Friday, April 13, 2007

A Blazing Waste?

A recent suit filed by Gary Friedrich, the creator of the comic book character Ghost Rider, alter ego of Johnny Blaze raises a number of issues, one of them whether there exists a cause of action for "waste" of a copyright. Friedrich recently filed suit in Illinois against Marvel, Sony Pictures Entertainment and a few other entities over Sony's movie "Ghost Rider." There are copyright claims based on reversion rights, which I don't understand from the news reports. The waste claim is, I think, based on the heavy marketing of the film through merchandizing and other ancillary products.

The only proponent I know of for waste as a possible cause of action for authorized use of a copyrighted work is the later Professor Mel Nimmer. I have never understood the argument. Co-owners of copyright do not owe each other a duty not to “waste” the copyright. “Waste” is a real property concept inapplicable to copyright. Unlike land, where one can see and test the property's continued utility, one cannot distinguish between a copyright co-owner's efforts to vigorously exploit the work and “over exploiting” which theoretically might lead to depletion of a copyright's economic value.

This is no source of law for a duty not to waste a copyright. Federal law does not apply since the Copyright Act does not contain any such concept, nor, post-Erie, is there any relevant federal common law. This leaves state law. However, a state law (statutory or common law) prohibiting a copyright owner from exercising its federally granted rights runs afoul of field preemption. Moreover, as a practical matter, how would a finder of fact determine where the line is between normal aggressive marketing and abnormal depletion of an asset's value?

23 comments:

Anonymous said...

I'll admit that when I saw this news report, I was baffled by the coverage too. It simultaneously sounded like the arguments were often confusing trademarks and copyrights (see this post Name wife blog).

Also, I can't make heads or tails of the reversion arguments from the reports either. If for no other reason than the timelines don't seem to match.

joshua wattles said...

I disagree with Prof. Patry. Turn the tables and posit a situation where one co-owner, like a Mr. Fitch, consumed with guilt over the ownership of a copyright because of a political conversion to "free culture" decides to grant open and free non-exclusive licenses to any user for any purpose. It is the common law of joint ownership that requires a this co-owner to account to his or her co-owner for a share of nothing. And it is the common law that allows the capitalist copyright maximalist co-owner to bring and action for waste.

William Patry said...

The question I would ask Josh is what common law? There is no federal common law of waste of copyrights, and state law that conflicts with federal law is preempted.

Federal law says that one co-owner can non-exclusively license without the others' permission. If there are to be exceptions to that, I would think they would have to be federal law. One does not find such exceptions in title 17 or the federal case law.

Friedrich's claim (and Nimmer's theory) is based on state law. I cannot imagine a state law that creates exceptions to the ordinary exercise of a federal right would not be preempted. The duty to account as a matter of state law does not conflict with federal law; it merely says as a result of exercising your federal right, here is how the dough is allocated; the waste argument on the other hand interferes with the very exercise of the right itself; that's a preemption no-no.

John Noble said...

Another hypothetical: One co-author exercises his unilateral right to grant non-exclusive licenses for fair market value. The other follows behind, granting the same licensees a free license. The theoretical claim is tortious interference.

It strikes me that the accounting, as well as claims of waste and tortious interference, are premised upon a duty -- duty to a partner to account for profits, life estate owner's duty to owner of remainder not to waste the asset, or duty to a competitor not to wrongfully interfere with business relations -- that supplies the additional element and avoids preemption.

You see a conflict between state common law and the co-owner's right to publish without the other's permission. That conflict raises the preempton issue, but it doesn't resolve it. Even a sole author's right to publish might "conflict" with common law -- libel, trade secret, contract (violating a prior exclusive license or non-disclosure agreement).

The fact that the claims are brought against the author, rather than by the author, suggest that they are not "equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106."

William Patry said...

