Where licensee
had licensed “Russian language only” or “English language only” rights to
distribute Russian language films in the United States, could the licensor
claim copyright infringements over production of DVDs with multilingual
functionality?The Second Circuit found
the answer in New York contract law.The
parties could have agreed that functionality in DVDs that permitted subtitles
or other languages could have been disabled, but did not agree to do so.Additionally, facilitating viewers watching a
video with an added or missing language did not rise to contributory or
vicarious copyright infringement as a matter of law.
To read Judges Calabresi, Raggi and Chin's summary order and judgment, click here.
In Elsevier N.V. v. United HealthGroup, Inc, 2011 WL 1002659 (SDNY March 7, 2011), Judge William Pauley denied Elsevier's motion for summary judgment. Elsevier licensed its database to defendant for the use of 50 employees. Elsevier's spreadsheets indicated that many unauthorized employees potentially accessed the articles. But who has the burden of proof? Here is the court's answer:
The central question in this litigation is whether the persons within theUHG organization who accessed ScienceDirect were Authorized Users. Elsevier contends those individuals were not authorized because all domestic employees of UHG were actually employed by UHCS, an entity not licensed to access ScienceDirect. (Pl.'s 56.1 Stmt. ¶¶ 7, 9; Dunnegan Decl. Ex. J: Klein Decl. ¶ 11.) From that contention, Elsevier asserts that since UHG's domestic employees outnumber its foreign employees, it is more likely than not that any access of ScienceDirect through the Ingenix IP Address, including the Articles at issue here, occurred as a result of activities by unauthorized, domestic UHCS employees. But that is not sufficient for summary judgment.
Elsevier has not met its burden of proving the specific acts of copyright infringement. Jorgensen, 351 F.3d at 51; see also Kelly v. L.L. Cool J., 145 F.R.D. 32, 36, n. 3 (S.D.N.Y.1992) (citing cases dismissing “[b]road, sweeping allegations of infringement” with no specific allegations). Elsevier asks the Court to look at the distribution of domestic and foreign subsidiaries in Defendants' entire enterprise and make a judgment about the probability that two individual acts of computer access took place in the United States. Even if true, as Elsevier asserts, that only 26 of UHG's 225 subsidiaries are based outside the United States, (Transcript of Oral Argument dated Oct. 8, 2010 at 11-12), Elsevier offers no evidence or reason to suggest that the blunt ratio of domestic to foreign subsidiaries in Defendants' enterprise should be applied to the specific downloads at issue on this motion. At best, the Master Spreadsheet entries show that each download was made from a different computer with a different “cookie.” (Lendi Reply Decl. ¶ 6.) But at this point in the case, Elsevier is unable to offer evidence of the identities or locations of the individuals who downloaded the Articles.
Further, Elsevier's theory on this motion is at odds with the terms of the Agreement, which specifically authorized Ingenix employees or independent contractors located in Basking Ridge, NJ to access the ScienceDirect database. (Agreement § 1.2, Schedule 2.) While domestic UHG “employees” may contract with UHCS, that does not foreclose the possibility they also work for Ingenix. This is buttressed by Klein's sworn statement that “employees in the enterprise are employed by [UHCS], and assigned to work for various companies in the enterprise.” (Dunnegan Decl. Ex. J: Klein Decl. ¶ 11.) Thus, a material issue of fact exists whether the individuals who downloaded the Articles were working for Ingenix and were one of the 50 Authorized Users at the time they accessed the Science Direct database. On the other hand, Defendants contend they were authorized to access the ScienceDirect database under the Agreement and that Elsevier has the burden to prove that the individuals who downloaded the Articles were not authorized. While the copyright owner bears the burden of proving that a defendant's license does not apply in cases where “only the scope of the license is at issue,” Bourne v. Walt Disney Co., 68 F.3d 621, 631 (2d Cir.1995), the question here is whether the infringer had any license at all. Thus, the general rule-that defendant bears the burden of proving possession of a license-applies. See Bourne, 68 F.3d at 631 (citing Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 13.01.) A defendant may not “merely assert the existence of a license without evidence supporting defendant's position that the license covers the use in question; without such evidence, defendant cannot be said to have met its burden ...”. William F. Patry, Patry on Copyright ( “Patry” ) § 5:133. It is undisputed that the Agreement was in effect at the time the Articles were downloaded. But Defendants have not offered any evidence that the individuals who downloaded the Articles worked for Ingenix and were covered by its license or that the Articles were downloaded through any other authorized means.
