This is Bloomberg Law with June Brusso from Bloomberg Radio. With dueling opinions from two liberal justices, the Supreme Court ruled that Andy Warhol violated the copyright of photographer Lynn Goldsmith by using her work to create sixteen images of Prince. In a seven to two vote. The Justice has rejected the arguments that the late artists transformed the photograph of Prince,
making it fair use under federal copyright law. In the majority opinion, Justice Sonya Sotomayor pointed to the commercial use as a key factor in determining that Warhol hadn't engaged in fair use, something that echoed her questions in the oral arguments.
That's up to what was made, What use was made of Orange Prince. It was a highly commercial use. Goldsmith's also licensed her photographs to magaz means just as warholtz a state did so, how is it that your two thousand and six license and Goldsmith's photographs do not share the same commercial purpose.
In dissent, Justice Elena Kagan, joined by Chief Justice John Roberts, said, quote, if Warhol doesn't get credit for transformative copying, who will? Something the Chief had expressed during the arguments.
It's not just that Warhol has a different style, is it.
Unlike Goldsmith's photograph, warl sends a message about the depersonalization of modern culture and celebrity status. Joining me is intellectual property litigator Terrence Ross, a partner at Caton Much and Rosenman. We've talked about this case many times, and I have to say that I was surprised by the verdict. Were you surprised?
I was not surprised by the outcome. I was surprised by the seven to two vote. During oral argument, you knew exactly how the Chief Justice was going to vote. He on a couple occasions made statements in the form of the question, but they weren't questions. They were simply expressing his views. How could you possibly not think this is a fair use? And I'm paraphrasing. And after each of those instances you could hear crickets. The rest of
the court was dead sign it. Several of the justices looked at their papers and shuffled their papers like they were embarrassed that their old uncle had said something. And one of the justices pointedly leaned over looked down the panel with that look on his faces, what is it that you're smoking? So you sort of got a sense that you knew exactly what the Chief Justice was going to do, and you also sort of knew that his
view was not going to prevail. He had a very very deferential view, which is expressed in part Justice Kagan's dissent, essentially that if an artist says I'm doing something different, then fair use applies, which is of course nonsense. So I wasn't surprised by the outcome, but I was surprised that the majority cobbled together seven votes, which makes this opinion all the more significant because it was not a close call.
So Terry for the majority, was the key factor in determining fair use, the purpose of the works, the commercial use of Warhol's image, and the fact that both were used as magazine illustrations.
That is certainly what the majority decision says. If you read a little bit more closely, there's this very interesting discussion of derivative works. One of the rights that copyright gives an artist is the exclusive right to prepare derivative works based on the original work, And what Justice Somayor said was that the way that the law transformative use has evolved, it has virtually swallowed up the concept and
the exclusive right to prepare derivative works. And indeed, at one point she says, we have to protect this exclusive right to prepare derivative works and prevent this transformative use test from swallowing this exclusive right to derivative works. So I think there was an element of concern about that, and that clearly comes through in several places. But the way it's expressed in the most part in the decision
is through this notion of the textual words. Is there a different purpose or character to the secondary use?
So what's the test?
Now, that's a great question. So keep in mind that we're talking about batcheatory language, the fair use Statute, which has a four factor test. The only part of that test that is at issue in this case is the first factor. Although the courts toss off these words that all factors have to be considered, no one factor is more important than the other, the reality is that the
first factor is always the most important factor. The first factor says, you know, in considering whether there's a fair use, you have to consider, and I'm quoting here the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes. And so the battleground has been on this purpose and
character of the use. And I see this case really as not a radical shift, but as a clarification of what that purpose and character of the secondary use means. And just so to major starts a trope that will continue throughout the decision. She talks about the matter of degree. She says, specifically, the larger the difference, you know, the greater the degree, the more likely the first factor weighs
in fair use. So the greater the change in purpose or character of use, the more likely it is going to be a fair use, and the smaller the difference in purpose or character, the less likely. And so what she has done, in my view, is set up a balancing test of sorts. First, you look at what is the difference in purpose, what is the difference in use? You consider how much of a difference that is from the original work, and then you have to do another thing.
