Addressing the issue of whether the propriety of the defendant’s conduct is relevant when analyzing the first prong of the fair use test, the U.S. Court of Appeals for the Second Circuit recently affirmed a lower court’s denial of a preliminary injunction even though the defendants had obtained the copyrighted materials in bad faith. NXIVM Corp. v. The Ross Institute, No. 03-7952, 2004 U.S. App. LEXIS 7608 (2d Cir. Apr. 20, 2004).
The plaintiff NXIVM produces the exclusive and expensive "Executive Success" business training seminars. All participants receive a 265-page course manual and are required to sign a non-disclosure agreement that bars them from releasing the manual or its proprietary techniques to non-participants. The defendant Ross runs a for-profit business as a "cult de-programmer" in addition to operating nonprofit websites that provide information on controversial groups that have been accused of mind control tactics. Ross obtained a copy of the NXIVM manual from a one-time participant in the program and commissioned two authors to analyze and critique the materials. The reports, which were highly critical of the program, quoted sections of the manual and were made available to the public on the websites.
NXIVM brought suit against various defendants on several claims and moved for a preliminary injunction to have the copyrighted materials removed from the websites. The district court denied the preliminary injunction, finding that NXIVM had little likelihood of success on the merits because the defendants’ fair use defense was likely to succeed. The Second Circuit affirmed the decision, but found that the district court erred in its application of the first statutory fair use factor that analyzes the "purpose and character" of the use. The Court agreed that the defendants’ use was in fact transformative, a finding which will normally tilt this factor in a defendant’s favor. However, the Court also found that the district court did not fully analyze and consider the impact of the defendants’ bad faith in obtaining a copy of the NXIVM manual, as directed under the Supreme Court’s decision in Harper & Row.
In its own analysis, the Court determined that the defendants misappropriated the manual in bad faith, but rather than find for the plaintiff based on this fact, the Court merely weighed this as a sub factor in its examination of the overall purpose and character of the use. Because the defendants’ use here was clearly critical and transformative, the Court found that the bad faith of the defendants was not dispositive of its fair use defense. Thus the Court noted, even with bad faith present, the "purpose and character" of the use factor may still weigh in favor of the defendants, and all of the other factors in the fair use analysis still must be given full consideration.
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