July 01, 2018 Landslide

Starting Up Right: Common Pitfalls Startups Can Avoid in Copyright Law

By Giselle Girones

Forming a business is quite the challenge. In the hustle and bustle of making sure all the proper documentation is signed, employees are hired, and the vision for the business is developed and honed, entrepreneurs commonly forget to dot their i’s and cross their t’s when it comes to copyright law. Although the suggestions for avoidance of the most common pitfalls are addressed below, a startup entity should always consult an intellectual property (IP) attorney, to ensure that all bases are covered.

Starting up right

Starting up right

The Copyright Act

Copyright law protects “works of authorship” that are fixed in a “tangible medium of expression.”1 What this means is that a work must be originally created by a human and possess some modem of creativity. Copyright law does not protect facts or ideas, although the manner in which facts are arranged can sometimes be offered limited protection if they are arranged in an original way.2

The Copyright Act governs not only what “works” can be copyrighted, but also what rights are protected. Specifically, the Act protects the owner’s right to reproduce, prepare derivative works, distribute, perform, display, and publish his or her work.3 The Copyright Act is a strict liability statute, meaning that the law does not care about an accused infringer’s state of mind when the infringing action occurred. In other words, innocent infringement is not a defense.4 Innocent infringement may, however, help reduce damages.5 This concept can sometimes be hard for individuals not versed in copyright law to understand. Startups should be particularly aware of the nature of the Act because simply giving credit to a source does not offer protection from liability. An infringement suit can be detrimental to any business but particularly acute for a new one.

In addition to the incorrect assumption that intent is necessary for copyright infringement liability to attach, startups may also misunderstand several other defenses available under copyright law. Fair use is a commonly misconstrued concept that can get startups into trouble. The fair use doctrine is aimed at the overall notion of “promotion of the sciences and useful arts.”6 Courts are guided to “avoid rigid application of the [Act] when, on occasion, it would stifle the very creativity which that law is designed to foster.”7 Despite these pronouncements suggesting liberal application of fair use, the doctrine is not a blanket authority allowing the copying of someone else’s work and is a very fact-specific inquiry. As discussed by the Supreme Court in Campbell v. Acuff-Rose Music, Inc., the Act provides a preamble paragraph that contains guidance about the kinds of copying that Congress most commonly has found to be fair uses, including uses for criticism, commenting, news reporting, teaching, scholarship, or research.8 Commercial use with attribution of the source is not a use that automatically qualifies as fair use.

Section 107 of the Act goes on to list several factors that will assist courts in determining whether a use is considered fair, including: (1) the purpose and character of the use, including whether such use is commercial in nature; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the work as a whole; and (4) the effect the use has on the potential market or value of the copyrighted work.9 A court will weigh the factors listed in § 107 in order to determine whether the use in question falls under this category, and no one factor is dispositive. In this regard, Pearson Education, Inc. v. Boundless Learning, Inc. illustrates an interesting cautionary tale for startups, particularly those looking to rely on straightforward applications of the fair use doctrine. The case involved a startup that was in the business of distributing web-based versions of college textbooks as replacements for the plaintiffs’ textbooks.10 To an uninitiated startup, this seemingly would fall under fair use based on educational purpose. Boundless learned otherwise. Although the matter ultimately settled, the plaintiffs’ allegations that Boundless’s textbooks copied the arrangement of the plaintiffs’ textbooks, right down to the subtopics, and advertised its books using images of the covers from the original books, created a sizable problem for Boundless, which attempted to rely on a fair use defense because of the scientific nature of the text in the books.11 Boundless paid a hefty fee for this problematic business model, $600,000 to be exact.12

The issue with startups that use others’ content similar to that in Boundless goes back to the exclusive rights provided by the Copyright Act and the fact that such use would infringe on a copyright owner’s reproduction, display, and publication rights, among others. Furthermore, the use would almost certainly not constitute fair use, especially if the entity is using it to promote its business, unless it falls within the factors discussed above. Startups typically do not appreciate the heavy burden to fall within this defense.

