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Exclusive license stymies copyright owner's infringement suit

Mark Sableman January 24, 2018

The current wave of copyright litigation continues to highlight the complexities of copyright ownership, as apparent infringers defend claims on the simple basis that the plaintiff doesn't own or control the infringed work. 

As we've noted, some plaintiffs misunderstand copyright ownership because of the work for hire doctrine. And some copyright owners can transfer their rights unknowingly. Based on those situations, you might conclude that you need to carefully document your copyright licenses and transfers and clearly spell out your rights to enforce your copyrights. That's mostly true, with one caveat — in some circumstances a copyright owner cannot reserve for itself the right to sue for infringement. 

That was the problem in a recent case, Fathers & Daughters Nevada, LLC v. Lingfu Zhang, in federal court in Oregon, where a copyright owner sued a defendant that allegedly downloaded and distributed the plaintiff's movie without authorization. 

The plaintiff had created the movie, and registered its copyright. But the plaintiff had also exclusively licensed its rights through a sales agent. Although the plaintiff's agreements with the agent and licensee stated that the plaintiff reserved the right to sue for infringement, the court held that it could not do so. As the court explained, "ownership, and how it can be transferred and parsed, is unique under the Copyright Act." Agreements that might work with other kinds of property can run afoul of special copyright ownership rules.

Initially, where the copyright owner grants an exclusive license, as the plaintiff did in Fathers and Daughters, that license is treated as a copyright transfer, meaning that only the exclusive licensee and not the original owner can sue for infringement of those rights. 

In most cases, the original owner can still sue as a “beneficial owner” of the exclusively licensed rights. But, as detailed by the court in Fathers and Daughters, in order to do so, the original owner had to have retained some interest in the copyright, such as a right to receive royalties from the licensee. In the Fathers and Daughters case, the court found the record to show that the original copyright owner structured the deal so that license revenues went only to the sales agent. 

As to the copyright owner's contractually reserved right to sue for infringement, the court held that "agreements and assignments cannot convey simply a right to sue, because a right to sue is not an exclusive right under the Copyright Act. If a party cannot transfer a simple right to sue, a party similarly cannot retain a simple right to sue." 

The bottom line is that a copyright is a special form of property, with special ownership rules and procedures — rules that plaintiffs need to follow and that defendants are increasingly scrutinizing. 

Mark Sableman is a partner in Thompson Coburn’s Intellectual Property group.