Copyrights: Lessons and Practice Tips From Recent Cases

Copyrights: Lessons and
Practice Tips From
Recent Cases
Kristie Prinz
Prinz Law Offices
August 5, 2004
© 2004 Kristie Prinz
Issues in Recent Copyright
Ownership of Intellectual Property
Reverse Engineering
Technology Licensing
Circumvention of Technology
Contributory Infringement
Ownership of Intellectual
Property: Individual v. Joint
Recent cases have looked at what constitutes a work
for hire, and how to distinguish between individual
and joint ownership.
17 U.S.C. §101 states that a work for hire is either:
A work created by an employee in the scope of employment; OR
A work specially ordered or commissioned or a work expressly
agreed by the parties in signed written agreement to be a work
made for hire.
17 U.S.C. § 101 states that a “joint work” is one “prepared by two or
more authors with the intention that their contributions be merged
into inseparable or interdependent parts of a unitary whole.”
Ownership of Intellectual
Property: Individual v. Joint
Establishing full and independent ownership of
copyrighted material is critical to capitalizing on
the value of the intellectual property.
Problems may arise where a question has arisen as
to whether intellectual property was created out of
a work for hire relationship, and where no clear
understanding exists between the parties.
Ownership of Intellectual
Property: What Constitutes a Work
for Hire?
Ownership Issue Addressed in Warren v. Fox Family
Worldwide, 66 USPQ2d 1682, 328 F.3d 1136 (9th Cir. 2003).
Warren filed complaint alleging infringement of his copyrights in
musical compositions created for use in the series “Remington Steele.”
Defendants argued that agreements entered into with Warren created a
work for hire relationship and that he did not own the copyrights.
Ninth Circuit held that the musical compositions were works for hire,
and that, because Warren was not the legal owner of the copyrights, he
had no standing to sue for infringement.
Work for Hire: Key Issue in Warren Case
Why did the Court conclude a work for hire relationship existed?
The employment agreements expressly stated that MTM Productions
would own all right, title, and interest in Warren’s services. The fact
that the agreements did not expressly state that the matters were
“specially ordered or commissioned” was not significant.
requirement exists that work for hire agreements include any specific
The payment of royalties to Warren in addition to a fixed sum does not
demonstrate that the agreements were not works for hire, despite the
fact that the payment of royalties may weigh against finding a work for
hire relationship.
The Court concluded that the plain language of the agreements
indicated that any works were created on behalf of MTM Productions,
that MTM Productions would have final judgment on all matters,
including artistic and creative matters, and that Warren’s services
would be rendered at the direction of MTM Productions.
Work for Hire: Also Key Issue in Ulloa Case
Different Outcome in Ulloa v. Universal Music and Video
Distribution, 70 USPQ2d 1835, 303 F. Supp.2d 409 (S.D. N.Y.
Ulloa was invited to the Base-Line Recording Studios by a friend of Carter,
known professionally as “JayZ,” where she created and sang a
countermelody to a song that JayZ was recording.
JayZ liked the
countermelody, and Ulloa recorded it for possible inclusion in the song.
When Defendants refused to negotiate with Ulloa for payment for her work
on the countermelody, she filed a lawsuit, alleging copyright infringement
and joint authorship.
Defendants claimed that the sound recording of Ulloa’s countermelody was
a work for hire and that she was an employee at the time it was recorded.
Southern District of New York held in favor of Ulloa on the work for hire
issue but in favor of Defendants on the joint authorship issue.
Work for Hire: Also Key Issue in Ulloa Case
Why did the Court rule against the existence of a work for hire relationship?
Southern District of New York applied the five-part Second Circuit test for
the existence of a work for hire arrangement:
 Hiring party’s right to control the manner and means of creation
 Skill required
 Provision of employee benefits
 Tax treatment of hired party
 Whether hiring party has the right to assign additional projects to the
hired party.
Court found in favor of Ulloa on the control, skill, employee benefits, and
assignment issue.
Court conceded that Ulloa completed a W-4 form and Defendants withheld
taxes from paychecks to Ulloa through the American Federation of
Television and Radio Artists (“AFTRA”), but found that Ulloa never
believed she was an employee of Defendants. Instead, AFTRA required
her to complete a W-4 tax form before they would assist her in negotiating
with Defendants for payment. The payments were only made after Ulloa
began to threaten litigation.
