Untitled California Attorney General Opinion ( 1989 )

OFFICE OF THE ATTORNEY GENERAL
State of California
JOHN K. VAN DE KAMP
Attorney General
__________________________________
OPINION :
: No. 88-1241
of :
: JUNE 8, 1989
JOHN K. VAN DE KAMP :
Attorney General :
:
RONALD M. WEISKOPF :
Deputy Attorney General :
:
___________________________________________________________________________
THE HONORABLE WILLIAM J. CRAWFORD, COMMISSIONER,
DEPARTMENT OF SAVINGS AND LOAN, has requested an opinion on the following question:
May the Department of Savings and Loan copy and furnish to other governmental
agencies, without the permission of the copyright holder, copyright protected working papers and
other documents that were prepared in connection with an audit of a savings and loan association
and which were received by the Department in the normal course of the performance of its statutory
duties?
CONCLUSION
The Department of Savings and Loan, through its Commissioner, may copy and
furnish to other governmental agencies without the permission of the copyright holder, copyright
protected working papers and other documents that were prepared in connection with an audit of a
savings and loan association and which were received by the Department in the normal course of
the performance of its statutory duties.
ANALYSIS
Under California's Savings Association Law (Fin. Code, div. 2, § 5000, et seq.), every
savings and loan association doing business in this state must have an annual audit made of its books
and accounts at its own expense, and must thereafter file the audit report, together with certified
financial statements, with the Savings and Loan Commissioner (§ 8156, subd. (a); § 8157, subd. (b)),
the chief officer of the state Department of Savings and Loan (§§ 5104, 8000). The Commissioner
may prescribe the scope of that audit and may also require the auditor to furnish additional
information to that contained in the audit report. (§ 8157; cf. § 8156, subd. (b).) Each association,
and such of its subsidiaries as the Commissioner may require, is also required to make and file a
verified annual written report in a format prescribed by him or her. (§ 8150.) Those entities must
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also make and file such other reports as the Commissioner may from time to time deem necessary.
(§ 8151.)1/
Any information acquired by the Commissioner or the Department in the
performance of its statutory duties is confidential (§ 8009, subd. (a)), but the Commissioner may
disclose it on a limited basis to other governmental agencies under section 8009, subdivision (b) of
the Savings Association Law, which provides as follows:
"The commissioner may furnish information relating to the condition or
operation of any association ... to state and federal authorities that supervise financial
institutions, to state, local and federal law enforcement agencies, and to state
agencies engaged in the investigation of unsafe or unsound business practice." (§
8009, subd. (b).)
The Savings Association Law thus contemplates that certain state, local, and federal
agencies may be involved in taking action with respect to irregularities that the Department may find
with a savings and loan association in the course of performing its statutory duties. The facts
prompting the present question are that one auditor has recently claimed that the audit plan, certain
working papers, and other documents that it prepared in connection with a required audit of an
association are copyrightable materials and may not be reproduced by the Department and given to
those agencies.2/ The number of documents for which copyright protection is claimed is
voluminous, forming a pile nearly six feet high.
In spite of their variety and number, we will assume that the materials are in fact
proper subjects for copyright protection except as stated otherwise. We will also assume that either
the auditor or the savings and loan association in question is in fact the "holder of the copyright"
under the Copyright Act. (Cf., §§ 101, 201(b) ["work made for hire"].) Neither assumption will
affect our ultimate conclusion. That will rest instead on the ground that copying and furnishing the
materials in question would be a "fair use" of them and that therefore no infringement of copyright
takes place by that activity.
1. The general supervision of the Department conferred by the Savings Association Law actually
extends to all (1) associations (cf. §§ 5102, 5205 [certain savings banks]); (2) savings and loan
holding companies, (3) service corporations (cf., § 5119); and other persons subject to the provisions
of the law. For simplicity we will use the term "association" as a rubric to cover all entities over
which the Savings and Loan Commissioner has jurisdiction. (Cf. § 8050.)
2. As we understand it, an "audit plan" is the "scheme" or "marching orders" that are prepared
by an accounting company for its auditors to follow in connection with a particular audit. The
"working papers" are the detailed numerical information that the auditors come up with when they
follow the plan and audit the company. We understand that a "blue back" is then prepared, i.e., a
document in which the auditors present problems, including problems in accounting treatment that
they have encountered, to the management of the company they are auditing. Thereafter a final audit
report is prepared, together with a "management letter" when appropriate.
