NXIVM Corp. v. Ross Institute

Last updated

NXIVM Corp. v. The Ross Institute
Seal of the United States Court of Appeals for the Second Circuit.svg
Court United States Court of Appeals for the Second Circuit
Full case nameNXIVM Corporation and First Principles, Inc. v. The Ross Institute, et al.
ArguedNovember 19 2003
DecidedApril 20 2004
Citations364 F.3d 471, 70 U.S.P.Q.2d 1538
Case history
Prior historyPreliminary injunction denied (United States District Court for the Northern District of New York 2003). Appealed to United States Court of Appeals for the Second Circuit
Subsequent historyCertiorari denied (Supreme Court of the United States 2004)
Holding
Defendants’ use of material for critical commentary was fair use despite bad faith on the part of the defendants in obtaining the material.
Court membership
Judges sittingChief Judge John M. Walker, Jr.; Circuit Judges Dennis Jacobs and Chester J. Straub
Case opinions
MajorityWalker, joined by Jacobs
ConcurrenceJacobs
Laws applied
17 U.S.C.   § 107

NXIVM Corp. v. The Ross Institute, 364 F.3d 471 (2d Cir. 2004), [1] was a United States Court of Appeals for the Second Circuit decision that held that the defendant's critical analysis of material obtained in bad faith, i.e., in violation of a non-disclosure agreement, was fair use since the secondary use was transformative as criticism and was not a potential replacement for the original on the market, regardless of how the material was obtained. [2] [3]

Contents

NXIVM, pronounced NEX-ee-um, [4] was a sex trafficking cult that claimed to offer a life-improvement seminar called the "Executive Success Program" (ESP). At the time of the court case, NXIVM's status as a sex trafficking cult was not widely known to the public, and would not be until key leaders were indicted in 2018. [5] NXIVM sued the Ross Institute and several individuals for posting quotations from a NXIVM training manual on Ross Institute's website in the context of two written critiques of the manual and NXIVM's training program. NXIVM's lawyers attempted to argue that the fair use doctrine did not apply since Ross had obtained copies of the manuscript in bad faith, i.e., he obtained them from a former ESP participant who had signed a non-disclosure agreement. Both the district court and the appeals court ruled in Ross's favor. An appeals judge stated, "Certainly, no critic should need an author's permission to make such criticism, regardless of how he came by the original; nor should publication be inhibited by a publisher's anxiety or uncertainty about an author's ethics if his secondary work is transformative." [1]

Facts and procedural history

NXIVM was a sex trafficking organization that posed as a multi-level marketing company that offered a life-improvement seminar called the "Executive Success" program (ESP). ESP claimed to train participants in a method NXIVM claimed would improve communication and decision-making. [2] [6] As part of the ESP seminar, NXIVM provided a training manual to paying participants who signed non-disclosure agreements that they would not discuss or release the manual to non-participants. [1] [2]

As executive director of the nonprofit organization the Ross Institute, Rick Ross maintained two websites to provide information to the public about cults and other controversial groups that had complaints made against them for allegedly using deception and undue influence to manipulate participants. [7] Ross received the NXIVM manual through a former ESP participant and commissioned reports from two mental health professionals who analyzed and critiqued the manual, quoting sections of it to support their analysis. [8] The reports, which referred to the program as "expensive brainwashing", [4] [6] were made available to the public on Ross’s websites. [9] [10] About 17 of 500 pages were republished on Ross's websites in the context of the critiques. [11] [12] [13]

In 2003, NXIVM filed a federal trade-secrets lawsuit against the Ross Institute, Rick Ross, the authors of the reports, and the former ESP participant who provided the manual to them, alleging copyright infringement for their use of quotations from NXIVM's "secret" manual in the online critical reports of the manual and training program, arguing that the fair use doctrine should not apply since the manual had been obtained through the violation of a nondisclosure agreement, constituting bad faith. [6]

Finding that the reports were likely protected by the fair use doctrine, the district court denied NXIVM's motion seeking a preliminary injunction directing Ross to remove the material from his websites. NXIVM appealed the decision to the United States Court of Appeals for the Second Circuit. [9]

Issue

The issue before the Court was whether a fair use defense was available where the materials used were obtained in bad faith. [2]

