NATIONAL INFORMATION INFRASTRUCTURE

3. COPYRIGHT OWNERSHIP

Copyright ownership in a work initially vests in the author of the work.[1] If the work is a "joint work" (a work with two or more authors), the authors are co-owners of the copyright in the work.[2]

Under certain circumstances, the copyright in a work is not granted to the actual preparer of the work. In the case of "works made for hire," the employer of the preparer or the person for whom the work was prepared is considered the "author" for purposes of the Copyright Act.[3 ] There are two types of works made for hire -- those prepared by an employee and those prepared by an independent contractor by special order or commission. The copyright in a work prepared by an employee within the scope of employment vests in the employer, and the employer is the author.[4] The copyright in a work specially ordered or commissioned vests in the person for whom the work was prepared if the work falls into one of nine specified categories and if the parties expressly agree in writing that the work will be considered a work made for hire.[5]

Copyright ownership entitles the copyright owner to:

An important distinction to understand is the difference between ownership of a copyright in a work and ownership of a copy of a work. Ownership of a copy -- the material object in which a copyrighted work is embodied (e.g., a book, CD or videocassette) -- carries with it no interest in the copyright.[6 ]

Ownership of a copyright, or any of the exclusive rights under 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.[7]

Ownership, possession or any other attachment to or relationship with a copy of a copyrighted work (including obtaining access to it through a computer network or other service) does not entitle one to exercise any of the exclusive rights of the copyright owner (e.g., to reproduce it or to perform it publicly).

a. TRANSFER OF OWNERSHIP

Copyright ownership, or ownership of any of the exclusive rights (in whole or in part), may be transferred to one or more persons.[8] A transfer of rights must be in writing and must be signed by the transferor.[9] A transfer may occur through an assignment, exclusive license, mortgage, "or any other conveyance, alienation, or hypothecation" of a copyright or any of the exclusive rights.[10] A transfer of copyright ownership may be limited in time or in place, but it must be an exclusive transfer of whatever right or rights are involved (i.e., nonexclusive licenses are not considered transfers of ownership).[11] Any of the exclusive rights in the work[12] may be separately transferred and owned, and the owner of a particular right is considered the "copyright owner" with respect to that right.[13]

In the case of any copyrighted work other than a "work made for hire," all transfers of copyright ownership (as well as all nonexclusive licenses) executed by the author of the work may be terminated by the author 35 years after the transfer.[14] This right to terminate, intended to protect authors, cannot be waived by contract or other agreement.[15] However, termination is not automatic; an author must assert his or her termination rights and comply with certain statutory requirements to regain copyright ownership.[16]

b. LICENSING

The exclusive rights of a copyright owner may be licensed on an exclusive basis (i.e., copyright ownership in one or more rights is transferred by the copyright owner) or on a nonexclusive basis (i.e., the copyright owner retains ownership of the copyright and may grant similar licenses to others). A nonexclusive licensee is not a copyright owner and thus does not have standing to sue for any infringement of the copyright in the work by others.[17] Unlike exclusive licenses, nonexclusive licenses need not be in writing.[18]

Limitations on the exclusive rights, such as the first sale doctrine, fair use or library exemptions, may be overridden by contract.[19] However, such contract terms can be enforced only under state law. For instance, the fair use of a work (outside the scope of the license) by a licensee whose license precludes any use other than that specified by the license would not be an infringement of copyright, but would be a breach of the license agreement. Licenses and other contracts cannot transform noninfringing uses (such as fair uses) into infringements; they can, however, make such uses violations of the terms and conditions of the agreements:

A library that has acquired ownership of a copy is entitled [under the Copyright Act] to lend it under any conditions it chooses to impose. This does not mean that conditions on future disposition of copies or phonorecords, imposed by a contract between their buyer and seller, would be unenforceable between the parties as a breach of contract, but it does mean that they could not be enforced by an action for infringement of copyright.[20]

Licensing issues are, and will continue to be, significant in the context of the development of the NII. Services on the NII will provide the opportunity for new uses for copyrighted works. If rights with respect to these new uses are not expressly granted or retained in license agreements, conflicts will arise between copyright owners and licensees. For instance, public display on a bulletin board system may not have been contemplated in licenses granting a public display right that were executed before the advent or proliferation of such systems.