2. 88-1241
1. The Copyright Act
Section 102 of the Copyright Act of 19763/ declares copyright protection to "subsist"
in accordance with its terms in "original work of authorship" fixed in any tangible medium of
expression from which they can be perceived, reproduced, or otherwise communicated, either
directly or with the aid of a machine or device. (§ 102, subsec. (a).) As is pertinent herein, the term
"original works of authorship" is defined to include "literary works" (ibid.), a term which "does not
connote any criterion of literary merit or qualitative value" (H.Rept. at 54; S.Rept. at 53), but rather
"pertains to the literary ... form in which [an] author expressed intellectual concepts." (H.Rept. at
56; S.Rept. at 54.)4/ The term is defined in section 101 of the Act to include
"... works, other than audiovisual works, expressed in words, numbers, or
other verbal or numerical symbols or indicia, regardless of the nature of the material
objects ... in which they are embodied." (§ 101.)
Also pertinent is section 103 of the Act which specifically provides that "the subject matter of
copyright as specified by section 102 includes compilations...." (§ 103, subsec. (a).) A
"compilation" is defined as "a work formed by the collection and assembling of preexisting materials
or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole
constitutes an original work of authorship." (§ 101.) It is thus a work which "results from a process
of selecting, bringing together, organizing, and arranging previously existing material of all kinds,
regardless of whether the individual items in the material have ever been or ever could have been
subject to copyright." (H.Rept. at 57; S.Rept. at 55; compare, "derivative work.") Many of the
documents about which question is raised undoubtedly are "compilations" and "literary works."
A threshold question exists, however, as to whether any particular document is an
"original work of authorship" so as to merit copyright protection in the first place.5/ As mentioned
at the outset, because of the volume and variety of the documents involved, we cannot give a
definitive answer to that question and so will simply assume that all of the documents are in fact
3. Public Law 94-553, title I, October 19, 1976 (90 Stat. 2598), codified as title 17 of the United
States Code, entitled "Copyrights." Reference to sections of the Copyright Act in this letter will be
to the Act as it is codified in that title.
4. The Report of the House Committee on the Judiciary on the Copyright Act (No. 94-1476; 94th
Cong. 2d Sess.), is cited as H.Rept. It can be found, with references to its pagination, in [1976] U.S.
Code Congressional and Administrative News (vol. 5) at pages 5659-5809, and without such
reference following the appropriate sections of title 17 of the West's annotated version of the United
States Code (U.S.C.A.). The corresponding Report of the Senate Committee on the Judiciary (No.
94-473), is cited as S.Rept.
5. E.g., compare H. C. Wainwright & Co. v. Wall St. Transcript Corp. (S.D.N.Y. 1976) 418
F.Supp. 620 [original analyses and conclusions in financial research reports prepared by a securities
brokerage business were entitled to copyright protection] and Merritt Forbes & Co. Inc. v. Newman
Inv. Securities (S.D.N.Y. 1985) 604 F.Supp. 943 [though standardized in form, bond underwriting
documents containing financial data were entitled to copyright protection], with, Financial
Information, Inc. v. Moody's Investors Service, Inc. (2d Cir. 1986) 808 F.2d 204 [copyright
protection was not merited where a financial reporting service's reporting of municipal redemptions
showed little independent original creation (researchers merely filled in five facts on a "card" report
for each)].
3. 88-1241
copyrightable. Our assumption is that the working papers and documents in question give
expression to ideas and that these expressions are copyrighted.
Of course the protection afforded by a copyright is a limited one. It protects against
copying the work without the holder's permission but does not prevent anyone from using the ideas
expressed in the work. As applied to this opinion this means that while the copyright would prohibit
anyone from copying the working papers and other documents (except for a fair use), it would not
prevent anyone from using any method, system or idea revealed in those documents. See Baker v.
Selden (1879) 101 U.S. 99; Muller v. Triborough Bridge Authority (S.D. N.Y. 1942) 43 F.Supp.
298; Aldrich v. Remington Rand (N.D. Texas 1942) 52 F.Supp. 732; Demetriades v. Kaufman (S.D.
N.Y. 1988) 680 F.Supp. 658.6/
Under the Copyright Act, copyright protection attaches automatically as soon as a
work is "fixed" in any tangible medium and neither registration nor any type of designation or notice
is necessary to trigger it. (§§ 102, 405, 408; cf. H.Rept. at 52; S.Rept. at 51-52) At that time,
section 106 of the Act gives the copyright holder certain exclusive rights with respect to the work,
among which are the right to authorize its reproduction, adaptation, publication, performance, and/or
display. (§ 106; cf., H.Rept. at 61; S.Rept. at 57.) Thus:
"Subject to sections 107 through 118, the owner of copyright under this title
has the exclusive right to do and to authorize any of the following:
"(1) to reproduce the copyright work in copies...;
"(2) to prepare derivative works based on the copyrighted work;
"(3) to distribute copies ... of the copyrighted work to the public by
sale or other transfer of ownership, or by rental, lease, or lending;
"(4) in the case of literary ... works, ... to perform the copyrighted
work publicly; and
"(5) in the case of literary ... works, ... to display the copyrighted
work publicly."
