Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Get the Agreement Signed

    This is a remarkable story. It’s a counter-intuitive result, not wrong, but so surprising.

    I present: THE VILLAGE PEOPLE!! (Go ahead, full screen. You know you want to.)

    There is no dispute that the plaintiff in this case, Can’t Stop Productions, Inc., created the Village People. The front man in the video, the police officer, is Victor Willis. Willis claims that he was the first member of the Village People and the band was formed around him; another early member, Felipe Rose, says that he was the first discovered, although it doesn’t matter. Willis left the band in 1979 and the band ceased touring in 1985.

    In 1987, the remaining members, including Willis’s replacement, formed defendant Sixuvus Ltd.  Sixuvus’s then-booking and management agency asked Can’t Stop for a license to use the Village People trademarks in exchange for 5% of the gross for touring. Can’t Stop agreed. In 1989 Sixuvus was changing management companies and asked Can’t Stop to transfer the license directly to Sixuvus. No formal agreement was reached, but both parties agree there was an oral agreement that the defendants could use the mark “Village People” for live performances in exchange for 5% of the gross receipts after expenses were deducted. The length of the license was disputed; the defendants claim that the license was for as long as they sought to perform but the plaintiff said it was for as long as the plaintiff agreed to license the marks.

    This arrangement lasted for thirty years, with an average of 50 performances a year. At the time of the suit, two of the original members and Willis’s replacement still performed. The other three parts were played by various people over the years.

    Faithful readers will know that Willis also successfully recaptured ownership of the copyright in his songs. Willis had filed lawsuits against both Can’t Stop and Sixuvus, and in the Spring of 2017 Can’t Stop granted Karen Willis d/b/a Harlem West Entertainment, Willis’s wife, a 10-year exclusive license to use the Village People marks effective June 1, 2017 in settlement of the suit. By email dated May 30, 2017, Can’t Stop terminated the license to Sixuvus effective June 1, 2017 but allowed Sixuvus to meet its existing contractual commitments. Sixuvus began questioning Can’t Stop’s ownership of the marks, so Can’t Stop sued Sixuvus and the band members for trademark infringement and a declaratory judgment on ownership.

    The court initially granted Sixuvus’s request for a temporary restraining order that would permit Sixuvus to perform as “Sixuvus Presents The Legendary Village People.” Thereafter, Karen Willis intervened and the court modified the order, allowing Willis to perform as “Village People featuring Victor Willis” and Sixuvus to perform as “Village People featuring _____,” both of them also required to say in any advertising “The trademark ‘Village People’ is the subject of litigation. There are two groups performing under the name ‘Village People.’” But the court has now denied Sixuvus’s motion for a preliminary injunction and vacated the TRO.

    So how was your issue spotting on these facts? I jumped straight to thinking there might be a naked license and I was wrong. The court first concludes that Sixuvus, as a licensee, was estopped from asserting that its license had been a naked one. In the Second Circuit, whether a licensee will be estopped is evaluated by balancing the public interest in challenging invalid trademarks against the private interest in enforcing contracts. Here the public interest in the trademarks was not great because no one was being misled, so the rule of the law of contracts, that one should be held to their undertakings, prevailed.

    Even if the defense could have been entertained, Don’t Stop’s efforts to control the use of the mark were sufficient. Read the opinion for the details, but Sixuvus used the same choreography and costumes it always had with minor changes, Don’t Stop had approval over changing members, it attended performances, reviewed marketing materials, and was kept apprised of the touring schedule. This was far from a naked license.

    There was no breach of contract. If a contract does not have a termination provision, it is terminable after a reasonable duration and reasonable notice. A 30-year duration is not too short, and while there was only one day’s notice, Sixuvus was allowed to meet its existing performance commitments and was not harmed by the notice period.

    Sixuvus’s claims for promissory estoppel and tortious interference failed too.

    And presto, after 30 years we now have a different set of Village People. The website at officialvillagepeople.com went from this:

    to this:

    over three days in June, 2017. Two people who have been members of the Village People since the beginning, for almost 40 years, are no longer Village People. Victor Willis, who went decades without any relationship with the Village People, is now back to front man with the exclusive right to use the Village People trademarks. Fans who have attended concerts over the decades will see an entirely different assortment of performers now. What an astonishing turn of events.

    Can’t Stop Prods. v. Sixuvus, Ltd., No. 17-CV-6513 (CS) (S.D.N.Y. Mar. 6, 2018).

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  • Condition or Covenant? The Answer

    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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  • Condition or Covenant? A Quiz

    When parties enter into an agreement that includes a copyright license, and there is thereafter a failure to comply with one of the terms in the agreement, a court will have to decide whether it is a failure to meet a condition precedent to the license, in which case the accused use is not licensed and therefore a copyright infringement, or whether instead it is a failure to perform a contractual promise, a covenant, for which the remedy is only a breach of contract. At least that’s the way that I think it should be decided, but you will find different constructs for the distinction. See, e.g., MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928 (9th Cir. 2010) opinion amended and superseded on denial of reh’g, 09-15932 (9th Cir. Feb. 17, 2011), Jacobsen v. Katzer, 535 F.3d 1373 (Fed. Cir. 2008) and Graham v. James, 144 F.3d 229 (2d Cir. 1998).

