Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Sold! Or Just Licensed?

    It’s perhaps a bit off-topic for this blog to post about ownership of tangible property, rather than the ownership of the IP itself. But the disagreement over when an object that contains copyrighted work is sold or merely licensed is heating up. There are three recent district court cases in the 9th Circuit that have considered it.

    In Vernor v. Autodesk, Inc., the articles transferred were packages of previously used Autodesk software, purchased from an architectural firm. The “Software License Agreement” signed by the architectural firm said that it was a grant of a “nonexclusive, nontransferable license to use the enclosed program . . . according to the terms and conditions herein,” and contained various restrictions, like regulating the number of computers and the number of users, prohibiting copying, use outside of the western hemisphere, modification or reverse-engineering of the software, removing labels, and the “rent, lease, or transfer [of] all or part of the Software, Documentation, or any rights granted hereunder to any other person without Autodesk’s prior written consent.”

    Following 9th Circuit precedent the court held it was a sale of the software, not a license. The 9th Circuit case the court relied on was United States v. Wise, 550 F.2d 1180 (9th Cir. 1977), a case about the transfer of ownership of film prints. Wise did an extensive survey of cases about whether film copies were sold and found that the copyright owner (the studio) retained title to the films where the contract reserved title to the studio and required return of the prints at the expiration of some term. There was a transfer of title, though, where a recipient paid a fee and didn’t have to return it, even though she could use the print only for her “personal use and enjoyment,” was required to retain possession of the print “at all times,” and could not sell, lease, license or loan the print to any other person. This, the Wise court found, was a “sale with restrictions on the use of the print.” The Vernor court decided that, based on Wise, the critical factor is whether the transferee was allowed to keep the copy. Therefore Autodesk’s transfer of the software to the architectural firm was a sale, possession of the software in exchange for a single up-front payment. Autodesk may have a remedy in contract against the architectural firm, but the tangible copies sold by Vernor were in Vernor’s lawful possession and his sale of them was not a copyright infringement.

    The second in our survey is UMG Recordings, Inc. v. Augusto, where “promotional” music CDs given to music industry insiders, without their prior consent, had the following language on them: “This CD is the property of the record company and is licensed to the intended recipient for personal use only. Acceptance of this CD shall constitute an agreement to comply with the terms of the license. Resale or transfer of possession is not allowed and may be punishable under federal and state laws.” Augusto, not a music industry insider, had acquired the CDs from music shops and online auctions and resold them. Like Vernor, the UMG court looked at Wise and the right to perpetual possession. The promotional CDs sent to the insiders did not have to be returned, could be kept forever, and could be destroyed, all permitted acts that would be inconsistent if UMG was the true owner. Further, the “license” did not provide any recurring benefits to UMG, other than to restrain the transfer of the music. This was a transfer of ownership of the music CDs and Augusto in lawful possession of them.

    Most recent is MDY Industries v. Blizzard Entertainment, Inc. This case considered the use of a bot called “Glider” in the World of Warcraft multi-player game, which allows players to continue game play while they are away from their computers and thus advance more quickly in the game. World of Warcraft has both server end and user end software; users enter into both an End User License Agreement (EULA) and a Terms of Use Agreement (TOU) before being allowed to play the game. The EULA/TOU clearly forbade the use of bots to play the game. The case is notable for its squirrelly analysis of the contributory copyright infringement claim (discussed by Professor Patry here) premised on the theory that the user end software is licensed, not sold.

    Section 117 of the Copyright Act provides that

    Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided: (1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner.

    Note the key word “owner” here. The court decided that the end users are not owners but licensees; thus, when the licensee-user loads the game into RAM to play the game using the bot, the player is outside the scope of the license and therefore the RAM copy an unauthorized infringing copy. Section 117 is of no help to the end user, since s/he isn’t the owner of the software. (As an aside, I am curious that WoW couldn’t come up with a better infringement theory than this – Glider did nothing whatsoever to modify the end user software, therefore creating an unauthorized derivative work?)

    The court came to the conclusion that the end users are licensees based on prior cases in the 9th Circuit that set a low bar for finding a license relationship rather than a sale. Wall Data Inc. v. Los Angeles County Sheriff’s Department, 447 F.3d 769 (9th Cir. 2006) says there is a license if the copyright holder (1) makes clear that it is granting a license to the copy of the software and (2) imposes significant restrictions on the use or transfer of the copy. The first requirement was easy, that WoW claimed to be only granting a license was clearly stated in the EULA. The second prong, restrictions, was sufficient because the contracts included limitations on transfer of the copy (the original media and all documentation had to be transferred, the original owner had to delete the software, and the transferee had to accept the EULA) along with other restrictions, e.g., on the use of bots, modifying files, intercepting proprietary components of the game, etc. To me, the language in the EULA looks very much like an acknowledgment that the end user had a right to transfer the tangible copy under the first sale doctrine (making it a sale, not a license), but the court nevertheless held the users were only licensees and specifically rejected the reasoning in Vernor and Wise.