John, I don't see a tortious interference claim. The waste claim is preempted because it is based entirely on exercising copyright rights; there is other element to the state claim, and here is a conflict because federal law permits one co-author to grant such licenses without hte other's permission.

joshua wattles said...

The co-owner's right to an accounting and the share of the co-owner's interest in the absence of a contract to the contrary is governed by state law applying the rules of a tenancy in common. Those rules include notions of waste with respect to the corpus and the outgrowth of the property. The fact that the property is a copyright is relevant only in defining the jointly held property and not necessarily its disposition. The disposition of a copyright is only at times controlled by title 17 but not always.

William Patry said...

Josh, I agree the legal situation surrounding joint authorship is a mix of federal and state law, but the mix is almost entirely federal. Whether one is a joint author, is, for example, purely federal law. The ability of one joint author to license the work non-exclusively is also a matter of federal law, as is the rule prohibiting suits for infringement against another joint author. State law has nothing to do with these.

The limited area left up to the states - the duty to account, is a state matter merely because the exercise of federal rights is not implicated by who gets how much. By contrast, a state rule - whatever its source - that purports to ban the exercise of a federal right because in a state court judge's opinion, one joint author is exercising his or her rights too much or foolishly goes the very heart of the federal grant, and is , therefore preempted. It is preempted because it attempts to limit what the federal statute makes unlimited.

To turn your hypo around, what if one joint author refuses to license a literary work to a motion picture company. Should that be considered a waste too because in a state court judge's view, it is wasteful not to get that much money?

Keep state judges off of our federal rights!

joshua wattles said...

I say if it takes a state court judge to get copyright owners to behave within the rules applied to "common" property, then all the better. Intellectual property does not mean intellectually or culturally or economically or naturally superior property. You concede that the duty to account comes from properly exercised state common law that is not pre-empted by the federal statute. Waste is not about the exercise of rights, as you suggest, but about the value obtained in doing so and how that value effects a co-owner; and not how it effects the licensee of the rights nor their licensor.

William Patry said...

Josh, such a friend of state courts! Wouldn't a cause of action for waste, say even in Friedrich's case, including an injunction against engaging in activity covered by Section 106, and which the federal copyright act and case law under it grants the other co-author a right to do? In other words, wouldn;t a state court be saying to the other co-author, "No you can't exercise your 106 rights?" And isn't that judgment based on a state court judge's own, subjective view about how those federal rights should best be exercised?

Crosbie Fitch said...

Two co-authors jointly produce a single handwritten manuscript.

That manuscript is their jointly owned physical and intellectual property, and perhaps (where local laws permit) each author has a duty to the other to obtain a decent market value rather than to simply give it away.

However, let's also say that the authors transcribe the manuscript into a text file on a PC, and they make a copy such that they each have an identical text file.

This text file represents the intellectual property within the manuscript.

Each author possesses this intellectual property, and so they can each dispose of their copy as they wish, destroy it, or duplicate it, create derivatives, or perform it to their dog.

Each IP owner can also choose to sell their IP, publish it free of charge, or, if they're not an ethical capitalist, exploit any copyright law that is available to them.

My point is, that the choice to exploit copyright is secondary to the liberty of each author to dispose of their jointly created IP as they see fit. The authors could decide never to publish, never to enjoy the benefit of copyright. Each author might (as Prince Charles) circulate their IP to friends in confidence. Should they be prosecuted by the other author for failing to seek any monetary compensation from each friend?

The choice to exploit copyright is necessarily by mutual agreement, either prior to embarking upon the project, or afterward (without compulsion). But, without such agreement or explicit NDA, nothing can bind each author to maximise the revenue they obtain from the IP they each possess. The fact that both of their copies are identical is a coincidence.

There may be one manuscript (physical artwork), but there can be two text files (digital IP).

Whilst one author might be liable should they burn the jointly owned manuscript, they are free to dispose of what is wholly their own property: the text file, their separately owned intellectual property.

