Unilateral settlements and retroactive transfers: a problem of copyright co-ownership.

• Jurisdiction: United States
• Date: 01 February 2009
• Author: Rothstein, James K.
• Published date: 01 February 2009
• Author: Rothstein, James K.

INTRODUCTION I. BACKGROUND: A PRIMER ON SUBSTANTIVE COPYRIGHT LAW A. Copyrights Generally B. Joint Ownership of Copyrights C. The Alienability of Copyrights D. Retroactive Conveyances II. JUDICIAL APPROACHES TO RETROACTIVE TRANSFERS A. Decisions Finding that Unilateral Retroactive Transfers Provide Immunization 1. SBK Catalogue Partnership v. Orion Pictures Corp 2. Lone Wolf McQuade Associates v. CBS Inc 3. Johnson v. Tuff-N-Rumble Management, Inc 4. Silberstein v. Fox Entertainment Group 5. Bridgeport Music, Inc. v. Dimension Films LLC 6. MP3.com Litigation 7. Venegas-Hernandez v. Peer B. Decisions Finding That Unilateral Retroactive Transfers Do Not Provide Immunization 1. David v. Showtime/The Movie Channel, Inc 2. Leicester v. Warner Bros 3. Encore Entertainment, LLC v. KIDdesigns, Inc 4. Davis v. Blige III. GUIDING PRINCIPLES A. The Goals of the Copyright Act and Copyright Law Considerations B. Property Law C. Contract Law D. Analogizing to Patent Law IV. UNILATERAL RETROACTIVE TRANSFERS CANNOT CURE PRIOR INFRINGEMENTS A. Reasons for Allowing Unilateral Retroactive Transfers to Cure Prior Infringements B. The Necessary Solution: Unilateral Retroactive Transfers Cannot Cure Prior Infringements CONCLUSION INTRODUCTION

An interesting but difficult problem in copyright law occurs when an individual holder of a jointly owned copyright decides to license the copyrighted work without the consent of her co-owners. By and large, copyright law permits unilateral actions by a single joint owner, despite the potential consequences for other co-owners. (1) One situation, however, has recently caused problems for courts and commentators: when a co-owner unilaterally resolves an act of copyright infringement by a third party by retroactively licensing that infringer, purportedly authorizing her prior infringement.

Examples of the scenarios that may play out in this situation can help illustrate the potential problem. Suppose that two individuals, A and B, jointly own (2) a copyright in a particular song, X. (3) A third party, C, wishes to use the copyrighted work, X, in some manner. To that end, A, B, or both A and B can sell or license their interest in the work to C. (4) Suppose first that A grants C a license to use Xin some manner. Since C has a license in X, B, under copyright law, cannot sue C for copyright infringement: C's license from only one of the co-owners--in this case from A alone--is enough to immunize C from claims of infringement. (5)

Now let us suppose, however, that C does not obtain a license from either A or B before using X, and therefore infringes A and B's copyright. A, seeking to enforce her rights in X, threatens C with a suit for infringement. A and C decide to settle the infringement out of court, and arrange an agreement, common in the entertainment industry, whereby A grants C a "retroactive license" that purports to authorize any prior infringement of the copyright in X on C's behalf. Consider what may happen next: B, seeking to enforce her own rights in X, also threatens C with a suit for infringement. The operative question in both this example and this Comment is whether C's retroactive license from A should extinguish B's ability to sue C for copyright infringement. Only one case at the circuit court level has addressed this question, and various district courts have reached differing but plausible conclusions. (6)

This situation, though, is hardly uncommon. Copyrights are often jointly owned--particularly (but not exclusively) those in musical works and motion pictures. Additionally, in the fast-paced entertainment industry, copyrighted works are often exploited before licenses to use the works are obtained or finalized, as parties often assume that licenses can be acquired after the fact, if necessary. (7)

As this Comment discusses, the absence of a clear rule on whether unilateral retroactive transfers can cure prior infringements can affect transactions involving jointly owned copyrights. Indeed, this question has not only significant legal implications, but also practical importance. Most basically, it raises questions of copyright law regarding co-ownership, alienability of rights, and copyright's general goals and aims; yet its significance extends further. Since the co-owners of a jointly held copyright are to be treated generally as tenants in common, (8) property law may play some role in resolving the issue, though the question of how great a role it ought to play is contested. (9) Furthermore, since the licensing copyright holder can contract away certain rights, there may also be contract law concerns.

