Waiting Too Long to Bring Copyright Infringement Suit – Laches No Bar Claim If Any Infringement Within Three Years

The Supreme Court, in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), (available here), held that the defense of laches was not available to preclude adjudication of copyright infringement action brought within 17 U.S.C.S. § 507(b)’s 3-year limitations period for civil action under Copyright Act (17 U.S.C.S. § 101 et seq.).

The allegedly infringing work is the motion picture Raging Bull.  In 1976, the original authors assigned the screenplay, which was later acquired by United Artists, a subsidiary of Metro-Goldwyn-Mayer, Inc. (“MGM”).  In 1980, MGM released, and registered a copyright in, Raging Bull.  Petrella acquired the renewal rights to the screenplay as an heir to the author.  The renewal rights reverted to the heirs, who could renew the copyrights unburdened by any assignment previously made by the author.  In 1991, Petrella renewed the copyright.  Seven after the renewal, Petrella in 1998 advised MGM that Raging Bull violated her copyright.  Some nine years later, on January 6, 2009, Petrella filed an infringement suit limited to acts occurring on or after January 6, 2006.  MGM moved for summary judgment that Petrella’s 18 year delay in filing suit was unreasonable and prejudicial to MGM.  The District Court granted MGM’s motion holding that laches barred Petrella’s suit.  The Ninth Circuit affirmed.  The Supreme Court reversed.

The Supreme Court found that in the face of a statute of limitations enacted by Congress, laches cannot be invoked to bar legal relief.  Petrella sought no relief for conduct occurring outside § 507(b)’s three-year limitations period. The Court also found that there is nothing untoward about a copyright owner delaying suit and waiting to see whether an infringer’s exploitation undercuts the value of the copyrighted work, has no effect on the original work or even complements it.  In addressing MGM’s arguments, and in distinguishing between laches and estoppel, the Court stated that when a copyright owner engages in intentionally misleading representations concerning his abstention from suit, and the alleged infringer detrimentally relies on the copyright owner’s deception, the doctrine of estoppel may bar the copyright owner’s claims completely, eliminating all potential remedies.  However, the courts below did not address the estoppel plea.

This present case was not extraordinary where the consequences of a delay in commencing suit maybe of sufficient magnitude to warrant, at the very outset of the litigation, curtailment of the relief equitably awardable.  The Court found that Petrella notified MGM of her copyright claim before MGM invested millions of dollars in creating a new edition of Raging Bull.  And the relief sought, disgorgement of unjust gains and an injunction against future infringement, would not result in “total destruction” of the film or anything close to it.   

Copyrightability and Fair Use of the Google Android Operating System – Oracle v Google

In a lengthy decision covering historical computer copyright case law, the Court of Appeals for the Federal Circuit ruled on the copyright dispute over the Android smart phone operating system in Oracle America Inc. v. Google Inc., Fed. Cir. Case No. 2013-1021 (May 9, 2014) (available here).  The Court reversed the district court’s decision on the non-copyrightability of the Java code used by Google and remanded the matter for a new trial on the issue of fair use.

The copyright dispute involved 37 packages of computer source code. “The parties have often referred to these groups of computer programs, individually or collectively, as ‘application programming interfaces,’ or API packages, but it is their content, not their name, that matters.  Many software developers use the Java language, as well as Oracle’s API packages, to write applications (commonly referred to as ‘apps’) for desktop and laptop computers, tablets, smartphones, and other devices.”  opn. pg. 4.  Oracle alleged that Google’s Android mobile operating system infringed Oracle’s patents and copyrights.  The Federal Circuit handled the appeal due to the presence of a patent infringement claim but the appeal involved copyright infringement.  The Federal Circuit was therefore obliged to apply Ninth Circuit copyright law. The jury had found that Google did not infringe Oracle’s patents.

The parties agreed that the jury would decide infringement, fair use, and whether any copying was de minimis and the district judge would decide copyrightability and Google’s equitable defenses.  The jury found that Google infringed Oracle’s copyrights in the 37 Java packages and a specific computer routine called ‘rangeCheck,’ but returned a noninfringement verdict as to eight decompiled security files. The jury deadlocked on Google’s fair use defense.  After the trial, the district court granted Oracle’s motion for judgment as a matter of law (JMOL) and found that: (1) Google admitted to copying the eight files; and (2) no reasonable jury could find that the copying was de minimis.  Shortly thereafter, the district court issued its decision on copyrightability, finding that the replicated elements of the 37 API packages—including the declaring code and the structure, sequence, and organization—were not subject to copyright protection.

Oracle’s Java platform includes the Java development kit (JDK), javac compiler, tools and utilities, runtime programs, class libraries (API packages), and the Java virtual machine.  These packages, which are the application programming interfaces a issue in this appeal, allow programmers to use the prewritten code to build certain functions into their own programs, rather than write their own code to perform those functions from scratch. They are shortcuts.  Oracle offers three different licenses: a free, open source General Public License (users must contribute back innovations to the public), a specification license and a commercial license (for use of the entire code and to keep the code secret).  Oracle and Google could not agree on a license because Google wanted a ‘write once, run anywhere’ operating system. Google wanted other programmers to write apps for the Google Java-based smart phone.

“To achieve this ‘write once, run everywhere’ result, Google copied the declaring source code from the 37 Java API packages verbatim, inserting that code into parts of its Android software. In doing so, Google copied the elaborately organized taxonomy of all the names of methods, classes, interfaces, and packages — the ‘overall system of organized names—covering 37 packages, with over six hundred classes, with over six thousand methods.’” opn. pg. 10 – 11.

“Although [Google] acknowledged that the overall structure of Oracle’s API packages is creative, original, and resembles a taxonomy, the district court found that it is nevertheless a command structure, a system or method of operation — a long hierarchy of over six thousand commands to carry out pre-assigned functions — that is not entitled to copyright protection under Section 102(b) of the Copyright Act. In reaching this conclusion, the court emphasized that, [o]f the 166 Java packages, 129 were not violated in any way. And, of the 37 Java API packages at issue, ‘97 percent of the Android lines were new from Google and the remaining three percent were freely replicable under the merger and names doctrines. On these grounds, the court dismissed Oracle’s copyright claims, concluding that the particular elements replicated by Google were free for all to use under the Copyright Act.”  opn. pg. 14 (quotations and record citations omitted).

Per the Federal Circuit, “It is undisputed that Google copied 7,000 lines of declaring code and generally replicated the overall structure, sequence, and organization of Oracle’s 37 Java API packages.”  opn. pg. 15.

The Copyright Act provides protection to original works of authorship fixed in any tangible medium of expression, including literary works. 17 U.S.C. § 102(a). It is undisputed that computer programs —  defined in the Copyright Act as “a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result,” 17 U.S.C. § 101 — can be subject to copyright protection as literary works. See Atari Games Corp. v. Nintendo of Am., Inc., 975 F.2d 832, 838 (Fed. Cir. 1992).

Copyright protection extends only to the expression of an idea — not to the underlying idea itself. Mazer v. Stein, 347 U.S. 201, 217 (1954).  The idea/expression dichotomy traces back to the Supreme Court’s decision in Baker v. Selden, 101 U.S. 99, 101 (1879).

“It is well established that copyright protection can extend to both literal and non-literal elements of a computer program. … The non-literal components of a computer program include,
among other things, the program’s sequence, structure, and organization, as well as the program’s user interface.” opn. pg. 20.

