Opposition Brief — Tenenbaum v. Simonini

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(2) OCT 15 2004

No. 04-233 OFFICE OF THE CLERK

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IN THE

Supreme Court of the United States

NXIVM CORPORATION, et ai.,

Petitioners,

ROSS INSTITUTE, et ail.

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Second Circuit

OPPOSITION TO PETITION FOR WRIT OF

CERTIORARI

Douglas Brooks

John C. Martland *

Martland & Brooks LLP

Stonehill Corporate Center

999 Broadway, Suite 999

Saugus, Massachusetts 01906

(781) 231-7811

Counsel for Respondents

October 20, 2004 * Counsel of Record

QUESTIONS PRESENTED

1. Can copynght law be employed to enforce a non-

disclosure agreement by depriving a critic of the ability to raise

the defense of fair use in a copyright infringement action when

he quotes even a small portion of a cult’s “training manual,”

which the critic obtained from a former victim of the cult,

solely on the ground that the cult requires participants to

promise to keep its “training program” confidential?

2. Does the fact that material is quoted for the purpose

of “criticism” of its author support a finding that the first

statutory fair use factor (the purpose and character of the use)

favors the alleged infringer in a copyright infringement case?

TABLE OF CONTENTS

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REASONS FOR DENYING THE WRIT .............. 6

A. There is No Square Conflict on the First

Question, and the Second Circuit’s Analysis Is

Consistent with Petitioners’ Arguments Below.

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B. The Second Question Is Not Presented Here,

Because Petitioner’s Question Is Based on a

Mischaracterization of the Second Circuit’s

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TABLE OF AUTHORITIES

CASES

Atari Games Corp. v. Nintendo,

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Campbell v. Acuff-Rose Music,

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Online Policy Group v. Diebold, Inc.,

2004 WL 2203382 (N.D.Cal.) ...........

Harper & Row Publishers v. Nation Enterprises,

471 U.S. 539 (1985)... 0. cece eee eee

Sundeman vy. Seajay Society,

142 F.3d 194 (4 Cir. 1998) ..........0-.

CONSTITUTION AND STATUTES

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17 U.S.C. §§ 1 et seq.

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Digital Millenium Copyright Act..............

Lanham Act,

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-iii-

STATEMENT

Respondent Ross Institute is a non-profit organization

devoted to public education and research concerning cults,

controversial groups, and other movements; respondent Rick

Ross is its executive director. Ross Institute maintains a

database of materials, some prepared specially for the Institute

and some prepared for other purposes but collected by the

Institute. The Institute provides free public access to that

database through its web sites, www.rickross.com and

www.cultnews.com. Among the 250 different organizations

discussed on the site is petitioner NXIVM Corporation.’

Respondents’ web sites link to articles by respondents John

Hochman and Paul Martin, who analyzed various materials and

training programs operated by petitioners and expressed

Opinions about whether NXIVM’s programs resemble “mind

control,” whether its curriculum and operations are “‘cult-like,”

whether some of its programs resemble techniques of other

groups that seek to overcome independent thinking, and

whether the program has negative effects. Both authors quoted

from NXIVM’s web site and promotional materials, as well as

from NXIVM’s course manual, to support their critical

opinions about petitioners.

The course manual had been obtained by Stephanie

Franco, who had registered for a NXIVM program. NXIVM

claimed that, as a condition of participating in the “training,”

Franco had signed an application which, according to

petitioners, included an agreement that the course manual

would be kept confidential. Ross had been retained by the

family of Michael Sutton, Franco’s half-brother and another

former NXIVM student, to conduct “interventions” to save

‘Petitioner First Principles, Inc., is a nominally separate

entity that has licensed its intellectual property to petitioner

NXIVM.

Sutton from petitioners’ “training.” There was substantial

dispute below about when each of the respondents learned

about Franco’s claimed violation of an agreement with

petitioners, and indeed whether the confidentiality clause was

enforceable, even against Franco. The Second Circuit,

however, decided the case on the assumption both that

respondents’ possession of the manual was contrary to the

agreement, and that respondents were aware at some relevant

time that a confidentiality agreement had been violated. This

opposition does not require respondents to question those

assumptions as they have done on the merits.

