Recent Disputes over Copyright Licenses

Sampling Rights under Digital Literary Distribution Agreement Do Not Necessarily Extinguish Upon Expiration of the Agreement

In Smith v. Barnesandnoble.com, — F.3d —-, 2016 WL 5845690 (2d Cir. Oct. 6, 2016), the plaintiff was the widow of the author of a copyrighted book called “The Hardscrabble Zone” (the Work). Prior to his death, the author contracted with the online publisher Smashwords. The distribution agreement granted Smashwords the right to “distribute samples of the Work” for free and non-commercial uses, duplication and sharing via “any form of media.” The court later characterized these provisions as giving “robust rights in digital samples” to Smashwords insofar as the unambiguous terms of the license acknowledged that “uninhibited sampling and sharing” of the Work had the potential to “dramatically increase … [the author's] total audience and sales opportunities.” The license also provided that the end users who acquired the Work possessed a similar license to “duplicate, share and reproduce” the sample, but only for “non-commercial purposes … during the time the price is set to zero.”

Smashwords provided the Work for sale and sampling to its retail partners, including defendant Barnes & Noble, which made free samples available on its website. During the two years the Work was available on the defendant's website, it did not sell a single copy. One customer did acquire a sample. The author was understandably unenthused and terminated his license with Smashwords. Notwithstanding this termination, the Work erroneously remained on the defendant's website for another six months. In this post-termination period, the customer who acquired a sample of the Work twice accessed it via his digital “locker” on the defendant's website, which was stored in the cloud.

These two instances of access formed the gravamen of the plaintiff's complaint for copyright infringement. Its theory of liability was that Barnes & Noble was longer able to provide its customers access to the sample after the license had terminated, even if the customer had acquired the sample pre-termination.

The Southern District of New York granted summary judgment in favor of the defendant, and the Second Circuit agreed. The appeals court concluded that the customer's access to the Work (as facilitated by the defendant) was authorized under the license. It was undisputed that the author owned the copyright to the Work and the license was valid. Thus, the operative question dealt with the scope of the license. This placed the burden of proof on the plaintiff to illustrate that the defendant's conduct was unauthorized under the license. See also, Graham v. James, 144 F.3d 229, 236 (2d Cir. 1998).

The plaintiff could not carry this burden. The license provided for distribution of samples, but was silent as to the rights of the customer in samples distribution prior to the termination of the agreement. The court analogized to the bygone era of licenses that solely dealt with granting use rights to “paper samples.” Specifically, the court observed that the license did not distinguish between a customer's use of paper samples versus digital samples. Ergo, since a customer without a paper sample could “obviously keep it, reread it and make additional paper copies of it for noncommercial use, at will,” the license implied that the user of the digital sample could not lose use simply upon termination. See also, Bartsch v. Metro-Goldwyn-Mayer, 391 F.2d 150, 155 (2d Cir. 1968) (noting that licensees “may properly pursue any uses which may reasonably be said to fall within the medium as described in the license”). The copyright infringement claim was dismissed and the plaintiff's other arguments deemed “meritless.”

Copyright License Litigation Roundup

A number of other cases decided in recent months have dealt with contractual rights to use (or be forbidden from using) copyrighted works.

In Aero Fulfillment Services v. Oracle, — F. Supp. 3d —-, 2016 WL 2853581 (S.D. Ohio May 16, 2016), a licensee brought an action against a licensor after it refused to provide source code for an update of a program that was the subject of the license. The licensee brought claims of, inter alia¸ breach of contract and implied-in-fact contract, fraud and promissory estoppel for breach of an amended license. The court rejected the breach of contract claim and held that the amended license did not require the licensor to provide licensee with the source code. The amendment to the license did not address source code, the source code provision in the original license only granted licensee source code under circumstances that had not occurred, and updates were strictly limited to the licensed software, and were inapplicable to underlying source code. Some of the licensee's other claims, including fraud, did survive the licensor's motion to dismiss, even though the licensee was in breach, as the licensee's allegations that it was fraudulently induced by the licensor's promise of access to the source code was a separate tort unrelated to the breach of the license.

A federal court sitting in New York decided in the plaintiff's favor at the motion stage a copyright infringement claim after some defendants' implied license defense failed. See, Mackenzie Architects, PC v. VLG Real Estates Developers, 2016 WL 4703736 (N.D.N.Y. Sept. 8, 2016). Pursuant to a building agreement, the plaintiff, an architectural firm, prepared designs and technical drawings for a real estate developer for use in a potential multi-family residential building (the Drawings). The plaintiff claimed that this developer later sold the building site to a second developer. The plaintiff alleged a surfeit of copyright infringement claims against these parties, though the claims against the second developer defendant involved a license. These defendants claimed an implied license to use the Drawings because the plaintiff admitted in its complaint that it had granted a non-exclusive license to the first developer. So the second developers' argument goes, that non-exclusive license could be assigned to it. However, the license to the first developer specifically stated it was non-assignable, and so the implied license defense failed. Accordingly, the copyright claims against these defendants survived the motion for judgment on the pleadings.

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Richard Raysman is a Partner at Holland & Knight. Peter Brown is the principal at Peter Brown & Associates and a member of this newsletter's Board of Editors. They are co-authors of Computer Law: Drafting and Negotiating Forms and Agreements (Law Journal Press).

Copyright license disputes truly run the gamut. Many involve the entertainment industry, which naturally makes the cases well-publicized. In the last year, high-profile disputes over alleged violations of copyright licenses have involved, just to name a few, tattoos on athletes as depicted in video games, a sample in the Madonna song “Vogue,” a photograph that precipitated a request for a $1 billion damage award, and a depiction of a shark attack in a movie.