Joint Ownership: Another Key Issue in Ulloa Case
Why did the Court rule against the existence of joint ownership?
The Court stated that to find joint authorship, an
intent must have been shared by Ulloa and JayZ to
be co-authors.
The Court found that Ulloa could not demonstrate
that JayZ or any Defendants ever intended to share
authorship with Ulloa, and therefore granted
Defendant’s motion for summary judgment on this
What Are the Lessons To be Learned
From These Two Cases?
Employers hiring non-employees to perform tasks that may lead to
copyrightable material should enter into an written agreement before any
intellectual property is created, which defines the terms of the relationship,
including the tax treatment of the hired party, and clearly states the
parties’ intentions for ownership of intellectual property.
The work for hire agreement need not contain specific language, but it
may be helpful for the agreement to specify that the employer will own “all
right, title, and interest” in any copyrightable material, and that the
Employer will direct and control what work is performed.
Non-employees should be paid in a fixed amount (without royalties or
other benefits).
If parties intend to share ownership in copyrightable material, they should
enter into an agreement that expressly states their intentions to jointly own
the intellectual property and defines the terms of the joint ownership.
Ownership of Intellectual
Is the right to sue for copyright infringement transferable?
Silvers v. Sony Pictures Entertainment, 66 USPQ2d 1951,
330 F.3d 1304 (9th Cir. 2003).
Silvers wrote a script called “The Other Woman” pursuant to a work for hire
arrangement for Frank and Bob Films II, aka Von Zerneck/Sertner Films,
which was made into a CBS movie.
Sony released the motion picture “Stepmom.”
After the release of Stepmom, Von Zerneck/Sertner Films assigned to Silvers
the right to sue for copyright infringement on her script but retained ownership
of all other rights.
Silvers filed a complaint against Sony for copyright infringement and unfair
District court ruled that an accrued cause of action for copyright infringement
may be assigned to a third party.
Ninth Circuit upheld the District Court’s ruling.
Assignment of a Right to Sue: Key Issue
in Silvers Case
Ninth Circuit cited Nimmer on Copyright for the proposition
that an assignee of a cause of action for accrued infringement
has standing to sue even if the assignor retains ownership of all
other copyright rights.
Court found that the legal or beneficial owner of a copyright is
not the only party entitled to bring an action for copyright
Court found that Congress did not intend to preclude the
subdivision, separate ownership, and/or separate enforcement
of any copyright owner’s exclusive rights.
The Court relied in part on the law of the Fifth Circuit to state
that an express assignment after the occurrence of infringement
for actions that may have accrued from copyright infringement
was not against public policy.
What are the Lessons to be Learned
from Silvers?
The parties of a work for hire agreement should consider
whether the hiring party may seek to assign back to the
hired party the right to sue for infringement of her/his
copyrighted materials, and if so, should draft any such
agreement accordingly.
If an employer having a work for hire relationship with the
creator of copyrighted materials elects not to sue for
copyright infringement, then the employer should consider
whether or not the hired party may be interested in
pursuing the legal action against the copyright infringer,
and may want to consider assigning.
Practice Tips on Addressing
Ownership Issues
Address intellectual property issues at the beginning of any working
relationship, prior to the creation of intellectual property, and get the
understanding in writing.
Structure any work for hire agreements very carefully—not only does
the amount of compensation to be paid matter—but it also is
important to include in the agreements carefully drafted provisions on
(a) the ownership, protection, and infringement of intellectual
property; (b) the performance of services; (c) the treatment of tax and
benefit issues; and (d) the assignment of rights.
If the parties seek joint ownership of any intellectual property arising
from a relationship, address up front the parties’ understandings as to
how joint ownership is going to work, particularly with respect to
intellectual property ownership, protection, and infringement issues,
and enter into a written agreement that reflects those understandings.
Key Decision Impacting Reverse Engineering in the
Software Industry
Bowers v. Baystate Technologies, 320 F.3d 1317 (Fed. Cir.
Reverse engineering—the process of decompiling object code and
using the source code to develop a compatible product—has
historically been permitted as a Fair Use under U.S. Copyright Law and
is a common practice in the industry.
