Multimedia transactions often present unique issues for negotiation. Because multimedia involves the merging of software technology with content from divergent sources, a single deal may require negotiating rights with persons representing the software, entertainment, publishing and art industries. Traditional methods of allocating rights in each industry are different. Thus, the technology attorney representing a client in a multimedia deal is potentially faced with a wider range of issues than normally presented in a single software transaction.
TYPES OF MULTIMEDIA DEALS
Parties - Multimedia negotiations generally implicate four parties: a content owner, a developer, a publisher and distributor. One party may also play two or more roles. For example, the publisher may also be the distributor.
Transactions - Multimedia transactions generally fall into three types.
- Specific Users - The first involves the development of a multimedia product for a specific user contracting for the product’s development -- typically a business-to-business transaction.
- General Consumers - The second primary form of multimedia transaction involves the development of a work for and distribution to the general consumer.
- Internet Distribution - The third type may fall within one of the previously described categories but adds the unique aspect of being distributed or used through the Internet.
For each type, understanding the rights involved and negotiating the acquisition of such rights up front is critical. Rights negotiated later in a product’s life are often more costly -- both financially and to the success of the deal.
DEVELOPMENT OF MULTIMEDIA WORKS FOR A SPECIFIC USER
Business to business multimedia transactions usually involve a developer and a company (the "Company") contracting for the specific development of the work, often a training or marketing title. The parties should develop a plan with budget projections and a time line for completion of each deliverable to be created under the project.
The agreement between the parties should incorporate this plan, as well as set forth the specific development process and define each party’s role. Moreover, the agreement should describe the components of the work and the parties’ rights and obligations with respect to those components.
Development Process - The agreement between the developer and the Company should act as a roadmap for the parties to follow during the development process. The following issues should be addressed:
- What resources will be included in the work?
- Who will provide the resources?
- If third party resources are required, who will bear the cost? Will the developer acquire the rights and sublicense or transfer such rights to the Company?
- What will be delivered to the Company for review?
- What will be the review process?
- Will the Company have approval over the deliverables? If so, what will be the standard for such approvals? What is the process if the Company does not approve a component submitted for review?
- What if the Company requests a design change? Will the developer be obligated to perform the change? Who will bear the cost? How will such change affect the development schedule?
- How will the developer be paid? Will payments be based upon each progressive deliverable approved?
- Can the agreement be terminated prior to the work being completed? If so, who will own the partially created work? Will the Company have the right to contract another party to finish the work?
Ownership By the Company - While the developer will want to keep all rights in any new property created for the product, the Company will likely be putting up a substantial sum of money and may demand owning all work product, including any preexisting works incorporated into the final product.
The following provisions provide full ownership to the Company and are typical terms that the Company would want to include in an agreement:
For purposes of this Agreement, "Work Product" shall mean the data, materials, documentation, computer programs, inventions (whether or not patentable), pictures, audio, video, animation, artistic works, and all works of authorship, including all worldwide rights therein under patent, copyright, trade secret, confidential information, moral rights, and other property rights, created or developed in whole or in part by Developer, whether prior to the date of this Agreement or in the future, while retained by the Company and that either (i) is created within the scope of the work of this Agreement, as such scope of work may be amended by the parties or (ii) has been or will be paid for by the Company. All Work Product shall be considered a work made for hire by Developer and owned by the Company. If any of the Work Product is not, by operation of law, considered a work made for hire by Developer for the Company, or if ownership of all right, title, and interest of the intellectual property rights therein shall not otherwise vest exclusively in the Company, Developer hereby assigns to the Company, and upon the future creation thereof automatically assigns to the Company, without further consideration, the ownership of all Work Product, including (without limitation) all copyright, patent rights, trade secret rights, moral rights and other property rights. The Company shall have the right to obtain and hold in its own name copyrights, registrations, and any other protection available in the Work Product. Developer agrees to perform, during and after the term of this Agreement, such further acts as may be necessary or desirable to transfer, perfect, and defend the Company's ownership of the Work Product that are reasonably requested by the Company.
To the extent that any preexisting materials are contained in the materials Developer delivers to Company or Company's customers, Developer grants to Company an irrevocable, nonexclusive, worldwide, royalty-free license to: (i) use and distribute (internally or externally) copies of, and prepare derivative works based upon, such preexisting materials and derivative works thereof, and (ii) authorize others to do any of the foregoing.
