Property, intangible

a blog about ownership of intellectual property rights and its licensing

The Implied Sublicense

Plaintiff Photographic Illustrators Corp. (PIC) did beauty shots of lightbulbs for Osram Sylvania. The parties had a falling out and in 2006 entered into a settlement agreement. The agreement settled all past claims and set forth the terms of the parties’ future relationship. Relevant to the case, Sylvania had a broad license to use PIC photographs, including the right to sublicense the use of the photographs “in its sole and absolute discretion, in perpetuity, anywhere in the world.” The agreement also had an attribution requirement: “[t]o the extent reasonably possible and practical, [Sylvania] shall … include a copyright notice indicating PIC as the copyright owner and/or include proper attribution indicating Paul Picone as the photographer.”

Sylvania allowed its distributors to use the photographs to sell its lightbulbs; however, it did not require that they provide the attribution for the photographs. PIC filed a slew of lawsuits against Sylvania distributors and Sylvania intervened as an interested party. A number of the cases, but not this one, were consolidated and decided through arbitration.

PIC alleged copyright infringement by the distributors. Its argument was that, while Sylvania had the right to sublicense the use of the photographs to its distributors, Sylvania hadn’t done so and the distributors were therefore infringing. PIC’s theory was that the sublicenses had to be express, either oral or written, but could not be implied, and Sylvania had not expressly granted a license to their distributors.

PIC claimed that it was a “legal impossibility” that a sublicense could be implied. The theory goes that, as prescribed by Effects Assocs. Inc. v. Cohen, for an implied license defense the licensee must request the creation of the work, the licensor create and deliver the work, and the licensor intend that the licensee distribute the work. The Court of Appeals for the First Circuit didn’t agree, though:

PIC insists that the three-part test employed by many courts for assessing claims of an implied license from the copyright owner must be applied literally and inflexibly to assessing claims of an implied sublicense between a licensee and a sublicensee. Such a literal application would mean that there could rarely if ever be an implied sublicense because, for example, the putative sublicensee generally deals only with the licensee, and likely would not have requested the owner to create the copyrighted work. But it makes no more sense to use this test to assess the making of a sublicense than it would to require that an assignment of a mortgage meet the same requirements that might apply to the granting of a mortgage. One would not, for example, deem an assignment by the mortgagee to a third party invalid because the owner/mortgagor did not sign it.

Examining Sylvania’s intent, the court held that Sylvania had granted an implied license to Orgill:

First, the very nature of the business at hand makes it obvious that Sylvania wanted its distributors to use the photos, just as one might confidently say that Sylvania wanted Orgill to sell lots of Sylvania products. It would be effectively impossible for Sylvania to expect its distributors to have much success in selling its lightbulbs without also permitting them to use photos of those lightbulbs.

Second, Sylvania paid a substantial sum — roughly $3 million — for its sixteen-page license granting it, among other things, the authority to “sub-license Use, and permit Use, in its sole and absolute discretion.” A principal reason for Sylvania’s paying so much for this agreement was precisely to allow its dealers and distributors to continue using the photos.

Third, as a matter of common sense, when Sills called up Sylvania and said he needed copies of the photos to use in selling Sylvania’s lightbulbs, and Sylvania subsequently sent along the photos (or pointed Sills to where to find them), Sylvania surely manifested its permission for Sills (and Orgill) to use the photos in the proposed way, even though Sylvania never uttered some magic words that made express its permission.…

Fourth, Sylvania knew that Orgill was using the photos. Twice per year, Orgill provided Sylvania a copy of Orgill’s catalog for Sylvania to review for accuracy. Although Sylvania has periodically responded to make various corrections to the listings in the catalog, Sylvania never objected that Orgill was using copyrighted photos without permission.…

Fifth, Sylvania and Orgill entered into a “Confirmatory Copyright Sublicense Agreement” in July 2014, after PIC initiated this lawsuit. This document purports to be effective “nunc pro tunc as of June 1, 2006” and states that Sylvania “hereby confirms that it previously granted permission to Orgill to Use and to sublicense the right to Use the Images to its dealers.” … [T]he issue here is not whether the agreement by itself can operate as a retroactive sublicense, but rather whether it is evidence of Sylvania’s prior intent to grant a sublicense. And certainly a statement by Sylvania itself provides such evidence.

Sixth, PIC successfully held Sylvania liable for breach of its covenant precisely because Sylvania permitted its third-party dealers and distributors to use the photos without attribution. Although the arbitrator did not explicitly call out Orgill as one of those distributors, the notion that Sylvania would have permitted (i.e., sublicensed) only some of these third parties to use the photos but not Orgill makes no sense.…

Having considered the entire record, we find it indisputable that Sylvania intended — indeed, wanted — Orgill to use the photos, and gave the photos to Orgill for precisely that purpose, just as the license itself anticipated and allowed. We therefore agree with the district court that Orgill has conclusively proven the existence of a sublicense and that no reasonable jury could find otherwise.

With respect to the attribution requirement, the district court applied the holding in the arbitration of the other suits, which was that the attribution requirement was a covenant of the agreement, not a condition of the copyright license, and therefore the distributors were not copyright infringers despite the absence of the attribution.

Photographic Illustrators Corp. v. Orgill, Inc., No. 19-1452 (1st Cir. Mar. 13, 2020).
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