Tension has always existed between large software companies seeking
to secure their investment and smaller software companies or
developers seeking interoperability of software.
Federal Circuit’s decision in Bowers establishes for the first time that a
company can prohibit reverse engineering of their products through a
shrink-wrap license.
Bowers v. Baystate Technologies
Bowers sold a bundled software product with a shrink-wrap license
prohibiting reverse engineering.
Baystate obtained copies of the Bowers’ product and introduced its
own product incorporating many of the features of Bowers’
Bowers sued Baystate for copyright and patent infringement and for
breach of contract.
A jury found for Bowers and awarded damages on all three claims,
but the district court set aside the copyright damages as duplicative
of the copyright damages. Both parties appealed.
Bowers v. Baystate Technologies
Federal Circuit held that the Copyright Act does not preempt the
state contract law action for breach of a prohibition against reverse
engineering in a shrink-wrap license.
Court applied First Circuit case law indicating that private parties
are free to forego contractually the ability to reverse engineer a
software product and are likewise free to breach the agreement and
pay damages accruing from the breach.
Federal Circuit found that the Bowers shrink-wrap agreement
unambiguously prohibits reverse engineering and that the evidence
clearly supports that Baystate breached its contract with Bowers.
Baystate filed a petition for a writ of certiorari on April 29, 2003, but
the Supreme Court declined to hear the case.
Consequences of Bowers
Federal Circuit’s decision that private parties can
contract to protect their trade secrets through
reverse engineering remains intact.
The decision may limit the ability of the software
industry to achieve interoperability between
Lessons from Bowers Decision
Companies worried about losing their market share and/or
trade secrets as a result of reverse engineering should
include with their products shrink-wrap agreements
prohibiting reverse engineering.
Companies buying products that contain shrink-wrap
licenses prohibiting reverse engineering should carefully
review and adhere to the terms of those licenses, which
may be enforceable against them.
Engineers reverse engineering any software program
should verify to make certain that they do not reverse
engineer a product that was purchased with a shrink-wrap
license that prohibits reverse engineering.
Open Source Licensing Litigation
SCO Group v. International Business Machines
SCO acquired the rights to Unix intellectual property.
SCO filed suit against IBM alleging that IBM breached a
contract with SCO by incorporating Unix Code into Linux,
which is covered in the General Public License (“GPL”)
open source license.
SCO has also sent letters to 1,500 Linux customers accusing
them of illegally using SCO’s intellectual property.
IBM and Red Hat, the largest seller of Linux software, have
filed countersuits against SCO.
Potential Consequences of SCO Litigation
Litigation is likely to slow the growth of the GNU/Linux
operating system, which would negatively impact the
software industry, since Linux is the most effective
alternative available to Microsoft’s Windows.
Litigation may have the effect of discouraging the use of
open source licenses in the future.
Microsoft could end up being the real winner of the
litigation, given the fact that it has the most to gain from
halting the growth and use of Linux.
Lessons From SCO Litigation
The utilization of open source software can have real legal
consequences, and users assume the full legal risk of using software
with an unknown development history. The SCO case puts users on
notice of the extent of those potential risks.
Companies contemplating use of open source software should carefully
review the terms of any applicable open source license prior to use of
the software in order to understand the specific risks of the relevant
agreement as well as the terms with which such companies will need to
Companies using open source software should take extra care not to
incorporate elements of proprietary code into open source code.
Practice Tips on Licensing Based
on Bowers and SCO Litigation
Incorporate terms prohibiting reverse engineering in all
new license agreements, unless you are the licensee, in
which case any such terms should be rejected.
Reevaluate the risks/benefits of utilizing open source
software and review the terms of any existing open source
agreements under which you are bound in order to verify
compliance with all such terms. Consider alternatives.
Monitor the use of open source software at your company
and how it is being used. Educate employees on the risks
inherent to the use of open source software.
Licensing: Ambiguous Terms
McRoberts Software v. Media 100, 66 USPQ2d 1648, 329 F.3d
557 (7th Cir. 2003).
In 1992, McRoberts Software (“MSI”) developed a software program
for users of Apple’s Macintosh personal computers.
Media 100 negotiated licenses with MSI to supply MSI’s software for
use with its line of personal video editing board hardware.
