By Robert B. Barnett Jr., J.D.
A copyright infringement counterclaim was dismissed because it was based on an oral transfer of rights and because one joint owner cannot sue another for infringement.
In a dispute over rights to four musical albums by a popular Mexican musical group, a copyright infringement counterclaim by the music distributor Hyphy Music, Inc., against the music distributor Yellowcake, Inc., was dismissed because Hyphy’s copyright ownership claims were based on an oral transfer agreement between Hyphy and the Mexican musician, a California federal district court has ruled. In addition, the same infringement counterclaim was also dismissed under a work-for-hire theory because no allegations existed that the musician was an employee rather than an independent contractor. And, finally, the counterclaim was dismissed under a co-author/joint owner theory, which resulted in Hyphy and Yellowcake sharing ownership, because one co-author cannot sue another co-author for copyright infringement (Yellowcake, Inc. v. Hyphy Music, Inc., July 20, 2021, Ishii, A.).
Background. Hyphy is a record label that produces and distributes music. It contacted Jesus Chavez, Sr., the founder and principal of the music group Los Originales De San Juan, about commissioning Chavez to produce music for the label. In 2013, the two parties entered into an oral agreement under which Chavez would provide exclusive services for five years. Under the arrangement, Hyphy selected the arrangements, produced the music, directed the recorded musical performances, and paid Chavez a fixed amount per album. Chavez agreed that Hyphy would be the owner of title and rights to the music. Four albums and the artwork for three albums were produced during the five years.
In 2019, Jose David Hernandez, the owner of Yellowcake and Colonize Media, Inc., met with Chavez to express an interest in promoting and selling the albums. Chavez told him that Hyphy owned the four albums. Hernandez apparently convinced Chavez that Hyphpy did not own the rights, and Yellowcake paid Chavez a significant amount of money for the rights. The written agreement between the parties also included a promise by Yellowcake to indemnify Chavez should Hyphy sue him.
Later in 2019, Hyphy discovered that Yellowcake was selling the music through iTunes, Amazon Music, and YouTube. In 2020, with the dispute having grown to involve take-down notices sent to YouTube, Yellowcake sued Hyphy for copyright infringement. Hyphy, which had obtained registered copyrights for the four albums, then filed counterclaims against Yellowcake, Colonize, Hernandez, and Chavez, asserting claims for copyright infringement of both the albums and the copyright art, as well as state law claims for intentional interference with prospective economic advantage, intentional interference with contractual relations, unfair competition, conversion, and breach of contract. Yellowcake and the other defendants then moved to dismiss six of the counterclaims.
Copyright infringement. The first cause of action under the counterclaim was for copyright infringement of the sound recordings. Although Hyphy’s argument focused on its belief that it was the co-author of three of the four albums, the court detected three separate legal theories. One was, of course, the co-authorship argument. The second arose from Hyphen’s registration with the Copyright Office, which indicated that Hyphy was the author of the albums as the employer in a work-for-hire arrangement. The third argument was gleaned from another document filed with the Copyright Office in which Hyphy claimed copyright ownership through a written transfer agreement. The court addressed all three possible theories.
Written agreement. The written agreement allegation was perplexing because Hyphy’s pleadings all admitted that Hyphy’s agreement with Chavez was oral. While such an infringement claim based on an oral transfer would normally be immediately dismissed, a wrinkle involved the fact that it was a third party that was raising the defense. The "general rule in the Ninth Circuit," the court said, was that a third party could not raise noncompliance with the writing requirement as a defense to a copyright transfer. The court evaded that limitation by concluding that a dispute did exist between the two parties to the oral agreement because Chavez had been named as a counterclaim defendant. As a result, Yellowcake could raise the defense, and it had merit. The counterclaim for copyright infringement was dismissed without leave to amend because Hyphy could not base its claim on an oral transfer of the copyright, in violation of 17 U.S.C. §204(a), which requires a writing.
Joint owner. Returning to Hyphy’s main claim—that it was the joint owner or co-author of the music produced under its guidance and participation—the court noted that this argument also produced problems for Hyphy. If Hyphy was the joint owner, then when Chavez reached his agreement with Yellowcake, he transferred only what he owned, which was a joint ownership of the copyright with Hyphy. If that was true, Yellowcake became the joint owner with Hyphy when it reached its agreement with Chavez. Under copyright law, however, one joint owner of a copyright cannot sue another joint owner of a copyright for copyright infringement (Ashton-Tate Corp. v. Ross, 916 F.2d 516, 522 (9th Cir. 1990)). As a result, the copyright infringement counterclaim under the joint owner theory was dismissed with leave to amend.
Work for hire. The third theory was that the arrangement was a work for hire. A work for hire can arise in one of two ways: (1) a work made within the scope of employment or (2) a work specially commissioned by written agreement. Neither route applied here. Clearly, no written agreement existed to commission the works because all agreements were oral. As for the employment route, the court found no express allegations that Chavez was a Hyphy employee. Thus, the court refused to accept that such a relationship existed under the allegations set forth in the counterclaim. As a result, the copyright infringement claim based on a work for hire arrangement was dismissed with leave to amend.
State law claims. The various state law counterclaims were also dismissed, for either Copyright Act preemption or the state law statute of frauds. The Copyright Act preempted the counterclaim for intentional interference with prospective economic advantage. The counterclaim for intentional interference with contractual relations was based on the contention that Hernandez deceived Chavez about Hyphy’s copyright ownership. The absence of a written agreement, however, negated that claim. Thus, dismissal of the counterclaim was appropriate to the extent that the claim was based on ownership interests or the transfer of those interests. The unfair competition counterclaim was based on the allegation that Yellowcake and Colonize fraudulently benefitted from their infringement. The Copyright Act preempted the counterclaim because it depended on rights protected by the Act. The counterclaim against Hernandez individually, however, was not preempted, although It was dismissed because no wrongful conduct occurred given that a person cannot induce the breach of an oral copyright agreement. The conversion counterclaim was dismissed because no plausible claim was alleged because no allegations existed that Yellowcake converted the physical-tangible masters. The state law claims were all dismissed with leave to amend.
The dismissal of the six counterclaims left only counterclaims for copyright infringement of the cover art and breach of contract.
Registration validity. The final question was what to do about the possibility that Hyphy had misled the Copyright Office in its copyright registrations and what impact that might have on the claims in this case. The court asked for briefs on the issue, and then it would decide whether to ask the Copyright Office whether the possible inaccurate information would have affected its registration decisions. In the meantime, however, the case would continue on the remaining claims without further delay.
The case is No. 1:20-cv-00988-AWI-BAM.
Attorneys: Seth Berman, Phv (Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara, Wolf & Carone, LLP) for Yellowcake, Inc. Alejandro Menchaca (Lopez and Prajin) for Hyphy Music, Inc.
Companies: Yellowcake, Inc.; Hyphy Music, Inc.
MainStory: TopStory Copyright CaliforniaNews GCNNews
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