SCOTUS BACK ON THE INTERPRETATION OF “FAIR USE” IN ANDY WARHOL FOUNDATION FOR THE VISUAL ARTS, INC. V. GOLDSMITH.
On May 18th, 2023, the US Supreme Court issued its long-awaited decision in Andy Warhol Foundation for the Visual Arts v. Goldsmith case, ruling that the purpose and character of the Andy Warhol Foundation’s (“AWF”) use of a copyrighted photograph depicting the rock star Prince weighed against a finding of fair use.
In 1981, Lynn Goldsmith took a series of pictures portraying the artist, Prince. Goldsmith licensed one of the photos to Vanity Fair as an “artist reference” for an illustration in an upcoming issue of the magazine. Vanity Fair then hired artist Andy Warhol to create a silkscreen portrait based on the picture, which Vanity Fair published with an article about Prince. Unbeknownst to Goldsmith, Warhol also created a series of works based on her picture entitled the “Prince Series,” most of which were sold to collectors, with four now held by the Andy Warhol Museum in Pittsburgh.
After Prince’s death in 2016, AWF provided Condé Nast with a license to use the “Orange Prince” silkscreen print for a magazine issue commemorating the artist, against the amount of $10,000 as licensing fee, whereas Goldsmith didn’t receive any compensation for such use of her original work. Thus, the photographer notified AWF that the print would infringe on her copyright over the original work.
AWF subsequently filed a declaratory judgment action against Goldsmith, seeking either a declaration of non-infringement on the photographer’s copyright, or, in the alternative, a judicial statement that the orange print was covered by the Copyright Act’s “fair use” defence, according to which four factors are relevant in deciding whether the use of a copyrighted work is deemed as fair:
(1) the purpose and character of the use,
(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. 17 USC. § 107.
AWF’s arguments were successful before the District Court but were reversed by the Second Circuit, holding that the Prince Series was neither transformative nor a fair use according to copyright law. Against this background, AWF appealed before the Supreme Court, which conclusively upheld the decision rendered at the appeal stage.
The Court, in particular, observed that the first factor does not protect the later “use of an original work to achieve a purpose that is the same as, or highly similar to, that of the original work.” When the later work will “substitute for” or “supplant” the original work, that factor cuts against the fairness of the later use. Likewise, “commentary or criticism that targets an original work may have compelling reason to… borro[w] from it.” That is not true, in contrast, when “an original work and a secondary use share the same or highly similar purposes,” especially when “the secondary use is of a commercial nature.”
Applying that approach, the Court determined that the later exploitation by AWF was “substantially the same as that of Goldsmith’s photograph,” a use that “shared the objective[s] of Goldsmith’s photograph, even if the two were not perfect substitutes.” In light of the “commercial nature” of Warhol’s exploitation, the Court concluded that the “character” of Warhol’s use weighs against a finding of “fair use”.
Relying on previous case law according to which the “purpose and character of the use” factor is informed by “whether the copier’s use ‘adds something new, with a further purpose or different character, altering’ the copyrighted work ‘with new expression, meaning or message.’” (Google LLC v. Oracle Am., Inc., 141 S. Ct. 1183, 1203 (2021)) Justice Kagan, joined by Chief Justice Roberts, provided a fierce dissent by observing that Warhol’s silkscreen of Prince “dramatically” altered Goldsmith’s photograph, and the majority was wrong in focusing exclusively on the commercial purpose of the work. Such an approach, Kagan concluded, “will stifle creativity of every sort. It will impede new art and music and literature. It will thwart the expression of new ideas and the attainment of new knowledge. It will make our world poorer.”
The majority of the Court rejected the above argument, holding that the mere addition of “some new expression, meaning, or message,” is not enough to tip the factor toward “fair use”. If it were sufficient, that would seriously endanger the copyright holder’s exclusive right to create derivative works.
To sum up the Court’s holding, in its own words “If an original work and a secondary use share the same or highly similar purposes, and the secondary use is of a commercial nature, the first factor is likely to weigh against fair use, absent some other justification for copying.”
The ruling has been welcomed by copyright holders, insofar as it represents a reliable precedent against the expansion of the “fair use” defence based on claims of transformative use. However, by focusing on AWF’s license to Condé Nast, rather than on Andy Warhol’s creation of the orange silkscreen rendering of Prince, the Court denied answering the important question of whether and to what extent Warhol’s artwork was transformative of Goldsmith’s photograph.
On the other hand, the ruling provided a useful guidance by holding that “new meaning or message” should be disregarded in the context of assessing the above mentioned first factor, since focusing on whether a challenged use is transformative is both difficult to apply in a consistent manner from case to case, and simultaneously permits copying on a such a large scale that the purposes of copyright are subverted.