Although no one factor weighs more heavily than another, the first factor—whether the new work “merely supersedes” the original or is instead transformative—can be beneficial to a startup when determining whether the use can be qualified as fair. Ultimately, however, the importance of any one factor will vary depending on the facts at issue.13 The issue of crediting sources will be further discussed below.

The DMCA and Online Content

Whether a startup operates as an Internet service provider (ISP), manages comment boards, or is simply operating its own website, the Copyright Act and the Digital Millennium Copyright Act (DMCA) are of great importance. The DMCA affects both content published by the startup and third-party content (such as comment boards) hosted on the startup’s website.

With respect to the startup’s web content, one of the most common errors startups commit is not making sure they own the content that they publish on their website. When developing a website, a company should ensure ownership of the content it publishes on its website. This includes layout or design of the site, and not just the content displayed. A company should confirm that the web host they are using grants them full rights to the content appearing on the site and that any photos used are properly licensed. Ideally, a company should ensure that it owns the rights to the content, via an assignment or work for hire agreement, to avoid any traps of revoked licenses if the company changes web hosts at any point. A simple agreement that addresses these concerns at the onset of the relationship with a web developer can mitigate any potential problems in the future.

Another issue that comes up with respect to the DMCA is the embedding14 of or provision of access to content that is not created by the startup company. Examples of companies that provide such access include Twitter, Instagram, or Shutterstock, or a company that provides a platform for and management of comment boards, like Reddit. If an entity is providing these types of services, which allow for third-party individuals to post their own content on a startup’s website, it is crucial that the startup have terms of use in place that apply to those individuals or entities providing the content. The terms of use for these third-party contributors should include warranties that contributors to the site own the content they are posting, provide the entity a full irrevocable license, and agree to indemnify the entity if they post something that infringes on another’s IP rights. Importantly, it is also best to ensure that the entity covers the “users’” use of its website in its terms of use or licensing agreement. The “users” will typically involve individuals who may ultimately use the content being provided to the startup by third parties, similar to websites like Shutterstock or video editing applications like Vimeo and Vine that allow “users” to create projects by using content that has been uploaded to the applications’ website via a third party. The terms as to the users would provide assurances as to the content they post and include a disclaimer as to the warranties being offered regarding IP infringement.15

The terms of use should also provide information that complies with the DMCA, which includes provisions for limitations on liability if an agent has been designated to receive notifications of claimed infringement.16 DMCA policies must include the name, address, phone number, and e-mail address of the designated agent.17 Entities may also submit information regarding their designated agent through the Register of Copyrights for a minimal fee.18 Once notified, companies seeking to limit liability must investigate the notice19 and remove any infringing content. An attorney can assist with writing terms that meet any DMCA/Copyright Act requirements as well as other potential issues that may arise, such as privacy concerns.

But It’s in the Public Domain

Aside from issues with online content, a common misconception that startups rely on is the idea that pictures, songs, videos, or other materials found online or on Google are in the “public domain” and are free to use. “Public domain” works are works not protected by IP laws and are open to the public to use freely.20 For example, works become public domain when their copyright terms expire. However, works may also enter the domain for other reasons, such as if they were assigned to the public domain by their author, or if the work was never copyrightable to begin with. In the latter case, the work would enter the public domain automatically upon creation.21 Determining whether a work is in the public domain (and thus may be used by a company without a license) has nothing to do with whether it is publicly available. Startups and individuals should be wary of websites that provide “stock” images, footage, or audio claiming to be in the public domain or “royalty free” without reading the license and terms of use on such websites to determine what authorizations these websites are providing. If “commercial purposes” are excluded from the scope of the permissions granted, chances are the materials are not useful to the company. Likewise, businesses seeking to play music or air a TV show in their waiting areas or at a restaurant/sports bar should review the terms of use of their cable provider or streaming service to ensure that they are within the licensing and terms provided by such providers.22

