Fair Use for Artists

Fair use has long been essential to artistic expression. That is a core theme of a brief we filed today on behalf of The Robert Rauschenberg Foundation and the The Andy Warhol Foundation for the Visual Arts in Google v. Oracle. The litigation, which is hailed as the “copyright case of the century,” involves a high-stakes dispute over the use of source code in smartphones — but it could also have significant implications for the doctrine of fair use as it applies to artistic expression. We urge the Court to be careful not to implicate fair use in the arts in this case. 

First, we lay out a variety of examples demonstrating that the use and re-use of other creative works are often essential vital to the visual, literary, and musical arts. For instance, the painter of an iconic portrait of George Washington, “borrowed freely” from other models — and even the designs of the Supreme Court building itself are “virtually identical” to prior designs. The visuals, reprinted in the brief, really are worth a thousand words:

We also address the First Amendment protections and public interest issues that undergird fair use, explain how software APIs are quite different than the arts, and argue why the Supreme Court should decline the invitation to wade into other areas of fair use law that are not properly presented. Carolyn Shapiro, who co-authored the brief, remarked, “the bottom line is that, whatever the justices choose to say about fair use in the software development context, they should be careful not to suggest that the same analysis necessarily applies to the arts context. The Court has made clear in the past that fair use analysis in the arts requires close attention to a case’s factual and artistic context. It should take care not to sweep so broadly in this software case that it inadvertently disrupts the work of an array of creative industries and professionals.”

Key Questions on Central Bank Digital Currencies

By JP Schnapper-Casteras and Misha Guttentag

Recent weeks have seen a surge of interest in Central Bank Digital Currencies (CBDCs), starting with China’s public plans to launch its own and culminating in the Federal Reserve Chairman’s letter to the Hill on the topic. The growing attention to CBDCs is a welcome sign — especially for tech-focused lawyers like us — but before everyone rushes in, we should start assessing some foundational issues.

As Congress and the Federal Reserve consider the possibility of launching a dollar-based CBDC, here are some key questions that they should find answers to first:

What is the problem that a CBDC in the United States is aiming to solve? To be sure, there are plenty of issues in our national financial infrastructure that CBDCs could partly address, for example: reducing transaction costs; ensuring all citizens have bank accounts; expanding the availability and speed of fund transfers; improving financial stability and oversight; or upgrading our banking software systems. (The Bank of Israel published a useful report laying out some of the different types of CBDCs and the tradeoffs among them.) This may be the most difficult question to answer, but it makes little sense to proceed on CBDCs without deciding our core purpose in doing so.

Who are the target users of the CBDC? With widespread and often conflicting reports on China’s new digital currency project, it’s not entirely clear who their CBDC will serve: banks, regular people, or both? Beyond China, there are important design tradeoffs on this front: Some versions of a CBDC could be “peer-to-peer” like bitcoin or e-mail, where anyone can participate and send or receive money. Other proposals would just give access to banks and major financial institutions, resulting in more mild but still potentially important efficiency improvements over today’s systems. A related question is who are the intended operators of the CBDC? The Federal Reserve, other federal agencies, some public-private partnership with banks, or technology companies?

What is the desired impact on public policy? Domestically, could CBDCs have useful applications as a monetary tool to combat recessions or curb overheated economic growth? Should CBDCs constitute a sort of “public option” for certain banking services? Or are various policy considerations essentially secondary to finding a way to upgrade the “rails” that undergird our nation’s financial infrastructure? Internationally, are we worried about other digital currencies gaining traction and threatening the reserve currency status of the dollar? Representative Foster, whose letter spurred Chairman Powell’s CBDC comments, said that his inquiries were motivated by desire to preserve the “primacy of the U.S. dollar” against a “competitive disadvantage” if other countries move first. In any event, the form of the CBDC has to be driven by the impact the CBDC is designed to produce.

When do we (realistically) plan to launch a CBDC of some sort? The Federal Reserve Chairman has already indicated that he sees no need for the Fed itself to rush into this project and is “carefully monitoring the activities of other central banks.” Meanwhile, the newly-appointed head of the European Central Bank has advocated for CBDCs and the European Union appears to be progressing in that direction; private companies like Facebook, JP Morgan, and Coinbase are proceeding with digital currency systems of their own. Should Washington’s timing reflect a stance on whether the private sector or other countries could “get ahead” of the U.S. dollar? (On a separate, but related, track, the Federal Reserve is making slow progress on a plan to offer real-time gross settlement, which is at least five years off in the United States — but already available in many other countries).