She says, if it's a commercial use, then you have to have even more significant of a difference than if it's a nonprofit educational used. To our criticism, something the other you don't have to have as great a difference in purpose or character of the secondary use. And so I think that's what the test on the first factor is. And again she says this, I'm not pausing out this transformative use concept, but and she says transformativeness is a matter of degree. She again keeps coming back to this
notion that it's not all or nothing. A district court judge has to look at the degree to which the purported difference and whether that is significant to overcome what is a straightforward commercial usage. Was what was going on here.
Justices Sotomayor and Kagan are both liberals, usually allies, but there was an unusually sharp tone in their opinions here. Justice Elena Kagan, joined by the Chief Justice, wrote the dissent. Justice Kagan wrote, the majority does not see it, and
I mean that literally, And she gave this example. If a magazine editor publishing an article about Prince and an employee asks whether you want to use the Goldsmith photo or the Warhol portrait, and she says, quote, would you say that you don't really care that the employee is free to flip a coin? In the majority's view, you apparently would. What do you think of her analysis?
Oh, I've always thought, as a practicing lawyer advising clients with serious and significant mondary issues here that it's a challenging role for us to decide what's fair use and what is not. It's just the nature of the concept has to be somewhat flexible, somewhat plastic to allow the cover odd situations that come up. And so yes, there are a handful of black letter cases where you can say one way or the other, you know that this is fair use is not fair use. But the vast
majority fall in the middle ground. And it's a very nuanced analysis. So that's always been true. And again you have here Justice Kagan never practiced law in any real sense. She wes Solicitor General and she's only peering court as a practier six times, all of them in the Supring Court. I might add, for which you want, but prior to becoming a solicity to general, it never been at court room.
It was an academic and I think that is something that's missing often from the court, this real world practice component. And this is hard. Ears you said it's unfair to say there's a flip of the coin. I mean, it's just not right. More to the point, I think her decision in many ways very intemperate and unfortunately draws them and in temperate responds backs from the majority decision. I mean, sort of unheard of, And I think you make a
very good point, Jennie Bryant. They're usually allies and from the liberal wing of the court. You and I have discussed this in past copyright cases. Copyright doesn't seem to break down on some sort of partisan division lawns. Here you have the Chief Justice who's a moderate Republican appointee, and Justice Kagan perceived to be a liberal vote the other and just so to major writing majority supported by all of the other conservatives on the Court, including arguably
the most liberal Judge Jackson. I mean, for years, copyright case or are dominated by Justice Ginsberg and Justice Bryer, who are opposite ends of the spectrum on copyright law. Justice Briar believing in a very robust fair use and Justice Ginsburg believing in very robust protection for copyright. Yeah, arguably they were kindred cousins on most other cases. So copyright really you can't analyze in sort of a liberal
versus conservative way. But what is interesting here is you have two of the justices who arguably are a slightly different socioeconomic situation throughout their lives versus all the others who are different, and some of the tone of Justice Kaigan reflects that I think this knee jerk reaction that Chief Justice had, and then Justice Kagan reflects that we've got to protect artists, we've got to protect creativity without actually thinking about what's going on in in this case.
You know, you saw this with Justice Ginsberg often and Justice Bryer, who were clearly too wealthiest of the justices went to the opera or patrons of the art, And here you have a distinct group of justices who did not grow up that way and did not live their lives that way and taking a different approach, which is, you know, you've got a photographer here trying to earn
a living, and you're cheating her out of that. And there's even a line where she says, you could have taken a few dollars and sent it to Lynn Goldsmith's Planet photographer out of all the money you're making off of publishing these Warhol prints. And I thought that one was very revealing of sort of behind the scenes the way they were thinking of it. And I think that's really important subrosa narrative that's going on here.
Well, do you agree with Justice Kagan and the Chief that this decision will stifle creativity of every sort?
Now, absolutely not, it won't. I think this is a decision that's well ground it in fair use principles, exactly the opposite of what Justice Kagan says. I sort of expected it to come out this way. I didn't think there would be as strong as support for it. But we have seen this fair use first factor analysis run amock the Carew case in the Second Circuit where a photographer took some very creative photographs of Rastafarians in Jamaica and so called artists done up putting air quotes around.
