Summary: A recent decision from the Second Circuit elucidates two notable points regarding copyright licenses.  First, a licensee of a copyright cannot create a license or sublicense that would extinguish an accrued right, such as a right to sue for copyright infringement, of the licensor.  Second, in at least some cases, a claim for violation of a copyright license may sound in copyright infringement rather than breach of contract.  Given the generally broader range of remedies available for copyright infringement as opposed to breach of contract, practitioners should be aware of this potential issue when negotiating and drafting a copyright license.

Presented with a series of multiparty licenses related to copyrighted photographs, the United States Court of Appeals for the Second Circuit recently held that a licensee cannot grant a sublicense retroactively if it would extinguish an accrued right of the licensor. Spinelli v. Nat’l Football League, No. 17-0673-cv, 2018 U.S. App. LEXIS 25670, at *18-19 (2d Cir. Sept. 11, 2018) (citing Davis v. Blige, 505 F.3d 90, 103 (2d Cir. 2007)).  The court also held that, although a claim for unpaid royalties would typically sound only in contract, in some cases such claims may support a cause of action for copyright infringement. Id. at *30-31.

In Spinelli, the National Football League (“NFL”) and the Associated Press (“AP”) entered into a series of agreements that purportedly granted the NFL the right to use certain photographs owned by the AP (“AP-Owned Photos”), as well as appointing the AP as the exclusive agent and distributor of certain NFL intellectual property. Id. at *4-5.  Specifically, in 2009 the NFL and AP entered into an agreement under which the “AP [] granted the NFL a broad complimentary license for ‘AP-Owned Photos’ of NFL events.” Id. at *4.  However, the 2009 agreement failed to include a complimentary license for photos which the AP had the right to license but did not own the copyright. Id.  A subsequent agreement between the AP and the NFL in 2012 (“2012 AP-NFL agreement”) “expanded the complimentary license granted to the NFL to cover photographs owned by non-AP contributing photographers.” Id. at *4-5.

Meanwhile, a group of non-AP photographers (“Plaintiffs”) entered into contributor agreements with the AP to take and sell photographs of NFL events. Id. at *6.  These agreements permitted the Plaintiffs to commercially exploit the photographs, which contain NFL trademarks. Id.  Under these agreements, the Plaintiffs retained all right, title, and interest in and to their photographs, including the right to sue for copyright infringement, but granted the AP a broad license. Id. (citation omitted).  For instance, the license permitted the AP to make several uses of the Plaintiffs’ photographs, including to reproduce, edit, and publicly display the photographs and to transfer or sublicense those rights. Id. at *6-7 (citation omitted).  In exchange, the AP agreed to pay the Plaintiffs a royalty on qualifying sales of the photographs. Id. at *7-10 (citations omitted).

Although the Plaintiffs, AP, and NFL discussed extension of the complimentary license to the Plaintiffs’ photographs, no agreement was reached with the Plaintiffs. Id. at *12-14 (citations omitted).  Nevertheless, the NFL made extensive use of the Plaintiffs’ photographs, “including turning a photograph of quarterback Aaron Rodgers into a multi-story poster promoting Super Bowl XLV,” without compensating the Plaintiffs. Id. at *10.  As a result, the Plaintiffs filed suit in October 2013 against the AP and the NFL, among others (“Defendants”). Id. at *3, *14.  After a series of amended complaints alleging, among other things, copyright infringement and breach of contract, the Defendants prevailed on a motion to dismiss for failure to state a claim, and the Plaintiffs appealed to the Second Circuit. Id. at *14-15.  Accordingly, the Second Circuit reviewed the district court decision de novo. Id. at *15 (citing Fed. R. Civ. P. 12(b)(6); City of Pontiac Gen. Emps. Ret. Sys. v. MBIA, Inc., 637 F.3d 169, 173 (2d Cir. 2011)).  In this regard, the Second Circuit reviewed whether the complaint stated a claim to relief that was plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

A claim for copyright infringement requires plausible allegations of “both (1) ownership of a valid copyright and (2) infringement of the copyright by the defendant.” Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, 109 (2d Cir. 2001).  However, a license is an affirmative defense that “immunizes the licensee from a charge of copyright infringement, provided that the licensee uses the copyright as agreed with the licensor.” Davis, 505 F.3d at 100; Bourne v. Walt Disney Co., 68 F.3d 621, 631 (2d Cir. 1995).  When the existence of a license is in dispute, the party raising such a defense bears the burden of proof. Bourne, 68 F.3d at 631.  On the other hand, when only the scope of the license is at issue, the copyright owner bears the burden to show that the use of a work was unauthorized. Id.  Further, the scope of the license will generally be determined according to principles of contract law. Id.; see also, e.g., Cohen v. Paramount Pictures Corp., 845 F.2d 851, 854 (9th Cir. 1988) (stating “[a copyright] license must be construed in accordance with the purpose underlying federal copyright law”).  In addition, a license may not extinguish an accrued right of an owner of the copyright. Davis, 505 F.3d at 99, 103 (finding that a putatively retroactive transfer by a co-owner of copyrighted musical compositions was invalid because it would extinguish the other co-owner’s right to sue for infringement, which accrues when the infringement first occurs).

Turning back to Spinelli, the core dispute was whether the NFL’s uses of the Plaintiffs’ photographs, which would have otherwise been infringing, were within the valid scope of the sublicense granted to the NFL by the AP. Id. at *17.  First, the Second Circuit found no license allowed for use of the Plaintiffs’ photographs during the years 2009 through 2012, and thus, the NFL’s use of the Plaintiffs’ photographs during that time supported the claims of copyright infringement against the NFL. Id. at *17-23.  Further, the court concluded the 2012 AP-NFL agreement did not extinguish the Plaintiffs’ right to sue the NFL, which had already accrued, even though the AP was a licensee rather than a co-owner. Id. at *19 (citing Davis, 505 F.3d at 100).  Second, as to use of the Plaintiffs’ photographs during the years 2012 through 2015, the court held that the Plaintiffs had “plausibly alleged that the AP’s complimentary license to the NFL was not permitted by the contributor agreements.” Id. at *28-29.

Nevertheless, the question remained whether the alleged violation of the contributor agreements amounted to a broken promise to pay royalties (i.e., a breach of contract) or whether the complimentary license to the NFL in the 2012 AP-NFL agreement exceeded the scope of the AP’s sublicensing authority, which would support a claim for copyright infringement. Id. at *29.  If the claim was merely for breach of contract, the AP would potentially be liable. Id. In addition, “the NFL’s license would be valid and the NFL would not be liable for copyright infringement.” Id.  However, “[i]f the latter, the complimentary license itself would be invalid, and [the p]laintiffs would have a claim for copyright infringement against [both the AP and the NFL].” Id.  Under the particular facts of Spinelli, including the breadth of access the AP gave the NFL to the Plaintiffs’ photographs and the lack of an explicit remedy for breach of contract in the contributor agreements, the court found that because the Plaintiffs alleged the AP exceeded the scope of its license, the Plaintiffs had properly stated a claim for copyright infringement. Id. at *31 & n.7.

In light of Spinelli, a sublicensee, such as the NFL, may be “liable for copyright infringement for using a work for which the sublicensee thought it had received a valid license.” Id. at *31-32.  Thus, when quarterbacking a copyright license involving multiple parties, particularly when there are multiple separate agreements between the parties, care should be taken to ensure a clean handoff of all the rights and obligations.