Petitioners sued Franco to bar her from further

disseminating the course manual, and sued respondents on

various theories, alleging copyright infringement (because the

materials had been quoted), product disparagement under the

Lanham Act, and interference with contractual relations (by

obtaining the materials in breach of Franco’s promise).

Petitioners moved for a preliminary injunction against all

defendants. The district court enjoined Franco from

disseminating the course manual; she did not appeal, and she is

not a respondent before this Court. However, the district court

denied a preliminary injunction against respondents’

publication of their critical reports about petitioners, finding no

likelihood of success on the copynght claims because

respondents’ fair use defense was likely to succeed. In an oral

opinion, the district court canvassed the four fair use factors,

emphasizing that the reports in which copyrighted material was

quoted were critical commentary about petitioners, and that the

material quoted was reasonably necessary to convey

respondents’ point. Moreover, although the district court

recognized that criticism might tend to suppress demand for

petitioners’ product, it decided that the wmntings were

“transformative secondary uses” and that any harm arising fror:

biting criticism was not the sort of market harm against which

the copyright laws were directed. The district court also found

that petitioners had not established any irreparable harm, and

hence denied a preliminary injunction.’

Petitioners appealed. In an effort to escape the stringent

standard requiring an abuse of discretion, petitioners

characterized as an error of law the district court’s failure at

least to consider, in its evaluation of the first prong of the test

for fair use (the purpose and character of the use), whether

respondents obtained the quoted materials through an

intermediary’s breach of contract, while also asserting that

exploitation of a “purloined manuscript” showed a lack of good

faith that ought to be sufficient to deprive respondents of the

“equitable defense” of fair use. Petitioners also argued that the

district court had erred as a matter of law in its evaluation of the

third fair use factor (quantity of materials taken) because it

compared the number of words quoted to the entire course

manual instead of counting each “course module” separately,

on the ground that copynght in each module had been

registered separately. Finally, petitioners took issue with the

district court’s analysis of market harm, contending both that

absence of market harm was irrelevant to fair use and that, in

any event, sufficient harm had been shown.

The district court also found no violation of the

Lanham Act because (1) the alleged inaccuracies in respondent

Hochman’s report did not “nse to the level of false or

misleading representations about a material facet of plaintiffs’

product,” (2) even if there had been material

misrepresentations, Hochman’s report was not “commercial

advertising or promotion,” and (3) the report was protected by

the First Amendment. Because certiorari is not sought on any

question relating to the Second Circuit’s ruling on the Lanham

Act claims, they are not discussed further in this opposition.

a’

In a unanimous opinion authored by Circuit Judge John

Walker, the Second Circuit ruled that respondents had the

burden of “demonstrating that their copying is protected by the

fair use doctrine,” 364 F.3d 471, 476, and accepted petitioners’

argument that the district court had erred by failing to consider

“more fully and explicitly” that defendants should have known

that they were using a copy that had been acquired in an

unauthorized manner. /d. at 477. However, after a full

balancing of the statutory fair use factors, the court found in

favor of respondents, and hence affirmed denial of the

preliminary injunction.

With respect to the first factor, the “purpose and

character” of the allegedly infringing use, the court began by

recognizing that respondents were engaged in a critical analysis

of the copyrighted work, and that “use of quotations from the

manual to support their critical analyses of the seminars is

transformative.” /d. at 477. Indeed, all of the uses specifically

identified in section 107 are transformative, and hence the court

said that when those uses are at issue, factor one presumptively

favors the defendant. Still, the court below found fault with the

trial judge’s failure to consider the impact of respondents’ use

of a copy that had been provided to them in breach of a

confidentiality clause of a contract. The Second Circuit

assumed, for purpose of its decision, that use of such an

unauthorized copy amounted to bad faith on the part of

respondents, and it recognized that the propriety of a

defendant’s conduct “is an integral part of the analysis under

the first factor.” Jd. at478. The court agreed that, in Harper

& Row Pub. v. Nation Enterprises, 471 U.S. 539, 562-563

(1985), this Court had given weight to the fact that defendants

there had “knowingly acquired a purloined manuscript for the

very purpose of preempting the plaintiff's first publication

rights,” 364 F.3d at 478-479, but noted that this was not the end

of the analysis. Rather, the Second Circuit reasoned, this

-4-

Court’s analysis of the first factor also rested on The Nation’s

“failfure] to make any substantial transformative use of the

copyrighted work,” id. at 479, and indeed this Court further

instructed that “no single fair use factor is dispositive.” /d. By

contrast with the facts in Harper & Row, the Second Circuit

found that, because the course manual had been quoted only in

the context of a critical analysis of the document and its role in

petitioners’ operations, the infringing work was substantially

transformative, and hence the “breach of contract”

consideration was outweighed by other considerations relevant

to the first fair use factor.