    So we have a quiz. The set up is that the plaintiff Joseph Sohm, ultimately through the licensing agency Corbis, granted licenses to defendant Scholastic Inc. to use his photographs in textbooks. It is undisputed that Scholastic printed more copies of the books than the invoices said it could. The question becomes whether the excess copying was a failure to meet a condition precedent for the licenses, and therefore were unlicensed uses subject to copyright damages, or whether instead the failure was only a breach of a covenant.

    The court analyzed the language in two agreements. First, the 2004 agreement (the left side is cut off on the exhibit):

    If you can’t read it, it says:

    License granted by Corbis: Unless otherwise specific in a separate writing signed by Corbis, your reproduction of Images is limited to … the specific use descried 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.

    (Ellipses and emphasis in original.) The second was from 2008:

    In addition to language from the 2004 agreement, it had:

    (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.)

    What do you think? Are the excess copies a failure to meet the condition of the license, and therefore Scholastic is liable for copyright infringement, or was it only failure to meet a covenant and therefore Scholastic only liable for breach of contract? Add your thoughts to the comments section.

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  • “Not So Fast” Coda

    I generally write about intangible property, but I hope you’ll forgive me if I write about one piece of tangible property. Many years ago I wrote about a lawsuit over ownership of the intellectual property rights in the car “Eleanor” from the movie “Gone in 60 Seconds” and in “Remake Eleanor” from the 2000 movie remake. The dispute was between Denise Halicki, widow of the owner of the rights in the original film, and Carroll Shelby who had created the Remake Eleanor. In 2004 Shelby registered the trademark ELEANOR for “vehicles, namely, automobiles, engines for automobiles, and structural parts for automobiles” and licensed the trademark for reproductions of Remake Eleanor. Halicki sued Shelby in 2004 and in 2009 the case settled, with Shelby assigning the trademark to Denise Halicki.

    But, it turns out, it was much more complicated than that. In 2007 Halicki formed Eleanor Licensing. As of November 1, 2007, Eleanor Licensing granted Classic Recreations a license to manufacture and sell restored Fastback Ford Mustangs to replicate the appearance of the two Eleanors. Eleanor Licensing disclosed the dispute with Shelby in the license agreement with Classic:

    Shelby Matter. Licensor has advised Licensee that Licensor and related parties are currently involved in litigation with Carroll Shelby, Unique Performance, Steve Sanderson and related entities (collectively ‘Shelby’) with respect to the alleged infringement by Shelby of certain intellectual property rights relating to the Eleanor vehicle from the ‘Gone in 60 Seconds’ films.

    As part of the licensing agreement, Eleanor Licensing was to be given some of the replicas. Eleanor Licensing received one, Eleanor No. 1, but wasn’t given the title, even after inquiring.

    In December 2008, while the Halicki suit was pending against Shelby, Shelby sued Classic. Both suits were settled at the same time, but nevertheless Classic terminated the licensing agreement, saying “As a result of the settlement of the lawsuit brought by Carroll Shelby, et al. against Denice Shakarian Halicki, et al., and other facts, it is clear that Eleanor Licensing LLC did not have the rights it claimed to have had relative to the automobiles that were manufactured by Classic under the terms of the Agreement … .” Classic Recreations offered to settle its claims against Eleanor Licensing for $640,000 and return of the sample Eleanor. Eleanor Licensing didn’t return the car (or, presumably, pay $640,000), replying that the claim was frivolous and threatening Classic with an action for malicious prosecution if Classic filed.

    Fast forward to May, 2014, five years later, when the owner of Classic obtained an order of replevin to have Eleanor No. 1 seized from the showroom of a new replica maker. When the dispute over the ownership of the vehicle was discovered, the car was released to Eleanor Licensing with a stipulation (of what, the opinion doesn’t say).

    So Eleanor Licensing finally sued Classic to recover title to Eleanor No. 1. This opinion affirms the district court’s holding the Eleanor Licensing owns the car and ordering Classic to turn the title over.

    Classic claimed that the license agreement wasn’t supported by consideration, claiming that Shelby’s December 2009 assignment to Halicki confirmed that Eleanor Licensing could not convey a license to use the trademark at the time of the agreement, November 2007. Not so:

    Classic’s argument is doubly flawed. First, Halicki testified concerning her late husband’s commercial exploitation of the “Eleanor” and “Gone in 60 Seconds” marks following the release of the first film, as well as the marketing activities surrounding and subsequent to the release of the 2000 remake. The trial court found this evidence established Eleanor Licensing and Halicki’s ownership of rights in the “Eleanor” trademark (that is, a common law trademark) sufficient to authorize the license for use of the mark by Classic. That finding is amply supported by substantial evidence.