Media 100 subsequently entered into an agreement with a third party
to translate the source code of the software program from Macintosh
to Windows without MSI’s knowledge, and then supplied the new
code with its Windows-compatible video editing system.
MSI sued Media 100 for copyright infringement, trade secret
misappropriation, and breach of contract.
Key Issues in McRoberts Software v.
Media 100
A jury determined that Media 100 infringed MSI’s copyright
by acting outside the scope of the licensing agreement.
Seventh Circuit held in favor of MSI on each of the three
claims, including copyright infringement.
At issue was the ambiguity in the license as to whether or
not the license gave Media 100 the right to translate the
source code into Windows and then to distribute the
software in the new Media 100 Windows-compatible video
editing system. The Court found that the jury was entitled
to resolve the ambiguity in favor of MSI.
Lessons from McRoberts Case and
Practice Tips
Ambiguous terms in a license agreement can lead to
litigation. Be as specific as possible when drafting an
Avoid making assumptions about what the other party’s
intentions were when the agreement was signed. Consider
getting a new agreement in writing that resolves any
Anticipate new technology and address in any agreement
how new technology will be treated.
Anticipate any potential issues that could arise down the
road and address them when drafting the agreement.
Circumvention of Technology:
Background of DMCA
Digital Millennium Copyright Act of 1998, Pub. L.
No. 105-304, 112 Stat. 2860 (1998).
Enacted in 1998 to implement the World Intellectual Property
Organization Copyright Treaty.
Controversial since its enactment, particularly with respect to the anticircumvention provisions.
Concern that it is being applied beyond the scope of what Congress
TEXT OF DMCA § 1201 (a)(2)
17 U.S.C. § 1201 (a)(2) provides as follows:
(2) No person shall manufacture, import, offer to the public, provide, or
otherwise traffic in any technology, product, service, device,
component, or part thereof, that—
(A) is primarily designed or produced for the purpose of
circumventing a technological measure that effectively controls access
to a work protected under this title;
(B) has only limited commercially significant purpose or use other
than to circumvent a technological measure that effectively controls
access to a work protected under this title; or
(C) is marketed by that person or another acting in concert with
that person with that person’s knowledge for use in circumventing a
technological measure that effectively controls access to a work
protected under this title.
TEXT OF DMCA § 1201 (a)(3)
17 U.S.C. § 1201 (a)(3)(A), (B) provides definitions to the
following terms:
(A) to “circumvent a technological measure” means to descramble a
scrambled work, to decrypt an encrypted work, or otherwise to avoid,
bypass, remove, deactivate, or impair a technological measure, without
the authority of the copyright owner; and
(B) a technological measure “effectively controls access to a work” if the
measure, in the ordinary course of its operation, requires the application
of information, or a process or a treatment, with the authority of the
copyright owner, to gain access to the work.
TEXT OF DMCA § 1201 (b)(1)
17 U.S.C. § 1201 (b) (1) states:
No person shall manufacture, import, offer to the public, provide, or otherwise
traffic in any technology, product, service, device, component, or part thereof,
(A) is primarily designed or produced for the purpose of circumventing
protection afforded by a technological measure that effectively protects a
right of a copyright owner under this title in a work or portion thereof;
(B) has only limited commercially significant purpose or use other than to
circumvent protection afforded by a technological measure that effectively
protects a right of a copyright owner under this title in a work or a portion
therefore; or
(C) is marketed by that person or another acting in concert with that
person with that person’s knowledge for use in circumventing protection
afforded by a technological measure that effectively protects a right of a
copyright owner under this title in a work or a portion thereof.
TEXT OF DMCA § 1201 (c)(3)
17 U.S.C. § 1201(c)(3) states:
Nothing in this section shall affect rights
remedies, limitations, or defenses to
copyright infringement, including fair use,
under this title.
Circumvention of Technology: Recent
Litigation Involving DMCA § 1201
Chamberlain Group v. Skylink Technologies, 68 USPQ2d
1009, 292 F. Supp.2d 1023 (N.D. Ill. 2003).
Chamberlain and Skylink were competitors in the electronic garage door
Skylink develops and distributes for sale a universal remote transmitter
capable of activating certain garage door openers manufactured and sold by
Chamberlain, including a line of openers utilizing a rolling code technology.