These rights operate independently of each other, and each may be owned and enforced separately.
(Cf., §§ 201, subsec. (d)(2), 202; H.Rept. at 61, 123; S.Rept. at 57; 71 Ops.Cal.Atty.Gen. 16, 30
(1988).) Assuming that the documents in question are copyrightable, i.e., that they are proper
subjects for copyright protection, concern would be with possibly infringing the copyright holder's
exclusive rights to authorize their reproduction, to authorize their distribution, and perhaps to
authorize the preparation of derivative works from them.
6. In Baker v. Selden, supra, 101 U.S. 99, the high court held that although plaintiff could
prevent the unauthorized reproduction of his copyrighted book describing a system of bookkeeping,
he could not prevent others from using the system described and the forms exhibits in it. The court
said:
"The description of the art in a book, though entitled to the benefit of
copyright, lays no foundation for an exclusive claim to the art itself. The object of
the one is explanation; the object of the other is use. The former may be secured by
copyright. The latter can be secured, if it can be secured at all, by letters patent."
4. 88-1241
The first concern is obvious: under clause (1) of section 106, the copyright holder
has the exclusive right to authorize the making of copies of his or her work in whole or in part. As
the legislative history explains:
"Read together with the relevant definitions in section 101, [this right] means
the right to produce a material object in which the work is duplicated ... in a fixed
form from which it can be ``perceived....' [A] copyrighted work would be infringed
by reproducing it in whole or in any substantial part, and by duplicating it exactly or
by imitation or simulation." (H.Rept. at 61; S.Rept. at 58.)
It would seem obvious that copying the audit documents would come within the strict wording of
this right.
The answer to whether the Department's activity would also be covered by the second
exclusive right, that of preparing derivative works (§ 106(2)), is more elusive. Section 101 defines
a "derivative work" as one that is "based on one or more preexisting works, such as a translation,
... abridgment, condensation, or any other form in which a work may be recast.... A work consisting
of ... annotations, elaborations, or other modifications, which, as a whole, represent an original work
of authorship, is a ``derivative work'." (§ 101.)7/ It may be that in the course of the performance of
its statutory duties the Department will substantially use and recast particular documents, as opposed
to copying them in toto. Doing so may come within the rubric of the copyholder's right to control
such adaptations. On the other hand, the Department may merely have occasion to comment on
particular documents which are presented to it, in which case that activity would not come within
the right secured by clause (2). The legislative history of the Copyright Act, which is instrumental
in discerning its meaning (Universal City Studios v. Sony Corp. of Amer. (C.D.Cal. 1979) 480
F.Supp. 429, 443, aff'd. sub nom. Sony Corp. v. Universal City Studios, Inc. (1984) 464 U.S. 417),
states that since "[t]o constitute a violation of section 106(2), the infringing work must incorporate
a portion of the copyrighted work in some form ..., a detailed commentary on a work ... would not
normally constitute infringement under this clause." (H.Rept. at 62; S.Rept. at 58.)
The exclusive rights accorded by clauses (3), (4) and (5) of section 106, to authorize
the distribution, performance, and display of copyrighted works all have one element in common:
the activity involved must be "public." (Cf., H.Rept. at 63; S.Rept. at 60.) Concern would only arise
with respect to clause (3), the right to control distribution, and perhaps clause (5), the right to control
display of copyrighted works,8/ but in either case, we do not believe that the giving or showing them
to other government agencies either constitutes distributing them to the public or displaying them
publicly.
The definitional section of the Copyright Act, section 101, does not define the phrase
"to the public" that is used in clause (3) of section 106, but it does define the term "publicly" in
7. Needless to say, for a derivative work to be protected, "the 'preexisting work' must come
within the general subject matter of copyright set forth in section 102, regardless of whether it is or
was ever copyrighted." (H.Rept. at 57; S.Rept. at 55.)
8. The definition of "display" given in section 101--i.e, "to show a copy of it" covers "any
showing of a 'copy' of [a] work.... [It] would include the projection of an image on a screen or other
surface by any method." (H.Rept. at 64; S.Rept. at 60.) It is conceivable that in the course the
performance of its statutory duties the Department might have to "display" a copyrighted work.
However, since "performing" a work means, inter alia, "to recite ... it" (§ 101) it is doubtful whether
that right of the copyright holder would be involved.