The Second Circuit then proceeded to weigh the

remaining fair use factors. Because petitioners’ work was

unpublished, the second factor (nature of the copyrighted work)

favored petitioners. /d. at 480. By contrast, it found both that

the quctations represented only a small portion of the total

work, id. at 480-481, and that respondents had not taken the

“heart” of the copyrighted work. Accordingly, the third factor

(amount taken) favored respondents. /d. at 481. Indeed,

respondents had not taken more copyrighted material than

necessary, because “to support their critical commentary, it was

reasonably necessary for defendants to quote liberally from

NXIVM‘s manual.” Jd. Finally, the fourth factor (effect on

petitioners’ market) favored respondents because the impact

about which petitioners were complaining — the possibility that

NXIVM would sell fewer copies because respondents’

criticisms were so devastating — was not a valid consideration.

Id. at 482.

Judge Jacobs concurred in the Court’s opinion, but

wrote separately to express skepticism about whether the

manner in which an author obtains material that he desires to

criticize should bear at all on fair use analysis. /d. at 483-487.

REASONS FOR DENYING THE WRIT

After a careful analysis of the statutory fair use factors,

the court below affirmed the denial of a preliminary injunction

against respondents’ quotation of selected portions of

NXIVM’s “training manuals” in order to show the basis for

respondents’ criticisms because respondents were likely to

succeed in a fair use defense. There is no square conflict

among the circuits on either of the questions on which

petitioners seek review, and there is no conflict between the

decision below and any of this Court’s decisions. Moreover,

the holding below on the first Question Presented accepted an

argument that petitioners made in the Second Circuit, and the

second Question is not squarely presented, as explained further

below.

A. There is No Square Conflict on the

First Question, and the Second

Circuit’s Analysis Is Consistent with

Petitioners’ Arguments Below.

Petitioners seek review of the Second Circuit’s refusal

to reject respondents’ fair use defense solely because

respondents obtained the copy of the document that they quoted

from an individual who breached a confidentiality agreement

that she signed when paying petitioners to “train” her.

According to petitioners, it was not sufficient for the Second

Circuit to give substantial consideration to this fact in analyzing

the “purpose and character of the use” factor; to them, any use

of an unauthorized copy is necessarily not a fair use.

Petitioners wrongly assert that this Court so directed in Harper

& Row, and that the Federal Circuit has endorsed that

understanding of Harper & Row in Atari Games Corp. v.

Nintendo, 975 F.2d 832 (Fed. Cir. 1992). In fact, this Court’s

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treatment of the “purloined copy” issue in Harper & Row

shows that this issue was only one of several factors in the

Court’s own analysis of fair use. Moreover, the Second Circuit

gave the issue the exact consideration that petitioners sought in

their briefs below, and although the Federal Circuit’s decision

contains broad language that could support petitioners’

argument, the Atari case arose in a very different context than

this case, and no court (including the Federal Circuit) has

applied its ruling to a case like this one where the only reason

why use was unauthorized was a claimed violation of a

contractual confidentiality clause. In short, petitioners’ extreme

approach to the question is insupportable.

1. The Court should not grant certiorari because the

Second Circuit adopted the very position that petitioners put

forward in their briefs below. For example, in their opening

brief, petitioners argued that “the first factor . . . requires

consideration of the misappropriation of the confidential

unpublished writings,” page 11 (emphasis added), that Harper

& Row held that “a court must consider whether [defendant]

obtained the materials through an intermediary’s acts of

misappropriation,” page 12 (emphasis added), and that the

district court’s error was that it “did not give any consideration

in its analysis for the first prong of the fair use test to the

manner that Defendant Franco wrongfully appropriated” the

manual. Jd. Indeed, the caption of argument section I(A)(1)

characterized the district court’s error as “Not Considering

Ross’ Knowledge of the Bad Faith Act of Defendant Franco.”

