Old Law, New Fit: Evergreen Notice Requirements for IP Service Agreements

by White & Case LLP

Under §5-903(2) of the New York General Obligations Law, automatic renewal provisions in "contract[s] for service, maintenance or repair to or for any real or personal property" are unenforceable unless the service provider gives prior written notice of automatic renewal.1 According to a recent California decision, Aimee Mann v. MediaNet Digital,2 Inc., this requirement applies to intellectual property service agreements.

In this case, the court found that MediaNet's agreement to use its "digital storage and security, streaming, and download technology to promote and distribute Mann's songs" fell within the statute's scope.3 In the agreement, Mann granted MediaNet a non-exclusive license to use, transmit, perform, reproduce and deliver her songs for a royalty.4 The agreement had a three-year initial term with automatically renewing two-year extensions (unless either party opted out at least ninety days prior to expiration).5 Mann alleged that the agreement terminated at the end of the initial term and that MediaNet infringed her copyrights by continuing to use and distribute her songs.6 As a defense, MediaNet asserted that it had a valid license because the agreement automatically renewed.7

As part of her argument that the agreement did not renew, Mann alleged that MediaNet failed to comply with New York's statutory notice requirement.8 MediaNet countered that the New York statute did not apply for several reasons: (i) it did not cover intellectual property licenses, (ii) it was a consumer protection law and (iii) it only protected paying parties.9 The court was not persuaded. In rejecting MediaNet's arguments, the court noted that intellectual property is "personal property" and, thus, subject to the statute.10 In addition, the court held that MediaNet's consumer protection argument was "meritless", given that the statute did not mention "consumers" and that prior cases applied the statute to non-consumers.11 Furthermore, the court rejected the payment argument, pointing to cases applying the statute to paying service providers.12

The court also noted that New York's "personal services contract" exception did not apply.13 Although not further detailed in the decision, several New York courts have refused to extend §5-903(2) to "personal services contracts" involving administrative or consulting services.14 For example, in a recent decision, Healthcare I.Q., LLC v. Chao, a New York court refused to extend §5-903(2) to "software licensing, clinical and coding guidelines, management of billing to insurance companies and patients, collection support services, denial management, consultative services, and supervision of [the defendant's] medical and administrative staff".15 The court in Healthcare I.Q. found that, even if the defendant's motion for summary judgment were allowed, the services at issue were "business consulting, outsourcing and administrative services", not service, repair or maintenance to real or personal property.16

Aimee Mann signals that courts may construe New York's statutory notice requirement to include services performed to or for a customer's intellectual property. As this case is not binding on New York courts (e.g., for contracts that choose New York law and exclusive venue), it remains to be seen whether New York courts would find similarly. In any event, as suggested by Aimee Mann, the failure to comply with the notice requirement could unknowingly expose companies to damages, especially where licenses (that would otherwise shield providers from infringement claims) are involved.17 Accordingly, service providers should consider whether their existing intellectual property service or licensing arrangements fall within the statute's reach and take appropriate steps to address any issues.

[1] - N.Y. Gen. Oblig. Law §5-903(2) (2014). Specifically, notice must be served personally or by certified mail between fifteen and thirty days prior to the termination notice deadline and must call attention to the existence of the automatic renewal provision in the contract. Id.
[2] - Civil Minutes – General, No. CV 13-5269-GHK (FFMx) (C.D. Cal. Nov. 27, 2013).
[3] - Id. at *7 (refusing to grant motion to dismiss).
[4] - Id. at *1-*2.
[5] - Id. at *2.
[6] - Id. at *2-*3.
[7] - Id. at *3.
[8] - Id. at *5.
[9] - Id.
[10] - Id. at *5. Compare Wornow v. Register.Com, Inc., 8 A.D.3d 59, 59 (N.Y. App. Div. 2004) (finding that §5-903(2) did not apply to domain names because domain names are a contractual right, not personal property); Trepp, LLC v. McCord Dev., Inc., 100 A.D.3d 510, 510 (N.Y. App. Div. 2012) ("The contract under which plaintiff agreed to give defendant access to its information and analytics concerning commercial and collateral mortgage-backed securities for a fee via plaintiff's website does not constitute a contract for “service . . . to . . . personal property.").
[11] - Aimee Mann at *6.
[12] - Id.
[13] - Id. at *7.
[14] - See, e.g., Donald Rubin, Inc. v. Schwartz, 559 N.Y.S.2d 307, 310 (N.Y. App. Div. 1990) (holding that an agreement for administrative and consulting services for employee benefits plans was a "personal services contract" not subject to §5-903); Mobile Diagnostic Testing Services, Inc. v. TLC Health Care Network, 19 A.D.3d 1145, 1146 (N.Y. App. Div. 2005) (refusing to apply §5-903 where "the primary purpose of the contract was for the administering of echocardiograms to patients, not 'for service, maintenance or repair to or for any real or personal property'").
[15] - No. 108230/2010, 2013 WL 4804166, at *5-*7 (N.Y. Sup. Ct. Sept. 3, 2013).
[16] - Id. (opining that "[t]he mere fact that [the] plaintiff came into contact with patient records does not render the Agreement as one for service to property" and that the software licensed "was not [the defendant’s] property; it was [the] plaintiff's property, licensed to [the defendant]").
[17] - But see Ovitz v. Bloomberg, 967 N.E.2d 1170, 1173 (N.Y. 2012) (regarding a subscription agreement to lease a desktop terminal, software and other equipment, affirming dismissal of a claim under §5-903 “because [the plaintiff] ha[d] not suffered any harm as a result of Bloomberg's alleged practices” as the plaintiff "did not pay any service termination fees and . . . did not pay for services he did not receive").

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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