The controversy turned  on art projects in which Prince incorporated photographs from Yes Rasta, a portrait book about Rastafarians by photographer Patrick Cariou. In some cases, Prince altered the photos so the originals could barely be recognized:

But in other cases, Prince made only minor alterations, such as adding face blotches and a blue guitar:

Cariou, who earned about $8,000 from the sale of his book, sued Prince for copyright infringement. Prince, whose individual works fetched up to $2 million, argued that his modifications amounted to a “fair use” exception under copyright law.

In 2011, a federal judge sided with Cariou and issued an injunction against Prince and an order for any unsold works to be destroyed (they were not).

Can judges be art critics?

In her decision, U.S. District Judge Deborah Batts concluded that Prince’s work was not transformative — and did not qualify for fair use — because it didn’t satirize or otherwise comment on the original photographs. On appeal, a unanimous three-judge court wrote that Batts got the law wrong and said there was no such requirement under fair use.

Citing Andy Warhol’s Campbell Soup cans and the rap group 2 Live Crew’s parody of “Pretty Woman,” the appeals court noted that many fair use cases did indeed comment on the original, but that this was not essential. In the case of Prince, the court said, his works are transformative in part because they are “hectic and provocative” compared to Cariou’s serene and beautiful photographs.

On a technical level, the “transformative” requirement is just a sub-step in one part of a four-pronged fair use analysis. Increasingly, however, it’s also becoming a shorthand for courts to determine if someone is using an image in a new and legitimate fashion, or just ripping off and devaluing the original.

In resolving the Prince case, the appeals court found that 25 of the 30 images were transformative but added that it did could not say “confidently” whether five of the others — including the blue guitar picture — were as well. It returned the case to the original judge to mull over the five pictures in more detail.

One of the three appeals court judges stated, however, that he was uncomfortable acting in the role of art critic and that the original judge should re-evaluate all 30 pictures with the help of expert opinion and other evidence:

So what is “transformative” on the internet?

The Prince decision could affect not just the art world, but internet culture as well. That’s because the decision comes at a time when images are becoming ever more central to online news and social media platforms — and while the rules for using them are unclear.

Sites like BuzzFeed, for instance, have taken an aggressive approach to image appropriation, declaring that almost any use is “transformative.” This approach is well-suited to the fast-paced, mash-up style of internet journalism but is also a source of frustration to photographers and others who feel artists deserve more control over their work.

The Prince ruling, while not a green light for anyone to use photographs as they see fit, appears to provide broader legal cover to appropriation artists and experimenters. Here’s the decision itself with some of the more significant passages underlined.

A previous version of this article stated that the “Pretty Woman” parody was by Salt-n-Pepa. It was by 2 Live Crew.

Cariou v Prince, 2nd Circ

In a new court filing (embedded below), the broadcasters claim the decision “threatens to cause massive disruption to the television industry” and “will wreak commercial havoc,” and request a full panel of the US Second Circuit Court of Appeals to revisit the ruling.

The start-up Aereo has been at the center of a storm in recent months because its technology threatens to blow-up the existing model of pay TV, which is based on selling viewers a bundle of channels, that include over-the-air stations like NBC, ABC, CBS and Fox. Aereo is backed by a $58 million investment from media mogul Barry Diller and others, and lets customers watch and record TV without a subscription for $1 a day or $8 a month.

In the past, other companies have retransmitted TV signals over the internet but broadcasters quickly smashed them for copyright infringement. Aereo, however, has survived two major court challenges thanks to its technology which assigns a mini-antenna (see pic below ) to each subscriber; the service is now live in New York City and is slated to arrive imminently in 22 more markets.

In the new filing, broadcasters howl that Aereo’s individual antenna system is just a loophole to get around a copyright regimes that requires any company that plays over-the-air signals, including cable and satellite firms, to pay retransmission fees. The brief also cites a paidContent story to warn that Aereo wants to team up with distributors like Dish network and Time Warner Cable to expand its reach.

On a broader level, the legal manœuvreing is part of a great game between Aereo and the broadcasters over the future of TV that could end up at the Supreme Court. In the coming battle, the broadcasters are pinning their hopes on a recent California court case, which shut down an Aereo clone and rejected the theory that a private antenna means a transmission is not “public” under copyright law – a theory accepted by two out three judges on the Second Circuit court.

In the new filing, the broadcasters rely heavily on the opinion of dissenting judge Denny Chin, who described Aereo’s technology as a “sham” and a “Rube Goldberg” device that “over-engineered” to dodge copyright.

