• Race To the Swiftest Without Notice

    by  • December 24, 2008 • copyright

    The U.S. patent, trademark and copyright statutes all have recording provisions (“race-notice,” if my property law recollection is correct) that provide a bona fide purchaser in good faith defense to the second purchaser. I don’t remember the last time I read a case that dealt with the assignment of the same intellectual property to two different entities, I suppose because it doesn’t happen that often – indeed here, the second purchaser acknowledged that it had no claim to the property. But it had granted a license, and the licensee is claiming the defense.

    A computer software program called “Pathways Through Jerusalem” is a “multimedia tour through the historic city of Jerusalem.” The copyright was registered in 1996 by The Learning Company, f/k/a SoftKey Multimedia, Inc. The Learning Company assigned the copyright to Harry Fox in 1997 but he did not record the assignment.

    In September 2001, defendant Riverdeep acquired The Learning Company’s educational software. It then licensed Barbara Cash to manufacture and distribute the Pathways program, representing in the license that it owned the rights. During negotiations for the license the name “Harry Fox” came up, so Cash’s lawyer checked with the Harry Fox Agency (the agency that licenses copyright mechanical rights) and was told that the agency didn’t own the copyright – it didn’t because Harry Fox was just a guy who happened to have the same name as the agency. Since Harry Fox hadn’t recorded his assignment, the Copyright Office records still showed SoftKey as the owner. Cash went ahead with the license.

    Cash then told the current distributor that she owned the rights and it could no longer distribute the work. The distributor reported the news to Harry Fox. Fox sent a cease and desist letter to Riverdeep and also told Cash that he owned the rights. Riverdeep entered into negotiations with Fox and told Cash that it expected an amicable resolution. Riverdeep and Fox never came to an agreement and the lawsuit ensued.

    In the suit, Riverdeep acknowledges that it does not own the Pathways copyright. The Copyright Act, however, has a provision for the grant of a license to an innocent licensee:

    A nonexclusive license, whether recorded or not, prevails over a conflicting transfer of copyright ownership if the license is evidenced by a written instrument signed by the owner of the rights licensed or such owner’s duly authorized agent, and if (1) the license was taken before execution of the transfer; or (2) the license was taken in good faith before recordation of the transfer and without notice of it.

    17 U.S.C. § 205(e). Cash moved for a summary judgment that she qualified as a good faith licensee under § 205(e)(2). It was undisputed that Fox had not recorded before Cash took the license from Riverdeep, so the only question was whether Cash had actual or inquiry notice of Fox’s ownership. The court denied summary judgment, holding that it was a question of fact whether Cash’s lawyer had done enough to uncover the possible ownership by “Harry Fox.”

    I’ve seen the sticker shock on the faces of transactional lawyers when they find out how much recording the assignment of a lot of IP properties will cost. This case is good ammunition for explaining that, yes, it really must be done now.

    Harry Fox v. Riverdeep, Inc., No. 07-13622, 2008 U.S. Dist. LEXIS 101633 (E.D. Mich. Dec. 16, 2008).

    Recording statutes below.

    Patent
    35 U.S.C. § 261 – “An assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.”
    Trademark
    15 U.S.C. § 1060 – “An assignment shall be void against any subsequent purchaser for valuable consideration without notice, unless the prescribed information reporting the assignment is recorded in the United States Patent and Trademark Office within 3 months after the date of the assignment or prior to the subsequent purchase.”
    Copyright
    17 U.S.C. § 205(d) – “As between two conflicting transfers, the one executed first prevails if it is recorded, in the manner required to give constructive notice under subsection (c), within one month after its execution in the United States or within two months after its execution outside the United States, or at any time before recordation in such manner of the later transfer. Otherwise the later transfer prevails if recorded first in such manner, and if taken in good faith, for valuable consideration or on the basis of a binding promise to pay royalties, and without notice of the earlier transfer.”
    17 U.S.C. § 205(e) – A nonexclusive license, whether recorded or not, prevails over a conflicting transfer of copyright ownership if the license is evidenced by a written instrument signed by the owner of the rights licensed or such owner’s duly authorized agent, and if (1) the license was taken before execution of the transfer; or (2) the license was taken in good faith before recordation of the transfer and without notice of it.”

    © 2008 Pamela Chestek