Opinion of the court

The court noted that defendants’ misconduct in obtaining unauthorized material is one of several relevant factors in a fair use defense as set forth by the Supreme Court in Harper & Row v. Nation Enterprises , but that obtaining the manuscript in bad faith does not preclude a fair use defense. [9]

The court weighed the four fair use factors to determine if Ross’s use was fair, and made the following findings: [2]

  1. The purpose and character of the use was transformative as criticism and favored the defendants even if the defendants’ bad faith in obtaining the manual favored the plaintiffs.
  2. The nature of the copyrighted work was unpublished and favored the plaintiffs.
  3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole did not favor the plaintiffs as (1) it was reasonable for the defendants to quote liberally from the manual in order to critically comment on it and (2) there was no identifiable "heart" of the manual.
  4. The market inquiry heavily favored the defendants because, "as a general matter, criticisms of a seminar or organization cannot substitute for the seminar or organization itself or hijack its market."

The court ruled in favor of the defendants and affirmed the denial of the preliminary injunction, stating,

If criticisms on defendants' websites kill the demand for plaintiffs' service, that is the price that, under the First Amendment, must be paid in the open marketplace for ideas...Certainly, no critic should need an author's permission to make such criticism, regardless of how he came by the original; nor should publication be inhibited by a publisher's anxiety or uncertainty about an author's ethics if his secondary work is transformative. [1]

See also

Related Research Articles

<span class="mw-page-title-main">Fair use</span> Concept in United States copyright law

Fair use is a doctrine in United States law that permits limited use of copyrighted material without having to first acquire permission from the copyright holder. Fair use is one of the limitations to copyright intended to balance the interests of copyright holders with the public interest in the wider distribution and use of creative works by allowing as a defense to copyright infringement claims certain limited uses that might otherwise be considered infringement. The U.S. "fair use doctrine" is generally broader than the "fair dealing" rights known in most countries that inherited English Common Law. The fair use right is a general exception that applies to all different kinds of uses with all types of works. In the U.S., fair use right/exception is based on a flexible proportionality test that examines the purpose of the use, the amount used, and the impact on the market of the original work.

<i>In re Aimster Copyright Litigation</i>

In re Aimster Copyright Litigation, 334 F.3d 643, was a case in which the United States Court of Appeals for the Seventh Circuit addressed copyright infringement claims brought against Aimster, concluding that a preliminary injunction against the file-sharing service was appropriate because the copyright owners were likely to prevail on their claims of contributory infringement, and that the services could have non-infringing users was insufficient reason to reverse the district court's decision. The appellate court also noted that the defendant could have limited the quantity of the infringements if it had eliminated an encryption system feature, and if it had monitored the use of its systems. This made it so that the defense did not fall within the safe harbor of 17 U.S.C. § 512(i). and could not be used as an excuse to not know about the infringement. In addition, the court decided that the harm done to the plaintiff was irreparable and outweighed any harm to the defendant created by the injunction.

<i>BMG Music v. Gonzalez</i> U.S. court case

BMG Music v. Gonzalez, 430 F.3d 888, was a court decision in which the United States Court of Appeals for the Seventh Circuit ruled that a record company could sue a person who engaged in online sharing of music files for copyright infringement. The decision is noteworthy for rejecting the defendant's fair use defense, which had rested upon her contention that she was merely "sampling" songs with the intention of possibly purchasing the downloaded songs in the future, a practice known informally as "try before you buy".

Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994), was a United States Supreme Court case that addressed the standards governing awards of attorneys' fees in copyright cases. The Copyright Act of 1976 authorizes, but does not require, the court to award attorneys' fees to "the prevailing party" in a copyright action. In Fogerty, the Court held that such attorneys'-fees awards are discretionary, and that the same standards should be applied in the case of a prevailing plaintiff and a prevailing defendant.

<span class="mw-page-title-main">Rick Alan Ross</span> American anti-cult activist (born 1952)

Rick Alan Ross is an American deprogrammer, cult specialist, and founder and executive director of the nonprofit Cult Education Institute. He frequently appears in the news and other media discussing groups some consider cults. Ross has intervened in more than 500 deprogramming cases in various countries.