    And there’s a brand new case that may be exploring this same territory, Apple Inc. v. Psystar Corp. filed July 3. Apple has a limitation in its Software User Agreements that prohibits the installation of Apple software on computers that are not branded as Apple. Psystar began selling non-Apple computers running Apple’s Mac OS X operating system. In addition to copyright infringement claims, the third count of the complaint is for breach of contract, alleging that Psystar used authentic purchased software, opened the packaging (thus accepting the terms of the agreement), and installed the software on non-Apple computers. Presumably Psystar will be making a first sale argument for any purchased software it installed.

    This promises to be a hot area; to say there is disagreement is an understatement. Is the appropriate measure a requirement for return, as in Vernor? Recurring benefits to the licensor, as in UMG? Executory contract terms or mutual restrictions? The lower courts look like they are teeing it up for the 9th Circuit to clarify the enforceability of terms in EULAs and transfer of title in tangible goods.

    Vernor v. Autodesk, Inc., available here, blogged here and here.
    UMG Recordings, Inc. v. Augusto, available here, blogged here.
    MDY Indus., LLC v. Blizzard Entertainment, Inc., available here, blogged here.
    Apple Inc. v. Psystar Corp., complaint available here, blogged here.

  • Mattel Wins Bratz!

    Following up on a previous post, in an unsurprising outcome the AP is reporting that the jury found that the designer of the Bratz dolls conceived of the idea while employed at Mattel, hence the concept is owned by Mattel. It’s not quite clear from the AP article what exactly Mattel owns, since the article says that “jurors must still decide if Mattel owns any copyrights involving Bryant’s drawings. If so, the jury must rule on whether the dolls infringe on those copyrights.”

    Previous post here.


    Verdict uploaded here.

    The jury decided whether various pieces of evidence, the idea for the Bratz dolls, and the name “Bratz” were “conceived or reduced to practice” while the designer was at Mattel. The answer was “yes” to largely all (and not responding on the four remaining items). There were also various findings in favor of Mattel for MGA’s intentional interference with contract, aiding and abetting breach of fiduciary duty, and breach of duty of loyalty, all presumably related to the designer’s employment agreement with Mattel. So no verdict specifically for copyright, but what should follow is a holding that Mattel is the owner of the designer’s work on Bratz, and to the extent it is protected by copyright MGA an infringer.

  • Combining Trademarks in a Jointly Owned Holdco

    The May-June 2008 Trademark Reporter has an article entitled “Combining Trademarks in a Jointly Owned IP Holding Company,” by Lanning Bryer and Matthew Asbell. It discusses the risks and advantages of using jointly-owned trademark holding companies for management of “combined” trademarks, i.e., where one trademark is used by unrelated entities (like Volvo) or the trademarks of two entities are used both separately and together (like Sony Ericsson). It looks like a timely, thoughtful and thorough consideration of the topic.

    Lanning Bryer and Matthew Asbell, Combining Trademarks in a Jointly Owned IP Holding Company, 98 Trademark Rep. 834 (2008) available here (membership login required)

  • Exclusive Licensee Doesn’t Have Standing, No Matter Who Claims It Does

    Iris Corp. Berhard v. U.S. is a fairly routine analysis of an exclusive licensee’s standing to sue for patent infringement. Of course, an exclusive licensee only has standing if the patentee has conveyed all substantial rights in the patent to the licensee. There’s a bit of a twist here, though; the patent owner had indeed filed suit, but the defendant United States claimed that the U.S. exclusive licensee was the proper plaintiff. A fairly easy decision for the court:

    Under the express terms of this agreement, [patentee] IRIS Malaysia was acknowledged to be the owner of, as well as the party responsible for maintaining, the ‘412 patent and retained a right to develop, market, and sell the invention claimed by the ‘412 patent. Further, [licensee] Williams’ license was set to expire seven years before the ‘412 patent’s expiration date, reverting all rights in the patent to IRIS Malaysia for that time period. So too, IRIS Malaysia had the right to terminate the agreement if Williams failed to pay royalties or achieve certain production milestones in specified timeframes. Finally, both IRIS Malaysia and Williams had the right to sue to enforce the patent on the date this suit was filed.

    Thus, the plaintiff had standing. Partial victory for the United States, though; exclusive licensee Williams was joined as a plaintiff.

    Iris Corp. Berhard v. U.S. available here.

  • Lassie Speaks!

