Before: Betty B. Fletcher, Thomas G. Nelson, and Marsha S. Berzon, Circuit Judges.

T.G. NELSON, Circuit Judge:
This case involves the application of copyright law to the vast world of the internet and internet search engines. The plaintiff, Leslie Kelly, is a professional photographer who has copyrighted many of his images of the American West. Some of these images are located on Kelly's web site or other web sites with which Kelly has a license agreement. The defendant, Arriba Soft Corp., operates an internet search engine that displays its results in the form of small pictures rather than the more usual form of text. Arriba obtained its database of pictures by copying images from other web sites. By clicking on one of these small pictures, called "thumbnails," the user can then view a large version of that same picture within the context of the Arriba web page.

When Kelly discovered that his photographs were part of Arriba's search engine database, he brought a claim against Arriba for copyright infringement. The district court found that Kelly had established a prima facie case of copyright infringement based on Arriba's unauthorized reproduction and display of Kelly's works, but that this reproduction and display constituted a non-infringing "fair use " under Section 107 of the Copyright Act. Kelly appeals that decision, and we affirm in part and reverse in part. The creation and use of the thumbnails in the search engine is a fair use, but the display of the larger image is a violation of Kelly's exclusive right to publicly display his works.

The district court granted summary judgment in favor of Arriba. Although the court found that Kelly had established a prima facie case of infringement based on Arriba's reproduction and display of Kelly's photographs, the court ruled that such actions by Arriba constituted fair use. The court determined that two of the fair use factors weighed heavily in Arriba's favor. Specifically, the court found that the character and purpose of Arriba's use was significantly transformative and the use did not harm the market for or value of Kelly's works. Kelly now appeals this decision…

[The thumbnail sketches]

There is no dispute that Arriba operates its web site for commercial purposes and that Kelly's images were part of Arriba's search engine database. As the district court found, while such use of Kelly's images was commercial, it was more incidental and less exploitative in nature than more traditional types of commercial use. Arriba was neither using Kelly's images to directly promote its web site nor trying to profit by selling Kelly's images. Instead, Kelly's images were among thousands of images in Arriba's search engine database. Because the use of Kelly's images was not highly exploitative, the commercial nature of the use only slightly weighs against a finding of fair use.

The second part of the inquiry as to this factor involves the transformative nature of the use. We must determine if Arriba's use of the images merely superseded the object of the originals or instead added a further purpose or different character. We find that Arriba's use of Kelly's images for its thumbnails was transformative

Despite the fact that Arriba made exact replications of Kelly's images, the thumbnails were much smaller, lower-resolution images that served an entirely different function than Kelly's original images. Kelly's images are artistic works used for illustrative purposes. His images are used to portray scenes from the American West in an esthetic manner. Arriba's use of Kelly's images in the thumbnails is unrelated to any esthetic purpose. Arriba's search engine functions as a tool to help index and improve access to images on the internet and their related web sites. In fact, users are unlikely to enlarge the thumbnails and use them for artistic purposes because the thumbnails are of much lower resolution than the originals; any enlargement results in a significant loss of clarity of the image, making them inappropriate as display material. Kelly asserts that because Arriba reproduced his exact images and added nothing to them, Arriba's use cannot be transformative. It is true that courts have been reluctant to find fair use when an original work is merely retransmitted in a different medium. Those cases are inapposite, however, because the resulting use of the copyrighted work in those cases was the same as the original use. For instance, reproducing music CD's into computer MP3 format does not change the fact that both formats are used for entertainment purposes. Likewise, reproducing news footage into a different format does not change the ultimate purpose of informing the public about current affairs.

Even in Infinity Broadcast Corp. v. Kirkwood, where the retransmission of radio broadcasts over telephone lines was for the purpose of allowing advertisers and radio stations to check on the broadcast of commercials or on-air talent, there was nothing preventing listeners from subscribing to the ser-vice for entertainment purposes. Even though the intended purpose of the retransmission may have been different from the purpose of the original transmission, the result was that people could use both types of transmissions for the same pur-pose. This case involves more than merely a retransmission of Kelly's images in a different medium. Arriba's use of the images serves a different function than Kelly's use-improving access to information on the internet versus artistic expression. Furthermore, it would be unlikely that anyone would use Arriba's thumbnails for illustrative or esthetic purposes because enlarging them sacrifices their clarity. Because Arriba's use is not superseding Kelly's use but, rather, has created a different purpose for the images, Arriba's use is transformative

In Sony Computer Entertainment America, Inc. v. Bleem, we held that when Bleem copied "screen shots" from Sony computer games and used them in its own advertising, it was a fair use. In finding that the first factor weighed in favor of Bleem, we noted that "comparative advertising redounds greatly to the purchasing public's benefit with very little cor-responding loss to the integrity of Sony's copyrighted material." Similarly, this first factor weighs in favor of Arriba due to the public benefit of the search engine and the minimal loss of integrity to Kelly's images….

