Settle with the copyright holder

[Engel Nyst]

[Amanda wrote about this last year. Her first link is to the Davis v Binge case, which started the mess. But until now, it seemed like that decision would remain confined to its facts. It didn't remain; now a new decision extended its reach. I was thinking to write about the new one since it came out, but I was confused. Well, I'm still confused and decided to write to you all.]

In a recent case in the Second circuit, Palmer/Kane v. Rosen, the judge decided that in this circuit, there are no retroactive licenses. His decision is based on the 2007 case, Davis v. Blige, where the Second Circuit held that:
"a license or assignment in copyright can only act prospectively".

So the judge says, OK, in this circuit a license can only be prospective. Not retroactive. Can't give a license for past infringement.

On Davis v. Blige (2007)

However, the Davis case was unusual, because it involved two co-owners. That's rather rare, at least it rarely lands in courts, and it leads sometimes to uncommon situations. It's sort of understandable that a court may feel that when a co-owner sues someone for infringement, and the other co-owner comes in half through the trial and gives them a license for past use, erasing the suit without questions asked, something is weird. Co-owners can license the work independently of each other, and only submit a share of profits to the other co-owner. So it seemed like this could happen: for retroactive settling of claims, it could also happen that any of them settles and the other is "out of luck". So, out of some equitable feeling, in that case the court decided that a co-owner can't give a retroactive license or transfer to the alleged infringer. So the infringer was still liable to the other owner.

Now I didn't think much at that 2007 case, because co-ownership is an unusual occurrence in copyright cases. So I thought it's only for that weird detail, between co-owners, and won't affect all the rest. But on august 31, 2016, yes, that's now, judge Rakoff applied that case in a case with Corbis, Palmer/Kane and a publisher infringing photos: the Palmer/Kane v. Rosen case.

Recent application in Palmer/Kane v Rosen

Judge says:

the Second Circuit "made clear that its holding extended beyond the context of co-ownership." N. Jersey Media Grp. Inc. v. Pirro (S.D.N.Y. Mar. 9, 2015) (rejecting identical argument because the Second Circuit's opinion in Davis "admits of no such limitation"). It did so by repeatedly casting its holding in broad terms, not limited to any one particular set of facts. See Davis, 505 F.3d at 103 ("Licenses. . . are prospective. . . ."); see id. at 104 ("We hold that a license or assignment in copyright can only act prospectively."); see id. at 104 ("Licenses in patent and copyright function similarly. . . and thus it is appropriate to consider copyright licensing, like patent licensing, prospective in nature."); see id. at 104-05 ("There is little from a policy perspective to recommend a rule that allows retroactive licenses or assignments, and there are two strong reasons disfavoring them. . . .").

Rosen tried to argue that Corbis, the agent of the copyright owner, could have given it a license for past use. Court says no.

Read that again. Corbis couldn't have 'excused' past infringement. That was a copyright matter, says the court, and only a settlement with the owner could release the claim.

A good presentation of Judge Rakoff's decision is here: If It’s Retroactive It’s Not a “License”.

I extract from the decision, first justification for not permitting non-owners to settle:
As for "the need for predictability and certainty," many copyrights owners contract with a licensing agent to license their works, as plaintiff did with Corbis here. If a licensing agent may license works retroactively, the sole copyright holder is not all that differently situated — in terms of its ability to "reliably and definitively determine if and when an infringement occurred" — than a copyright co-owner whose infringement claim may be extinguished by another co-owner's action. The licensing agent is of course acting as the copyright holder's agent, but the copyright holder is still placed in the unenviable position of being generally unable to know, with certainty, that its infringement claim will not be extinguished by the grant of a retroactive license. ("If retroactive transfers and licenses were permissible, one could never reliably and definitively determine if and when an infringement occurred, because an infringement could be `undone' by the very sort of maneuver attempted by defendants in this case.").