Page 12. At the same time, petitioners cited Atari for the

proposition that to invoke fair use, “an individual must possess

an authorized copy of a literary work,” without ever

acknowledging that it was simultaneously urging two different

standards. And in its reply brief, petitioner not only_never

mentioned Atari, but argued only that “Harper & Row Is

Authonitative for Consideration of ‘Bad Faith’ Of the Infringer

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in the First Prong of the Fair Use Test,” page 4, Caption, that

the first factor “necessitates weighing bad faith in the

acquisition of the copyrighted work,” page 5, and that the

reversal was needed because “the District Court fail[ed] to

account for such bad faith.” Having asked the Second Circuit

to consider the manner in which their work was obtained,

petitioners cannot now seek review because the Second Circuit

adopted that approach but did not end its opinion after

considering that point.

2. Petitioners have also overstated the split between, on

the one hand, the Second and Ninth Circuits,-which require

only consideration of the manner in which the copyrighted

work was obtained as one aspect of the first factor, and the

Federal Circuit’s decision in Atari, on the other hand. The

Federal Circuit case arose because Atari, having tried and failed

to reverse-engineer one of Nintendo’s computer programs

through a careful examination of its object code, obtained a

copy of the source code from the Copyright Office by lying

about its reason for obtaining the source code. Only by using

this improperly obtained source code was Atan able to

complete the task of replicating the computer program through

reverse engineering, for the ultimate purpose of creating a

product for sale in direct competition with Nintendo. It was

Atari’s own conduct that was fraudulent and in direct violation

of the Copyright Office’s regulations. It was in this context

that the Federal Circuit used the language on which peti. oners

rely — “To invoke the fair use exception, an individual must

possess an authorized copy of a literary work.” 975 F.2d at

843.

This holding is best understood as denying protection of |

the fair use defense to the very party who defrauded the

uses to which a copy obtained from that Office may be put. But

the Federal Circuit has never applied this holding to any other

§- :

form of unauthorized possession, not to speak of using it to

enforce, against a third party who never signed a contract with

the copynght holder, a copyright holder’s contractual

limitations on the way in which its customers may use materials

that they have purchased.

Indeed, this Court’s treatment of the “purloined

manuscript” in Harper & Row demonstrates that the improper

source of a copy is only one factor to be considered in a

complete analysis of the fair use factors. The Court simply

stated that “also relevant to the ‘character’ of the use is ‘the

propriety of the defendant’s conduct.’” 471 U.S. at 562.

However, the Court continued the discussion of fair use for

another seven pages. /d. at 562-569. Had the use of a

purloined copy been sufficient, standing alone, to negate the

fair use defense, the Court’s mention of that fact would have

been the end of the opinion.

3. Moreover, petitioners’ analysis makes no sense. On

petitioners’ theory, a completely non-commercial and

transformative use of a document originally obtained in

violation of contract would necessarily constitute infringement

with no possibility of raising a fair use defense; there could be

no finding of fair use even if defendant quoted only fifty words

out of a 500-page work, in the course of a 100-page analysis,

even if defendant’s work created controversy that encouraged

more consumers to buy the plaintiff's work so that they could

follow the debate. Indeed, a newspaper that obtained a

“smoking gun” letter, showing that a corporation or a state

government official had engaged in serious misconduct or

committed a crime, would be forbidden from publishing or

even quoting from the memorandum so long as the author of

the memo had required all of its employees to sign

confidentiality agreements. Even a person who came across

written evidence of a crime and provided a copy of the

evidence to the police could be sued for copyright infringement

29.

and statutory damages so long as the individual was subject to

a non-disclosure contract. Presumably the police could also be

sued for infringement for making a copy of the evidence for the

prosecutor to introduce at trial, if the evidence was originally

disclosed in violation of a contract.