<i>Kelly v. Arriba Soft Corp.</i>

Kelly v. Arriba Soft Corporation, 280 F.3d 934 withdrawn, re-filed at 336 F.3d 811, is a U.S. court case between a commercial photographer and a search engine company. During the case, ownership of Arriba Soft changed to Sorceron, the operator of the Internet search engine Ditto.com. The court found that US search engines may use thumbnails of images, though the issue of inline linking to full size images instead of going to the original site was not resolved.

<span class="mw-page-title-main">Fair dealing</span> Limitation and exception to a right granted by copyright law

Fair dealing is a limitation and exception to the exclusive rights granted by copyright law to the author of a creative work. Fair dealing is found in many of the common law jurisdictions of the Commonwealth of Nations.

<i>Perfect 10, Inc. v. Amazon.com, Inc.</i> 2007 American legal decision

Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 was a case in the United States Court of Appeals for the Ninth Circuit involving a copyright infringement claim against Amazon.com, Inc. and Google, Inc., by the magazine publisher Perfect 10, Inc. The court held that framing and hyperlinking of original images for use in an image search engine constituted a fair use of Perfect 10's images because the use was highly transformative, and thus not an infringement of the magazine's copyright ownership of the original images.

<span class="mw-page-title-main">NXIVM</span> North American cult and pyramid scheme

NXIVM was a cult led by convicted Keith Raniere, a convicted racketeer and sex offender. NXIVM is also the name of the defunct company that Raniere founded in 1998, which provided seminars ostensibly about human potential development, and served as a front organization for criminal activity by Raniere and his close associates. Following Raniere's conviction in 2019, the Department of Justice seized ownership of NXIVM-related entities and their intellectual property through asset forfeiture.

<span class="mw-page-title-main">Substantial similarity</span> Standard in US copyright law

Substantial similarity, in US copyright law, is the standard used to determine whether a defendant has infringed the reproduction right of a copyright. The standard arises out of the recognition that the exclusive right to make copies of a work would be meaningless if copyright infringement were limited to making only exact and complete reproductions of a work. Many courts also use "substantial similarity" in place of "probative" or "striking similarity" to describe the level of similarity necessary to prove that copying has occurred. A number of tests have been devised by courts to determine substantial similarity. They may rely on expert or lay observation or both and may subjectively judge the feel of a work or critically analyze its elements.

<i>Lenz v. Universal Music Corp.</i> U.S. District Court copyright case

Lenz v. Universal Music Corp., 801 F.3d 1126, is a decision by the United States Court of Appeals for the Ninth Circuit, holding that copyright owners must consider fair use defenses and good faith activities by alleged copyright infringers before issuing takedown notices for content posted on the Internet.

<span class="mw-page-title-main">Keith Raniere</span> American cult founder and convicted felon (born 1960)

Keith Allen Raniere is an American cult leader who was convicted of a pattern of racketeering activity, including human trafficking, sex offenses and fraud. Raniere co-founded NXIVM, a purported self-help multi-level marketing company offering personal development seminars and headquartered in Albany, New York. Operating from 1998 to 2018, NXIVM had 700 members at its height, including celebrities and the wealthy. Within NXIVM, Raniere was referred to as "Vanguard".

<span class="mw-page-title-main">Trademark infringement</span> Violation of trademark rights

Trademark infringement is a violation of the exclusive rights attached to a trademark without the authorization of the trademark owner or any licensees. Infringement may occur when one party, the "infringer", uses a trademark which is identical or confusingly similar to a trademark owned by another party, especially in relation to products or services which are identical or similar to the products or services which the registration covers. An owner of a trademark may commence civil legal proceedings against a party which infringes its registered trademark. In the United States, the Trademark Counterfeiting Act of 1984 criminalized the intentional trade in counterfeit goods and services.

<i>Ho v. Taflove</i> U.S. Seventh Circuit case about the copyrightability of scientific data

Ho v. Taflove is a Seventh Circuit case about the copyrightability of scientific data. In 2011, the Seventh Circuit affirmed a 2009 decision of the United States District Court for the Northern District of Illinois holding that the expression of ideas can be copyrighted but not the ideas themselves.

