Copyhype

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 . . . .” ¹17 U.S.C.A. § 204(a) (West 2013) (“A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.”). The opinion is available on the court’s website, and I have uploaded a copy to Scribd. ²For some reason, Scribd sometimes changes the font and makes documents difficult to read. When this happens, I have found that downloading the file and opening it up, rather than reading it from within the Scribd website, fixes the formatting issues.

The court of appeals held that, in light of the E-SIGN Act, ³See Electronic Signatures in Global and National Commerce Act, Pub. L. 106-229, 114 Stat. 464; codified at 15 U.S.C. §§ 7001-31. if a website’s terms of use stipulate that ownership of the copyright in a photograph is transferred to the website operator when a website user uploads a photograph to the website, then a website user who clicks “yes” to agree to the terms of use and then uploads a photograph to the website has thereby transferred ownership of the copyright in the photograph to the website operator. The unanimous appellate panel held that the acts of clicking “yes” and uploading the photograph serve to fulfill Section 204(a)’s requirement that the transfer of copyright ownership be memorialized in a signed writing.

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.” ⁴Christopher M. Newman, A License Is Not A “Contract Not to Sue”: Disentangling Property and Contract in the Law of Copyright Licenses, 98 Iowa L. Rev. 1101, 1140 n.167 (2013) (internal quotations and citations omitted). 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.” ⁵Schiller & Schmidt, Inc. v. Nordisco Corp., 969 F.2d 410, 412 (7th Cir. 1992) (discussing Section 101’s requirement of a signed writing in the context of a work made for hire). 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.” ⁶Newman, 98 Iowa L. Rev. at 1140. In other words, the signed writing contemplated by Section 204(a) is “copyright’s equivalent of a deed.” ⁷Id.

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. ⁸Effects Associates, Inc. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990) (internal citations and quotations omitted; paragraph break added).

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 . . . .” ⁹17 U.S.C.A. § 101 (West 2013) (“A ‘transfer of copyright ownership’ is an assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright or of any of the exclusive rights comprised in a copyright, whether or not it is limited in time or place of effect, but not including a nonexclusive license.”). 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. ¹⁰Ballas v. Tedesco, 41 F.Supp.2d 531, 541 (D.N.J. 1999); this opinion predates the E-SIGN Act, which went into effect on October 1, 2000.

So how did the Fourth Circuit arrive at its conclusion that merely accepting a website’s terms of use and uploading a photograph to the website can result in the necessary signed writing under Section 204(a)? The key lies in the E-SIGN Act, a federal law which, generally speaking, “mandates that no signature be denied legal effect simply because it is in electronic form.” ¹¹3-10 Nimmer on Copyright § 10.03[A][1]. But is assenting to a website’s terms of use wherein a website user agrees to transfer his ownership in a copyright to the website operator really the same thing as signing an agreement to transfer the copyright?

The District Court Proceedings

The underlying dispute in this case is between two competing real estate listing businesses, Metropolitan Regional Information Systems, Inc. (“MRIS”) and American Home Realty Network, Inc. (“AHRN”). Plaintiff MRIS, located in Maryland, maintains a database of property listings to which real estate brokers and agents subscribe. These subscribers upload their listings to the MRIS database, and they agree via acceptance of the website’s terms of use to assign ownership of the copyrights in whatever photographs they upload to MRIS. Defendant AHRN, located in California, operates a nationwide real estate search engine. MRIS alleges that AHRN displayed real estate listings that contained copyrighted photographs from the MRIS database, and it filed suit claiming direct and indirect copyright infringement by AHRN.

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. ¹²See Metro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., 888 F.Supp.2d 691 (D. Md. 2012), modified on clarification, 904 F.Supp.2d 530 (D. Md. 2012).

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. ¹³15 U.S.C.A. § 7001(a) (West 2013).

“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.” ¹⁴15 U.S.C.A. § 7006(5) (West 2013).

The assignment of the copyrights in the photographs is governed by the terms of use on the MRIS website, the relevant section of which provides:

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. ¹⁵Metro. Reg’l Info. Sys., Inc., 888 F.Supp.2d at 708.

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.” ¹⁶Id. at 710.

AHRN subsequently filed a motion to reconsider the preliminary injunction order that had been entered against it, again challenging the validity of the copyright transfers between MRIS’s subscribers and MRIS. Siding with MRIS, the district court reiterated its earlier holding that “the TOU and the subscribers’ electronic submissions of photographs, properly considered an ‘electronic signature’ under E–SIGN, evidence the parties’ full and complete agreement to transfer the copyrights MRIS seeks to enforce in this case.” ¹⁷Metro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., 904 F.Supp.2d 530, 539 (D. Md. 2012). Thus, the district court found that, even though MRIS’s subscribers only indicated their assent to MRIS’s terms of use insofar as the copyright assignments were concerned, this assent also indicated an “intent to sign the record” under the E-SIGN Act. But is assenting to the terms of a contract the same thing as intending to sign the contract?

The Fourth Circuit Opinion

On appeal, the reasoning of the Fourth Circuit’s opinion tracks that of the district court below. ¹⁸See Metro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., Case No. 12-2102, 2013 WL 3722365 (4th Cir. July 17, 2013). 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.” ¹⁹Id. at *8 (internal citations and quotations omitted). 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.” ²⁰Id. (internal citations and quotations omitted).