Yet it is often necessary to quote materials that an

author is criticizing in order to make a persuasive case for

criticism. Indeed, when writing about cults and other

controversial organizations that have a reputation for suing for

defamation or disparagement (as petitioners did under the

Lanham Act), the quotation of materials that form the basis for

criticism is needed in order to support the defense that the

author is simply expressing an opinion based on fully disclosed

facts, not to speak of as a matter of sound journalistic or

scholarly practice. The “unauthorized copy” defense should

not deprive such authors of the ability to protect themselves

against such suits.

The purpose of copyright law is to preserve to authors

the commercial benefits of their creativity, not to help parties

keep their wrongdoing secret by enforcing confidentiality

contracts. Diebold, Inc. v. Online Policy Group, 2004 WL

2203382 (N.D.Cal.), at *6, citing Campbell v. Acuff-Rose

Music, 510 U.S. 569, 591-592 (2004). Making a copy may

violate a legal obligation, but publication of a part of that copy

— particularly when made by someone not under that legal

obligation — may be outweighed by other considerations of

social benefit. The Second Circuit applied the proper analysis,

and certiorari should not be granted to consider that question

further in this case.’

‘The Diebold case shows the sort of mischief that

petitioners’ theory could facilitate. Certain persons uncovered

a cache of secret emails among employees of Diebold, a maker

~ -10-

B. The Second Question Is Not

Presented Here, Because Petitioner’s

Question Is Based on a

Mischaracterization of the Second

Circuit’s Reasoning.

The second Question Presented charges the Second

Circuit with deciding “that an otherwise infringing use of

copyrighted materials is presumptively fair, so long as it can be

labeled ‘criticism.’” Petitioners argue that this aspect of the

opinion is contrary to a passage in this Court’s opinion in

Harper & Row, stating that section 107’s list of examples of the

of electronic voting machinery and software. Copies of the

emails, which revealed that some Diebold employees were

aware of problems with Diebold’s systems, were published on

various web sites to foster discussion of security flaws that

could allow elections to be fixed. Diebold, asserting that the

emails were “purloined” and disclosed in violation of secrecy

agreements, embarked on a campaign to suppress publication

of the emails, asserting that they were protected by copyright

and that fair use could not apply because they were stolen.

Rather than filing suit, Diebold invoked its rights under the

Digital Millenium Copyright Act to send “takedown” notices

to the Internet Service Providers, insisting that they remove the

emails from their customers’ web sites or face liability for

infringement. If petitioners’ theory were correct, the fact that

the emails were originally released in violation of an

employee’s non-disclosure agreement would have been fatal to

any fair use defense, and Diebold would have been successful

in suppressing this important public debate. In Diebold,

however, the district court awarded attorney fees against

Diebold for issuing frivolous take-down notices. Jd. at *6-*7.

At.

kind of uses that could be “fair” was “not intended to single out

any particular use as presumptively a ‘fair’ use. The drafters .

. . Structured the provision as an affirmative defense requiring

a case-by-case analysis.” 471 U.S. at 561. This Court went on

to decide that even though The Nation had argued that its use

was “news reporting,” the main news was its infnngement.

The Question Presented, however, misstates what the

Second Circuit decided. As the text of the Petition

acknowledges, at 17, the court below simply noted that, in

deciding the first factor, the key question is whether a use is

“transformative,” and it then looked to section 107’s listing of

possibly fair uses to decide what sorts of uses were properly

characterized as transformative.‘ And, far from simply

accepting respondents’ label, the court examined the work in

question and determined that it was, in fact, a critical analysis.

Although the Second Circuit did use the word “presumption,”

the court did not in fact apply any presumption in finding that

the first “fair use” factor favored respondents, but carefully

considered the character of the respondents’ works. Indeed, it

conducted just the sort of “case-by-case analysis” that this

Court demanded in Harper & Row. There is no conflict with

any of this Court’s decisions.

CONCLUSION

The petition for a writ of certiorari should be denied.

‘The Fourth Circuit’s decision in Sundeman v. Seajay

Society, 142 F.3d 194, 203 (1998), condemned by petitioners

on the theory that it “repeated the Second Circuit’s error,” Pet.

at 17, similarly treats the fact that a use fits within section 107’s

examples as showing its transformative character, and thus as

“one factor” supporting a finding of fair use.

ie.

SS eee

Respectfully submitted,