Oral Termination of License Agreements, Jury Instructions and the Copyright Act

Caballo Viejo - image courtesy Wikipedia - the song by Simon Diaz that inspired the Gypsy Kings' Bamboleo featured in a recent decision by the First Circuit Court of Appeals Latin American Music Company v. ASCAP, 2010 WL 324526 (1st Cir. 2010).

At issue:  we all know that Section 204 of the Copyright Act requires transfers of copyright ownership to be in writing, signed by the transferor.  Section 204 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.
(b) A certificate of acknowledgment is not required for the validity of a transfer, but is prima facie evidence of the execution of the transfer if —
(1) in the case of a transfer executed in the United States, the certificate is issued by a person authorized to administer oaths within the United States; or
(2) in the case of a transfer executed in a foreign country, the certificate is issued by a diplomatic or consular officer of the United States, or by a person authorized to administer oaths whose authority is proved by a certificate of such an officer.

In Latin American Music, the First Circuit considered the question of whether an exclusive license for a song, where the license agreement was silent on the duration of the license and how it would be terminated, could be terminated orally?

The case came before the First Circuit on appeal following a jury trial.   The court found that Section 204 of the Copyright Act did not apply to terminations of license agreements.   The court considered Section 203 (requiring that certain terminations of author's rights be in writing) and found that the Copyright Act was silent on the point.   The court rejected the argument that the Copyright Act preempted state contract law, and upheld the application of New York contract law to determine whether "reasonable notice" under New York law was given.   The court upheld the admissibility of a videotaped deposition at trial where an unavailable witness testified that he had orally terminated the license.

The decision also considered the propriety of jury instructions and evidence cited in a closing argument. The court reiterated that if attorneys have a problem with a court's jury instructions or with an adversary's closing, they must preserve their objections on the record.

Mergers and Acquisitions: Lack of Clarity in Copyright Assignments and Licenses Can Blow A Deal

In The SCO Group Inc. v. Novell Inc., --- F.3d ---, 2009 WL 2581735 (10th Cir. August 24, 2009) the Tenth Circuit Court of Appeals revisited a ten-year old transaction. In a transaction characterized as the sale of a "businesss", one party claimed that no copyrights were transferred. The other party claimed that copyrights were transferred. The $300 million 1995 involved the sale of a business.

This case ought to be made part of any curriculum for attorneys involved in mergers and acquisitions. A list of lessons to be derived from the case:

1. in corporate transactions, specify what copyrights are being transferred, if any - be as specific as possible;

2. if you don't understand what is being sold or transferred, no one else will;

3. where licenses are being transferred and one party retains certain powers, clearly define the powers in the transaction documents;

4. following the deal, amend any copyright notices and copyright registrations to conform to your understanding of the transaction;

5. if you are left in doubt (some quick deals necessitate this), insert a few hypotheticals to show how the contract is supposed to work ("for the elimination of doubt").

Much of the opinion deals with the court struggling with the meaning of the contract language, what rights are involved, what copyrights are involved, and how licenses work. The Copyright Act piece is a discussion of 17 U.S.C. Section 204(a) which requires a "note or memorandum" in writing and signed by the owner.

Where there is no question that a transfer of copyright was intended, but the scope of the transfer is ambiguous, the ambiguity will not invalidate the transfer, but opens the door for parol evidence.

The 10th Circuit reversed the lower court's grant of summary judgment and remanded on a number of issues. Where really smart lawyers and really smart federal judges can't figure out what a transaction means, it is a sure sign that the transactional lawyers dropped the ball.