NXIVM Corp. v. The Ross Institute

NXIVM Corp. v. The Ross Institute
United States Court of Appeals for the Second Circuit
Argued November 19, 2003 Decided April 20, 2004
Full case name	NXIVM Corporation and First Principles, Inc. v. The Ross Institute, et al.
Citations	364 F.3d 471, 70 U.S.P.Q.2d 1538
Prior history	Preliminary 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 history	Certiorari 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.
Panel membership
Chief Judge John M. Walker, Jr.; Circuit Judges Dennis Jacobs and Chester J. Straub
Case opinions
Majority by	Walker
Joined by	Jacobs
Concurrence by	Jacobs
Laws applied
17 U.S.C. § 107

NXIVM Corp. v. The Ross Institute, 364 F.3d 471 (2004)^[1], was a United States Court of Appeals for the Second Circuit decision that held that defendants’ critical commentary of material obtained in violation of a non-disclosure agreement was fair use despite bad faith on the part of the defendants in obtaining the material.

Facts

NXIVM offered a seminar training program called Executive Success involving a methodology NXIVM claimed improved communication and decision-making. NXIVM provided a manual as part of the seminar to its participants who signed non-disclosure agreements to not release the manual to others.

Rick Ross was a “cult deprogrammer” who maintained two websites to provide information about controversial groups that had complaints against them of mind control. Ross received the NXIVM manual through one of its seminar participants and commissioned two reports by two authors who analyzed and critiqued the manual, quoting sections of the manual in support their analysis. The reports were published on Ross’s websites and the Executive Success program was added to Ross's list of "cults."

The United States District Court for the Northern District of New York denied a preliminary injunction against the defendants to remove the material from Ross’s websites. Plaintiffs appealed to the United States Court of Appeals for the Second Circuit.

Issue

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

Opinion of the Court

The Court noted that the propriety of the defendants’ conduct is relevant for a fair use defense as set forth by the Supreme Court in Harper & Row v. Nation Enterprises but stated that it is only a part of the evaluation and bad faith is not dispositive of a fair use defense.

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

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.

External links

• ^ Full text of the Court's opinion
• Summary & all related court documents @ Citizen Media Law Project