The three-step test within the copyright system

Tobias Schonwetter, University of Cape Town, South Africa - Department of Commercial Law

Abstract
The importance of the three-step test for the delicate balance between private and public interests in the field of copyright law can not be overestimated. The test sets limits to the limitations and exceptions on the copyright holders’ rights. Since its first mention in the Berne Convention of 1886, the test has been embodied in several international treaties and its scope of application has broadened significantly. Nowadays, the three-step test appears in the Berne Convention as well as in the TRIPS Agreement, the WIPO Copyright Treaty, the WIPO Performances and Phonograms Treaty and the EU Copyright Directive. However, no significant degree of agreement existed with regards to the actual meaning of the test until, in 2000, for the first time a supra-national body ruled on the interpretation of the test in the context of Article 13 TRIPS.
The paper is going to explain the significance of the three-step test and strives to build up an understanding for the correct application of the test. Subsequently, the paper will scrutinize each of the three steps under consideration of prior interpretations by recognised scholars as well as the aforementioned WTO Panel decision of 2000.

There has always been a broad consensus that the exclusive rights of copyright-holders in their works are by no means unlimited. On the contrary, a strong set of limitations and exceptions is deemed necessary to safeguard fundamental rights and freedoms of users, to regulate competition and industry practice, to promote the dissemination of information, and to alleviate the symptoms of market failure (Guibault 2002, p. 28). Limitations and exceptions are of utmost importance for a just and balanced copyright law. However, exceptions and limitations differ significantly between countries as their utilisation does reflect public policy considerations by national lawmakers. Naturally, such considerations vary or might even be diametric as countries have reached different developmental stages and/or are founded on dissimilar law traditions. Hence, exceptions and limitations have been made subject to various treaty obligations in order to reach a minimum standard of harmonization.

The terminology used with regard to limitations and exceptions is remarkably inhomogeneous. This is unfortunate as it contributes to the fact that discussions in this particular field of law are not always carried out with the necessary precision. This paper does, however, not provide enough space to elaborate comprehensively on this issue. In order to not complicate the matter unnecessarily it seems to be the most sensible approach for the present purposes to follow Guibault (2000, p. 16) by using the term “limitation” as a generic term, which encompasses all types of restrictions on the rights-holders' copyright.

In 1967, international policy-makers introduced an abstract formula concerning the question of permissible limitations of the general right of reproduction under national copyright laws at the Stockholm Conference for the revision of the Berne Convention. Over the years, this so-called three-step test was embodied in several international treaties, and although only minor changes as to the wording of the three steps have been made, the scope of application of the test has broadened significantly - especially because the test is no longer confined to the reproduction right in newer copyright treaties. It is for that reason that any serious discussion regarding the introduction as well as the interpretation of limitations to the right-holders' copyright has to start with an analysis of the requirements stipulated in the three-step test. In a nutshell, the test “sets limits to limitations on exclusive rights” (Senftleben 2004, p. 5) and allows limitations

Despite its incorporation in those treaties, no considerable degree of agreement exists as to the actual meaning of the test since none of the treaties defines itself any of the significant terms used in the test, and the theoretical possibility of a dispute resolution by the International Court of Justice in this regard - as provided for in Article 33 (1) Berne Convention - has never been used (Oliver 2002, p. 134).

However, in 2000 a WTO dispute resolution panel, established under Article 64 of TRIPS, dealt with the interpretation and application of the three-step test contained in Article 13 of TRIPS and extensively analyzed each of the steps on the occasion of a dispute between the European Union and the United States of America over an exception to the right-holders' copyright in US copyright law (case WT/DS160). As it was the first and only decision by an international body concerning the three-step test in copyright law, the decision provides valuable guidance to legislatures enacting legislation to comply with the three-step test and to those interpreting existing legislation (Oliver 2002, p. 170).