Content and Other Resources Provided by the Company - To rightfully use third party works in the development process, the developer must obtain appropriate licenses. These rights should be obtained directly from the Company with respect to any materials provided by the Company.
The developer should request a license for the right to use the materials provided by the Company for purposes of developing the work.
The developer should also require the Company to warrant that any Company materials may be used by the developer without infringing any third party rights.
Examples of these provisions to be negotiated by the Company are as follows:
All documents, text, photographs, video, pictures, animation, sound recordings, computer programs, and all other works of authorship provided by Company, together with all images, likenesses, voices, and other characteristics contained therein (collectively, the "Company Works") shall remain the property of Company and its licensors. Company hereby grants to Developer the nonexclusive rights and licenses to the Company Works that are necessary or appropriate to create, modify, and display the [MULTIMEDIA WORK] as provided in this Agreement, to otherwise perform the services under this Agreement, and to exercise any rights granted to Developer under this Agreement. Company represents and warrants that it is the owner or licensee of all rights necessary and appropriate to grant the licenses and rights hereunder with respect to the Company Works and that Developer’s use of the Company Works shall not infringe any third party proprietary rights, including (without limitation) any trademark, trade name, trade secret, copyright, moral rights, patents or similar rights.
Warranties - In light of the Triad Systems decision, if the developer will be using any computer or software resources of the Company, the developer should negotiate a warranty by the Company that its use of such resources will not infringe any third party rights.
A typical warranty would include the following:
Company hereby warrants that all computer software, data, information, and equipment provided or disclosed to Developer during the performance of Developer’s services under this Agreement ("Company Resources") may be utilized by Developer without violation of any patent law, copyright law, moral rights law, trade secret law, semi-conductor chip protection law, trademark law, unfair competition law or other similar rights. Company hereby agrees to indemnify, defend and hold harmless Developer and its directors, officers, shareholders, employees and agents from and against any and all claims, liabilities, losses, damages and causes of action, together with all costs and expenses, including reasonable attorneys fees, arising out of or resulting from any infringement, violation or claim thereof arising from the Developer’s use of the Company Resources under this Agreement.
Ownership by Developer -- The Software Engine - In developing multimedia products, developers usually place the software executable files in separate files from the audiovisual content and data. The programming elements (the "Engine") drive the multimedia product by "calling" the content from the separate files to create the outputs and screen displays. The Engine can be used to create numerous multimedia titles relatively inexpensively and quickly by merely using new content. Thus, retaining ownership to the Engine is highly valuable to the developer and should be negotiated where possible.
In the following provisions and definitions, the developer:
- Retains ownership to the Engine
- Retains ownership to the tools used to create the work (Note, in this example, the software was created in Visual Basic and C++. The specific tools referenced may change based upon the language the software is programmed in.)
- Retains ownership to original content created by developer which is not incorporated into the final product.
- Assigns to the Company ownership in the original content incorporated into the final product.
- Grants the Company a limited license to use the Engine and Tools.
- Retains ownership to its preexisting content (subject to the license granted to developer to use the content for purposes of the agreement)
- Receives ownership of original content incorporated into the final product.
- Receives a license to use the Engine and Tools as part of the final product.
The sample provisions are as follows:
- Defined Terms. For the purposes of this Agreement, the following terms shall have the following meanings.
- "Content" means all video, pictures, text, voice recordings, music recordings, characters and personalities, and other similar forms of intellectual property, together with that portion of the structure, sequence, and organization of the Product that is not a part of the Engine or Tools.
- "Engine" means the computer software program or programs that serve as the underlying programming basis and environment for creating the Product, as such engine is created or modified by Developer or its contractors from time to time, whether during the course of the Work or otherwise.
- "Intellectual Property Rights" means any and all rights existing from time to time under patent law, copyright law, moral rights law, trade secret law, trademark law, or other similar rights.
- "Preexisting Company Works" means all Intellectual Property Rights of Company in any Content that is owned or licensed by Company prior to the date of execution of this Agreement or are created during the term hereof by Company or its contractors (other than Developer) through no efforts of or contributions by Developer.
- "Preexisting Developer Works" means all Intellectual Property Rights of Developer in any Content, Tools, and the Engine that are owned or licensed by Developer prior to the date of execution of this Agreement.