Why take on the risks of a CBDC at scale? What if there is a cyber-security breach, technical malfunction, or poor deployment? What if a serious competitor to the dollar or SWIFT-based settlement emerges in the meantime or becomes preferred by banks or consumers? How do we assess the downsides and audit the integrity of new technology, against the costs and benefits of the status quo?

These are big questions with major political, economic, and legal ramifications — and different public and private sector stakeholders may view them quite differently. It is good to see the Federal Reserve taking this issue seriously (which we have suggested for some time now). Congress too, has a special role to play, since the Constitution grants it the power to oversee and regulate money, including the Federal Reserve and any CBDC efforts. Congress can shape this matter of national importance by conferring with constituents about their financial needs, holding hearings, and/or enacting statutes and allocating funds to further explore digital currency.

With CBDCs, we have the opportunity to consider major changes to monetary technology and policy. By tackling some of these basic issues first, we can chart a sensible course forward.

digital dollars

Developing Digital Dollars

Yesterday, several current and former U.S. officials announced support for a digital version of the U.S. dollar. The prior CFTC Chairman and CIO, J. Christopher Giancarlo and Daniel Gorfine, penned an oped in the Wall Street Journal advocating for a “government-sanctioned” virtual currency — and various alumni of the Federal Reserve and FDIC went on the record with Politico’s Zachary Warmbrodt, calling on the Fed to explore similar proposals.  These endorsements represent an early milestone in mainstreaming discussions about a digital dollar, and spur us to offer some guidelines about what should come next.

digital dollars

Support for a digital dollar is generally encouraging, and something that Misha and I have long been urging the U.S. government to prepare for, both in writing and in private conversation.  It’s also a marked contrast from when we first began talking with central bankers, who were deeply skeptical (to put it mildly) when we discussed Bitcoin or the prospect of a Central Bank Digital Currency (CBDC).  One regulator abroad even called Bitcoin “evil spawn” — as Kanye West might say, “that’s a pretty bad way to start the conversation.”  The political backlash to Facebook’s Libra currency proposal, together with some foreboding around a “digital yuan” promoted by China, has shifted the policy dialogue rather quickly. Competition can breed innovation.

Building a digital dollar is a live issue that will continue to percolate in Washington and beyond. Members of Congress are nudging the Fed (and even appearing on Bitcoin podcasts), pro-digital currency leader Christine Lagarde is taking the reigns of the European Central Bank, and former central bank governors like Mark Carney are continuing to balance regulating private technologies like Libra with potentially creating a public, digital reserve currency.

In the meantime, here are a few initial guidelines policymakers should consider:

Start small: Giancarlo and Dorfine are right to suggest a pilot program may be the best way to kick things off. The United States can build upon what worked (and did not work) in other pilot programs at central banks abroad — and also elevate research by officials at Regional Fed Banks, who have begun to explore a Bitcoin monetary “standard” and the prospects of digital currency competition.

Don’t reinvent the wheel: For all the ups and downs of the cryptocurrency ecosystem, there has been an immense amount of activity that we can all learn from. The Fed does not necessarily need to build everything from scratch — and should not waste billions of dollars and years of development on a bloated private contract, only to yield an inferior version of Bitcoin.

Support open source protocols: Creating a successful digital dollar is not just about having a killer app — it will also hinge upon the functionality and adoption of the underlying protocols that power the network.  In the 1970s, the U.S. Defense Department funded open-architecture networking protocols like TCP/IP that form the backbone of the Internet today. The Internet succeeded because it was open: anyone could participate and launch a website, app, or browser. Similar principles bear with us today.

A digital dollar will not — and should not — develop overnight. But it is good to see some progress in the conversation. As the world flirts with digital money, the dollar should stay ahead of the curve.

On Guantanamo

After nearly two years of litigation, we are pleased to have reached a favorable resolution in a constitutional challenge involving the U.S. Naval Station Guantanamo Bay. Schnapper-Casteras PLLC represents Mr. Richard Kammen, a prominent member of the Indiana Bar, who was appointed to serve as a lead defense counsel in Guantanamo and who faced arrest after he uncovered a concealed microphone in a meeting room for attorneys.