Finally, the Court seems to be setting a new standard – requiring a “compelling justification” where the original and secondary uses share a closely similar purpose and character – with little guidance, however, concerning its judicial interpretation.
Given the importance of this decision, it remains to be seen whether further application of such principles will help to effectively achieve that “balancing act between creativity and availability” particularly sought after by the Supreme Court in the case at issue.
m.baccarelli@macchi-gangemi.com
m.lonero@macchi-gangemi.com
THE SO CALLED “UNEXPECTED JUDGMENTS”: ARE THEY VOID? IF YES, IN WHICH CASES?
The “unexpected judgments”, also known as “third option judgments”, are Court decisions based on exceptions/issues detectable ex officio by the judge, upon which the parties did not have the chance to discuss. Such bold initiative of the Court may lead to the annulment of the judgment.
A dispute may unexpectedly end with a judgment rendered on the basis of an issue not raised nor discussed by the parties during the whole duration of the proceedings.
The loosing party would then suffer the consequences of the rejection of its requests and the acceptance of the other party’s claims on the grounds of factual elements or law interpretations that were never mentioned during the proceedings.
These “unexpected judgment” may come at a very high price for the losing party, a damage that the judge could have mitigated just by inviting the parties to discuss and take a stand on the new issue raised ex officio.
According to the Supreme Court, such conducts indeed constitute a violation of the parties’ right to defence; it also violates the adversarial principle in the proceedings. Such violations lead to the voidance of the judgment.
Moreover, it should be kept in mind that the Italian Code of Civil Procedure, expressly provided that the judge who wishes to ground its decision on an issue detected ex officio, is obliged to grant the parties 20 to 40 days to draft memoranda addressing the topic raised by the judge itself. The violation of such provision causes judgment’s voidance (see art. 101, para. 2 of the Code of Civil Procedure). The discussed provision allows for a late recovery of the parties’ right to be heard; while the provision does not grant a new investigation phase, nonetheless, it forces the judge to delay the issuing of the decision and the parties to formulate their arguments and conclusions on the newly raised issue.
Actually, the “unexpected judgments” are not always void by default: the Italian Supreme Court finds that the decision based completely on a pure interpretation of the law or on procedural merits, should not cause voidance of the decision, even though the issue upon which the decision is based has been raised ex officio by the judge and the parties did not have the chance to discuss it. Such conclusion of the Supreme Court is supported by the fact that the omission to stimulate parties’ discussion of the issue can only lead to “errore in iudicando” or “error in iudicando de iure procedendi“, namely mistakes in the interpretation of the law, and therefore mistakes which, if committed, allow the Supreme Court to overturn the judgment (Civil Court of Cassation section I, 16th Febr 2016, n.2984 – see also Civil Court of Cassation, Joint Chambers of 30th Sept 2009, n. 20935).
For the sake of completeness, it should be highlighted that part of the Italian legal doctrine disagrees, not without any merits, with the above interpretation offered by the Supreme Court. In fact, even a purely procedural decision can actually cause serious damages to the losing party. It is clear that the latter, duly informed of the newly raised issue, could have explained its reasons better and maybe convince the judge to rule differently; maybe having the judge to take into account also the negative effects of the judgment cost allocation deriving from a “solipsistic” decision (Consolo, sub art. 101 in Comm. Cod. Proc. Civ., 1156).
Moreover, according to the Supreme Court, the parties would be concretely deprived of their power to produce evidence in case the issue detected ex officio concerns factual circumstances or circumstances related both to the facts and to the applicable law. As a matter of fact, the party cannot require the admission of any evidence concerning a circumstance which was never discussed and yet turned out to be crucial. The possibility for the party to ask for reinstation would also be precluded. It is self-evident how in a similar situation the judgment should be declared void due to the violation of parties right to defence. (Civil Court of Cassation Section II, 7th Mar. 2022, n. 7365, in Guida al diritto 2022,19).
Despite what has been argued up until this point, the losing party will still have to prove that the full exercise of its right to defence would have led to a different conclusion on the issue raised by the judge ex officio. For that purpose, it would be sufficient to demonstrate that the grounds of the judgment would have been different.
FAIR COMPENSATION FOR PROFESSIONALS IS LAW: LET’S SEE HOW IT WORKS.
On 20 May 2023, Law No. 49 of 21 April 2023 on “Provisions on fair compensation for professional services” entered into force. The ratio of this new Law is ensuring that professionals receive compensation commensurate with the value of their services and strengthening their protection in contractual relations with certain companies that are considered strong contractors due to their nature, size or turnover.