    Professor Patry‘s primer on the termination provisions of copyright (straightforward to him, convoluted to the rest of us). Don’t miss his “About Me” portrait on this one –

    Updated August 5, 2008: Here is a link to the decision in Classic Media, Inc. v. Winifred Mewborn that I have posted since it is no longer available through Professor Patry’s blog. Sadly, Professor Patry has decided to end his blog and, at the moment, has removed all the archived stories. The silencing of his public voice on copyright is a huge loss for those of use who relied on his intelligent, thoughtful and readable blog for unequaled insight on copyright matters. I will miss his blog every day.

    Updated August 10, 2008: Responding to numerous requests, Professor Patry restored the archives for his blog and the link is operational again. While we won’t have the benefit of his thoughts on future cases, at least we haven’t lost the old ones.

  • Works Are Never Made for Hire

    Malibu Textiles, Inc. v. Carol Anderson, Inc. is a good demonstration of the confusion that, almost 20 years after CCNV, still surrounds whether a work is a “work made for hire.” In Malibu, designs for lace were created by an independent party but Malibu filed copyright applications for the lace designs listing ownership as works made for hire. Early in the lawsuit Malibu said that the registrations were correct, although four months later, the day before moving papers for summary judgment were due, it filed Forms CA to change the ownership claim to ownership by assignment.

    Luckily for Malibu the parties who created the designs agreed that Malibu owned the designs, executed after-the-fact written assignments ratifying the oral transfer, provided testimony that assignment of the copyright in lace designs was both their and industry practice, the case was in the 2nd Circuit which accepts a writing that is dated after the actual assignment, and the judge was one who was not going to entertain a challenge on the basis of formalities rather than substance. The court therefore held that Malibu was the owner of the copyrights in the lace designs; the defendants had already conceded substantial similarity. The case may not have even been litigated but for the problematic ownership.

    An overexpansive view of when a work is a “work made for hire” is the most common misunderstanding about intellectual property ownership I run across. Malibu is educated and buttoned up now.

    Malibu Textiles, Inc. v. Carol Anderson, Inc., No. 07 Civ 4780 (SAS), 2008 U.S. Dist. LEXIS 51783 (S.D.N.Y. July 8, 2008).

  • Ownership of Music in Snow White

    The Los Angeles Intellectual Property Trademark Attorney Blog reports here that there is an ownership dispute over the music in a 1987 live-action version of Snow White. The blog reports:

    MGM asserts that defendant, Arik Rudich, is an individual now residing in Israel, who composed certain music and/or songs included in the picture, which picture MGM’s predecessor distributed to the home video market beginning in 1988 and MGM has continued such distribution. The complaint alleges that almost twenty years after the picture’s first distribution, Rudich’s counsel sent a cease and desist letter to MGM accusing it of copyright infringement in music and demanding payment of publishing royalties. On May 9, 2008, defendant or his counsel issued a press release repeating claims against MGM and referencing another lawsuit filed against MGM by the same counsel. On June 5, 2008, defendant’s counsel once against sent a letter to MGM threatening a lawsuit if a response was not received. Thus, MGM filed the declaratory judgment lawsuit . . . .

    IMDb gives Mr. Rudich credit for original music and interestingly also says that the movie was filmed in Israel. How will ownership plays out; will it be as determined under the laws of Israel?

    Justia docket for the declaratory judgment in the Central District of California here. Mr. Rudich has also filed a case against MGM in the Western District of Wisconsin, second-filer in what one would assume is the matching infringement suit. Justia docket here.

  • Warner/Chappell Still Happy on Birthdays

    I’m a little late to the game, but I just got around to reading Robert Brauneis’ “Copyright and the World’s Most Popular Song,” available here, blogged here, here, and here. It’s an interesting and thorough investigation into whether “Happy Birthday” is still protected by copyright. The telling of the story covers initial ownership of all kinds, sole, joint, and work made for hire, the layers of copyright ownership in derivative works, the transfer of ownership under the Copyright Acts of 1909 and 1976, and failure to comply with formalities forfeiting copyright. It’s a fascinating lesson in how difficult it can be trying to untangle copyright ownership. One takeaway for me was that the problem will only get worse because of the extension of copyright term; not only does copyright outlast the life of the author, but also anyone who might have firsthand knowledge about the creation of the work. Professor Brauneis has some suggestions on what can be done.

    Similar story on the “Footprints in the Sand” poem here, HT to Techdirt.

  • Summer Reading

    A friend reminded me to read Paul Goldstein’s “Errors and Omissions” (he was reminded by the publication of Professor Goldstein’s new book, “A Patent Lie“). I brought it for my summer beach reading and was highly entertained to read a novel about the topic of the blog, ownership of IP. The premise is that a film studio needs an assignment of the copyright in a screenplay, the first of a series of successful spy movies, or it can’t make the next in the series because the insurance company won’t issue a policy. It was an entertaining read; I loved the introduction of the main character in the first chapter and thought it was great fun that Professor Goldstein could take what some would consider a dry legal topic and turn it into a thriller.