While the dissent and the California case provide the broadcasters with ammunition, the request for a review by all of the judges on the New York court is a long shot. This is because, unlike other appeals courts, the Second Circuit almost never agrees to hear so-called “en banc” appeals; in the event it did rehear the case, the judges would be reluctant to accept the broadcasters’ invitation to declare that they were wrong on an earlier case that formed the basis of their opinion for Aereo.

This means the Supreme Court — or Congress — is the broadcasters’ best hope. Time is not on their side, however, because it would take years for the legal case to be heard and decided. By that time, technology and consumer habits for TV may have changed dramatically.

The CEO of Aereo will offer his two cents on the bigger picture of TV at paidContent Live which is taking place on Wednesday in New York City.

Legal types — here’s a marked up version of the broadcasters’ very well drafted legal brief:

Aereo en Banc Petition

Here’s a plain English explanation of the decision (embedded below), in which the US Court of Appeals for the Second Circuit ruled that Aereo’s technology is legal, and why it’s so significant for the TV industry. (Note that Aereo CEO Chet Kanojia will be speaking at paidContent Live).

Aereo’s legal loophole

Aereo captures over-the-air TV signals by means of tiny antennas and streams them to subscribers who watch and record shows on their mobile devices or computer browsers. Aereo’s antennas are not just a marvel of technology (see photos here) — they’re also the key to a legal strategy that helps the company avoid copyright infringement.

To get a better idea of both Aereo’s technology and its legal strategy, it’s helpful to consider how it works for consumers. According to the Second Circuit, “Aereo functions much like a television with a remote Digital Video Recorder (“DVR”) and Slingbox” — allowing subscribers to use internet technology to capture live broadcasts on stations like CBS or Fox and and watch them later.

Aereo argues that its “one antenna for one subscriber” operation means it’s just like a personal recording tool.  The country’s broadcasters disagreed and sued Aereo, arguing that it’s illegally retransmitting their signals to the public.

Aereo won the first round last year when a US District Court in New York refused to grant the broadcasters  a preliminary injunction, saying that Aereo’s service was on all-fours with a previous Second Circuit ruling that found Cablevision’s remote DVR’s to be legal because they involved one copy of a show being transmitted to one subscriber.

On appeal, the broadcasters repeated their argument that Aereo’s mini-antenna system was built specifically to get around copyright law and that Aereo was different than the situation in Cablevision because Aereo offers live TV without a license.

The Second Circuit, however, ruled on Monday in a two-to-one decision that each Aereo subscriber controls the TV stream they receive — including the ability to pause, rewind or record any given show. This means that Aereo is not transmitting to the public and that the service is consistent with the Cablevision decision. The court added that it didn’t matter if Aereo didn’t have a license to show the original programming or that it had created the mini-antenna service specifically to take advantage of the copyright loophole.

The decision was not unanimous, however. In a lengthy dissent, Judge Denny Chin blasted Aereo’s service as a “sham” and “a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.”

A major blow for the TV industry

The TV business has long been based on selling customers large bundles of channels at ever-increasing prices. Unlike the music industry, which has been thoroughly disintermediated by services like iTunes, the television incumbents have so far been able to resist the forces of digital disruption.

The arrival of Aereo thus represented a major threat to the TV business because it offered consumers a way to get broadcast channels where and when they wanted. And unlike other would-be disruptors, Aereo arrived well-funded and prepared to fight: it has top-notch lawyers and has already received at least $58 million in backing from media mogul Barry Diller and others.

Aereo alarms the TV industry not only because it encourages subscribers to watch shows where and when they want to, but also because it refuses to pay “retransmission” fees that cable and satellite companies give broadcast networks to retransmit over-the-air shows. At the same time, Aereo is promising to upend the cable industry by training users to come and go as they please — without expensive set-top boxes or installation fees or contracts. Instead, Aereo users can simply $1 a day or $8 a month.

For now, the broadcasters still have the upper hand in one way in that they own many popular cable channels such as ESPN that they can withhold from Aereo. This may help them in the short term but it does not address the bigger problem of changing TV-watching behavior of the sort that Aereo is ushering in. And in the meantime, Aereo has added one speciality channel (Bloomberg TV) and is likely to add others soon.

In the long run, Aereo’s CEO, Chet Kanojia, has vowed to break the current system which he has described as “an abusive system set up in an artificial way” and instead offer “rational bundles.”

