Property, intangible

a blog about ownership of intellectual property rights and its licensing

Who Is Not a Beneficial Owner of Copyright

Six years into the case, we’re on to the third decision on ownership in the case of Roberts v. Gordy and have yet to reach the question of infringement. In the first opinion, the district court held that, although there were three registrations for the infringed work, none was effective and so the court dismissed the case. The decision was reversed by the Court of Appeals for the Eleventh Circuit, which held that the the district court applied the wrong standard for scienter in deciding whether a registration is invalid. The statute refers to “knowledge” of inaccuracy, but the appeals court held that the standard is whether there was “intentional or purposeful concealment of relevant information.” There was no intent to conceal here, so the case was remanded.

With that, we have crossed the first threshold: the plaintiffs have met the requirement that it have a copyright registration. But we’re only getting started.

There are three plaintiffs, William L. Roberts II, performing as Rick Ross, Jermain Jackson and Andrew Harr. Jackson and Harr are producers known as The Runners. The three claimed to be the authors and copyright owners of Hustlin’

and that a work Party Rock Anthem by LMFAO infringed the copyright in Hustlin’:

Party Rock Anthem” copies, interpolates the lyrics, underlying music and beat of “Hustlin’” and prominently features the highly recognizable “Everyday I’m hustlin’ …” phrase by featuring at key points in “Party Rock Anthem,” the phrase “Everyday I’m shufflin’…” “Party Rock Anthem” thus contains a qualitatively distinct, important and original portion of “Hustlin’.” The use of Hustlin’ in “Party Rock Anthem” is readily apparent, despite the slight change from “Everyday I’m hustlin’ …” to “Everyday I’m shufflin’ …” and constitutes, inter alia, the creation of an unauthorized derivative work.

I’ll comment that the opinion is nuanced and well-considered. I’ll only briefly summarize the points the court covered, but reading the full opinion is well worth it.

Roberts and The Runners had somewhat different rationales for why they owned the copyright in Hustlin’, both of them arguing both legal and beneficial ownership. Before getting there though, the trial court had to decide whether the appeals court had already reviewed the question of ownership, versus just having opined on the validity of the registration. Despite some loose language in the appeals court opinion, the district court held that ownership still had to be decided.

With respect to Roberts’ ownership, Roberts assigned his copyright to an entity he owned, 3 Blunts. However, 3 Blunts had been administratively dissolved before the assignment. Roberts claimed that the assignment was therefore ineffective and he remained the owner of the copyright. Based largely on interpretation of state law, the court held that the assignment was effective, so Roberts did not have standing for the copyright claim as a legal owner.

The Runners’ legal ownership claim could not be decided on summary judgment, with work-made-for-hire and assignment theories surviving.

The beneficial ownership theory is where it gets interesting. The plaintiffs argued that if they weren’t legal owners, they were nevertheless beneficial owners of the copyright, which is also a type of interest that gives one standing. The court explained:

“The paradigmatic—and only—example of an approved ‘beneficial owner’ suit is set forth in the legislative history of the Copyright Act, which describes the term ‘beneficial owner’ as ‘includ[ing], for example, an author who had parted with legal title to the copyright in exchange for percentage royalties based on sales or license fees.’” Indeed, in John Wiley, the Second Circuit explained that it had never extended beneficial ownership “beyond the circumstance of an author transferring exclusive rights in exchange for royalty payments.” So too the Eleventh Circuit has only ever found “beneficial ownership” under this precise scenario: an author who parts with legal title to the copyright in exchange for royalties.

The plaintiffs didn’t receive royalty payments directly, but rather the royalty payments went to entities they owned. They claimed this income interest was the type of beneficial ownership the statute also included:

Plaintiffs urge this Court to apply a much more expansive definition of beneficial ownership. They argue that they can demonstrate beneficial ownership in the Hustlin’ copyright merely by showing that “they are authors of the work who maintain a financial interest in, and continue to benefit from, the commercial use of the work.” According to Plaintiffs, even though they personally do not receive any royalty payments from Hustlin’, they are still beneficial owners because “[b]eneficial owners include authors who receive royalty payments for a creative work either directly or through companies owned and controlled by them, and who have a continuing present right to make decisions about the commercial use and exploitation of the work.”

Plaintiffs’ novel legal argument has no basis in law. …

None of the cases Plaintiffs cite held that a plaintiff could sue for infringement as beneficial owner without demonstrating that they assigned their legal interest in the copyright in exchange for the right to receive royalties, and that they, in fact, received such royalties themselves.

Second, basic tenets of corporate law prohibit Plaintiffs from essentially treating their LLCs as shams. “Unless otherwise provided in the articles of organization or the operating agreement, property acquired with limited liability company funds is limited liability company property.” Here, the Hustlin’ copyright is owned by Plaintiffs’ companies. Allowing Plaintiffs to call themselves “owners” of the copyright when the copyright is company property would ignore the corporate distinction.

Third, even if “control” over a copyright’s exploitation were a factor in determining beneficial ownership—and it is not—none of the agreements among TNF, 3 Blunts, Roberts, Harr, or Jackson state that Plaintiffs retained “any right to authorize or create derivative works of Hustlin’“. To the contrary, that exclusive right belongs to the entities to which it was assigned.…

Fourth, … [a]ccepting Plaintiffs’ argument that individuals with “a current economic interest in the commercial exploitation of” a copyright may sue for infringement would ignore the legislative requirement that only an “owner” can sue and greatly expand the number of individuals who may sue for infringement. As discussed, nothing in the law supports this result. Accordingly, the Court holds that a beneficial owner is a legal owner who has parted with legal title to an exclusive right under a copyright in exchange for the right to receive royalties based on the commercial exploitation of that right.

I haven’t yet seen a case where a court agreed that a beneficial owner was anything but what the court described here, an author who exchanged their legal title for the right to receive royalties. It may exist, I just haven’t seen a theory yet that worked.

Musicians commonly own loan out companies, which serve as the legal entity through which the musician’s services are contracted. I assume it is done for tax purposes, but my impression is that the impact on copyright ownership hasn’t been thoroughly considered (particularly when it comes to termination). It is also common in the music industry to pay a share of royalties even where the recipient is not a copyright author. Both of these practices were used to try to misdirect the court here, but the court did an excellent job of sorting through it.

Roberts v. Gordy, No. 13-24700-CIV-WILLIAMS (S.D. Fla. Jan 4, 2019).

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