By Robert B. Barnett Jr., J.D.
Acknowledging that "we are for the most part in uncharted waters," the First Circuit has held that implied sublicensees are legally possible.
In a copyright infringement suit by commercial photographers alleging that one of Sylvania’s distributors violated a copyright that the photographers granted to Sylvania, the First Circuit in Boston has affirmed a Massachusetts district court’s ruling granting summary judgment to the distributor on the ground that Sylvania impliedly granted it a sublicense to use the photographs. The appellate court ruled both that sublicenses as a matter of law can be implied and that the facts clearly established that an implied sublicense was granted in this case (Photographic Illustrators Corp. v. Orgill, Inc., March 13, 2020, Kayatta, W.).
Background. Photographic Illustrators Corp. (PIC) offers commercial photography services, mostly of consumer goods. Osram Sylvania, Inc., is one of the world’s leading lightbulb manufacturers. Sylvania paid PIC $3 million for a worldwide license to use PIC’s Sylvania lightbulb photographs. Orgill, Inc., is a global hardware distributor that sells Sylvania lightbulbs through its dealers. To help sell the Sylvania lightbulbs, Orgill told Sylvania which photos it wanted to use, which Sylvania provided to Orgill. As part of the original license between PIC and Sylvania, Sylvania agreed to attribute to PIC any PIC photos that Sylvania used. When the distributors asked for the photos, however, Sylvania neglected to require them to provide attribution.
As a result of the lack of attribution, PIC filed more than 30 separate lawsuits alleging copyright infringement against various Sylvania dealers and distributors. Many of those actions were consolidated, but not this one. The consolidated cases were referred to arbitration by agreement of the parties. This unconsolidated suit by PIC was against Orgill and one of Orgill’s dealers, Farm & City Supply, LLC, and it alleged copyright infringement, violations of the Digital Millennium Copyright Act (DMCA), and false designation of origin under the Lanham Act. The court granted summary judgment to Orgill and Farm & City on the DMCA and Lanham Act claims, leaving only copyright infringement. On the copyright infringement claim, the court ruled that Orgill had a valid sublicense from Sylvania. It also ruled that Farm & City was an innocent infringer, prompting PIC to drop Farm & City from the suit. The proceedings were then stayed pending the arbitrator’s decision in the consolidated cases.
The arbitrator concluded that the attribution requirement was a covenant rather than a condition, meaning that PIC’s remedy was in breach of contract rather than in copyright infringement. The arbitrator also concluded that Sylvania had breached the covenant by allowing its distributors to use the photos without attribution, and he awarded PIC $8.5 million in damages against Sylvania. No damages were awarded against any of the distributors. Back in this case, Orgill filed a motion for summary judgment based on the arbitrator’s ruling. The court granted the motion, reiterating its earlier decision that implied sublicenses are permissible and that Orgill had an implied sublicense to use the photos. PIC appealed the decision to the First Circuit.
Implied sublicenses generally. On appeal, PIC once again contended that any sublicense must be expressly transferred. The Copyright Act, however, never addresses whether any sublicense must be express. According to the First Circuit, only one other district had ever considered the question of implied copyright sublicenses, which placed this court in "uncharted waters." The First Circuit first concluded that copyright law accepts the possibility of implied licenses (as opposed to sublicenses). The court then rejected PIC’s argument that a rigid three-part test should be applied to any implied license. Such an interpretation, the court said, would mean that implied licenses would rarely if ever exist, which would not serve the interests of commerce. As for sublicenses, the courts should be less concerned because the copyright owner can be protected by setting the conditions in the license. If the licensor does not want sublicensing, it could put such a provision in the license, or it could restrict the sublicensing however it wanted. The license in this case stated that Sylvania could "sub-license Use, and permit Use, in its sole and absolute discretion." As a result, the First Circuit concluded that, where a licensee grants an unrestricted right to sublicense, a sublicense may be implied by the conduct of the sublicensor and sublicensee. While implied sublicenses are not an "everyday occurrence," they are not a legal impossibility.
Implied sublicense under these facts. Having found implied sublicenses legally possible, the First Circuit next turned to whether an implied sublicense existed under these facts. Several facts weighed in favor of finding that Sylvania had granted an implied sublicense to Orgill. First, Sylvania clearly wanted Orgill to use the photos because it wanted Orgill to sell as many Sylvania lightbulbs as possible. Second, Sylvania paid $3 million for the license, which it was willing to do in large part to obtain the right to sublicense as much as it wanted. Third, when Orgill asked for the photos, Sylvania provided them. Fourth, Sylvania knew that Orgill was using the photos. Fifth, Sylvania and Orgill entered into a "Confirmatory Copyright Sublicense Agreement" after they were sued. Regardless whether such a retroactive act had legal merit, it was at least affirmation of the intent to create a sublicense. Sixth, Sylvania was held liable for breach of the covenant precisely because it allowed its distributors to use the photos. PIC’s evidence, on the other hand, was unavailing. It argued, for example, that Sylvania never gave a permission form for using photos to Orgill that it gave to other distributors. The court noted, however, that the form was created after Orgill had used the photos. PIC also contended that Sylvania’s website said that it requires express written consent to use photos. Once again, however, the policy was developed after Orgill had used the photos. As a result, the First Circuit concluded that the evidence clearly established that Sylvania through its actions had granted to Orgill an implied sublicense to use the photos.
The First Circuit, therefore, affirmed the grant of summary judgment to Orgill.
This case is No. 19-1452.
Attorneys: Charles E. Fowler, Jr. (McKool Smith, PC) and Craig R. Smith (Lando & Anastasi, LLP) for Photographic Illustrators Corp. Virginia H. Snell (Tarrant & Combs, LLP) and James F. Radke (Murtha Cullina LLP) for Orgill, Inc.
Companies: Photographic Illustrators Corp.; Orgill, Inc.
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