An owner of a copyright who transfers exclusive rights may still have standing to sue on those rights if the owner qualifies as a “beneficial owner” of those rights.
David A. Sergenian

David A. Sergenian

Co-founder and partner of Sergenian Ashby LLP. Formerly an attorney with Quinn Emanuel Urquhart & Sullivan LLP; Glaser Weil Fink Howard Avchen & Shapiro LLP; and Gradstein, Luskin & Van Dalsem PC. J.D. from the University of Virginia School of Law.

A decision on a defendant’s summary judgment motion in a copyright action involving unauthorized downloading of a motion picture illustrates the importance of ensuring that the plaintiff has standing to sue under the Copyright Act prior to filing suit.

Background

In Fathers & Daughters Nevada, LLC v. Zhang, 2018 WL 447620, Case No. 3:16–cv­–1443 (D. Or. Jan. 17, 2018), plaintiff Fathers & Daughters Nevada, LLC (“F&D”) sued individual defendant Lingfu Zhang for violation of F&D’s purported exclusive rights under the Copyright. F&D was the registered owner of the copyrights in the 2015 film Fathers & Daughters, starring Russell Crowe and Amanda Seyfried.Id.at *2. F&D alleged in its lawsuit that Zhang downloaded Fathers & Daughters over the internet using BitTorrent software. Id.at *6.

In his summary judgment motion, Zhang argued that F&D was not the legal or beneficial owner of the relevant exclusive rights under the Copyright Act, and therefore lacked standing to sue. In 2013, F&D entered into a sales agency agreement with Goldenrod Holdings (“Goldenrod”) and its sub-sales agent Voltage Pictures, LLC (“Voltage”). Id.at *2. The agreement authorized Goldenrod and Voltage to license most of the exclusive rights of the film, including rights to license, rent, and display the motion picture in theaters, on television, in airplanes, on ships, in hotels and motels, through all forms of home video and on demand services, through cable and satellite services, and via wireless, the internet, or streaming. F&D reserved all other rights, including merchandising, novelization, print publishing, music publishing, soundtrack album, live performance, and video game rights. Id.at *1. Goldenrod subsequently entered into a distribution agreement with Vertical Entertainment, LLC (“Vertical”). Id.at *3.

The court granted the summary judgment motion, determining that F&D lacked standing to sue under the Copyright Act. Id.at *4.

Standing as Legal Owner

The first argument that F&D made was that because it is the registered owner of the copyrights in the film, it is therefore the legal owner of the copyrights and has standing to sue. Id.However, the court found that “[t]his simplistic view of ownership of a copyright misunderstands that copyright ‘ownership’ can be transferred through an exclusive license (or otherwise) and can be transferred in pieces.” Id.(citing Righthaven LLC v. Hoehn, 716 F.3d 1166, 1170 (9th Cir. 2013)). The first issue the court addressed was an examination of the sales agency agreement to determine whether it was an exclusive license. The court found that the agreement clearly granted an exclusive license to Goldenrod and Voltage “for the rights that were transferred.” Id.The court observed that it was immaterial that F&D did not grant all exclusive rights to Goldenrod and Voltage because, as the 9th Circuit has stated, “The Copyright Act ¼eradicated much of the doctrine of indivisibility by permitting a copyright owner to transfer [a]ny of the exclusive rights comprised in a copyright, including any subdivision of any of the[se] rights, to someone else.” Id.(quoting Minden Pictures, Inc. v. John Wiley & Sons, Inc., 795 F.3d 997, 1002 (9th Cir. 2015)). Because an exclusive license transfers ownership of a copyright during the term of the license, the legal owner of the copyright during the term of the license is the exclusive licensee. Id.at *5.

F&D argued that because the license to Vertical did not include all of F&D’s rights in Fathers & Daughters, including the right to display the movie on airlines and ships, and rights to the movie clips and stock footage, F&D remained the legal owner of the copyright and had standing to sue. Id.at *5. The court rejected this argument, pointing out that under the Copyright Act and Ninth Circuit jurisprudence, “after a copyright has fully transferred an exclusive right, it is the transferee who has standing to sue for that particular right.Id.The court noted that the Ninth Circuit “may have created some confusion in this analysis” by holding in Minden “that in an agreement where the copyright holder expressly retains legal ownership: (1) a copyright owner can retain some ‘limited degree’ of an ‘exclusive right,’ (2) a copyright owner can license the remaining portion of that ‘exclusive right’ to another, and (3) the licensee would have standing to sue as the recipient of an exclusive license of the right transferred to the licensee.” Id.at *5 n. 2. The court observed that the analysis in Minden was contrary to the rationale in Righthaven and leading treatises’ conclusion that after an exclusive right has been transferred pursuant to an exclusive, the registered owner loses all rights to enforce those exclusive rights. In any event, the court did not need to address the apparent conflict between Minden andRighthavenbecause F&D did not retain ownership of the rights at issue. Id.

