In a key decision that has the potential to rock the software industry, the Court of Appeals for the Federal Circuit rejected the jury verdict and found that “Google’s use of the 37 Java API packages was not fair as a matter of law.” Oracle America v. Google LLC, 886 F3d 1179, 1211 (Fed. Cir. 2018).

At issue are 37 packages of Java application programming interface (“API”) used in Oracle’s Java 2 Standard Edition (“Java SE”). To “attract Java developers to build apps for Android,” Google copied the declaring code, but wrote its own implementing code for the 37 Java API packages. Id at 1187. Previously, the Federal Circuit held that “[the] declaring code and the structure, sequence, and organization (‘SSO’) of the Java API packages are entitled to copyright protection.” Oracle America v. Google Inc., 750 F.3d 1339, 1348 (Fed. Cir. 2014). On the other hand, the Federal Circuit also recognized that a reasonable jury could find that “the functional aspects of the packages” are “relevant to Google’s fair use defense.” Id. at 1376-77.

However, in the subsequent appeal after remand, the Federal Circuit rejected Google’s fair use defense after examining the four statutory factors set forth in the Copyright Act. Although the court’s fair use analysis appears thorough at first blush, the reasoning is not as convincing in analyzing each of the fair use factors as explained below.

Factor 1: The purpose and character of the use

The Supreme Court has stated that the “central purpose” of the first fair use factor is to determine “whether and to what extent the new work is transformative.” Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579, 114 S. Ct. 1164, 1171, 127 L.Ed.2d 500 (1994).

The linchpin of Google’s argument is that “Android is transformative because Google incorporated the declarations and SSO of the 37 API packages into a new context—smartphones.” Oracle, 886 F3d at 1201. The Federal Circuit rejected such argument “[b]ecause the Java SE was already being used in smartphones, Google did not ‘transform’ the copyrighted material into a new context.” Id.

What the Federal Circuit implies is that a new software application would not be transformative had there been prior use of similar software applications. Such reasoning, however, is at least debatable. For the first time ever, the Federal Circuit imposes a novelty element in the test of transformative use. Although novelty is a requirement for a patent claim to be patentable under 35 U.S.C. § 102, neither Copyright Act nor case law requires novelty in the fair use inquiry. The copyright law protects “those components of a work that are original to the author,” but “originality” does not require “novelty.” Feist Publications, Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340, 345, 348 (1991). The mere fact that Java SE was previously used in smartphones does not necessarily mean that Android was not transformative. By “provid[ing] the Android platform free of charge to smartphone manufacturers and publish[ing] the source code for use without charge under an open source license,” Oracle, 886 F3d at 1187, Google disrupted the smartphone market and solved a problem that early entrants to the smartphone market failed to solve. Thus, the Android platform may be arguably transformative. An analogy may help illustrate the point: before Microsoft launched the Microsoft Office software suite, there were Lotus 1-2-3 spreadsheet and other software applications that were developed for the same purposes. One may be hard-pressed to argue that Microsoft Office, for not being first to the market, did not transform the office software.

If novelty is not dispositive, shouldn’t the test of “transformative use” be a matter of degree? Thus, for the first fair use factor, whether Google’s copying is sufficiently transformative is at least debatable.

Factor 2: The nature of the copyrighted work

The Federal Circuit concludes that “factor two favors a finding of fair use” because “[a]lthough it is clear that the 37 API packages at issue involved some level of creativity . . . reasonable jurors could have concluded that functional considerations were both substantial and important.” Oracle, 886 F3d at 1205. Nonetheless, the Federal Circuit simply dismisses the significance of this finding because “this second factor ‘typically has not been terribly significant in the overall fair use balancing’” (citing Dr. Seuss Enterprises, L.P. v. Penguin Books USA, Inc., 109 F3d 1394, 1402 (9th Cir. 1997)). However, what the Federal Circuit has ignored is the fact that the second factor did play a significant role in the Ninth Circuit’s fair use analysis in Dr. Seuss Enters., which states that “the creativity, imagination and originality embodied in The Cat in the Hat and its central character tilts the scale against fair use.” Id.

In Campbell, the Supreme Court has recognized that “the more transformative the new work, the less will be the significance of other factors . . . that may weigh against a finding of fair use.” Campbell, 510 U.S. at 579. Logically, the converse must be true: the less transformative the new work, the more will be the significance of other factors. Thus, if the Federal Circuit deems Google’s Android platform for the smartphone market not sufficiently transformative, then the second factor should be given more weight, not less. For example, in Ticketmaster Corp. v. Tickets.Com, Inc., CV997654HLHVBKX, 2003 WL 21406289 (C.D. Cal. Mar 7, 2003), the court put significant weight on the second factor despite the negative finding of transformative use. There, the court found that the first factor weighed against a finding of fair use because “[defendant]’s use of the data gathered from [plaintiff]’s event pages was only slightly transformative.” Id. at *5. However, the court ruled that the use was fair because both the second and fourth factors weighted in favor of the defendant. Id.

In this case, while it is undisputed that “software is copyrightable,” Oracle, 886 F3d at 1205, the district court appropriately noted that the copyright protection for the declaring code and SSO of the 37 API packages is “thin” because “functional considerations predominated in their design.” Oracle America v. Google Inc., No. C 10-03561, 2016 WL 3181206 (N.D. Cal. June 8, 2016) (“Order Denying JMOL”). Thus, the second factor should weigh strongly in favor of finding fair use. Here, where the issue of “transformative use” is arguably debatable, the brush-off of the second factor by the Federal Circuit in its fair use analysis seems unjustified.