    Second, evidence at trial, as well as the license agreement itself, demonstrated that Classic was fully aware of Shelby’s 2004 federal trademark registration of “Eleanor” and the litigation initiated by Halicki concerning its validity. In fact, trial testimony disclosed that Leone, on behalf of Eleanor Licensing, had advised the Engels to investigate ownership of the intellectual property covered by the license agreement before completing the transaction, which they did. In addition, Eleanor Licensing warranted that it had the right to enter into the license agreement and agreed to defend Classic in any third-party infringement action brought against it for its use of the intellectual property being licensed. Thus, even if ownership of the “Eleanor” trademark was legitimately disputed by Shelby, Eleanor Licensing and Halicki provided sufficient consideration to Classic by giving Classic what it bargained for, licensing the rights they had (which included their undisputed copyright interests in “Eleanor” and “Gone in 60 Seconds,” as well as their trademark rights) and agreeing to protect Classic from infringement claims. There was no failure of consideration.

    However, the contract-based claims were barred by the statute of limitations, since the suit was filed more that four years after Classic’s demand letter for return of the car. But all was not lost; Eleanor Licensing had also pled a statutory claim for recovery of specific personal property. There was a three-year limitations period for this cause of action and Classic had filed suit only a few months after the action for replevin. The claim to quiet title on the vehicle was not time-barred either: while Eleanor Licensing was aware that Classic disputed ownership, “the general rule in quiet title actions (usually articulated in cases involving real property, not personal property) is that the statute of limitations ‘does not run against one in possession of land.’ … Here, following Classic’s demand letter of November 20, 2009 and Eleanor Licensing’s rejection of Classic’s claims as ‘frivolous,’ Classic took no action to assert any claim or right to possession of Eleanor No. 1 until May and June 2014. It was those events in 2014 that triggered the limitations period for the quiet title action.”

    Maybe it’s all over now.

    Eleanor Licensing LLC v. Classic recreations LLC, Nos. B275429, B279238 (App. Ct. Cal. March 21, 2018).
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  • Mutual Defensive Collateral Estoppel Too

    I have written once before about the disputing members of the band RATT. I’ll remind you again about who they are, mostly because this video makes me smile every time I watch it:

    WBS, Inc. claims to be the successor-in-interest to the trademark RATT, by assignment from the predecessor partnership that consisted of the band members. In the last lawsuit WBS, Inc. was suing former member Croucier for calling himself “RATT’s Juan Croucier.” The court held that the assignment from the partnership to WBS was defective and the case was dismissed.

    We now have a later-filed suit against another former band member, Stephen Pearcy. Pearcy is a little differently situated than Croucier, because Pearcy formed the band and was the only consistent member of it up until the time the plaintiff was formed and supposedly acquired the trademark. Pearcy claims that he was never given the shares that were his consideration for agreeing to the assignment to WBS and that the other band members expelled him from WBS. The statement of the case takes longer than the analysis, which is reproduced in full below, all two paragraphs:

    III. Discussion

    Pearcy has adequately demonstrated the absence of any genuine issues of material fact. Plaintiff cannot prevail on its trademark infringement-based causes of action without proving that it has an ownership interest in the RATT trademarks. See Rearden LLC v. Rearden Commerce, Inc., 683 F.3d 1190, 1202-3 (9th Cir. 2012). An invalid assignment of a trademark conveys no rights to that mark. See Mr. Donut of America v. Mr. Donut, Inc., 418 F.2d 838, 842 (9th Cir. 1969).

    Plaintiff alleges that it obtained an ownership interest in the trademarks in 1997 when the RATT Partnership assigned the marks to WBS. Pearcy has presented uncontroverted evidence, however, that the members of the RATT Partnership did not unanimously consent, either in writing or otherwise, to the assignment of the RATT marks to WBS. Thus, any purported assignment of the marks to WBS was invalid, and conveyed no rights. Because no reasonable trier of fact could conclude that WBS had an ownership interest in the RATT marks, Pearcy’s motion for summary judgment must be granted.8

    The decision was based on the same evidence of non-ownership of the mark used in WBS, Inc. v. Croucier. But there is more than one way to crack an egg, it could just as well have been decided on the basis of mutual defensive collateral estoppel, addressed by the court in footnote 8: “As noted above, Plaintiff has not filed a substantive opposition to Pearcy’s motion, which argued not only that the assignment of the marks to WBS was invalid, but also that any argument to the contrary would be barred by the doctrine of collateral estoppel and this Court’s judgment in the Croucier case. See Hydranautics v. FilmTec Corp., 204 F.3d 880, 885 (9th Cir. 2000) (explaining that collateral estoppel may apply when “(1) the issue necessarily decided at the previous proceeding is identical to the one which is sought to be relitigated; (2) the first proceeding ended with a final judgment on the merits; and (3) the party against whom collateral estoppel is asserted was a party or in privity with a party at the first proceeding.”)”