- "Product" means the executable code of the product developed by Developer and/or its subcontractors, if any, for presentation in one or more types of multimedia format, as described in Attachment A. All components of the Product shall be characterized as one of the following: all or portions of (i) the Preexisting Developer Works, (ii) the Preexisting Company Works, (iii) the Content created by Developer and/or Company during the performance of the Work, (iv) the Engine, (v) the Tools, or (vi) the Third Party Tools.
- "Third Party Tools" means the computer software or Content that is included with or incorporated into the Product that is not owned or created by Developer.
- "Tools" means Dynamic Link Libraries, Visual Basic Extensions, Object Class Libraries, and other computer software programming routines, objects, compilers, interpreters, languages, extensions, resources, and similar forms of intellectual property, as such tools are created or modified by Developer or its contractors from time to time, whether during the course of the Work or otherwise.
- "Work" means the services required of Developer under the terms of this Agreement.
- Ownership of Preexisting Works. The Preexisting Developer Works shall remain the property of Developer and its licensors. The Preexisting Company Works shall remain the property of Company and its licensors.
- License to Developer. Company hereby grants to Developer the nonexclusive rights and licenses to the Preexisting Company Works that are necessary or appropriate to create, modify, distribute, and display the Product and to perform any obligations of Developer under this Agreement, such as providing support and error correction services. The license rights granted in this paragraph to Developer are for the exclusive purpose of creating, modifying, distributing, and displaying the Product and providing services as contemplated by this Agreement, and Developer is not licensed to use the Preexisting Company Works for any other purpose. At any time after completion of the development of the Product, Developer shall return all Preexisting Company Works not incorporated into the Product to Company at Company's written request.
- Licenses to Company. Subject to the terms and conditions of this Agreement, Developer grants to Company the right and license to [use the Product for the purpose it was developed for... However, the Company will want a broader unrestricted license.]
- The components of the Product are licensed or assigned to Company, as the case may be, as described below.
- All Preexisting Developer Works, the Engine, the Tools, and the Third Party Tools, to the extent, and only to the extent, such items are incorporated into the Product, are licensed to Company on a non-exclusive basis for use in the Product only. Developer will be responsible for obtaining all necessary licenses for the use of the Product by Company in connection with the Company's license of the Product.
- All Content developed during the performance of the Work shall remain the property of Developer until [delivery of the final Product to Company/acceptance of the final Product by Company] (the "Assignment Date"). During such period, to the extent, and only to the extent, such Content is incorporated into the Product, the content developed during the performance of the Work is licensed to Company for use only as a part of the Product on an exclusive basis, meaning that (i) Developer shall not use such Content for any purpose other than the development of the Product and license of the Product to Company and (ii) Company shall not use such Content except as a part of the Product.
- Ownership of all Content developed during the performance of the Work, to the extent, and only to the extent, such Content is incorporated into the final Product, shall be assigned to Company on the Assignment Date, meaning that on such date the Company may use such Content for any purpose whatsoever. On and after the Assignment Date, the Preexisting Developer Works, the Engine, the Tools, and the Third Party Tools shall continue to be licensed to, rather than owned by, Company in accordance with paragraph (a) above.
- Any Content created during the course of the Work that is not incorporated into the Product and that does not contain any expressive elements provided by Company shall be owned by Developer.
- Release From The Developer - In the event the developer is an individual and includes his own voice or other characteristics in the work, the Company should negotiate a release for any claims by the developer associated with the Company’s use of such characteristics.
- From Third Parties - If the developer is using any characteristics of third parties (or is an entity using the characteristics of employees), the developer should be required to obtain similar releases from such parties for the benefit of the Company.
A typical release is as follows:
Developer acknowledges that Developer may provide Developer's image, likeness, voice, or other characteristics as a part of the scope of services described in this Agreement. The Company may use Developer's image, likeness, voice, or other characteristics in the Company's products and services. Developer hereby consents to the use of such characteristics and hereby expressly releases Company, its agents, and employees from any rights or claims Developer has or may have for invasion of privacy, right of publicity, defamation, copyright infringement, or any other causes of action arising out of the use, adaptation, reproduction, distribution, broadcast, or exhibition of such characteristics.
DEVELOPMENT OF MULTIMEDIA WORKS FOR DISTRIBUTION TO GENERAL CONSUMERS
When creating a multimedia work for distribution to the general public, the developer will likely use third party material. The material may come from several different sources and include pre-existing works or original works developed specifically for the project.
