On March 27, 2018, in Oracle America Inc. v. Google LLC, No. 17-1118 (Fed. Cir. 2018), the Court of Appeals for the Federal Circuit held that Google’s use of Oracle’s software code did not constitute a fair use and remanded for a trial on damages.

Oracle is the copyright owner of the “declaring code”, as well as the structure, sequence, and organization (“SSO”) of the Java application programming interface (“API”) packages at issue in this case. A Java API package is a collection of pre-written Java source code programs for providing computer functions, and allows programmers to provide desired functions into their own programs without the need to write the corresponding code from scratch.

In 2005, Google wrote its own code to run programs written in the Java language on its Android platform, but used the declaring code verbatim (i.e. 11,500 lines) and the SSO of the Java API packages without Oracle’s permission. Although Oracle provides the Java API packages free without permission to programmers, it charges a licensing fee to those who wish to use Java API packages in a competing platform or install them in an electronic device. On August 13, 2010, Oracle sued Google in the United States District Court for the Northern District of California, alleging that Google’s unauthorized use of Oracle’s Java API packages in its Android operating system infringed Oracle’s copyrights.

At the first trial, the jury found that Google had infringed those copyrights, but the district court judge vacated that verdict, holding that the Java API packages at issue were not entitled to copyright protection because they were purely functional. The Federal Circuit reversed the district court decision, holding that the declaring code and SSO of the Java API packages were entitled to copyright protection. Accordingly, the Federal Circuit remanded the case with instructions to reinstate the jury’s infringement verdict, as well as for further proceedings on Google’s fair use defense.

At the second trial, the jury found Google’s use of Oracle’s software code was a fair use, and the district court denied all of Oracle’s post-trial motions for judgment as a matter of law and a new trial. The district court applied the four statutory factors for fair use from 17 U.S.C. § 107, holding that a reasonable jury could have concluded that the use was fair because: (1) the purpose and character of Google’s use of the copyrighted work was transformative, (2) the nature of the copyrighted work was not highly creative, (3) the amount and substantiality of the portion used was necessary for Google’s transformative use, and (4) Google’s use of the code did not cause harm to the actual or potential market for the copyrighted work. Oracle appealed and the case returned to the Federal Circuit.

The Federal Circuit then reversed the district court a second time, holding that Google’s use of Oracle’s Java API packages did not constitute a fair use as a matter of law. In reviewing the fair use factors, the court applied governing Ninth Circuit law because copyright law is not within the Federal Circuit’s exclusive jurisdiction.

In analyzing the first factor, the court found that the purpose and character of Google’s use was commercial. The court reasoned that while Google’s decision to make Android free may indicate the presence of non-commercial motives, Google profited from Android’s over $42 billion in advertisement revenue using Oracle’s copyrighted work. The court explained that providing customers something for free can constitute commercial use, and the possibility of non-commercial motives is irrelevant as a matter of law. See A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1015 (9th Cir. 2001).

The court also found that Google’s use was not transformative because it did not fit any of the fair uses enumerated in the statute such as “criticism, or comment, or news reporting.” Furthermore, the court found Google copied and used the declaring code and SSO for the same purpose as they are used in the Java platform. See Wall Data Inc. v. L.A. Cty. Sheriff’s Dep’t, 447 F.3d 769, 778 (9th Cir. 2006).

The court explained that even though Google selected only 37 out of 166 Java API packages, the focus was on how much Google altered the copied portion—not how much original code Google wrote itself —and noted that Google had made no alteration to the expressive content or message of Oracle’s copyrighted material. See Seltzer v.Green Day, Inc., 725 F.3d 1170, 1177 (9th Cir. 2013). Furthermore, the court found that Google implemented the copyrighted work on Android for smartphones, and that smartphones did not qualify as “a new context” for the purpose of the fair use analysis because the copyrighted work was merely retransmitted in a different medium. See A&M Records, 239 F.3d at 1015.

The court concluded that, even assuming Google did not act in bad faith, the highly commercial and non-transformative nature of Google’s use of the copyrighted work strongly supported the conclusion that the first factor weighed against a finding of fair use.

In analyzing the second factor, the court found the copyrighted work was not highly creative because, while the Java API packages at issue involved some level of creativity, the functional considerations of the API packages were both substantial and important. However, the court noted that the Ninth Circuit has recognized that the second factor has “typically not been terribly significant in the overall fair use balancing”, and Congress expressly declared that software is copyrightable. Therefore, the court determined that the second factor weighed in favor of finding a fair use, but limited the weight given to this factor.

In analyzing the third factor, the court found that the amount and qualitative value of the copyright work used was neutral at best, and arguably weighed against finding a fair use. First, the court held that the amount that Google used was “more than necessary” to make Android attractive to programmers, because Google used 11,500 lines of code when only 170 lines of code were necessary to write in the Java language. Second, the court found that no reasonable jury could conclude that what Google copied was qualitatively insignificant given that the copied material was important to the creation of the Android platform. Google even conceded that it could have written different APIs to get the same functions. Consequently, the court found that the third factor was neutral or weighed against finding a fair use.

In analyzing the fourth factor, the court concluded that the effect of the infringement on the actual or potential market for the copyrighted work weighed heavily in favor of Oracle. The court found substantial evidence that Android was used as a substitute for Java SE in the market for mobile devices, resulting in a direct market impact. For instance, Amazon, which originally licensed Java SE from Oracle for the Amazon Kindle, switched to Android for the subsequently released Kindle Fire, and Amazon then used the fact that Android was free to leverage a steep discount from Oracle for the next generation Kindle. The Court explained that no reasonable jury could have concluded that there was no actual market harm to Oracle.

Moreover, the court did not limit its analysis to the desktop and laptop markets which Oracle had already entered because the law also protects a copyright owner’s right to enter potential markets, even when a copyright owner has no immediate plans to enter. Therefore, the court concluded that licensing Java SE for smartphones with increased processing capabilities would have been a “traditional, reasonable, and likely to be developed market.” The court found it irrelevant that Oracle was not a device maker and had not yet built its own smartphone platform. The court concluded that Oracle’s actual market and its right to enter a potential market were harmed by Google’s unauthorized use, and thus the fourth factor weighed significantly in favor of Oracle.

In sum, the court undertook a case-by-case analysis of all four factors and found factors one and four weighed heavily against a finding of fair use, while factor two weighed in favor of such a finding, and factor three was, at best, neutral. Weighing these factors together, the court concluded that Google’s use of the declaring code and SSO of the Java API packages was not a fair use. The court’s holding was limited to Google’s copying and use of this particular code, and the court explicitly did “not conclude that a fair use defense could never be sustained in an action involving the copying of computer code.” Thus, the court reversed the lower court’s decision and remanded for a trial on damages. This case now returns to the District Court for the Northern District California for a third time, where a jury will decide the damages Oracle is entitled to from Google.

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