5. 88-1241
connection with the rights given in clauses (4) and (5), to control the performance or display of a
work. There it is said to mean--
"... to perform or display it at a place open to the public or at any place where
a substantial number of persons outside of a normal circle of a family and its social
acquaintances is gathered." (§ 101, "public performance/display.")
The Congressional history of this definition indicates that it was deliberately adopted to overrule a
line of cases which had held that performances in semi-public places (as for example, lodges,
summer camps and private clubs) were not "public" for copyright purposes. (65 Ops.Cal.Atty.Gen.
106, 110 (1982) citing H.Rept. at 64; S.Rept. at 60-61.) But that same history clearly indicates that
under the definition,
"... routine meetings of businesses and governmental personnel would be
excluded because they do not represent the gathering of a ``substantial number of
persons.'" (H.Rept., supra; S.Rept., supra; emphasis added.)
We can safely presume that the Congress had the same notion of "publicity" in mind when it used
a variant of the term "publicly" to describe the right accorded in clause (3) of section 106 to control
distribution of copies "to the public." (Cf., § 101.) Thus, either for the display of a work, or its
distribution, such would have to take place, or be made to a place, that is open to the public or where
a substantial number of persons are gathered. But as the above quoted fragment of the legislative
history points out, such would not include "routine meetings of government officials." Subdivision
(b) of section 8009 of the Savings Association Law strictly limits the disclosure of any information
the Department receives in connection with its statutory duties, to certain governmental agencies--
(a) state and federal authorities that supervise financial institutions, (b) state, local and federal law
enforcement agencies, and (c) state agencies engaged in the investigation of unsafe or unsound
business practices. Under the above definition that would not amount to disclosure to the "public",
and we therefore conclude that the distribution or display of any copyrightable documents to those
governmental agencies does not come within a copyright holder's right to control distribution or
display accorded by clauses (3) and (5) of section 106.
Still, we are left with the possibility raised in connection with the right to control
reproduction, and possibly adaptation, secured by clauses (1) and (2). With respect to them, as we
have mentioned, copying and/or adaptation would, other matters not considered, constitute an
infringement of the copyright holder's rights. But other matters must be considered in copyright
analysis, and one of them, the doctrine of "fair use" bears on the Department's use of the subject
materials and would make the proposed use of the materials a noninfringement of the copyright.
2. Fair Use
As just seen, the Copyright Act of 1976 extends five fundamental rights to a holder
of a copyright with respect to his or her work --the exclusive rights of controlling reproduction,
adaptation, publication, performance, and display. These are said to "comprise the so-called ``bundle
of rights' that is a copyright." (H.Rept. at 61; S.Rept. at 57.) However, those rights are wholly
statutory and so are strictly measured and defined by the parameters of the Copyright Act itself.
(Sony Corp. v. Universal City Studios, Inc., supra, 464 U.S. at 429, 431, 447; Universal City Studios
v. Sony Corp. of Amer., supra, 480 F.Supp. at 443; 71 Ops.Cal.Atty.Gen. 16, 19, supra; 65
Ops.Cal.Atty.Gen. 106, 108, supra.) As given in the Act, the rights accorded by section 106 are
"qualified" since the preamble to that section specifically makes them subject to the provisions of
other sections of the Act. Most significant for purposes of this opinion is section 107 in which
Congress has codified the doctrine of "fair use." (65 Ops.Cal.Atty.Gen. 106, 111, supra.)
6. 88-1241
The doctrine of "fair use" was developed by courts in cases arising under the 1909
Copyright Law as an "equitable rule of reason" to balance the competing interests of the copyright
owner and the public generally. (Ibid. citing H.Rept. at 65-66 and S.Rept. at 62.) Basically it was
used "to create a privilege in others than the owner of a copyright to use the copyrighted material
in a reasonable manner without [the owner's] consent...." (Rosemont Enterprises v. Random House
(2d Cir. 1966) 366 F.2d 303, 306, cert. den. (1967) 385 U.S. 1009; accord, Supermarket of Homes
v. San Fernando Valley Bd. (9th Cir. 1986) 786 F.2d 1400, 1408.) As the high court has said, "Any
individual may reproduce a copyrighted work for a ``fair use'; the copyright owner does not possess
the exclusive right to such a use." (Sony Corp. v. Universal City Studios, Inc., supra, 464 U.S. at
433.)