Nor is it unfair in these circumstances to place the burden of discovering the identities of the individuals who downloaded the Articles on Defendants. Not only are Defendants in the best position to know such information, Ingenix was obligated to use “reasonable efforts” to prevent unauthorized use (Agreement § 3.2), which should include keeping track of the identities of those individuals who access ScienceDirect from the Ingenix IP Address.
The First Circuit dealt with the question of whether an architect had granted an implied non-exclusive license, and if so, whether such non-exclusive implied license survived his death.
The architect had been a partner in a group that developed a property the development of which was planned according to his original plans. Then he died.
Could the partners use the plan? Yes, the circumstances implied a non-exclusive license. Do such licenses survive death? Yes.
Detail from Todd Latimer's Midnight Rider - Full image here.
§ 202. Ownership of copyright as distinct from ownership of material object
Ownership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.
(emphasis supplied).
§ 204. Execution of transfers of copyright ownership
(a) A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent.
The 11th Circuit basically tossed out the bolded language in a recent decision captioned Latimer v. Roaring Toyz, Inc., 2010 WL 1253090 (11th Cir. April 2, 2010) and radically expanded the doctrines of implied license and constructive delivery.
Here's the scenario, wildly oversimplified:
Artist paints artwork onto motorcycle. Knows it will be used in photography, stream of commerce. Motorcycle company gets no release. Artist is not plaintiff, has nothing to do with the case, but 11th Circuit spends a lot of time on him.
Plaintiff is motorcyle photographer. Takes photos at motorcycle company's request. Orally grants certain publication rights and thinks he owns/reserves the rest. Photographer has granted first publication rights to Two Wheel Tuner mag. Instead of distributing his high quality digital files per his instructions, company distributes them to press who unwittingly publish them, including defendant Hachette's Cycle World.
Motorcycle company who uses photos claims that they were unauthorized derivative works because the photographer didn't have a release from the guy who made the paintings on the motorcycle.
11th Circuit finds that the fact that motorcyle photographer delivered photographs without clear reservation of rights grants an implied license to motorcycle company to do whatever it likes. FURTHER finds that anyone downstream has "constructive delivery" from the photographer and can do whatever they like without getting written permission.
Here is the 11th Circuit's new rule:
"Thus, an implied license will be limited to a specific use only if that limitation is expressly conveyed when the work is delivered"
In other words, if you deliver your photograph to someone and YOU don't write down that they can't do whatever the heck they want with it, you lose your copyright to that person and to anyone they give it to.
This case is really a breathtaking blow to photographers who often deliver their works hoping that a potential client will fall in love and license them. Since the photographer said he knew that Kawasaki "might" use them, the 11th Circuit threw out his affidavit as a "sham".
In other Circuits, one must generally obtain written permission to use a photograph, the implied license doctrine is narrowly construed.
In addition, the 11th Circuit held that the photographer must prove that he gave the motorcycle company a course in copyright law to prevail:
Kawasaki asserts that Latimer did not expressly communicate to Kawasaki any restrictions on the use of the photographs. However, Latimer contends that all of his communications with Kawasaki went through Roaring Toyz and that he granted Kawasaki permission to use the photographs for a specific purpose-a media display at Bike Week. Thus, the question here is whether Latimer delivered a warning adequate to put Kawasaki on notice that certain uses of Latimer's photos would constitute copyright infringement.
Latimer v. Roaring Toyz, Inc., 2010 WL 1253090, 11 (11th Cir. April 2, 2010).
It should be noted that the 11th Circuit purported to give a victory to the photographer, but the burdens of proof that have been spelled out are highly problematic and appear to be inconsistent with the plain language of the Copyright Act and a body of case law that generally puts photographers in the driver's seat when there is an unauthorized publication of their works.
The Photoattorney blog found some good news in the decision, read here.
For a wildly different view from Kevin Smith at Duke, look here.
A totally different angle at Exclusive Rights blog here.
In Multimatic Inc. v. Faurecia Interior Systems USA, 2009 WL 4927957 (6th Cir. Dec. 22, 2009), the Sixth Circuit Court of Appeals considered the question of whether a confidentiality agreement entered into by two parties protected intellectual property (trade secrets and copyright) developed during the course of the confidential relationship.
Multimatic agreed to develop cross-beam systems for the DaimlerChrysler Avenger and Sebring lines for Faurecia, a supplier to Chrysler. There was no agreement on price, but the agreement implied that if Multimatic used Faurecia's 3D CAD designs, the parties would work together.
Instead, Faurecia gave Multimatic's designs to a third party. Multimatic sued and won. The Sixth Circuit opinion contains a good discussion of confidentiality agreements: they are governed by state law under the state's contract law, but they deal with copyrightable subject matter, the source of Faurecia's rights under the Copyright Act in the 3D models. 17 U.S.C. Section 102(a)(5) ["pictorial, graphic, and sculptural works"]. Drafter's note: the Sixth Circuit found that the use of the PRESENT tense includes FUTURE rights. Thus, neither the confidentiality agreement nor Multimatic's course of conduct in submitting the designs to Chrysler transferred the copyrights to Faurecia or anyone else, because Multimatic did not sign a writing transferring copyright ownership (as required by Section 204(a) of the Copyright Act) which provides:
§ 204. Execution of transfers of copyright ownership
(a) A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent.
In Schrock v. Learning Curve, 2009 WL 3644331, --- F.3d --- (7th Cir. Nov. 5 2009), the Seventh Circuit took up the question of whether a very simple straightforward photograph of Thomas the Train (above) is a derivative work, and if so, whether the product photographer could register his copyrights after his client's two-year license to use the photographs expired and the client continued to use the photographs.
The court found that the photographer had a narrow copyright in the photograph, that the photograph was a derivative work, and that once the copyright owner in Thomas the Train had given consent to have the work photographed, the photographer didn't require the permission of the toy company to register his copyrights.
If a court found originality in the photograph above, it sets the bar very low for photography for works of visual art because it is hard to think of a less original photograph of a toy train.
The Seventh Circuit noted that parties may limit by contract the rights of third parties to create and register derivative works and further found that the toy company, its distributor and the photographer's ultimate rights may be governed by license agreements that were not part of the record. A clear warning to those drafting license agreements to pay attention to how products are promoted and distributed.
In Cincom Systems, Inc. v. Novelis Corp., --F.3d ---, 2009 WL 3048436 (6th Cir. Sept. 25, 2009), the Sixth Circuit found that a statutory merger not approved by a software licensor triggered a copyright infringement against the remaining entity, a subsidiary of Novelis (formerly Alcan Aluminum).
State law encourages statutory mergers, which are often viewed by M&A lawyers as little more than internal housekeeping or tax planning. Statutory mergers are used for a variety of reasons and often do not require advance notice to shareholders or permission of regulators.
Ohio law deems all property of the merged entity transferred. The Sixth Circuit found that the federal common law governing intellectual property licenses trumped state law. So where a non-exclusive license requires the permission of a copyright owner for any merger or transfer, this language means what it says, giving owners of software a major seat at the table where corporations wish to engage in any mergers or transfers.
The opinion is a good discussion of the tension between state law (facilitating mergers) and federal law (protecting IP owners) - and concludes squarely that federal policy and law trumps state policy on this point. The court notes that it is extending case law from patent cases into the copyright arena.
The Sixth Circuit affirmed the district court's grant of summary judgment and damages of $459,530 (equal to the amount of the initial licensing fee).
Once again, M&A lawyers have to start reading these software license agreements.
Lemerond v. Twentieth Century Fox Film Corp., 2008 WL 918579, 87 U.S.P.Q.2d 1219 (S.D.N.Y.)(LAP). Psenicska v. Twentieth Century Fox, 07 Civ. 10972 S.D.N.Y, September 3, 2007 (Preska, J.) found here courtesy of How Appealing.
When you make a film, do you need a person's permission before you put that person's image in your film? Can you "commercialize" the person's image without their consent? And if you do obtain a "release" from the person, are there limits to what you can use the image for?
Not surprisingly, Sacha Baron Cohen of Borat and Da Ali G Show fame has pushed everyone's limits on these issues.
In making the film Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan, Cohen went out into the streets dressed up as his fictional Borat character, accosted a man in the streets of New York City, and included the footage of the encounter in both the film and the trailer. Is that ok?
New York's Civil Rights Law Section 51 creates a cause of actions for "[a]ny person whose name, portrait, picture or voice is used within [New York] for advertising purposes or for the purposes of trade without" their written consent. There is a broad "newsworthiness" exception to the statute. In dismissing plaintiff's claims, Judge Loretta Preska found that Borat's childish and vulgar character was engaging in a commentary on American society and was accordingly, newsworthy.
In the Psenicska case, numerous plaintiffs executed releases that were sprung on them at the last minute before filming. The releases were detailed and indicated a consent to participate in a "documentary-style" film. During each segment, each plaintiff was subjected to offensive, humiliating and outrageous behavior from Cohen. Analyzing the question under New York contract law, the court found the term "documentary-style" - to accurately portray the Borat film's content. The court dismissed the fraudulent inducement claims, noting that such claims were specifically waived by the language in the release.
In producing a copyrighted work such as a film, one must take care to ensure that it consists of underlying content that is obtained properly. Had these issues not been litigated in New York, or release not been obtained, the result would surely have been different. The broad language of New York's Civil Rights law is narrowed substantially by the case law.
For a number of years, activists dismayed at how commercial enterprises exploited copyright agitated to change the nature of how copyrighted works affected creative collaboration. They imagined a world of greater creative collaboration where everyone would still be able to make a living.
Authors, artists and musicians who wished to have their works used in others' materials could signify their interest.
Information and tools to understand this movement, including the "creative commons" marking and sample licenses are available at the Creative Commons website.
Wikipedia is a stunning example of this type of creative collaboration.
But what about the making money part? If you put your work on the internet and tell everyone that they can use it, are these very creative "creative commons" licenses going to eventually help you make a living? Can these licenses be enforced? And if someone ventures beyond the terms of the license, is that a breach of contract or is it copyright infringement?
The issue went from an interesting and hotly debated academic question to a tremendous commercial reality with the advent of the "open source" software movement, which adopted a creative commons-type license. Essentially, software programmers put up programming code that anyone can download, modify, use and distribute for free, as long as the "borrowed" or "open source" code is clearly indicated and enabled for the distributee to copy, download and use.
On August 13, 2008, the Court of Appeals for the Federal Circuit decided Jacobsen v. Katzer, 2008 WL 3395772, a decision that reviewed a district court's denial of a preliminary injunction to the owner of programming code who sued a person who downloaded his code, removed the identifying materials, and sold a new software package commercially.
The district court found that the open source license was an intentionally broad non-exclusive license unlimited in scope. Rather than being a matter of "copyright infringement", the issue became one of "breach of contract". The district court's holding meant that the owner of the open source code would be stripped of powerful rights and remedies available in federal court to copyright owners who are victims of copyright infringement, including the right to injunctive relief.
Generally, a copyright owner who grants a nonexclusive license to use copyrighted materials waives the right to sue the licensee for copyright infringement. But where a license is limited in scope and the licensee acts outside the scope, the licensor can sue for copyright infringement.
The Court of Appeals framed the issue as follows: if, under California law the terms of the open source license were "conditions" for the use of the copyrighted materials, then use outside such conditions would be copyright infringement. If, however, the terms of the open source license were "covenants" under state contract law, then the open source owner would be limited to remedies for breach of contract.
Analyzing the terms of the open source license, the Court of Appeals found that its provisions were "enforceable copyright conditions" for the use of the copyrighted material and that copyright remedies would be available to the owner.
The Court of Appeals decision contains an excellent discussion of the commercial benefits flowing from open source collaboration that cannot be measured in terms of traditional royalties. This is a well-reasoned opinion that is a strong victory for the owners of these copyrighted works. According to Creative Commons, it is estimated that approximately 100,000,000 works are licensed under various Creative Commons licenses. The court noted that both Creative Commons and the Wikimedia Foundation filed friend of the court (amicus curiae) briefs in support of the appeal.
While the question of how or if many of these copyright owners will seek or achieve returns on their investments is an open one, this case is a clear victory for the rights of copyright owners who want to make their works available through the digital commons.
If you would like to earn CLE (Continuing Legal Education) credits online, my publisher, West has made available online a course I delivered in Eagan, Minnesota. Below, you can find a video excerpt.
Anyone putting up a website or a blog is a "publisher" these days, so it helps to know the principles involved. What can you publish? What will get you in trouble? How do you analyze problems that arise in using content created by others?
Copyright Law and Publishing
Content Provider: Clarion LegalDuration: 2 hours 0 minutes
Program Description: This session is comprised of practical, hands-on examples designed to give participants the analytical tools with which to confront copyright issues facing publishers.
If you would like more information or want to enroll in this program, click on the program title listed above or paste this link into your web browser:
Freelancers suffered a very tough blow in the Second Circuit's decision In re Literary Works in Electronic Databases Copyright Litigation, --- F.3d---, 2007 WL 4197413 (2d Cir. 2007). Dissents in the Second Circuit are fairly rare, but the Second Circuit's former Chief Judge John M. Walker, Jr. wrote a fairly thorough dissent.
In 2001 the U.S. Supreme Court decided New York Times v. Tasini, 533 U.S. 483, 488 (2001) which held that section 201(c) 0f the Copyright Act does not permit publishers to reproduce freelance works electronically when the publishers lack specific authorization to do so. In the wake of that decision, the In re Literary Works litigation was commenced as a class action to vindicate the rights of freelancers whose works were taken without their permission. After years of heated negotiation, the parties agreed to a class settlement. The settlement Classes were divided into subclasses A, B and C. Subclass A consisted of freelancers who had registered their copyrights (see my post of yesterday on advantages of registration). Subclass B registered after infringement, but before December 31, 2002. Subclass C never registered their works.
As discussed in my post of yesterday: for a U.S. copyright owner, registration is a prerequisite for commencing litigation. As the In re Literary Works decision sets forth: Class A is entitled to statutory damages and attorneys fees. Class B to actual damages. Class C .. well.... there's the rub.
The Defendants claimed that Class C (unregistered copyrights) were practically worthless. So a group of objectors (holders of unregistered copyrights) objected to the class settlement, which was likely to leave next to nothing or nothing for the Class C. Watch out what you ask for: the objectors brought the issue of the court's jurisdiction to the fore, and the Second Circuit scuttled any settlement in favor of the unregistered copyright holders. Why? They had not registered.
It seems that all of the parties spend a lot of time arguing the meaning of Section 411 of the Copyright Act, which makes it a requirement that registration to occur for a federal court to have jurisdiction. To dig into the highly technical nuances of the argument, it appears to me that the dissent makes the most sense: Section 411 doesn't create the pre-existing rights and should be treated solely as an enforcement mechanism.
And in the end, the result is not only unfair, but it renders Tasini a pyrrhic victory. As In re Literary Works states: "this jurisdictional failure likely affected more than 99 percent of the claims at issue."
Why unfair? Well, freelancers (a.k.a. ink-stained wretches) traditionally beat deadlines by minutes, turned in their work, got some beer money, and lived hand-to-mouth. They owned their work, and maybe, just maybe, someday they'd turn it into a book. Of course they owned their copyright, and when they saw "Copyright New York Times" they knew that the Old Gray Lady had taken care of the formalities of registration for them.
But in a case called Morris Business Concepts, Inc., 259 F.3d 65 (2d Cir. 2001) and in a decision denying a petition for rehearing 283 F.3d 502 (2002), all of that was taken away. Why? It was held that the newspaper owns the "collective copyright" but that if a freelancer wanted to consider a copyright registered, it would have to file a separate registration to indicate that all of the rights had not been transferred to the publisher. So every time the ink-stained wretch turned in a story, he or she was also supposed to file a registration with the Copyright Office.
Clearly, 99% of the freelancers did not have that understanding. They were relying on the publisher's registration.
So when we look at the In re Literary Works decision, the "unregistered copyrights" that were settled and under discussion were copyrights claimed by freelancers in registered collective works. Since copyright is an area of "complete preemption", this is clearly an area in which Congress intended to legislate - and whether the publisher's re-publication of a story without permission is deemed a breach of contract or a copyright infringement, it seems that there is sufficient grounds for litigation over whether it is a state or federal claim to permit a federal court to exercise supplemental jurisdiction over it in the settlement context. As Judge Walker correctly noted, there is certainly a "case or controversy" to give the freelancers standing in the constitutional sense.
I have recently been lecturing outside the U.S. - in Berlin, Germany and last month in Montreal. The question comes up: should owners of copyrighted works that are created outside the United States register those works in the United States? The first part of the answer is that if the copyright author created the work in a country that is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the copyright owner does not have to register in the U.S. to protect their copyright or to have an action in the U.S. for infringement. The owner of an unregistered Berne Convention work may commence an action in U.S. courts without registering. The owner of a U.S. work must register to have standing to sue in a U.S. court.
So, owners of unregistered Berne Convention works may bring an infringement suit in U.S. courts. The implementing legislation eliminated the requirement of registration for non-U.S. works. Compare 17 U.S.C. §411 (registration a prerequisite for “infringement of the copyright in any United States work”).
But the second part of the answer may be more important to European, Asian, Canadian, Middle Eastern and other attorneys residing in countries that are signatories to the Berne Convention. Unregistered Berne Convention works are not eligible for statutory damages and attorneys' fees under 17 USC §4 12. 2 Melville B. Nimmer & David Nimmer, Nimmer on Copyright, §7.16(c)(1), 7-183 (2006)(the loss of remedies under Section 412 due to failure to register is applicable to works of foreign origin as well as to domestic works).
So, if an attorney from a Berne Convention country wants a client to have what may be strong weapons in a copyright infringement litigation, the advice should be to register the works in the United States.
There is a very narrow possible exception to this general requirement that applies only to broadcasts - but even in that instance, registration will ultimately take place. Georgia Television Co. v. TV News Clips of Atlanta, Inc., 718 F. Supp. 939 (N.D.Ga. 1989) noted the availability of statutory damages for a plaintiff with respect to an unregistered work following implementation of the Berne Convention legislation. However, this case applied narrowly to works “consisting of sounds, images or both, the first fixation of which is made simultaneously with its transmission”. 17 U.S.C. § 411(b). Section 411(b) contains special registration requirements for works that cannot possibly be registered prior to transmission.
Can you wait to register? No. To enjoy the advantages of statutory damages and attorneys fees, a Canadian, British, German or Japanese copyright owner must register, as do U.S. owners, within three months of the first publication of the work or within 30 days of learning of an infringement, whichever date is earlier. 17 U.S.C. § 412.