Mr. Kammen’s legal battle involves a troubling and extraordinary set of facts, which underscore how far the system in Guantanamo has strayed from basic principles of justice. In 2017, Mr. Kammen and his colleagues discovered a listening device, hidden in a smoke detector in a room reserved for attorney-client meetings.  Mr. Kammen raised this issue and other ethical concerns with U.S. Marine Corps Brigadier General John G. Baker and an outside legal ethics expert. The expert informed Mr. Kammen that, in order to adhere to the rules of professional conduct, he had no choice but to withdraw from his legal duties in Guantanamo. General Baker expressly approved of Mr. Kammen’s withdrawal. However, the military commission official overseeing the matter at the time, Col. Vance Spath, responded by pursuing the lawyers themselves, civilian and military alike.  Col. Spath sentenced General Baker to a term of confinement and threatened to have Mr. Kammen and his co-counsel arrested, to force them to continue work in Guantanamo, and/or to bring them to Virginia to hold them in contempt.

In November 2017, Mr. Kammen filed a petition in the Southern District of Indiana against the U.S. Secretary of Defense and military commission officials seeking to prevent his imminent arrest. Following an emergency hearing, the District Court suspended any and all warrants and travel requirements held against Mr. Kammen.  Mr. Kammen subsequently amended his petition, advancing claims under the First Amendment, due process under the Fifth and Fourteenth Amendments, and Sixth Amendment. The U.S. Department of Justice, while not disputing most of the facts, argued that a federal court could not hear the case because Mr. Kammen was jurisdictionally equivalent to an alien, non-citizen enemy combatant. Although the Justice Department ultimately acknowledged the existence of the concealed microphone, it sought to downplay it as a “legacy” device.  Separately, General Baker and the other civilian lawyers filed lawsuits against the Government (represented by Jenner & Block LLP, and Michel Paradis et al., respectively). 

The record is clear: every federal court to have reached the merits on this episode has ruled against the Government. In 2017, the U.S. District Court for the District of Columbia granted General Baker’s habeas petition and vacated his conviction for contempt.  In April 2019, the U.S. Court of Appeals for the D.C. Circuit issued a sweeping opinion, tossing out years’ worth of Col. Spath’s military commission rulings in light of revelations that he had engaged in conduct giving rise to the appearance of judicial bias.  In its holding, the D.C. Circuit took the remarkable step of praising the conduct of Mr. Kammen and his co-counsel: 

“Although a principle so basic to our system of laws should go without saying, we nonetheless feel compelled to restate it plainly here: criminal justice is a shared responsibility. Yet in this case, save for [the] defense counsel, all elements of the military commission system—from the prosecution team to the Justice Department to the CMCR to the judge himself— failed to live up to that responsibility.” 

The D.C Circuit opinion effectively nullified Col. Spath’s order that Mr. Kammen return to Guantanamo or else be held in contempt. In May 2019, Mr. Kammen, still living under the specter of being arrested or forced back to Guantanamo, urged the Southern District of Indiana to take judicial notice of the D.C. Circuit’s ruling. In July 2019, the Department of Justice confirmed that it would “not seek further review” of the D.C. Circuit ruling and acknowledged that the decision was dispositive in the Indiana litigation.  In August 2019, Mr. Kammen and the Justice Department agreed to resolve the Indiana case by voluntarily dismissing it, a request the District Court granted yesterday.

In light of yesterday’s resolution, Mr. Kammen stated that he felt “vindicated by the result and relieved that his co-counsel no longer have to live under the cloud of uncertainty.”  Mr. Kammen added that:

“JP [Schnapper-Casteras] was instrumental in the success we had convincing the military and civilian courts that government misconduct directly required me to be excused as the lawyer for Abdul Rahim al-Nashiri. More importantly, his wise counsel and aggressive litigation, helped persuade the federal judge in Indiana that the government could not have me arrested and forced to represent al-Nashiri when that would have been both illegal and unethical.”

JP Schnapper-Casteras, who represented Mr. Kammen alongside Jessie A. Cook and Robert W. Hammerle, remarked: “In the United States of America, we should extol attorneys for acting ethically — not arrest them.” 

Welcome Professor Shapiro

I am thrilled to announce that Professor Carolyn Shapiro is joining the firm as Of Counsel.  As the former Solicitor General of Illinois, a constitutional law scholar, and a former Supreme Court clerk, she shares her tremendous appellate experience and acumen.  Moreover, I deeply admire Carolyn’s long-standing commitment to public interest work and all she’s done to stand up for the rule of law in recent years — and consider myself very fortunate to be able to collaborate with her in this new capacity.  You can find her full biography here, select publications on SSRN, and her Tweets @cshaplaw.

