“Copyright graffiti” Flickr photo by opensourceway shared under a Creative Commons (BY-SA) license.

Fanfiction kept Star Wars alive. At least, that’s what I think. Without the fanzines, comic cons, and the now-defunct Expanded Universe, which was itself a form of sanctioned fanfiction, Star Wars would be just another old space opera flick with 70s era special effects.

I say this as a Star Wars fan. I say this because I was a year old when Return of the Jedi hit theaters and a high school junior when The Phantom Menace introduced the world to Jar Jar Binks. (I’m still disappointed that Jar Jar didn’t emerge as a secret Sith apprentice and meet a swift and satisfyingly violent end. Offing Jar Jar is a legitimate reason for turning to the Dark Side.) Ten years after Revenge of the Sith left me with a giant “Really?” bubble floating over my head, I bought advance tickets to The Force Awakens.

I look back and wonder would I have cared about a continuing story if fanfiction writers, both official and not, hadn’t nurtured it for over a decade. For me, Star Wars fanfiction made me a fan.

I’m pointing this out because I honestly think fanfiction helps large franchises like Star Wars and Harry Potter. It keeps fans like myself from jumping on a new bandwagon like Game of Thrones or An Ember in the Ashes.

In my view, services like Wattpad, AO3, and fanfiction.net, help keep these fandoms alive. By permitting unlicensed fanfictions with all their misspellings, grammar quirks, and frankly bizarre mpreg tags on their site, these sites keep fans like myself engaged in a given fandom.

Putting a Price Tag on Fans

The largest copyright infringement award to-date totaled $1.3 billion. Admittedly, this case involved two tech giants: Oracle and SAP. At the time, Oracle’s market capitalization was valued at $148.29 billion. This award amounted to 0.876% of Oracle’s value.

Take that percentage and apply it to Harry Potter, which is worth an estimated $25 billion. Imagine J.K. Rowling and Warner Brothers win a fanfiction copyright infringement award on Oracle’s scale — $219 million. Fanfiction sites crackdown on Harry Potter fanfiction. Within months, it either goes underground or disappears.

For a one-time payout of $219 million, which is incredibly generous, the fandom reverts back to Ms. Rowling’s complete control and its ability to continue nurturing its own readership dies.

Now, imagine this happened a few months before Harry Potter and the Deathly Hallows — Part 2 hit theaters in 2011. Would Fantastic Beasts and Where to Find Them, released in 2016, have grossed $814 million worldwide? What about The Crimes of Grindelwald, which underperformed when compared with its predecessor or Harry Potter and the Cursed Child?

With a franchise like Harry Potter, pursuing copyright infringement could cost more money in the long-term than it gains in the short-term.

For a creator, nurturing the fandom may be more valuable than a copyright infringement award.

The logic here looks something like:

Happy fans buy future books. Unhappy fans, particularly ones you drag into court, don’t.

Before we delve into the murky world of fanfiction, DMCA, and copyrights, we must acknowledge that copyright infringement is not a creator’s sole concern. Engaged fans buy comics and books, see movies, make their own lightsabers, dress their kids in Star Wars t-shirts, and paint lightning bolts on their foreheads for Halloween. If you keep these people engaged, their kids and grandkids become fans, too.

Suing a web publisher for copyright infringement may not always be in a creator’s financial best interests.

That is not a comment on fanfictions’ legality. It doesn’t protect any platform or fanfiction writer from possible repercussions. It merely means some creators have a financial incentive not to sue.

Here are the facts:

  1. Copyright protections are almost universal.
  2. Many countries have safe harbor provisions, which limit or eliminate the liability a service provider faces for copyright infringing user-generated content. These do not grant service providers like YouTube or Wattpad blanket immunity. Certain knowledge and actions can remove these protections.
  3. Fanfiction’s legal status under copyright law is mostly untested. However, commercialized fanfiction hasn’t fared well in the courts. Even fanfiction’s greatest proponents admit that not all fanfiction qualifies as fair use. If it’s not fair use, it’s illegal.