It is always best to review the terms of use and licensing agreements from these source websites in detail, instead of automatically agreeing to such terms to determine what rights are being warranted to the user for such works and what limitations may be associated with the use of the work. In particular, startups looking to obtain and use content from these source websites should carefully search the agreement for language limiting geographic scope. Because it is difficult for a company to impose a geographic boundary online, geographic restrictions in licenses may preclude a startup’s use of the content on the Internet. Printing and broadcasting reservations are also important provisions to look for, especially when the entity is looking to advertise its materials and needs to determine how the audience size may affect the licenses granted by such source websites. While YouTube does have a library of music that is alleged to be royalty-free, titled “Audio Library,” it is always best to check with a YouTube representative to ensure that the audio is truly in the public domain and/or the startup’s use of the clip falls within the terms of use.

If a company finds a particular image or song or other material it wishes to use in its business, it is best to secure a license for that use. If the entity is unsure about who owns the rights to a particular item, the company can do a search on the www.copyright.gov website. Even though these searches are time-consuming and often expensive, it is always best to ensure beforehand that any material, e.g., an image, footage, or sound clip, is in the public domain and/or was obtained from a reputable source prior to selecting that material. The particular material then will need to be vetted in order to ensure the right use. Failing to undergo the vetting process can result in exposing a startup to unnecessary legal fees and damages associated with the infringement.

“I Do Not Own the Copyright to This”—Attribution Is Not Insulating

Unlike writing a paper or report in school, crediting your sources is simply not enough to insulate an accused infringer from liability in an infringement suit. Attribution is not a defense to copyright infringement. Some startups mistakenly believe that crediting the source of the music, video, or content will help them avoid any potential infringement. Posting a promotional video for a startup that uses a popular artist’s song and adding a caption or note that indicates the startup entity does not own the rights to the song does nothing to protect the entity from the strict liability that comes with copyright infringement. Likewise, using portions of another business’s manual or brochure design, despite attribution, is considered infringement. As discussed above, fair use is always a difficult analysis to consider that should be conducted by an attorney experienced in intellectual property. Alternatively, license agreements or assignments can be entered into with the creators of the designs or content a business may be interested in using to ensure all rights necessary are obtained without running afoul of copyright law.

Works for Hire

An entity does not own the copyright in a work solely because it paid someone to create it. In fact, copyright rights initially reside with the creator of the work. Often, that creator is an outsider hired by the entity to create a website, logo, brochure, or other materials. Savvy startups should ensure that the IP rights in materials created to support the business are owned by the business. To secure ownership, a company needs to ensure its outside vendors work pursuant to a “work for hire” arrangement. This arrangement ensures that the claimed “author” and owner for copyright purposes is not the individual who actually created the work, but the party who hired the individual to create the work.23

Final Thoughts

In conclusion, it is important to ensure that startups understand that the best way to protect their business assets and avoid the risk of litigation is to own or lawfully acquire the IP rights to the business model or content they use, instead of borrowing from another’s intellectual property. Doing otherwise will only push a startup into litigation and drain precious company resources. To put this into perspective, consider the case of ReDigi Inc., a digital marketplace sued for reselling preowned digital music.24 Capitol Records filed suit, claiming its reproduction rights were being violated through the digital reproduction of a music file from one storage medium to another for the purpose of selling the music.25 ReDigi argued that its conduct was fair use and was protected by the first sale doctrine because it uploaded music that was lawfully purchased.26 The district court disagreed with ReDigi and ruled in favor of Capitol Records, finding ReDigi directly and secondarily liable for copyright infringement based on the unauthorized reproduction and distribution of Capitol Records’ recordings.27 In doing so, the court noted that because a user must produce a new copy on the ReDigi server, it was impossible for the user to sell the particular copy on ReDigi, deeming the first sale doctrine inapplicable.28 Likewise, the court was unpersuaded by the fair use defense, stating it had “little difficulty concluding that ReDigi’s reproduction and distribution of Capitol’s copyrighted works fell well outside the fair use defense.”29 The parties thereafter entered into a stipulated conditional final judgment to fix the amount of damages and form of injunction, allowing the parties to proceed on appeal of the court’s order, with damages totaling $3,500,000 for all plaintiffs.30 ReDigi’s complicated and costly experience should serve as an example for startups wishing to create innovative business models that rely on the use of another’s intellectual property.