It is only copyright that creates the illusion that all instances of intellectual property belong to the same owner, the copyright holder.

joshua wattles said...

I will readily concede, Prof. Patry, that in an action for waste a mandatory injunction from a state court attempting to define a co-owner's rights to license a copyright would be pre-empted because that remedy is claimed by title 17. Even a prohibitory injunction going to the copyright, as opposed to going to proceeds derived from the copyright, would be pre-empted. But an action for waste between co-owners seeking damages only would definitely lie in the state court.

CrosbieFitch said...

Are we talking about two co-authors who are both copyright owners in their own right (they can each independently grant licenses), but where this concerns the same work?

Or, are we talking about an agency that has purchased the ownership of a copyright from the original artist with two agency partners?

In the latter case I can see Mr Wattle's point, but not in the former.

Incidentally, as co-owner of the copyright in this blog's comment page, and without prejudice, I would like to express my dismay that the licensing of the copyright in the combined work is so excessively liberal, and a more restrictive license in conjunction with a subscription based revenue model could have provided compensation for contributors such as myself.

Perhaps contributors should join in a class action against Mr Patry for his profligate waste?

John Noble said...

Keep state judges off of our federal rights!

wouldn't a state court be saying to the other co-author, "No you can't exercise your 106 rights?" And isn't that judgment based on a state court judge's own, subjective view about how those federal rights should best be exercised?

I think you are conflating jurisdiction and choice of law. The waste claim and my tortious interference claim are both subject to removal, but that doesn't mean that the court won't look to state law to resolve the claim. I think the federal court would likely reject the waste claim on the ground that the state common law re waste does not extend to intangible property. But I can well imagine a successful claim for tortious interference brought against one co-author who is interfering with the other's exercise of his federal right to license the work unilaterally.

Copyright infringement claims that arise from the breach of a license agreement are typically resolved by looking to state contract law. A copyright owner who purports to grant a second license, after granting someone else an exclusive license, might face a state breach of contract claim and a demand for specific performance in lieu of damages, as may be permitted by state law, in the form of an injunction that prohibits the grant of the second license.

William Patry said...

John, no doubt I confuse many things, but in this case I am referring to Section 301's premption provisions. My friend Josh Wattles now agrees that a prohibitory decree by a state court judge restricting rights that a co-owner has by virtue of Section 106 is preempted. (I am intrigued by his other comment about allocation of money based on a waste claim, although I don't know how it would work out in practice).

I agree with you that state law provides some elements of disputes over licensng, such as whether there has been consideration. But there cannot be a tortious interference claim based merely on one co-author's federal right to license the work, absent a license agreement imposing among the co-authors such a restriction. The feds rule supreme when it goes to non-contractual exploitation.

Your friendly transactional lawyer said...

I don't think that their can be a tortious interference claim because it would seem that a joint actor would likely have a privilege or even a right to interfere anyway--the right to grant a license. I'd have to look closer, but I just don't see a tortious interference claim when you look at the elements.

CrosbieFitch said...

One person cannot bind another to secrecy simply by telling them a secret.

Similarly, two people, who together discover a secret, do not as a consequence become bound to secrecy to each other.

There may well be an expectation that the mutual benefits of secrecy will be respected, but without explicit non-disclosure agreement, each is at liberty to disclose the secret - without or without any amount of compensation.

The same thing occurs in the case of two co-authors whose joint work represents their secret, and their IP. They are not bound by copyright.

That there is value to each co-author in preserving the secrecy of their work until it is sold, perhaps for publication, is a matter for the authors to come to an arrangement.

But the fact remains, either author is free to disclose their mutual secret.

How on earth can the state interfere on the grounds of protecting the commercial interests of either, or of penalising either for their (apparent) waste?

Copyright is supposedly an incentive to disclose/publish. How ridiculous for it to become a means by which one author can effectively suppress the disclosing ability of the other (prevent them maximising the dissemination of their joint work through more liberal licensing).