    Yeah, that too.

    WBS, Inc. v. Pearcy, No. CV16-03495 DDP(JC), (C.D. Cal. Mar. 6, 2018).

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  • Shocking Result – You Can’t Cancel a Registration the Other Party Doesn’t Own

    “The issue before the Court is whether an entity other than the trademark registrant and owner may properly be sued for trademark cancellation.” And my head explodes. One owns a property, a trademark registration. A claim that the property right doesn’t exist can only be brought against the entity that claims to own the property right, right? No surprise here:

    The Second Circuit has yet to address that question. To be sure, the Second Circuit has held that trademark infringement claims under the Lanham Act may only be brought by the owner of the trademark. But the Court has not addressed whether a party other than the trademark owner may be named in a trademark-cancellation claim. And the Lanham Act does not provide a ready answer: Neither 15 U.S.C. § 1119, which provides for concurrent jurisdiction of the federal courts and the Trademark Trial and Appeal Board over cancellation of trademarks, nor 15 U.S.C. § 1064, which identifies the party who may bring a trademark-cancellation action, explicitly addresses the question.

    Perhaps because it is so obvious it shouldn’t have to be said. But shockingly, this isn’t the first time someone has argued this theory:

    Courts in this and other districts that have addressed the issue have held that trademark-cancellation claims may only be brought against the trademark owner. In Informix Software, Inc. v. Oracle Corp., a software company sued the owner of a trademark and the licensee of the trademark for, inter alia, cancellation of trademark. 927 F. Supp. 1283, 1284 (N.D. Cal. 1996). In deciding whether the trademark-cancellation claim could be brought against the licensee, the court noted that 15 U.S.C. § 1119 “provides that the Court may rectify the trademark register with respect to ‘the registrations of any party to the action,’” and found that the statutory language “suggests that a complaint for trademark cancellation should proceed against the party who currently owns the trademark.” Id. at 1286 (quoting 15 U.S.C. § 1119).

    Gratefully I see the court reaches the correct conclusion, albeit in a very orthogonal way:

    The district court in Informix further held that, though “an exclusive licensee stands in the shoes of the trademark owner[,]” the Lanham Act “imposes a duty upon the licensor … to supervise a licensee’s use of its trademark … [and] specif[ies] that a registrant’s trademark may be cancelled if the registrant fails to control its licensee’s use of the licensed mark.” 927 F. Supp. at 1286. “This duty imposed by statute also strongly suggests that the ultimate responsibility for the validity of a trademark lies with the licensor, not with the licensee.” Id. Ultimately, the court held that “the owner of the trademark is the only proper defendant.” Id. Other courts have held similarly. See, e.g., Hokto Kinoko Co. v. Concord Farms, Inc., 810 F. Supp. 2d 1013, 1034 (C.D. Cal. 2011) (“[A] complaint for trademark cancellation in federal court must proceed against the party who currently owns the trademark[.]”), aff’d, 738 F.3d 1085 (9th Cir. 2013); Van Well Nursery, Inc. v. Mony Life Ins. Co., 421 F. Supp. 2d 1321, 1332 (E.D. Wash. 2006); Iowa Health Sys. v. Trinity Health Corp., 177 F. Supp. 2d 897, 911 (N.D. Iowa 2001); cf. Sojuzplodoimport, 2011 U.S. Dist. LEXIS 100474, 2011 WL 4005321, at *8 n.17 (noting without analysis that for a trademark-cancellation claim, “the relief sought cannot be obtained from these non-registrant/owner defendants”).

    This Court finds persuasive the reasoning adopted by these other courts. Counter-Plaintiffs have identified no basis, either in law or in logic, to allow them to bring a trademark-cancellation claim against anyone other than the trademark’s registrant/owner. This Court believes that no such basis exists. Accordingly, this Court holds that Counter-Plaintiffs may only bring their trademark-cancellation claim against the trademark owner.

    Phew. But how did this legal question even come up? By conflating a trademark and a registration. Here, “Monroe,” the Marilyn Monroe Estate, is the registrant and “ABG” was its exclusive licensee. A.V.E.L.A. Inc., maker of nostalgic merchandise and therefore serial defendant in copyright and right-of-publicity cases, was arguing that, (1) while Monroe is the record owner of the registration; (2) ABG is the actual owner of the mark so therefore (3) ABG is the proper party to the cancellation of the registration.

