Tuesday, September 25, 2007

Copyright, Divorce, and First Sale

Gill v. American Mortgage Educators, Inc., 2007 WL 2746946 (W.D. Wash. Sept. 19, 2007), illustrates how tangled a web copyright ownership can become when it is part of a small business. The court does such a good job of laying out the facts, that I reproduce them, in slightly edited form:

The two consolidated cases arise out of an acrimonious divorce. No. C07-5244 was originally filed by AME against Harjit Gill, in Thurston County Superior Court. Mr. Gill had the case removed to this Court. AME is a Washington corporation co-owned by Lisa Rosenberger, Mr. Gill's ex-wife and AME president, and Robert Rosenberger, Ms. Rosenberger's father and majority shareholder. Mr. Gill filed Cause No. C07-5229 against AME, Inc. Mr. Gill, a self proclaimed “world authority on accelerated [home] mortgage reduction strategies”, is an Australian citizen currently residing in Yelm, Washington. In 1995 while living in Australia, Mr. Gill published How to Own Your Home Years Sooner and created a software program that allows paid subscribers to track online his/her individual mortgage and equity. Both the book and software are part of an accelerated equity system designed by Mr. Gill to teach homeowners how to save money in interest payments by using the banking system to their advantage. This system was successful enough that upon moving to the United States, Mr. Gill decided to redevelop the book and software to make them applicable to the North American home mortgage market. ... ... A year later, in 2003, Mr. Gill redeveloped and branded the software as “Speed Equity” software (the “software”) and published it live on MortgageFreeUSA.com The software was registered with the Copyright office on June 1, 2007. ... That same year Mr. Gill published the U.S. version of How to Own Your Home Years Sooner (the “Book”), which was also sold on the website. He formed Mortgage Eliminators, LLC (“LLC”), a Washington limited liability company in 2003. The LLC was supported by Mr. Gill's speaking engagements, Speed Equity seminars and workshops, online software subscriptions, and book sales. ... In 2002, while trying to get the LLC off the ground, Mr. Gill met Ms. Rosenberger at a spiritual retreat and they began dating shortly thereafter. Mr. Gill and Ms. Rosenberger cohabitated, became pregnant with their daughter, and subsequently married in 2005. While dating Mr. Gill, Ms. Rosenberger began working in an administrative capacity at the LLC. She and members of her family, including Mr. Rosenberger, became minority shareholders of the LLC; Mr. Gill, however, remained the majority shareholder. Later, Mr. Gill met Perfecto Bobadilla-who would become AME's Chief Operating Officer, Bobidilla encouraged the formation of a corporation to better market and commercialize Mr. Gill's intellectual property, and to provide liability protection the LLC supposedly lacked. In May of 2006 AME was formed; the LLC dissolved in June of 2006. ... In forming AME the intention of the participants was that Mr. Gill would transfer his ownership in the intellectual property while Mr. Rosenberger and others made financial investments in the corporation. Presumably, the investors and Mr. Gill would share ownership of the corporation. AME claims that Mr. Gill transferred his intellectual property interest to the new corporation (AME). It relies on undocumented conversations between Mr. Gill and Mr. Bobadilla, Bobadilla ... and Mr. Gill's failure to expressly state that he was not surrendering his intellectual property to AME. .... Mr. Gill, however, states that when Mr. Rosenberger became majority shareholder Mr. Gill refused to transfer his intellectual property rights, which included the book and all of its physical copies and the Software. .... No evidence of an actual transfer of ownership to the corporation has been presented to the Court.... In 2007 Ms. Rosenberger filed for divorce. Just prior to filing of dissolution proceedings, it is alleged that Mr. Gill and the others decided that Mr. Gill would not be a shareholder in AME but that he would instead be an independent consumer advocate who could promote the corporate website with greater credibility. AME claims Mr. Gill is not an AME shareholder but rather a mere independent contractor. In the divorce proceeding the Thurston County Family & Juvenile Court concluded: 1. There is a prima facie showing that [t]he intellectual property of the books and on-line software is the separate property of Harjit Gill. 2. The intellectual property should be turned over to [him]. 3. The court does not have the jurisdiction to order the corporation to take any action or turn over any property.

The principal copyright question was who owned rights in physical copies of Mr. Gill's books. AME had physical possession of them, and there was no allegation that possession was unauthorized. In holding that Mr. Gill owned rights in the physical copies, the court declared the parties' evidence scant, albeit AME's even more scant. In the end, the court focused on who might have paid for the books' printing. Under the facts, that may have been all the court could so, but I'm not sure that paying for printing always equates into ownership of the physical object, as compared say, to a right of reimbursement for the printing costs.


tekel said...

