Intellectual Property Bulletin Spring 2013: The Trouble With Sharing

by Fenwick & West LLP
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Copyright co-ownership is a well-established method of allocating rights within the software, recording, and motion picture industries. In theory, it presents a clear and simple arrangement and provides a strong degree of independence for each of the co-owners.

By way of quick review: The default relationship between co-owners of a copyright is a tenancy in common. Each co-owner can operate independently in using the work, enforcing the copyright, and transferring her interest, subject only to a duty of accounting (which can be waived by contract). Thus, if two musicians collaborate on a song, they become co-owners of the copyright, each possessing an equal share in the copyright. Each musician can independently exercise all of the exclusive rights as to the song. Likewise, each can independently enforce the copyright against an infringer. And each could transfer or assign her entire interest in the work to a third party without obtaining the consent of the co-owner.

For all its popularity and accessibility, though, copyright co-ownership can be a fraught arrangement. Perhaps the most familiar complication for copyright co-owners derives from the Ninth Circuit’s widely criticized decision in Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008). As discussed in a previous article, the Sybersound court effectively invalidated an entire genre of copyright assignment that had been — and remains — widely used by copyright co-owners: namely, the practice whereby one co-owner transfers a sub-divided portion of her rights to a third party. See, e.g., Brian W. Carver, Think You Are a Co-Owner of a Copyright?—Think Again, Copyright Alert (June 16, 2008).

The most recent complication for co-owners, however, arises from Minden Pictures, Inc. v. Pearson Education, Inc., 2013 WL 812412 (N.D. Cal. March 05, 2013). In Minden, the court invalidated over 4,000 identical copyright assignment agreements that had purported to grant co-ownership rights, on the grounds that, in substance, the assignments had transferred nothing more than the bare right to litigate the copyright — which is not a right at all.

The bases for invalidation between Sybersound and Minden are somewhat distinct. But the result in each case looked the same: Plaintiffs who thought they were co-owners with standing to sue learned that they did not own anything enforceable at all. Minden thus presents a reminder and an opportunity for copyright co-owners to pause and take stock of the rights they think they hold.

Minden Pictures v. Pearson Education

The Minden decision fundamentally addresses and reinforces the rule that a copyright holder cannot select a third party to bring suit on his behalf. Even a party that obtains co-ownership rights in the copyright — as Minden attempted to do — will not have standing to enforce the copyright if it is apparent that the co-ownership transaction was orchestrated solely to facilitate litigation.

The plaintiff in Minden was a stock photography agency that represented independent photographers and obtained rights to their photographic works through agency agreements. Upon obtaining licensing rights through the agency agreements, Minden would license the photographs to publishers. Amongst those publishers was defendant Pearson Education, which used thousands of Minden’s licensed photographs in educational textbooks.

Minden eventually came to believe that Pearson Education had been willfully overstepping the limitations of its licenses by publishing more copies of the images than the license actually permitted. All told, Minden believed that Pearson had infringed over 4,257 works to which Minden held rights. Consistent with its enforcement model, Minden obtained copyright co-ownership assignments from the relevant photographers, and then brought suit.

The trouble for Minden, as defendant Pearson eventually realized, was that the language of the copyright assignments, by which Minden purported to obtain co-ownership and standing to sue, appeared inconsistent with a full grant of co-ownership rights. The full text of the assignments read as follows:

The undersigned, the sole owner of the copyrights in the undersigned’s images (the Images) selected by Minden Pictures, Inc. (Agency) and included in its collection, hereby assigns to agency co-ownership of all copyrights in the Images. This assignment authorizes Agency, in its sole discretion, to present, litigate and settle any accrued or later accruing claims, causes of action, choses in action — which is the personal right to bring a case — or lawsuits, brought by Agency to address unauthorized uses of the images by licensees of Agency, as if Agency were the undersigned. Agency agrees to reassign its co-ownership of the Images back to the undersigned immediately upon the conclusion of such litigation.

Any proceeds obtained by settlement or judgment for said claims shall, after deducting all costs, expenses, and attorney’s fees, be divided as provided in the Photographer’s Agency Agreement.

Significantly, the assignments did not articulate or discuss any specific exclusive rights that Minden obtained by virtue of the co-ownership transfer. Instead, the assignments simply described the various ways in which Minden would be permitted to enforce the copyrights. Further, the assignments required Minden to re-assign its interests back to the photographers upon the conclusion of litigation and contemplated a sharing of litigation proceeds between Minden and the photographer.

The problem with this arrangement is the well-established rule from Silvers v. Sony Pictures Entm’t, Inc. that prohibits copyright holders from selecting third parties to bring suit on their behalf. 402 F.3d 881, 890 (9th Cir. 2005) ( “The bare assignment of an accrued cause of action is impermissible under [Section] 501(b).”) While the copyright assignment purported to transfer full co-ownership rights, it certainly seemed plausible, from the face of the agreement, that those co-ownership rights had been granted solely to disguise the real intent of the agreement, which was simply to allow Minden to enforce the copyright and nothing more.

Whether this intrinsic evidence alone would have been sufficient to invalidate the assignments is unclear, because the court chose to admit extrinsic evidence on this point. Amongst that evidence was: (1) The fact that Minden only sought these copyright assignments immediately prior to litigation; (2) That no consideration appeared to have been given for the assignment; and (3) A statement from the founder of Minden Pictures, describing the agreements as transferring rights “solely for actions or lawsuits.”

Minden insisted that, despite contemplating litigation, the assignment unambiguously transferred co-ownership status. But the court disagreed, holding the “nature of the rights conveyed by an agreement is governed by the substance of what is given, not the label that the parties put on an agreement.” Minden, 2013 WL 812412, at *5. All available evidence indicated that the copyright assignments had been orchestrated to transfer a bare right to sue, and therefore, under Silvers, had transferred nothing at all to Minden.

Courts have been consistently enforcing the Silvers rule against plaintiffs whose standing appeared based on a disguised bare right to litigate. The Silvers rule has garnered particular attention recently in the high-profile Righthaven copyright suits. See, e.g., Righthaven LLC v. Democratic Underground, LLC, 791 F. Supp. 2d 968 (D. Nev. 2011). Minden, however, presents the first instance where a transfer of co-ownership rights was invalidated – and with relatively little evidence of mal-intent on the face of the assignment.

The lesson for copyright litigants is clear: Courts take the Silvers prohibition seriously and are willing to look past the language of any agreement to discern the real substance of what was transferred and whether that transfer violates Silvers. The lesson for copyright co-owners is specific: If your co-ownership rights were granted just to enable your enforcement of a copyright, you probably do not have any rights at all.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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