This article discusses disputes involving the use of copyrighted works or intellectual property underlying that work, under a license, or in one case, under an implied license. The parties thereto are not nearly as well-known, but the legal conclusions reached may have farther reaching implications.

The three cases analyzed below involve: 1) whether the duration of digital sample rights to a work extend past the relevant license; 2) if and when source code provided, or promised to be provided, to a licensee can sustain either contract or tort claims; and 3) the assignability of copyrighted architectural renderings via an implied license.

Sampling Rights under Digital Literary Distribution Agreement Do Not Necessarily Extinguish Upon Expiration of the Agreement

In Smith v. Barnesandnoble.com, — F.3d —-, 2016 WL 5845690 (2d Cir. Oct. 6, 2016), the plaintiff was the widow of the author of a copyrighted book called “The Hardscrabble Zone” (the Work). Prior to his death, the author contracted with the online publisher Smashwords. The distribution agreement granted Smashwords the right to “distribute samples of the Work” for free and non-commercial uses, duplication and sharing via “any form of media.” The court later characterized these provisions as giving “robust rights in digital samples” to Smashwords insofar as the unambiguous terms of the license acknowledged that “uninhibited sampling and sharing” of the Work had the potential to “dramatically increase … [the author's] total audience and sales opportunities.” The license also provided that the end users who acquired the Work possessed a similar license to “duplicate, share and reproduce” the sample, but only for “non-commercial purposes … during the time the price is set to zero.”

Smashwords provided the Work for sale and sampling to its retail partners, including defendant Barnes & Noble, which made free samples available on its website. During the two years the Work was available on the defendant's website, it did not sell a single copy. One customer did acquire a sample. The author was understandably unenthused and terminated his license with Smashwords. Notwithstanding this termination, the Work erroneously remained on the defendant's website for another six months. In this post-termination period, the customer who acquired a sample of the Work twice accessed it via his digital “locker” on the defendant's website, which was stored in the cloud.

These two instances of access formed the gravamen of the plaintiff's complaint for copyright infringement. Its theory of liability was that Barnes & Noble was longer able to provide its customers access to the sample after the license had terminated, even if the customer had acquired the sample pre-termination.

The Southern District of New York granted summary judgment in favor of the defendant, and the Second Circuit agreed. The appeals court concluded that the customer's access to the Work (as facilitated by the defendant) was authorized under the license. It was undisputed that the author owned the copyright to the Work and the license was valid. Thus, the operative question dealt with the scope of the license. This placed the burden of proof on the plaintiff to illustrate that the defendant's conduct was unauthorized under the license. See also , Graham v. James , 144 F.3d 229, 236 (2d Cir. 1998).

The plaintiff could not carry this burden. The license provided for distribution of samples, but was silent as to the rights of the customer in samples distribution prior to the termination of the agreement. The court analogized to the bygone era of licenses that solely dealt with granting use rights to “paper samples.” Specifically, the court observed that the license did not distinguish between a customer's use of paper samples versus digital samples. Ergo, since a customer without a paper sample could “obviously keep it, reread it and make additional paper copies of it for noncommercial use, at will,” the license implied that the user of the digital sample could not lose use simply upon termination. See also , Bartsch v. Metro-Goldwyn-Mayer , 391 F.2d 150, 155 (2d Cir. 1968) (noting that licensees “may properly pursue any uses which may reasonably be said to fall within the medium as described in the license”). The copyright infringement claim was dismissed and the plaintiff's other arguments deemed “meritless.”

Copyright License Litigation Roundup

A number of other cases decided in recent months have dealt with contractual rights to use (or be forbidden from using) copyrighted works.

In Aero Fulfillment Services v. Oracle, — F. Supp. 3d —-, 2016 WL 2853581 (S.D. Ohio May 16, 2016), a licensee brought an action against a licensor after it refused to provide source code for an update of a program that was the subject of the license. The licensee brought claims of, inter alia¸ breach of contract and implied-in-fact contract, fraud and promissory estoppel for breach of an amended license. The court rejected the breach of contract claim and held that the amended license did not require the licensor to provide licensee with the source code. The amendment to the license did not address source code, the source code provision in the original license only granted licensee source code under circumstances that had not occurred, and updates were strictly limited to the licensed software, and were inapplicable to underlying source code. Some of the licensee's other claims, including fraud, did survive the licensor's motion to dismiss, even though the licensee was in breach, as the licensee's allegations that it was fraudulently induced by the licensor's promise of access to the source code was a separate tort unrelated to the breach of the license.

A federal court sitting in New York decided in the plaintiff's favor at the motion stage a copyright infringement claim after some defendants' implied license defense failed. See, Mackenzie Architects, PC v. VLG Real Estates Developers, 2016 WL 4703736 (N.D.N.Y. Sept. 8, 2016). Pursuant to a building agreement, the plaintiff, an architectural firm, prepared designs and technical drawings for a real estate developer for use in a potential multi-family residential building (the Drawings). The plaintiff claimed that this developer later sold the building site to a second developer. The plaintiff alleged a surfeit of copyright infringement claims against these parties, though the claims against the second developer defendant involved a license. These defendants claimed an implied license to use the Drawings because the plaintiff admitted in its complaint that it had granted a non-exclusive license to the first developer. So the second developers' argument goes, that non-exclusive license could be assigned to it. However, the license to the first developer specifically stated it was non-assignable, and so the implied license defense failed. Accordingly, the copyright claims against these defendants survived the motion for judgment on the pleadings.

*****
Richard Raysman is a Partner at Holland & Knight. Peter Brown is the principal at Peter Brown & Associates and a member of this newsletter's Board of Editors. They are co-authors of Computer Law: Drafting and Negotiating Forms and Agreements (Law Journal Press).