Section 107 does not strictly define what a "fair use" is, but sets forth instead four
factors which should be considered by way of general guidance to determine whether a particular
use is a "fair" one. (H.Rept. at 65, 66, 74; S.Rept. at 62.) The section provides as follows:
"Notwithstanding the provisions of section 106, the fair use of a copyrighted
work, including such use by reproduction and copies ... for purposes such as
criticism, comment, news reporting, [etc.], is not an infringement of copyright. In
determining whether the use made of a work in any particular case is a fair use the
factors to be considered shall include --
"(1) the purpose and character of the use, including whether such use
is of a commercial nature or is for nonprofit educational purposes;
"(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."
(§ 107, codified almost verbatim from Williams & Wilkins Company v. United States (Ct. Cl. 1973)
487 F.2d 1345, 1352, aff'd. per curiam (1975) 420 U.S. 376; emphasis added.)
Not only has Congress thus codified the doctrine of "fair use" in section 107, but it has specifically
declared that the "fair use of a copyrighted work" "is not an infringement of copyright." (§ 107; cf.,
H.Rept. at 66; S.Rept. at 62.) The section therefore compels a finding of noninfringement of
copyright if the use made of a work is a "fair use" under the particular circumstances. (71
Ops.Cal.Atty.Gen. 16, 19, supra; 65 Ops.Cal.Atty.Gen. 106, 111, supra.) Since "the line which [is
to] be drawn between fair use and copyright infringement depends on an examination of the facts
in each case" (Meeropol v. Nizer (2d Cir. 1977) 560 F.2d 1061, 1068, cert. den. (1978) 434 U.S.
1013), we proceed to examine the facts presented here. Doing so we will conclude that they compel
a finding of fair use and consequently that no infringement of copyright takes place.
A. Factor one has us examine the nature and character of the use, including whether
it is for commercial purposes. Here it is plain that the contemplated use is non-commercial and that
it is for a very important governmental purpose from which the public benefits, i.e., the oversight
of the savings and loan industry. As we have seen at the very outset of this Opinion, under the
Savings Association Law, the Savings and Loan Commissioner supervises all associations in this
state. (§ 8050.) Needless to say, a vital part of that supervision involves knowing the true financial
condition of those associations. (See e.g., The Wall Street Journal, vol. CXX, No. 19 (Jan. 27, 1989)
7. 88-1241
at pp. A1, A2, A8; The San Diego Union (Jan. 27, 1989) at p. A-1.) Toward that end, the Law
requires each association to annually audit its books and accounts, and to make and file a verified
annual audit report therefrom. (§§ 8156, 8157.) The Commissioner prescribes the scope of that
audit (§ 8157) and approves the certified public accountant who conducts it (§ 8156). But the final
audit report itself may not necessarily provide a true picture of an association's finances because it
is summary in nature and is only prepared after discussions are held between the auditor and the
management of the association being audited, in which "problems" encountered in the audit are
resolved. (Cf., fn. 2, ante.) Those problem areas, which must be known in order for the Department
to fully understand an association's financial status, may never surface in the final audit report.
Thus, it is often necessary for documents in addition to the final audit report (and accompanying
financial statements) to be examined for that understanding to be had. The audit plan of the audit
company and the working papers of those who actually do the audit provide useful information
toward that end. They also disclose the depth and detail of the audit that was made.
The Savings Association Law recognizes the need for the Department to obtain such
documents. Section 8157, for example, provides that the Commissioner can require an auditor to
furnish information in addition to that contained in the audit report (§ 8157; cf., § 8151 [associations
must make and file such other reports as the Commissioner may from time to time require]; §§ 8151,
8152 [Commissioner on his own may examine the financial condition of any association and appoint
a CPA to do so].) To further secure complete and accurate information about associations doing
business in this state, section 8158 provides that
"... the commissioner, or any department employee authorized by [him/her],
shall have free access to all books and records of an association ... that relate to the
business of the association...." (Id., subd. (a).)
The finding of irregularities with an association can result in action taken either by the Department
or by other agencies. Regarding the former, if the Commissioner as a result of any examination or
from any report finds that any association or its subsidiaries is violating the provisions of the
Savings Association Law or is engaging in an unsafe or unsound business practice, he or she must
order the association to discontinue the violation or practice. (§ 8200.) He or she may also require
that any director, officer or employee who participated in a violation or an unsafe or unsound
practice, or who has breached his or her fiduciary duty, be removed, after hearing on the matter,
from the association. (§ 8201.) And, if as a result of any examination or from any report the
Commissioner believes that any association (1) is in an impaired condition, (2) is engaging in
practices that threaten to result in an impaired condition, or (3) is in violation of an order or
injunction, he or she may appoint a receiver for the association. (§ 8250.) When, in the same
circumstances the Commissioner believes that the public interest may be served by the appointment
of a conservator, he or she may appoint one for the association. (§ 8225.)
But the Savings Association Law also contemplates that certain state, local, and
federal agencies may be involved in taking action with respect to errant associations. As we have
seen, while section 8009 provides that any information received by the Department in the discharge
of its statutory duties is confidential (id., subd. (a)), it also provides that
"... the commissioner may furnish information relating to the condition or
operation of any association ... to state and federal authorities that supervise financial
institutions, to state, local and federal law enforcement agencies, and to state
agencies engaged in the investigation of unsafe or unsound business practice." (Id.,
subd. (b).)
8. 88-1241
It appears that in the course of its oversight of one of the state's associations, it was determined that
the final annual audit report that was made and filed did not provide sufficient information regarding
the association's finances for the Department to adequately assess them. The audit plan, working
papers, and other documents relating to the audit were needed if that assessment was to be made.
Apparently they were provided, at least in part, but with a proviso that since they are copyrightable
materials, the Department could not copy them or give them to other government agencies under
section 8009, subdivision (b).
From the foregoing description of the workings of the Savings Association Law, it
is clear that such use of the documents (a) is limited in scope, (b) is strictly non-commercial, and (c)
is for a governmental purpose which, as we have said, is of considerable importance to the public
today--scrutinizing and maintaining the financial integrity of the savings and loan industry. (See
e.g., The Wall Street Journal, supra, at pp. A1, A2, A8; The San Diego Union, supra, at p. A-1.)
This characterization of the use would point to it being a "fair one" under factor one of fair use
analysis: First, the use is non-commercial, and while that is not necessarily conclusive on the overall
issue, it does raise a presumption that a use will be found a fair one. (Sony Corp. v. Universal City
Studios, Inc., supra, 464 U.S. at 449.) But then the use advances important public interests, to which
a copyright holder's rights have been said to yield, for "copyright is ``[n]ot primarily for the benefit
of the author, but primarily for the benefit of the public'" (Universal City Studios v. Sony Corp. of
Amer., supra, and "the copyright law ... makes reward to the owner a secondary consideration."
(United States v. Paramount Pictures, Inc. (1948) 334 U.S. 131, 158; cf., Sony Corp. v. Universal
City Studios, Inc., supra, 464 U.S. at 429.) Thus it has been said that,
"[An] author [should expect] that the copyright scheme itself will sometimes
require use of his work necessary in the public interest for which he will not be paid,
and society expects that the copyright scheme will either allow such use without
reducing the author's incentive or impose no excessive burdens on the public when
use is controlled.... [Citation]." (Universal City Studios v. Sony Corp. of Amer.,
supra, 480 F.Supp. 429, 448.)
Where the use of a copyrighted work advances public interests, it is likely that fair use will be found,
especially when the copyright holder suffers no economic harm therefrom. (Sony Corp. v. Universal
City Studios, supra, at 454; Williams & Wilkins Company v. United States, supra, 487 F.2d 1345,
1352, 1354, 1356-1359, 1362; 71 Ops.Cal.Atty.Gen. 16, 24-25, 26-27, supra.) For example, in
Williams & Wilkins Company the court found that the copying of articles from medical journals was
a fair use under the circumstances because (a) the copying was limited, (b) it served an important
public purpose of advancing medical knowledge, and (c) there was no detriment to the copyright
holder from the activity. (Id. at 1354, 1362.) The Department's activity here would similarly be
limited and advance an important public interest, and, as we shall come to see, there would be no
countervailing harm to the copyright holder because of it.
The legislative history of the Copyright Act gives some examples of what Congress
thought would constitute a fair use of copyrightable materials. As observed before, such statements
provide an indication of the reach of copyright protection and is instrumental in discerning its scope
under the Copyright Act. (Universal City Studios v. Sony Corp. of Amer., supra, 480 F.Supp. 429,
443.) Among the uses Congress thought would be a fair use is the
"... reproduction of a work in legislative or judicial proceedings or reports."
(H.Rept. at 65; S.Rept. at 61-61, approving examples given in a 1961 Report by the
Register of Copyrights on the "General Revision of the U.S. Copyright Law.")
Elsewhere in the legislative history, the following commentary appears:
9. 88-1241
"The Committee [the House Committee on the Judiciary] has considered the
question of publication, in Congressional hearings and documents, of copyrighted
material. Where the length of the work or excerpt published and the number of
copies authorized are reasonable under the circumstances, and the work itself is
directly relevant to a matter of legitimate legislative concern, the Committee believes
that the publication would constitute fair use." (H.Rept. at 73; emphasis added.)