Artists came along, doodled on them, You drew sunglasses on one hand and drew guitar and the other and sold them. And the Second Circuits that those doodles were transformative and that was an abomination of a fairy And that case is dead. Now you want to know what the Warhol case does. That case is dead. That whole type of
approach is dead. What we've done is get back to the textual analysis of what the words say which is very important and most important to what we haven't talked about yet is this reasserted objective test with respect to purpose of use, which just rings so clearly here. It is the part that I think district quot judges have to pay most attention to. What Justice Soda Mayor says is quote here, a court should not attempt to evaluate the artistic significance of a particular work, which is exactly
what Justice Kane does. She goes on and on and on about how great Andy Warhol is, and I would have loved to see the first draft majority opinion because Justice Soda Myyer, I'm convinced in a subseqan draft goes in and rewrites the beginning of her decision to talk about how great Lynn Goldsmith is photographer, and from a feminist approach, there were no women's photographers doing rock and
roll back in the sixties and seventies. She created a whole new genre of rock and roll photography and deserves credit for that. And it was an interesting, again dueling approach to this case. But to get back to the subjective test, Justice Soda Myer goes on to say, nor does the subjective intent of the user the artist determine
the purpose of the use. And this is the critical sentence that will get quoted over and over again in district of poor opinions whether the purpose and character of a use ways in favor of fair uses, an objective inquiry into what use was made, and what she's saying there is I don't care what the artist says. I don't care that the artist says that it is transformed. I don't care what the judge thinks. Judges shouldn't be
art critics in the first place. That goes back to the nineteen twenties that doctorate and what we had seen in the Crew case was reflective of This is artists coming in after the fact and concocting some story as to how they were trying to do something different and therefore was a transformative use. And what just as Sodoma are in the overwhelming majority say, here's no, that's not the way. Let's look at this from a reasonable person
perspective and what is the objective purpose here? And in this case they said, the objective purpose of Lynn Goldsmith's photograph was to illustrate a magazine article about Prince's life. What was the objective purpose of the Warhol print. It was to illustrate a magazine article about Prince's life. Therefore the purpose was the same, and therefore you lose on
factor one. And if there's anything that makes fair use analysis simpler here in this decision, that's it, because now we know exactly how to perform the analysis of what is the secondary purpose? What is the secondary use? What's the purpose of the secondary use? We now know how to do that. And once we have that, the test really kicks in just the same as it always has in past cases. Is that the same purpose and character of use as the original And if so, you lose
no fair use. So I think that's really really important here.
So in a concurring opinion by Justice Neil Gorsich joined by Justice Katanji Brown Jackson, again an unusual duo left open the possibility that the princes images could claim fair use protection in other contexts.
It's absolutely true. I mean, what happened here, end of the day. You know, the client always does where do I stand? And the answer for the Warhol Foundation is you lost this case on appeal. They waived any challenge to factor two, three and four, which they lost below and had bet the farm on factor one, they've now lost factor one. And oh, by the way, they early on conceded substantial similarity. So in the majority opinion says, we affirmed the decision by the second Circuit, the Court
of Appeals. Here the way the second Circuit it approached this was we're gring a grands summary judgment to Lynn Goldsmith. The plane of it still has to go back to the district court for determination of damages and attorney's fees and the like, but the Andy Warhol Foundation has now lost. What the concurring decision by Justice Gorswitz says, is this all the hyperbole in the descent by Justice Kagan can
be ignored. At one point in her descent, Justice Kagan, and she puts in illustrations of various artists through history painting reclining nude women. They're all in the public domain, so it's not a copyright issue. And she says, so going forward, is no one allowed to paint a woman in a reclining position because of this decision? And that's
pure hyperbole. In a justice corsition, Justice Jackson call her out and they say a quote worried about the fate of artists seeking to portray reclining nudes or papal authorities or authors hoping to build on classic literary themes. Worry not, the case does not call us on us to strike a balance between rewarding creators and enabling others to build on their work. And again, this is just a reiteration that the decision is in line with pre existing fair
use analysis. It simply clarifies how we make the determination as to what the purpose and character of the secondary use is and make it very hard for an artist whoever is creating the secondary work to make up some theory that they claim that is it transformed its use. Instead, we look at taking an objective approach. And therefore that's why I think this is not a radical change, but it is a very significant clarification, and I would go so far as say this is arguably the most important
copyright case of the twenty first century. Keeping mind that Supreme Court has not looked at fair use now since nineteen ninety four, almost going on thirty years.
