Thoughts on the Proposed Small Claims Court for Copyright Infringement

Earlier this month, the Copyright Alternative in Small-Claims Enforcement (CASE) Act was introduced in the House of Representatives and an identical bill was introduced in the Senate. The Act would, if enacted, establish a type of “small claims” court (formally called the Copyright Claims Board) for copyright disputes. The purpose of the Act is to make it easier (and less expensive) for independent creators (e.g., photographers, songwriters, graphic artists) to able to defend their intellectual property rights. And I think as a general matter, a type of small claims court for copyright infringement could very well achieve that goal. However, there are a number of aspects of the Act that will be subject to further discussion and that in some instances have attracted some criticism.

One of the most important features of the proposed Act is that participation would be voluntary. Anyone who is served with a notice and claim would thereafter have sixty (60) days during which to opt-out, which they would do by providing written notice to the Copyright Claims Board (CCB) in accordance with rules established by the Register of Copyrights. If a defendant opts out, the claimant would, if they wanted to pursue their claim, have to then bring the claim in federal court, as is currently the process for filing a lawsuit for copyright infringement. Some have argued that the voluntary nature of participation will lead to sophisticated defendants (with the pockets to litigate in federal court) opting out, at which point the claimant would be in the same position they would have been in but for the Act, except the claimant would also be out of pocket for the additional time and expense incurred up to that point. However, the opt-out provisions may give comfort to some who may believe that a small claims-type copyright court could encourage the proliferation of claims filed by copyright trolls.

Recovery in an action brought before the CCB is also limited. There is an overall damages cap of $30,000 (exclusive of any attorney fees and costs permitted by the Act) for any single proceeding before the CCB. In addition, while statutory damages (which are an alternative measure of damages from actual damages) are authorized under the Act, they are more limited than would be the case in an action in federal court. In proceedings before the CCB, statutory damages would be limited to $15,000 per work (though note that for works that were not timely registered, the limit is even lower).

There are a number of other interesting provisions to note as well. For example, the CCB will not be comprised of federally appointed (in the traditional sense) judges, but instead by a panel of three lawyers, who would be appointed by the Librarian of Congress. Another aspect of the Act worth noting is that the grounds for appeal are limited. Specifically, after a final determination by the CCB, a party could seek reconsideration by the CCB under certain grounds (e.g., clear error of law). If such reconsideration is denied, a party would be allowed to seek review by the Register of Copyrights. However, this review would be limited to whether there was an abuse of discretion (which is a high bar) by the CCB. A party who is subject to a final CCB determination could also seek relief in court, but the Act by its terms limits such review to instances of (a) determinations issued as a result of fraud, corruption, misrepresentation or other misconduct; (b) the CCB exceeding its authority or failing to render a final determination; and (c) in cases of default determinations or determinations based on failure to prosecute, where the default or failure was due to excusable neglect.

The Act appears to be supported by a number of organizations, though some criticism has been leveled at it as well. In any event, however, the idea of making it easier for independent creatives to enjoy protections the law affords them for their art is a worthy one, so putting something like this on the table, is probably a step in the right direction.

Introduction to Rules for Reclaiming Copyrights Under U.S. Copyright Law

Under the US Copyright Act, authors of copyrights are allowed to terminate transfers or licenses of their copyright if certain conditions are met. This is a highly complex area of law, and unfortunately for authors, the provisions for termination are complicated and not author-friendly. However, they can be navigated with the help of a qualified copyright lawyer, and they provide a means for authors to reclaim copyrights that the author may have earlier signed away. This article serves as a basic introduction to some of the elements of a statutorily-permitted termination of a transfer or license. Note also that this article addresses terminations of transfers or licenses where the transfer or license was executed by the author on or after January 1, 1978. These types of terminations are addressed in 17 U.S.C. § 203.

Assuming the transfer is one that is subject to the termination provisions, one must, as an initial matter, determine when the termination may take place. This in turn, requires determining whether the original grant covers the right of publication. If the original grant did not cover the right of publication, then termination may be effected during a five-year window that begins at the end of thirty five years from the execution of the grant. If the original grant did cover a right of publication, then the five year termination window begins at the earlier of (a) the end of thirty five years from the date of publication of the work under the grant; or (b) the end of forty years from the date of execution of the grant. Regardless of whether the grant covered the right of publication, a failure to effectuate termination during the relevant 5 year period will result in the loss of the right to terminate pursuant to Section 203.

