There are untold riches in running the internet of other people’s things: Supreme Court Brief of @davidclowery, @helienne, @theblakemorgan and @sgawrites in Google v. Oracle, Part 4

Google’s appeal of its major loss to Oracle on fair use is shaping up to be the most important copyright case of the year, if not the decade.  It could set fair use standards for years to come.  We’re going to be posting installments from the friend of the court brief that David, Helienne, Blake and The Songwriters Guild filed in the U.S. Supreme Court supporting Oracle in the Google v. Oracle fair use case.  This is part 4.  We decided to omit the footnotes for this posting, but you can read the whole brief here.

Cover Page

Cover Page of Friend of the Court Brief

ARGUMENT

II. GOOGLE’S USE IS CLEARLY COMMERCIAL.

Against this backdrop, Amici agree wholeheartedly with the Federal Circuit that “the fact that Android is free of charge does not make Google’s use of the Java API packages noncommercial.” Oracle Am., Inc. v. Google, LLC, 886 F.3d 1179, 1197 (Fed. Cir. 2018) (“Oracle II”). In arriving at this conclusion, the Federal Circuit cited evidence that Google generated over $42 billion from Android through advertising. Id. at 1187, 1197.

Google concedes that its creation of Android was “a commercial endeavor,” but argues more amorphously that its copying of Oracle’s code and organization served the noncommercial purpose of “promoting software innovation.” Pet. Br. at 43-44. Likewise,
Google’s amici argue that because Android was offered to consumers for free, its copyright cannot be commercial. See Copyright Scholars Br. At 12.

Yet contrary to the views of Google’s amici, the Federal Circuit properly found that Google’s use was commercial and properly weighed such a commerciality finding in the fair use inquiry. Just because Google did not sell Android to consumers does not mean its
copying did constitute commercial use. In fact, the $42 billion figure cited by the Federal Circuit is likely only the tip of the iceberg.

A. Google’s Market Dominance Lowers the “Customary Price” of Copyrighted Works.

As this Court stated in Harper & Row, whether a use is commercial “is not whether the sole motive of the use is monetary gain but whether the user stands to profit from exploitation of the copyrighted material without paying the customary price.” 471 U.S. at 562 (emphasis added). In other words, a commercial use is found where a defendant is “[g]iving customers for free something they would ordinarily have to buy.”  Oracle II, 886 F.3d at 1197 (quoting A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1015 (9th Cir. 2001)).

The Federal Circuit is in accord with the other Courts of Appeals that have considered this proposition. See, e.g., Soc’y of Holy Transfiguration Monastery, Inc. v. Gregory, 689 F.3d 29, 61 (2d Cir. 2012) (“‘Profit,’ in this context, is thus not limited simply to dollars and coins; instead, it encompasses other non-monetary calculable benefits or advantages.”); Weissmann v. Freeman, 868 F.2d 1313, 1324 (2d Cir. 1989) (factor one disfavored use where professor’s benefit in academic prestige and recognition was “ill-measured in dollars”); A&M Records, 239 F.3d at 1015 (“Direct economic benefit is not required to
demonstrate a commercial use.”); see generally Nimmer on Copyright 13.05  “Commercial uses’ are extremely broad.”).

Here, there should be no question that the purpose of offering a mobile platform was commercial in nature: Google simply wanted to maintain its ad sales dominance. See Oracle II, 886 F.3d at 1210.

One thing that content creators have grown to understand is that Google is not a tech company—it is an advertising company. When one sees this, all is revealed. See Jake Swearingen, Can Google Be More Than an Advertising Company? New York Magazine
(Feb. 5, 2019) (“Of the $39 billion [Google’s parent Alphabet] brought in [during Q4 2018], $32.6 billion of it was in advertising revenue — that’s 83 percent of its total revenue.”). Google has become enormously successful, though not always transparently.
Moreover, Google dominates the market for online advertising, with disturbing  implications for privacy.

As is well-known by now, Google extracts value from its users through selling advertising on works that Google makes available at no charge to the user, and through scraping user data in the background that Google then adds to its ballooning behavioral knowledge database through highly complex user profiling. Google extracts this value by selling targeted advertising, often in connection with verbatim copies of works generally offered for free to users on YouTube. There are untold riches in running the
internet of other people’s things.

The reason is this: free is critical to Google’s model, which depends on the en masse exploitation of copyrighted content. This business model is the sort that this Court has analyzed as commercial:

[Defendants] make money by selling advertising space, by directing ads to the screens of computers employing their software. As the record shows, the more the software is used, the more ads are sent out and the greater the advertising revenue becomes. Since the extent of the software’s use determines the gain to the distributors, the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing.

See Grokster, 545 U.S. at 940. Likewise, Google’s business model enables staggering profits with little to no direct commercial transactions between it and the
end-user, particularly on YouTube. See Jason Fitzpatrick, If You’re Not Paying for It; You’re the Product, Lifehacker (Nov. 23, 2010).

Google’s evangelists have even coined a term to describe such takings: “permissionless innovation.” See Adam Thierer and The Mercatus Center, Permissionless Innovation and Public Policy: A 10 Point Program at 12 (2016). Vinton G. Cerf, Keep the Internet Open, N.Y. Times (May 24, 2012) https://www.nytimes.com/2012/05/25/opinion/keep-theinternet-
open.html.

Yet “permissionless innovation” is just another term for what polite creators call the underpinning of the infamous “value gap” currently plaguing the global community of music creators and artists. In fact, the disparity between artists’ royalties and Google’s
enormous ad-based music distribution profits off of their music has become its own market phenomenon and largely led to the adoption of the European Copyright Directive in 2019 which seeks to address the devastating value gap by requiring Google to
operate on a more level playing field for creators.

In order to achieve and maintain permissionless innovation in the United States, accused infringers in contrast continue to lean on burden-shifting regimes like the DMCA safe harbors to impose the costs of policing infringement onto copyright owners while
giving Google leverage in licensing negotiations.

From a copyright perspective, permissionless innovation relies on a system of risk shifting safe harbors and forces artists into an unsustainable game of whack-a-mole to which Google’s amorphous interpretation of fair use is tightly bound. Google leverages this commercial windfall into exerting dominance at scale. For example, while Google makes much of the purported (and unsubstantiated) “lock in” effect that would result from Oracle’s vindication of its copyrights, see Pet. Br. 40, Google itself locks in creators to coerce their agreement to commercial deals with YouTube. For example and
as further discussed below, contracting with YouTube’s subscription service was a condition of access to YouTube’s infamous Content ID system28 a linkage that
continues to draw scrutiny.

Any revenue that copyright owners receive, then, must price in the transaction costs of dealing with Google’s unpredictable policies. The aggregate revenue from Google after deducting transaction costs is a long way from a “customary price.”

[To be continued]