Chamberlain files a lawsuit against Skylink claiming that Skylink violated the
Northern District of Illinois held in favor of Skylink on summary judgment,
finding disputed issues of fact over whether (a) Chamberlain’s rolling code
program is protected by copyright and (b) whether a consumer’s use of
Skylink’s product to open his own garage constitutes an unauthorized
circumvention for purposes of the DMCA.
Circumvention of Technology: Recent
Litigation Involving DMCA § 1201
Lexmark v. Static Control, 66 USPQ2d 1405, 253 F.Supp.2d 943
(E.D. Ky. 2003).
Lexmark is a worldwide developer, manufacturer, and supplier of laser
printers and toner cartridges.
Static Control manufactures and sells components for remanufactured toner
Lexmark filed suit against Static Control for copyright infringement and
circumventing a technological measure in violation of the DMCA.
On a motion for preliminary injunction, the Eastern District of Kentucky
held in favor of Lexmark, finding that Lexmark demonstrated a likelihood
of success on the merits.
Circumvention of Technological
Measures: Key Issue in Lexmark Case
How did the Eastern District of Kentucky reach its decision?
Eastern District of Kentucky held that the toner loading programs did not
function as lock-out codes, and that Static Control’s identical and verbatim
copying of Lexmark’s toner loading programs went beyond what was
necessary for compatibility.
The Court held that the fair use doctrine did not provide an exception to
copyright infringement, particularly since Static Control engaged in the
wholesale copying of Lexmark toner loading programs for a commercial
Out of four factors ((a) the purpose and character of the use, (b) the nature of
the copyrighted work, (c) the amount and substantiality of the portion used in
relation to the copyrighted work as a whole, and (d) the effect of the use upon
the potential market or the value of the copyrighted work), all but (b) weight
heavily in Lexmark’s favor, and (b) only weighs slightly in Static Control’s favor
because computer programs are still entitled to some copyright protection,
even if it does not rise to the level afforded to more traditional literary works.
Circumvention of Technology: Recent
Litigation Involving DMCA § 1201
321 Studios v. Metro-Goldwyn-Mayer Studios, 2004 WL 415250
(N.D. Cal. Feb. 19, 2004).
321 Studios markets and sells software and instructions for copying DVDs.
Defendants are members of the Motion Picture Association of America (“MPAA”),
who own copyrights in motion pictures, and produce/distribute DVDs containing
copyrighted materials.
321 Studios filed a complaint for a declaratory judgment that (1) its distribution
activities do not violate the DMCA, or in the alternative, that the provisions of the
DMCA are invalid in light of other copyright provisions, and (2) the distribution of
the software does not violate the Copyright Act because (a) the software has
substantial, non-infringing uses, (b) the use of the software constitutes fair use, and
(c) the provisions of the DMCA violate the First Amendment of the Constitution.
Northern District of California, on a motion for summary judgment, held in favor of
Defendants, and enjoined 321 Studios from manufacturing, distributing, or trafficking
in any type of DVD circumvention software.
Circumvention of Technology: Recent
Litigation Involving DMCA § 1201
Why did the Court rule against 321 Studios on summary judgment?
Northern District of California found that the purchase of a DVD does not
give the purchaser the authority of the copyright holder to decrypt an
encrypted work in violation of §1201(a)(2), and distinguishes the 321 Studio
software from the decryption technology in DVD players on the ground that
DVD players are licensed to decrypt the encryption technology.
Court finds that the encryption technology in DVDs is a copy control system
and that § 1201(b)(1) therefore applies to the technology in the Studio 321
software, prohibiting its manufacture and sale.
Court finds that while the software may have other uses, part of the software is
solely for the purpose of circumventing the encryption technology.
Court rejected all challenges raised to the constitutionality of the DMCA.
Circumvention of Technology: Recent
Litigation Involving DMCA § 1201
Paramount Pictures v. 321 Studios, 2004 WL 402756
(S.D. N.Y. March 3, 2004).
Southern District of New York granted a
preliminary injunction against 321 Studios, finding
that the manufacturing of the decryption software
for sale violates the anti-trafficking provisions of
the DMCA. The Court cited the Northern District
of California’s ruling regarding the same software
in reaching its decision.
