UNITED STATES COURT OF APPEALS, SECOND CIRCUIT NXIVM CORPORATION and FIRST PRINCIPLES, INC., plaintiffs-Appellants v. THE ROSS INSTITUTE, Rick Ross, also known as Ricky Ross, John Hochman, and Stephanie Franco, Defendants-Appellees, Paul Martin and Wellspring Retreat, Inc., Concolidated-Defendants Appellees. No. 03-7952 Argued Nov. 19, 2003 Decided April 20, 2004 Affirmed. DENNIS JACOBS, Circuit Judge, concurring: I concur in the majority opinion and subscribe in nearly all respects to its analysis, with the following further observations. The majority opinion assumes that Dr. Ross and his co- defendants may have acquired the NXIVM training manual in bad faith, and observes that the district court did not explore this question. Even assuming such bad faith, the majority opinion nonetheless concludes that the defendants' quotation from the NXIVM original was a fair use protected by § 107. This is because Ross used the passages from NXIVM's manuals to criticize the original, i.e., with a literary intention and effect that differed sufficiently from that of the original to be transformative. Accordingly, Dr. Ross' publication of the quoted material did not enter the marketplace as a potential substitute for NXIVM's original. In the majority's words, "[a]ll of the alleged harm arises from the biting criticism of [the defendant's] fair use, not from usurpation of the market" that properly belongs to the plaintiff. Maj. Op. at [20]. With all of this I completely agree. The fact that the defendants might have acted in bad faith in acquiring the plaintiff's material did not bar a finding of fair use. I would go somewhat further. The majority assumed, based on the Supreme Court's having said so in Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 562€“63 (1985), that bad faith on the part of secondary users has a proper place in the fair use analysis. The Court's observation in Harper & Row was, however, a make-weight wholly unnecessary to the outcome; rejection of the fair use defense was compelled by the essential statutory considerations: the defendant took the "heart" of the plaintiff's book (the part the public was most interested in reading), and in so doing, usurped a significant part of its market. The Supreme Court's most recent consideration of fair use in Campbell v. Acuff-Rose Music, Inc. Harper & Row). The present case affords an occasion to assess whether bad faith on the part of a secondary user plays a productive role in the fair use inquiry. For the reasons that follow, I think that the secondary user's good or bad faith in gaining access to the original copyrighted material ought to have no bearing on the availability of a fair use defense. Fair use defines the outer boundary of copyright protection, and that perimeter should be drawn by reference to the central objectives of copyright. Copyright itself would be distorted if its contours were made to depend on the morality and good behavior of secondary users. I Twenty years ago in Harper & Row, the Supreme Court held that THE NATION'S scoop of a TIME magazine article previewing the memoirs of President Ford was an infringement. Harper & Row, 471 U.S. at 569. Although THE NATION contended that the newsworthiness of its piece compelled a finding of fair use, the article failed every prong of the fair use statute, 17 U.S.C. § 107: its conceded purpose was to scoop the authorized publication by TIME magazine and thus "supplant[] the copyright holder's commercially valuable right of first publication," Id. at 562; it appropriated the "heart" of the memoir, Id. at 564- 66; and it "directly competed for a share of the market for prepublication excerpts," Id. at 568. In short, Harper & Row was not a close case. Nevertheless, in its review of the "purpose and character" of THE NATION'S infringement, the Court made the additional observation that "[f]air use presupposes good faith and fair dealing" and noted the district court's finding that "The Nation knowingly exploited a purloined manuscript" to get its scoop. Id. at 562-63. However, when the Supreme Court next considered fair use, in a challenge to 2 Live Crew's pop parody of a Roy Orbison song, the pertinence of bad faith was treated as an open question, not as a point settled by Harper & Row:
[R]egardless of the weight one might place on the alleged infringer's state of mind, compare Harper & Row, 471 U.S. at 562 [] (fair use presupposes good faith and fair dealing) (quotation marks omitted), with Folsom v. Marsh, 9 F. Cas. 342, 349 (No. 4,901) (C.C.D. Mass. 1841) (good faith does not bar a finding of infringement); [Pierre N.] Leval, [Toward a Fair Use Standard, 103 Harv. L. Rev. at] 1126-27 (good faith irrelevant to fair use analysis), we reject [the] argument that 2 Live Crew's request for permission to use the original should be weighed against a finding of fair use. Even if good faith were central to fair use, 2 Live Crew's actions do not necessarily suggest that they believed their version was not fair use . . . . If the use is otherwise fair, then no permission need be sought or granted.