“Although the parties agree that Oracle’s API packages meet the originality requirement under Section 102(a), they disagree as to the proper interpretation and application of Section 102(b). For its part, Google suggests that there is a two-step copyrightability analysis, wherein Section 102(a) grants copyright protection to original works, while Section 102(b) takes it away if the work has a functional component. To the contrary, however, Congress emphasized that Section 102(b) ‘in no way enlarges or contracts the scope of copyright protection’ and that its ‘purpose is to restate . . . that the basic dichotomy between expression and idea remains unchanged.’ Feist,
499 U.S. at 356″ opn. pg 22.

The Federal Circuit adopted the abstraction-filtration-comparison test.  “In the abstraction step, the court first breaks down the allegedly infringed program into its constituent structural parts. In the filtration step, the court sifts out all non-protectable material, including ideas and expression that is necessarily incidental to those ideas. In the final step, the court compares the remaining creative expression with the allegedly infringing program.”  opn. pg. 23 – 24 (quotes omitted).

“In all circuits, it is clear that the first step is part of the copyrightability analysis and that the third is an infringement question. It is at the second step of this analysis where the circuits are in less accord.”  opn pg. 24

“In the Ninth Circuit, while questions regarding originality are considered questions of copyrightability, concepts of merger and scenes a faire are affirmative defenses to claims of infringement. Ets-Hokin, 225 F.3d at 1082; Satava v. Lowry, 323 F.3d 805, 810 n.3 (9th Cir.
2003)” opn. pg. 25.

“Under the merger doctrine, a court will not protect a copyrighted work from infringement if the idea contained therein can be expressed in only one way. Satava v. Lowry, 323 F.3d 805, 812 n.5 (9th Cir. 2003).”

“First, we agree that merger cannot bar copyright protection for any lines of declaring source code unless Sun/Oracle had only one way, or a limited number of ways, to write them. See Satava, 323 F.3d at 812 n.5 (‘Under the merger doctrine, courts will not protect a copyrighted work from infringement if the idea underlying the copyrighted work can be expressed in only one way, lest there be a monopoly on the underlying idea.’). The evidence showed that Oracle had ‘unlimited options as to the selection and arrangement of the 7000 lines Google copied.’ Appellant Br. 50.”

“The scenes a faire doctrine, which is related to the merger doctrine, operates to bar certain otherwise creative expression from copyright protection. Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1444 (9th Cir. 1994). It provides that ‘expressive elements of a work of authorship are not entitled to protection against infringement if they are standard, stock, or common to a topic, or if they necessarily follow from a common theme or setting.’ Mitel, 124 F.3d at 1374. Under this doctrine, ‘when certain commonplace expressions are indispensable and naturally associated with the treatment of a given idea, those expressions are treated like ideas and therefore [are] not protected by copyright.’ Swirsky v. Carey, 376 F.3d 841, 850 (9th Cir. 2004). In the computer context, ‘the scene a faire doctrine denies protection to program elements that are dictated by external factors such as ‘the mechanical specifications of the computer on which a particular program is intended to run’ or ‘widely accepted programming practices within the computer industry.’‘ Softel, 118 F.3d at 963 (citation omitted).”  opn pg. 35.

“Like merger, the focus of the scenes a faire doctrine is on the circumstances presented to the creator, not the copier. See Mitel, 124 F.3d at 1375 (finding error to the extent the trial court discussed ‘whether external factors such as market forces and efficiency considerations justified Iqtel’s copying of the command codes’). The court’s analytical focus must be upon the external factors that dictated Sun’s selection of classes, methods, and code—not upon what Google encountered at the time it chose to copy those groupings and that code.”  opn. pg. 37.

“[T]he trial court was correct to conclude that the scenes a faire doctrine does not affect the copyrightability of either the declaring code in, or the SSO [sequence, organization and structure] of, the Java API packages at issue.”  opn pg. 37.

“The district court found that the SSO [sequence, organization and structure] of the Java API packages is creative and original, but nevertheless held that it is a ‘system or method of operation . . . and, therefore, cannot be copyrighted’ under 17 U.S.C. § 102(b). Copyrightability Decision, 872 F. Supp. 2d at 976-77. In reaching this conclusion, the district court seems to have relied upon language contained in a First Circuit decision: Lotus Development Corp. v. Borland International, Inc., 49 F.3d 807 (1st Cir. 1995), aff’d without opinion by equally divided court, 516 U.S. 233 (1996).  In Lotus, it was undisputed that the defendant copied the menu command hierarchy and interface from Lotus 1- 2-3, a computer spreadsheet program ‘that enables users to perform accounting functions electronically on a computer.’ 49 F.3d at 809. The menu command hierarchy referred to a series of commands—such as ‘Copy,’ ‘Print,’ and ‘Quit’—which were arranged into more than 50 menus and submenus.”  opn. pg. 37 – 38.

“More importantly, however, the Ninth Circuit has not adopted the court’s ‘method of operation’ reasoning in Lotus, and we conclude that it is inconsistent with binding precedent. Specifically, we find that Lotus is inconsistent with Ninth Circuit case law recognizing that the structure, sequence, and organization of a computer program is eligible for copyright protection where it
qualifies as an expression of an idea, rather than the idea itself.”  opn. pg. 39 – 40.

“While it does not appear that the Ninth Circuit has addressed the precise issue, we conclude that a set of commands to instruct a computer to carry out desired operations may contain expression that is eligible for copyright protection.”  opn. pg. 42-43.

“Given the court’s findings that the SSO is original and creative, and that the declaring code could have been written and organized in any number of ways and still have achieved the same functions, we conclude that Section 102(b) does not bar the packages from copyright protection just because they also perform functions.” opn. pg. 45.

As for Google’s arguments that it does not infringe because the Google code’s interoperability with other Java apps, those arguments are directed to Google’s fair use analysis.  Interoperability is ‘irrelevant’ to the copyrightability analysis.  opn. pg. 45.  The district court concluded that Google took only what was necessary to achieve interoperability, and relied primarily on two Ninth Circuit decisions: Sega Enterprises v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992), and Sony Computer Entertainment, Inc. v. Connectix, Corp., 203 F.3d 596 (9th Cir. 2000).  “As noted, both cases were focused on fair use, not copyrightability.  In Sega, for example, the only question was whether Accolade’s intermediate copying was fair use. The court never addressed the question of whether Sega’s software code, which had functional elements, also contained separable creative expression entitled to protection. Likewise, although the court in Sony determined that Sony’s computer program had functional elements, it never addressed whether it also had expressive elements. Sega and Sony are also factually distinguishable because the defendants in those cases made intermediate copies to understand the functional aspects of the copyrighted works and then created new products. See Sony, 203 F.3d at 606-07; Sega, 977 F.2d at 1522-23.”  opn. pg. 47.

The jury was hung on the issue of whether Google’s use of the code was fair use and the district court refused to order a new trial. “‘Section 107 requires a case-by-case determination whether a particular use is fair, and the statute notes four nonexclusive factors to be considered.’ Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 549 (1985). Those factors are: (1) ‘the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;’ (2) ‘the nature of the copyrighted work;’ (3) ‘the amount and substantiality of the portion used in relation to the copyrighted work as a whole;’ and (4) ‘the effect of the use upon the potential market for or value of the copyrighted work.’ 17 U.S.C. § 107. The Supreme Court has explained that all of the statutory factors ‘are to be explored, and the results weighed together, in light of the purpose[] of copyright,’ which is ‘[t]o promote the Progress of Science and useful Arts.’ Campbell, 510 U.S. at 578, 575 (internal citations omitted).”  opn. pg. 53 – 54.

