Property, intangible

a blog about ownership of intellectual property rights and its licensing

Second and Ninth Circuits Split and Also Agree

I have long disagreed with the Ninth Circuit on a standard that I think is unduly crabbed. I’m talking specifically about the cause of action, and therefore remedies available, when the obligations in an agreement that include a copyright license are not met.

The courts are in agreement that the obligations can be put into two categories, conditions and covenants. Quoting today’s case:

Generally, if the licensee’s improper conduct constitutes a breach of a covenant undertaken by the licensee and if such covenant constitutes an enforceable contractual obligation, then the licensor will have a cause of action for breach of contract, not copyright infringement. However, if the nature of a licensee’s violation consists of a failure to satisfy a condition to the license, it follows that the rights dependent upon satisfaction of such condition have not been effectively licensed, and therefore, any use by the licensee is without authority from the licensor and may therefore, constitute an infringement of copyright.

However, the 9th Circuit takes it one step further:

[W]e have held that the potential for infringement exists only where the licensee’s action (1) exceeds the license’s scope (2) in a manner that implicates one of the licensor’s exclusive statutory rights. See, e.g., Sun I, 188 F.3d at 1121–22 (remanding for infringement determination where defendant allegedly violated a license term regulating the creation of derivative works).

MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 940 (9th Cir. 2010).

In Sohm v. Scholastic Inc., the Second Circuit hasn’t specifically disagreed with the Ninth Circuit approach, nor did it even cite to MDY Industries. But the court also didn’t look at the nature of the obligation, only how the agreement was worded. Briefly, Sohm is a photographer who claimed that Scholastic printed more copies than it was licensed for. The district court held that the result of the overrun was a breach of contract only, not a copyright infringement. Reversing the district court, the appeals court said:

New York respects a presumption that terms of a contract are covenants rather than conditions and conditions precedent are not readily assumed. Nevertheless, though conditions precedent must be expressed in unmistakable language, specific, talismanic words are not required. Linguistic conventions of condition—such as “if,” “on condition that,” “provided that,” “in the event that,” and “subject to”—can make plain a condition precedent. It is for the court to decide, as a matter of law, whether a condition precedent exists under the terms of a contract.

These license agreements granting Scholastic the right to copy Sohm’s photos contain unmistakable language of conditions precedent, and therefore Sohm properly pleaded claims of copyright infringement. The Terms and Conditions incorporated into and attached to the 2004 PVA state that “[a]ny license granted by Corbis is conditioned upon (i) your meeting all conditions and restrictions imposed by Corbis, and (ii) Corbis’ receipt of full payment by you for such use as invoiced by Corbis.” The Terms further state that “[u]nless otherwise specified in a separate writing signed by Corbis, your reproduction of Images is limited to (i) internal evaluation or comps, or (ii) the specific use described in your invoice, which together with these terms shall constitute the full license granted.” The Terms also explain that “[e]xcept as specified in the Corbis invoice, Images obtained from Corbis are licensed on a non-transferable, one-time, non-exclusive basis, and are strictly limited to the use, medium, time period, print run, placement, size of image, territory, and any other restrictions indicated in the invoice.” The invoices, in turn, specified the quantity and uses that were licensed. The Terms also explicitly warned that “[u]nauthorized use of these Images constitutes copyright infringement and shall entitle Corbis to exercise all rights and remedies under applicable copyright law.”

These provisions are replete with the conditional language of conditions precedent – “unless,” “conditioned upon,” “except where specifically permitted” – thereby directly refuting the conclusion that the license agreements created only contractual covenants, the violation of which sounds in breach of contract. Sohm asserts that Scholastic exceeded print-run limitations contained in the invoices forming part of the license agreements, and thus he properly pleads that Scholastic has violated a restriction upon which the license is conditioned.

(A kajillion quotation marks, brackets, ellipses, and citations omitted. You’re welcome.)

I believe this approach is eminently more sensible. The 9th Circuit’s addtiional step, first, overcomplicates the analysis – not only do you have to figure out if something is worded as a condition or covenant but also whether it “implicates the licensor’s statutory rights.” That may not be as easy as it sounds. In Sohm, the trial court held that the overrun was only a breach of a covenant. But reproduction is an exclusive right, so why wasn’t exceeding that a copyright infringement?

Second, I also disagree as a matter of policy – a party to a license may have business reasons for tying the license to something unrelated to the exclusive rights of copyright. For example, I may be willing to allow you to reproduce a chapter of my book in exchange for being given credit, but credit is not an exclusive right of a copyright owner. In the Ninth Circuit my only remedy for the failure to get credit is breach of contract. But my entire consideration was getting credit. Am I supposed to be content with a remedy that consists of some artifical construct of the financial value of the missing credit? I don’t think it is a court’s place to question the business judgment the copyright owner made in the way it structures its deal.

But the Second Circuit did agree with the Ninth Circuit that Sohm’s copyright registrations were valid. In the photography industry, photographers assign their copyright to an aggregator, like Corbis, for purposes of registration, and then the copyright is assigned back after the work is registered. By agreement with the Copyright Office, the aggregators were not listing every author of the works in the registrations. The 9th Circuit held that’s perfectly fine and the Second Circuit agreed.

Prior post on district court case here.

Sohm v. Scholastic, Inc., Nos. 18-2100, 18-2245 (2nd Cir. May 12, 2020).

Creative Commons License
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.

Share Button

One response to “Second and Ninth Circuits Split and Also Agree”

  1. I can see it both ways, but it always made more sense to me that if the licensee violated one of the provisions of the agreement that relates to one of the statutory rights then you have a claim for copyright infringement.

    If the licensee violates a restriction on reverse engineering then no copyright infringement claim. Reverse engineering is not prevented under copyright law so that right is created under contract law, and the remedy should be under contract law. If the licensee makes too many copies that would give rise to a copyright infringement claim since copyright law has been violated.

    Keep up the good work with the posts!

Leave a Reply

Your email address will not be published. Required fields are marked *