From which, the judge thinks all retroactive licenses are unacceptable, those given by agents included, in order to preserve the right of the copyright holder to sue, and to know that his claims for past infringements won't just disappear when the agent "undoes" them.

Second justification:
As for the desirability of discouraging infringement, it is difficult to see how the availability of a retroactive license does not "lower[] the cost of infringement to infringers" even in the sole-ownership context, particularly given that the licensing fees that have been contractually predetermined between the infringer and the licensing agency will often be dwarfed by the statutory damages that would have been available in an infringement action.

In other words, the court wants to preserve the right of the copyright holder to sue, no matter the "license" that the agent gives retroactively.

On the other hand,
"an owner who wishes to release unilaterally his own accrued claims may do so using whatever language he chooses — including by calling the negotiated settlement the proverbial `banana'".

In other words, the copyright holder can waive his right to sue, no matter how we call it, "license" or settlement or contract or, apparently, banana.


What does that mean?

I still think about it. It's either bad news or good news, can't decide. But it seems important. Here's the thing: in practical terms, I can think that a settlement for a past infringing use can give me one of two things: (or both)

• a license for that use; it would be a retroactive license
• a waiver of the copyright holder's right to sue for that use.

If it's (1), it implies (2) of course. Some may say the two are just saying the same thing in different words. What I want, is obviously (2), it's that I won't be sued over it. I sure as hell wouldn't pay a settlement if the copyright holder still keeps the right to sue me.

It seems like Getty, Righthaven, and all these licensing agents, can't give *ANY* of the two now. They can't give a retroactive license, because apparently in the Second Circuit, they no longer exist. They can't waive the copyright holder's right to sue, because they're not a copyright holder and they can't sue anyway. Some learned the hard way that without being the owner of exclusive rights, they have no right to sue and can't.

(Just musing over it: the above paragraph can't be entirely true - or I can't wrap my head around how does the judge think that would work; it might be that some formulation of an agent abilities in their contract with the owner would give them the right to bind the copyright holder, so sort of give me (2) - if they're an agent after all. But that'd be a terrible idea. It was easy to understand that they can give a license (for whatever use), when they're doing that all the time, look at their website selling licenses all day. Now it turns out that they can't do that for past use. It's unclear to me if they still can do any settlement, and if yes, how the settlement AND their ability to give it has to be worded. I wouldn't trust it. I'm not even sure they can make a settlement. On the other hand, something isn't right: it can't be that they're indeed a licensing agent and sign that settlement, and a court would allow the copyright holder to shrug at it and sue me anyway; it's common sense I can prove I settled the issue. (But then why not call it a retroactive license?)

Anyway there is one conclusion I get from this mess: settle with the copyright holder. Not these licensing entities.

Really.

These licensing "agents" don't have his right to sue (2), and can't give a license for past use (1). They're freaking useless, and maybe that's not a bad thing.

Of course if these licensing agents are actually copyright holders/exclusive licensees, then yes. But if not, they're not even able to give a license anymore.

Please let me know if I'm wrong and where. This thing is happening in the Second Circuit, and I think is that it's getting more risky to pay up some entity out of the nowhere who just says it "represents the photographer". These entities might even ignore it today, but it's black on white: they no longer have the right to give licenses for past use.


PS: I note that I was sure that in the Ninth retroactive licenses were fine. At a cursory search, I get that they still are. This case might be the odd thing, but I don't know. At the end of the day, it might be a bloody good thing. Obviously the copyright holder can waive their claims, so as long as that's true, why not just bypass these entities?

PS2: If you want to delve into this and how strange these decisions are, this is a good write-up I learned from, a while ago, on the Davis decision: Second Circuit goes to dark side, written by Patry, author of Patry on Copyright treatise.

[Engel Nyst]

Here is a list of relevant quotes from the two decisions on the issue.