    This is instead a straightforward a naked license theory, that the Monroe estate didn’t control the quality of the goods and services of its licensee. It is a species of abandonment. The decision doesn’t report what the basis for the cancellation was (not having gotten past whether ABG was a party), so I’m not sure what A.V.E.L.A. had to gain by arguing that ABG somehow had to be involved in the cancellation claim. Perhaps the clue is this:

    In [prior decision] AVELA II, this Court expressed skepticism that any amended counterclaims would survive future dispositive motions and advised Counter-Plaintiffs “to consider this Opinion carefully in deciding whether and what to replead.” Counter-Plaintiffs have not done so ….

    A.V.E.L.A., Inc. v. The Estate of Marilyn Monroe, LLC, No. 12 Civ. 4828 (KPF) (S.D.N.Y. Mar. 5, 2018).

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  • Redbox Wins (for now)

    The decision in Disney Enterprises, Inc. v. Redbox Automated Retail, LLC was, to me, unexpected. Who would have thought that Redbox would win a case about selling codes for digital download of Disney movies?

    The way Disney elected to distribute the codes was key to the outcome, so I don’t know how much ripple effect the decision will have (or whether the district court’s reasoning will even survive appeal). Disney bundled DVDs, Blue-Ray discs, and a code that a user could redeem for a digital download, all for the same movie. The packaging for this “combo pack” made the declarative statement on the outside “Codes are not for sale or transfer.”

    The codes could be redeemed through two websites. The more liberal of the two websites’ “terms and conditions” prohibited the sale or transfer of the codes apart from the physical copy and stated that, by redeeming the code, the person redeeming it confirmed they were the owner of the physical products that accompanied the code. There was presumably no problem with contract formation when a user used the code to download the movie.

    Redbox would buy the bundles and break them up, packaging the pieces of paper containing the code and selling them in their kiosks. Disney sued for breach of contract, the contract being the statement on the box prohibiting sale or transfer of the codes, and for contributory infringement, with the purchasers of the codes from Redbox in the role of direct infringers.

    As to breach of contract, there was no contract:

    Although Disney seeks to analogize its Combo Pack packaging and language to the packaging and terms in Lexmark, the comparison is inapt. The thorough box-top license language in Lexmark not only provided consumers with specific notice of the existence of a license and explicitly stated that opening the package would constitute acceptance, but also set forth the full terms of the agreement, including the nature of the consideration provided, and described a post-purchase mechanism for rejecting the license. Here, in contrast, Disney relies solely upon the phrase “Codes are not for sale or transfer” to carry all of that weight. Unlike the box-top language in Lexmark, Disney’s phrase does not identify the existence of a license offer in the first instance, let alone identify the nature of any consideration, specify any means of acceptance, or indicate that the consumer’s decision to open the box will constitute assent. In the absence of any such indications that an offer was being made, Redbox’s silence cannot reasonably be interpreted as assent to a restrictive license.

    Indeed, the presence of other, similarly assertive but unquestionably non-binding language on the Combo Pack boxes casts further doubt upon the argument that the phrase “Not For Sale or Transfer” communicates the terms or existence of a valid offer. The packaging also states, for example, that “This product … cannot be resold or rented individually.” This prescription is demonstrably false, at least insofar as it pertains to the Blu-ray disc and DVD portions of the Combo Pack. The Copyright Act explicitly provides that the owner of a particular copy “is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” 17 U.S.C. § 109(a). Thus, the clearly unenforceable “cannot be resold individually” language conveys nothing so much as Disney’s preference about consumers’ future behavior, rather than the existence of a binding agreement. At this stage, it appears that the accompanying “Not For Sale or Transfer” language plays a similar role.

    I wonder, when advising the packaging group about what needed to be on the outside of the box, whether I would have been so scrupulous about ensuring that an enforceable contract was formed. Real estate on packaging is precious, and perhaps I have become too complacent with the concept that contracts are enforceable on the thinnest thread – after all, with just a hyperlinked “Terms and Conditions” you may have given away your copyright. But we know what to do, now, to create an enforceable contract on the outside of the packaging, because the court has given us the roadmap.

    But the contributory infringement claim seems pretty solid, right? The license to download was conditioned on possession of the physical copies, which the owner of the code purchased from Redbox didn’t have. And Redbox made money off of selling a code that could ONLY be used in an infringing way, so that seems like a slam dunk for contributory infringement.

    But instead, the court finds that this provision of the websites’ terms and conditions is a copyright misuse. First, the court rejected Disney’s argument that a copyright misuse is only where the copyright owner tries to extend the exclusivity of copyright to an unrelated product, like granting a copyright license only if the grantee agrees not to use a competing product, or using a barely perceptible copyrighted image on a watch so there would be a copyright infringement claim against parallel imports:

    The copyright misuse defense, however, is not so narrow as Disney would have it. Indeed, copyright misuse need not even be grounded in anti-competitive behavior, and extends to any situation implicating “the public policy embodied in the grant of a copyright.” The pertinent inquiry, then, is not whether the digital download services’ restrictive license terms give Disney power over some entirely unrelated product, but whether those terms improperly grant Disney power beyond the scope of its copyright.