A use is transformative if it adds something new, with a further purpose or different character, altering the first with new expression, meaning or message.  “A work is not transformative where the user ‘makes no alteration to the expressive content or message of the original work.” opn. pg. 57.

The Federal Circuit remanded the case back to the district court on the fair use question and requested a new trial. “First, although it is undisputed that Google’s use of the API packages is commercial, the parties disagree on whether its use is ‘transformative.’ Google argues that it is, because it wrote its own implementing code, created its own virtual machine, and incorporated the packages into a smartphone platform. For its part, Oracle maintains that Google’s use is not transformative because: (1) ‘[t]he same code in Android . . . enables programmers to invoke the same pre-programmed functions in exactly the same way;’ and (2) Google’s use of the declaring code and packages does not serve a different function from Java. Appellant Reply Br. 47. While Google overstates what activities can be deemed transformative under a correct application of the law, we cannot say that there are no material facts in dispute on the question of whether Google’s use is ‘transformative,’ even under a correct reading of the law. As such, we are unable to resolve this issue on appeal.”  opn. pg. 60.

Copyright Plaintiffs Recovery Limited To Three Years – U.S. Supreme Court

The U.S. Supreme Court has capped all copyright infringement damages by limiting those damages to a three year period prior to the filing of suit.  Petrella v. Metro-Goldwyn-Mayer, Inc., case no. 12-1315 (May 19, 2014) (available here).  Moreover, the doctrine of estoppel may bar all claims entirely.

“The Copyright Act provides that ‘[n]o civil action shall be maintained under the [Act] unless it is commenced within three years after the claim accrued.’ 17 U. S. C. §507(b). This case presents the question whether the equitable defense of laches (unreasonable, prejudicial delay in commencing suit) may bar relief on a copyright infringement claim brought within §507(b)’s three-year limitations period. Section 507(b), it is undisputed, bars relief of any kind for conduct occurring prior to the three year limitations period. To the extent that an infringement suit seeks relief solely for conduct occurring within the limitations period, however, courts are not at liberty to jettison Congress’ judgment on the timeliness of suit. Laches, we hold, cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window.”  opn. pg. 1.

A claim accrues when a plaintiff has a complete and present cause of action. Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp. of Cal., 522 U. S. 192, 201 (1997).  “In other words, the limitations period generally begins to run at the point when ‘the plaintiff can file suit and obtain relief.’ A copyright claim thus arises or ‘accrue[s]’ when an infringing act occurs.”

However, the Copyright Act defines multiple, different violations (for example, sale, copying and distribution are all separate violations).  Under the separate-accrual rule “when a defendant commits successive violations, the statute of limitations runs separately from each violation. Each time an infringing work is reproduced or distributed, the infringer commits a new wrong. Each wrong gives rise to a discrete ‘claim’ that ‘accrue[s]’ at the time the wrong occurs.6 In short, each infringing act starts a new limitations period. See Stone v. Williams, 970 F. 2d 1043, 1049 (CA2 1992) (‘Each act of infringement is a distinct harm giving rise to an independent claim for relief.’).” opn. pg. 5.

When a defendant engages in a series of discrete infringing acts, the copyright holder’s suit will be timely under §507(b) with respect to the more recent acts of infringement.

“[A] successful plaintiff can gain retrospective relief only three years back from the time of suit. No recovery may be had for infringement in earlier years. Profits made in those years remain the defendant’s to keep.” opn. pg. 11.

Further, “[a]lthough registration is ‘permissive,’ both the certificate and the original work must be on file with the Copyright Office before a copyright owner can sue for infringement.” opn. pg. 18.

As for excessive delays by the copyright owner, estoppel may bar relief.  “The defendant [] may retain the return on investment shown to be attributable to its own enterprise, as distinct from the value created by the infringed work. See Sheldon v. Metro-Goldwyn Pictures Corp., 309 U. S. 390, 402, 407 (1940) (equitably apportioning profits to account for independent contributions of infringing defendant).” opn. pg. 11.  “[W]hen a copyright owner engages in intentionally misleading representations concerning his abstention from suit, and the alleged infringer detrimentally relies on the copyright owner’s deception, the doctrine of estoppel may bar the copyright owner’s claims completely, eliminating all potential remedies.”  opn. pg. 19.

Looseleaf Booklet With Sheets of Photographs Showing Sculpture is Sufficient to Register Copyright

The Seventh Circuit Court of Appeals concluded that loose photographs of a sculpture, stuck in a book, were sufficient to be classified as a copyrightable “collection.” Neri v. Monroe, et al., Case No. 12-3204 (7th Cir. August 12, 2013) (available here).  Plaintiff Quincy Neri designed a glass sculpture called “Mendota Reflection,” which was installed in the ceiling of Linda Hughes’s condominium by Architectural Building Arts (“ABA”).  The ABA is owned by Defendant Melinda Monroe.  Leslie Sager designed the lighting.  Hughes gave Eric Ferguson permission to take photographs of the project.  ABA and Monroe posted copies of the sculpture photos on its website and used the photos in its newsletter. Sager posted copies of the sculpture photos on her website and Ferguson posted the photos on his Flickr webpage.  Neri sued, arguing that they violated her copyright in the sculpture.  A magistrate judge dismissed the case, finding that Neri lacked a copyright registration and the sculpture.  In the Copyright Office, Neri had submitted a collection of photographs of her unpublished works, including the sculpture, for registration.  Neri received a copyright registration but the lower court concluded that the application was defective and therefore the copyright certificate was invalid.  Neri appealed.  The Seventh Circuit vacated the dismissal.

A collection of unpublished works is defined, under the Copyright Office regulations, when each copyrightable work is self-contained and a number of works are combined into a single unpublished “collection.”  “For these purposes, a combination of such elements shall be considered a ‘collection’ if: (1) The elements are assembled in an orderly form; (2) The combined elements bear a single title identifying the collection as a whole; (3) The copyright claimant in all of the elements, and in the collection as a whole, is the same; and (4) All of the elements are by the same author, or, if they are by different authors, at least one of the authors has contributed copyrightable authorship to each element. Registration of an unpublished ‘collection’ extends to each copyrightable element in the collection and to the authorship, if any, involved in selecting and assembling the collection.” 37 C.F.R. §202.3(b)(4)(i)(B).

Neri clearly met three of the requirements: the collection had a single title; she claimed a copyright in each sculpture and in the collection as a whole; and she was the only author.  However, the magistrate judge found that Neri’s submission was not in an “orderly form.”  Neri’s submission was a book of photographs of several sculptures, and some loose photographs.  The sculpture subject tot he lawsuit was among the loose photos.  Thus, the magistrate judge concluded that the submission was not orderly and was not a collection of unpublished works entitled to copyright registration.

The Seventh Circuit tried to review Neri’s submission (the copyright deposit) but it was not in the record.  Thus, the magistrate judge had come to his conclusion based on deposition testimony.  Neri had described her submission the same way as the magistrate judge did, but also argued later that a photo of the sculpture was in the book.  “The problem may be terminological; Neri may have used the title ‘Mendota Reflection’ for more than one sculpture. But it is hard to understand how a court could conclude that a given submission is not ‘in an orderly form’ when the submission cannot be examined.”  Neri, Slip Op. P. 4.

