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.

INTRODUCTION
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
a

in certain special cases;

that do not conflict with the normal exploitation of the work; and

that do not unreasonably prejudice the legitimate interests of the author / right-holder.
Nowadays, the three-step test appears not only in the Berne Convention (Article 9 (2)) but also in
the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) (Article 13), the
WIPO Copyright Treaty (WCT) (Article 10) and the WIPO Performances and Phonograms
Treaty (WPPT) (Article 16). Moreover, several European Directives contain the test.
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).
In the following section, this paper is going to analyze the practically and economically driven
interpretation of the three-step test by the WTO Panel (Knights 2000, p. 4). Where appropriate,
dissenting opinions of legal scholars will be highlighted.
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:
It is also understood that Article 10 (2) neither reduces nor extends the scope of applicability
of the limitations and exceptions permitted by the Berne Convention.
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 openworded 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).
THE MEANING OF THE THREE STEPS
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.
It has to be noted that the three steps of the test are cumulative and, hence, a failure to comply
with one of the steps results in the limitation being disallowed.
Certain special cases

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.
No conflict with a normal exploitation of the work
The WTO Panel (2000, p. 44 et seq.) examined the meanings of normal and exploitation and
concluded with regard to the second element of the three-step test, that
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.
In this context, both actual and potential uses should be considered, and, moreover, each
individual exclusive right should be considered separately.
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.
Not unreasonably prejudice the legitimate interests of the author/right-holder
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.
SUMMARY AND CONCLUSION
The three-step test is the central instrument in international copyright law to examine the
legitimacy of national copyright limitations. Its proper understanding, interpretation and
application are therefore indispensable for everybody working in this particular field.
The aim of this paper was to identify the key issues regarding the analysis of the threestep 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.
Yet, the limited precedent value of the WTO Panel's decision should be borne in mind as
it binds only the parties to the legal proceedings. Neither other Member States nor domestic
courts are bound by the decision; even a later Panel would arguably not be legally obliged to
follow that decision (Oliver 2002, 132-133).
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.
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