Some argue that new uses which were not contemplated at the time of licensing but which fall within rights granted, such as the public display example above, should automatically fall within the scope of the license. Others contend that new uses which are not contemplated and, therefore, not specifically mentioned in a grant of rights should be considered retained by the licensor -- even in the case of a complete assignment of rights.

Failure to contemplate possible future developments, of course, is not a new problem, and is one based primarily in contract rather than copyright law. Whenever new technologies have produced a new use for works, courts have been called upon to decide whether the new use is covered by old licenses.[21] That is the proper jurisdiction for such determinations. License agreements must be interpreted individually and under the law of the governing state.

A variety of licensing methods will be possible as the NII develops. For instance, rights in copyrighted works offered via the NII may be licensed off-line or on-line. They may be licensed directly (through individual transactions between the rightsholder and the licensee) or through other licensing arrangements, such as voluntary collective licensing. Licensing of rights may be on a per-use, per-work or other basis.

The licensing of rights for the creation of multimedia works -- whose creators may wish to include dozens of preexisting works (or portions thereof) -- can be difficult. Because registration and copyright notices are not required for copyrighted works, identification of copyright owners alone can be complicated. Furthermore, the relative newness of the multimedia industry can result in an uncertainty on the part of copyright owners and multimedia creators with regard to appropriate terms and conditions for such uses.

With limited exceptions, intellectual property law leaves the licensing of rights to the marketplace. In certain circumstances, particularly where transaction costs are believed to dwarf per-transaction royalties, Congress has found it necessary to provide for compulsory licenses.[22] The Working Group finds that, under current conditions, additional compulsory licensing of intellectual property rights is neither necessary nor desirable. Compulsory licensing disregards marketplace forces. Such licensing schemes treat all works alike, even though their value in a competitive marketplace would likely vary dramatically. It also treats all users alike. It alters the free market relationship between buyers and sellers. Moreover, transaction costs -- and the attendant savings from compulsory licensing -- can be minimized in a digital environment.

Technology will facilitate individual licensing schemes.[23] Many projects and studies have been initiated to explore ways in which technology can be used to enhance a user's ability to identify the rightsholder of a work and license its use. The inclusion of copyright management information in copies of works will also facilitate licensing.[24]

The marketplace should be allowed to develop whatever legal licensing systems may be appropriate for the NII. However, the Working Group encourages copyright owners to explore with libraries and schools special, institutional licenses. These licenses would enable the costs to be borne, for instance, by the library so that its patrons might access and use works without direct costs, as they generally do in the print domain.[25] The Working Group also endorses increased funding for libraries and educational institutions to assist their ability to purchase and license works in digital form.

c. ON-LINE TRANSACTIONS

The NII will be a conduit for many types of commercial transactions.[26] Electronic purchasing of goods facilitates the ordering, shipment, and tracking of inventory for nearly any manufactured product. Consumers increasingly will have access to on-line banking, catalogues, video tours of homes, and countless other services. Payment for these goods and services may be made through conventional methods, such as checks or credit cards, or through "digital cash" -- on-line funds transfers between a consumer's bank and an on-line provider.[27] In addition, certain NII uses of protected works will be regulated through electronic licenses.

The law dealing with electronic commerce is not clear -- especially for totally paperless transactions.[28] On-line contracting and licensing raise a number of concerns about the validity and enforceability of such transactions. The NII will not be used to its fullest commercial potential if providers and consumers cannot be confident that their electronic agreements are valid and enforceable.

Considering a number of different transactions that may take place on the NII helps identify where contract law is strained and the impact of this strain on NII users. Although some of the transactions identified may not involve the license or transfer of rights in a copyrighted work, examination of the principles involved in, for example, the on-line sale of copies of copyrighted works in the NII environment may provide useful background and understanding of the overall legal atmosphere for on-line transactions.

