Impact of Warhol v. Goldsmith: Kat Von D and the Miles Davis Portrait

Following the Supreme Court decision in Andy Warhol Foundation for the Visual Arts v. Goldsmith in 2023, we published a blog titled “The Supreme Court’s Decision in Warhol v. Goldsmith: Interpreting Copyright Fair Use.” In that blog, we discussed the concept of Fair Use in the copyright context while also highlighting the key facts of the Warhol decision which we recommend reviewing prior to continuing to read this blog, if you need a refresher. We are revisiting this topic as a new case has been revived due to the precedent set by the Supreme Court, a case that involves a portrait of the acclaimed jazz musician, Miles Davis, which was taken by a Los Angeles-based photographer and used by a celebrity tattoo artist as the reference photo for a tattoo.

As a quick refresher, the term Fair Use is often mentioned in relation to the use of portion of a copyrighted material for purposes such as criticism, comment, news report, teaching, scholarship or research. When used for such purposes, the court has generally held that unauthorized use of the copyrighted material is not considered infringement as long as the use does not fail the four-factor test described in more detail in our previous post. The most scrutinized factor of the four-factor test is commonly referred to as the transformative use test which seeks to determine whether the use of the copyrighted work in question transformed the purpose and character of the work into something else, such as parody or commentary. In the Warhol case, Andy Warhol was commissioned by Vanity Fair to create a cover for the magazine’s story on the artist Prince. Andy Warhol was given a portrait of Prince taken by a rock-and-roll photographer, Lynn Goldsmith, for use as a reference photo under a license between Lynn Goldsmith and Vanity Fair. The license stipulated that Andy Warhol could use the photo for one time only and Lynn Goldsmith was paid $400. Andy Warhol, without executing additional license agreements, created 15 additional works using the reference photo. Importantly, one of these works by Andy Warhol was later licensed to Conde Nast for the specific purpose of using the work in a magazine article about the artist Prince. This use of Andy Warhol’s Prince artistic work, was ultimately the basis for the Supreme Court’s determination that Fair Use was not applicable due to the lack of transformative use. The fact that Andy Warhol used his artistic abilities to alter the reference photo was not transformative because the purpose and character of the unauthorized use was identical to the original – authorized – use of the reference photo: depicting Prince in a magazine story about Prince.

The above summary was intended to refresh the Fair Use discussion in the context of a well-known artist as this fact pattern as once again emerged in the case of Jeffrey Sedlik v. Katherine Von Drachenberg (aka Kat Von D). The facts of this case are pretty straightforward: Sedlik is a professional photographer and a professor who created and owns the copyright to a photographic portrait of the famous jazz musician, Miles Davis, that was created in 1989 and first published in JAZZIZ magazine in that same year (copied below and used under the Fair Use exclusion of commentary). This photo has been featured in magazines around the world and was featured in Life magazine’s annual “Picture of the Year” issue. Sedlik has sold licenses to the portrait which authorized reproduction, distribution, and display of the portrait for commercial and non-commercial purposes since it was created.

The other party to this case, Kat Von D, is well known in certain circles as a world-renowned tattoo artist who has appeared in various reality TV shows and magazines which can be found on her personal website. According to the complaint, Kat Von D is also a recording artist, TV and film producer and owns and operates a tattoo parlor, an art gallery, a cosmetic company, a clothing company, and a shoe company, all of which have earned her 7.4 million followers on Instagram and 12 million followers on Facebook. In 2017, Kat Von D used the Miles Davis portrait, without Sedlik’s authorization, to create a reproduction of the image in the form of a tattoo on the arm of friend whom she did not charge for the service. She featured the portrait and her work tattooing the portrait on her social media channels which Sedlik claims was done to promote and solicit the sale of goods and services of Kat Von D and her various commercial brands, as seen in the image below which was taken from the complaint.