From Davis v Blige:

"A settlement agreement can only waive or extinguish claims held by a settling owner"

"A settlement agreement between an injured owner and an injuring non-owner recognizes the unauthorized use while providing a remedy to the injured owner that is acceptable to all parties to the agreement."

"a settlement agreement is nothing more than a promise by [one party] to pay liquidated damages for past infringements in return for a dismissal of the infringement suit" (quoting 7th circuit)

"Licenses and assignments function differently from settlements and releases, and the use of the term "retroactive license" for "settlement" or "release" by the parties causes unnecessary confusion and potentially creates legal mischief. Settlements are generally retrospective and exclusively between the parties to the settlement — the unauthorized user and the owner;  and, absent clear language to the contrary, they are not licenses for future use.[...]
Licenses and assignments, however, are prospective; they permit use by a non-owner who would not otherwise have a right to use the property. "In its simplest form, a license means only leave to do a thing which the licensor would otherwise have a right to prevent." (quoting Western Elec. v Pacent, 2nd circuit)

"A retroactive license or assignment that purports to eliminate the accrued causes of action for infringement held by a co-owner who is not party to the license or agreement also violates the fundamental principle of contract law prohibiting the parties to a contract from binding nonparties. [...] Moreover, a co-owner who purports to convey not only his right to prosecute past infringements but also his co-owners' right to prosecute past infringements violates the basic rule that an owner cannot convey more than he owns. We have no doubt that [one owner] can release his own accrued claims of copyright infringement against [...] defendants, either orally or in writing. But we know of no authority to sanction his attempt to release any rights [another owner] has against [defendants], for they are not [the first owner]'s to release."

"None of what we say above should be read as preventing an owner and an infringer from settling infringement claims among themselves. See ABKCO Music, Inc. v. Harrisongs Music, (2d Cir.1983) (noting in a copyright infringement case, that "courts favor the policy of encouraging voluntary settlement of disputes")"

"An owner who wishes to release unilaterally his own accrued claims may do so using whatever language he chooses — including by calling the negotiated settlement the proverbial 'banana' — but such an agreement cannot have the effect of eviscerating a co-owner's claims based on past copyright infringement, nor can it settle accrued claims held by co-owners who are not themselves parties to the agreement. Accordingly, we hold that a license or assignment in copyright can only act prospectively."

"Licenses in patent and copyright function similarly. . . and thus it is appropriate to consider copyright licensing, like patent licensing, prospective in nature."

"The grant of a license by one co-owner cannot deprive the other co-owner of the right to sue for accrued damages for past infringement. That would require a release, not a license, and the rights of a patent co-owner, absent agreement to the contrary, do not extend to granting a release that would defeat an action by other co-owners to recover damages for past infringement." (quoted from Federal Circuit, in patent area)

"there is authority to the effect that the concepts of both royalty and license are necessarily prospective, rendering a `retroactive royalty agreement' a legal nullity" (quoted from a Massachusetts district court, in patent area)

"Retroactive Licenses and Transfers Are Invalid"

From Palmer/Kane v. Rosen

"An agreement between a licensing agent and a third party can, as a matter of law, retroactively cure claims of infringement asserted against that third party by the exclusive license holder."); Spinelli v. Nat'l Football League, (S.D.N.Y. 2015) [...] But this Court is constrained to disagree with these opinions.
[...]
As a threshold matter, this Court is not of the view that it has the discretion to narrow the scope of Davis's holding on the basis that Davis was animated by a set of considerations that are arguably not relevant here. That, of course, begs the question whether what Davis described as its holding — "that a license or assignment in copyright can only act prospectively" — was truly its holding in the precedential sense. . . While the metaphysical line between dictum and holding "is not always easy to draw," `where a panel confronts an issue germane to the eventual resolution of the case, and resolves it after reasoned consideration in a published opinion, that ruling becomes the law of the circuit, regardless of whether doing so is necessary in some strict logical sense.'"

