings are. The seven volume

2 joint appendix that we filed with the court is not

3 a seven volume book. It’s the selection of the

4 particular materials that were referenced for these

5 briefs. That is exactly what the course packs are

6 as all of the evidence in the record states.

7 The misstatement by counsel that these

8 are books is an attempt, of course, to try and divert

9 the focus of the court from what is going on which is

10 making copies for those people who have the right to

11 make their own copies. We would not be here arguing

12 that MDS could do for the students what they cannot do

13 for themselves or for the professors what they cannot

14 do for themselves. So we contend, we always have, that

15 the fair use rights of the students and professors is a

16 required finding in order to know whether the copying

17 by MDS for them is legal or is not legal.

18 The issue then of authors, it’s quite

19 curious in this case when we are the ones who have a

20 hundred and sixty affidavits on file from authors, the

21 authors have testified that they want their works

22 excerpted for purposes such as classroom use and

23 teaching when the professor is not otherwise going to

24 assign them the book, and as we see, Professor Brown

25 who is the author of one of the excerpts at issue






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1 signed such an affidavit. He said he is dismayed that

2 these publishers have brought this lawsuit against MDS.

3 JUDGE: Of course, he doesn’t own the

4 copyright, does he?

5 MS. KORNFIELD: He does not own the copyright

6 but he is the author, and Mr. Rachberg’s argument was

7 authors want these permissions collected. Your Honor,

8 the evidence in the record is that they do not when the

9 professors were not otherwise going to assign the book.

10 We also see the reliance on Supreme

11 Court cases that, of course, have nothing to do with

12 the copying of multiple copies for classroom use. The

13 reference to Harper & Row is a case about a stolen

14 manuscript where the Supreme Court referenced the fact

15 that it was stolen or purloined I think seventy-two

16 times in that case. We would not be arguing that Mr.

17 Smith could reproduce excerpts of stolen manuscripts

18 which result in the loss of a contract and that result

19 in the publication of a work that had not been

20 published. That is not before the court. Harper & Row

21 is completely inapplicable.

22 Additionally, the reference to the

23 classroom guidelines is very strange in light of the

24 fact that the classroom guidelines are not the law.

25 Section 107 of the Copyright Act is the law. Congress






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1 specifically identified the making of multiple copies

2 for classroom use for purposes such as teaching as the

3 kind of use that is typically found to be fair.

4 The idea that their permissions system

5 is at all relevant, we note that Mr. Rachberg failed to

6 inform the court that for twenty years in this country

7 the copy shops around the country, four thousand seven

8 hundred of them according to Mr. Ternes whose affidavit

9 is also in the record, were making copies just the way

10 that MDS makes copies. There were no **END OF TAPE,

11 START NEW TAPE** business in any way other than had

12 been conducted for two decades in this country is

13 false.

14 The permissions departments he refers

15 to are to give permission for uses that would otherwise

16 be infringing. For example, if one publishing company

17 wishes to create an anthology, it will have to contact

18 another publishing company if it wishes to use a

19 substantial part of that work and create a book to

20 sell. That is not the making of multiple copies for

21 classroom use.

22 The — also, the fact that the reference

23 to Tullo as a case that Mr. Rachberg claims supports

24 his position, in page five, Your Honors, of our reply

25 brief we point out that Tullo is a case where the






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1 defendant systematically copied news programs in hopes

2 that down the road someone might come to them and buy

3 these materials. This is a case where I had said

4 earlier it’s a closed loop. It begins with the

5 professors who themselves do the excerpting, the

6 selecting, who make the copies, who determine the

7 order, who drops it off at MDS, who makes the copies

8 for those students and then who discards or recycles

9 the remaining materials. It is not a case about sale

10 to the public.

11 The reference to Stuart v. Abend is also

12 a misrepresentation. That case was about the making of

13 a derivative work. Stuart v. Abend involved a decision

14 by the Supreme Court as to whether an individual who

15 had promised to assign his renewal right and then who

16 died, in fact, whether the renewal right was assigned.

17 One of the issues raised by Stuart in that case who

18 lost the case was that they had invested a lot of money

19 in taking that book or that story and creating a movie,

20 and the Supreme Court noted that it was simply the

21 scheme that congress had set up and they could not

22 violate the plain language of the statute, and if the

23 copyright owner of the derivative work had an argument

24 with that, they had to take it to congress.

25 These publishers are in the wrong forum.






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1 If they don’t like the fact that congress stated that

2 multiple copies for classroom use for purposes such as

3 teaching is a fair use and is not an infringement, they

4 can’t bring that argument here. My client’s activities

5 are perfectly within the scope of the act as all of the

6 evidence supports.

7 And, finally, I think it’s fair to say

8 the only argument the publishers have is they’re losing

9 money. Well, as we’ve pointed out, their losing money

10 argument is false. MDS doesn’t sell excerpts. MDS

11 provides the photocopy services to those who could do

12 it for themselves and, by the way, at half the price

13 the university would charge them. Thus, if the issue

14 came down to money, if it did, the Supreme Court ruling

15 in Acuff Rose takes care of that argument. The Supreme

16 Court has said even if there is a commercial use which

17 we contend there is not here but even if there is,

18 that’s a factor. It’s not dispositive, and there are

19 numerous cases cited by the Supreme Court and cited by

20 the defendants where the fact that there happens to be

21 money made does not mean the use is not fair.

22 JUDGE: Have you reached a convenient

23 stopping point?

24 MS. KORNFIELD: I’ve reached my stopping

25 point, Your Honor.






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1 JUDGE: Very good.

2 MS. KORNFIELD: Thank you.

3 JUDGE: The case will be submitted and the

4 clerk may call the next case.


6 (Oral argument concluded.)

























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) SS.



4 I, Cheryl McDowell, of the firm of

5 HURON REPORTING SERVICE, a Notary Public within and

6 for the County of Livingston, State of Michigan, duly

7 commissioned and qualified, do hereby certify that

8 the oral arguments in the before-entitled cause on

9 September 15, 1995 were transcribed by me by means of

10 Stenography; afterwards transcribed upon a computer

11 under my personal supervision; and that the attached

12 is a true and correct transcript of the oral arguments

13 then given by the attorneys to the best of my ability.

14 IN WITNESS WHEREOF, I have hereunto set my

15 hand and affixed my Notarial Seal in Ann Arbor, County

16 of Washtenaw, State of Michigan, this _______ day of

17 _____________________, 1996.


19 __________________________________

Cheryl McDowell, CSR-2662

20 Notary Public, Livingston County

State of Michigan

21 Commission Expires September 13, 1999










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