John Noble said...

Bill said: But there cannot be a tortious interference claim based merely on one co-author's federal right to license the work, absent a license agreement imposing among the co-authors such a restriction.

A claim based on the exercise of the federal right fails because the conduct is not "wrongful," an element of tortious interference. But why not a tortious interference claim based on one co-author's interference with the other's federal right to license the work, e.g. by threatening suit against the licensee?

William Patry said...

John, if one co-author threatened to interfere with another's right to license, yes, I think one could have a state cause of action since the state court would not be restricting the right to exercise the federal right.

Anonymous said...

Do you differentiate between "waste" and "copyright destruction" and if so, do you believe that a claim for the later might exist between co-authors?

For example, what if one co-author grants an exclusive license as to the whole work with respect to one of the exclusive rights that comprise a copyright? All treatises seem to acknowledge that this is impermissible, they end the discussion with comments that under such circumstances, either the exclusive license will be treated as non-exclusive, or at worst, will be deemed invalid (possibly rendering the exclusive licensee a copyright infringer, and, according to Nimmer, possibly making a co-author liable for contributory infringement). Where do you stand on this? I have read your treatise, but it doesn't go into detail regarding such actions by one co-author either.

Anonymous said...

It cannot be the case that a state judge is precluded by preemption from determining that one co-author has "wasted" or destroyed a copyright (or one of the exclusive rights therein), because otherwise, what would be the basis for relief (federal or state law) if a co-owner granted an exclusive license, which federal law does not authorize? The state law principle is that in such circumstances, the co-author has transferred/licensed more than his share and has thus impinged upon the property rights of his co-author.

Also, Prof. Patry, while you say that whether two persons are co-authors is a purely federal law determination, this is not true in the 9th circuit and two others. In the 9th Circuit, an action for declaratory judgment of co-authorship arises under state law. Your treatise states what I believe is the better view, and you reassert that in this discussion, but unfortunately, the federal law in this area is not uniform. If one filed an action for declaratory judgment alone in the 9th Circuit, seeking a determination of co-authorship, the federal court wouldn't even have subject matter jurisdiction, absent diversity. Some commentator needs to write about what happens in those three jurisdictions in this situations. I believe waste (or I would call it destruction - Nimmer actually calls it depletion -- I have never seen it referred to as waste) is an applicable principle in those jurisdictions, and one cannot argue that it is preempted because those particular jurisdictions don't really recognize the "federal/state" mix to which you refer -- it's all state.

William Patry said...

Dear Anonymous, I think you misread those opinions, but if you give me the cites, I will happily look at them and post another comment.

Anonymous said...

Prof. Patry - this is "Anonymous" -- sorry, I don't have an account with which to leave a non-anonymous post.

See, e.g., Dead Kennedys v. Biafra,37 F.Supp.2d 1151, 1153-1154 (N.D.Cal. 1999); Oddo v. Ries, 743 F.2d 630, 633 n.2 (9th Cir. 1984).

These cases and others in the 9th Circuit (as well as law review articles written about them) indicate that the 9th Circuit stands virtually alone (with the 3rd Circuit and DC Circuit) in holding that declarations of co-authorship do not arise under federal law. This is unlike the position in other circuits like the 5th (Goodman v. Lee) which holds that this is a purely federal determination over which the federal courts have exclusive jurisdiction.

Anonymous said...

The 9th Circuit apparently only believes an action arises under the Copyright Act (and therefore is subject to exclusively federal law) if it invokes one of the remedies set forth in the Copyright Act. The other Circuits, on the other hand, believe that exclusive federal jurisdiction arises when a Court must interpret provisions of the Copyright Act in order to rule in the case -- i.e., Goodman v. Lee in the Fifth Circuit. Goodman v. Lee is not recognized as "good law" by the 9th Circuit, and actions between alleged co-authors -- including determinations of co-authorship, are considered to arise purely under state law.