LEWIS GALOOB TOYS, INC.
v.
NINTENDO OF AMERICA, INC.
964 F.2d 965 (9th Cir. 1992)
FARRIS, Circuit Judge:
1/ Nintendo of America appeals the district court's judgment following a bench trial (1) declaring that Lewis Galoob Toys' Game Genie does not violate any Nintendo copyrights and dissolving a temporary injunction and (2) denying Nintendo's request for a permanent injunction enjoining Galoob from marketing the Game Genie. Lewis Galoob Toys, Inc. v. Nintendo of America, Inc., 780 F.Supp. 1283 (N.D.Cal.1991). We have appellate jurisdiction pursuant to 15 U.S.C. s 1121 and 28 U.S.C. ss 1291 and 1292(a)(1). We affirm. . . .
2. Fair use
2/ "The doctrine of fair use allows a holder of the privilege to use copyrighted material in a reasonable manner without the consent of the copyright owner." Narell v. Freeman, 872 F.2d 907, 913 (9th Cir.1989) (citations omitted). The district court concluded that, even if the audiovisual displays created by the Game Genie are derivative works, Galoob is not liable under 17 U.S.C. s 107 because the displays are a fair use of Nintendo's copyrighted displays. "Whether a use of copyrighted material is a 'fair use' is a mixed question of law and fact. If the district court found sufficient facts to evaluate each of the statutory factors, the appellate court may decide whether defendants may claim the fair use defense as a matter of law." Abend v. MCA, Inc., 863 F.2d 1465, 1468 (9th Cir.1988), aff'd sub nom. Stewart v. Abend, 495 U.S. 207, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990).
3/ Section 107 codifies the fair use defense: In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include- - (1) the purpose and character of the use, including whether such use is of a commercial 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; (4) the effect of the use upon the potential market for or value of the copyrighted work. The factors are nonexclusive, see Fisher v. Dees, 794 F.2d 432, 435 (9th Cir.1986), and section 107 does not indicate how much weight should be ascribed to each.
4/ Much of the parties' dispute regarding the fair use defense concerns the proper focus of the court's inquiry: (1) Galoob or (2) consumers who purchase and use the Game Genie. Nintendo's complaint does not allege direct infringement, nor did it try the case on that theory. The complaint, for example, alleges only that "Galoob's marketing advertising [sic], promoting and selling of Game Genie has and will contribute to the creation of infringing derivatives of Nintendo's copyrighted ... games." (emphasis added). Contributory infringement is a form of third party liability. See Melville B. Nimmer & David Nimmer, 3 Nimmer on Copyright s 12.04[A][2], at 12- 68 (1991). The district court properly focused on whether consumers who purchase and use the Game Genie would be infringing Nintendo's copyrights by creating (what are now assumed to be) derivative works.
5/ Nintendo emphasizes that the district court ultimately addressed its direct infringement by authorization argument. The court concluded that, "[b]ecause the Game Genie does not create a derivative work when used in conjunction with a copyrighted video game, Galoob does not 'authorize the use of a copyrighted work without the actual authority from the copyright owner.' " Galoob, 780 F.Supp. at 1298 (quoting Sony, 464 U.S. at 435 n. 17, 104 S.Ct. at 785 n. 17). Although infringement by authorization is a form of direct infringement, this does not change the proper focus of our inquiry; a party cannot authorize another party to infringe a copyright unless the authorized conduct would itself be unlawful.
6/ Nintendo disputes this conclusion. According to Nintendo, a party can unlawfully authorize another party to use a copyrighted work even if that party's use of the work would not violate the Copyright Act. Nintendo's argument is unpersuasive. In Sony, 464 U.S. at 449, 104 S.Ct. at 792, for example, the Court considered whether consumers were using the Betamax for a commercial or noncommercial purpose even though Sony itself obviously was acting in its own commercial self- interest. Professor Nimmer similarly concludes that, "to the extent that an activity does not violate one of those five enumerated rights [see 17 U.S.C. s 106], authorizing such activity does not constitute copyright infringement." 3 Nimmer on Copyright s 12.04[A][3] [a], at 12- 80 n.82.
7/ The district court concluded that "a family's use of a Game Genie for private home enjoyment must be characterized as a non- commercial, nonprofit activity." Galoob, 780 F.Supp. at 1293. Nintendo argues that Game Genie users are supplanting its commercially valuable right to make and sell derivative works. Nintendo's reliance on Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 562, 105 S.Ct. 2218, 2231, 85 L.Ed.2d 588 (1985), is misplaced. The commercially valuable right at issue in Harper & Row was the right of first publication; Nation Enterprises intended to publish the copyrighted materials for profit. See id. at 562- 63, 105 S.Ct. at 2231- 32. See also Sony, 464 U.S. at 449, 104 S.Ct. at 792 ("If the Betamax were used to make copies for a commercial or profit- making purpose, such use would presumptively be unfair."). Game Genie users are engaged in a non- profit activity. Their use of the Game Genie to create derivative works therefore is presumptively fair. See Sony, 464 U.S. at 449, 104 S.Ct. at 792.
8/ The district court also concluded that "[t]he [Nintendo] works' published nature supports the fairness of the use." Galoob, 780 F.Supp. at 1293. Nintendo argues that it has not published the derivative works created by the Game Genie. This argument ignores the plain language of section 107: "the factors to be considered shall include ... the nature of the copyrighted work." The argument also would make the fair use defense unavailable in all cases of derivative works, including "criticism, comment, news reporting, teaching ..., scholarship, or research." 17 U.S.C. s 107. A commentary that incorporated large portions of For Whom the Bell Tolls, for example, would be undeserving of fair use protection because the incorporated portions would constitute an unpublished derivative work. This cannot be the law.