<i>Bill Graham Archives v. Dorling Kindersley, Ltd.</i> 2006 American copyright law case

Bill Graham Archives v. Dorling Kindersley, Ltd., 448 F.3d 605, is a 2006 case of the United States Court of Appeals for the Second Circuit regarding fair use of images in a pictorial history text. It affirmed the United States District Court for the Southern District of New York, which held at trial that the publisher's use of several images of past Grateful Dead concert posters and tickets, reduced considerably, in a timeline of the band's history was a sufficiently transformative use.

<i>Authors Guild, Inc. v. HathiTrust</i> American legal case

Authors Guild v. HathiTrust, 755 F.3d 87, is a United States copyright decision finding search and accessibility uses of digitized books to be fair use.

The misappropriation doctrine is a U.S. legal theory conferring a "quasi-property right" on a person who invests "labor, skill, and money" to create an intangible asset. The right operates against another person "endeavoring to reap where it has not sown" by "misappropriating" the value of the asset. The quoted language and the legal principle come from the decision of the United States Supreme Court in International News Service v. Associated Press, 248 U.S. 215 (1918), also known as INS v. AP or simply the INS case.

Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), was a 1965 decision of the United States Supreme Court that held, for the first time, that enforcement of a fraudulently procured patent violated the antitrust laws and provided a basis for a claim of treble damages if it caused a substantial anticompetitive effect.

Contributory copyright infringement is a way of imposing secondary liability for infringement of a copyright. It is a means by which a person may be held liable for copyright infringement even though he or she did not directly engage in the infringing activity. It is one of the two forms of secondary liability apart from vicarious liability. Contributory infringement is understood to be a form of infringement in which a person is not directly violating a copyright but induces or authorizes another person to directly infringe the copyright.

<i>Blanch v. Koons</i> American copyright lawsuit

Blanch v. Koons, 467 F.3d 244, is a copyright case decided by the United States Court of Appeals for the Second Circuit in 2006. Fashion photographer Andrea Blanch sued appropriation artist Jeff Koons for copyright infringement after he used an image of a woman's lower legs taken from one of her photographs in a collage of his own. Koons claimed fair use, arguing he had transformed it sufficiently from its original purpose through his reuse. It is considered a significant case in addressing the latter issue.

References

  1. 1 2 3 4 NXIVM Corp. v. Ross Institute, 364F.3d471 (2d Cir.2004).
  2. 1 2 3 4 5 Aspen Publishers (2007). Copyright. Keyed to Keyed to Course Using Gorman and Ginsburg's Copyright: CAses and Materials Seventh Edition. Casenote Legal Briefs. Wolters Kluwer. pp. 95–96. ISBN   978-0-7355-6176-2.
  3. Roger E. Meiners; Al H. Ringleb; Frances L. Edwards (2006). The legal environment of business. Cengage Learning. p. 230. ISBN   978-0-324-20485-8.
  4. 1 2 Köhler, Nicholas (2010), "How to lose $100 million", Maclean's, vol. 123, no. 35, p. 58
  5. "Leader of NY Group Branded Women, Made Them Sex Slaves: Feds". NBC New York. Retrieved January 1, 2021.
  6. 1 2 3 Parlato, Frank (November 27, 2015), "The Bronfman/Raniere Cult Demands Investigation", Niagara Falls Reporter
  7. Pankaj, S (2005), E-commerce, APH Publishing, pp. 207–208, ISBN   8176488054
  8. Odato, James M.; Gish, Jennifer (February 24, 2012), "Secrets of NXIVM", Times Union
  9. 1 2 3 Berkeley Technology Law Journal (January 2005), "NXIVM Corp v. Ross Institute", Berkeley Technology Law Journal, 20 (1, 67): 735, doi:10.15779/Z38K40D
  10. A Forensic Psychiatrist Evaluates ESP, Cult Education Institute, February 2003
  11. Kenneth D. Crews; Dwayne K. Buttler (2006). Copyright law for librarians and educators: creative strategies and practical solutions. ALA Editions. p. 58. ISBN   978-0-8389-0906-5.
  12. A Critical Analysis of the Executive Success Programs Inc., Cult Education Institute, February 2003
  13. Robert Jay Lifton's eight criteria of thought reform as applied to the Executive Success Programs, Cult Education Institute, February 2003