    The copyright misuse in this case was that the agreement prevented the owner of the discs from exercising their right in § 109(a) to dispose of the hard copies in any way they chose:

    RedeemDigitalMovies requires redeemers to represent that they are currently “the owner of the physical product that accompanied the digital code at the time of purchase,” while the Movies Anywhere terms of use only allow registered members to “enter authorized … Copy codes from a Digital Copy enabled … physical product that is owned by [that member].” Thus, Combo Pack purchasers cannot access digital movie content, for which they have already paid, without exceeding the scope of the license agreement unless they forego their statutorily-guaranteed right to distribute their physical copies of that same movie as they see fit. This improper leveraging of Disney’s copyright in the digital content to restrict secondary transfers of physical copies directly implicates and conflicts with public policy enshrined in the Copyright Act, and constitutes copyright misuse.

    There is an important footnote: “At argument, Disney suggested that consumers can contract away their redistribution rights. To the extent Disney suggests that that occurred here, that argument has no merit, for the reasons described in the breach of contract discussion, above.” It’s not clear to me how the court thought it had previously addressed this point, but it’s a pretty important one. By saying that non-transferability of the code impairs the transferability of the discs, the court is saying that the statutory provision for exhaustion trumps the right to freely contract.

    When can parties contract around user rights in the Copyright Act and when may they not do so? I have no idea. We know from Bowers v. Baystate Techs., 320 F.3d 1317, 1326 (Fed. Cir. 2003) that private parties can contractually waive their right to reverse engineer software, a type of use that is a fair use of copyright. What is it that is qualitatively different with exhaustion that prevents Disney from contracting it away? Or was it simply poor contract drafting, not writing the limitation as a condition on the grant of the license that allows the creation of the local copy by the user?

    It’s more surprising when you consider that, from a copyright perspective, the three versions, DVD, Blue-Ray and digital, are all the same copyrighted work, simply on different media, which I’ll call a meta-copy. There are valid business reasons for offering three ways to view the same work rather than selling the three different versions separately. Is it wrong of Disney to want to ensure that there is only one user for a single meta-copy?

    I predict a reversal on appeal.

    Disney Enters., Inc. v. RedBox Automated Retail, LLC, No. CV 17-08655 (AGRx), (C.D. Cal. Feb. 20, 2018).

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  • The Second Circuit on Assigning the Right to Sue

    I’ve written in the past (recursive link) about the phenomenon of copyright infringement lawsuits brought by photographers or their agents against textbook publishers. The textbook publishers allegedly exceed the license they had for the use of stock photos, either by exceeding the number of print copies authorized or using the works outside of the territorial scope of the license. It has been a hard-fought battle, with the publishers expending a great deal of effort to avoid getting to the substance of the suits by using procedural challenges to registration and, for discussion here, standing.

    I thought it was black letter law that only the owner of the rights infringed can bring a suit for infringement. This is a shoe that doesn’t fit well for agency-as-plaintiff, because the agency never, in reality, acts as a copyright owner. That is, it doesn’t use the works itself but is a licensing agent for the rights. The agencies have tried to find ways to paper up their relationship with the photographers to allow the agency to bring a claim, but my anecdotal recall is that it is generally unsuccessful. The courts examine the documentation and, a la Righthaven, find that the only right that the agent truly had was the right to sue.1

    That was the case in the district court opinion in John Wiley & Sons, Inc. v. DRK Photo. The district court held that none of the various agreements vested the photo agency, DRK Photo, with enough copyright interest to have standing to bring the copyright infringement lawsuit against John Wiley & Sons, the publisher.

    The thrust of the appeal wasn’t the reading of the documents though, it was to the very premise that the bare right to sue cannot be assigned. That is one of those things I thought was well-settled, and then the day comes when someone challenges it.

    The Second Circuit gives a thorough exegisis, re-examining the cases underlying the legal premise and the statute. Nevertheless, it reaches the same conclusion, that one cannot assign the bare right to sue on copyright, efficiency notwithstanding:

    Aggregation could provide a practical means of forestalling and compensating for repeated small infringements and Congress might reasonably have chosen to permit such aggregation by assignment. But, as drafted, the Copyright Act does not, in our reading, permit DRK to assert those claims when it has received nothing more than the bare right to sue for infringement and has never held an exclusive right under copyright in the photographs. It is for Congress, not our Court, to say otherwise.

    There was a dissent with some persuasive points too, also worth reading. Nevertheless I don’t see the Supreme Court in the future of this issue; the Ninth Circuit has the same standard. Frankly I’m on the side of the majority, mostly because we have enough problems with copyright trolling even with the current significant hurdle to standing.

    John Wiley & Sons, Inc. v. DRK Photo, No. 15-1134 (9th Cir. Feb. 16, 2017)
    John Wiley & Sons, Inc. v. DRK Photo, No. 11 Civ. 5454 (KPF) (S.D.N.Y. Feb. 21, 2014)

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    1. See this recent post discussing one exception. ↩
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  • A Wasting Asset

    The U.S. Department of Agriculture (“USDA”) oversees multiple federal programs established by Congress to promote certain agricultural commodities. These programs are funded by “checkoffs” — mandatory assessments that producers and importers pay on the sale or import of the commodity. The assessments are used to pay for a range of activities, including research and marketing of the commodities, and they subsidize well-known advertising campaigns, such as “Got Milk?,” “Beef: It’s What’s for Dinner,” and “The Incredible, Edible Egg.” This case involves the pork checkoff program and the trademarks associated with the slogan “Pork The Other White Meat.”

    The National Pork Board (“Board” or “NPB”) is a fifteen-member board appointed by the Secretary of Agriculture that is responsible for developing and administering the pork checkoff program. Plaintiffs in this case challenge the Secretary’s decision to approve the Board’s purchase of the trademarks associated with “The Other White Meat” campaign.

    Beginning in 2001 until it purchased the trademarks in 2006, the Board gained access to the trademarks through a licensing agreement with the National Pork Producers Council (“NPPC”), the private industry trade association that developed the trademarks. The fee for the exclusive license to use the trademarks was one dollar per year, until 2004 when it increased to $818,000 per year. In 2006, with the Secretary’s approval, the Board entered into an agreement to purchase the trademarks from NPPC for approximately $34.6 million (the “Purchase Agreement”), which it agreed to finance over twenty years at an interest rate of 6.75%, for a total cost of $60 million including interest. Under the Purchase Agreement, the Board agreed to pay NPPC $3 million annually for twenty years.

    Pursuant to the Pork Promotion, Research, and Consumer Information Act, 7 U.S.C. § 4801 et seq. (“Pork Act” or “the Act”), which established the pork checkoff program, the Secretary is required to approve the Board’s annual budget each year. Through that process, the Secretary has approved the $3 million payment every year since the Board purchased the trademarks. In 2016, the agency undertook a review of the annual payments under the Purchase Agreement and re-approved the annual payments.

    Plaintiffs challenge the Secretary’s approval of the initial purchase of the trademarks and the subsequent approval of the annual payments under the Purchase Agreement on the grounds that they resulted in the use of pork checkoff dollars to influence legislation, which is prohibited by the Pork Act, and on the basis that the Secretary’s actions were arbitrary, capricious, and contrary to law.

    …

    The Court agrees with defendants that plaintiffs’ challenge to the approval of the 2006 Purchase Agreement itself was untimely, and that their claims concerning the approval of any annual payments made in the past are moot. But the Court concludes that decision to continue to approve the annual payments based on the review of the Purchase Agreement that was undertaken in 2016 was arbitrary and capricious and unmoored from the facts and circumstances before the agency, so it will rule in favor of the plaintiffs on that issue.

    The Secretary approved spending $3 million per year for the purchase of the trademarks for another ten years based on an expert’s determination of their replacement cost, that is, what it would cost to develop and market an entirely new promotional campaign today. But neither the agency nor the expert adequately explains why this calculation sheds any light on what the 2016 review was supposed to ascertain: the current value of the set of four trademarks to the agency. The fundamental problem is that the three trademarks that include The Other White Meat slogan have been declared to be obsolete, and they have been retired from active use. So their value is minimal, or at best, undetermined. And the record contains no effort to ascertain the value of the fourth mark — the “Pork and Design” logo that consists of the word “pork” written across a blue triangular “pork loin silhouette” — at all.

    The Secretary’s 2016 decision also fails to explain why it makes sense to predicate future payments on the cost of replacing The Other White Meat when the cost of replacing The Other White Meat has already been incurred. Moreover, while the agency states that the expert endeavored to calculate the value of the marks based upon the cost of developing a new trademark with the same level of effectiveness as the old trademarks, “as measured by aided awareness studies of the percentage of people who are aware of the trademark,” there is no data in the record underlying the expert’s selection of 40% awareness as the target measure. The expert simply cut the high level of awareness garnered by The Other White Meat slogan in its heyday in half and calculated what it would cost to buy something else that effective now. But without any analysis of how much The Other White Meat still resonates in the consumer consciousness today, or, more important, whether the blue triangular logo has gained any traction in the market at all, this approach to quantifying “current value” is completely arbitrary and cannot pass muster under the APA.

    That’s the introduction. Full opinion: Humane Sooc’y of the US v. Perdue, No. 12-1582 (ABJ) (D.D.C. Feb. 1, 2018).

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  • An Exclusive License or Exclusive Agent?

    I previously wrote about an Oregon decision, Fathers & Daughters Nev., LLC v. Zhang. The case was dismissed because the author of the film, the plaintiff, had exclusively licensed the infringed rights to someone else, so couldn’t sue for infringement itself. This post is a separate one to address an interesting footnote in the decision, a discussion of a case that I have struggled with, the 9th Circuit decision in Minden Pictures, Inc. v. John Wiley & Sons, Inc. (blogged here). In Minden, the plaintiff was a licensing agency for photographers. Minden was the photographer’s exclusive agent, but the photographers could also grant licenses themselves in limited circumstances, circumstances that were for uses that Minden could also license.

    The Minden court of appeals noted that the copyright owner has the exclusive right “to do and to authorize” the reproduction, distribution, etc. of the copyrighted work. 17 U.S.C. § 106(a). The court then held that “authorizing” the use of the copyrighted work is, in and of itself, a copyright right that can be exclusively granted:

    The right “to authorize” these acts is also an “exclusive right” under the Act. See id. § 106(3), (5). Minden thus had an interest in a legally cognizable right under the copyrights.

    The court then went on to hold that the photographers had given Minden the exclusive right to authorize others to use the photograph, which was different from the photographers’ retained right to grant licenses themselves and thus Minden, as the photographer’s exclusive agent, had standing for the infringement claim:

    [T]he photographers have promised that Minden, and only Minden, will have the power, as the photographers’ licensing agent, to authorize third parties to reproduce, distribute, and display the photographs. That the photographers have retained some limited degree of authority to grant licenses themselves does not eliminate Minden’s interest in the copyright as the sole entity to act as the photographers’ licensing agent.

    Well, that’s the best I can make of it, because I really don’t get it. And I was reassured to learn by the court’s footnote in Fathers & Daughters that it’s not just me:

    The Ninth Circuit may have created some confusion in this analysis with Minden‘s holding that in an agreement where the copyright holder expressly retains legal ownership: (1) a copyright owner can retain some “limited degree” of an “exclusive right,” (2) a copyright owner can license the remaining portion of that “exclusive right” to another, and (3) the licensee would have standing to sue as the recipient of an exclusive license of the right transferred to the licensee. Minden, 795 F.3d at 1004-06; see also DRK Photo, 870 F.3d at 984 (describing the holding in Minden). The ability of an “exclusive right” to be held fractionally between two parties seems to be contrary to the meaning of “exclusive”—and contrary to Righthaven‘s holding and the leading treatises’ conclusions that after an exclusive right has been transferred only the licensee and not the owner can enforce that exclusive right. The Court, however, need not address that tension here because … that aspect of Minden is inapplicable to the case at bar.…

    If my explanation of Minden is correct, I don’t think the 9th Circuit got it right. Section 106 says “the owner of copyright under this title has the exclusive rights to do and to authorize” the listed rights. But it’s a novel interpretation to consider the “doing” and the “authorizing” as separate rights.

    The word “authorize” was included in the Act “to avoid any questions as to the liability of contributory infringers. For example, a person who lawfully acquires an authorized copy of a motion picture would be an infringer if he or she engages in the business of renting it to others for purposes of unauthorized public performance.” H.R. Rep. 94-1476 at 61. “Authorizing” is not a separate category of rights in copyright, simply one way to exercise the six enumerated rights.

    The so-called exclusive licenses in Minden were titled “Photographer’s Agency Agreement for the Licensing of Stock Photographs” and should be understood as exactly that, establishing a principal-agency relationship. “PHOTOGRAPHER appoints MP as principal agent and representative in respect to the leasing and sale throughout the world of PHOTOGRAPHER’S Images.” Minden did not itself exercise any of the rights of the copyright owner, that is, it didn’t reproduce or distribute the photographs. It was not a licensee at all, much less an exclusive one. Instead, it was simply an agent authorized to grant exclusive licenses on behalf of its principals.

    The F&D court made this distinction for the most part, but failed at one point. F&D involved three parties, F&D, claiming to be the owner of the rights infringed, sales agent Goldenrod Holdings, and Vertical, the party to whom Goldenrod had granted an exclusive distribution license. The court’s license analysis was whether Vertical or F&D owned the rights to sue for a BitTorrent download. Note that Goldenrod wasn’t in the picture, as it wouldn’t be if it was acting only as an agent for F&D. But the court did get it wrong in dicta in another place. The court held that the retained rights were only the bare right to sue, which one cannot do – so far, so good. But it also said “the reservation of the rights was to Goldenrod and not to F&D. Thus, even if the clause could convey standing, it does not convey standing to F&D.” But that’s not consistent with the rest of the holding, which treats Goldenrod as agent, not licensee.

    Fathers & Daughters Nev., LLC v. Zhang, Civ. No. 3:16-cv-1443-SI (D. Or. Jan. 17, 2018)
    Minden Pictures, Inc. v. John Wiley & Sons, Inc., No. 14-15267 (9th Cir. July 29, 2015).

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