9/ The district court further concluded that the amount of the portion used in relation to the copyrighted work as a whole "cannot assist Nintendo in overcoming the presumption of fair use." Galoob, 780 F.Supp. at 1293. The video tape recorders at issue in Sony allowed consumers to tape copyrighted works in their entirety. The Supreme Court nevertheless held that, "when one considers ... that [video tape recording] merely enables a viewer to see such a work which he had been invited to witness in its entirety free of charge, the fact that the entire work is reproduced does not have its ordinary effect of militating against a finding of fair use." 464 U.S. at 449- 50, 104 S.Ct. at 792 (citations omitted). Consumers are not invited to witness Nintendo's audiovisual displays free of charge, but, once they have paid to do so, the fact that the derivative works created by the Game Genie are comprised almost entirely of Nintendo's copyrighted displays does not militate against a finding of fair use.
10/ Nintendo would distinguish Sony because it involved copying copyrighted works rather than creating derivative works based on those works. In other words, the consumers in Sony could lawfully copy the copyrighted works because they were invited to view those works free of charge. Game Genie users, in contrast, are not invited to view derivative works based on Nintendo's copyrighted works without first paying for that privilege. Sony cannot be read so narrowly. It is difficult to imagine that the Court would have reached a different conclusion if Betamax purchasers were skipping portions of copyrighted works or viewing denouements before climaxes. Sony recognizes that a party who distributes a copyrighted work cannot dictate how that work is to be enjoyed. Consumers may use a Betamax to view copyrighted works at a more convenient time. They similarly may use a Game Genie to enhance a Nintendo Game cartridge's audiovisual display in such a way as to make the experience more enjoyable.
11/ "The fourth factor is the 'most important, and indeed, central fair use factor.' " Stewart, 495 U.S. at 238, 110 S.Ct. at 1769 (quoting 3 Nimmer on Copyright s 13.05[A], at 13- 81). The district court concluded that "Nintendo has failed to show any harm to the present market for its copyrighted games and has failed to establish the reasonable likelihood of a potential market for slightly altered versions of the games at suit." Galoob, 780 F.Supp. at 1295. Nintendo's main argument on appeal is that the test for market harm encompasses the potential market for derivative works. Because the Game Genie is used for a noncommercial purpose, the likelihood of future harm may not be presumed. See Sony, 464 U.S. at 451, 104 S.Ct. at 793. Nintendo must show "by a preponderance of the evidence that some meaningful likelihood of future harm exists." Id. (emphasis supplied).
12/ Nintendo's argument is supported by case law. Although the Copyright Act requires a court to consider "the effect of the use upon the potential market for or value of the copyrighted work," 17 U.S.C. s 107(4) (emphasis added), we held in Abend that "[a]lthough the motion picture will have no adverse effect on bookstore sales of the [underlying] novel- - and may in fact have a beneficial effect- - it is 'clear that [the film's producer] may not invoke the defense of fair use.' " 863 F.2d at 1482 (quoting 3 Nimmer on Copyright s 13.05[B], at 13- 84). We explained: " 'If the defendant's work adversely affects the value of any of the rights in the copyrighted work ... the use is not fair even if the rights thus affected have not as yet been exercised by the plaintiff.' " Id. (quoting 3 Nimmer on Copyright s 13.05[B], at 13- 84 to 13- 85 (footnotes omitted)). The Supreme Court specifically affirmed our finding that the motion picture adaptation "impinged on the ability to market new versions of the story." Stewart, 495 U.S. at 238, 110 S.Ct. at 1769.
13/ Still, Nintendo's argument is undermined by the facts. The district court considered the potential market for derivative works based on Nintendo game cartridges and found that: (1) "Nintendo has not, to date, issued or considered issuing altered versions of existing games," Galoob, 780 F.Supp. at 1295, and (2) Nintendo "has failed to show the reasonable likelihood of such a market." Id. The record supports the court's findings. According to Stephen Beck, Galoob's expert witness, junior or expert versions of existing Nintendo games would enjoy very little market interest because the original version of each game already has been designed to appeal to the largest number of consumers. Mr. Beck also testified that a new game must include new material or "the game player is going to feel very cheated and robbed, and [the] product will have a bad reputation and word of mouth will probably kill its sales." Howard Lincoln, Senior Vice President of Nintendo of America, acknowledged that Nintendo has no present plans to market such games.
14/ The district court also noted that Nintendo's assertion that it may wish to re- release altered versions of its game cartridges is contradicted by its position in various other lawsuits: In those actions, Nintendo opposes antitrust claims by using the vagaries of the video game industry to rebut the impact and permanence of its market control, if any. Having indoctrinated this Court as to the fast pace and instability of the video game industry, Nintendo may not now, without any data, redefine that market in its request for the extraordinary remedy sought herein.... While board games may never die, good video games are mortal. Galoob, 780 F.Supp. at 1295. The existence of this potential market cannot be presumed. See Sony, 464 U.S. at 451, 104 S.Ct. at 793. See also Wright v. Warner Books, Inc., 953 F.2d 731, 739 (2d Cir.1991) (affirming district court's finding of no reasonable likelihood of injury to alleged market because "[p]laintiff has offered no evidence that the project will go forward"). The fourth and most important fair use factor also favors Galoob.
15/ Nintendo's most persuasive argument is that the creative nature of its audiovisual displays weighs against a finding of fair use. The Supreme Court has acknowledged that "fair use is more likely to be found in factual works than fictional works." Stewart, 495 U.S. at 237, 110 S.Ct. at 1769. This consideration weighs against a finding of fair use, but it is not dispositive. See Sony, 464 U.S. at 448, 104 S.Ct. at 792 (fair use defense is an "equitable rule of reason"). The district court could properly conclude that Game Genie users are making a fair use of Nintendo's displays. . . .
AFFIRMED.
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