"As for 'the need for predictability and certainty,' many copyrights owners contract with a licensing agent to license their works, as plaintiff did with Corbis here. If a licensing agent may license works retroactively, the sole copyright holder is not all that differently situated — in terms of its ability to "reliably and definitively determine if and when an infringement occurred" — than a copyright co-owner whose infringement claim may be extinguished by another co-owner's action. The licensing agent is of course acting as the copyright holder's agent, but the copyright holder is still placed in the unenviable position of being generally unable to know, with certainty, that its infringement claim will not be extinguished by the grant of a retroactive license.

As for the desirability of discouraging infringement, it is difficult to see how the availability of a retroactive license does not "lower the cost of infringement to infringers" even in the sole-ownership context, particularly given that the licensing fees that have been contractually predetermined between the infringer and the licensing agency will often be dwarfed by the statutory damages that would have been available in an infringement action. see 17 U.S.C. § 504(c) (providing for statutory damages of up to $30,000 per work infringed in general, and up to $150,000 per work infringed if the Court finds willful infringement). Thus, while these two policy considerations might be more stark in the context of copyright co-ownership, they are at play in the sole-ownership context as well."

"The Second Circuit might one day limit the scope of Davis in the manner [defendant] seeks. But until such time, this Court cannot disregard Davis's categorical conclusion "that a license or assignment in copyright can only act prospectively."

[Engel Nyst]

I'll note two things. First, I think that as a matter of copyright law, the decision is incorrect. Just my opinion, mind you, and without getting into all reasons, here is one small example: it seems clear to me that the court didn't look at it as a copyright matter, where a non-exclusive license can be oral and can be implied from conduct. From the court's description of facts and "persuasive" showing, I'd say there was an implied non-exclusive license from Corbis to the user. Of course existence of implied licensing is up to court's interpretation, but my point is the court didn't even try to interpret it as such, because it said that it can't; that under Davis, there are no retroactive licenses whatsoever anyway. Everything relied on that.

If we'll see an appeal, we'll know more. After all the decision will stand or it won't.  If it doesn't, we're the same place as before. If it stands, it will mean that the law is changing. (I hope Second Circuit won't muck it up...)

Let me assume the decision will stand, and there are no retroactive licenses. Second point is an yes or no question:
- can a licensing entity, no (c) owner, still make any sort of settlement over a past unauthorized use?

I re-read the opinion and the previous Young-Wolff v Wiley, Spinelli v NFL, and Davis, and well, I'd say nope, no way.

If this stands, and the others are reversed, then it appears that there cannot be any valid settlements for past uses, unless the owner makes them. (I seriously don't get how the court thought that would work, where there are industries out there where retroactive licensing is a norm, but hey.)

I'm tempted to say: well, you know what, bring it.

If this was true, it would spell the end of most and worst of copyright trolls: those entities that came to life only to "enforce valuable intellectual property rights" over works they never created, they don't own, they don't necessarily bring payments to authors or not most of payments they make, they're not legal representatives of, only "copyright enforcement agents".

Look at LCS - "creations are valuable" guys. Creations are valuable indeed, but Getty wanted to separate this entity from itself in order to do only enforcement. I don't think LCS department/subsidiary has any copyrights, they're intending to only act for their "customers". The website doesn't even display images, except logos.
The FAQ says:
"While we appreciate the removal of the represented imagery from your website, removal of the images alone does not resolve the matter. Our customers are entitled to compensation for the past usage of their imagery. On behalf of customers, we are seeking a settlement payment for past unlicensed use of the imagery, and would be happy to work with you on correctly licensing any future use."

Under this decision, the part with "compensation for the past usage" becomes moot. They can't seek a payment for past unlicensed use, themselves, because they're unable to give a retroactive license and they're unable to enter a contract where they would release the accrued claims of the copyright holder who's not a party. At most, they can facilitate contact between the alleged infringing user and the copyright holder.

Make them a coffee or something, until *they* settle. 

Hey, one can dream.