Accordingly, because it was an exclusive licensee of some of F&D’s exclusive rights, Vertical was the exclusive owner of all rights transferred to it under the exclusive license. Therefore, the sole remaining issue with respect to which party was the legal owner of the copyrights at issue was whether the exclusive rights transferred to Vertical include the rights relevant to the lawsuit. Id.at *6. The court had little trouble with this issue, as Zhang was accused of illegally downloading a copy of Fathers & Daughtersover the internet, and Vertical’s exclusive rights included distribution “‘via the internet, ‘World Wide Web’ or any other form of digital, wireless and/or Electronic Transmission ¼and/or other non-tangible delivery or fixed and mobile devices, platforms, and services, whether now known or hereafter devised ¼” Id.

Standing as Beneficial Owner

An owner of a copyright who transfers exclusive rights may still have standing to sue on those rights if the owner qualifies as a “beneficial owner” of those rights. The classic example is an owner who grants an exclusive license in exchange for percentage royalties based on sales or license fees. Id.at *2. Accordingly, the court had to determine if F&D retained a right to sue Zhang as a beneficial owner of the copyrights in the movie. Id.at *7.

In deciding this issue, the court observed that the sales agency agreement had been heavily redacted and that it was impossible to determine whether F&D received any share of adjusted gross receipts. Curiously, F&D did not supply the court with an unredacted copy of the sales agency agreement, or any other evidence that would show a genuine dispute of fact as to whether F&D could be a considered a beneficial owner because it shared in the profits. Although presumably that was the case, the court refused to engage in speculation in the absence of admissible evidence. Id.

Other Arguments

F&D also argued that it had standing to sue based on a reservation of the right to sue under the sales agency agreement contained in the distribution agreement between Vertical and Goldenrod. The court preliminarily observed that although there was a reservation of the right to sue for copyright infringement in the distribution agreement with Vertical, it was Goldenrod, not F&D, that reserved rights. Id. at *7.

Furthermore, under Ninth Circuit law, agreements and assignments cannot convey simply a right to sue because a right to sue is not an exclusive right under the Copyright Act. Id. The “exhaustive” list of exclusive rights in the Copyright Act comprises the rights “to reproduce the work, to prepare derivative works based upon the work, to distribute copies of the work, to perform the work publicly, to display the work publicly, and to record and perform the work by means of an audio transmission.” Id.at *1 (quoting Minden, 795 F.3d at 1002). Therefore, even if the reservation had been to F&D, it would not have been effective in conferring standing on F&D.

Finally, relying on an undated “Anti-Piracy and Rights Enforcement Reservation of Rights Addendum,” F&D argued that because the document reserved to F&D “all peer-to-peer digital rights (BitTorrent, etc.) in the Picture, including international rights, are reserve to [F&D],” and that F&D was authorized to issue Digital Millennium Copyright Act take-down notices and enforce copyrights against internet infringers, that it had standing to sue for copyright violations. Id.at *7. The court rejected the argument for two reasons.

First, the court observed that the right at issue in the reservation was not the exclusive right to display and distribution, and therefore the rights reserved to F&D were not exclusive rights under the Copyright Act. Id.at *8. Although this is accurate, it appears to ignore another exclusive right: the right to reproduce a work. It appears that the infringing conduct by Zhang was unauthorized downloading of Fathers & Daughters, which surely is a form of reproduction.

The court’s second rationale, however, is more to the point: F&D failed to offer any evidence that the reservation of rights addendum was executed before the copyright action was filed. Because standing to sue for copyright infringement requires evidence of ownership at the time of filing, the court could not conclude, based on the evidence before it, that the reservation of rights addendum was executed by the time the lawsuit was filed. Significantly, no other agreement in the record was undated, and one of the agreements, executed before the lawsuit was filed, authorized Voltage, not F&D, to investigate and pursue infringers. Notably, F&D did not dispute that the reservations of rights addendum was executed after the lawsuit was filed.Id.at *8.

Conclusion

From the plaintiff’s perspective, the court’s decision underscores the importance of joining all potential plaintiffs, or better yet, determining which party has standing to sue. From the defendant’s perspective, the decision illustrates shrewd issue spotting; specifically, how a threshold issue such as standing can defeat an entire claim. It is not clear whether the proper plaintiff, presumably Voltage, will be able to file a timely claim against Zhang. However, given that the statute of limitations for copyright claims is three years, and the film was released in late 2015 in Europe and in 2016 in the United States, presumably a new claim or lawsuit would be timely. (The court declined to consider plaintiff’s counsel’s request to amend the complaint to add additional plaintiffs because the issue was not raised by the motion at issue. Id.at *8.)

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