Whatever the source, the developer must obtain sufficient rights to such material to allow for its intended use and distribution of the work.
Acquisition of Rights to Pre-existing Works
Some of the most commonly used pre-existing works and the type of rights the developer must negotiate are as follows:
Pre-existing literary works and other forms of text are likely to be protected by copyright. Thus, the developer will need to acquire the right to use such works from the copyright owner.
In negotiating such rights, the developer must be careful that the person it is negotiating with actually owns the rights to be granted. For example, a publisher of a book may appear to be the copyright owner of the text therein. However, the book publishers may be the copyright holder of the book as a whole only, whereas the individual components such as the text and pictures are separately copyrighted by other parties. The publisher in this case is likely to be a mere licensee of the text and not authorized to sublicense any rights to the developer.
Tasini v. New York Times - In this recent case, the court held that publishers can use electronic versions of articles originally made available in print without providing additional compensation to the freelance authors of the articles. The court held that ¤201(c) of the Copyright Act supported the defendantsÕ argument that the electronic versions were merely revisions of the original print articles. The absence of creative elements in the original print articles, such as layout, illustrations and pictures, do not alter the holding. The court noted that any inequity to authors that results from this holding should be addressed by Congress, not the courts.
Musical works may have two elements to them, and each are separately protected by copyright. The first element is the actual composed music (and lyrics) and the other element includes each separate sound recording made of that musical composition.
Mechanical License - The developer must obtain a mechanical license to use a musical composition.
Compulsory Mechanical Licenses - The Copyright Act provides for a compulsory mechanical license where the copyright owner has already authorized one recording of the work and public distribution thereof. A compulsory mechanical license permits the licensee to record, reproduce and distribute the work in a phonorecord. Distribution, however, must be limited to the public for private use. Moreover, a compulsory license does not permit reproduction of the music with still images or motion pictures.
Contractual Licenses - Although the Copyright Act provides for a compulsory mechanical license, because of stringent payment and accounting procedures mandated by the Act, it is simpler to obtain the license through the music publisher or its agent, the Harry Fox Agency.
Synchronization License - Developers will need one if they will use the music in connection with visual images.
A synchronization license normally permits distribution in connection with public performance of the work. This type of license is appropriate for a developer intending to display the work through interactive television or another type of public vehicle.
A synchronization license may be obtained through the Harry Fox Agency in some cases, and in others must be negotiated with the music publisher or author. The Copyright Act does not require a compulsory synchronization license so granting such rights are within the copyright owner’s discretion.
To distribute the multimedia work (containing music synchronized with visual images) to the public for private use, the developer will need to obtain a type of synchronization license called a "videogram license."
Performance Rights - If the work is going to be shown to audiences, the developer will also need to negotiate "public performance rights". Copyright owners usually permit performing arts societies like ASCAP or BMI to license their public performance rights. Like a synchronization license, the copyright owner has discretion whether to grant public performance rights.
Sound Recordings - If a particular recording of the music ("sound recording") is to be used by the developer, it will also have to obtain a license from the copyright owner of the recording.
The copyright owner to each sound recording includes both the performer and the person who captures the performance into a recording.
Note: if the recording is synchronized with audiovisuals, then the recording is a component of that overall work and not considered a "sound recording".
In addition to obtaining a sound recording license, the developer will have to negotiate use fees with the American Federation of Musicians (the "AF of M") if the recording includes performances by AF of M members. These fees are negotiated by the AF of M on a case by case basis.
Facts included in a database are not copyrightable. However, if the facts have been selected, coordinated and arranged in such a way as to be deemed "original", the database as a whole may be copyrightable and thus, the developer will need to acquire sufficient rights to use the information.
In obtaining rights to databases, the developer should negotiate proper warranties with the licensor. Where the information is critical to the accuracy of the final work, the licensor should warrant the correctness of the information.
If the data contains personal information on certain people, the licensor should warrant that the information is not libelous and does not violate any rights of privacy.
Copyright Issues - Preexisting characters used in multimedia works may exist by virtue of being in graphic form, in the text of a story or being represented in a performance. All such forms may be copyrighted. If the developer uses a copyrighted character without the permission of the copyright owner, he will infringe the copyright holder regardless of the context in which the character is used. Thus, negotiating rights to use pre-existing characters will likely be necessary.