ON-LINE CONTRACTS NOT INVOLVING THE SALE OF GOODS

At common law, a contract is formed when the contracting parties manifest mutual, voluntary assent to be bound by a set of terms -- typically through an offer and acceptance.[29] In addition, under the "mirror image rule," the parties must agree to identical terms before a contract is formed -- the so-called "meeting of the minds." The threshold question is whether an electronic message of offer or acceptance or the simple use of the "accept" or "return" key in response to a provider's offer or consumer's request is assent.[30]

A second issue is whether an electronic manifestation of assent meets the mirror image rule[31] -- that is, whether there was a meeting of the minds. If the seller provides an on-line contract form with terms that are essentially non-negotiable, then, like the "shrink wrap" licenses used by software publishers,[32] the purchaser can only accept or reject the terms. If the purchaser accepts, the mirror image rule is met. However, when a consumer assents to such a "standard form" contract, and there is no alternative source for a similar service, the result may be a contract of adhesion.[33]

Assent in contracts of adhesion has been considered in the context of on-line services and shrink wrap licenses.[34] While there is no clear "rule," a traditional analysis looks to the reasonableness of terms and the applicability of the agreement's terms to similarly situated parties.[35] The status of shrink wrap licenses for software provides some guidance; however, shrink wrap licenses have not been treated consistently.[36] In some cases, the U.C.C. has been applied, thus avoiding the question of adhesion by inferring formation.[37] In addition, Illinois and Louisiana have both attempted to statutorily "validate" such shrink wrap licenses.[38]

A third issue involves writing and signature requirements for certain contracts.[39] In the NII, where transactions may be entirely paperless, it may be unclear whether electronic messages are written and what will be considered an adequate signature.[40]

ON-LIE SALE OF GOODS WITH CONVENTIONAL DELIVERY

For the sale of goods, the U.C.C. alleviates many of these common law concerns.[41] With regard to assent, the U.C.C. states that, "[a] contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract."[42] Likewise, "an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances."[43] Thus, application of the U.C.C. may infer assent through any reasonable conduct -- including transmission of electronic messages.

Similarly, the U.C.C. loosens the requirements of the mirror image rule. The U.C.C. infers formation and focuses on establishing the contract's controlling terms.[44] The formalities necessary for enforceability are also relaxed by the U.C.C.[45] As sales of goods become more common via the NII, the U.C.C. will likely become more useful based on the flexible "course of dealing" and "usage of trade" definitions.[46]

ON-LINE SALE OF GOODS WITH ELECTRONIC DELIVERY

A third transaction is where goods are both ordered and delivered via the NII. The primary difference between goods delivered via the NII and those discussed earlier is that the goods themselves may not "exist" prior to the delivery. Rather, they are reproduced upon transmission to the buyer's computer system. Because the goods do not exist prior to the sale, the goods are considered "future goods" under the U.C.C., and remedies for breach of contract are limited.[47]

ON-LINE LICENSES FOR USES OF WORKS

The licensing of copyrighted works via the NII is more problematic. Application of U.C.C. Article 2 is questionable, because the works involved may not be "goods" under the U.C.C., and because the transaction itself is not a "sale," but rather a license to use or access the work.[48] Common law principles of contract law, therefore, may apply to on-line licenses.[49] Amendment of Article 2 of the U.C.C. to cover such licensing transactions is being actively considered by the Permanent Editorial Board for the Uniform Commercial Code.[50]

The challenge for commercial law, as for intellectual property law, is to adapt to the reality of the NII by providing clear guidance as to the rights and responsibilities of those using the NII. Without certainty in electronic contracting, the NII will not fulfill its commercial potential. The Working Group believes that, regardless of the type of transaction, where parties wish to contract electronically, they should be able to form a valid contract on-line.

In particular, on-line licenses should be encouraged because they offer efficiency for both licensors and licensees. Moreover, state validating statutes -- similar to those used to validate shrink wrap licenses -- can be used for on-line licenses to help overcome concerns regarding adhesion; and such statutes should not be preempted as long as they do not attempt to grant rights equivalent to any of the exclusive rights within the general scope of copyright.51 Thus, a statute that merely recognizes the validity of on-line licenses -- even those licenses which cover the exclusive rights of the copyright owner -- would not usurp Federal power and should be upheld.

Further, just as the copyright law needs minor clarifications to account for new technology, so too might commercial law. Historically, the U.C.C. has been extremely successful in clarifying the law. However, as technology advances, the way in which business is conducted places strains upon the U.C.C. -- especially Article 2. Therefore, the Working Group supports the efforts presently underway to revise Article 2 of the U.C.C. to encompass licensing of intellectual property.

Ladas & Parry Home Page
National Information Infrastructure - Table of Contents
National Information Infrastructure - Subject Matter of Copyright
National Information Infrastructure - Copyright Term

Posted on 4/13/96 v1
http://www.ladas.com/NII/
Contact Ladas & Parry