Co-owners of Software Copyright Held to be Unable to Assign Enforceable Copyright Rights

November 21, 2012


Copyright Co-ownership Rights Held To Be Unassignable
A novel decision from the United States District Court for the Northern District of California, Amaretto Ranch Breedables, LLC v. Ozimals, Inc., would prevent individual software developers and designers who collaborate informally to create software from transferring their individual interests in the copyright to that software.

Unstructured Collaboration May Lead to Co-ownership
Programmers and designers work as a team when creating software, whether developing multimedia websites, enterprise application software, or games for mobile devices. Under United States copyright law, the author or authors of computer software are the initial owners of the copyright to that software. Who are the authors of software that results from the efforts of a group of software engineers? Under United States law, the answer often depends on the structure under which the software engineers come together.

When programmers and designers are the employees of a business entity, doing what that entity has hired them to do, the business entity is deemed the original author of their contributions under the work-for-hire doctrine. Contractors (non-employees) who contribute to software that is protected as an audiovisual work (most computer games, some websites and some interactive media) can specify by contract that their contributions should be treated as work for hire, which again means that the entity engaging the contractor would be deemed the original author.

If the work-for-hire doctrine does not apply to all contributors to a software project, then a work may be a joint work with multiple authors. Formal business entities rarely need to worry that a contractor might be a joint author through some contracting error: courts require some proof that contributors mutually intended to be treated as co-authors, and it would be the rare software company that intended to treat a contract programmer as a co-author of an entire software program. However, in an early stage start up operating as a partnership or without a formal business structure, each collaborator may be deemed a co-author, resulting in a larger-than-intended group of copyright co-owners.

Copyright Co-owners Have More Limited Rights Than do Sole Owners
Copyright co-owners are akin to tenants-in-common. A co-owner of exclusive copyright rights may grant nonexclusive licenses, may bring a lawsuit to enforce its rights, and may transfer its interest in copyright rights, just as a sole owner can. However, a co-owner owes an accounting of profits to other co-owners; as well, licenses granted by some, but not all, co-owners may not be effective in certain, non-U.S jurisdictions.

Some circuits, including the Ninth Circuit, have held that a co-owner may not grant an exclusive license to any copyright rights without the consent of all co-owners. In Sybersound Records, Inc. v. UAV Corp., a co-owner of a copyright purported to grant an exclusive license in the co-owner’s “copyrighted interests for purposes of karaoke use” to Sybersound, without seeking consent from the other co-owners. The Ninth Circuit held that because a co-owner may not grant an exclusive license without the consent of all co-owners, Sybersound had only a nonexclusive license and thus had no standing to sue.

Because of these limitations, copyright co-ownership tends to be an inconvenience at best and a barrier to full exploitation of a copyright at worst. Software companies can and do transition away from copyright co-ownership through assignments of copyright rights in which co-owners agree to assign any copyright interest that they may have to a formal business entity.

Amaretto Ranch Would Prevent any Individual Transfer of a Co-owner’s Copyright Rights
Amaretto Ranch is the first case to hold that absent approval of all co-owners, a co-owner may not transfer its copyright rights. In 2009 or 2010, three individuals (two programmers and a user interface designer) collaborated to develop virtual rabbits for the Second Life virtual world. Two of the three individuals assigned their “entire right, title, interest, and privilege . . . in and to” the virtual rabbits to a corporation, Ozimals, Inc. Ozimals registered the virtual rabbit code with the United States Copyright Office.

Amaretto Ranch Breedables, LLC, developed virtual horses for Second Life that competed with Ozimals’ virtual rabbits. After a letter-writing campaign and some collateral litigation, Amaretto Ranch brought a declaratory judgment action in the Northern District of California seeking a judgment that its virtual horse code did not infringe Ozimals’ copyright in virtual rabbit code. Ozimals counterclaimed for copyright infringement.

On Nov. 5, 2012, Judge Charles R. Breyer granted, in part, Amaretto Ranch’s motion for summary judgment on standing grounds, stating reliance on the Ninth Circuit’s decision in Sybersound Records, Inc. v. UAV Corp. Judge Breyer adopted Amaretto Ranch’s argument that under Sybersound, the attempted transfer of co-ownership rights had failed:

Sybersound stands for the proposition that, notwithstanding the language of the assignment agreements and [two of the three co-owners’] apparent intent to completely transfer their ownership interests to Ozimals, they had the power to grant Ozimals only a nonexclusive license. Ozimals therefore is not a co-owner, but a non-exclusive licensee without standing to sue for copyright infringement.

The rule set forth in Amaretto Ranch would make routine assignments of copyright rights unenforceable unless and until each and every co-owner had agreed to all of the assignments.

Amaretto Ranch May Lead to an Increase in Co-ownership Claims
Amaretto Ranch seems to conflict with prior law. The Copyright Act of 1976 distinguishes between transfer of a copyright in its entirety and transfer of some, but not all, exclusive copyright rights. The Act does so in the definition of “transfer of copyright ownership” in 17 U.S.C. § 101 and through 17 U.S.C. § 201(d)(2), a provision that only applies to transfers of exclusive licenses for fewer than all exclusive copyright rights. Sybersound, upon which Amaretto Ranch claims to rely, turns upon interpretation of statutory language that is specific to exclusive licenses, and thus would not seem to apply to a transfer of a copyright in its entirety.

Nonetheless, if other courts decide to follow Amaretto Ranch, software companies and other copyright owners must prepare for claims of co-ownership on the grounds that previous assignment of copyright rights are not enforceable.

This article was originally published by Bingham McCutchen LLP.