Trademark Issues - Characters (most often "graphic characters") may also be protected by trademark because of their association with certain goods or services. To avoid accusations of passing off the work as distributed by the character’s trademark owner, the developer should negotiate the right to use the character with its appropriate owner.
Photographs and Still Images
Copyright protection in a photograph originally vests in the photographer. Thus, to use a photograph, regardless of its form, the developer must obtain licensing rights from the photographer or the photographerÕs assignee(s).
If the photograph includes a person, the developer may also need to consider right of privacy issues.
The multimedia developer must acquire the right to use the entire clip as whole, usually from the producer of the footage. It also may have to secure rights to individual components within the clip, such as the music compositions, an underlying script or pre-existing works of art.
Additionally, if people appear in the clip, the developer will need to obtain clearances from such persons and consider rights of privacy issues.
News organizations will generally negotiate a license to their footage based upon a per second basis. However, they do not have the right to authorize the developer’s use of the persons appearing in the licensed news footage. These rights must be negotiated with such individuals.
News commentators are generally members of unions [e.g. the Screen Actors Guild ("SAG") or the American Federation of Television and Radio Artists ("AFTRA")] which require that such persons appearing in news footage consent to the distribution of the footage and /or receive a negotiated payment from the licensee.
Film and Television Clips
The production company financing a film or program will usually own the copyright to the film or program and be authorized to license extracted footage. These licenses are usually based on a per cut and per minute basis and the rates will vary depending upon the term and territory for the license.
The copyright license granted by the financing company will unlikely include other clearances and consents which may be required from the performers appearing in the footage.
Feature Film: SAG(Screen Actors Guild) - If the clip is from a feature film (such as a movie or television drama), television situation comedy or primetime drama, the developer will have to negotiate payments to all actors appearing in the clip who are members of SAG. As of January 1, 1996, the minimum fee paid to each such actor is $522.00 plus 13.3 percent for contribution to SAG’s pension and welfare fund.
Television Taping: AFTRA (American Federation of Television and Radio Artists) - If the clip is from a television variety show, soap opera or similar taped program, the developer will have to negotiate payments with each AFTRA member appearing in the clip. Like SAG, AFTRA mandates minimum payments, however, they are variable depending upon the length of the program from which the clip is extracted from.
Minimum Fees - The fees set by the unions are minimum fees which must be paid to the actors. Where the actor is well known the fees will be considerably higher.
Negotiating with Actors - When negotiating payments with actors, the developer will likely deal with the actor’s agent. The unions prevent the agents from taking a commission out of the actors’ payments received through licensing film clips and thus, the agent has little incentive to negotiate a deal. One author suggests that the developer offer an additional fee to the agent as inducement.
Writers and Directors: WGA and DGA - The developer may have to negotiate rights to any film or television clip with the Directors Guild of America ("DGA") and the Writers Guild of America ("WGA"). These unions negotiate and receive payment on behalf of their members. The DGA rates are based upon the length of the clip and whether it derives from television or a feature film. The WGA charges a flat two percent of the license fees received by the developer from entities exploiting the multimedia work incorporating the writer’s work.
Scope of License - The developer should consider obtaining rights to use the content for other purposes and in other forms of media, both known and unknown. However, this must be balanced with the expense involved and the risk of paying for unnecessary rights. If the developer believes it may require additional rights in the future, the developer may want to negotiate an option for such rights to be exercised within a specified period.
Issues that the developer should consider in negotiating the scope of license received to third party content are as follows:
- What is the content? The content licensed should be defined in the agreement with particularity. Where possible, copies of the content should be attached to the agreement.
- How much of the content will be used? Does the developer need rights to the whole work, or just portions?
- The licensing rights must address the developer’s rights of use with particularity. Since technology is changing at such a rapid speed, it is important to the developer that the licensing language specifically state that the developer’s scope of license includes the right to exploit the work by any means or methods now or hereafter known. In the event such language is absent, the developer may be prevented from using the content in a type of media invented after the execution of the agreement. This license should include the following rights:
- To use the content for any and all purposes
- To use the content in any and all embodiments or formats
- To incorporate and use the content in, and in connection with, any and all technologies, now known or hereafter to become known
- To reproduce, adapt, modify, alter, enhance, translate or otherwise exploit the content
- To publicly perform and display, exhibit, transfer, transmit, broadcast or otherwise distribute the content, by any and all means or as a part of any and all embodiments or formats, now known or hereafter to become known
The third party content owner will likely wish to limit the developer’s rights to a specific project, thereby requiring that the developer pay additional licensing fees to further exploit the content.