Even though Neri’s deposit copyright deposit material submission was not in the record, she did have the copyright certificate.  Thus, Defendants had to show why the court should disregard the registration.  If the appeals court followed the magistrate judge’s line of reasoning, only a single bound book is an “orderly” way to present photographs of sculptures, and if the sculpture is in the book then the registration is valid. However, the Seventh Circuit did not see why only a single document could be considered orderly. The Copyright Register found Neri’s submission to be adequate and a district court should not find otherwise without a compelling reason.  Further, the magistrate judge did not rely on any legal authority to show how much order was required in a collection submission.

“Since the ‘orderly form’ requirement implements a statute allowing the [Copyright] Register to require ‘other information’, the key question must be whether the submission is organized well enough to permit users and courts to pin down the ‘information’ on which copyright enforcement depends.”  Neri, Slip Op. P. 5.  Thus, as long as the loose photographs were labeled in some way so that each work was readily identifiable, then Neri’s submissions should be considered orderly.

“Any organization that enables a court to associate a work underlying the suit with a work covered by a registration ought to do the trick. If a booklet (or PDF file) with page numbers is orderly enough—as the magistrate judge thought—a sequence of loose but numbered or named photographs should be enough too.”  Neri, Slip Op. P. 6.  However, if Neri did not submit photos of the sculpture, then the copyright registration does not support this lawsuit.

Defendants also argued that Neri was not the author of the sculpture: Fritz Schomburg is a glass-blower (a gaffer) who made the glass elements of the sculpture, but Neri only made the molten glass available as Schomburg needed it.  Defendants’ argument was that a change in form from drawings to glass creates intellectual property rights.  This is the same argument as saying that a typesetter owns the copyright to a book because the author did not type it personally.  Neri created the sculpture by designing it, choosing the glass, picking out the shapes and colors, etc.  As a result, the Seventh Circuit vacated the dismissal of Neri’s suit and remanded it for further proceedings.

Articles Copied Without Authorization In Patent Applications Is Copyright Fair Use

A Magistrate Judge for the District Court of Minnesota recommended that the District Court grant a defendant’s motion for summary judgment, finding that the defendant was entitled to fair use protection under the Copyright Act for using portions of scientific articles in patent applications.  American Institute of Physics, et al. v. Schwegman Lundberg & Woessner, P.A., et al., Case No. 12-528 (RHK/JJK) (D. Minn., July 30, 2013) (available here).  Plaintiffs American Institute of Physics (“AIP”) produce and distribute scientific journals containing scholarly articles.  Defendant Schwegman Lundberg & Woessner, P.A. (“Schwegman”) is a law firm specializing in prosecuting patent applications.  Schwegman copied 18 of AIP’s articles from the United States Patent and Trademark Office (“USPTO”) and other sources.  AIP sued, alleging copyright infringement asserting that Schwegman’s downloading, storing, making internal copies of, and distributing AIP articles by email constituted infringement.  Schwegman and the USPTO argued that its copying of the articles constituted fair use under the Copyright Act and moved for summary judgment.  The District Court requested a report and recommendation from the Magistrate Judge.  The Judge concluded that Schwegman established its fair use defense and recommended that the District Court grant Schwegman’s motion for summary judgment.

The Judge began by stating that Schwegman’s use of the articles was directly connected to Schwegman’s practice as a patent prosecution law firm.  Thus, the patent application process and the USPTO requirements are relevant.  The USPTO requires a patent application to disclose all known information that may affect the patentability of an invention, which is known as “prior art.”  If a patent application is filed along with a disclosure statement, that lists the prior art, that statement must include a copy of each publication.  “Thus, when a patent applicant files a disclosure statement, the USPTO’s regulations require the applicant to submit copies of publications, in whole or in part, that are material to the applicant’s claims of patentability for her inventions.”  American Institute of Physics, Slip Op. P. 7.  Schwegman provided copies of the articles to the USPTO in order to comply with this duty to disclose the prior art.

Next, the Judge considered the intended audience for the articles.  AIP publishes its articles to inform their readers, which include academics, researchers, and the general public.  Thus, AIP argues that patent attorneys and investors should be within AIP’s target audience.  AIP had issued nine licenses to various law firms to allow these firms to copy AIP’s articles.  Schwegman argued that the academic journals were a two-way market: authors submit their articles in hopes of being published, and readers benefit from the content.  Schwegman’s expert witness, economist Dr. Jean-Pierre Dubé, testified that patent attorneys read these articles for a different purpose than AIP’s target audience; patent attorneys read the articles to determine whether they should be disclosed as prior art.  As such, Schwegman argued, patent attorneys are not within the target audience.

Schwegman obtained 11 of the 18 articles by downloading them from the USPTO’s website.  The remaining 7 articles were obtained different ways, such as from an email attachment or a university website.  Schwegman kept copies of the articles on its electronic file management system.  This system allows the attorneys at Schwegman to access documents stored on the firm’s server.  The system does not place restrictions on who can see the articles, or how the articles can be used, but it does not allow people to search the text of the articles.  AIP argued that this electronic file management system is essentially an electronic library.

Schwegman moved for summary judgment, arguing that its use of AIP’s articles was fair use. There are four non-exclusive factors for courts to consider when analyzing a fair use defense: “(1) The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) The nature of the copyrighted work; (3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) The effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. § 107.

First, the purpose and character of Schwegman’s use of the articles was to comply with the legal requirement to provide prior art to the USPTO.  Schwegman provided a copy of each article and cited to each article in each of its patent applications.  Thus, Schwegman’s use was different than AIP’s use.  Even though Schwegman’s use of the articles was not transformative, because the articles were copied and not changed, the first factor still weighs in favor of Schwegman.  “[R]eproduction of an original without any change can still qualify as a fair use when the use’s purpose and character differs from the object of the original, such as photocopying for use in a classroom.” American Institute of Physics, Slip Op. Pp.  24-25.  Thus, the first factor weighs in favor of Schwegman.

Second, the Judge considered the last factor of the effect on the potential market for the articles, because it is related to the first factor involving the purpose and character of the use.  If Schwegman’s use of the articles does not usurp the market for the articles, then the fourth factor weighs in favor of fair use.  “[AIP] present[ed] no evidence that the patent lawyers’ use of the scientific Articles to meet their obligations to disclose prior art to the PTO adversely affects the traditional target market for these Articles, i.e., academics, physical scientists and researchers, engineers, educators, students, and members of the general public who want to read peer-reviewed scholarly, highly specialized articles about the physical sciences and other scientific disciplines.”  American Institute of Physics, Slip Op. P. 31.  Further, AIP presented no evidence to counter Dr. Dubé’s testimony that Schwegman was outside of AIP’s target market.  The only evidence AIP presented was that it lost revenues from patent attorneys who did not pay the licensing fee to obtain copies of the articles.  “But this is not the sort of negative effect on the market that weighs heavily against a finding of fair use. If it were, then the market factor would always weigh in favor of the copyright holder and render the analysis of this factor meaningless.”  American Institute of Physics, Slip Op. P. 32.  Therefore, the fourth factor weighs in favor of Schwegman.

Third, the nature of the articles was considered.  Generally, a “creative” work receives more copyright protection.  The Judge concluded that the nature of AIP’s articles weighs slightly in favor of Schwegman because the articles “are factual or informational,” primarily communicating very technical information about the results of scientific research.

Fourth, the Judge examined the amount and substantiality of the articles used by Schwegman.  Copying a work in its entirety does not prevent a defendant from claiming fair use protection.  The amount of the copying is related to how the copying furthered the purpose and character of the use.  Schwegman copied the articles in their entirety.  However, this copying was necessary for Schwegman’s purpose to disclose prior art on patent applications.  This purpose was different than AIP’s purpose in publishing the articles.  Thus, “Schwegman’s copying is consistent with the purpose and character of Schwegman’s new and different use of the Articles,” and therefore weighs in favor of fair use.  American Institute of Physics, Slip Op. P. 38.

