What Licensing Lawyers Should Know About Litigation

Palo Alto Area Bar Association Thomas E. Moore III Royse Law Firm, PC

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Unexpected Consequences Royse Law Firm PC

Contract Interpretation “I can’t imagine what a litigator might know about contract law other than how to best to persuade the trier of fact to misconstrue the parties’ intent . . .”

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Civ. Code §1636. A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful. Civ. Code §1641. The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.

Civ. Code §1643. A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.

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BASIC RULES

Copyright holder bears the burden of proving that defendant’s conduct was unauthorized. Bourne v. Walt Disney Co., 68 F.3d 621, 631 (2d Cir. 1995)

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Rule for License Agreements

Pacific Gas & Electric Co. v. G. W. Thomas Drayage & Rigging Co., Inc., 69 Cal.2d 33, 37 (1968): Extrinsic evidence is admissible not only to resolve an ambiguity but also to show that an ambiguity exists: “A rule that would limit the determination of the meaning of a written instrument to its four corners merely because it seems to the court to be clear and unambiguous would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision and stability our language has not attained.” 69 Cal.2d at 37.

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Rule for Admission of Extrinsic Evidence

Advent of New Technology

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At issue is a clause in Miss Lee's 1952 contract with Disney that denies the company the right to ''make phonograph recordings and/or transcriptions for sale to the public.'‘ NY Times, “Peggy Lee is Suing Disney,” Nov. 17, 1988

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LIMITATION OF LIABILITY: LICENSOR OR ANY DIRECTOR, OFFICER, OR EMPLOYEE OF LICENSOR ACTING IN HIS OR HER CAPACITY AS A DIRECTOR, OFFICER, OR EMPLOYEE OF LICENSOR (COLLECTIVELY, THE “AFFECTED PARTIES”) SHALL NOT BE LIABLE TO LICENSEE FOR ANY DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES ARISING OUT OF ANY CAUSE OF ACTION RELATING TO THIS AGREEMENT, OR BASED ON MAKING, USING, SELLING OR IMPORTING ANY PRODUCTS OF LICENSEE THAT IMPLEMENT PROPRIETARY INFORMATION, WHETHER UNDER THEORY OF CONTRACT, TORT, INDEMNITY, PRODUCT LIABILITY OR OTHERWISE.

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Operative Contract

LIMITATION OF LIABILITY: LICENSOR … SHALL NOT BE LIABLE TO LICENSEE FOR ANY DIRECT … DAMAGES ARISING OUT OF ANY CAUSE OF ACTION RELATING TO THIS AGREEMENT . . .

OR BASED ON MAKING, USING, SELLING OR IMPORTING ANY PRODUCTS OF LICENSEE THAT IMPLEMENT PROPRIETARY INFORMATION, WHETHER UNDER THEORY OF CONTRACT, TORT, INDEMNITY, PRODUCT LIABILITY OR OTHERWISE.

“operative, definite, reasonable, and capable of being carried into effect” Civ. Code § 1643

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Covenants versus Conditions

Jacobsen v. Katzer, 535 F.3d 1373 (Fed. Cir. 2008)

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The heart of the argument on appeal concerns whether the terms of the Artistic License are conditions of, or merely covenants to, the copyright license. Generally, a "copyright owner who grants a nonexclusive license to use his copyrighted material waives his right to sue the licensee for copyright infringement" and can sue only for breach of contract. . . If, however, a license is limited in scope and the licensee acts outside the scope, the licensor can bring an action for copyright infringement.

The Artistic License also uses the traditional language of conditions by noting that the rights to copy, modify, and distribute are granted "provided that" the conditions are met. Under California contract law, "provided that" typically denotes a condition.

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MDY Industries, LLC v. Blizzard Entertainment, Inc., 629 F.3d 928 (9th Cir. 2010)

“We conclude that for a licensee's violation of a contract to constitute copyright infringement, there must be a nexus between the condition and the licensor's exclusive rights of copyright.”

Reach

Vernor v. Autodesk, 621 F.3d 1102 (9th Cir. 2010) Kirtsaeng v. John Wiley & Sons,

Inc., 568 U.S. ___ (2013)

Lexmark Int’l. v. Impression Products, No. 14-1617 (Fed. Cir. 2015)

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Misuse “[C]ourts ‘may appropriately withhold their aid [to an IP owning plaintiff] where the plaintiff is using the right asserted contrary to the public interest.’” Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488, 492 (1942).

Anticompetitive Behavior: “Public policy forbids the use of the patent to secure an exclusive right or limited monopoly not granted by the Patent Office.” Morton Salt, 314 U.S. at 492

Contrary to Constitutional Policy “to promote the Progress of Science and Useful Arts”: “The patentee, like these other holders of an exclusive privilege granted in furtherance of a public policy, may not claim protection of his grant by the courts where it is being used to subvert that policy.” Morton Salt, 314 U.S. at 494

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Video Pipeline, Inc. v. Buena Vista Home Entertainment, Inc., 342 F.3d 191 (3d Cir. 2004)

“The Website in which the Trailers are used may not be derogatory to or critical of the entertainment industry or of [Disney] .. . or of any motion picture produced or distributed by [Disney]”

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Perpetuity

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Kimble v. Marvel Enterprises, Inc., 576 U.S. ___ (2015)

Royalties on use of a patented item end with the expiration of the patent.

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1. Licensee pay a sum equal to 10% of sales during the patent term, but amortized beyond the patent term.

2. Post-expiration royalties are allowable so long as tied to a non-patent right, even one closely related to a patent.

3. There is no bar to joint ventures that enable parties to share the risks and rewards of commercializing an invention.

“A construction conferring a right in perpetuity will be avoided unless compelled by the unequivocal language of the contract.” Zimco Restaurants v Bartenders Union, 165 Cal. App. 2d 235, 238 (1958)

Alternatives

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What should licensing lawyers know about litigation?

Keep it simple.