The content owner should also propose a reservation of rights clause which clarifies that any rights not specifically granted to the developer will be retained by the content owner. Without such a provision, however, general contract law will likely provide that the content owner retains such rights.
Will the developer need the content for purposes other than incorporation in the multimedia work? For example, will the developer want to use the content in marketing, advertising or packaging materials? If so, such rights should be included in the scope of the license.
If the content owner is concerned about the integrity of his content, the content owner may negotiate the right to approve the final work incorporating his content.
If the content being licensed is a story or similar type of work, the developer may desire negotiating "sequel" rights.
Will the developer’s rights be exclusive or nonexclusive? If the developer’s rights are exclusive, the content owner may want an obligation on the developer to use the content and exploit the final product.
Will the developer be modifying the work? If the work is a "work of visual art," the developer should negotiate a waiver by the owner of his moral rights.
The developer will want to investigate whether the content owner has granted any prior licenses to the content. Specifically, the developer will want to ensure that any prior licenses do not conflict with the rights desired by the developer. Depending upon the scope of the license granted to the developer, the developer will want to include in its agreement with the content owner some or all of the following representations and warranties:
- The content owner has not licensed, assigned, transferred, encumbered or conveyed his right, title or interest in the content to any other third party;
- The content owner has all right, title and interest to the content; and
- The content owner has full right, power and authority to enter into the license, and grant all of the rights, title and interest granted therein.
Developing Original Work
Employees versus Contractors - Since whether an individual is an employee or independent contractor is not always clear, the rights of the parties should be negotiated up front and not left to the determination of the individual’s status.
Work for Hire
The developer should negotiate a written agreement with the individual where the work product developed by the individual is deemed "work for hire," regardless of whether the developer believes the individual it hires to be an employee or independent contractor.
The work for hire provision should specifically state that in the event the work product may not by operation of law be deemed "work for hire" then the individual assigns all rights, title and interest in the work product to the developer.
Benefits - Also, the Company’s agreements with individuals should specifically address any benefits which such individuals are entitled to receive. In a recent case, Vizcaino v. Microsoft, the court determined that contractors who had signed agreements with Microsoft acknowledging their independent status were in fact employees. Thus, as employees they were eligible to receive 401(k) contributions and stock compensation since such benefits were not disclaimed in their agreements with Microsoft. (They were not, however, entitled to receive insurance and other benefits specifically disclaimed in such agreement.)
If the individual the developer hires is a member of one of the entertainment industry unions, the developer will likely have to sign the collective bargaining agreement of the applicable union. This agreement establishes the terms and conditions under which the developer may hire members of the union. The union agreements are generally strict, unfavorable for the developer and non-negotiable.
The terms mandated by the agreement are only the minimums that apply to the relationship between the developer and the union member. Thus, the developer may establish more favorable terms in its agreement with the individual.
Once the developer signs a collective bargaining agreement with a union, the developer will be required to only hire such union’s members to provide services of the type the union represents. Once signed, the collective bargaining agreement will govern all projects of the developer. However, in the case of multimedia works, some unions will allow the developer to enter into a single production agreement to govern one project only.
Traditionally, the unions have had different agreements for employers of their union members to sign, depending upon which type of media the member’s talent was contributing to. For example, a union may have a "television agreement" and a "film agreement". The unions are beginning to establish procedures to govern interactive multimedia developers and some have implemented "multimedia agreements." Where the union has not released an agreement specifically governing multimedia, the unions will either negotiate on a case by case basis, or attempt to conform another type of agreement to govern the relationship.
Most unions do not negotiate their agreements. However, because multimedia is a new area to these unions and encompasses such a broad range of material that may be arranged in novel ways, the unions may be more open to negotiating a multimedia arrangement.
Concluding Practical Pointers on Acquiring Rights to Pre-existing Works
At an early point in the development phase, the developer should determine which pre-existing elements it desires using and whether they are legally available for incorporation in the product.
There are two principle reasons for this approach:
- Cost. Once the product is substantially complete, removing illegally used material may be expensive, especially if the material is unique and cannot be easily replaced.
- Bargaining Position. Once the element has been incorporated into the product, the developer’s bargaining strength is essentially depleted.
