Cross-posted on the Law Theories blog.
In an issue of first impression at the appellate court level, the Fourth Circuit last week held that a clickwrap agreement could satisfy Section 204(a)’s requirement that “[a] transfer of copyright ownership” be “in writing and signed by the owner of the rights conveyed . . . .” The opinion is available on the court’s website, and I have uploaded a copy to Scribd.
Section 204(a)’s Writing Requirement
Section 204(a)’s writing requirement is like a statute of frauds in that it serves “the usual evidentiary and cautionary functions of all statutes of frauds,” but it also performs “the additional purpose of describing the bounds of intangible rights that cannot be seen or felt.” The requirement of a signed writing “is not only designed to protect people against false claims of oral agreements,” but it also serves “to make the ownership of property rights in intellectual property clear and definite, so that such property will be readily marketable.” Section 204(a) ensures that in transactions involving the “transfer of the in rem exclusive rights created by copyright law,” there are “clear chains of title and clear delineation of the open-ended subdivisions of exclusive rights permitted under the 1976 Act.” In other words, the signed writing contemplated by Section 204(a) is “copyright’s equivalent of a deed.”
Chief Judge Alex Kozinski colorfully explains the purpose of the writing requirement:
Common sense tells us that agreements should routinely be put in writing. This simple practice prevents misunderstandings by spelling out the terms of a deal in black and white, forces parties to clarify their thinking and consider problems that could potentially arise, and encourages them to take their promises seriously because it’s harder to backtrack on a written contract than on an oral one.
Copyright law dovetails nicely with common sense by requiring that a transfer of copyright ownership be in writing. Section 204 ensures that the creator of a work will not give away his copyright inadvertently and forces a party who wants to use the copyrighted work to negotiate with the creator to determine precisely what rights are being transferred and at what price. Most importantly, section 204 enhances predictability and certainty of copyright ownership—Congress’ paramount goal when it revised the Act in 1976. Rather than look to the courts every time they disagree as to whether a particular use of the work violates their mutual understanding, parties need only look to the writing that sets out their respective rights.
Section 204’s writing requirement is not unduly burdensome; it necessitates neither protracted negotiations nor substantial expense. The rule is really quite simple: If the copyright holder agrees to transfer ownership to another party, that party must get the copyright holder to sign a piece of paper saying so. It doesn’t have to be the Magna Charta; a one-line pro forma statement will do.
By its terms, Section 204(a) applies to “[a] transfer of copyright ownership.” Section 101, in turn, tells us that such a transfer includes “an assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright . . . .” Thus, the writing requirement applies to assignments, exclusive licenses, or any other transfer of copyright ownership such as a mortgage, pledge, or encumbrance.
The question arises whether electronic communications such as emails can fulfill Section 204(a)’s writing requirement. One district court, analyzing a series of emails in which the details of an exclusive license were negotiated, held that there was no signed writing:
Plaintiff has not provided this Court with evidence of a signed writing granting him an exclusive license to market the sound recordings. Instead, Plaintiff argues that the parties’ exchange of e-mails evidences the agreement. The exchange of e-mails, however, does not satisfy the statutory requirement of a written instrument signed by the Defendants. Thus, Defendants could not have transferred ownership of the sound recordings to Plaintiff through an exclusive license.
The District Court Proceedings
In the district court, defendant AHRN moved to dismiss the complaint for failure to state a claim, arguing that plaintiff MRIS did not own the copyrights in the photographs sued upon since the assignments between it and its subscribers were not memorialized in a signed writing as mandated by Section 204(a). Citing the E-SIGN Act, the district court disagreed.
The E-SIGN Act provides:
Notwithstanding any statute, regulation, or other rule of law . . . with respect to any transaction in or affecting interstate or foreign commerce—
(1) a signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form; and
(2) a contract relating to such transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation.
“Electronic signature,” in turn, is defined by the Act as “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”
All images submitted to the MRIS Service become the exclusive property of Metropolitan Regional Information Systems, Inc. (MRIS). By submitting an image, you hereby irrevocably assign (and agree to assign) to MRIS, free and clear of any restrictions or encumbrances, all of your rights, title and interest in and to the image submitted. This assignment includes, without limitation, all worldwide copyrights in and to the image, and the right to sue for past and future infringement.
The district court held that the “TOU constitutes credible evidence that MRIS’s users intended to assign their copyrights to MRIS through the electronic submissions of photographs, which would satisfy the relevant provisions of ESIGN.” Having determined that the writing requirement was fulfilled, the district court then granted plaintiff MRIS’s motion for a preliminary injunction, finding that it had a likelihood of success on the merits since it “appears to have obtained these copyrights by assignment when the photographs were uploaded to the MRIS Database by subscribers.”
The Fourth Circuit Opinion
On appeal, the reasoning of the Fourth Circuit’s opinion tracks that of the district court below. The court begins by noting that Section 204(a)’s writing requirement is different from a statute of frauds in that, “[r]ather than serving an evidentiary function and making otherwise valid agreements unenforceable, under § 204(a) a transfer of copyright is simply not valid without a writing.” Furthermore, continues the court, “a qualifying writing under Section 204(a) need not contain an elaborate explanation nor any particular magic words, but must simply show an agreement to transfer copyright.”
Before proceeding to the merits of the copyright transfers at issue, the court of appeals cites Second and Ninth Circuit precedent discussing the impropriety of allowing third parties to challenge the validity of a copyright transfer where there is no dispute between the assignor and assignee. Recall that here MRIS’s subscribers assigned their copyrights to MRIS, and the only party challenging those assignments is AHRN—as far as we know, both MRIS and its subscribers believe the transfers to be valid. The court notes that MRIS did not raise the argument that AHRN could not attack its assignments indirectly, and then it proceeds to analyze AHRN’s attack on the merits. One wonders how the court would have reacted had MRIS actually made the argument that it is improper for a third party to challenge the validity of a copyright assignment that is not doubted by either the assignor or assignee.
The court of appeals then goes on to cite the relevant provisions of the E-SIGN Act, notably the definition of “electronic signature” mentioned above which includes “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” The court reasons that since Section 7001(b) of the E-SIGN Act seeks to “limit, alter, or otherwise affect” any statutory “requirement that contracts or other records be written, signed, or in nonelectronic form,” and since “Section 204(a) requires transfers to be ‘written’ and ‘signed,’” it follows “that Congress intended the provisions of the E–Sign Act to ‘limit, alter, or otherwise affect’ Section 204(a).” Moreover, the court continues, copyright transfers do not fall into any of the enumerated exceptions to the E-SIGN Act found in Section 7003.
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