When the case was initially brough before the court, the Andy Warhol case was not yet decided and the judge initially ruled for Kat Von D in a summary judgement decision but paused the proceeding until the Supreme Court rendered its opinion on the Warhol matter. Following the Supreme Court holding, the stay was lifted and the lawsuit was set for trial based on the Supreme Court’s opinion on the transformative use, or lack thereof, in the Warhol case. The trial for this case is set to begin in early 2024 in the United States District Court for the Central District of California and poses a number of interesting questions about the reach of Fair Use under the new precedent established in the Warhol decision. While we will have to wait and see the final outcome of this case, there would be material impacts on various industries such as the tattoo industry, and perhaps even on generative AI. In the tattoo industry, use of copyrighted reference photos is common and has largely continued without disruption due to the costs of litigation compared to the typical damages for copyright infringement and the difficultly is placing a value on the personal display of an infringing work on the body of the person displaying said work. More broadly, when viewing this issue through the lens of visual works created through generative AI based on training models using copyrighted works without license, the growing body of legal decisions following the Warhol decision by the Supreme Court may pose a barrier to the field as these AI tools generate countless derivative works that may be violating the Fair Use conditions. We will keep a close eye on the trial in this case and provide an update to the blog series as the trial progresses.

The SEC – Impact Theory Settlement: Are NFTs Considered a Security?

The SEC announced last week that it had reached a settlement with Impact Theory following the SEC’s first enforcement action against the sale of Non-Fungible Tokens (“NFTs”) which the SEC charged were unlicensed securities. The first step in attempting to understand the SEC’s position on this matter is to go back to the beginning where Impact Theory sold the NFTs that are the subject of this enforcement action. Between October and December of 2021, Impact Theory, a Los Angeles based media and entertainment startup, raised approximately $30 million worth of Ethereum through the sale of NFTs that Impact Theory named “Founder’s Keys”. Impact theory made certain statements related to the Founder’s Keys offering and the use of funds. These statements included that Impact Theory would deliver “tremendous value” to NFT purchasers and that they would use the proceeds for “development,” “bringing on more team,” and “creating more projects.” The SEC determined that Impact Theory was offering and sold these NFTs as investment contracts, and therefore they should be deemed as securities, based on the Howey test (see explanation below).  Since the purchasers of these NFTs had a reasonable expectation of obtaining a future profit based on Impact Theory’s managerial and entrepreneurial efforts, they qualify as ‘securities’ under the Howey test.

Examples of statements that were made by Impact Theory in the run up to the sale of the NFTs include some of the following, which were selected by the SEC for inclusion in their public filing regarding the settlement of this matter:

  • Statement indicating that investors would profit from their purchases if Impact Theory was successful in their efforts
  • “If you’re paying 1.5 ETH, you’re going to get some massive amount more than that. So, no one is going to walk away saying, ‘Oh man, I don’t think I got value here.’ I’m freakishly bullish on that. I will do whatever it takes to make sure that this is true.”
  • “But yea, I will make sure that we do something that by any reasonable standard, people got a crushing, hilarious amount of value.”
  • “NFTs are the mechanism by which communities will be able to capture economic value from the growth of the company that they support.”

According to the SEC, the above statements, and others, led purchasers to believe that their purchases of the NFTs would enable the company to develop the various projects with the end result being the appreciation of value, over time, of their purchased NFTs. Ultimately, 13,921 NFTs were sold by Impact Theory to hundreds of investors, including investors in multiple US states. Additionally, these NFTs could be sold on the secondary market and Impact Theory would receive a 10% “royalty” on each secondary market sale. These secondary market sales generated nearly $1 million in royalty payments to Impact Theory.

Impact Theory entered into a settlement with the SEC that included approximately $6.1 million in disgorgement of profits and penalties, as well as the destruction of any NFTs in their possession and an update to the smart contract associated with the NFTs that would eliminate the 10% royalty on secondary market sales. While the facts of this case and the outcome are noteworthy due to it being the first time that the SEC has brought an enforcement action involving the sale of NFTs as unregistered securities, it is the potential impact of this action on the NFT market and the SEC’s broad interpretation of the Howey test that has the crypto community’s attention.

Under the Howey test, an ‘investment contract’ is any contract, transaction or scheme whereby a person (1) invests his/her money (2) in a common enterprise and (3) is led to expect profits (4) solely from the efforts of the promoter or a third party. Based on this definition, and its application to the Impact Theory NFTs, the logical conclusion is that many of NFTs being offered today would fall within the definition used to initiate an enforcement action against Impact Theory. A large percentage of NFTs purchased are not purchased for their collectible value but are instead purchased to provide some benefit to holders based on the efforts made by the company selling the NFTs. Those holder benefits are typically provided in the form of expectation of profits which can be derived from a multitude of options that are constantly changing.