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).” ²¹Id. at *9. Moreover, the court continues, copyright transfers do not fall into any of the enumerated exceptions to the E-SIGN Act found in Section 7003.

The appellate panel cites with approval the only other case it can find that applies the E-SIGN Act to Section 204(a), ²²See Vergara Hermosilla v. Coca-Cola Co., Case No. 10-21418, 2011 WL 744098 (S.D. Fla. Feb. 23, 2011), aff’d sub nom., Hermosilla v. Coca-Cola Co., 446 F.App’x 201 (11th Cir. 2011). noting that the district court there “reasoned that allowing the transfer of copyright ownership via e-mail pursuant to the E–Sign Act accorded with, rather than conflicted with,” the purpose of the writing requirement. ²³Metro. Reg’l Info. Sys., Inc., 2013 WL 3722365 at *9. Additionally, the court of appeals looks to another context, the Federal Arbitration Act, where the E-SIGN Act has been applied to find a “written provision” to exist in an email or a website’s terms of use. ²⁴See 9 U.S.C. § 2. Strangely, the court of appeals does not explain how the cases it cites, which found a written document to exist in the electronic context, apply to the situation which is present here, which mandates a signed and written document. The court of appeals notes that invalidating the copyright transfers here “would thwart the clear congressional intent embodied in the E–Sign Act,” and it thus holds “that an electronic agreement may effect a valid transfer of copyright interests under Section 204 of the Copyright Act.”

Craigslist and Beyond

The issue of whether assent to a website’s terms of use could fulfill Section 204(a)’s writing requirement became relevant in a recent dispute involving Craigslist. Back in July of 2012, Craigslist sued 3Taps, PadMapper, and others for copyright infringement. ²⁵See Craigslist Inc. v. 3Taps Inc., Complaint, Case No. 12-03816, 2012 WL 3011009 (N.D. Cal. July 20, 2012). Like MRIS, Craigslist claimed to have exclusive rights to user-generated content on account of its terms of use which users accepted via a clickwrap agreement, and it alleged that the defendants were infringing its copyrights by unlawfully scraping, copying, and distributing this copyrighted content. In an order this past April denying in part the defendants’ motion to dismiss, the district court found that Craigslist did in fact have an exclusive license to certain user-generated content—despite there being no signed writing memorializing the transfer.

The district court started its analysis by noting that “the primary issue for the user-created individual posts is whether Craigslist has acquired a sufficient license or ownership interest to assert the copyright.” ²⁶Craigslist Inc. v. 3Taps Inc., Order Granting in Part and Denying in Part Motions to Dismiss, Case No. 12-03816, 2013 WL 1819999, *6 (N.D. Cal. Apr. 30, 2013). The court then states that “[t]ransferring an exclusive license requires a writing,” and it quotes Section 204(a) as providing that “[a] transfer of copyright ownership . . . is not valid unless . . . in writing.” ²⁷Id. at *7 (internal quotations omitted; ellipses in original.). Remarkably, the district court completely ignores the statute’s requirement that the writing be “signed” by the copyright owner. Having read the requirement of a signed writing out of the statute, the court goes on to find that the terms of use agreed to by Craigslist’s users fulfill the writing requirement of Section 204(a) and grant to Craigslist an exclusive license to certain user-generated content. One would hope that this mistake is corrected by the district court down the road.

I bring up the court’s error in Craigslist to highlight what I think to be the error in the district court’s and the Fourth Circuit’s reasoning in construing the terms of use agreed to by MRIS’s subscribers here—the courts are reading out of Section 204(a) the requirement that the writing be “signed.” The E-SIGN Act defines an “electronic signature” to include “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.” ²⁸15 U.S.C.A. § 7006(5) (West 2013) (emphasis added). The “parties’ intent is crucial.” ²⁹Pepco Energy Servs., Inc. v. Geiringer, Case No. 07-04809, 2010 WL 318284, *2 (E.D.N.Y. Jan. 21, 2010) (unpublished opinion). Both the district court and the Fourth Circuit have conflated the intent to agree to a website’s terms of use with the intent to indicate that agreement by signing a writing. In the context of agreeing to a website’s terms of use, all signings indicate assent thereto, but not all assents take the form of a signing.

In other words, by clicking “yes” and agreeing to the terms of use, a user has clearly assented to the terms of use, but I find it a stretch to say that the user has intended to sign his name to that effect—not without more. While the result certainly comports with the policy rationale behind Section 204(a)’s writing requirement, it does not fit with the clear import of the statutory text. The simple solution, to me, seems to be for websites to have a box where a user can input his digital signature signaling his assent to the transfer. Another possibility would be to have the terms of use state that by clicking “yes,” the website user is assenting to the terms of use and affixing his electronic signature. ³⁰See Berry v. Webloyalty.com, Inc., Case No. 10-01358, 2011 WL 1375665, *7 (S.D. Cal. Apr. 11, 2011), opinion vacated and remanded on other grounds, Case No. 11-55764, 2013 WL 1767718 (9th Cir. Apr. 25, 2013). That would clearly fulfill the requirement of a signed writing under the Copyright Act and the E-SIGN Act. That said, it will be interesting to see how other courts deal with this relatively novel legal issue when presented with it.

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