The murky law of fair use

In our practice, we deal not only with the enforcement of intellectual property rights, but we also do a fair amount of defense of accused infringers. One of the surest ways of getting into an intellectual property dispute (aside from illegally downloading movies using BitTorrent) is to make reference to, mention or otherwise utilize someone else’s intellectual property.

While this may seem obvious, it can creep up in the business context in unexpected ways. Generally speaking, business will cite that they are allowed to do their activities under the doctrine of “Fair Use.” Additionally, it is important to note that there is a difference in running afoul of the law and being embroiled in a conflict with another business. While a company’s actions may be justified legally, it may still find itself in a dispute which can cost a lot of money, time and resources.

These issues come up in two different areas of intellectual property – copyright and trademark. While each area of law adopts a concept that allows certain usage by parties other than the owner, the concepts are quite different in what they allow third parties to do.

In general, trademark law can be seen as more lenient when it comes to the commercial use than copyright law, which is somewhat understandable given the objectives of each type of protection. The goals of trademark law are to: 1) prevent consumer confusion in the marketplace between the source, sponsorship or affiliation of different goods, and 2) to protect the goodwill built with respect to trademarks by their owners.

Copyright has a slightly different focus of protecting the benefits to society derived from the labors of those who create creative works. The underscoring notion is that unimpeded copying of creative works will lessen the incentive for authors to create such works, which will yield an overall undesirable outcome. To that end, copyrights have a definite term (in theory) and then become part of the public domain, free for all to use. Trademarks, on the other hand, can be indefinite as long as the owner continues to use the mark to identify its goods or services.

Fair Use in copyright law generally favors noncommercial use whose benefits are mainly felt by society as a whole. It covers limited usage for things such as criticism, comment, new reporting, teaching, scholarship or research. The use will be treated more favorably if the use is “transformative” as opposed to mere copying, meaning that the user has added something of their own to the work. In determining whether a use constitutes a fair use under copyright law, a four-factor test is applied:

1) Whether the use is commercial in nature or is for nonprofit educational purposes;
2) The nature of the copyrighted work;
3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
4) The effect of the use upon the potential market for or value of the copyrighted work.

As a rule of thumb, the more artistic the use, the more likely it could qualify as a fair use. On the other hand, the more commercial the use, the less likely it will be considered fair use. Simply put: Weird Al doing a parody of a Michael Jackson song – okay. But using a photo or music in an advertisement without the copyright holder’s permission – not okay.

While these broad generalizations might be pretty easy to determine what is OK and what is not, in reality these determinations are often highly complex and are always very fact determinative.

Because of the explicitly commercial nature of trademarks, the law is more allowing of use of someone else’s mark in a commercial environment. However, there are still restrictions and business owners still need to be extremely careful to not run afoul of the law.

Classical Fair Use is when a business uses a term not as a mark but in a descriptive sense. Therefore, the owners of the Aspen trademark for ski resorts cannot preclude someone from using the term Aspen to refer to the Colorado town or the tree.  Additionally, you can generally use a third party’s trademarks to refer to their own goods. This usually comes up when your product or service is complementary to another, or you are engaged in comparative advertising. Some jurisdictions call this use Nominative Fair Use.

In Colorado, the  U.S. 10th Circuit Court of Appeals has not officially adopted the defense of Nominative Fair Use, but various district court decisions have stated that such a use does not cause a likelihood of confusion. Therefore, in general companies can state that their accessory is designed to be used with an iPhone or an Xbox, or that more people prefer Coke over Pepsi (or vice versa). However, there are important restrictions placed on the use. For example, you only should use the trademark as much as necessary to identify the other person’s mark. Excessive use of their third party mark could be interpreted as an attempt to leverage the other party’s mark for your own benefit. As with copyrights, what constitutes proper use of a third party mark is a complex analysis and utilization of qualified intellectual property counsel is essential.

The last consideration when using third party copyrights or trademarks in your business is more of a practical consideration rather than a legal one. A lot of business owners (and business lawyers) do not understand the laws regarding use of others’ intellectual property. Often clients will get threats of lawsuits even though we believe that their use is permitted by the law. People often get emotionally attached to these sorts of things and do not appreciate someone else using them.

While your position may be vindicated, in the end these disputes, do take time and money to sort out. Therefore, if a company is highly risk adverse and would rather stay away from any potential problems (regardless whether they are in the right), then the best course of action would be not to engage in any use of another company or individual’s intellectual property.