What happens next in this case, So.
We'll go back to the district court and the district court will have to determine how much Lynn Goldsmith should get by way of the infringement and whether or not she should get attorney's fees, which could be very significant. My guess is that because this is a really important case and there was a lot of confusion as to what the law is, the district court was saying, now you don't get attorney's fees. This wasn't that sort of case.
There were real doubts. Now we've got those doubts clarified, and so that the Andy Warhol Foundation actually did all of us a favor by forcing us to litigate this through. And I'll also say that based on the evidence I saw in the record on damages, I don't think she's going to get a lot of money either. I mean in the neighborhood between one and ten thousand dollars. Really, yeah, because that's what these licenses were going for. There's a
lot of evidence of record here. I mean, that's one of the points Justice Soda Mayor was making is why didn't you just toss her a few bucks to get the rights to this when you're making all this money on it. It's a fair point. And you know what,
you talk about creativity. Justice Kagan talks about creativity and the damage to creativity The real damage has been this overbroad interpretation of fair use, which is preventing photographers and other original artists from getting their fair due and having that money siphoned off by secondary uses. This being a classic example of this. And I think this was necessary, and I think remedies the flaw of the types of cases like crew that had gone overboard.
We'll see how the district courts do with the test Thanks so much, Terry. That's Terrence Ross of Catain, Mutchen Rosenman.
Thank tot ver remain a place for free expression and we're not be manipulated by government.
And TikTok backed up the testimony of its CEO So Shoe by suing Montana, the first state to ban the popular app. The company says it doesn't share US user data with the Chinese government and has taken substantial steps to protect the privacy and security of TikTok users.
That's what we've been doing for the last two years, building what amounts to a firewall this use of protected US user data from unauthorized foreign access.
TikTok has been here before, and one federal courts bloc. Former President Donald Trump's executive order banning TikTok and the Chinese app we chat back in twenty twenty. Joining me is Jorge Marquez of the Warren Law Group. So one of the arguments that TikTok is making is that the ban violates free speech rights.
So basically, the argument goes that the ban goes to not just the users, because you're eliminating TikTok at a medium for the users to be able to post and express themselves pursuant to the First Amendment, but also TikTok. TikTok even makes the argument that they themselves have their own account, So you're removing TikTok as a forum, but
you're also removing TikTok as a content provider. And because you're actually focusing on the speaker, and because you're focusing on the content, you get to these questions of is strict scrutiny going to apply.
Strict scrutiny being the toughest form of judicial review, and does it sound like a prior restraint.
Absolutely, there's definitely prior restraint with the way in which the ban is taking effect. So the ban is trying to definitely make sure that none of this content can even be provided and you have a chilling effect from the Montana law.
Another argument is that the ban is preempted by federal law.
Now, in terms of the preemption, the federal government has the Department of Homeland Security and it has its own cyber agencies. Right now, I think that Montana does not have the winning side of that question. However, is they are able to articulate a much more specific argument to their own state needs. They may be able to craft an argument as to how they may be able to
be involved in that. Now, that still segues into the commerce clause issue and those state laws that are directed to legitimate local concerns such as the cyber security of your residence, but have incidental effects on interstate commerce. You're trying to apply a local solution. But at the end of the day, TikTok has a national exposure. It is broad based. If someone is in Montana, they can cross state lines and what happens with the APPS usage, so
both of those issues are there. I do think that the preemption argument TikTok makes us very valid points.
There's a really interesting argument around the prohibition of a bill of attainder, not something that often comes up in ordinary conversation. But where a law punishes a party without a trial. So here there's been no proof, no proceeding showing that TikTok violates the privacy of Montana residents.