Endnotes

1. 17 U.S.C. § 102(a).

2. See Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 344 (1991).

3. 17 U.S.C. § 106.

4. See id. § 504(c).

5. Ocean Atl. Woodland Corp. v. DRH Cambridge Homes, Inc., No. 02-C-2523, 2003 U.S. Dist. LEXIS 4964, at *13 (N.D. Ill. Mar. 28, 2003) (“It is well-accepted law that innocent infringement is actionable and will not constitute a defense to a finding of liability, though it may bear upon the remedies available against such a defendant.”).

6. U.S. Const. art. I, § 8, cl. 8; see also Feist Publ’ns, 499 U.S. at 349.

7. Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577 (1994) (quoting Stewart v. Abend, 495 U.S. 207, 236 (1990)).

8. Id.

9. Id. at 578–90.

10. Pearson Educ., Inc. v. Boundless Learning, Inc., No. 1:12-cv-01986-ALC-KNF (S.D.N.Y. Feb. 13, 2013), ECF No. 32.

11. Id.

12. Pearson Educ., Inc. v. Boundless Learning, Inc., No. 1:12-cv-01986-ALC-KNF (S.D.N.Y. 2013), ECF No. 51. The matter was ultimately settled via a confidential settlement.

13. See Campbell, 510 U.S. at 579; Warner Bros. Entm’t Inc. v. RDR Books, 575 F. Supp. 2d 513, 542 (S.D.N.Y. 2008) (finding that the creation of a Harry Potter companion book that was a guide to the original works was “slightly transformative” but ultimately was not enough to justify a fair use defense in light of the extensive quotation and use of text from the original works).

14. See Goldman v. Breitbart News Network, LLC, No. 17-cv-3144, 2018 U.S. Dist. LEXIS 25215 (S.D.N.Y. Feb. 15, 2018) (ruling that an embedded tweet containing an image in a webpage can be considered infringement and a violation of the display right even though the photo was not hosted on the defendant’s servers).

15. This would be like the third-party contributors’ assurances being provided to the entity, i.e., that they own the rights to the content they are posting.

16. See 17 U.S.C. § 512.

17. Id. § 512(2).

18. Id.

19. The notification must comply with the requirements under § 512(3) in order to be deemed sufficient.

20. See Rich Stim, Welcome to the Public Domain, Stan. Univ. Libr., https://fairuse.stanford.edu/overview/public-domain/welcome (last visited June 14, 2018).

21. See Public Domain Frequently Asked Questions, Teaching Copyright, https://www.teachingcopyright.org/handout/public-domain-faq.html (last visited June 14, 2018); see also Public Domain Day—Frequently Asked Questions, Ctr. for Study Pub. Domain, https://law.duke.edu/cspd/publicdomainday/2018/faqs (last visited June 14, 2018).

22. Most of these providers offer packages for businesses that cover these uses.

23. See 17 U.S.C. §§ 101, 201(b).

24. See Capitol Records, LLC v. ReDigi Inc., 934 F. Supp. 2d 640 (S.D.N.Y. 2013).

25. Id. at 647.

26. Id. at 651.

27. Id. at 660–61.

28. Id. at 655–56.

29. Id. at 653.

30. Capitol Records, LLC v. ReDigi Inc., No. 1:12-cv-95 (S.D.N.Y. June 3, 2016), ECF No. 222. After the order was entered, Capitol Records filed an amended complaint naming ReDigi’s founders as party defendants and adding Virgin Records IR Holdings and Capitol Christian Music Group as party plaintiffs.

Giselle Girones

Giselle Girones is an associate in the Jacksonville office of Shullman Fugate PLLC, where her practice focuses on intellectual property and business litigation. She also handles content-gathering and publication advice, as well as defends content providers in complex defamation, privacy, and other publication-related claims.