Can a Licensing Agent Also Enforce the Copyright in Licensed Works?

When professional photographers or other content creators create works for a particular assignment they typically want to retain ownership of the copyright in the works and grant the commissioning party only a license to use the works for that party’s particular needs. They then turn the works over to a licensing agency, such as a stock photography agency, and grant the agency the exclusive or non-exclusive right to license the photographs for other uses. When others use a number of creators’ works, for example stock photographs, on a large scale either without a license or outside the terms of the licenses granted, it is efficient and cost-effective for the licensing agency to be able to sue the infringers on behalf of the creators, rather than having each creator sue. However, the licensing agent may, or may not, have a sufficient interest in the copyrights being asserted to give the agency the necessary standing to bring the suit in its own name. A recent decision by a federal appellate court in San Francisco shows that the standing requirement in the context of licensing agencies is a complex area of the law fraught with pitfalls and that contractual arrangements purporting to allow the licensing agent to enforce the copyrights on behalf of the owners may not work as intended.

DRK Photo v. McGraw Hill

DRK Photo, an Arizona stock photo agency, licensed a number of photographs in its collection to two subsidiaries of McGraw-Hill between 1992 and 2009 for use in McGraw-Hill’s textbooks. In May 2012, DRK sued McGraw-Hill for copyright infringement, alleging that McGraw-Hill had used 636 photographs from DRK’s collection outside the terms of the licenses granted on 1,120 occasions. McGraw-Hill defended the suit, in part, by challenging DRK’s standing to sue on behalf of the photographers it was representing. On September 12, 2017, a San Francisco appellate court upheld the dismissal of DRK’s infringement suit on the ground that DRK lacked standing, allowing McGraw-Hill to escape liability for infringement on a massive scale. DRK Photo v. McGraw-Hill Global Educ. Holdings, LLC, No. 15-15106 (9th Cir. September 12, 2017).

Standing to Sue Under the Copyright Act

Section 501(b) of the Copyright Act, 17 U.S.C. § 501(b), establishes who has standing to sue for copyright infringement. It provides that “The legal or beneficial owner of an exclusive right under a copyright is entitled, subject to the [registration] requirements of section 411, to institute an action for any infringement of that particular right committed while he or she is the owner of it.” The provision seems clear enough, but has proved difficult to apply in situations involving licensing agency attempts to enforce copyrights on behalf of contributors to its collections.

Basically, § 501(b) grants standing to one who is either the “legal” or “beneficial” owner of an “exclusive” right under the copyright. Accordingly, DRK would have had standing to sue McGraw-Hill if the photographers had granted DRK the exclusive right to license the photographs. In most cases, however, the representation agreements between the photographers and DRK made DRK a non-exclusive licensing agent. (In the relatively few instances in which DRK was the exclusive agent, McGraw-Hill conceded standing and settled those claims.) Many photographers prefer non-exclusive arrangements because it allows them to place the same photgraphs with several agencies, thereby increasing the chances for the photographs to generate licensing revenue. Significantly, courts have held that a representation agreement can still be “exclusive” for standing purposes even if the photographer retains the right to license the photographs him-or herself. The rationale is that the agency remains the exclusive agency.

Attempted Assignment of the Right to Sue

In an attempt to work around the lack of standing in a non-excluive arrangement, DRK had all its photographers execute an agreement purporting to transfer the copyright, subject to reversion, along with the right to sue for infringement, to DRK. In relevant part, these agreements provided that the photographer, “agrees and fully transfers all right, title and interest in any accrued or later accrued claims, causes of action, choses of [sic] action . . . or lawsuits, brought to enforce copyrights in the images, appointing and permitting DRK to prosecute said accrued or later accrued” infrintement claims “as if it were the” photographer. As noted below, this attempted assignment failed to cure the standing problem inherent in the non-exclusive representation agreements.

DRK argued that it had standing to sue as either a “legal” owner or a “beneficial” owner of the copyrights involved. The court addressed each argument in turn, finding against DRK.

DRK was not a “Legal” Owner

DRK argued that the combination of the representation agreements granting it the right to authorize use of the photographs and the assignment agreement purporting to transfer temporary legal title and accrued infringement claims gave it “legal” ownership of the copyright and therefore standing. The court was unpersuaded. It held that the assignment agreement was an invalid attempt to transfer a “bare right to sue.” Existing case law established that a “right to sue” is not one of the exclusive rights the Copyright Act grants to a copyright owner, so that mere possession of a “right to sue” without being the owner or the exclusive licensee of the right infringed does not confer standing. Further, the purported transfer of legal title coupled with the transfer of accrued claims does not confer standing when the transaction, in substance, is a mere transfer of a bare right to sue. After analyzing the substance of DRK’s agreements, the court found nothing different here. Only a “bare right to sue” had, in effect, been transferred.

To be sure, the court understood and appreciated why content creators and licensing agencies have a strong incentive to empower the agency to enforce the copyrights. However, copyright law makes it very difficult in the context of non-exclusive agency agreements. The court noted that “[a]lthough we are certainly sympathetic to the practical challenges attendant to policing infringement of photographic art in the publishing industry, those practical considerations cannot override the Copyright Act’s ‘carefully circumscribed’ grant of the right to sue.”

DRK was not a beneficial Owner

DRK’s argument that it was a “beneficial” owner of the copyrights in issue fared no better than its “legal” ownership argument. The court reasoned that even thought the Copyright Act does not define “beneficial owner” it need not determine the full extent of who may qualify as a beneficial owner in this case. DRK’s arguments in support of its claim to beneifical ownership were the same as its arguments for legal ownership. The court found the idea that DRK should be the beneficial owner simply because it is not the legal owner was inconsistent with existing case law and ther terms of the Copyright Act.

DRK could not Cure the Standing Problem after it lost the case

In a last ditch attempt to salvage its case, after the court below had dismissed it for lack of standing, DRK sought leave to amend the complaint to add the individual photographers as named plaintiffs. The lower court held that this request was untimely and denied leave. The appellate court affirmed that decision. Had DRK sought to amend at an earlier stage it is highly likely that its request would have been granted. Instead, the case is lost, it is probably too late for the photographers to commence their own suits because the statute of limitations has likely run, and McGraw-Hill will never be held accountable for its infringement.

Conclusion and Takeaways

As the DRK case shows, it is very difficult, perhaps impossible, to devise an arrangement under which a non-exclusive licensing agent can also prosecute infringements on behalf of the content creators it represents. Such an arrangement is efficient and desireable, however, content creaters should be wary of relying on questionable attempts to implement it contractually that may cause them to lose otherwise valid infringement claims. The safe choices are

  1. have an exclusive agent for any given work, although you can retain the right to grant licenses yourself and you can have multiple agents as long as you do not give the same work to more than one; or
  2. sue infringers in your own name. The agency can coordinate a suit on behalf of multiple copyright owners, but the agency should not be the named plaintiff.

To avoid unpleasant surprises you should always have competent intellectual property counsel review any agreements with licensing agents before you sign them.

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09.01.2017  |  PUBLICATION: E-Alert  | 

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