Years ago, when profit driven NFTs began to be introduced into the market, those expectations of profits were through the marketing efforts of the NFT issuing company to continually drive up the value of the NFTs as well as collaborations that would provide NFT holders with access to partner NFTs for free or at a reduced price that would yield additional profits through the sale of those partner NFTs. The NFT and Crypto landscapes adapt extremely fast as one value driver trend peaks followed closely by the next value driver trend. Today, expectations of profit take the form of dividends from investment projects where the NFT sales are used to fund investment vehicles operated by entity selling the NFTs and each NFT represents a certain percentage of trading profits. Expectations of profit also take the form of higher yields from staking the NFT (as well as the connected cryptocurrency) where an NFT holder may receive 10% Annual Percentage Yield (“APY”) while the non-NFT holder is able to stake either underlying cryptocurrency for 5% APY. There are endless mechanisms through which current NFT issuers entice individuals to buy their NFTs based on the reputation or historical performance of the team selling the NFTs and these mechanisms change far faster than what is possible for the SEC to keep up with. A quick review of projects on Telegram or Discord will show the variety of mechanisms through which projects with no funding launch the sale of NFTs to fund the development of the project, which could range from creating a trading robot to launching a full video game, where there investor is taking the risk of early investment for the sole purpose of realizing profits in the future.

These issues are why two of the SEC Commissioners dissented to the application of the Howey test to the Impact Theory NFT sales. These Commissioners outlined 9 pending questions that they believe the SEC should have addressed and offered guidance long ago when NFTs started proliferating. A discussion of those 9 questions will be discussed in a later blog, but at a high level they address questions that go to the core of the SEC’s view of NFTs with the goal being for the SEC to issue guidance rather than enforce without guidance. While it is unlikely that a decentralized ecosystem with participants around the globe will adhere to the guidance provided by the SEC, projects that seek to raise millions through a US registered entity will greatly benefit from such a guidance. These projects that seek to adhere to rules and regulations will drive the next wave of blockchain innovation and it is imperative that the SEC provide a framework for this innovation to occur.

The Supreme Court’s Decision in Warhol v. Goldsmith: Interpreting Copyright Fair Use

There have been many conflicting opinions regarding the impact of the Supreme Court’s decision in Andy Warhol Foundation for the Visual Arts v. Goldsmith, with some circles claiming that the decision “Changed the Future of Art” and others applauding the Court for providing clarity on fair use in copyright. Given the varied opinions on the outcome, the purpose of this article is to highlight the changes and the potential impact of the decision. In order to do that, it is important to first explain the fair use framework before diving into the details of the Court’s decision.

Fair use in copyrights enables someone other than the copyright owner to copy, perform, transmit, distribute copies, or display a copyrighted work under certain circumstances without it being considered infringement. The concept of fair use as a limitation on the exclusive rights of a copyright holders is codified in the Copyright Act, 17 U.S. Code Section 107, which describes fair use for purposes such as criticism, comment, news reporting, teaching, scholarship or research is not infringement and lays out a four factor test to assist in the determination of whether a use is protected as fair use. That four factor test includes the following factors to be considered:

  1. The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educations purposes;
  2. The nature of the copyright 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 first factor has traditionally been the primary focus of the fair use analysis and is commonly referred to as the transformative use test. This test was first established in a case between the rap group, 2 Live Crew, which used portions of the song “Oh, Pretty Woman” in the opening of one of their songs. The Court in that decision ruled that 2 Live Crew’s use of the portion of “Oh, Pretty Woman” was transformative because it was a parody of the original. Similar examples of transformative use of copyrighted materials typically involve use of copyrighted material for educational or commentary purposes but also extends to libraries making digital copies of books for the purpose of 1) preservation, 2) full-text search and 3) electronic access for disabled patrons who cannot read print versions which the court determined was transformative use.

Stepping back to the Supreme Court’s Warhol decision while keeping the transformative use in mind, we can go into the relevant details of the Warhol case. The case involved two artists, Andy Warhol and Lynn Goldsmith. Lynn Goldsmith specialized in rock-and-roll photography and had her work published in magazines including Life, Time, Rolling Stone and People. Andy Warhol was a visual/pop artist with works appearing in museums around the world. In 1984, Lynn Goldsmith licensed one of her photographs of the artist Prince to Vanity Fair for use as an artist’s reference. This reference photograph was then used by Andy Warhol to make a silkscreen which was featured in Vanity Fair. Lynn Goldsmith was credited as the owner of the source photograph and was paid $400. The license between Lynn Goldsmith and Vanity Fair in 1984 under the condition that the photo be used for one time only.

Unbeknownst to Lynn Goldsmith, Andy Warhol not only created the one silkscreen for Vanity Fair, he also derived 15 additional works of Prince using the reference photo. One of those additional works was later licensed by the Andy Warhol Foundation for the Visual Arts to Conde Nast for $10,000. Importantly, the purpose of this license to Conde Nast was to publish an article on the artist Prince, the same purpose as the original license with Vanity Fair. When Lynn Goldsmith approached the Andy Warhol Foundation expressing her belief that their use of her photograph and the resulting work that was licensed to Conde Nast infringed her copyright, the Andy Warhol Foundation sued Lynn Goldsmith for declaratory judgement that the works were non-infringing or, in the alternative, that they made fair use of Lynn Goldsmith’s photograph.

The District Court granted summary judgement for the Andy Warhol Foundation, focusing on the first factor and determining that the use was transformative because looking at the works of Andy Warhol and the reference photograph side-by-side, the court opined that they have difference character and give a new expression to Lynn Goldsmith’s photograph. It is important to see the side-by-side, which is copied below, because speaking as someone who is not artistic it is easy to argue that adding what appears to mostly be an orange background does not transform the photo from a picture of Prince to something more, but that is the difficulty with a test that can oftentimes hinge on subjective interpretation of artistic expression that is not typically in the wheelhouse of the average attorney or judge. The District Court believed the Warhol silkscreen on the right transformed the Prince depicted on the left from a vulnerable, uncomfortable person to an iconic, larger-than-life figure and that the picture on the right is immediately recognizable as a Warhol rather than a photograph of Prince.

The Court of Appeals, perhaps being less knowledgeable about artist expression or perhaps viewing the works from a more objective perspective that both images are clearly Prince, reversed and remanded after holding that all four fair use factors favored Lynn Goldsmith. Focusing on the first factor, the Court of Appeals rejected the lower court’s argument that transformative is met when any new aesthetic or new expression is added to source material. The Court of Appeals focused on whether the work’s (orange Warhol on the right above) use of its source material (Lynn Goldsmith photo on left) is in service of a fundamentally different and new artistic purpose and character, adding that the transformative purpose must be something more than the imposition of another artist’s style on the primary work. The opinion also made clear that the lower court’s belief that the work was transformative because it is immediately recognizable as a Warhol was wrong and would only create a celebrity-plagiarist privilege.

The Supreme Court granted certiorari and summarized the issue fairly succinctly by describing the first factor purpose test for fair use in this case as portraits of Prince used to depict Prince in magazine stories about Prince, the original photograph and the Andy Warhol Foundation’s copying use of it share substantially the same purpose and that purpose was commercial in nature. The last part of that summary by the Court is important because the preamble to the fair use defense to copyright infringement lays out a number of examples that reflect the sorts of copying that courts and Congress have found to be fair use such as criticism, comment, news report, teaching, scholarship or research. Each of these uses serve “a manifestly different purpose from the work itself.” When viewed together, the commercial use of a portrait of Prince to depict Prince in articles about Prince, based off of a reference photo that has been licensed for commercial use on its own to depict Prince in magazine stories about Prince, is not transformative use simply because it was created by Andy Warhol.

The Court rightly refocused the test, in this specific instance, away from the subjective review of the level of transformation by one artist of another artist’s work and directly to the purpose of the use in determining whether fair use is a viable defense to copyright infringement. The 2 Live Crew example described above was not a case where 2 Live Crew used the full lyrics and simply sang it differently to make it recognizable as 2 Live Crew, instead, it was a parody that used an immaterial amount of the source material to mimic the original. The Court provides an additional and pointed example referencing Andy Warhol’s use of the Campbell’s Soup can and logo to create his Soup Can series. Andy Warhol’s Soup Can series depicts Campbell’s copyrighted logo that it uses for advertising purposes; however, Andy Warhol’s purpose in creating the Soup Can series was not to advertise and increase sales on behalf of Campbell’s but was for the purpose of artistic commentary on consumerism. The fact that Campbell’s benefitted from the purpose behind Andy Warhol’s series and sold more soup cans had no bearing on the purpose being commentary which is directly implicated in the preamble to the fair use exemption.