Factor 3: The amount and substantiality of the portion used

The Federal Circuit finds that “the third factor is, at best, neutral in the fair use inquiry, and arguably weighs against such a finding.” Oracle, 886 F3d at 1207. The reasoning underpinning this finding is that “Google copied 11,500 lines of code—11,330 more lines than necessary to write in Java.” Id. at 1206.

There are at least two problems with the above reasoning in light of the second factor discussed above. First, the seemingly large amount of copied material enjoys only “thin” copyright protection. Second, the issue is not what is necessary to write in Java, but what is necessary to develop an open platform that invites programmers to contribute their talent. The Federal Circuit opines that “there is no inherent right to copy in order to capitalize on the popularity of the copyrighted work or to meet the expectations of intended customers.” Id. at 1206–07. That sounds fair. But it is equally true that Oracle’s right is limited in preventing others from copying the predominantly functional aspects of the 37 API packages where “it is necessary to copy the expressive elements in order to perform those functions.” Oracle, 750 F3d at 1375.

Thus, while the third factor may be ultimately neutral in the fair use inquiry, there is also a reasonable argument that it may weigh in favor of finding fair use.

Factor 4: The effect of the use on the potential market

Citing evidence that Java SE had been used for years in early smartphones “including Blackberry, SavaJe, Danger, and Nokia” prior to Android’s release and Amazon used Android as a leverage to negotiate a steep discount to use Java SE, the Federal Circuit found “Android was used as a substitute for Java SE” and created “actual market harm” to Oracle. Id. at 1209. Further, the Federal Circuit found that “Google’s copying affected potential markets Oracle might enter or derivative works it might create or license others to create” because “[t]he fact that Oracle and Google engaged in lengthy licensing negotiations demonstrates that Oracle was attempting to license its work for mobile devices, including smartphones.” Id.

Such assertion of “potential markets” epitomizes the fallacy of circular reasoning that legal scholars have cautioned against. See Frank Pasquale, Breaking the Vicious Circularity: Sony’s Contribution to the Fair Use Doctrine, 55 Cas. W. Res. L. Rev.777 (2005). See also Melville B. Nimmer & David Nimmer, 4 Nimmer on Copyright § 13.05(A)(4)(2004) (“[I]t is a given in every fair use case that plaintiff suffers a loss of a potential market if that potential is defined as the theoretical market for licensing the very use at bar.”). The mere fact that Google negotiated with Oracle on a licensing agreement, without more, is insufficient to prove the existence of “potential markets.”

The “actual market harm” is also debatable. The evidence shows that Oracle’s use of the Java SE was limited to desktop computers and laptops. Order Denying JMOL, 2016 WL 3181206, at *10. It is true that some early mobile phones—whether or not they were “smart” enough to be called smartphones can be debatable—adopted Java SE. But none of those mobile phones has gained significant traction in the smartphone market, likely due to the limitation of the strict licensing model imposed by Oracle. Oracle, 886 F3d at 1187. In addition, “the evidence of record makes clear that device manufacturers did not view OpenJDK as a commercially viable alternative to using Java SE because any improvement to the packages in OpenJDK had to be given away for free to the Java community.” Id. at 1209 n.13. By contrast, Google’s Android operating system has transformed the smartphone market by creating a new platform where software programmers are encouraged to use and improve Android, which is “free with no limits on modifying the code.” Id. at 1187.

The Supreme Court has noted that “[m]arket harm is a matter of degree, and the importance of this factor will vary, not only with the amount of harm, but also with the relative strength of the showing on the other factors.” Campbell, 510 U.S. at 590 n.21. Thus, any current or potential market harm to Oracle, if any, must be viewed in light of arguably transformative nature of Android (factor 1), as well the “thin” copyright protection allowed to the copied material (factor 2). Accordingly, factor four may not weight heavily in favor of Oracle as the Federal Circuit concluded.

Overall balancing of the four factors

The fair use analysis requires a fact-specific inquiry, and the four statutory factors must be weighed together “in light of the purposes of copyright.” Campbell, 510 U.S. at 578.

The Federal Circuit states that “Google could have furthered copyright’s goals of promoting creative expression and innovation by developing its own APIs, or by licensing Oracle’s APIs for use in developing a new platform.” Oracle, 886 F3d at 1210. But that is exactly how those pre-Android mobile phone makers failed in the first place. Had Google intended to “commercially exploit Oracle’s work” as alleged, id., Google could have copied the implementing code of those Java API packages to speed up Android development. It did not. Instead, Google wrote its own implementing code. Google did copy the declarations and SSO of the 37 API packages so that it can attract software developers to improve the free and open Android platform, which has arguably transformed the smartphone market and heralded a new era of technological innovation. Instead of superseding Java SE, Android platform can be regarded as a legitimate competition which should be encouraged, not shackled, by copyright.

While it may be debatable whether the Android platform is transformative, the Federal Circuit’s dismissal of the second factor is patently inappropriate. No case law suggests that the second factor is irrelevant when a new work is less transformative. To the contrary, the second factor must have a heightened significance when the transformative nature of the new work is questionable. As discussed above, because the copied material at issue is predominantly functional, factor two strongly favors Google’s position. Moreover, in light of the finding of “thin” copyright protection, the court’s ruling on the third and fourth factors becomes less convincing.

In conclusion, for each of the four fair use factors, there is a genuine issue of validity in the court’s reasoning. As such, the Federal Circuit’s ruling of no fair use in this case seems flawed.