Before moving on to the next section, however, a difficulty regarding the proper application of the test shall be addressed, which is either often overlooked or causes, if noticed, considerable confusion. This difficulty pertains to the fact that the three-step test of the Berne Convention applies solely to the limitation of the authors' general right of reproduction, whereas other provisions in the Berne Convention contain specific requirements for other limitations, such as quotations, illustrations for teaching, press privileges and ephemeral recordings. The legal principle “lex specialis derogat legi generali” prohibits the application of the three-step test of the Berne Convention in relation to those specifically regulated limitations. The wording of Article 13 TRIPS, however, seems to revoke this general principle as it stipulates that all limitations to exclusive rights, including the reproduction right, shall be confined to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder. Consequently, the question arises whether the requirements for the specific limitations in the Berne Convention are henceforth obsolete for Member States of both the Berne Convention and TRIPS as all limitations could alternatively rest upon the TRIPS three-step test. The preferable way to solve this conflict is the following: The three-step test applies, first of all, directly to limitations of the general right of reproduction as mentioned in Article 9 (2) of the Berne Convention as well as to limitations to all exclusive rights additionally granted in TRIPS and the WCT. All other limitations to the exclusive rights recognised in the Berne Convention must, in addition to the requirements contained in the Berne Convention itself, pass the three-step test. As for the WCT, this approach is explicitly laid down in Article 10 (2) WCT. The Agreed Statement concerning Article 10 WCT, however, seems to contradict this view as it states:

Of course, an additional application of the three-step could reduce the scope of the limitations permitted by the Berne Convention. A legal artifice is necessary to resolve this apparent oxymoron. Accordingly, the three-step test is to be understood as a means to clarify certain open-worded provisions of the Berne Convention, such as Articles 10 (1) and 10 (2) (“fair practice”). Thus, a conflict between the Berne Convention and TRIPS as well as the WCT regarding limitations to the exclusive rights should not occur anyway (WIPO study 1997, p. 22-3).

Starting point for the interpretation of treaty provisions is the 1969 Vienna Convention on the Law of Treaties, namely Articles 31 and 32. The Convention combines objective, teleological and subjective elements. The emphasis, however, is clearly put on the objective element, which places the actual treaty text into the centre of any interpretation. The U.S. fair use doctrine with its four part test stipulated in section 107 of the U.S. Copyright Act is not an appropriate instrument for the interpretation of the three-step test. On the contrary, as a national limitation to the right-holder's exclusive rights, the fair use doctrine has to meet the conditions set out in the three-step test. It would be a severe violation of the underlying system to interpret a provision, which exercises control over another provision by means of the controlled provision - especially because doubts have been repeatedly raised in the past as to what extent the fair use doctrine complies with the three-step test.

With regard to the first part of the three-step test, the WTO Panel (2000, p. 32 et seq.) considered various dictionary definitions of “certain”, “special” and “case” and stated that “the first condition of Article 13 requires that a limitation or exception in national legislation should be clearly defined and should be narrow in its scope and reach” in a quantitative as well as a qualitative sense. That does not mean, however, that every situation to which the limitation could apply needs to be explicitly identified, provided that the scope of the limitation is known and particularised.

This interpretation has been contested in the legal literature. Senftleben (2004, p. 134 et seq.) for example criticises the equation of “certain” cases with “clearly defined” cases. Such an understanding of the term “certain” would contradict the fact that the term “clearly defined” was discussed prior to TRIPS and the WCT but eventually not adopted. In addition, he supposes that such an interpretation of “certain” would make it almost impossible for the typically open-ended provisions in Anglo-American copyright laws to pass the first step of the test. Consequently, Senftleben suggests interpreting the phrase “certain special cases” as “some special cases”.

Regarding the term “special” it has been critically annotated that the WTO - against its own definition - almost entirely relied upon the quantitative connotation. This connotation basically demands that a limitation facilitates only a limited number of unauthorised uses. The qualitative or normative element, meaning that the unauthorised use has to be “justified by some clear reasoning of public policy or some other exceptional circumstance” (Ricketson 1987, p. 482), was reduced by the WTO Panel in the way that the mere existence of any public policy is deemed sufficient. However, the most prominent proponent of the consideration of a normative element has, subsequently to the Panel's decision, changed his opinion and submitted that “the preferable view is that the phrase “certain special cases” should not be interpreted as requiring that there should also be some “special purpose” underlying it”, especially because “the purpose behind any given exception will fall to be tested by the second and third steps of the test in any event” (Ricketson 2003, 22). Yet, various well respected scholars still argue cogently for the consideration of the normative element, particularly because they deem the quantitative element inadequate to identify “special cases”. It is therefore advisable for law makers to not completely ignore this element.