As an economic policy geek, not an attorney, when I talk about copyright, I am not referring to the US Copyright Act of 1976 or Article 1, Section 8, Clause 8 of the US Constitution, i.e., the Copyright Clause. I mean the WIPO Copyright Treaty 1996, the Universal Copyrights Convention, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), among others.

Although the implementation of these treaties differs from one nation to the next, the basic principals remain the same. For example, the US’s Digital Millennium Copyright Act (DMCA) implemented the WIPO Copyright Treaty 1996.

Only three countries offer no copyright protections. Ten others haven’t signed any international agreements, but the US Copyright Office indicates copyright protections exist.

To put this in perspective, the UN has 193 member countries. Over 98% have copyright laws.

If you’re a writer and you dream of one day becoming an international bestseller — don’t we all — the World Trade Organization is your friend. Ignore all the politicians bleating that trade agreements and organizations like the WTO are evil. They’re idiots. You want an international body that imposes intellectual property rules on all its members and has courts to enforce them because US copyright laws do not apply in Brazil!

Safe harbor protections are not absolute.

The DMCA’s Safe Harbor provisions, which intermediaries like YouTube and Scribd argue protects them from liability if a user illegally posts copyrighted content, are not unique to the US. Other countries, including Australia, Bahrain, China, the EU, and South Korea have similar liability protections.

Despite YouTube arguing otherwise in Viacom International, Inc. v. YouTube, Inc., safe harbor does not mean blanket immunity. Here’s the US Appeals Court’s ruling. The relevant bit for this discussion is 17 (A) on page 2.

The questions are:

  1. Does the company have knowledge of infringing material?
  2. Do they profit from the infringement?
  3. Did they drag their feet when they received a DMCA takedown notice?

If the answer is yes to any of these questions, safe harbor goes out the window.

This approach isn’t unique to the US. German and Austrian Courts have both ruled that YouTube can be held liable for copyright infringement on user-generated content.

The Organization of Transformative Works, a pro-fanfiction advocacy group, offers a legal defense for fanfiction. This is what a defense attorney might argue. It doesn’t mean a court will or has agreed.

Although they argue that fan fiction is fair use, they use phrases like “(most) fanworks legal” and “(Usually) Fair Use.” Even fanfictions’ strongest proponents admit that not all fanfiction qualifies as fair use. If it’s not fair use, it’s copyright infringement.

Curious about how non-advocates may interpret fanfiction and fair use, I turned to the old graduate school standby. I googled the top law schools along with the phrase “copyright fair use” and found Columbia University’s Fair Use Checklist.

They disagree with the Organization of Transformative Works. Based on their checklist, most fanfiction is illegal.

The most relevant case in recent years is Salinger v. Colting, which dealt with a commercially published, unauthorized sequel to the Catcher in the Rye. Here’s a comprehensive look at what the case means for fanfiction. Columbia’s checklist matches the case’s outcome. (Colting lost.) That said, courts determine fair use on a case by case basis. What’s fair use for one fanfiction may not be fair use for another.

Given these dueling perspectives, fanfiction is at best legally gray. However, even if we accept Transformative Works’ generous interpretation, commercial activity as in corporate profits remains forbidden fruit.

What We Know About Wattpad’s Relationship with Fanfiction

Wattpad is a privately held Canadian corporation with investments from multiple venture capitalist firms. They do not provide a publicly available investor’s prospectus that details their different revenue streams and breaks out their ad revenue by genre because they are not a publicly traded company. Even if they were, don’t expect genre level detail. Facebook — the entity that owns Facebook, WhatsApp, Instagram, etc. — doesn’t even break theirs out by the company.

Let me get up my soapbox for a minute.

As a copywriter, I’ve signed confidentiality agreements so stringent that I cannot admit that I worked for a company. Before beginning an assignment, we mutually agree that I do not exist. This always happens when a job requires confidential financial documents. If a company handed over their financials without an agreement in place, I’d question their sanity.

Please don’t send Wattpad an angry email saying they need to release their financials. They don’t. Keeping their financials private is a standard and prudent business practice.

Sorry. I’ll step off the soapbox now.

