One Small Step or one Giant Leap?
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E.I.P.R. 2004, 26(6), 265-272
European Intellectual Property Review
One small step or one giant leap?
Phillip Johnson
© 2011 Sweet & Maxwell and its Contributors
Subject: Intellectual property
Keywords: Copyright; EC law; Fair dealing; International trade
Legislation: Convention for the Protection of Literary and Artistic Works 1886 Art.9(2)
Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 Art.13
European Parliament and Council Directive 2001/29 on copyright and related rights in the information society
Case: United States (Music Licensing), Re (Unreported, July 27, 2000) (WTO)
*265 How has the WTO Panel Decision on Section 110(5) of the United States Copyright Act Changed our Understanding of the “Three-step Test”?
The limitations and exceptions to copyright and related rights are restricted by the three-step test. How this test should be applied has always been doubtful. The WTO Panel decision has removed some of the doubt, but it has also raised new questions.

History
The three-step test set out in Art.9(2) of the Berne Convention for the Protection of Literary and Artistic Works (“the Berne Convention”) originated at the Stockholm Conference on the revision of the Berne Convention. It was proposed in order to allow for, and set limits on, exceptions to the reproduction right in national laws without the need for the Convention to set out a permissive list. It was adopted unanimously as part of the Paris Act 1971. Yet what the three-step test actually means has always been doubtful. Like many international provisions it has been widely accepted because it could mean all things to all people.

This uncertain state of affairs could continue as long as the Berne Convention had no real “enforcement” mechanism. The three-step test itself was considered to be a “catch-all” limitation for exceptions to the reproduction right, which were not otherwise provided for in the Convention.1 However, these narrow parameters were widened by Art.13 of the Agreement on Trade-related Aspects of Intellectual Property Rights (“TRIPs”), which not only incorporates the Berne Convention and the three-step test into the enforcement mechanism of the World Trade Organization *266 (“WTO”), thereby finally giving it some bite, but also extends the test to all economic rights under copyright.2 Since TRIPs was agreed, the three-step test has also been included in Art.10 of the WIPO Copyright Treaty and Art.16 of the WIPO Performances and Phonograms Treaty (which extends the test to exceptions to related rights3 ): collectively these two treaties are known as “the Internet Treaties”.

However, it is the adoption of the three-step test as a central part of the recent Directive on the harmonisation of certain aspects of copyright and related rights in the information society (2001/29) (“Information Society Directive”) that has, in European terms, pushed the matter up a gear.4

Notwithstanding the spread of the three-step test, its application had received very little attention5 until the WTO Panel6 (“the Panel”) considered it in relation to a particular exception in the matter of United States– Section 110(5) of the Copyright Act. 7 This decision makes it possible to put matters into perspective; therefore it is surprising it has provoked so little comment from European lawyers.8 Indeed, one of the few comments specifically addressing the decision appears to be limited to an argument that the decision was per incuriam. 9 Furthermore, the comments of US academics have generally been concerned with the effect the decision will have on the US law, rather than the effect of the decision itself.10

Now that the three-step test has been included in the Information Society Directive, it will be possible for private parties to “challenge” certain copyright exceptions on the basis that they do not comply with the three-step test.11 The Directive explicitly incorporates the three-step test into EC law, both generally on the basis of Art.5(5) (see also Recital 4412 ), which requires any exceptions relying on Art.5 to comply with the three-step test, and by inserting a new Art.10(3) into the Rental Right and Lending Rights Directive13 to apply the test to exceptions to related rights addressed in that Directive.

With this in mind, lawyers have had little or no guidance on what the three-step test actually means; the limited assistance we do have comes from the Panel decision and the work of a few academics, most notably Professor Ricketson and Mihály Ficsor; although if courts around the world follow the reasoning of the Panel then much of what the academics have said will be superseded. This comment will try to give a critical review of the three-step test as applied by the Panel and suggest how their decision can provide guidance for its application in the future. Although it must be borne in mind that the precedent value of Panel decisions (especially outside the WTO) is doubtful, there is no doubt that the reasoning of the Panel would certainly be of persuasive value.

The three-step test (as set out in Art.13 of TRIPs) reads as follows:
“Members shall confine limitations or exceptions to exclusive rights 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.”14

This test has always been considered to be legislative rather than post-legislative,15 that is, legislative exceptions to copyright should be drafted so that all conduct falling within the exceptions, ipso facto, meets the threestep test, rather than being non-legislative such that each persons reliance on a legislative exception must be interpreted by the courts against the three-step test. *267 Indeed, if this approach were incorrect then no amendments would have been required by reason of Art.11 of the Information Society Directive.16

The Factual Background to the WTO Panel Decision
Section 110 of the US Copyright Act 1976, which was amended by the Fairness in Music Licensing Act 1998, provides limited exceptions to the exclusive rights of public performance or display provided by s.106. The European Commission complained to the WTO that two of these exceptions,

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