But wait, there are even more reasons to register, reasons that corporate dealmakers will readily appreciate:
Registration and recordation provide additional advantages to the non-U.S. copyright owner. 17 U.S.C. § 205 provides that registration acts as constructive notice of the facts within the registration. In addition, any transactions involving registered works that have been recorded act to put the world on constructive notice of such a transfer. So if a client enters into a license agreement, a loan transaction, or any other transaction affecting title or rights to a copyright and records it, the world is on notice. Section 205(d) provides that in the case of conflicting transfers of copyright, if it is executed first, the recorded document will have priority in the event of a conflicting transfer if such document executed outside the United States is recorded within two months of such a transfer, or if it is recorded prior to the later transfer. “Otherwise, the later transfer prevails if recorded first in such manner, and if taken in good faith, for valuable consideration or on the basis of a binding promise to pay royalties, and without notice of the earlier transfer.” 17 U.S.C. §205(d).
Accordingly, non-U.S. attorneys are correct in advising their clients of the considerable advantages to registering copyrights in the U.S. as early as possible, to conducting copyright searches before entering into significant license agreements, and to recording transactions involving copyrights promptly after execution.
A musician enters into a recording contract for an album. The forum selection clause specifies England as the exclusive forum to bring legal proceedings. The choice of law clause specifies English law. The musician provides sufficient tracks to release an album. The musician also provides enough additional tracks to launch a second album. The record company asks for permission to launch the second album. The musician refuses. The record company launches the second album.
Can the musician sue in the Southern District of New York? The Second Circuit tackled this question in Phillips v. Audio Active Limited, --- F.3d ---, 2007 WL 2090202 (2d Cir.). The answer is "yes" on copyright claims and "no" on contractual claims.
The musician sued in New York claiming breach of contract, copyright infringement and pendent state law claims. The defendant record company moved to dismiss pursuant to Rule 12(b)(3) - improper venue.
The Second Circuit applies a four-part analysis in deciding motions to dismiss based on a forum selection clause in a contract:
(1) was the clause reasonably communicated to the party resisting enforcement?
(2) is the language of the forum selection clause mandatory rather than permissive? (ie does the language require a lawsuit to be brought in the specified jurisdiction or merely permit jurisdiction)
(3) are the claims and parties involved in the suit subject to the forum selection clause?
(4) if the answer to the above three questions is "yes", the final question is whether the resisting party has rebutted the presumption of enforceability by making a sufficiently strong showing that (a) enforcement would be unreasonable or unjust or (b) the clause was invalid for such reasons as fraud or overreaching.
The District Court dismissed the entire action for improper venue. The Second Circuit affirmed the dismissal of the contract claims.
The Second Circuit reversed on the copyright claims, permitting the copyright claims to proceed in the Southern District of New York. The court looked to the language of the forum selection clause which applied to claims "arising out of" the contract. The court found that the copyright claims did not "arise out of" the contract. The court held that even though the defendant could invoke the contract as a defense, the plaintiff's claims were grounded in the Copyright Act and in his authorship of the works.
The Second Circuit explicitly rejected the approach of the Seventh Circuit in Omron Healthcare, Inc. v. Maclaren Exps. Ltd., 28 F.3d 600 (7th Cir. 1994), which interpreted similar language as "all disputes the resolution of which arguably depend on the construction of an agreement 'arise out of' that agreement." The Omron case involved a distributor selling off excess inventory of strollers bearing trademarks following termination of a distribution agreement. The Seventh Circuit sent the trademark infringement claims over to England.
In other words, applying Omron the Seventh Circuit would have dismissed the copyright claims for lack of venue as well, since determining the validity of the copyright claims would rely on construing the language of the contract.
The result in Phillips was that the plaintiff was permitted to file copyright infringement claims in the Southern District of New York and would have to file breach of contract claims in England.
Professor Patry expresses his dissatisfaction with the Phillips case here. Anyone who drafts copyright or trademark license agreements and does not want to be litigating claims in two separate fora should read the Phillips case and redraft their forum selection clauses.