4. Effect of the use upon the potential market for or value of the copyrighted work.
This last factor requires courts to consider "not only the extent of market harm caused by the particular actions of the alleged infringer, but also `whether unrestricted and wide-spread conduct of the sort engaged in by the defendant . . . would result in a substantially adverse impact on the potential market for the original.' … Kelly's images are related to several potential markets. One purpose of the photographs is to attract internet users to his web site, where he sells advertising space as well as books and travel packages. In addition, Kelly could sell or license his photographs to other web sites or to a stock photo data-base, which then could offer the images to its customers. Arriba's use of Kelly's images in its thumbnails does not harm the market for Kelly's images or the value of his images. By showing the thumbnails on its results page when users entered terms related to Kelly's images, the search engine would guide users to Kelly's web site rather than away from it. Even if users were more interested in the image itself rather than the information on the web page, they would still have to go to Kelly's site to see the full-sized image. The thumbnails would not be a substitute for the full-sized images because when the thumbnails are enlarged, they lose their clarity. If a user wanted to view or download a quality image, he or she would have to visit Kelly's web site. 35 This would hold true whether the thumbnails are solely in Arriba's data-base or are more widespread and found in other search engine databases.

Arriba's use of Kelly's images also would not harm Kelly's ability to sell or license his full-sized images. Arriba does not sell or license its thumbnails to other parties. Anyone who downloaded the thumbnails would not be successful selling the full-sized images because of the low-resolution of the thumbnails. There would be no way to view, create, or sell a clear, full-sized image without going to Kelly's web sites. Therefore, Arriba's creation and use of the thumbnails does not harm the market for or value of Kelly's images. This factor weighs in favor of Arriba. Having considered the four fair use factors and found that two weigh in favor of Arriba, one is neutral, and one weighs slightly in favor of Kelly, we conclude that Arriba's use of Kelly's images as thumbnails in its search engine is a fair use.

[Public Display of copyrighted works]

Looking strictly at the language of the Act and its legislative history, it appears that when Arriba imports Kelly's images into its own web page, Arriba is infringing upon Kelly's public display right. The limited case law in this area supports this conclusion. No cases have addressed the issue of whether inline linking or framing violates a copyright owner's public display rights. However, in Playboy Enterprises, Inc. v. Webbworld, Inc., 991 F. Supp. 543 (N.D. Texas 1997) the court found that the owner of an internet site infringed a magazine publisher's copyrights by displaying copyrighted images on its web site. The defendant, Webbworld, down-loaded material from certain newsgroups, discarded the text and retained the images, and made those images available to its internet subscribers. Playboy owned copyrights to many of the images Webbworld retained and displayed. The court found that Webbworld violated Playboy's exclusive right to display its copyrighted works, noting that allowing subscrib-ers to view copyrighted works on their computer monitors while online was a display. The court also discounted the fact that no image existed until the subscriber downloaded it. The image existed in digital form, which made it available for decoding as an image file by the subscriber, who could view the images merely by visiting the Webbworld site. Although Arriba does not download Kelly's images to its own server but, rather, imports them directly from other web sites, the situation is analogous to Webbworld. By alloing the public to view Kelly's copyrighted works while visiting Arriba's web site, Arriba created a public display of Kelly's works….

Arriba actively participated in displaying Kelly's images by trolling the web, finding Kelly's images, and then having its program inline link and frame those images within its own web site. Without this program, users would not have been able to view Kelly's images within the context of Arriba's site. Arriba acted as more than a passive conduit of the images by establishing a direct link to the copyrighted images. Therefore, Arriba is liable for publicly displaying Kelly's copyrighted images without his permission.

[Full Images -- Fair Use]

Once again, to decide whom the first factor, the purpose and character of the use, favors, we must determine whether Arriba's use of Kelly's images was transformative. Unlike the use of the images for the thumbnails, displaying Kelly's full-sized images does not enhance Arriba's search engine. The images do not act as a means to access other information on the internet but, rather, are likely the end product themselves. Although users of the search engine could link from the full-sized image to Kelly's web site, any user who is solely searching for images would not need to do so. Because the full-sized images on Arriba's site act primarily as illustrtions or artistic expression and the search engine would func-tion the same without them, they do not have a purpose different from Kelly's use of them…

The third fair use factor turns on the amount of the work displayed and the reasonableness of this amount in light of the purpose for the display. Arriba displayed the full images, which cuts against a finding of fair use. And while it was necessary to provide whole images to suit Arriba's purpose of giving users access to the full-sized images without having to go to another site, such a purpose is not legitimate, as we noted above. Therefore, it was not reasonable to copy the full-sized display. The third factor favors Kelly.

The fourth factor often depends upon how transformative the new use is compared to the original use. A work that is very transformative will often be in a different market from the original work and therefore is less likely to cause harm to the original work's market. Works that are not transformative, however, have the same purpose as the original work and will often have a negative effect on the original work's market. As discussed in the previous fair use analysis, Kelly's markets for his images include using them to attract advertisers and buyers to his web site, and selling or licensing the images to other web sites or stock photo databases. By giving users access to Kelly's full-sized images on its own web site, Arriba harms all of Kelly's markets.

CONCLUSION

We hold that Arriba's reproduction of Kelly's images for use as thumbnails in Arriba's search engine is a fair use under the Copyright Act. We also hold that Arriba's display of Kelly's full-sized images is not a fair use and thus violates Kelly's exclusive right to publicly display his copyrighted works. The district court's opinion is affirmed as to the thumbnails and reversed as to the display of the full-sized images. We remand with instructions to determine damages for the copyright infringement and the necessity for an injunction. Each party shall bear its own costs and fees on appeal.

AFFIRMED in part, REVERSED in part, and REMANDED

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