AIP also argued that a finding of fair use was inappropriate because Schwegman did not have an authorized or licensed copy of the articles.  The Court found no legal authority supports this contention.  Further, there was no evidence presented that Schwegman acted in bad faith in copying the articles.  As such, the Judge concluded that Schwegman was entitled to the fair use defense.

Location Of Copyright Owner Insufficient For Personal Jurisdiction Over Defendants

The Second Circuit Court of Appeals held that a plaintiff’s economic losses were not enough to establish personal jurisdiction under New York’s long-arm statute.  Troma Entertainment, Inc. v. Centennial Pictures, Inc., et al., Case No. 12-1883-cv (2d Cir. September 6, 2013) (available here).  Troma Entertainment sued Defendants for copyright infringement under the Copyright Act and several New York state law claims.  Troma alleged that the lower court had personal jurisdiction over the Defendants under New York’s long-arm statute section 302(a)(3)(ii), which allows for personal jurisdiction over a defendant when the allegedly tortious conduct causes injury to a person or property within New York.  The lower court concluded that Troma had not shown an in-state injury and dismissed the case against Defendants-appellees Lance H. Robbins and King Brett Lauter.  Troma appealed.  On appeal, the Second Circuit affirmed, finding no personal jurisdiction.

Troma is a New York-based company that produces and distributes “controlled budget motion pictures,” such as the two spoof films titled “Citizen Toxie, Toxic Avenger Part IV,” created by Troma, and “Poultrygeist: Night of the Chicken Dead,” which Troma owns distribution rights (“the Movies”).  In 2009, Troma authorized defendant-appellee Robbins to represent Troma in negotiating a license to distribute the rights to the Movies with a German distributor.  The authorization was supposed to lapse after 30 days if no agreement was reached.  Troma believed that Robbins was unable to negotiate a deal at the end of the 30 days.  However, Robbins had conspired with co-defendant-appellee King Brett Lauter (“Lauter”) to enter into a distribution agreement with a German distribution company called Intravest Beteiligungs GMBH (“Intravest”).  Troma alleged that Robbins and Lauter falsely told Intravest they owned the rights to the Movies; purchased copies of the movies from Amazon.com and delivered the copies to Intravest; and kept the proceeds of the agreement without telling Troma.  However, none of these actions took place in New York.

In 2010, Troma discovered that Intravest was broadcasting the Movies in Germany, and in 2011 Troma sued.  Robbins and Lauter moved to dismiss for lack of personal jurisdiction.  The lower court held that the New York long-arm statute did not allow the court to exercise personal jurisdiction over Robbins and Lauter because Troma did not show that Robbins’s and Lauter’s actions caused injury in New York.  Troma had the opportunity to transfer the case to California, where personal jurisdiction over the defendants could have been exercised (because Robbins and Lauter allegedly created their plan in California), but declined the transfer.  As such, the lower court dismissed Troma’s case.

The Second Circuit had to determine whether the lower court was correct in holding that it could not exercise personal jurisdiction over Robbins and Lauter.  Troma argued that personal jurisdiction existed under section 302(a)(3)(ii), which confers personal jurisdiction over one who “commits a tortious act without the state causing injury to person or property within the state . . . if he . . . expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.”  N.Y. C.P.L.R. § 302(a)(3)(ii).  Thus, the issue was whether Robbins’s and Lauter’s actions caused such injury in New York.  Troma argued that their actions did cause such injury, because the actions resulted in a loss of sales and generalized harm to Troma’s exclusive distribution rights over the Movies.  However, the fact that Troma is a New York corporation is insufficient on its own to confer personal jurisdiction over Robbins and Lauter.

Troma’s argument rested mainly on the New York Court of Appeals’ decision in Penguin Group (USA), Inc. v. American Buddha (“Penguin II”), 16 N.Y. 3d 295 (2011).  In Penguin II, plaintiff Penguin Group alleged that defendant American Buddha infringed its copyrights of several books by uploading copies of the books to its Internet website free of charge.  On appeal, the Second Circuit certified a question to the New York Court of Appeals: “In copyright infringement cases, is the situs of injury for purposes of determining long-arm jurisdiction under N.Y. C.P.L.R. § 302(a)(3)(ii) the location of the infringing action or the residence or location of the principal place of business of the copyright holder?”  Id. at 34.  The Court of Appeals accepted the question but narrowed it to the specific situation of when a copyright infringement case involves the uploading of a copyrighted printed literary work onto the Internet.  The Court of Appeals held that the situs of injury was where the copyright owner was located.  The Court of Appeal’s decision rested on two factors.  “The first was the nature of the alleged infringement, viz., the uploading and making available of Penguin Group’s copyrighted works by means of the Internet. . . The second factor upon which the Court of Appeals rested its decision was ‘the unique bundle of rights granted to copyright owners.’” Troma, Slip Op. Pp. 10-11.

The holding in Penguin II is too narrow to control to Troma’s case.  While Penguin II dealt with a copyright infringement injury that was virtually impossible to localize (uploading and making available of copyrighted materials, free of charge, to anyone with access to the Internet), Troma does not allege any conduct that does not have a centralized locality.  Thus, the Second Circuit concluded that Troma’s case was a traditional commercial tort case in which the place where Troma’s business was lost of threatened influences the jurisdictional analysis.  Troma offered no evidence as to how New York would be such an influence.  “Troma is left, then, to rely on the Court of Appeals’ endorsement of the theory that out-of-state infringement may harm the bundle of rights held by a New York-based copyright owner in New York.”  Troma, Slip Op. P. 13.  However, this is only a theory of injury.  There is nothing in the Penguin II decision that would allow Troma to bypass the obligation to allege facts showing a direct New York-based injury.  Troma’s allegations of generalized harm to its distribution right were too speculative to support a finding of New York-based injury.  Instead, Troma’s alleged injury is simply economic losses, which are insufficient for personal jurisdiction.  As a result, the Second Circuit affirmed the dismissal of Troma’s case.

Mayweather Knocks Out Competition In Case For Copyright Infringement

The Fourth Circuit Court of Appeals held that speculative evidence was not enough to show a genuine issue of material fact relating to damages in a copyright infringement lawsuit.  Dash v. Mayweather, et al., Case No. 12-1899 (4th Circuit, September 26, 2013) (available here).  Anthony Dash sued Defendants Floyd Mayweather, Jr. (“Mayweather”), Mayweather Promotions, Mayweather Promotions LLC, Philthy Rich Records, Inc., and World Wrestling Entertainment, Inc. (“WWE”) for copyright infringement.  Dash argued that Mayweather Defendants violated his copyright by playing a variant of his copyrighted music during Mayweather’s entrance at two WWE events.  The lower court granted summary judgment in favor of Defendants and Dash appealed.  The Fourth Circuit affirmed.

In 2005, Dash created an instrumental musical track called “Tony Gunz Beat” (“TGB”).  Dash never received any revenue from any of his musical compositions.  In 2008, Mayweather, a famous boxer, entered into a contract with WWE to perform at Wrestlemania XXIV.  Mayweather chose to enter the arena to a song called “Yep.”  Mayweather’s manager told the WWE that Mayweather owned all of the rights to the song.  The song was played for around 3 minutes while Mayweather entered the arena.  Dash alleges that “Yep” added lyrics to TGB.  In 2009, Mayweather entered into another contract with the WWE to appear as a guest host.  “Yep” was played in connection with his appearance.