Is the genie out of the bottle?

The significance of Aereo’s win at the Second Circuit is not just that can it continue operating. It’s also a big symbolic boost from the country’s most influential appeals court.

This symbolic support is likely to draw in more investment money and to facilitate Aereo’s expansion. Right now, the service is only available in New York City with plans to open soon in 22 more cities — Aereo is likely to treat the court ruling as a greenlight to open shop in the new cities sooner than later. At the same time, the new legal legitimacy is likely to speed Aereo’s existing partnership discussions with distributors like AT&T and Dish Networks.

Things aren’t all smooth sailing for Aereo, of course. The ruling only addresses a preliminary injunction, and the broadcasters will almost certainly appeal to a full panel of the Second Circuit and to the Supreme Court. At the same time, a California court has already ruled that a service offered by a would-be Aereo competitor amounts to copyright infringement — meaning that Aereo has no hope of coast-to-coast distribution for the foreseeable future. (The California case is at an earlier stage and could still be overturned; if not, it could set up a circuit split to be resolved by the Supreme Court).

But while it’s legal status remains uncertain, Aereo now has time on its side. Any future court decisions are likely to occur a year or more from now, providing the company with ample time to further ramp up its service. As it does so, consumers will become more familiar with Aereo and other over-the-top TV options — meaning it will be harder than ever for the traditional TV industry to persuade consumers to stick with an expensive bundle-of-channels model.

AEREO Decision

In a brief filed late Friday in New York, Google argued that a class action trial would deny it an opportunity to argue on a book-by-book basis that its scanning was a so-called “transformative” use that falls outside of copyright. This “fair use” argument received a boost in October when a judge dismissed a similar case that the Authors Guild brought against a group of university libraries over a digital collection known as the Hathi Trust.

The new filing by Google is just the latest twist in a case that began in 2005 when publishers and the Authors Guild sued the search giant over its ambitious plan to scan the world’s libraries. The parties eventually reached a settlement that would have created a market for millions of forgotten, out-of-print books but US Judge Denny Chin blew up the deal in 2011 after critics warned it would create a monopoly. The publishers recently dropped their lawsuit against Google but the Authors Guild is pressing on with demands for $750 per book. While the search giant has scanned more than 20 million books, only a relative handful would qualify for compensation under the lawsuit due to legal technicalities.

Overall, the Authors Guild case turns on whether Google’s scanning was “fair use.” Ordinarily, copying an entire work is not fair use but Google argues that its scanning qualifies because the digital copies don’t compete with the existing books but add “something new” — “a greatly improved way of finding them.” The company also argues that the scanned books, which can be seen only in small snippets, do not hurt the market for the original book.

While this is the argument in the bigger picture, Google’s appeal on Friday targets a more narrow question: should the authors be permitted to sue together. Google says they should not because most authors actually approve of the scanning, and that these authors shouldn’t be dragged into a legal action with those who don’t:

Plaintiffs’ objective is to dismantle a project that benefits many, and perhaps most, other class members … [A class certification] would deprive many authors of the benefits they obtain from Google Books—a result those authors could not avoid by opting out of the class. And those authors are numerous: A random survey of published authors by Google’s expert showed that 58% approved of Google scanning their copyrighted books so that the books could be searched online and snippets could be displayed; 45% had seen or expected to see demand for their books increase (versus 4% who expected demand to decline); and 19% said they financially benefit from the project (compared to only 8% who said they do not).

Chin rejected this argument in May and took the big step of “certifying the class” which is a green light for a class action to go to trial. The US Second Circuit Court of Appeals granted Google permission to appeal the certification in August, however, which effectively put the proceedings on ice. The case also slowed after Joanne Zack, a class action expert representing the Authors Guild, passed away suddenly this fall.

It’s impossible to know exactly what’s going on behind the scenes but it’s a good bet that the Authors Guild is pushing for a settlement that will give it at least a symbolic victory and let it recoup its legal fees. Copyright scholars, meanwhile, have been hoping for a grand decision in the case that will provide a working definition of fair use in the digital age.

You can read Google’s filing for yourself here:

Google Appeal Brief on Cert

The outcome of the appeal is likely to determine the fate of the more than 20 million books that Google has scanned but that now sit effectively locked up on the company’s servers. The fate of the books has been in limbo since Judge Denny Chin last year blew up a proposed settlement between Google, publishers and the Authors Guild that would have made the books available for sale.