Here is what we know about fanfiction and Wattpad.

  1. Wattpad cultivates relationships with media conglomerates, including an interesting “transmedia experiment” (aka, fanfiction) with Sony Music Group for One Direction.
  2. Wattpad’s fanfiction genre tag is an official genre category. When you create a new story, fanfiction is listed in the genre dropdown. Although users can select these, they cannot edit them. That means Wattpad creates these.
  3. Ads are displayed on fanfictions. For example, the Harry Potter fanfiction I checked displayed three image ads and one video ad on the first chapter alone.

Since they still exist and the power company hasn’t pulled the plug on their server banks, we assume that Wattpad is profitable or, at least, breaking even. We do not know how much it costs them to host a chapter or how many readers they need before that chapter’s ads turn a profit. There is a point on this scale where Wattpad loses money on a free story.

We assume that a fanfiction with ads and over a million reads is making them money, but we can’t prove it.

The following begins with if.

If Wattpad’s ad revenue for a given fanfiction exceeds its server and administration costs, then that fanfiction is profitable. If a fanfiction makes money and Wattpad does not have an agreement with its creator(s), it’s likely not fair use for Wattpad.

To better understand this, go back to Transformative Work’s fanfiction argument and run through their four points first as a hypothetical fanfiction writer and then as if you’re Wattpad. Fair use for a fanfiction writer who isn’t profiting may be copyright infringement for the company that is.

The Harry Potter Problem

Although Wattpad may have a relationship with some media conglomerates and creators that legitimizes certain fanfictions, they do not have a publicized relationship with J.K. Rowling. Additionally, Ms. Rowling’s spokesman has previously stated that Harry Potter fanfiction should remain

a non-commercial activity to ensure fans are not exploited and it (must) not (be) published in the strict sense of traditional print publishing.

If Wattpad’s ad revenue for a Harry Potter fanfiction exceeds its expenses, would Ms. Rowling consider this to be commercial activity? If so and she elects to enforce her legal rights, what is the worst case scenario for both Wattpad and Wattpad’s writers?

Keep in mind that Ms. Rowling turned a middle-grade story into a $25 billion empire. She’s either a marketing genius or she has several on her payroll. With a personal fortune worth approximately $1 billion, she can buy Wattpad, valued at around $398 million, several times over. Pottermore also gives her a direct link with her legions of fans.

Given her massive author platform and resources, she could challenge a website over potential Harry Potter fanfiction ad profits without alienating her fanbase.

In a scenario like this, Wattpad has two safe harbor problems.

First, Wattpad arguably knows about infringing material on its website because they created fanfiction as a genre. Second, if a for-profit company shows ads on a fanfiction and generates a profit from those ads, then they have a

direct financial interest in the infringing activity. ~ The Legal Implications of User Generated Content: YouTube, Myspace, and Facebook

Consequences and Conclusions

If Wattpad announced an IPO and fanfiction was still a big part of the site, I would have the following questions.

  • What agreements do they have the original creators?
  • Does their insurance cover copyright claims?
  • What steps are they taking to limit their liability?
  • Do they have a roadmap to remove unauthorized fanfiction from their site?

As a potential investor, I would worry that they may be sued for copyright infringement involving thousands of stories and multiple fandoms. Could the award(s) send the company into bankruptcy and wipe out my little nest egg?

Could? Yes. Will? Maybe. The big names have financial incentives not to do this, but I imagine an IPO for a fanfiction site would go over like a ton of bricks.

Even without an IPO, as Wattpad’s stature grows and it expands into other mediums and publishing initiatives, the risk that their profits may draw a creator’s ire increases.

For a writer who’s considering using Wattpad or already on their platform, you can protect yourself by only posting original work on Wattpad. If Wattpad profits off a fanfiction, at least you didn’t write it. You didn’t post it. Don’t volunteer to share the defendant’s table because someone else profited off your fanfiction.

Regardless of how Wattpad addresses this issue, you should not limit yourself to Wattpad. Use it for a public beta, as part of your marketing plan, for a market test, or social networking.

Use Wattpad as part of your platform building plan, not as the entire plan.