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Troubles with Rights Transfers

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by Ivan Hoffman, Publishing Attorney —

Ivan Hoffman

Publishers, authors, Web site owners and designers, cover artists, illustrators, recording artists, songwriters, record and music publishing companies, and any other parties that deal in and with copyrights of any sort should pay careful attention to a case coming out of the United States Court of Appeals for the Ninth Circuit (Gardner et. al vs. Nike, Inc.). In that case, the Court ruled that licensees of exclusive rights in copyright cannot themselves further transfer any of their rights in that copyright to any other party without the express consent of the owner of the underlying copyright. (A license differs from an assignment in that the license is as to some–but not all–of the rights in a copyright and may be otherwise limited.)

So, to take just one example, if you have acquired the exclusive trade paperback rights to a book, you can’t sell or transfer those rights to any other party unless the original copyright owner (perhaps the author? perhaps the first publisher?) specifically gives you permission to do so.

The Facts in the Gardner Case

Nike had granted Sony an exclusive license to utilize a Nike copyrighted cartoon character called MC Teach in certain merchandise. The exclusive license, while in writing, was absolutely silent on whether or not Sony had the right to transfer its said rights to any other party. Even so, Sony transferred its rights to another party (Gardner). The issue in the case was whether or not Sony had the right to do that.

The Court held, under the provisions of Section 201 (d) (2) of the United States Copyright Act, t boosince the license between Sony and Nike did not specifically grant Sony the right to further sublicense, such assignment was not permitted.

The only rights a licensee has under any sort of exclusive license were the “protection and remedies accorded to the copyright owner,” the Court stated, and these “protection and remedies” did not include the right to transfer their rights without an express agreement from the copyright owner allowing them to do so.

What Does This Mean for You?

Here are some other specific examples (all of which presume that the relationship under consideration is not a valid “work made for hire” relationship as specifically defined in the United States copyright law).

If you are a publisher and you acquire some but not all rights in a book from an author, it is, generally speaking, via an exclusive license of those rights in copyright, such as the right to print, translate, etc. Unless the author has specifically granted you the right to further transfer whatever rights the author has transferred to you–which vague and ambiguous contract language such as “successors and assigns” may not accomplish–then, under the ruling of this case, you and only you can exploit those rights. You cannot grant any other party the right to translate the book into another language, make merchandising deals, publish a special-sales edition, or use whatever other rights the author has granted you. This means that the book is essentially unmarketable.

The same is true, to take another example, if you are a publisher or author acquiring some but not all rights from a cover artist or illustrator and your contract does not expressly grant you the right to further transfer that party’s work.  Publishers’ failure to obtain valid, written agreements from cover artists or illustrators is the single biggest (and often most costly) error they generally make. This case makes that failure even more potentially disastrous for it means that the rights the publisher has acquired from an artist may be very limited. (Read about related legal issues in “The Cover Artist/Illustrator Contract” on my site; click on “Articles for Writers and Publishers.”)

Similarly, if you have been granted the right to use third-party materials such as quotes, photographs, etc., “in your book” and your contract does not expressly grant you the right to further transfer the third party’s work, you may not be able to make other deals (see “The Permission Form” on my site for help).

If you have a Web site, you may run into this problem in terms of taking some but not all rights from a Web designer or developer. If you are a Web designer or developer, the problem will arise in connection with taking some but not all rights from a subcontractor unless your contract expressly grants you the right to further transfer that party’s work.

Get Those Rights in Writing

The examples above are not intended to cover all of the many ways this problem can arise. But they do serve to show that if you’re a party taking some but not all rights from a copyright owner, the transfer must be in writing if you want exclusive rights (read “A Legal Nightmare: The Unwritten License” on my site), and your written agreement must spell out rights to make further transfers.

If your agreement is deficient in regard to the right to further transfer, your rights to fully exploit what you believe you have been granted may be clouded at best.  And if you are the copyright owner in such an arrangement, you may find your rights in copyright also clouded by claims on the part of your licensee and takers from your licensee.

Under the best of circumstances, cloudy rights are a legal and marketing nightmare and not in any party’s best interest… except for lawyers. Without a clear set of rights, and limits on those rights, set forth in a thorough and valid agreement, you may find that instead of making money you are spending it on costly and stressful litigation, as often happens after attempts to “save” money by using form contracts or no contracts.

And how do you deal with the regret when you lose and someone else wins when you could have very likely prevented such an outcome?

As I have written many times, “Help me is almost always cheaper than fix me.”

Update Your Agreements Now

Whether or not you agree with the Court’s decision, it is currently the law in the Ninth Circuit and thus may influence other courts elsewhere in the country.  Thus, you must take heed. Taking heed means reviewing all of your acquisition agreements with authors, publishers, Web designers, cover artists, editors, etc., to make certain that they fully and adequately give you the legal rights you believe you bargained for. And the same holds true for the artists, creators, authors, etc., who have licensed certain rights. (Read “Private Laws,” “The Need for Vision,” “Set to Fail” and “What Business Are You In?” on my site. Click on “Articles About Being an Entrepreneur.”)

Ivan Hoffman is an Internet law, publishing, copyright, corporate training and online education, trademark, and music attorney, practicing for over 28 years.  He practices in the Los Angeles area.  His web site is www.ivanhoffman.com. You may reach him at ivan@ivanhoffman.com.

This article is not intended as legal advice. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. You should consult with an attorney familiar with the issues and the laws. This article does not create any attorney client relationship. No portion of this article may be copied, retransmitted, reposted, duplicated, or otherwise used without the express written approval of the author.

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