In Williams & Wilkins Company v. United States, supra, 487 F.2d 1345, the court
spoke of fair use in judicial proceedings:
"We can not believe ... that a judge who makes and gives to a colleague a
photocopy of a law review article, in one of the smaller or less available journals,
which bears directly on a problem both judges are considering in a case before them
is infringing the copyright rather than making ``fair use' of his issue of that journal."
(Id. at 1353.)
More recently in Jartech, Inc. v. Clancy (9th Cir. 1982) 666 F.2d 403, the Ninth Circuit held that
the making of abbreviated copies of films for evidence to be used in a judicial [nuisance abatement]
proceeding was a fair use of the material. (Id. at 407.) Indeed, a leading commentator on copyright
law has found it "inconceivable that any court would hold [the reproduction of copyrighted materials
for judicial proceedings] to constitute infringement." (3 Nimmer On Copyright, § 13.05[D][2] (1983
ed.).)
We see no difference between the use of copyrighted material in judicial or legislative
proceedings and their use administratively in a matter of legitimate administrative concern. Given
the importance to the public in the Department's copying and furnishing the audit documents to
appropriate government agencies, we find that factor one favors a finding that that would be a fair
use of them.
B. Factor two has us examine the nature of the copyrighted work. Doing so we see
that the documents involved are "created" for the most part to serve one specific purpose -- making
an audit required by law to test the financial integrity of a savings association. And when such
documents are generated, that is done with an expectation that they might be "used" under the
Savings Association Law by the Department and other governmental agencies. As we proceed to
explain, the nature of the audit materials does not fit well in the traditional copyright scheme, but
to the extent that it is tested in fair use analysis, it favors a finding of fair use.
As stated in the Constitution, the purpose for copyright protection is "[t]o promote
the progress of science and useful arts, by securing for limited times to authors and inventors the
exclusive right to their respective writings...." (U.S. Const., art. I, § 8, cl. 8; 65 Ops.Cal.Atty.Gen.
106, 108, supra.) The Copyright Act seeks to encourage such creative work by rewarding it through
the grant of a limited monopoly over a work's exploitation. (Cf., Sony Corp. v. Universal City
Studios, Inc., supra, 464 U.S. 417, 429, 450; Twentieth Century Music Corp. v. Aiken (1975) 422
U.S. 151, 156; United States v. Paramount Pictures, supra, 334 U.S. 131, 158; Williams & Wilkins
v. United States, supra, 487 F.2d 1345, 1352; Universal City Studios v. Sony Corp. of Amer., supra,480 F.Supp. 429, 447.) Thus, the aim of copyright protection "is, by [this] incentive, to stimulate
artistic creativity for the general public good." (Twentieth Century Music Corp. v. Aiken, supra; see
also Universal City Studios v. Sony Corp. of Amer., supra.)In the situation presented, however, "incentive" to create stems from the requirements
of the Savings Association Law and is not an independent assertion of artistic creativity. Documents
are prepared for a specific audit of a particular association as required by that Law. (§§ 8156, 8157.)
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Since the requirements of the Law are present in any case, any "incentive" to create them would
neither be fostered or encouraged by a copyright monopoly, nor impaired if one is not given.
Furthermore, the audit documents are of such a nature that they are created with a full understanding
of the workings of the Savings Association Law. That includes an appreciation of the possibility
that the Department may subsequently "use" them under the very Law that compelled their creation.
The only concern we see that an auditor might have in preventing the replication of
his audit documents, in addition to protecting the confidentiality of his client's affairs, is that of not
revealing his methods of operation. Those methods, which can be gleaned from the working papers,
and certainly from the audit plan, may have further financial value to a firm conducting an audit.
But, as we have pointed out, the copyright simply affords protection against reproduction of the
work and does not prevent others from using the methods of operation revealed by the audit plan and
working papers. (See fn. 6, supra.)
Returning to the claim of copyright, we find that the nature of the documents favors
a finding of fair use, which determination is strengthened when one considers that factor in
conjunction with factors one and four of fair use analysis ——i.e., that the documents are used for
an important, non-commercial governmental purpose and, as we shall see, that the use does not
supplant a potential market for the copyright holder. (Cf., Sony Corp. v. Universal City Studios,
Inc., supra, 464 U.S. at 449-450; Williams & Wilkins Company v. United States, supra, 487 F.2d
1345, 1353; Universal City Studios v. Sony Corp. of Amer., supra, 480 F.Supp. at 453); 71
Ops.Cal.Atty.Gen. 16, 25, supra.)
C. Factor three of fair use analysis has us look to the substantiality of the taking in
the use of copyrightable works. Here, it is entirely possible that an entire "work" will be taken.
