In Urbont v. Sony Music Entertainment Inc., 15-1778, the Second Circuit recently revived claims against Sony and Ghostface Killah, holding that although third parties may raise a work for hire defense, here there were factual issues that precluded summary judgment. The Court affirmed, however, summary judgment on plaintiff’s state law claims as preempted by the Copyright Act.

In this copyright case, Jack Urbont sued to enforce his claimed ownership rights in the “Iron Man” theme song against Sony, Razor Sharp Records, and Dennis Coles, a/k/a Ghostface Killah. The District Court granted summary judgment, finding no factual dispute that Urbont’s work was a work for hire for Marvel, and that the state law claims were preempted by the Copyright Act. The Second Circuit disagreed in part. First, the Court dealt with the issue of whether defendants could raise that the work by Urbont was a work for hire for Marvel, despite no claim by Marvel in that regard in the 50 years since registration of the copyright to Urbont.

Addressing the issue of first impression, the Court found that defendants could raise that issue. The Court explained that under the 1909 Copyright Act, which controlled here, an employer who hires another to create a copyrightable work is the ‘author’ of the work for purposes of the statute, absent an agreement to the contrary. Noting that the Second Circuit had not addressed the issue of whether a third party to an alleged employer-employee relationship has standing to raise a “work for hire” defense to copyright infringement, the Court reviewed cases from other Circuits and found that standing should be permitted.

The Court observed that it had implicitly permitted the use of the “work for hire” doctrine defensively by third-party infringers to refute a plaintiff’s alleged ownership of a copyright in Aldon Accessories and Easter Seal Soc. and that the 11^th Circuit had expressly permitted such standing, with the 9^th Circuit to the contrary.

The Court based its finding of standing initially on the fact that “Marvel is not a party to the lawsuit and has not had the opportunity to clarify its position with respect to ownership of the copyright. Thus, … it is thus uncertain whether Marvel would dispute Urbont’s copyright ownership.”

The Court also rejected application of Section 204 to bar standing, finding that Section 204(a) was a statute of frauds provision for copyright transfers and was designed to “protect copyright holders from persons mistakenly or fraudulently claiming oral licenses,” whereas the “work for hire” doctrine guides the determination of ownership rights as between employers and employees or independent contractors. The Court concluded that because a plaintiff in a copyright infringement case must prove ownership of a valid copyright in the work allegedly infringed, third parties to an alleged employer-employee relationship have standing to raise a “work for hire” defense against a claim of copyright infringement.

The Court found, however, that there were factual disputes precluding summary judgment on the work for hire issue. Urbont produced a copyright registration from 1966 that lists him as “author,” and a renewal registration from 1995 that lists him as owner. That constitutes prima facie – albeit rebuttable – evidence of the validity of the copyright. In addressing the work for hire issue, the Court applied the “instance and expense test”: “[a] work is made at the hiring party’s ‘instance and expense’ when the employer induces the creation of the work and has the right to direct and supervise the manner in which the work is carried out.”

• Instance refers to the extent to which the hiring party provided the impetus for, participated in, or had the power to supervise the creation of the work.
• The expense component refers to the resources the hiring party invests in the creation of the work, in order to properly reward with ownership the party that bears the risk with respect to the work’s success, including method of payment, tools, resources and/or overhead.

The Court rejected the district court’s finding that it was undisputed that the work was a work for hire. Although there were many factors that pointed in that direction, there were others that the court below did not expressly consider:

Regarding the “instance” requirement, it appears beyond dispute that Urbont created the Iron Man composition at the impetus of Stan Lee and based on the characters of his television show. Urbont testified, however, that he retained all of the creative control over the project, as Lee was not permitted to modify the work but only had the right to accept or reject it. …In addition, Urbont claims that he approached Stan Lee, not the other way around, and he “wrote the songs on spec[ulation] hoping [Marvel] would use them.” … Thus, according to Urbont, there was no prior working relationship between Urbont and Marvel, nor was there was any guarantee that Marvel would accept his work. …These factors weigh against a finding that the work was created at Marvel’s “instance.”

As for the expense factor, Urbont claims that he independently recorded and produced the Iron Man theme song with his own tools and resources, including a recording studio he rented; he claims he was essentially paid only to cover his costs, not to profit from the project. … These factors support the inference that Urbont “b[ore] the risk with respect to the work’s success,”… although the fact that the Iron Man composition “built on preexisting titles and themes that Marvel had expended resources to establish,” … would support the opposite conclusion. Finally, although Urbont was paid a fixed sum of $3,000, bolstering the conclusion that the work was created at Marvel’s expense, he also claims he received royalties, which would undermine that same conclusion.

Finally, the Court concluded that circumstantial evidence supported the conclusion that an ownership agreement existed between Marvel and Urbont which recognized Urbont as the owner. As a result, the Court concluded that factual disputes precluded summary judgment on the Copyright claims.

The Court affirmed, however, the holding that the state law claims were preempted because the Iron Man recording is not a “sound recording” protected from preemption by the Copyright Act of 1976, but rather an accompaniment to an “audiovisual work” that is subject to preemption under 17 U.S.C. § 102(a)(6).

The Second Circuit decision, although decided under the 1909 Act, is critically important on the standing issue. In many cases, proof of work for hire is scant. Litigants charged with copyright infringement should plead and take discovery of the work for hire status of all works alleged to be infringed.