The Law establishes that “fair compensation” is to be understood as “the payment of a fee proportionate to the quantity and quality of the work performed, the content and characteristics of the professional service, as well as conforming to the fees set respectively” for (a) lawyers: by the Ministerial Decree issued in accordance with the forensic law (currently Ministerial Decree no. 55/2014 updated by Ministerial Decree no. 147/2022); (b) professionals registered with orders and colleges (e.g. surveyors): by the values currently established by Ministerial Decree no. 140/2012, to be updated; (c) professionals belonging to the non-regulated professions (such as, for example, condominium administrators, members of the Board of Statutory Auditors and statutory auditors), for which a specific decree will be issued by the Ministry of Economy and Industry within 60 days from the entry into force of the Law.
The regulation in question applies to professional relationships of intellectual work relating to the exercise of professional activities for the benefit of (i) the Public Administration; (ii) banking and insurance companies, as well as their subsidiaries and mandataries; (iii) companies that, in the year preceding the assignment, employed more than 50 employees or had an annual turnover of more than 10 million euros.
Obviously, this regulation only applies to relationships established after the entry into force of the Law, since its application to “contracts in progress” on that date, i.e. previously signed, is expressly excluded.
Agreements on fees below the parameters will be sanctioned with the nullity of the clause only and not of the entire contract. The professional will be able to challenge the agreement in court to obtain such nullity and to request the judicial redetermination of the fee in accordance with the parameters, obtaining an order from the client to pay the difference between the “fair” fee and the fee actually paid. In addition, the judge may order the client to pay further compensation to the professional, up to twice the difference between the agreed fee and the fee in accordance with the ministerial parameters.
One of the most important innovations of the Law on Fair Remuneration is the introduction of a simplified procedure for the recovery of remuneration by means of a fairness opinion issued by the Council of the Order or College to which the lawyer belongs, which will be an enforceable title and it will constitute an enforceable title not only for the fees due, but also for all the expenses incurred and documented. The fairness opinion must be issued in compliance with the rules on administrative transparency laid down in Law 241/90. Even if it does not contain an order for payment, the opinion notified to the debtor has the nature of an administrative enforcement order. However, the debtor has the possibility of lodging an objection within forty days from the date of notification of the document certifying the adequacy of the fees, in accordance with the simplified procedure provided for in Article 281 undecies of the Code of Civil Procedure. The appeal must be lodged with the judge who is competent in terms of subject matter and value, in the district where the council or college that issued the opinion has its seat.
Disciplinary sanctions are also provided for if the professional accepts a fee below the threshold. However, these sanctions, provided for in Article 5(5) of the regulation, are applicable to professionals belonging to orders and not for those in the non-regulated professions.
a.buttarelli@macchi-gangemi.com
THE ITALIAN SUPREME COURT OF CASSATION ADMITS THE USE OF TRANSFER PRICING CONCEPTS AS EVIDENCE TO REBUT ALLEGATIONS ON UNECONOMICAL VALUE OF DOMESTIC INTRAGROUP TRANSACTIONS.
It is valid an analytical-inductive assessment of the Italian Tax Authorities for omitted invoicing and accounting of revenues deriving from the granting of the use of business premises without consideration (free of charge), considering that this is an uneconomic transaction made by two Italian tax resident companies belonging to the same group: this was ruled by the Italian Supreme Court of Cassation with decision no. 10422 of 19th April, 2023.
The dispute before the Italian Supreme Court of Cassation arose out as a consequence of an audit by the Italian Tax Authorities towards a company resident for tax purposes in Italy that had granted an exhibition space to another resident company of the group (having the same shareholder and director) at a fee deemed to be “almost” equal to free of charge.
Following the audit, the Italian Tax Authorities conducted an analytical and inductive assessment resulting in a tax claim grounded on “uneconomic” principle, pursuant to Article 9 of Presidential Decree no. 917 of 1986 (Income Tax Code).
The notice of assessment was appealed before the Provincial Tax Commission of Pavia, which partially accepted the company’s reasons. A further appeal, which was unsuccessful for the company, has followed before the Regional Tax Commission of Lombardia.
The Italian Supreme Court of Cassation, with decision no. 10422 of 19th April, 2023, confirms the position of the Regional Tax Commission of Lombardia by clarifying that: “For the purposes of the analytical-inductive assessment pursuant to Article 39 (1) (d) of Presidential Decree No. 600 of 1973, a challenge for Corporate Income Tax and VAT may be raised (…), relying on the deviation from the arm’s length of the rent pursuant to Article 9 of the Income Tax Code that may be considered as a merely circumstantial parameter of the manifest and macroscopic uneconomical nature of the transaction carried out, (…) as to justify the assessment with consequent proof to the contrary on the part of the taxpayer (…)”.
This therefore implies that transfer pricing criteria, although not mechanically applicable to domestic cases, can be used by the Italian Tax Authorities to assess the taxpayers’ economic choices in their domestic transactions. Is this the start of a revolution?
a.salvatore@macchi-gangemi.com
f.dicesare@macchi-gangemi.com
d.michalopoulos@macchi-gangemi.com
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