So what you're raising is a very valid point. So number one, this bill of attainer, it is not that common. I think there's a reason why TikTok put that. At the fourth point, TikTok makes the point of and even cites to language from the governor about how there was an initial interest of including other social media companies and however they got singled out and a lot of the concerns that the law brings. So for example, the law mentions issues on the contents of the video and they
promulgate violence. Well that's not just on TikTok. You could say that about many other social media platforms. So it still goes to the First Amendment issue. But TikTok does have a point. Why are you focusing on my platform when all these other social media platforms have many the same issues, And TikTok in the complaint makes the point. And by the way, even if you included these other
social media companies, you would still run into problems. I tend to agree with that unless the state can articulate why TikTok is so different. And this brings up a very crucial point. Right now, there is no evidence that TikTok is actually providing data and any information to the Chinese Communist Party, but that doesn't eliminate the concern that TikTok, if push comes to shove, may have to eventually give any data to the CCP. It is not enough for
Montana to have a suspicion. The US has a system of independent judicial courts that must take into account the evidence and standards, and that is a fundamental difference between the Chinese system and the US system. There's a reason why Spacebook and other companies cannot rate China. But nevertheless, you have a Chinese company taking advantage of the legal framework in the US to basically argue for the system
in the US. It's an underlying theme as to what's happening with respect to this band.
How would Montana enforce the ban? Would they have people monitoring TikTok so Jun?
As you know, I'm a lawyer, I'm not a technician or an engineer, right, but from what I understand, the app store is able to look at the IP address and basically limit the download from the state. Another in theory, you could have someone that goes to the telecommunication towers in Montana and they're able to limit the access to those towers, so you don't have to be policing the individuals on TikTok. Of course, you get to questions about VPN right, and those are services that allow someone to
bypass some of the restrictions that are in place. But again, is it practical can they actually coordinate all all these different pieces together? Law is only as good as your enforcement mechanism. Does Montana have the infrastructure the personnel to actually follow through with that? And the answer you know from minus standing is no. You require a coordinated effort among multiple parties, particularly at the federal level, to really be able to achieve those objectives.
Senate Intelligence Committee Chair Mark Warners talked about the likelihood of federal courts overturning Montana's ban and that's why it was essential for Congress to pass legislation. So what do you think about the likelihood of Montana's ban actually going into effect in January?
The fact that the affected data is January one, twenty twenty four sort of indicates that they can see the writing on the wall that this will most likely be struck down. So I do think that there was definitely some political posturing because of the acceptance that this was preempted by the federal government. You know, the state wants to make it seen. State politicians, they want their constituents to see that they're trying to do something about it.
You know. Right now, from what I'm seeing, I do think that the First Amendment issue by itself is sufficient. They talks to prevail on this lawsuit.
As long as the parent of a data company like this is Chinese, isn't there always going to.
Be a problem in the US, And let's not be naive. Companies work alongside the US government, and sometimes the US government is on top of companies, knowing full well what's happening. However, the government has a limited role that is part of the US culture. You go to China, the Chinese government, the CCP is in control, the military response to the CCP, not to the country, and you have a fundamental problem
of what data sharing with the country is. With China, you have a law that says that if you are a Chinese company you must share information. And there is a fundamental problem that manisfests itself in this TikTok issue that is just pervasive throughout the relationships. And when you have a US company saying I am limited in the way that I can interact in China, I don't have the backing of the US government to the same level
that this Chinese company does. And by the way, not only that the Chinese company actually has tools to go against the governments in the US that I would not have within China, and that I think is the crucial problem at the origin the fundamental distinction of having a communist party force companies doing multiple things, including providing data as it is built into the system, versus the US system,
which is much more apprehensive towards government's involvement. At the end of the day, it does seem to be a problem that may not have any solution that's reconcilable.
Thanks Orge. That's Hore Marquez of the Warren Law Group, and that's it for this edition of The Bloomberg Remember you can always get the latest legal news on our Bloomberg Law podcasts. You can find them on Apple Podcasts, Spotify, and at www Dot Bloomberg dot com, slash podcast Slash Law, and remember to tune into The Bloomberg Law Show every weeknight at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg