Copyhype

Should fair use give an advantage to certain business models?

The obvious answer is no. All things being otherwise equal, fair use should not privilege the use of copyrighted works merely because of the business model adopted by the user. That is, independent of the purpose and character of the use and the effect of the use upon the potential market for or value of the copyrighted work, the choice of business model by the user should not weigh in favor of fair use.

But a recent Third Circuit decision appears to have done just that.

In American Society for Testing Materials (ASTM) v. UpCodes, the court in April considered whether the copying of ASTM’s copyrighted building codes by for-profit startup UpCodes was permitted by fair use.¹No. 24-2965 (3d. Cir. 2026). Fair use requires courts to consider four factors:

(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.²17 USC § 107.

A determination under the first factor that a use “is of a commercial nature” in theory weighs against fair use, though it is not dispositive.³H.R. Rep. No. 94-1476 (1976) (the language “is an express recognition that, as under the present law, the commercial or non-profit character of an activity, while not conclusive with respect to fair use, can and should be weighed along with other factors in fair use decisions.”); Google LLC v. Oracle Am., Inc., 593 U.S. 1, 32 (2021). The caution against placing too much weight on this subfactor is driven in part because of the observation that “nearly all of the illustrative uses listed in the preamble paragraph of § 107, including news reporting, comment, criticism, teaching, scholarship, and research … ‘are generally conducted for profit in this country.'”⁴Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 584 (1994).

The Third Circuit began its discussion of commerciality by describing the defendant’s business model.

UpCodes uses a “freemium” business model. Any user who makes an account on UpCodes’ website can view and copy building codes and incorporated standards for free. UpCodes also offers an optional paid subscription that provides access to bookmarking, annotation, automation, and artificial intelligence tools.

It concluded that the subfactor favors neither party.

Primarily, it agreed with the district court’s conclusion that UpCodes’ use was “largely noncommercial”, distinguishing the free access to the works provided by UpCodes from the use in an earlier Third Circuit decision, Video Pipeline, Inc. v. Buena Vista Home Entertainment, which was held to be commercial because the defendant charged a fee to access the copyrighted works at issue.⁵342 F.3d 191 (3d Cir. 2003). It acknowledged UpCodes is a for-profit company, but said its for-profit status “is moderated by the fact that users pay for access to UpCodes’ proprietary tools and technology, not for access to the Works.”

The court also considered the indirect commercial advantage UpCodes might reap from the copying, but said such advantage “carries less weight than evidence of direct profit,” and the manner and extend of the benefit here “remains unclear.”

The Third Circuit distorted the commerciality inquiry by treating free public access to copyrighted works as noncommercial or only weakly commercial.⁶ASTM‘s reliance on Video Pipeline‘s holding that “defendant’s use was commercial because it charged a fee” to draw a distinction is flawed because it denies the antecedent. See Khalil v. President, 164 F.4th 259, 283 (3d Cir. 2026) (J. Freeman dissenting) (This “fallacy extrapolates an ‘if-then’ statement to mean if the initial condition is reversed, then the outcome will necessarily be reversed. For example, consider the statement ‘if it is not cold outside, there is no snow.’ It does not follow that ‘if it is cold outside, there is snow.'”). In digital markets, free access is often part of a broader commercial strategy rather than an absence of commercial activity.

The freemium business model employed by UpCodes, which combines a free level of service with a premium, paid level of service, is very popular among digital services.⁷Yanying Shang, Junfeng Jiang, Yamin Zhang, Ruochen Zhang, Peiqing Liu, When does a freemium business model lead to high performance? A qualitative comparative analysis based on fuzzy sets,
Heliyon, Volume 10, Issue 3 (2024). Ad-supported services and two-sided markets like social media services and search engines also commonly provide zero-price access to content as part of broader revenue generating models. The fact that nearly every successful online service employs some version of these models demonstrates the commercial benefits of zero-price offerings.

By conflating “free to the user” with “noncommercial,” the Third Circuit risks transforming fair use into a subsidy for particular digital business models. A platform that acquires audience attention, advertising revenue, market share, data, network effects, or other strategic advantages through the unlicensed use of copyrighted works is engaging in commercial activity even if there is no direct charge for access the works themselves. The relevant question should not be whether the user paid a price, but whether the defendant used copyrighted expression as an input into a broader profit-seeking enterprise. Indeed, USC Law Professor Jonathan Barnett argues in his 2024 book, The Big Steal, that tech platforms have deliberately sought to weaken copyright, including through expanding the scope of fair use, to reduce their costs of securing content, which they then monetize within their broader services.

ASTM‘s flawed commerciality analysis spills over into other parts of the fair use analysis. In its consideration of the purpose and character of the use, the Third Circuit rejects plaintiffs argument “that both parties share an identical purpose of making the Works available to the public on a subscription basis.” Says the court,

This characterization is not supported by the record. First, ASTM does not make the Works available to the public; it makes them available to those who pay for them. Second, UpCodes does not make the Works available on a subscription basis; it makes the Works available to all users, regardless of subscription status, and offers a paid subscription for advanced features.

This language is confusing and unhelpful. To be clear, I don’t believe the Third Circuit is saying that the fact that the defendant is providing free access to copyrighted works that the plaintiff charges for should weigh in favor of fair use. That would be illogical: any infringer can and does offer access to copyrighted works for free, or at least a lower price then the copyright owner charges. That is the very scenario copyright law exists to prevent. But it certainly doesn’t help future courts in viewing zero-price offerings as just another commercial strategy.

The ability of copyright owners to control pricing, including the decision to distribute a work for free, is one of the fundamental interests copyright protects. Offering another person’s work at a lower price, or at a price of zero, does not otherwise negate commerciality or indicate a public benefit.

The Fifth Amendment of the US Constitution prohibits the federal government from taking private property for public use without just compensation, embracing a principle at least as old as Cicero, who wrote in his 44 BCE book On Duties, “he who will administer a commonwealth must especially see to it that each person keeps what is his and that no public confiscation of private goods occurs.”¹Marcus Tullius Cicero, On Duties, pg. 118 (Cornell Univ. Press 2016).

But this is not an article about the Takings Clause. It instead uses a recent lawsuit involving the Takings Clause as a springboard to consider a threshold point, which is this: a government taking of a digital copy of a copyrighted work does not convey any of the exclusive rights under 17 USC § 106 to the government. This is such a critical point that, though obvious to anyone with a working knowledge of copyright law, bears stating upfront so as to be clear about the proper scope of the takings inquiry.

Earlier this year, a federal district court in Valancourt v. Perlmutter entered final judgment in longstanding litigation brought by a small independent publisher to challenge the mandatory deposit provisions in 17 USC § 407 under the Takings Clause and Free Speech Clause.²Valancourt Books, LLC v. Perlmutter, 2026 U.S. Dist. LEXIS 63414. The judgment came following remand from a 2023 DC Circuit decision that held “that the mandatory deposit requirement, as applied by the Copyright Office against Valancourt, was an uncompensated taking in violation of the Fifth Amendment.”³Valancourt Books, LLC v. Garland, 82 F.4th 1222, 1226 (DC Cir. 2023).

The mandatory deposit provisions of the Copyright Act state that “the owner of copyright or of the exclusive right of publication in a work published in the United States shall deposit, within three months after the date of such publication . . . two complete copies of the best edition” of the work.⁴17 USC § 407(a)(1). These copies “shall be deposited in the Copyright Office for the use or disposition of the Library of Congress.”⁵17 USC § 407(b). To enforce the mandatory deposit requirement, the Copyright Office may make a written demand for the required deposit. A copyright owner who fails to make the “required deposit” within three months of a demand becomes liable for a “fine of not more than $250 for each work,” with an additional $2,500 fine for willful or repeated failure or refusal to comply with demands.⁶17 USC § 407(d). (Note that copies of works submitted as part of an application for copyright registration under 17 USC § 408 satisfy the mandatory deposit requirement, but the mandatory deposit requirement applies even if a copyright owner does not register their work.)

In June 2018, the U.S. Copyright Office sent an email to Valancourt demanding the publisher deposit one physical copy of each of 341 works with the Library of Congress pursuant to the mandatory deposit provisions, subsequently revising the number of requested books to 240 in an updated demand letter sent in August 2018. In its final judgment, the district court issued a declaration that the August 2018 demand letter violates the Takings Clause and enjoined the Copyright Office from enforcing that demand.

This final decision, addressing only the demand for physical copies, leaves a number of issues open, among them, whether a demand for deposit of an electronic copy without compensation would violate the Takings Clause.⁷The decision also leaves open the question of whether 17 USC § 407 violates the First Amendment. The DC Circuit declined to reach the First Amendment claim after holding the demand violated the Takings Clause, as it sought the same relief. 82 F.4th at 1226. The DC Circuit explained that it wouldn’t proceed with that question because “neither party appears to ask us to reach the question, and because the presentation of the case does not require us to do so.” It deferred to the district court’s observation that the “analysis might raise unique questions,” such as “how the principles of the Takings Clause ‘developed in the context of ‘real property’ . . . would apply to a requirement that can be fulfilled by the transmission of digital copies.’”⁸Neither of the two courts acknowledged Supreme Court precedent applying the Takings Clause to intangible property; see, e.g., Ruckelshaus v Monsanto, 467 US 986, 1003 (1984) (“the Court has found other kinds of intangible interests to be property for purposes of the Fifth Amendment’s Taking Clause… That intangible property rights protected by state law are deserving of the protection of the Taking Clause has long been implicit in the thinking of this Court.”

But regardless of whether a government demand for deposit of an electronic copy requires compensating the copyright owner, there is a risk that a court or the government will conflate possession of the copy with transfer of the copyright. This is a bedrock principle of copyright law. Section 202 of the Copyright Act states, “Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object.”

If the government acquires a digital copy under the mandatory deposit provision, it cannot make additional copies, public performances, or public displays of the work, or exercise any of the other exclusive rights of the copyright owner. The statute provides only that such copies acquired through deposit are “for the use or disposition of the Library of Congress.”⁹17 USC § 407(b). This language does not express any departure from Section 202 or the rest of the Copyright Act and so must be read to limit the Library to using the copy only in ways that do not implicate the copyright owner’s rights. To put it another way, no one would argue that when the Library of Congress acquires a physical book that it is permitted to reproduce additional copies of that book under the “use or disposition” language.

The use and disposition of digital copies is rather limited. Many uses of digital copies may in fact implicate the exclusive right of reproduction, a point the U.S. Copyright Office has long noted. For example, in its 2001 DMCA Section 104 Report, the Office wrote, “All of the familiar activities that one performs on a computer — e.g., execution of a computer program, retrieval and display of information, browsing the World-Wide Web — necessarily entail making reproductions in RAM,” and such reproductions “are generally ‘fixed’ and thus constitute ‘copies’ that are within the scope of the copyright owner’s reproduction right.”¹⁰Section 104 Report at 107-110. The Office cited to that discussion in a 2016 report on Software-Enabled Consumer Products, adding, “It appears that the RAM copy doctrine is today firmly established as a matter of case law.”¹¹Software-Enabled Consumer Products Report at 19 n.101.

There is also an open question as to what authority the Library of Congress would have to display to members of the public digital copies in its collections of works that are still protected by copyright law. A copyright owner has the exclusive right to display a work publicly.¹²17 USC § 106(5). The Act defines “display” to mean “show[ing] a copy of [the work], either directly or by means of a film, slide, television image, or any other device or process,” and it defines displaying a work “publicly” to mean, in relevant part, to display it at “a place open to the public …or… to transmit or otherwise communicate a … display of the work to a place [open to the public].”¹³17 USC § 101. Section 109(c) creates an exception that permits the owner of a particular, lawfully made copy to display that copy publicly “either directly or by the projection of no more than one image at a time, to viewers present at the place where the copy is located.” The plain text of these provisions would appear to permit the public display of a digital copy stored locally, i.e., on or near the device on which it is being viewed. The text would not appear to permit the public display when the digital copy is stored off site or in the cloud, since viewers would not be present at the same place where the copy is located. (Additionally, Section 109(c) is only an exception to the public display right and would not apply to any reproductions made as a result of any digital transmissions.)

Any uses of the work that implicate the copyright owner’s exclusive rights would require action by Congress to be permitted. Congress knows how to create exceptions for such a purpose when it wants to. For example, rather than relying solely on copyright owners of programs transmitted to the public to deposit copies of such works in the Library of Congress, Congress has authorized the Library itself “to make a fixation of a transmission program directly from a transmission to the public, and to reproduce one copy or phonorecord from such fixation for archival purposes.”¹⁴17 USC § 407(e)(1). The existence of this exception provides further support for the points made above regarding the use and disposition of digital copies acquired by the Library.

The public undoubtedly benefits from the collections of the Library of Congress, which encompass an unparalleled collection of historically and culturally significant works that are the product of the creativity, talents, and knowledge of countless individuals. But the Fifth Amendment of the Constitution limits the government’s ability to compel private individuals to subsidize public benefits by requiring compensation for any such takings. When the subject of a governmental taking is electronic copies of copyrighted works, then the analysis must begin with the understanding that the government’s acquisition of the copy does not also convey the exclusive rights to the work embodied in the copy.