Pixiq

People with little to no training in bankruptcy law other than to have been burned by a deadbeat, offer their "expertise" on the subject via the net and otherwise.  Believe it or not, the Bankruptcy Law and the Bankruptcy Court can be a copyright holder's biggest friend.  Here's an actual case tried in a real courtroom by people on all sides who actually knew what they were doing - including the judge.

Now some of this may make your hair hurt as you read it, but stick with it as we think you’ll find it’s quite educational and since it’s a win for the good guys, has a happy ending.

As you know the Copyright Act gives the owner of a copyright (with certain exceptions) the exclusive right to exploit the copyrighted work. The issue presented was whether a former client, Patient Education Media (PEMI), could transfer the nonexclusive license granted to it by the photographer David Katzenstein, to use his copyrighted work over Mr. Katzenstein's objections. After a trial, Judge Stuart Bernstein of the Bankruptcy Court in Manhattan found that it could not.

A little background first:

PEMI filed for protection under the Bankruptcy Act. PEMI created and sold educational products including videos under the trademark, "TIME-LIFE MEDICAL". C. Everett Koop, M.D., former Surgeon General of the United States, starred in PEMI's videos distributed nationwide in countless stores.  Each video addressed a particular illness or condition, ie. diabetes, back pain and so on.

Years before, PEMI hired David Katzenstein, to take photographs for use in the production of the videotapes. Katzenstein's photos were eventually incorporated into the title, “bumpers” and as part of the set design seen on the videotape. It was undisputed that Katzenstein by his paperwork granted PEMI a written, nonexclusive license, unlimited as to time, to use the photographs for the purposes set forth on the invoice only and that PEMI still held that nonexclusive license if it (and only it) wished to produce more videos.

David's invoices clearly stated the nonexclusive license and also contained specific printed conditions on the reverse side. One condition stated that, “Client may not assign or transfer the rights granted herein.” PEMI claimed that it never consented to and was not bound by this condition especially since the all powerful Bankruptcy Law and Court can pretty much do as it pleases to maximize the assets of one seeking protection.  Retention of his copyright was clearly stated on all of David's paperwork.

PEMI was given an option to extend the expired license by paying $20,000.00 at the end of the year, and would by so doing, acquire unlimited worldwide use, in perpetuity. PEMI offered the $20,000.00 but David refused the money because PEMI had agreed to sell all of its assets and assign all of its contracts to another pharmaceutical company,  Glaxo. David did not want (for many reasons) to have his images employed for the benefit of or by Glaxo.  PEMI's assets included the master tapes for the thirty-four videos which incorporated Mr. Katzenstein's photographs. So we objected to Glaxo's acquiring the right to acquire or use the photos on several grounds. 

First, we maintained that PEMI could not assign or sell its rights to use his photographs without David's consent under both federal copyright law and the anti-assignment clause of his invoice. Second, we contended that PEMI could no longer use the option to extend usage and even if it could, PEMI could still not assign or sell any extended, non-exclusive license to any third party without David's consent without his copyrights being violated.

Glaxo was simply trying to obtain the right and ability to reproduce and sell new videotapes using David's photos but without his permission.  The wise judge ruled in our favor.  It is a textbook example of how the inclusion of a few sentences in your paperwork can protect your copyright, keep your images, go almost to the top of the creditor's list and get paid or even, get paid more than you might be owed even though your client is "bankrupt".

A “transfer of copyright ownership” includes the grant of an exclusive license, but not so with a non-exclusive license. So if you have given your client an "exclusive" and your paperwork is sloppy, you lose the right to sue for infringement during that "exclusive period". . By contrast, a non-exclusive license does not transfer any rights of ownership. Ownership remains in the creator/copyright holder. A client who receives a non-exclusive licensee can not sue for copyright infringement of "your" photo but you can. A client with a non-exclusive license cannot assign any rights it to a third party without the consent of the copyright owner if you put that in your paperwork and you should.

Bankruptcy law does not change copyright law. The bankruptcy court's goal of maximizing the estate and the ability to change, extend or even "tear up" otherwise perfectly legal contracts may be stopped dead in its tracks by a copyright registration. We successfully argued that Federal Copyright law prevented the Bankruptcy Court or Bankruptcy Law from changing David's rights as the copyright holder. Judge Bernstein held that Mr. Katzenstein had copyright protection and terms in his contract preventing the use by others of his images without his consent. 

Generally state laws, such as those covering contracts, fall to federal ones. The court found that federal policy designed to protect the limited monopoly of copyright owners and restrict unauthorized use, while being a "non bankruptcy law", was the law that applied. This prevents a bankruptcy court from assigning a non-exclusive license to a third party without the copyright holder's consent, especially as David's invoice stated, among other things, that it was non-transferable. While the fundamental policy of the federal patent system is to encourage the creation and disclosure of new advances in technology, the court stated that federal law should govern the assignability of non-exclusive patent licenses because if such weren't the case, every licensee would become a potential competitor with the licensor/creator in the market. 

Thus, any license a patent owner granted would be subject to the danger that the licensee (client) would then assign it to the patent owner's most serious competitor who would never get that license directly from the creator in a zillion years.

The Court used the same reasoning with regard to copyrights and copyright holders. It ruled that the same conclusion applies with equal force in the similar arena of copyright law. Although the assignment of the Katzenstein license would have made more money available to creditors, that goal gave way to the considerations expressed in the Federal Copyright Law which is no more (or less) important than the Bankruptcy Law. PEMI could not assign or sell its non-exclusive Katzenstein license to Glaxo without Katzenstein's consent on terms acceptable to Katzenstein - if any.  The use of the photos as the backdrop for the set used by Dr. Koop in about 40% of the footage rendered the videos utterly without value unless David's approval was obtained.  Great bargaining position don'tcha think?

Now take a deep breathe.  Your deserve it. "What does this mean to me?”, you ask.  It means that the simple insertion of a no assignment clause, careful wording of any exclusive licenses, and vigilant protection of your rights can mean that your work will not be used without you getting paid.  Additionally (and its a biggie) since Bankruptcy Law does not trump Copyright Law, if a company in bankruptcy infringes on your copyright, you can sue it in Federal Court and the Bankruptcy Court is virtually powerless to stop you.

If you then prove infringement at trial, the judgment you obtain is likely fully enforceable and it is very, very unlikely that the Bankruptcy Court can give the "debtor" a pass.  A finding intentional, willful or statutory copyright infringement can not be disregarded by a Bankruptcy judge. And oh yeah, one more thing - you now go with judgment in hand to near the top of the list of creditors and typically just behind the government on the payment line.   If the bankrupt is to continue in business (Chapter 11) odds are great that you will get paid.  If the business is being taken off life support by the bankruptcy court you still can get paid and your odds are infinitely better than just about any creditor other than the tax guys.

Use the proper invoice and estimate forms. Don't take advice from know nothings.