Campbell, 510 U.S. at 585 n.18 (emphasis added). In opposition to Harper & Row's assumption that "fair use presupposes good faith and fair dealing," the Campbell footnote highlighted the seemingly contrary inference of Justice Story's classic statement of the fair use principles in Folsom, as well as an often-cited study that questions whether good faith should be weighed in the balancing of "the social benefit of a transformative secondary use against injury to the incentives of authorship." Pierre N. Leval, Toward a Fair Use Standard, 103 Harv. L. Rev. 1105, 1126-27 (1990) ("Leval I"). Campbell's contrary-to-fact phrasing--"[e]ven if good faith were central to fair use"-- rather suggests that it should not. So, even if Harper & Row did state in passing that fair use presupposes good faith, Campbell reopened the question. See, e.g., Religious Tech. Ctr. v. Netcom On-Line Communication Servs., Inc., 923 F. Supp. 1231, 1244 n.14 (N.D. Cal. 1995) ("Campbell . . . hardly endorses the good faith requirement."). Campbell's footnoted discussion questioning the pertinence of good faith reinforces the entire thrust of the decision, which requires that fair use be assessed primarily in light of whether the secondary work quotes the original with a transformative purpose and whether it usurps a market that properly belongs to the original author--issues as to which the defendant's good faith in accessing the plaintiff's original work does not matter. II Campbell reinvigorated the doctrine, paramount since at least Justice Story's opinion in Folsom v. Marsh, 9 F. Cas. 342 (C.C.D. Mass. 1841) (No. 4,901), that the fair use defense exists to encourage the creation of original works that do not "supersede the objects"--and thus the market value--of the original. 510 U.S. at 576 (quoting Folsom, 9 F. Cas. at 348); see also Pierre N. Leval, Nimmer Lecture: Fair Use Rescued, 44 U.C.L.A. L. Rev. 1449, 1465 (1997) ("Leval II") ("[Campbell] revives the transformative -superseding dichotomy as the dominant consideration."). Fair use is not a doctrine that exists by sufferance, or that is earned by good works and clean morals; it is a right--codified in § 107 and recognized since shortly after the Statute of Anne--that is "necessary to fulfill copyright's very purpose, €˜[t]o promote the Progress of science and the useful arts . . . .'" Campbell, 510 U.S. at 575 (quoting U.S. Const., art. I, § 8, cl. 8). The fair use doctrine "requires courts to avoid rigid application of the copyright statute" when it "would stifle the very creativity which that law was designed to foster." Id. at 577 (emphasis added) (citation, internal quotation marks, and alteration omitted); see also, Leval II, 44 U.C.L.A. L. Rev. at 1465. The main purpose of the first-factor inquiry under § 107 is to see whether the new work merely supersedes the original or "instead . . . is €˜transformative.'" Campbell, 510 U.S. at 578-79 (quoting Leval I, 103 Harv. L. Rev at 1111). Two closely-related inquiries are crucial: Does the secondary work quote or copy the first with the same literary intention as the original or with a new, transformative purpose? Does the secondary work usurp some of the market for the first by serving as an alternate means of acquiring the quoted material? As Campbell pointed out, these inquiries, specified in the first and fourth listed factors of § 107, are correlated: the greater the transformative purpose of the secondary use, the less potential purchasers will see it as an alternative means of acquiring the original. See Id. at 591. Similarly, the more the secondary work quotes the original to communicate an identical message or purpose, the more likely it is that potential purchasers will see the secondary work as an alternate means of acquiring the first--in which case, the secondary work will likely usurp the original's rightful market. The bad faith of the secondary user in gaining access to the original author's material has no rational bearing on those crucial interrelated inquiries. See Leval I, 103 Harv. L. Rev. at 1126. A person who acquires the original work by crooked or unsavory means may expose himself to all sorts of civil claims and criminal charges; but the question of fair use itself should be decided on the basis of the transformative character and commercial effects of the secondary use. If the use satisfies the criteria of § 107, it is fair because it advances the utilitarian goals of copyright. It might seem that it can never hurt to put bad faith at a disadvantage. But copyright is not about virtue; it is about the encouragement of creative output, including the output of transformative quotation. Its goals are not advanced if bad faith can defeat a fair use defense. The limited monopoly bestowed by the copyright statute "is intended to motivate the creative activity of authors and inventors, by the provision of a special reward, and to allow the public access to the products of their genius after the limited period of exclusive control has expired." Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984). Though the statute allows a copyright holder to recover damages suffered at the hands of an infringer, see, e.g., 17 U.S.C. § 504 (1996), the reward to be gained (or the loss suffered) is a "secondary consideration" in the copyright scheme; its "primary object . . . lies in the general benefits derived by the public from the labors of authors.'" See United States v. Paramount Pictures, Inc., 334 U.S. 131, 158 (1948) (quoting Fox Film Corp. v. Doyal, 286 U.S. 123, 127 (1932)). In Campbell, the Court affirmed that the fair use defense exists to further these same goals; it is not, as its label may connote, a privilege conferred on the well- intentioned. Fair play is no defense to infringement, see, e.g., Folsom, 9 F. Cas. at 349 (finding infringement despite having "no doubt [] that [defendant's copying was] deemed [by him] a perfectly lawful and justifiable use of the plaintiff's work"), and bad faith should be no obstacle to fair use. Thus a hotelier who stocks each room with photocopies of a newly copyrighted translation of the Bible is not saved from infr ingement by his piety; similarly, a movie reviewer who critiques--and reveals--a surprise ending is not deprived of the fair use defense by his malice or spite. Nor should a book critic be denied the fair use protection because she gained access to a prepublication manuscript by deceit. Fair use is not a permitted infringement; it lies wholly outside the domain protected by the author's copyright. Bad faith is a slippery concept in the copyright context. It (i) is difficult to define, (ii) may be impossible to detect, and (iii) given weight, may lead to the suppression of transformative works that are valuable to the expansion of public knowledge. In deciding whether to publish a work derived from copyrighted source material, a publisher ought to be able to make a judgment based solely on a comparison of the two works in light of market conditions, as indicated by the factors expressly set out in § 107. The goals of copyright are disserved if publishers (and editors) risk liability on the basis of the (often unknown or unsuspected) tactics and morals of authors who produce transformative works. Incremental risks drive up the cost of publication, thus the prudent publisher may elect to forgo a new work altogether if the good faith of the creator cannot be assured. And when bad faith is apparent or discovered, an otherwise transformative work will not be published at all--a result in tension (at least) with the public good that copyright exists to promote. See Sony, 464 U.S. at 429-34. "The monopoly privileges that Congress may authorize [pursuant to Article I, section 8] are neither unlimited nor primarily designed to provide a special private benefit . . . [and anyone] who makes a fair use of the work is not an infringer of the copyright with respect to such use." Id. at 429, 433 (emphasis added). III Not unreasonably, the majority opinion considers us bound by Harper & Row. That case undoubtedly said that "fair use presupposes good faith and fair dealing," an observation that the Supreme Court has never expressly disavowed. Nonetheless, the footnote invites and provokes discussion of the issue as an open question where it may arise. This case illustrates why bad faith on the part of the secondary user should not be factored into the fair use analysis. Dr. Ross and his co-defendants quoted from NXIVM's manual to show that it is the pretentious nonsense of a cult. Potential purchasers of NXIVM's services will not buy the secondary work as an alternative means of acquiring the material quoted from the original; the secondary articles therefore do not usurp or supersede a market that properly belongs to NXIVM. Certainly, no critic should need an author's permission to make such criticism, regardless of how he came by the original; nor should publication be inhibited by a publisher's anxiety or uncertainty about an author's ethics if his secondary work is transformative. The majority opinion thus properly affirms the district court's finding of fair use, notwithstanding the possibility that the defendant might have obtained the plaintiff's materials by an act of deception or otherwise in bad faith.