Apologies if this appears in your mod queue multiple times- having difficulty getting comments to preview/publish :-(

Now, I'm just a greenhorn at this copyright stuff, but we spent a whole class last week arguing about transfers. Title 17 Section 204(a) says:

(a) 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 intent of the parties doesn't matter. In Mr. Gill's case, there was no writing. So, no writing, no transfer.

As far as who owns the physical copies of the books, 17 section 202 says:

Ownership of a copyright, . . . is distinct from ownership of any material object in which the work is embodied. Transfer of ownership of any material object, including the copy or phonorecord in which the work is first fixed, does not of itself convey any rights in the copyrighted work embodied in the object; nor, in the absence of an agreement, does transfer of ownership of a copyright or of any exclusive rights under a copyright convey property rights in any material object.

So the physical ownership interest in the books is distinct from Mr. Gill's indisputable continued ownership of his copyright in those books. But that doesn't mean that AME's simple posession of the books equates to ownership. While the partnership was going well, perhaps Mr. Gill needed to store the books SOMEWHERE, and the AME premises were simply the most convenient place.

From my reading of your synopsis, it looks like Mr. Gill must have paid for the first printing of the American version of the books, becuase that printing occurred before he met Ms. Rosenberger. Therefore the book can not be understood as a "work for hire," because Mr. Gill was not working for AME at the time it was written or the initial print run was made.

Again, I would look for a writing that transfers the books, or the right to print more phisical copies of the book, from Mr. Gill to AME. It seems that such a writing does not exist. If we start with the premise that the physical books were published by Mr. Gill before AME was formed, they were his property from the moment they came off the presses. If the books were published under some different business arrangment, that would be relevant to the outcome of the case. Without more information about the chain of title in the physical copies of the books at issue, from author to publisher to distributor to AME's premises, it seems difficult to resolve the "ownership" question of the physical copies one way or the other.

William Patry said...

Tekel, you're a quick read. I don't think there was any doubt about ownership of the copyright in either of the two works at issue, the book and the software. As you point out, the book was written before Mr. Gill engaged in his ill-struck romance (I'm not taking sides on that one). As for the software, Gill got a transfer from the guy who did the coding.

That leaves the physical books; the facts are sketchy about this and I agree that possession doesn't equal ownership of the physical object. And Mr. Gill's legal relationship with AME seems murky, so who knows whether AME was supposed to be the owner of them.

By the way, C.E. Petit pointed out to me another wrinkle: Washington is a community property state.

tekel said...

Washington is a community property state

heh. Does that mean that even if Mr. Gill owns all of the copyrights, she gets half? I don't know anything offhand about family law statutes in Washington, so unfortunately I can't throw links at you off the cuff.

Anybody have a link to the relevant Washington statute? It would be best for Mr. Gill if WA has a law recognizing property that was brought into the marriage by one spouse as distinct from property created or acquired by either party during the marriage...

And man, would I hate to be that father-in-law :-D

William Patry said...

Tekel, here is one link to the Washington statute:

I don't live in a community property state anymore, although I was raised in one (California) and wrote my first law review article on the intersection between copyright and community property (in 1981). My recollection is that material created before the marriage is not community property, but material created during the marriage - including a derivative work - would be.

CEP said...

Remember, too, that there are several distinct types of "property" at issue here (and believe me, they come up more often than one might wish when writers divorce!). Since some of them are distinct from the copyright per se, they would clearly be subject to any state-law community property provisions.

* The copyright itself
* The right to any income stream from any license that predates the marriage
* The right to any income stream from any license entered into during the marriage
* The right to any income stream from any exercise of options in licenses entered into during the marriage (e.g., film rights)
* The right to any income stream from any license entered into after the marriage that is based upon copyrighted work created during the marriage
* § 203 and/or § 304(c) "termination" rights
* The right to devise any of the above

If your head isn't hurting yet, it should.

Unknown said...

Writing from a Texas Community Property view point:

The copyrights created prior to marriage are separate property.

The royalties earned during the marriage on the separate property copyrights are community property.

The ownership in the business entity acquired during the marriage is presumed to be community property. But, depending on exactly how the ownership interest in the LLC became an ownership interest in the corporation, the interest in the corporation may continue to be the husband's separate property.

My brain hurts, too.

Tamera Bennett