Swatch Group Management Services Ltd v. Bloomberg LP

n a recent decision by the Second Circuit, Swatch Grp. Mgmt. Servs. Ltd. v. Bloomberg L.P., 12-2412-CV, 2014 WL 274407 (2d Cir. Jan. 27, 2014), Bloomberg L.P. (“Bloomberg”) was found to have a valid fair use defense to copyright infringement, despite obtaining an unauthorized (and unpublished) copy of a sound recording and making it available in its entirety on a subscription based service.

The Swatch Group (“Swatch”) is a Swiss company known for its colorful watches.  In February of 2011, Swatch released its 2010 earnings report and subsequently held a conference call to discuss the contents of the report.  The earnings call included senior Swatch executives and approximately 132 financial analysts from around the world.  No journalists or press organizations were invited to participate.  Swatch hired a vendor to record the entire call, and the vendor’s operator informed all analysts who participated that no recordings were permitted for publication or broadcast.  Only minutes after completion of the call, Bloomberg made the 132 minute sound recording available in its entirety on the Bloomberg Professional service.  This service provides financial information in real time to over 315,000 subscribers worldwide.[1]

Less than a week after the sound recording was published, Swatch filed a complaint against Bloomberg for copyright infringement in the Southern District of New York.  In a surprising move, U.S. District Judge Alvin Hellerstein sua sponte granted summary judgment in favor of Bloomberg on fair use grounds before any discovery had taken place.  The judgment was affirmed by the Second Circuit on appeal.

The Second Circuit gave a detailed analysis of the fair use factors outlined in 17 U.S.C. § 107: “(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.”  The court concluded that while the third factor was neutral, all remaining factors favored a finding of fair use.

Under the first fair use factor, the court found that making the phone call available to investors was an important public purpose, analogous to news reporting.  This important public purpose was enough, in the court’s eyes, to overcome the weight the court would otherwise give to the fact that Bloomberg obtained an unauthorized copy of the recording and made it available to customers without Swatch’s permission.  The public purpose was also enough to overcome the non-transformative nature of Bloomberg’s use of the recording.  As stated previously, the call was made available online unaltered and in its entirety.  Finally, the court reasoned that almost all newspapers make a profit, so the commercial nature of Bloomberg’s service should be given less weight.  Following this analysis, the court ruled that this factor favored a finding of fair use.

The Second Circuit also found that the second factor, regarding the nature of the copyrighted work, also weighed in favor of finding a fair use.  Perhaps most important to this determination was the conclusion that Swatch’s copyright in the sound recording was thin at best.  In other words, the sound recording was not at “the core of intended copyright protection” typically reserved for more creative works.  The court rejected Swatch’s argument that since the work was unpublished, this factor should weigh strongly in their favor.  While the recording was “statutorily unpublished” under §107 of the Copyright Act, this factor is not determinative.  Further, Swatch publicly disseminated the spoken performance of its executives by inviting a large number of analysts to listen to the call.

With regard to the amount and substantiality of the portion used, the court found this factor neutral.  There was no dispute that Bloomberg took the whole work, which favored a finding in Swatch’s favor.  However, the court reasoned that it was necessary for the purpose of the use – to provide the public with information in which it has an interest – which favored a finding in Bloomberg’s favor.

Finally, the fourth factor was also found to favor fair use.  Because the possibility of licensing royalties played no role in stimulating the creation of the earnings call, the court reasoned that a finding of fair use would not have a negative effect on the potential market for the work.  Instead, the real value of the sound recording was its ability to convey important financial information to interested analysts – not the ability to generate royalties.

Last, the court found that: “Copyright law’s goal of promoting the Progress of Science and useful Arts would be better served by allowing Bloomberg’s use than by preventing it.”

In summary, this case demonstrates the Second Circuit’s increasing willingness to allow entire works to be taken under the rubric of fair use and to discount the unpublished nature of the work, as well as to narrowly define the potential market for a work.