    I would appreciate anyone’s help explaining what I thought was an error in the legal premise, though, involving what effect a certain Supreme Court case would have on the ownership of a screenplay written in the 1950’s. Comments welcome.

  • Hot N’ Ready For All

    Pinnacle Pizza Co. v. Little Caesar Enterprises, Inc., does some contract interpretation on ownership of trademarks in a franchise relationship – not the trademarks originally licensed, but a trademark created by a franchisee.

    Pinnacle Pizza was a franchisee for Little Caesar Enterprises pizza (I’ll use “Little Caesar” to refer to the company; the trademark is with an “s,” “Little Caesars”). In 1997 Pinnacle developed a successful promotion called “Hot N’ Ready,” where it guaranteed customers could purchase a medium pepperoni pizza for four dollars every Tuesday, ready within five minutes. By 1999 Little Caesar was promoting the program itself with all its franchisees, providing advertising materials for the program and asking the franchisees to report sales information on the program. Little Caesar registered the trademark for HOT N’ READY with the USPTO, using Pinnacle’s first use date in the application. Pinnacle sued in 2004; the matter was before the court on cross-motions for summary judgment.

    The ownership of the trademark was controlled by the franchise agreement, with what Pinnacle argued were competing clauses. First, Section V., entitled “Proprietary Marks and Inventions,” stated:

    A. Franchise Owner acknowledges that the name “Little Caesars” and such additional names and marks as have been hereinabove recited are in themselves, or incorporated and included with them, valid trademarks or service marks, solely owned by LITTLE CAESAR, and that LITTLE CAESAR and its licensees have the sole right to use such trademarks, service marks, and trade names, presently existing or to be acquired in the future, in the operation of a restaurant or food service business in connection with products and services to which they are applied by LITTLE CAESAR [.]

    B. Franchise Owner expressly acknowledges that any and all goodwill associated with said Proprietary Marks, including any goodwill which might be deemed to have arisen or to arise in the future through the activities of any Licensee of LITTLE CAESAR, inures directly and exclusively to the benefit of LITTLE CAESAR.

    F. Any and all improvements or modifications in the LITTLE CAESAR System, franchise trade secrets, or know-how licensed hereunder whether made by LITTLE CAESAR or by Franchise Owner or by another LITTLE CAESAR licensee, shall be and become the sole property of LITTLE CAESAR which shall have the sole and exclusive right to patent, copyright, register, or otherwise protect the same; provided, however, that in no event shall advertising created by Franchise Owner be considered to be an “improvement or modification in the LITTLE CAESAR System.”

    The “LITTLE CAESAR System” was defined in the recitals as “a business plan and method in connection with the operation of such restaurants for providing products and services, utilizing certain standards, specifications, methods, procedures, techniques, management systems, identification schemes and proprietary marks and information.”

    Section XII.D., pertaining to advertising, stated:

    Franchise Owner, at its sole expense, may utilize LITTLE CAESAR’s television and radio advertising materials (for its sole benefit or jointly with other LITTLE CAESAR Franchises), by dealing directly with LITTLE CAESAR’s advertising agency. LITTLE CAESAR may not use the original advertising materials created by Franchise Owner without its prior written consent.

    The question was whether the “Hot N’ Ready” mark was “original advertising materials” that could not be used by Little Caesar without consent. Using standard contract interpretation principles, the court found that the advertising clause in XII.D. was a reference to any written materials or audio or television materials, not the underlying related ideas or concepts. Instead, the ownership of the slogan “Hot N’ Ready” was controlled by Section V, particularly Section F, which placed ownership of “improvements or modifications in the Little Caesar System . . . or know-how” with Little Caesar. The court was right to not read V.A. as the operative section; Section V.A. is the trademark license grant and its reference to “future” trademarks is only a grant of a license to them, not a provision that describes how it might come to own them in the first place.

    Once the slogan was deemed an improvement, modification or know-how of the “Little Caesar System,” it was forgone that the goodwill associated with it inured to Little Caesar per Section V.B. And because the goodwill in the mark inured to Little Caesar, the trademark application was not invalid because it used Pinnacle’s first use date.

    The agreement was not very clear on ownership of marketing slogans developed by franchisees but the outcome seems right; the concept of a franchise is that the consumer perception is of a unitary organization. Consumers would probably believe that “Hot N’ Ready” was a slogan for the Little Caesars brand, not the individual franchise owner, and so Little Caesar the rightful owner.

    Pinnacle Pizza Co. v. Little Caesar Enter., Inc., No. Civ 04-4170-KES, 2008 WL 2381678 (D.S.D. June 5, 2008), available here.