The mechanism for effectuating termination is the providing of a notice of termination, which must be served by first-class mail or personal service. There are very specific rules governing this notice. Timing of the notice is critical. The notice must state the effective date of termination, and must be served not less than two years and not more then ten years before the effective date of termination. There are many other requirements for the notice as well. These include, but are not limited to, the following:

• the name of each grantee whose rights are being terminated, or the grantee’s successor in title, and each address at which service is being made

• the date of execution of the grant being terminated and, if the grant covered the right of publication of a work, the date of publication of the work under the grant

• For each work to which the notice applies, the title and name of the author or, in the case of a joint work, the authors who executed the grant being terminated; and, if possible and practicable, the original copyright registration number

• a brief statement reasonably identifying the grant to which the notice applies

Determining the appropriate party(ies) on whom to serve the notice may also prove challenging, particularly since so much time will have passed since the original grant, and during which time the title to the work may have changed hands, sometimes on multiple occasions. In regard to determining the parties to be served, the service provisions of Section 203 will be satisfied if, before notice is served, the person executing the notice makes a “reasonable investigation” as to current ownership of the rights being terminated, and based on such investigation, (a) if there is no reason to believe there has been a transfer of rights, the notice is served on the grantee, or (b) if there is reason to believe the rights were transferred to a particular successor in title, the notice is served on such successor in title. A “reasonable investigation” includes but is not limited to a search of copyright office records.

In addition, after the notice is served, it must be recorded with the Copyright Office. There are additional requirements governing the submission of the notice for recordation, and the Copyright Office has a special form to be used in connection with such submission. There is also a fee.

Finally a termination, pursuant to Section 203, of a transfer or license does not terminate a grantee’s (or successor in title’s) rights to continue to exploit a derivative work that was, prior to the termination, created under the original grant. However, it does prevent the grantee (or the grantee’s successor(s) in title) from creating new derivative works, which can be a valuable right for authors.

As noted in the introduction, this is a highly complex and specialized area of law. Because this article serves only as a general introduction to the concept, there are many requirements which are not discussed above. For these reasons, and others, anyone looking to terminate a transfer or license pursuant to US Copyright law is advised to enlist the help of a qualified copyright lawyer. But while the process is complex, it can be navigated, and many, many authors have already reclaimed their works pursuant to copyright law, while others will undoubtedly do so in the future.

NOTE: This article is presented for informational purposes and represents the author's personal opinion only. It does not constitute legal advice and no attorney-client relationship exists between the reader and the author. If you would like legal advice concerning this issue, you should speak with a qualified attorney who can evaluate the particulars of your matter.

Seven Contracts Practices That Can Cost Your Company

Whether they relate to distribution of a product, hiring of contractors and employees, engaging in partnerships with other companies, or engaging in a long list of other activities to grow and maintain a business, contracts are a fundamental aspect of commerce. However, lack of attention to contracts can create significant costs to companies. Here are seven ways that sub-optimal contracts or contract-related processes can cost your company. 

1. Using Poorly-drafted Contracts Increases Transaction Costs. While many companies utilize effective contracts and processes, there are also instances where companies devote far less care to this area than is warranted. Unfortunately, this may put these companies at risk of losing time, money, and opportunities. Aside from the obvious legal risks that may arise from poorly drafted agreements, it's also the case that when you present a poorly-drafted contract to the other side, it increases the time it takes to review it (which can drive up a potential partner's legal costs). And then when the other side returns the document to you, you have to spend time reviewing their changes (which drives up your own legal costs). What can happen, particularly in cases involving poorly-drafted forms and complex transactions, is that while the parties would prefer to be focusing on core terms that comprise the heart and subject of the deal, they may end up having to spend significant time toiling away at just the form itself. This can result in delays, and in some cases, it's conceivable the potential partner could even just set your contract to the side while they work on easier, less-high-maintenance deals. In addition, even in the best cases, a poorly drafted contract form makes your company look sloppy ("If they have this little care for their contract practices, what else do they not care about..."). It's much better to present a clean, appropriate, well-tailored form to the other side if you want to present your company in the best light and get deals done while minimizing transaction costs. 

2. Not Paying Attention to Boilerplate Can Lead to Unwelcome Surprises in the Event of a Dispute. In reviewing a contract it's important to focus on big picture matters like payment, rights, territory, etc., but this should not be done at the expense of the boilerplate provisions. These provisions, which some people have a tendency to overlook, can end up being critical during the lifespan of the contract. For example, if there's a dispute, boilerplate may determine whether you can file a lawsuit in your own city, or by contrast, whether you have to litigate halfway across the country for example. As another example, if the other party is not performing, boilerplate may determine how long the other party has to remedy their lack of performance (or indeed whether the other party even has a right to cure their breach before you terminate). For these reasons and others, it's important not to gloss over the boilerplate. 