After the settlement collapsed, Google and the publishers have been hashing out bilateral deals while the Authors Guild revived the initial class action lawsuit it filed in 2005. A separate group representing illustrators and publishers joined the case in 2010.

In its appeal, Google is trying the same double-barreled strategy it attempted before Judge Chin. First, it is arguing that the plaintiffs, including the Authors Guild, are not fit to represent an entire class of writers whose works were scanned. Google points to a study to say that many authors are actually pleased with the scanning endeavor and that they should not be pressed into the same lawsuit as those who are unhappy.

Google’s second argument raises a more profound question about copyright law in the digital age. The search giant is arguing that its actions represented fair use — a legal rule that provides immunity for copyright infringement on the grounds that (loosely stated) the benefit of the use outweighs the harm of the  infringement. Google has made this argument all along and many librarians, academics and publishers are eager for a court to address it directly.

The case will now go to the US Second Circuit of Appeals in New York City where Judge Chin now sits after he was promoted during the course of the initial lawsuit. Since Chin is still sitting by designation on the underlying case, he will not be one of the three or more judges to hear the appeal. This might prove favorable to Google as Chin so far has evinced considerable skepticism about Google’s positions.

Google’s appeal filing also coincides with a shift in the company’s rhetorical strategy. In the past, the company has typically issued only terse legal statements but today, in an email statement, a spokesman said:

“Much of the world’s information appears on the printed page, but almost three quarters of the world’s books are out of print and unavailable except to the lucky few who can find old copies in libraries. With Google Books, our goal is make the knowledge contained in books easy to discover and more useful for people.”

This appeal to fairness and spreading knowledge might gain more traction than it did two years ago when Google’s agenda came under fire by dozens of groups led by Microsoft and Amazon who accused the company of aspiring to a monopoly on books.

The story was first reported at PublishersWeekly. A copy of the order can be found here courtesy of James Grimmelmann.

The case is about much more than the $1 billion that Viacom says it is owed for Jon Stewart and South Park clips that appeared on YouTube years ago.

Here’s a plain English guide to what the decision really means:

Why is this case such a big deal?

Content owners have fumed for years that so-called “safe harbor” laws make it too easy for sites like YouTube to avoid responsibility for copyrighted material uploaded by users. They hoped the appeals court would force those sites to take on a greater role in copyright enforcement. The decision shapes the rules for sites like Grooveshark and MP3 Tunes that offer new ways to store or distribute content.

So what happened today?

The Second Circuit is an influential appeals court. Today, they said a lower court made a mistake when it dismissed the case in YouTube’s favor in 2010. It vacated and remanded the earlier decision — meaning it sent the Viacom case back to the lower court with instructions on how to try again. The ruling also applies to a parallel suit brought by the English Premier League and other content owners.

So who won?

Viacom and content owners say the court’s decision to revive the case proves that YouTube and others should pay for being in cahoots with copyright infringers. Google and its allies say the remand order is a technicality and that the overall decision vindicates the existing safe harbor rules.

That sounds like spin. Who really won?

The truth is somewhere in the middle. The decision means that Google could be on the hook for at least some of the YouTube clips. But it doesn’t dramatically change the existing safe harbor regime.

The appeals court wrote a narrow, specific decision and not a wide and sweeping one. And, critically, the Second Circuit took care to be consistent with a similar recent case (involving Veoh video) from California’s Ninth Circuit. If the New York case had disagreed with its “sister circuit,” the case would have been teed up to go the Supreme Court — and possibly set off big changes in the safe harbor law. Now, the Supreme Court is a longshot.

Does the case change the law at all?

A little bit. The appeals court confirmed the meaning of “red flags.” These are situations when a host loses “safe harbor” immunity because they should have known that someone was putting copyrighted content on their site — even if a content owner can’t prove they had actual knowledge.

The dispute turned on technical language in the safe harbor law over when a host had “actual” knowledge versus “apparent” knowledge.

The legal details are pasted below but, in this case, the court decided that the lower court should have taken a closer look at what seem like damning emails about what the YouTube founders knew.

Content owners may also be encouraged by the court’s guidance on “willful blindness” — situations where a website deliberately looks the other way when the site is used for piracy or counterfeiting.

Well, so what’s so important about the YouTube emails?

Emails between the YouTube founders suggest they knew or should have known about specific clips of copyrighted tv shows and sports games but chose to leave the clips up all the same — if this is the case, they forfeited their safe harbor shield and are liable for damages.