Dissenting opinions by the Court and substantial commentary by artists and others who have relied on fair use paint a picture that would have one believe that the fair use exemption has been forever changed and that under this new approach, no amount of artistic creativity will provide a fair use defense for commercial works. In my opinion, those concerns are overblown due to Supreme Court’s narrow ruling in this cases that benefited from a very specific set of facts which the Court highlighted when describing the purpose of the allegedly infringing use of portraits of Prince used to depict Prince in magazine stories about Prince. This is further narrowed by the original license that restricted the use of the source photograph to one time use by Vanity Fair. With those limitations in mind, the narrow ruling by the Supreme Court aligns with the purpose of the original copyright act and the balance that must be met between creative freedom and protecting original works of authorship.

 

 

 

USPTO v. Booking.com: Acquired Distinctiveness of a Generic Domain

The Supreme Court (“Court”) in USPTO v. Booking.com resolved a dispute about whether a generic name can become eligible for federal trademark registration though the addition of an internet-domain-name suffix such as “.com.” The USPTO rejected applications by travel-reservation website Booking.com seeking federal registration of marks including the term “Booking.com.” The USPTO concluded that “Booking.com” is a generic name for online hotel-reservation services and as a generic name, the USPTO was forced to reject the applications. Booking.com took their argument to the District Court seeking judicial review and the District Court held that “Booking.com” – as opposed to the term booking standing alone – is not generic. The Court of Appeals agreed with the District Court and rejected the USPTO’s position that combining a generic term with “.com” results in a generic composite.

In order to understand this case, it is important to understand the meaning of generic in the field of federal trademark registration. A generic name is the name of a class of products or services and is therefore ineligible for trademark registration. As it relates to this case, all parties agreed that the word “booking” is a generic word for the class of hotel-reservation products or services. Moreover, the word “.com” is a generic internet-domain-name suffix. The USPTO argued for the adoption by the Court of a rule that the combination of a generic word (i.e., “booking”) with “.com” maintains the generic nature of this combination.

Another important idea to understand when reviewing this case is the purpose of trademarks and how this impacts the decision of the Court. The purpose of trademarks is to distinguish one producer’s goods or services from another’s. Distinctiveness is defined as the quality of being distinguishable and the USPTO recognizes and expresses distinctiveness on an increasing scale: generic, descriptive, suggestive, arbitrary and fanciful. The higher on this distinctiveness scale, the more readily it qualifies for trademark registration. The Court noted that generic terms, such as booking, are ordinarily ineligible for trademark protection. Moving up the distinctiveness scale, the USPTO argued that even if “Booking.com” was considered descriptive, it could not be registered because it lacked secondary meaning. Secondary meaning, also known as acquired distinctiveness, refers to the concept of a descriptive term achieving significance in the minds of the public as identifying the applicant’s goods or services.

In the lower courts, Booking.com leveraged the concept of acquired distinctiveness by providing evidence that the consuming public understood Booking.com to refer to the specific product or services offered by Booking.com at that domain name. This evidence allowed the District Court to hold that “Booking.com” was descriptive and had acquired secondary meaning and thus met the requirement for trademark registration. The Court of Appeals affirmed the holding of the District Court.

The Supreme Court granted certiorari and, in its opinion, delivered by Justice Ginsburg, the Court highlighted the importance of a mark’s capacity to distinguish goods in commerce as the underlying principle of trademark registration. The Court agreed with the Court of Appeals and discussed the USPTO’s failed logic behind its argument that “Booking.com” signifies to consumers the class of online hotel-reservation services. Under the USPTO’s approach, this would mean that consumers would understand Travelocity or Expedia to be a “Booking.com” or that when a consumer is looking for a trusted source of online hotel-reservation services they might ask a frequent traveler to refer them to their favorite “Booking.com” provider. The evidence provided by Booking.com in the lower courts provided enough support to demonstrate that this is not the perception of the word “booking.com” and that consumers understood “booking.com” to refer to the services provided by Booking.com. Based on this analysis the Court affirmed the decision by the lower courts reflecting the eligibility for “booking.com” to receive trademark registration.

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