Central Banks are planning for digital money: is the Fed ready to join them?

By JP Schnapper-Casteras and Misha Guttentag

This season’s steep decline in the price of bitcoin and other digital assets has rekindled a fierce debate about their role in the global economy: opponents lambast them as a Ponzi scheme about-to-collapse and proponents promise they will replace government currencies entirely. The reality is that, at least in the short term, both extremes are highly unlikely, and policymakers, especially central bankers, are charting a course in between that recognizes that some form of digital money is here to stay.  Notably absent from many of these discussions, however, is the biggest Central Bank in the world: the Federal Reserve.

After a year when bitcoin’s price dropped over 75%, this might seem to be a counterintuitive moment for these conversations — but they are already subtly starting.  Just the other day, the Governor of the Bank of England, Mark Carney, expressed a remarkable openness towards digital money. “It is still early days for cryptoassets,” Carney explained, and despite their present shortcomings, they are “throwing down the gauntlet to the existing payment systems” to improve services. Last month too, the Managing Director of the International Monetary Fund, Christine Lagarde, made the case for central banks to explore, adopt, and issue digital currencies, because a “new wind is blowing” “and we are all in the process of adapting.”   

Carney and Lagarde’s middle-ground approach stands in stark contrast with caustic criticism from some of their colleagues: two days after her speech, a member of the European Central Bank vilified bitcoin as “evil spawn of the financial crisis” and previously, an official at the Bank for International Settlements deplored it as “a combination of a bubble, a Ponzi scheme and an environmental disaster.”

Such categorical dismissals are belied by the growing recognition that digital money like bitcoin may offer a variety of advantages, including in terms of security, transferability, transparency, and inflation resistance. As Lagarde suggested, central banks could choose to issue their own digital currencies that compete with bitcoin in terms of monetary policy, payment privacy, or other features.

Although it may appear premature to imagine central banks managing a digital money alongside traditional reserve assets, the possibility is real enough for central banks to take it seriously, and several are.  A major survey released last week reported that some 70% of central banks are engaged in work around digital currencies, and half have moved onto “hands on” proof-of-concept activities and other research. The Bank of Canada also quietly published a research paper examining how central banks might operate under a “bitcoin standard” similar to the gold standard of the late 19th century. The paper explained that a bitcoin standard would not mean the end of government money or central banks — but that backing national currencies with bitcoin reserves could offer several major benefits over current international monetary standards, due to the stability presented by bitcoin’s algorithmically-fixed inflation rate.  The European Central Bank, Bank of Japan, and Reserve Bank of India are closely studying digital money as well.

Similarly, the U.S. Federal Reserve should formally explore the potential impact of digital money on U.S. economic interests.  Although the current and prior Fed Chairs have been publicly tepid on the subject area thus far, Fed branches are engaging more straightforwardly. The other week, the Federal Reserve’s St. Louis branch suggested that a cryptocurrency might “eliminate” the core tension for the the U.S. dollar: being asked to function both as a stable global reserve currency while also meeting domestic needs (known as the Triffin dilemma).  As a New York Times op-ed recently noted, the U.S. dollar’s position as the world’s reserve currency gives the United States a unique opportunity to lead — or stand to lose if other countries leave it behind.

The bottom line is that categorically dismissing bitcoin and other digital assets as irrelevant or “evil” for central banking purposes is increasingly out of step with the trends and tools at hand, not to mention widespread appetite for a potentially faster, fairer financial system. (Why does sending a check take 4 business days to clear, again?).  The U.S. Federal Reserve should join its counterparts and start preparing its financial infrastructure for a fast-approaching new reality: where nation-backed moneys compete and co-exist alongside digital moneys settled with distributed ledgers, electricity, and math-driven consensus.

Hello world!

Here is where we will be periodically sharing articles and links, mostly about frontier technologies, new and emerging areas of law, and the Supreme Court. Feel free to let us know what you think in the comments or on Twitter (@jpscasteras; @MishaGuttentag). Please forgive our lawyerly disclaimers — the gist is that the content in this blog is just commentary and does not constitute legal advice nor create an attorney-client relationship.