• Condition or Covenant? The Answer

    by  • April 12, 2018 • copyright • 2 Comments

    I posed the question whether an overrun in a book printing was a breach of the copyright license granted for the use of photos in the book or just a breach of a covenant of the agreement. The court described the issue this way:

    According to Scholastic, “Corbis did not treat [Scholastic’s] ongoing, high-volume … use of a licensed photo … in excess of or beyond the print run estimate on the face of the invoice in question to be … copyright infringement, but viewed it as a contractual matter.” According to Sohm, “Scholastic knew that the licenses it entered into for uses of content owned by third parties were limited, and that if Scholastic wanted to make additional uses beyond the [print run] of any license, Scholastic needed to obtain permission and pay for such uses before it made them.”

    (Ellipses and bracket in original.) You will recall that the license grants in question were, in the 2004 agreement:

    License granted by Corbis: Unless otherwise specific in a separate writing signed by Corbis, your reproduction of Images is limited to … the specific use described in your invoice, which together with these terms shall constitute the full license granted…. Any license granted by Corbis is conditioned upon (i) your meeting all conditions and restrictions imposed by Corbis, and (ii) Corbis’ receipt of [fu]ll payment by you for such use as invoiced by Corbis. Your failure to make full payment when due shall terminate any license granted to you and entitles Corbis to pursue all remedies available under copyright laws. You may not otherwise make, use or distribute copies of any Images for any purpose except as authorized.

    and in the 2008 agreement:

    (b) Rights Managed Content: … Corbis grants You a limited, nonexclusive right to use the Rights Managed Content licensed hereunder to create and exploit the End Use solely as specified in the Invoice … . Except where specially permitted on the Invoice for the applicable Content, You may not distribute, publish, display or otherwise use in any way, the Rights Managed Content, including without limitation the End Use after the Term.

    (Ellipses and emphasis in original.)

    The court held that the excess print run was a breach of a covenant, not a condition. First off, New York law presumes that the terms of a contract are covenants, not conditions, and that conditions precedent must be expressed in unmistakable language. The court did not find that language here. As to the 2004 agreement language:

    The Court concludes that the print run limitations in this agreement are best characterized as covenants, rather than conditions. As Plaintiffs point out, Scholastic’s license was conditional on full payment as invoiced. Plaintiffs do not allege, however, that Scholastic failed to pay as invoiced; instead, they allege that it paid the amount due under the invoices and then exceeded the print run in those invoices. Such action is better understood as a violation of the provision prohibiting Scholastic from “mak[ing], us[ing] or distribut[ing] copies of any Images for any purpose except as authorized.” (Id.) Similarly, the language limiting Scholastic’s “reproduction of Images … to … the specific use descried in your invoice” (id.) did not give rise to a condition: A contact term, like those in this agreement, which “merely delineate[s] ‘acceptable’ and ‘unacceptable’ behavior under the licensing agreement” is a covenant.

    As to the additional language in the 2008 agreement:

    This language falls even further short of creating a condition than that of the 2004 agreement. The 2008 agreement contains no unmistakable language conditioning the license on compliance with the print run limits in Corbis’ invoices. And like the language in the 2004 agreement, the 2008 agreement is better understood as a prohibition on certain actions under the license, rather than as a condition. In other words, the print run limits are covenants under the 2008 agreement as well.

    I didn’t see anything labeled “invoice” in the docket or cited as such by the court. And the “Preferred Pricing Agreements” are redacted, so maybe there was something in there that contemplated how a licensee was allowed to deal with overruns. But I don’t see how the extra copies fall within the scope of the agreements to begin with. Let’s assume that, instead of extra copies, you used an altogether different photo. I didn’t invoice you for that additional copyrighted work so the agreement doesn’t apply to it at all, it’s just a straight up copyright infringement case. I don’t see how that changes because the unauthorized copying is more copies rather than a different work. I agree that where I invoice, that is, license, 10,000 copies then it is a covenant, not a condition of the license, that you will pay me for that number of copies.1 If you don’t pay me, I agree that my remedy lies in breach of contract, not copyright infringement. But if you make 15,000 copies, 5,000 of them weren’t invoiced at all, and so they weren’t even contemplated by the agreement. That’s a copyright infringement. The extension of this holding is that the overrun copies aren’t subject to the conditions on the license granted to the authorized copies, that they can be used more liberally, which can’t be right.

    But the case otherwise gets three gold stars for holding, correctly IMHO, that the registration was validly done and so the suit could proceed. Scholastic made different challenges: (1) the registrations were invalid because Sohm wasn’t listed as an author in the group registrations Corbis filed; (2) the registrations were invalid because they were for unpublished works but some photos had been published; and (3) the registrations were invalid because some photographs were listed with a publication date before the creation date. The first two theories were wrong as a matter of law and the third was a question of fact, so Scholastic was not granted summary judgment.

    Sohm v. Scholastic, Inc., No. 16-CV-7098 (JPO) (S.D.N.Y. March 28, 2018).

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    1. I did find this concept in the case a helpful one in distinguishing the two: “‘[C]ontract obligations that are to be performed after partial performance by the other party are not treated as conditions.’ Graham, 144 F.3d at 237.” So where the agreement is that payment is to be made in arrears, failure to pay would be a breach of a covenant. 
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    2 Responses to Condition or Covenant? The Answer

    1. Dan R
      April 12, 2018 at 11:00 am

      What about the “Any license granted by Corbis is conditioned upon (i) your meeting all conditions and restrictions imposed by Corbis”? Often this kind of language is used to get around the condition/covenant issue. Was this clause discussed?

      The condition/covenant test never made sense to me. The test should be whether the defendant’s breach constitutes copyright infringement if they didn’t have the license. If the defendant created a derivative work in violation of the license, that’s a breach and copyright infringement. If they breached the confidentiality provision that’s just a breach.

      • Pam
        April 14, 2018 at 12:03 pm

        It wasn’t, but I’m skeptical that catch-all language like that would work. There has to be some distinction between the two.

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