Distribution - In creating a work for distribution to the general public, the developer may choose to distribute the product through in house sources or hire a third party distributor. Many times a third party will have more experience and resources for marketing and distributing the product. Where the work is developed for a specific targeted market, a third party may already have connections for distributing the product in that market. In deciding whether to use a third party distributor, the developer will need to consider how much control over the distribution process it is willing to concede. Further, depending upon the fee structure, use of a third party distributor could potentially reduce the developer’s profits.
If the developer uses a separate entity (or entities) to distribute the final work, the parties will need to consider the following issues in negotiating their arrangement:
Distributor's Rights & Duties
Are the distributor’s rights limited to:
- A defined territory?
- A defined end-user?
- A defined industry?
- A defined platform?
- A defined media?
Are the distributor’s rights exclusive? If so, the developer will want an obligation on the distributor to exploit the product. This obligation can be a general obligation of "best efforts" or a based upon a minimum level of sales or revenues.
Will the distributor have any rights to other products created by the developer? For example, the distributor may want a right of first refusal to distribute future products created by the developer.
Can the distributor market competitive products? Especially, if the distributor has an exclusive right, the developer will want to prevent the distributor from marketing competing products.
How will the product be delivered to the end-user? For example, will the distributor place orders to the developer for the product and sublicense the product to the end-user, or will the developer deliver the product directly to the end-user after the distributor places the order? If the distributor delivers the product, will the distributor receive each copy from the developer or have the right to make copies for distribution?
If the distributor has the right to make copies of the product for distribution, what quality controls will the developer have? Not only will the developer want to control the quality of the products distributed under its trademark for good business practices, the developer must maintain quality control to protect its mark. Failure by the developer to have a quality control provision in its agreement with the distributor (or to actually exercise such controls) may cause his trademark rights to be unenforceable.
May the distributor hire third parties in the distribution channel? If so, does the developer have approval over the hiring of such parties?
Rights & Obligations of the Distributor vis a vis the Developer
Will the end-user’s rights derive from the developer or the distributor? For example, the distributor may sublicense the product to the end-user, or the licensing agreement may be between the developer and end-user. If the agreement is between the developer and end-user, will the end-user sign the agreement or will a shrink wrap license be delivered with the product? If the end-user signs the agreement, the parties must determine how the agreement will be negotiated or approved.
If the product requires support services, which party will be responsible for providing such services to the end-user? If the distributor will provide the services, does the distributor require any additional rights to the Product (e.g. source code) to adequately provide the services. Will the developer be responsible for providing any support services to the distributor?
Is the distributor required to protect the developer’s proprietary rights by enforcing such rights with respect to the end-user customers. For example, which party has the right (or obligation) to stop infringing activity -- and which party pays the costs?
Does the end-user pay the developer or the distributor? In either case, what portion of the payment does the distributor receive (or retain)? This will likely depend upon the bargaining strength of the parties, the development costs associated with the product, whether the product requires support services, the number of competitors in the market and the distribution method (which party is responsible for delivering the product to the end-user and receiving payment). Compensation is typically based upon a specified amount or percentage of the licensing fees for each copy of the product distributed.
The party receiving payment from the other will want to negotiate audit rights to verify proper payments.
What type of representations and warranties will both parties provide? Typically, the distributor will require warranties and indemnification against infringement and rights of publicity and privacy. The developer will want the distributor to indemnify it for claims based upon the distributors’ misrepresentations with respect to the product and the actions (or omissions) of its salesforce.
Will the distributor market the product under the developer’s name or its own? If the product is marketed under the developer’s name, the parties must determine what rights the distributor will have to the developer’s trademarks and how the trademarks may be used. If the product is marketed under the distributor’s name, the developer may want some form of recognition.
What type of marketing materials may the distributor use? The developer may want approval rights of all such materials. Who is responsible for the costs of producing the marketing materials?
What about ancillary rights? For example, if the product is a multimedia game with characters that become well known, may the distributor use such characters on a T-shirt ?
What is the term of the agreement? How may the agreement be terminated? Especially if the distributor has an exclusive right, the developer will want the right to terminate if the distributor is not exploiting the product to a certain level (usually based upon revenues received or number of copies distributed).
DEVELOPMENT OF MULTIMEDIA WORKS FOR INTERNET DISTRIBUTION
Access to Content - The Internet provides the multimedia developer with a seemingly endless supply of content for incorporation in its works. However, the availability of material over the Internet in most cases does not mean that such material may be copied and used without obtaining appropriate rights from the owners.