Lessons from the Circumvention of
Technology Cases
Develop, sell, and distribute software that
circumvents technology at own risk.
Utilize encryption technology whenever
possible to gain a competitive advantage.
Taking on the DMCA in the courtroom may
not be a winning endeavor.
Practice Tips on the Circumvention
of Technology
Work closely with employees to educate them on
circumvention of technology issues, in order to:
catch product ideas that will utilize circumvention
technology before they are actually developed, and
increase awareness of the benefits of developing and
utilizing encryption technology with products,
particularly in light of its new legal protections.
Contributory Infringement: Recent
Litigation Involving File Sharing
Metro-Goldwyn-Mayer Studios v. Grokster, 66 USPQ2d 1579,
259 F.Supp.2d 1029 (C.D. Cal. 2003).
Defendants distributed software that enabled users to exchange digital
media via a peer-to-peer transfer network.
Plaintiffs are organizations in the motion picture and music recording
Plaintiffs filed class action suit against Defendants for copyright
infringement, including claims for contributory infringement and
vicarious infringement.
On a motion for summary judgment, Central District of California
found in favor of Defendants on the contributory infringement claim.
Contributory Infringement: Recent
Litigation Involving File Sharing
Why did the Court find in favor of Defendants in the Grokster Case on the
contributory infringement issue?
 Unlike Napster, Defendants only supplied the software and
did not provide infrastructure or servers through which the
infringing could take place—thus, Defendants were not
materially involved.
Defendants undertook efforts to avoid assisting users who
seek to use their software improperly, and gave only routine
and non-specific technical assistance.
Court analogized Defendants to companies that sell home
video recorders or copy machines, both of which can be
and are used to infringe copyrights.
Contributory Infringement: Recent
Litigation Involving File Sharing
Aimster Copyright Litigation, USPQ2d 1233, 334 F.3d 643 (7th Cir.
Plaintiff music publishers, record companies, and songwriters sued Aimster
(AOL instant messenger service) for contributory and vicarious infringement of
Aimster system is made up of following:
proprietary software that can be downloaded free of charge from Aimster’s
Web site
Aimster’s server
computerized tutorials providing instruction on how to swap computer files
‘Club Aimster,’ a related Internet service for downloading popular music
Northern District of Illinois issued preliminary injunction, ruling that the
recording industry had demonstrated a likelihood of prevailing on the merits.
Seventh Circuit affirmed district court’s ruling.
Contributory Infringement: Recent
Litigation Involving File Sharing
Why did the Court in Aimster affirm the lower Court’s ruling?
Seventh Circuit found compelling the fact that the tutorial
gave as its only examples of file sharing the sharing of
copyrighted music, and that Club Aimster enables users to
download the music most often shared by Aimster users.
Aimster had infringing as well as uninfringing uses, but
failed to show that it would have been disproportionately
costly to eliminate or substantially reduce the infringing
Court found the recording industry’s damage without
preliminary injunction would be irreparable.
Lessons from File-Sharing Cases
If you are in the business of developing and selling
file-sharing software:
Market, sell, and provide technical assistance on only the
non-infringing features of the software.
Actively discourage software users from using the software
for infringing uses.
Avoid participating in the infringing activity in any way.
Practice Tips on Contributory Infringement
Consider including in product license agreements
indemnifications to protect company against the risks of a
user utilizing a product for an infringing use.
Monitor usage of products on the market in order to know
when a product is being used for an infringing purpose.
Educate employees on contributory infringement issues
and advise them as to how they can minimize the risk of
incurring liability for contributory infringement.
Monitor the use of open source software
and educate employees on the risks.
Structure work for hire agreements
Be specific in drafting agreements.
Anticipate new technology and address
in agreements.
Educate employees on circumvention of
technology and contributory
infringement issues.
Include indemnifications in agreements
to protect against the use of products
for unintended, infringing purposes.
Address structure of joint ownership
arrangements early and get written
Incorporate terms prohibiting reverse
engineering into agreements.
Reevaluate the risks/benefits to using
open source software, and review the
terms of any existing agreements.
Copyrights: Lessons and
Practice Tips From
Recent Cases
Kristie Prinz
Prinz Law Offices
August 5, 2004