“not every use of a work, which in principle is covered by the scope of exclusive rights and involves commercial gains, necessarily conflicts with a normal exploitation of that work. If this were the case, hardly any exception or limitation could pass the test of the second condition and Article 13 might be left devoid of meaning, because normal exploitation would be equated with full use of exclusive rights. […] [A]n exception or limitation to an exclusive right in domestic legislation rises to the level of a conflict with a normal exploitation of the work […], if uses, that in principle are covered by that right but exempted under the exception or limitation, enter into economic competition with the ways that right holders normally extract economic value from that right to the work (i.e., the copyright) and thereby deprive them of significant or tangible commercial gains.”

By taking into account potential forms of exploitation, which are likely to acquire considerable economic or practical importance, the Panel followed the widespread conception that the term “normal” is not only of empirical nature but has also a weighty normative connotation. This approach, although not uncontested in the legal academic literature, is to prefer as it, inter alia, allows the consideration of possible technological and market developments. That is to say, because it is, of course, difficult to qualify new forms of exploitation as “usual” or “typical” in the mere empirical sense of the term “normal”.

Before analyzing this last step of the three-step test, it needs to be pointed out that the actual wording of the international treaties containing the test differs regarding the protected persons. Article 9 (2) of the Berne Convention as well as Article 10 WCT refer to the “author”, whereas Article 13 of TRIPS and the European Directives protect the “right-holder”. It is apparent that the term “right-holder” encompasses a wider range of protected persons than the term “author”, e.g. the holder of a right to use.

The WTO Panel (2000, p. 57 et seq.) noted with regard to the third condition that an analysis should be executed in several steps. Consequently, the Panel considered at first the dictionary meanings of “interests”, “legitimate” and “prejudice”. Thereafter, it observed that the phrase “not unreasonably” is slightly stricter than “reasonable”, and stated that “prejudice to the legitimate interests of right holders reaches an unreasonable level if an exception or limitation causes or has the potential to cause an unreasonable loss of income to the copyright owner”. In addition, the WTO Panel made the following important remarks regarding the terms used in the final step of the three-step test:

As for the notion of “legitimate interests” the phrase does not need to be limited to actual or potential pecuniary interests. Furthermore, the term “legitimate” relates not only to lawfulness, but also has the connotation of legitimacy from “a more normative perspective, in the context of calling for the protection of interests that are justifiable in the lights of objectives that underlie the protection of exclusive rights”.

The WTO Panel decision has been subjected to relatively little criticism regarding the third step. Sporadically, it has been brought forward that the Panel's understanding of “unreasonable prejudice” conflates the second and the third steps (Gervais 2005, p.19), and Ginsburg (2001, p. 16) annotated that the Panel decision may have clarified the terms of reference, but it may not have made future outcomes any more predictable.

After all, the third step contains an important proportionality test in the way that the harm to the right-holders has to be reasonably related to the users' benefits. In other words, the prejudice has to be proportionate. Hence, lawmakers should, inter alia, opt for the least onerous of all suitable measures. The WTO Panel rightly noted that within the realm of the proportionality test the payment of “equitable remuneration” can serve as a means to avoid that the prejudice reaches an unreasonable level. It remains unclear though, what “equitable remuneration” exactly means.

The aim of this paper was to identify the key issues regarding the analysis of the three-step test. It is the opinion of the author of this paper that the WTO Copyright Panel decision of 2000 provides a valuable means for the interpretation of the three steps, even though certain elements of the decision have met with criticism. The objections raised are to some extent valid. However, the decision is, after all, coherent and sets at present the only effective benchmark from a practical point of view.

In the future, the three-step will continue to play a decisive role in international copyright law, especially due to the fact that it is formulated independently from technological advances. Thus, it remains a suitable instrument within the digital environment to safeguard a fair balance between the often diametrically opposed interests of the users and the public on the one hand and the copyright-holders on the other hand.