Does this mean Google has to pay the $1 billion?

No, because the appeals court ruling addresses the handful of clips in question, not all 79,000 of them.  As Stanford’s Mark Lemley explains:

The court found evidence that YouTube’s founders might have had knowledge of a few specific instances of infringement, and it remanded to determine whether YouTube could be liable for those specific instances. But even if they are liable, the liability is just for the few mentioned postings, assuming Viacom owns them and they were identified as the works in suit.  Any such liability would likely be measured in the hundreds of thousands of dollars, not the billions Viacom was seeking.

(Lemley has represented Google in the past but his view is consistent with text in the judgment as pasted below).

What happens now?

The case returns to the original court which will have to reconsider it in light of the appeals court’s instructions. Google will then move to have it dismissed all over again. The parties will fight like cats and dogs over the emails and the case will be back in court later this year.

It’s also possible that both sides will declare victory and quietly settle the matter.

I can’t get enough of this stuff. Where can I read more?

You can check out the excerpts below. Or you can read smart sources like Public Knowledge who says Google wins or Eric Goldman who says Viacom wins.

And finally, here’s a loose collection of the legal highlights from the judgment itself:

[...]

[...]

On appeal, the parties advocate two competing constructions of the “right and ability to control” infringing activity. 17 U.S.C. § 512(c)(1)(B).  [..]

Accordingly, we conclude that the “right and ability to control” infringing activity under § 512(c)(1)(B) “requires something more than the ability to remove or block access to materials posted on a service provider’s website.”

[...]

The epic copyright case began in 2007 when Viacom (NYSE: VIA) sued YouTube and its new owner, Google, over unauthorized Jon Stewart and South Park clips that appeared on the fledgling video site. Shortly after, a group of music and sports plaintiffs, led by the English Premier League, filed a related suit.

The cases turned on whether YouTube had lost the protection of a so-called safe harbor — which shields Internet companies from liability for the acts of their users – because it had allegedly turned a blind eye to copyrighted content on its site. A federal judge dismissed the case without a trial in June of 2010 after finding that the safe harbor did indeed apply to YouTube because the site did not have specific knowledge of infringing videos.

Before a panel of three appeals court judges, Viacom argued today that the lower court made an error by not putting the story of YouTube’s early days before a jury. Viacom’s lawyer, Paul Smith, claimed that YouTube’s founders chose to ignore copyrighted content in order to grow their business which they eventually sold to Google for $1.6 billion. In response to a question from the court about YouTube’s decision to provide filters that helped content owners find and screen their content, Smith said the company used the filters as a “hostage system” – forcing owners to sign a license before they could use the filters.

The judges frequently appeared skeptical of sending the case back to be heard by a jury, noting the difficulty of determining which of the thousands of clips were actually infringing and how much to award in damages. “Is a jury going to determine YouTube’s actual knowledge or awareness with regard to 63,000 clips?” asked a member of the panel.

YouTube’s lawyer, Andrew Schapiro, urged the court not to disturb the lower court ruling, saying that it is important for immunity laws such as the safe harbor to provide clear boundaries so that Internet companies can operate free of legal uncertainty. The court appeared receptive to Schapiro’s position that it was not the job of YouTube to monitor for infringing content but instead that of the copyright holders. The lower court had partly based its decision on the principle that YouTube had to have more than a general awareness of people uploading unauthorized files – to be found liable, the company also needed to have specific knowledge of when and where the infringement was taking place.

The court repeatedly brought up English soccer matches to call attention to what might be the plaintiffs’ strongest argument – that YouTube had lost its immunity by turning a blind eye and enriching itself from the copyright infringement. How, the court wondered, was Google able to show advertisements for Premier League gear next to clips of Premier League matches yet not at the same time recognize that the clips infringed copyright? The judges also asked about evidence that suggested that executives had asked for the number of sports clips on the site in order to determine how much YouTube was worth.

Schapiro responded that the company had been attempting to monitor more than 500 million clips and that it was impossible to determine which were infringing without a direct notice from the copyright owners.

The essential issue the appeals court must determine is whether the lower court jumped the gun by dismissing the case. Early in the hearing, one of the appeals court judges noted that there were “many hurdles” for the plaintiffs to overcome in order to knock down the summary judgment. The court will hand down its ruling in the coming weeks or months.

For more on the background to the case, see our preview from this morning.