Dash alleges that he created TGB in 2005, however he did not file a copyright application until 2009.  Dash alleges that Defendants’ use of “Yep” at both WWE events violates his copyright in TGB.  Thus, this alleged infringement occurred after creation but before copyright registration.  The lower court separated the litigation into two sections: liability and damages.  The parties jointly moved for summary judgment regarding Dash’s entitlement to damages under § 504 of the Copyright Act (actual and profit damages).  Dash’s motion contained a report by expert Dr. Michael Einhorn (the “Einhorn Report”), which concluded that Dash’s actual damages were no more than $3,000 based on licensing fees paid to other copyright holders for use of songs at Wrestlemania XXIV.  The Einhorn Report concluded that (1) $541,521 of the WWE’s net profit from Wrestlemania XXIV was attributable to the use of TGB; (2) $480,705 of Mayweather’s net profits from his appearance at Wrestlemania XXIV was attributable to the infringing use; and (3) Dash should receive at least $1,019,226 in profit damages plus actual damages.  The lower court held that Dash was not entitled to damages because he failed to meet his burden of proof.

§ 504(a) states that “an infringer of copyright is liable for either (1) the copyright owner’s actual damages and any additional profits of the infringer, as provided in subsection (b); or (2) statutory damages, as provided by subsection (c).”  17 U.S.C.  § 504(a).  “ The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.” 17 U.S.C. § 504(b).  First, the Fourth Circuit looked at whether Dash was entitled to actual damages under § 504(b), which is typically measured by the extent of injury caused to the copyrighted work’s market value at the time of infringement.  It is the copyright holder’s burden to prove the existence of a causal connection between the alleged infringement and loss of anticipated revenue.  The lower court concluded that Dash was not entitled to actual damages because he did not offer sufficient evidence to indicate the value of TGB.  Dash argues on appeal that the Einhorn Report provides evidence of TGB’s value, which is based on the $3,000 lost licensing fee.  Defendants moved for summary judgment regarding Dash’s damages, and thus had to show no genuine dispute as to the existence of any actual damages.  Defendants satisfied this requirement with Dash’s admission that he never received revenue from TGB.

The Fourth Circuit concluded that the Einhorn Report was too speculative to show actual damages.  First, the Einhorn Report failed to expressly conclude that TGB had a market value, instead it stated that Dash could have earned a maximum sum of $3,000 as a licensing fee.  This is not enough to establish that Dash was entitled to actual damages.  “The Einhorn Report’s failure to clearly state that TGB had a fair market value is notable in light of the fact that Dr. Einhorn was retained for the express purpose of evaluating the economic damages resulting from [Defendants’] alleged infringement of [TGB]. His omission of a clear statement of value suggests that he could not conclude, either with certainty or sound reasoning, that Dash would have been paid a licensing fee for [Defendants’] use of TGB.”  Dash, Slip Op. P. 27.  Even if the Einhorn Report had concluded that the use of TGB at the WWE events was of some value to Defendants, that evidence would still be too speculative to support Dash’s contentions that there was a genuine dispute regarding actual damages.  Further, Dash did not present any evidence that he ever received compensation for any of his works.

“Evidence of licensing fees paid to other artists for the use of other works may, in some cases, be sufficient to support the conclusion that a copyright holder would have been entitled to such a fee for the use of his work; however, such evidence may properly be rejected as a measure of damages if it is too speculative.”  Dash, Slip Op. P. 33.  Evidence of WWE’s licensing deals with other copyright holders can be sufficient if those licenses were based on a comparable use and on whether the work was comparable to TGB.  The WWE’s licensing deals were with well-known artists, and thus were too speculative and inapposite to be used to compare with Dash.  “[A]lthough the Einhorn Report acknowledged that ‘Yep’ was ‘a new derivative work based purportedly on [TGB],’ it failed to explain at all how this fact impacted the analysis of Dash’s actual damages claim.”  Dash, Slip Op. P. 40.  Thus, the Fourth Circuit affirmed summary judgment in favor of Defendants regarding actual damages.

Turning to profit damages, the Fourth Circuit noted that the lower court granted summary judgment in favor of Defendants because “it found that Dash had failed to present evidence that [Defendants’] revenues bore any causal link to the infringement.”  Dash, Slip Op. P. 50.  Dash had an affirmative duty to prove that the Defendants’ gross revenues were reasonably related to the alleged infringing use of TGB.  Thus, Dash had the burden to prove that the connection was at least hypothetically possible.  If Dash could prove a conceivable connection between the infringement and the claimed revenues, then his next step would be to prove a causal connection between the infringement and the level of Defendants’ revenues.  “In order to demonstrate a causal link, the plaintiff must show that the infringement could reasonably be viewed as one of the causes of the claimed revenues. In order to rebut a defendant’s evidence that the claimed revenues are not attributable to the infringement, the plaintiff must show that at least some portion of the revenues was actually generated by the infringement, rather than by other factors.”  Dash, Slip Op. P. 63.

The Fourth Circuit noted that many of the revenue streams claimed by Dash had no conceivable connection to the infringement because they involved revenues that customers and businesses paid to Defendants prior to discovering that “Yep” would be played.  Dash presented no evidence that the playing of “Yep” increased any of the WWE revenue streams.  Dash argued that he did not have to prove this, instead he argued that because the WWE broadcasts included “Yep,” the revenues from the events were derived exclusively from TBG.  If the infringement forms a significant part of the product generating the claimed revenue, then this can be enough to establish a causal link.  “However, when, as here, the infringing content forms only a small, incidental portion of the products that generated the claimed revenue streams, further evidence is necessary to link the claimed revenues to the infringement.”  Dash, Slip Op. P. 66.  As a result, the Fourth Circuit affirmed summary judgment in favor of Defendants regarding profit damages.

Copyrighted Court Document Can Be Used In Related Litigation Without Liability

The Second Circuit Court of Appeals in New York held that an authorization to use a document in litigation creates an irrevocable implied license for any party in that action to use the document for the duration of that litigation.  Unclaimed Property Recovery Service, Inc. v. Kaplan, Case No. 12-4030 (2d Circuit, August 20, 2013) (available here).  Plaintiffs Unclaimed Property Recovery Service, Inc. (“UPRS”) and Bernard Gelb sued Defendant Norman Kaplan, an attorney, for copyright infringement.  UPRS allowed Attorney Kaplan’s clients to file a legal complaint and exhibits that were written by Gelb and claimed that Attorney Kaplan’s later amendments of Gelb’s original legal documents infringed UPRSs’ copyrights in the original documents.  The Second Circuit held that UPRSs’ authorization to Attorney Kaplan to use such documents in other litigation matters gave an irrevocable authorization to all parties in the litigation to use the documents.  As such, the Second Circuit dismissed the case.

