Ninth Circuit Rules That Arizona Data Law Does Not Violate Copyright Law

By Alicia Curti.

Does copyright law apply to data stored by automobile dealers? The Ninth Circuit addressed this question in CDK Global v. Brnovich, which arose from a new state law requiring automobile dealerships to share certain data with third parties. The Circuit Court upheld the state law because it found it consistent with federal copyright law, specifically the fair use doctrine.

The structure of the United States government, consisting of a central federal government in addition to state governments, inherently gives rise to tension between federal law and state law. Fundamental constitutional principles and federal statutes are often implicated in state laws, and federal law (almost) always trumps state law. Federal courts often review state laws for consistency with federal requirements, and state laws are sometimes invalidated in this manner. In the present case, this tactic was (unsuccessfully) attempted by two licensing companies seeking to evade a new state requirement.

COPYRIGHT AND FAIR USE

Copyright law is codified at the federal level and has its roots in the Intellectual Property Clause of the United States Constitution. It provides protection to creators of creative works fixed in a tangible medium, such as literary and artistic works.

The doctrine of fair use allows a member of the public some limited usage of a copyrighted work without liability for infringement. Whether something is fair use depends on the purpose and character of the use, the nature of the copyrighted work, the amount of the copyrighted work used, and the potential effect on the market for the copyrighted work.

People do not typically think of computer programs when they think of copyright. But because software and computer code can be difficult to patent, they are often protected by copyright or kept as trade secrets. Fair use comes into play here because of the prominence of open-source code, the idea that the content is available for public access and modification.

GOOGLE’S USE OF ORACLE’S SOFTWARE CODE 

Last April, in the landmark case Google LLC v. Oracle America, Inc., the United States Supreme Court ruled that Google’s use of Oracle’s software code in its Android systems constituted fair use under copyright law. The copying or use of the code was deemed transformative because it was used in a different way than the original work. The Court did not explicitly rule on whether the code, consisting partially of application program interfaces (APIs), was copyrightable, but ruled that even if valid copyright protection existed, Google’s use did not infringe.

This decision was highly controversial. On one hand, it is bad for businesses who want to protect their software through the copyright system. On the other hand, it provides benefits to developers who want to use copyrighted code to make further improvements. The Court’s opinion stated that not deeming Google’s use of the code to be fair use would create a “lock limiting the future creativity of new programs,” to which Oracle would hold the only key. The Court’s decision furthers one of the major goals of intellectual property protection in the United States, to stimulate innovation.

COPYRIGHT AND STATE LAWS IN ARIZONA 

In 2019, Arizona House Bill 2418 was passed. This signed into law, inter alia, a provision which requires automobile dealerships to share data stored in their dealer management systems (DMS) with third parties. The law prohibits dealers from charging fees for the use of that data. The purpose of the statute was to improve data privacy protections for consumers and to prevent anticompetitive practices.

Unhappy with the new requirements, CDK Global LLC and Reynolds and Reynolds Co., two DMS licensing companies, filed suit in district court. They sought an injunction and a declaratory judgment that the state statute violated federal copyright law. They argued that allowing third parties to make unlicensed copies of the DMS violated reproduction rights under their copyright protection. The licensing companies also made other claims on constitutional grounds.

The district court denied the motion, holding that the Arizona statute did not violate federal copyright law. On appeal, in October 2021, the Ninth Circuit came to the same conclusion and upheld the judgment. The court cited Google v. Oracle America as support for its conclusion that APIs may not be protectable under copyright law. The Court determined that the data itself is not protected by copyright, and the APIs, which used the data stored in the DMS, were not necessarily entitled to copyright protection.

IMPLICATIONS OF THE DECISION 

The CDK Global v. Brnovich case appears to be bad news for licensing companies such as CDK Global and Reynolds and Reynolds Co. because they can no longer generate revenue from licensing DMS if third parties are legally allowed to use the data stored in the DMS free of charge. But it appears to be good news for consumers and developers. It may also be good news for society as a whole because allowing free use of the data incentivizes further development and innovation.

CONCLUSION

In this case, the state statute was found to be in compliance with federal copyright law. But does this mean it is a good law? It depends who you ask. For owners of software such as APIs, this law is not beneficial because it takes away some of the intellectual property rights they seek and forces them to share information at no cost. But the law benefits software users and innovators because it allows them to build from existing software code at no cost. In turn, this seems to benefit society overall. In a free market environment like the United States, such laws will always be beneficial to some parties and detrimental to others. But the state and federal governments attempt to make and uphold laws that confer the most benefit and order on the affected jurisdiction as a whole. It has yet to be seen if this most recent ruling will stand the test of time.

"Large copyright sign made of jigsaw puzzle pieces" by Horia Varlan is licensed under CC BY 2.0

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By Alicia Curti

J.D. Candidate 2023

Alicia Curti is a 2L staff writer. She earned a bachelor’s degree in chemical engineering from the University of Nebraska in 2018. She subsequently worked as a process engineer at Honeywell’s Kansas City plant for two years before moving to Phoenix to attend law school. She is working toward a career in patent prosecution. Alicia is also a poet, rock climber, nature lover, cat mom, and free spirit.

The opinions expressed herein are those of the individual contributors to the ASLJ Blog and should not be construed as the opinions of the Arizona State Law Journal or the Sandra Day O’Connor College of Law at Arizona State University.