While that fact can militate against a fair use being found, it does not necessarily defeat such a
finding. As we noted in a recent Opinion, the factor is but one to be considered along with the
others set forth in section 107 in balancing the equities in a copyright case, and the taking or use of
a whole work can still constitute a "fair use" where there is no accompanying reduction in the market
for the original work. (See 71 Ops.Cal.Atty.Gen. 16, 26, supra, citing inter alia, Universal City
Studios v. Sony Corp. of Amer., supra, 480 F.Supp. 429, 454; see also Sony Corp. v. Universal City
Studios, Inc., supra, 464 U.S. at 449-450; Williams & Wilkins Company v. United States, supra, 487
F.2d at 1353.) As we now proceed to show, we find no such reduction in a potential market for the
original work in this case.
D. Factor four of the fair use analysis has us look to the effect of a use on the
potential market for, or value of, the copyrighted work. This is known as the "issue of harm" which
has been described as "undoubtedly the single most important element of fair use." (Harper & Row
v. Nation Enterprises (1985) 471 U.S. 539, 566.) In analyzing this factor, "courts have focused on
considerations such as whether the ... use ``tends to diminish or prejudice the potential sale of [the]
work' [citations], whether the use ``has tended to interfere with the marketability of the ... work'
[citation], or whether the use has the intent or effect of ``fulfilling the demand for the ... work'
[citations]. And recently we learn [from the high court in Sony] that where a noncommercial use
is involved as it is here, there must be a showing that some meaningful likelihood of future harm
exists...." (71 Ops.Cal.Atty.Gen. 16, 26, supra.)
An examination of these subfactors convinces us that the very limited copying and
distribution of the audit documents would not affect their potential market or value. As we have
seen in connection with our discussion of their nature, when audit documents are prepared, that is
done for the very specific purpose of making an audit of an association so it can comply with the
annual audit requirement of the Savings Association Law. (§§ 8156, 8157.) There, at least the
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preparation of the working papers comes about only in connection with that "one-shot" endeavor,
and because of their inherent specificity, they would have no further function or use in any other
market to be exploited by the copyright holder. In other words, since the sole "market" for the
working papers is the very narrow one directed to the specific audit of the particular association, any
copying and distribution by the Department could not supplant or prejudice another potential market
for them or otherwise interfere with their marketability. A different situation exists with respect to
the audit plan. There what is developed may contain methods of operation and systems that could
be applied elsewhere. And so it is possible that other markets would stand to be harmed if an
auditing firm's unique processes and procedures were used by others. But again, protection against
the use of ideas, methods, and systems, is not the function of copyright. (Baker v. Selden, supra,
fn. 6.)
Moreover, even if the just-mentioned potential market for the auditor were
appropriate for copyright protection, the Department's limited copying and distribution of the audit
documents pursuant to subdivision (b) of section 8009 of the Savings Association Law would not
take place in it. That activity therefore would not impinge upon the market or diminish its worth.
(Compare, 71 Ops.Cal.Atty.Gen. 16, 31-33, supra and 65 Ops.Cal.Atty.Gen. 106, 116-117, supra,
where a non-commercial governmental use was directed to and did supplant a potential market for
the copyright holder.) With this absence of harm, factor four favors a finding of fair use.
In Sony Corp. v. Universal City Studios, Inc., supra, 464 U.S. 417, our high court
observed:
"The purpose of copyright is to create incentives for creative effort. Even
copying for noncommercial purposes may impair the copyright holder's ability to
obtain the rewards that Congress intended him to have. But a use that has no
demonstrable effect upon the potential market for, or the value of, the copyrighted
work need not be prohibited in order to protect the author's incentive to create." (464
U.S. at 450.)
A finding of fair use in the situation presented is even more compelling for the author's incentive
to create is not independently wrought and there is no potential market for his work that is suitable
for copyright protection which stands to be harmed by the limited use under the Savings Association
Law. Weighed in the four-factored calculus of section 107 we find that the purpose and character
of the use, the nature of the copyrighted work, and the lack of harm to such a market, make the
Department's copying and distribution of audit documents under section 8009, subdivision (b) a fair
use of those materials. Accordingly we conclude that the Department, through its Commissioner,
may copy and furnish such documents to other governmental agencies under the subdivision without
infringing any copyright in them that may exist.9/
*****
9. In view of our conclusion that no infringement would occur by reason of the fair use doctrine
we do not reach the question whether the Eleventh Amendment to the United States Constitution
would bar suit against the Department or its officers for copyright infringement. For a recent case
on that question see BV Engineering v. Univ. of Cal., Los Angeles (9th Cir. 1988) 858 F.2d 1394,
cert. den. (March 20, 1989) ___ U.S. ___ [57 U.S. Law Week 3621].)
12. 88-1241