UPRS and Gelb were plaintiffs in a class action lawsuit and Attorney Kaplan was the UPRS’ attorney.  UPRS and Gelb allege that Gelb conduced research on the allegations in the class action complaint; located and obtained Powers of Attorney from several of the class action plaintiffs; hired Attorney Kaplan to represent the class; wrote the Amended Class Action Complaint (“First Complaint”); and compiled 305 pages of accompanying exhibits (“First Exhibits”).  Gelb also alleged that they have copyrights to the First Complaint and First Exhibits.  Attorney Kaplan filed the First Complaint and First Exhibits, the case was dismissed, and Kaplan appealed.  While the appeal was pending, Attorney Kaplan ceased representation of UPRS and Gelb, but remained as counsel for some of the other class action plaintiffs.  New counsel for UPRS and Gelb moved to withdraw the entirety of the pending appeal and it was granted with respect to UPRS and Gelb, but not for the other plaintiffs.  Shortly after, Gelb and UPRS received federal copyright registrations for the First Complaint and First Exhibits.  The appeal continued without Gelb and UPRS and the court vacated the dismissal of the case, giving the remaining class action plaintiffs an opportunity to file an amended complaint.  Attorney Kaplan filed a Second Amended Class Action Complaint (“Second Complaint”) and accompanying exhibits (“Second Exhibits”).  Many portions of the Second Complaint and Second Exhibits were identical to the First Complaint and First Exhibits.

UPRS and Gelb sued Attorney Kaplan, claiming that Kaplan infringed their copyrights when he copied portions of the First Complaint and First Exhibits into the Second Complaint and Second Exhibits.  The lower court dismissed the action, holding that Attorney Kaplan had an irrevocable implied license to file an amended version of the First Complaint and First Exhibits.  UPRS and Gelb appealed to the Second Circuit.  The Second Circuit framed the issue as “whether the holder of a copyright in a litigation document who has authorized a party to a litigation to use the document in the litigation may withdraw the authorization after the document has already been introduced into the litigation and then claim infringement when subsequent use is made of the document in the litigation.”  Unclaimed Property Recovery Service, Slip Op. Pp. 4-5. The Second Circuit held that this authorization extended to “all present and future attorneys and to the court, an irrevocable authorization to use the document in the litigation thereafter.”  Id., Slip Op. P. 5.

The Second Circuit noted that if a copyright holder had the ability to withdraw authorization for the use of documents in litigation that would not only prevent the litigants from proceeding with the case, but it would also prevent the courts from performing their function.  As such, the needs of the courts to function prevails over a copyright holder’s interests and the authorization becomes irrevocable as to the participants in the litigation for purposes of that litigation.

Gelb and UPRS gave Attorney Kaplan authorization to use and file the First Complaint.  “Consequently, when the author of a complaint authorizes a party to file that complaint, the authorization is not limited to the right to submit the document to the clerk’s office; instead, the author has permitted the party to establish a legal action based on the complaint. Concomitant with that authorization is the authorization to depend on the complaint for the purposes of litigation-and to use the complaint during motion practice, discovery, trial, and appeal.”  Unclaimed Property Recovery Service, Slip Op. P. 7.  This authorization includes incorporating all or parts of the complaint into an amended complaint.

The Federal Rules of Civil Procedure allow a plaintiff to file an amended complaint.  UPRS and Gelb failed to show any legal support for the concept that the author of a complaint may use copyright law to interfere with the litigation process by allowing the filing of a complaint but then forbidding creation and filing of an amended version of that complaint.

Even if Gelb and UPRS had valid copyrights in the First Complaint and First Exhibits, they cannot use copyright law to prohibit the filing of the Second Complaint and Second Exhibits.  “A holding in favor of UPRS and Gelb would encourage sharp litigation practices, undermine the attorney-client relationship, and limit the district court’s ability to manage its cases.”  Unclaimed Property Recovery Service, Slip Op. P. 8.

The Second Circuit was careful to limit its findings: “Our decision today is based on the particularities of the facts before us. . . We merely hold that, because UPRS and Gelb authorized the class action plaintiffs to file the First Complaint and First Exhibits as the foundation of [the class action lawsuit], UPRS and Gelb may not use copyright law to prohibit those class action plaintiffs (or their attorney) from continuing to use the First Complaint and First Exhibits in the context of that litigation.”  Unclaimed Property Recovery Service, Slip Op. P. 10.

Who Owns The Ghost Rider – Appeal Clouds Marvel’s Copyright Claim

The Second Circuit Court of Appeals in New York overturned a summary judgment order, finding material disputes as to Marvel’s claim of copyright ownership of the Ghost Rider superhero.  Gary Friedrich Enterprises, LLC, and Gary Friedrich v. Marvel Characters, Inc., et al., Case No.: 12-893-cv (2d Cir. June 11, 2013) (available here).  Friedrich sued Marvel for copyright infringement, alleging that he was the creator of the comic book character Ghost Rider.  The lower court dismissed his complaint and awarded damages to Marvel on its counterclaim for copyright infringement.  The lower court held that Friedrich had assigned any rights he retained in the renewal term of the 1972 Ghost Rider copyrights to the predecessor of Marvel in a 1978 work-for-hire contract.  On appeal, the Second Circuit vacated and remanded the case, finding ambiguity in the contract and genuine disputes of material fact.

In 1972, Marvel published the first comic book featuring the Ghost Rider, a superhero with a flaming skull for a head.  Friedrich alleged that he conceived the Ghost Rider character, the related characters, and the origin story, and that he owns the renewal rights.  Marvel acknowledged that Friedrich did offer his ideas, but argued that the Ghost Rider characters and story were the result of a collaborative effort with Marvel personnel and resources, and therefore Marvel owned the renewal rights.  The lower court granted summary judgment in favor of Marvel on the ownership issue, finding that Friedrich had assigned all of his renewal rights to Marvel under a 1978 work-for-hire-contract.

According to Friedrich, the Ghost Rider comic evolved over the years and he presented the written synopsis of the origin story to the then-publisher of Marvel comics.  Marvel agreed to publish the story in its series dedicated to testing out new superheroes in exchange for Friedrich assigning over his rights to the Ghost Rider characters.  There was no discussion of renewal rights and there was no written contract.  Friedrich alleged that he supervised the entire production of the comic book.  The final product was published in 1972, with a copyright notice for Marvel, and stating that it was conceived and written by Friedrich.  At the same time, Marvel advertised Ghost Rider in another comic book, and the advertisement acknowledged that Friedrich had “dreamed the whole thing up.”  Ghost Rider was a success and Friedrich wrote several stories for the comics on a freelance basis until 1978.
Under the 1976 Copyright Act, a work created outside the scope of employment was a work-for-hire only if the parties had an express written agreement to that effect.  17 U.S.C. § 101.  Therefore, in 1978 (when the 1976 Copyright Act took effect), Marvel required Friedrich to sign a work-for-hire agreement (“the Agreement”).  Friedrich was told that the Agreement only covered future works.  Friedrich received nothing for signing the Agreement, and after signing it was never approached by Marvel for additional freelance work.  The initial copyright term for Ghost Rider expired at the end of 2000.  In 2001, the renewal copyright term would have vested in Friedrich as the original author of Ghost Rider in accordance with the Copyright Act.  However, Marvel exploited the Ghost Rider character after 2000 by publishing reprints of the first comic, creating new issues of the comic series, selling Ghost Rider toys, placing Ghost Rider cameos in video games, releasing a Ghost Rider movie, and a Ghost Rider video game.  Friedrich notified Sony Pictures, the producer of the Ghost Rider movie, of his rights.  Marvel notified Friedrich that Ghost Rider was a work-for-hire but sent him royalty checks for the republication of the original comic.  In 2007, Friedrich filed for and received a Renewal Copyright Registration to the original comic and Ghost Rider, and assigned the rights to his company, Plaintiff Gary Friedrich Enterprises, LLC.

