parody or derivative work?

Ty, Inc. v. Publications International, No. 01-3304 (7th Cir. 2002)(Posner, J.):

The defense of fair use, originally judge-made, now codified, plays an essential role in copyright law. Without it, any copying of copyrighted material would be a copyright infringement. A book reviewer could not quote from the book he was reviewing without a license from the publisher. Quite apart from the impairment of freedom of expression that would result from giving a copyright holder control over public criticism of his work, to deem such quotation an infringement would greatly reduce the credibility of book reviews, to the detriment of copyright owners as a group, though not to the owners of copyright on the worst books. Book reviews would no longer serve the reading public as a useful guide to which books to buy. Book reviews that quote from ("copy") the books being reviewed increase the demand for copyrighted works; to deem such copying infringement would therefore be perverse, and so the fair-use doctrine permits such copying. Desnick v. American Broadcasting Companies, Inc., 44 F.3d 1345, 1351 (7th Cir. 1995) (dictum); William M. Landes, "Copyright, Borrowed Images, and Appropriation Art: An Economic Approach," 9 Geo. Mason L. Rev. 1, 10 (2000); Lawrence Lessig, "The Law of the Horse: What Cyberlaw Might Teach," 113 Harv. L. Rev. 501, 528 (1999). On the other hand, were a book reviewer to quote the entire book in his review, or so much of the book as to make the review a substitute for the book itself, he would be cutting into the publisher's market, and the defense of fair use would fail. Harper & Row, Publishers, Inc. v. Nation Enterprises, 723 F.2d 195, 215 (2d Cir. 1983) (dissenting opinion), rev'd, 471 U.S. 539 (1985); see Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 562 (1985); Worldwide Church of God v. Philadelphia Church of God, Inc., 227 F.3d 1110, 1118 (9th Cir. 2000); Consumers Union of United States, Inc. v. General Signal Corp., 724 F.2d 1044, 1051 (2d Cir. 1983).

Generalizing from this example in economic terminology that has become orthodox in fair-use case law, we may say that copying that is complementary to the copyrighted work (in the sense that nails are complements of hammers) is fair use, but copying that is a substitute for the copyrighted work (in the sense that nails are substitutes for pegs or screws), or for derivative works from the copyrighted work, see 4 Melville B. Nimmer & David Nimmer, Nimmer on Copyright sec. 13.05[B][1], p. 13-193 (2002), is not fair use. On Davis v. The Gap, Inc., 246 F.3d 152, 175-76 (2d Cir. 2001); Suntrust Bank v. Houghton Mifflin Co., 268 F.3d 1257, 1277 (11th Cir. 2001) (concurring opinion); Wendy J. Gordon, "Fair Use as Market Failure: A Structural and Economic Analysis of the Betamax Case and Its Predecessors," 82 Colum. L. Rev. 1600, 1643 n. 237 (1982); see Consumers Union of United States, Inc. v. General Signal Corp., supra, 724 F.2d at 1051. If the price of nails fell, the demand for hammers would rise but the demand for pegs would fall. The hammer manufacturer wants there to be an abundant supply of cheap nails, and likewise publishers want their books reviewed and wouldn't want reviews inhibited and degraded by a rule requiring the reviewer to obtain a copyright license from the publisher if he wanted to quote from the book. So, in the absence of a fair-use doctrine, most publishers would disclaim control over the contents of reviews. The doctrine makes such disclaimers unnecessary. It thus economizes on transaction costs.

The distinction between complementary and substitutional copying (sometimes--though as it seems to us, confusingly--said to be between "transformative" and "superseding" copies, see, e.g., Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994)) is illustrated not only by the difference between quotations from a book in a book review and the book itself, Marion B. Stewart, "Calculating Economic Damages in Intellectual Property Disputes: The Role of Market Definition," 77 J. Patent & Trademark Office Society 321, 332 (1995), but also by the difference between parody (fair use) and burlesque (often not fair use). A parody, which is a form of criticism (good-natured or otherwise), is not intended as a substitute for the work parodied. But it must quote enough of that work to make the parody recognizable as such, and that amount of quotation is deemed fair use. Campbell v. Acuff-Rose Music, Inc., supra, 510 U.S. at 579, 580-81 and n. 14, 588; Suntrust Bank v. Houghton Mifflin Co., supra, 268 F.3d at 1271; Leibovitz v. Paramount Pictures Corp., 137 F.3d 109, 114 (2d Cir. 1998); Dr. Seuss Enterprises, L.P. v. Penguin Books USA, Inc., 109 F.3d 1394, 1400 (9th Cir. 1997); 4 Nimmer & Nimmer, supra, sec. 13.05[C], pp. 13-203 to 13-218. A burlesque, however, is often just a humorous substitute for the original and so cuts into the demand for it: one might choose to see Abbott and Costello Meet Frankenstein or Young Frankenstein rather than Frankenstein, or Love at First Bite rather than Dracula, or even Clueless rather than Emma. Burlesques of that character, catering to the humor-loving segment of the original's market, are not fair use. Benny v. Loew's Inc., 239 F.2d 532, 536-37 (9th Cir. 1956), aff'd by an equally divided Court under the name Columbia Broadcasting System, Inc. v. Loew's, Inc., 356 U.S. 43 (1958) (per curiam); see 4 Nimmer & Nimmer, supra, sec. 13.05[B][1], pp. 13-194 to 13-195, sec. 13.05[C]; cf. Campbell v. Acuff-Rose Music, Inc., supra, 510 U.S. at 580-81 & n. 14, 591. The distinction is implicit in the proposition, affirmed in all the cases we have cited, that the parodist must not take more from the original than is necessary to conjure it up and thus make clear to the audience that his work is indeed a parody. If he takes much more, he may begin to attract the audience away from the work parodied, not by convincing them that the work is no good (for that is not a substitution effect) but by providing a substitute for it.