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Ninth Circuit: "Exclusive" license from only one copyright co-owner really a nonexclusive license
March 05, 2008

In a decision last week, the Ninth Circuit affirmed a district court's dismissal of a copyright infringement claim for lack of standing, as well as several related claims. The plaintiff obtained an "exclusive" license for one of the exclusive rights from a single co-owner of several copyrighted works. However, because the plaintiff only obtained the license from one co-owner, and not from all co-owners, the license could not be exclusive, as one co-owner does not have the right to exclude other co-owners from exploiting the work. Accordingly, as a nonexclusive licensee, the plaintiff did not have standing to assert the copyright infringement claims.

More detail of Sybersound Records, Inc. v. UAV Corp. after the jump.

The plaintiff and defendants in the suit are karaoke record producers. The plaintiff, Sybersound, has a number of contracts with distributors of karaoke products and, as required by these contracts, obtained copyright licenses for the tracks that they use. In many of the instances, Sybersound sought and purportedly received "exclusive" karaoke rights in these tracks.

Sybersound alleged that a group of defendants (called the "corporate" defendants) were selling karaoke records that were inadequately licensed from the original copyright holders and were sending letters alleging that Sybersound products contained inadequately licensed tracks. Sybersound claimed that these tactics resulted in damage because UAV was able to undercut Sybersound's prices and interfered with Sybersound's contracts with various distributors.

In order to address these issues, Sybersound filed suit against UAV alleging numerous causes of actions including copyright infringement as well as claims under the Lanham Act, Racketeer Influenced and Corrupt Organizations Act (RICO), and related state claims for unfair competition and unfair trade practices. The district court dismissed the case for failure to state a claim under Rule 12(b)(6) because Sybersound did not have standing to pursue the copyright claims, as it was just a licensee of the copyrights, and the other claims depended on underlying copyright infringement claims and were thus preempted.

Sybersound appealed, and the Ninth Circuit addressed each claim in turn.

Copyright Infringement

When addressing the copyright infringement issue, the Ninth Circuit turned to 17 U.S.C. 201(d), the copyright statute "Transfer of Ownership" section. The court noted that only the owner of a particular exclusive right is entitled to "all of the protection and remedies accorded to the copyright owner." Noting that co-owners do not have any exclusive rights, as each co-owner can exercise and alienate their rights on their own, the court concluded that there could be no transfer of exclusive rights from anything less than all of the co-owners acting in concert.

Given that Sybersound had received its "exclusive" license from a single co-owner, the court concluded that Sybersound could not have received an exclusive right from the transfers. As a result, despite purportedly gaining an exclusive license, Sybersound lacked standing to bring suit for copyright infringement, and the district court properly dismissed the claim.

Lanham Act

Sybersound claimed unfair competition based on § 43(a)(1) Lanham Act which prohibits "any false or misleading representation of fact, which . . . in commercial advertising or promotion, misrepresents the nature, characteristics, [or] qualities . . . of his or her or another person's goods, services, or commercial activities." Specifically, Sybersound claimed that the defendants' representations that they had appropriate licenses and Sybersound did not were misrepresentations.

In evaluating this theory, the court turned to the Supreme Court's decision in Dastar v. Twentieth Century Fox Film Corp., where a film company copied a television series that was in the public domain and marketed it as its own. The original authors sued under the Lanham Act, arguing that the author was properly considered the "origin" of the goods, and it was therefore a misrepresentation by the film company that it was the source. The Supreme Court disagreed, and held that the concept of "origin" in the Lanham Act is not the original author, but rather the producer of the goods themselves, as to hold otherwise would provide the authors of creative works with perpetual protection that they do not enjoy under the Copyright Act.

Applying this analysis, the Ninth Circuit held that extending the Lanham Act to include misrepresentations of copyright licensing status would similarly "allow competitors engaged in the distribution of copyrightable materials to litigate the underlying copyright infringement when they have no standing to do so." As a result, these claims were properly dismissed also.

RICO

Sybersound alleged that the RICO cause of action was proper as UAV had engaged in the predicate acts of criminal copyright infringement, mail fraud, and wire fraud by copying and distributing karaoke records for which the lacked licenses and did not pay royalties, and by representing to customers by mail and fax that they comply with various distributor's copyright licensing policies.

The Court focused on whether the proximate cause requirement, as set forth in Holmes v. Securities Investor Protection Corp., was met. The court determined that proximate causation requirement was not established, as deciding the case would require "a speculative and complicated analysis to determine what percentage of Sybersound's decreased sales, if any" were attributable to the defendants' illegal actions and that there were more direct victims (the original copyright holders) that could be expected to pursue their own claims. These claims, therefore, were likewise properly dismissed.

State Law

The district court had dismissed the related state claims as being "copyright claims dressed up to look like state law claims" which were "not distinguishable from copyright claims." The Court noted that a state claim can be preempted by the copyright claim when the content of the protected falls within the subject matter of copyright as described in 17 U.S.C. 102 and 102 and the right asserted under state law must be equivalent to the exclusive rights contained in section 106 of the Copyright Act. Because Sybersound would have to prevail on either the infringement claim or the claim based on misrepresentations of whether infringement occurred, Sybersound would have to prove that copyright infringement occurred. Because many of the state law claims depended on such a showing, the Court found that they were properly dismissed.

To read the full opinion in Sybersound Records, Inc. v. UAV Corp., click here.

To read William Patry's take on the opinion, click here.

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