3. Having an Unreasonable Contract Can Increase Your Transaction Costs. Part of the negotiation process involves getting the best outcome possible for the interests you represent. And if your company relies on getting deals done, then losing a deal because you sent an unreasonable contract to the other side represents a failure and a lost opportunity. This is not to suggest that your standard contract should not protect your interests - it should. And the determination of whether a party will agree to a term that might be deemed unreasonable can be influenced by a variety of factors, so in many instances, “unresonableness” is context-specific. However, many times, I've been in the situation where a company who needed the deal more than my client did, sent my client a form contract with wildly unreasonable terms in it. Sometimes it isn’t even intentional - e.g., perhaps the other company copied and pasted a form from another company and just changed the names without reading it carefully. In any event though, having wildly unreasonable terms can drive up transaction and legal costs for both sides, and can affect the way the other side perceives your company. 

4. Not Paying Attention Key Dates in Agreements May Cause You To Lose Rights. Many contracts may contain one or more dates by which key rights must be asserted. For example, some contracts automatically renew unless a written notice of termination is provided to the other side by a certain date. If you are in business with a poorly performing partner, with whom you wish to end the relationship, it can be easier to terminate pursuant to "termination-of-term" provisions than it is to terminate pursuant to other provisions or legal theories. Companies should calendar dates like this, so that they have time to evaluate partners prior to notice cutoff dates. If you do not keep track of important dates, you may lost the ability to exercise rights, or you may find yourself in a position where termination of an agreement becomes more messy, time-consuming, and expensive than it could have been. 

5. Relying on the Relationship with the Other Party's Negotiator at the Expense of a Well-Drafted Agreement. While no one who has negotiated with me would accuse me of not zealously representing my client's/company's interests, I think it's really helpful to have a good relationship with the other side if possible, and I have fortunately been able to do this in most of the deals I've worked on. This can help overcome difficult obstacles and can also result in deals getting closed more quickly. However, a great relationship with the other party's negotiator is not a substitute for a well-drafted contract that clearly sets out each party's respective obligations. For example, maybe you're negotiating a contract provided by the other side, and you are concerned about some ambiguity regarding a particular provision, but "Bob,” who works at the other company, and who you like and who has been easy to work with so far, assures you that you and he are both on the same page with respect to what the provision means, and that there's therefore no reason to worry or spend more time on it. That's great news...until down the road Bob takes a position at a different company and you learn that his replacement, "Jim", has a wildly different interpretation of the provision (and an interpretation which his CEO and attorney also share). 

6. Agreeing to Ambiguous Provisions May Expose Your Company to Risk. Ambiguity carries risk and can be source of disputes, so (except in narrow circumstances as provided below) I try to avoid it. Years ago, one of my mentors told me that in drafting contracts, the goal should be to create a document that someone who didn't work on the deal can pick up and understand. It was a good rule then and it still is. Having provisions that are not easily understood is in some cases just asking for a dispute down the road, a dispute that may cost your company time, money, or both. Now, there's one caveat: it's my opinion that there are certain, limited, specific circumstances, where ambiguity *may* have a place in an agreement, but these circumstances are very, very limited. For example, every once-in-a-while there may be a circumstance where a heavily-negotiated document is almost ready for execution, but where there's a line that the parties are still haggling over. Occasionally, particularly where, overall, the deal is very important to both parties, the parties may, as a compromise to push the deal over the finish line, agree to some loose language which leaves some wiggle room for interpretation. However, if you're going to use ambiguity, you should know what you're doing and you should be aware of something another mentor once told me: "If you're going to be okay with ambiguity, then you need to be okay with risk." 

7. Making Unnecessary Changes to Agreements. Occasionally you'll run into a negotiator who insists on always using their company's standard language. For example, you'll send them an agreement with an indemnification provision and when they return an edited version of the contract, the idemnification provision is crossed out and replaced with one that uses different language but achieves an identical effect. Sometimes this comes from inexperience and lack of confidence in evaluating contract language, other times it may be part of a company's standard procedures. But, making changes such as the one described above can increase the time necessary to close a deal. A related issue is when Company A sends Company B a harmless edit, but Company B rejects the edit because it doesn't understand enough about contract language to know the edit is acceptable. Making unnecessary changes won’t necessarily tank a deal, but even in the best cases it increases the time required to review an agreement, it gives the document a more heavily-edited appearance, and it may confuse the other side, so it's always best to have your contracts negotiated by experienced people who understand contract language.

Contracts are the lifeblood of business. Well-crafted contracts, together with optimal contracts-related practices, can help a business grow and thrive, while poor contracts and related practices can result in significant costs for companies. For this reason, and others, it's important that companies utilize well-drafted forms together with deliberate, well-thought-out processes in the drafting, negotiation, review, and administration of contracts.