On appeal, Friedrich argued that the Agreement did not include the renewal rights of the 1972 Ghost Rider.  The renewal term of a copyright is “not merely an extension of the original copyright term but a ‘new estate . . . clear of all rights, interests or licenses granted under the original copyright.'” P.C. Films Corp. v. MGM/UA Home Video Inc., 138 F.3d 453, 456-57 (2d Cir. 1998) (quoting G. Ricordi & Co. v. Paramount Pictures, Inc., 189 F.2d 469, 471 (2d Cir. 1951)).  Thus, while an author can assign his renewal rights during the initial copyright term, there is a strong presumption against this conveyance unless there is an express assignment of the renewal rights.

The Second Circuit thus had to determine the intent of Friedrich and Marvel when Friedrich signed the Agreement.  The Second Circuit looked at the language of the Agreement and found the Agreement to be ambiguous.  For instance, the language of the Agreement was murky as to (a) whether the Agreement covered works already created, or only future Ghost Rider works; and (b) whether renewal rights were conveyed because there was no explicit reference to such rights.  As a result, the Second Circuit found that the Agreement did not overcome the strong presumption against the conveyance of renewal rights.

Next, the Second Circuit looked at extrinsic evidence to determine the intent of Marvel and Friedrich.  (1) The Agreement was a standard work-for-hire contract that Marvel sent to all of its freelance artists in 1978.  (2) Friedrich signed the Agreement believing that it would only cover future freelance work and was not paid for signing the agreement.  (3) The Second Circuit noted that Marvel could not make Ghost Rider a work-for-hire after it had already been created.

“Given that context, it is doubtful the parties intended to convey rights in the valuable Ghost Rider copyright without explicitly referencing it.”  Friedrich, Slip Op. P. 30.  Therefore, there was a genuine issue of fact.  Summary judgment was improper.

Marvel also argued that Friedrich’s claim was barred by the Copyright Act’s three-year statute of limitations.  The statute of limitations begins running when a reasonably diligent plaintiff would have notice of the existence of a right to sue.  Friedrich filed his lawsuit against Marvel on April 4, 2007, meaning that Marvel would have had to repudiate Friedrich’s claim of ownership of the renewal rights before April 4, 2004.  However, there were genuine factual disputes as to whether Marvel repudiated Friedrich’s claim of ownership.  First, Marvel repeatedly and publicly recognized that Friedrich created the work.  Second, Marvel did not register a copyright for the original comic or for Ghost Rider until after Friedrich filed this action.  Third, there was also a dispute as to whether Marvel privately repudiated Friedrich’s claim in its communications with Friedrich before April 4, 2004.  Fourth, the only evidence that Marvel intended for Ghost Rider to be a work-for-hire was in Marvel’s letter dated April 16, 2004 to Friedrich.  Fifth, “there is a genuine dispute as to whether Marvel’s exploitation of the Ghost Rider copyright during the renewal term, without paying royalties, implicitly repudiated Friedrich’s claim to ownership.”  Friedrich, Slip Op. P. 38.  Sixth, the Second Circuit noted that Marvel’s use of Ghost Rider was intermittent, and several of its uses occurred before the renewal term started.  Seventh, Marvel paid Friedrich royalties for the republication of the original comic, suggesting a possibility that Friedrich could have received royalties for the Ghost Rider movie.

Friedrich cross-appealed the lower court’s decision denying his claim of authorship.  First, the Second Circuit noted that the Copyright Act only protects expression, not ideas.  Second, even though the 1976 Copyright Act requires an express agreement that a work is a work-for-hire, Ghost Rider was created before 1978 (before the 1976 Copyright Act took effect) and therefore is governed by the 1909 Copyright Act.  The 1909 Copyright Act did not require an express agreement for a work to be work-for-hire.  The Second Circuit found material disputes as to the creation of Ghost Rider.  The Second Circuit construed the facts in Marvel’s favor, because Friedrich was the party seeking review on appeal, and found that under Marvel’s fact pattern Friedrich had nothing more than an uncopyrightable idea for a motorcycle-riding superhero.

The Second Circuit vacated the lower court’s summary judgment in favor of Marvel because of the ambiguous Agreement, the genuine dispute of material facts regarding the parties’ intent to assign the renewal rights, the timeliness of Friedrich’s claim, and the authorship of Ghost Rider.  The case was remanded back to the trial court to determine who owns the Ghost Rider and its multi-media royalty stream.

Righthaven Loses…Again

The Righthaven train took another derailment recently, after being handed a substantial loss in the Ninth Circuit. The Court held that a bare assignment of the “right to sue” for copyright infringement was not enough to confer standing without the transfer or assignment of an exclusive right under the Copyright Act.  Righthaven LLC v. Hoehn, Case No. 11-16751 (9th Cir. May 9, 2013) (pdf available here).  Plaintiff Righthaven sued Wayne Hoehn for posting articles from the “Las Vegas Review-Journal” (“LVRJ”) online without permission.  Hoehn is represented by Marc Randazza of the Randazza Legal Group in Las Vegas, NV. The district court determined that Righthaven had no standing to sue for copyright infringement because it did not own any of the exclusive rights under the Copyright Act (for example, the right to copy, the right to distribute, etc.)  The lower court also determined that Hoehn was protected by fair use, and granted summary judgment on that ground.  The Ninth Circuit affirmed the motions to dismiss, agreeing with the lower court that Righthaven lacked standing to sue.  However, the Ninth Circuit vacated the summary judgment order on fair use.

Righthaven identifies copyright infringements on behalf of third parties (in this case, LVRJ) and receives “limited, revocable assignments” of those copyrights to sue the infringers.  Hoehn had copied an opinion piece from the LVRJ into one of his comments on a discussion board website.  Stephens Media LLC is the copyright owner for the LVRJ.  After Hoehn posted the article, but before Righthaven filed suit, Stephens Media executed an assignment to Righthaven that granted Righthaven “all copyrights requisite to have Righthaven recognized as the copyright owner of the Work for purposes of Righthaven being able to claim ownership as well as the right to seek redress for past, present, and future infringements of the copyright[.]”  Prior to this, Righthaven and Stephens Media had executed a Strategic Alliance Agreement (“SAA”), which controlled what Righthaven could do with any copyrights assigned to it. Essentially, the assignment was useless and Randazza helped to uncover the scheme being perpetuated by Righthaven.

The Copyright Act confers standing upon the legal or beneficial owners of an exclusive right.  17 U.S.C. § 501(b).  The Copyright Act’s list of exclusive rights does not include the right to sue for copyright infringement.  As such, “the assignment of the bare right to sue for infringement, without the transfer of an associated exclusive right, is impermissible under the
Copyright Act and does not confer standing to sue.”  Righthaven, Slip Op. P. 7.  Righthaven argued that its contract with Stephens Media was sufficient to confer standing.  The Ninth Circuit disagreed after reviewing the contract.  For example, the SSA contract language placed limits on what Righthaven could do with the copyrights.

“The SAA clearly delineated the respective rights of Righthaven and Stephens Media in any assigned works. Moreover, the contract evinced not just an intent that Righthaven receive whatever rights were necessary for it to sue, but also an intent that Stephens Media retained complete control over all exclusive rights. The problem is not that the [lower] court did not read the contract in accordance with the parties’ intent; the problem is that what the parties intended was invalid under the Copyright Act.”  Righthaven, Slip Op. P. 10.  The amended SSA was entered into after suit was filed.  The court stated that since the intellectual property interest was acquired after filing suit, this was not sufficient to support standing to bring suit.

Turning to the defense of fair use, the Ninth Circuit found that if the plaintiff lacks standing to sue, a court does not have subject matter jurisdiction over the case.  Thus, the Ninth Circuit vacated the lower court’s summary judgment of fair use.