Beyond the legal questions there are also practical implications for those operating in the copyright world. These implications can be seen quite clearly in the context of valuing settlements. (10) As in the example above, if C is not immunized from B's infringement claims by virtue of a settlement with A, the value to C of settling with A decreases. If, however, C is immunized from B's suit, A--aware that its license is the only license that C needs--can extract a higher price from C. Or, in the absence of a clear rule on the matter, A may extract a relatively low price, thinking that B would also be able to recover damages or a settlement from C.

While the House Report accompanying the 1976 Copyright Act states that "[t]here is ... no need for a specific statutory provision concerning the rights and duties of the coowners of a work," (11) the status of unilaterally granted retroactive transfers remains unresolved in most circuits. Accordingly, this Comment proposes a resolution to this question: since granting curative power to retroactive licenses will encourage willful infringement, hamper predictability in copyright transactions, and fail to protect a copyright co-owner's vested right to sue for infringement, unilateral retroactive conveyances should not provide immunity against infringement suits by other co-owners.

Before elaborating on an answer, however, it is necessary to set forth some background. To that end, Part I covers general substantive copyright law as well as the specific rules on joint ownership of copyrights and the general alienability of those rights. Since the cases that have dealt with the question at issue here provide a valuable glimpse into the various approaches available to courts in considering this problem, I discuss those approaches in Part II. I then turn to a discussion of the guiding goals and principles of the Copyright Act and other areas of law that may help in evaluating the legality and equity of retroactive transfers in Part III. Lastly, in Part IV I, use these principles to conclude that, while there are strong arguments for allowing unilateral retroactive transfers, the nonsettling co-owner is so disadvantaged that unilateral retroactive transfers should not be allowed.

1. BACKGROUND: A PRIMER ON SUBSTANTIVE COPYRIGHT LAW

   1. Copyrights Generally

      A discussion of the basic, functional principles of copyright law can help illuminate the issue at hand. (12) The protections of artistic and literary works are governed under the Copyright Act of 1976, (13) the major omnibus copyright legislation that replaced the Copyright Act of 1909.

      Under the Copyright Act, a copyright is a bundle of discrete rights. (14) These rights are held in "original works of authorship fixed in any tangible medium of expression" (15) and include, among other rights, the rights to reproduce (16) and distribute (17) the work. These rights are exclusive to the copyright holder or holders. (18) Anyone who violates those exclusive rights enumerated in section 106 of the Act "is an infringer of the copyright or right of the author." (19) The "legal or beneficial owner of an exclusive right under a copyright is entitled ... to institute an action for any infringement of that particular right committed while he or she is the owner of it." (20) This right--the right to sue for infringement--is also exclusive to the copyright owner, (21) and "it is one of the most valuable 'sticks' of the 'bundle of rights' of copyright." (22)

   2. Joint Ownership of Copyrights

      The doctrine of joint ownership, while not explicitly addressed by the 1909 Copyright Act, was "firmly established by case law" (23) and largely incorporated into the 1976 Copyright Act. (24) The current Act expressly provides for joint ownership of a copyrightable work: "The authors of a joint work are coowners of copyright in the work." (25) The Act defines a "joint work" as "a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole." (26) Yet a '[joint work" can also result from something more than simple joint authorship. (27) Copyright co-ownership may, for example, "result from a transfer of copyright or from the inheritance of a copyright by two or more heirs." (28)

      All joint owners of a copyright share ownership of the work equally, unless a contrary agreement is made. (29) According to the House Report accompanying the 1976 Copyright Act, this meant that joint owners of a copyright each have "an independent right to use o[r] license the use of a work, subject to a duty of accounting to the other coowners for any profits." (30) Thus, each co-owner has a right to use the copyrighted work as the Copyright Act provides, including licensing such uses to a third party, without the consent of the other joint owner or owners.

      The other co-owners, however, are not without protection. First, the unilaterally licensing co-owner has an "obligation to account to the other joint owner for any profits that are made." (31) In addition, one co-owner cannot sell the interests of her other co-owners without their consent (32) or use or authorize a use of the work that would lead to waste. (33)

      There is some tension between the notion of the exclusivity of a copyright holder's rights and the concept of joint ownership...