Playboy v. Starware Publishing - The developer who uses materials from the Internet without negotiating proper rights will find it difficult to convince the rightful owner "that he had no idea the materials were subject to proprietary rights." In a recent case, Playboy Enterprises Inc. v. Starware Publishing Corp, Starware Publishing Corp. obtained from a computer bulletin board system 53 photographic images copyrighted by Playboy and incorporated them in a CD-ROM. Starware claimed that it was unaware the images were protected by copyright. Not only did the court reject such defense, the judge found that Starware’s president could be held personally liable because he financially benefited from the sale of the infringing images. In rendering his decision, the judge stated:
The defendants say that they were not aware that any of these pictures were copyrighted. For them to say that they didn’t know this was copyrighted I believe is just willful ignorance.... To think that you can go to a bulletin board and pull down material and then sell that and not have any idea that you are violating any laws is just incredible to the court.
Hypertext Links & Framing - Multimedia Web Site Developers must carefully consider whether to provide links to other Web Sites from their Site if the links are opened in a frame within the DeveloperÕs Site. Doing so may violate the other Web Site creatorÕs right to create derivative works and modify the work of authorship.
Seek Licenses from Linked Sites - Should the Developer choose to provide framed links to other Sites, the Developer should seek a license for that use. Although untested in the courts, unlicensed Web Site Developers might be sued for violating derivative works as well as the copyright ownerÕs moral rights.
Washington Post Co v. Total News, Inc. - This recently settled case was a lawsuit by many media companies, such as The Washington Post Company, CNN, Dow Jones and Reuters New Media. The suit was based in Total NewsÕ framing links to the plaintiffÕs Web Sites. In the settlement, Total News agreed to stop framing those links. However, Total News was allowed to provide hypertext links which opened up new browser windows to the plaintiffsÕ Sites.
Implied Non-Exclusive License Defense - This defense arises from an exception in the definition of Òtransfer of copyright ownershipÓ in the Copyright Act. This theory has been used in various circumstances, including computer software, and defended by the leading treatise on copyright law. On the World Wide Web, one could argue that the nature of the Web requires authors to grant implied non-exclusive licenses to other Web users. UsersÕ computers automatically make temporary copies of Web Site pages while the users view the Site. However, Developers would be unwise to rely on this defense. The inquiry is very fact-intensive. Furthermore, the scope of the defense has not been clearly defined by the courts. This is particularly relevant where the DeveloperÕs use of Web information is very different than the typical Web information consumer.
Fair Use Defense - Developers would also be unwise in relying on this defense. Commercial developers would not be likely to persuade a court that the defense applies to their situation. The four elements of fair use and their application in multimedia products are:
- Commercial or educational purpose - Use in multimedia products is most likely commercial, which cuts against application of the fair use defense.
- Original or compilation- Multimedia products that rely heavily on content from other sources are more likely to be compilations, which receive less protection by the fair use defense.
- Amount of portion used in relation to work as a whole - While this may vary from product to product, multimedia products that use an entire work as less like to receive fair use protection.
- Effect of use on potential market/value of original work - Courts describe this as the most important element of fair use; if the use does not materially impair the original workÕs marketability, it may be a fair use. It is difficult to predict how multimedia products will fare in this regard. The law does not define what the potential market is; this is yet another variable that suggests Developers would be safer in seeking licenses rather than gambling on a fair use defense.
Distribution Channels - The laws and procedures which govern the use and distribution of materials protected by intellectual property rights are outdated and fail to address transactions performed on the Internet. Lawmakers understand this deficiency and are attempting to reform the intellectual property laws for application to the Internet. In distributing multimedia works over the Internet, the distributor should be aware of these reforms and changing practices in the industry.
Transmission of Music - Due in large part to the efforts of ASCAP, BMI and other songwriters groups, the copyright laws have been amended to address the transmission of sound recordings over the Internet and other distribution channels.
Public Performance Rights in Sound Recordings
Digital Performance Right in Sound Recording Act of 1995 - Traditionally, copyright owners in sound recordings have not had exclusive rights to the public performance of such recordings. However, the recently enacted Digital Performance Right in Sound Recording Act of 1995 (the "Act") creates an exclusive performance right in the owner of a sound recording. This exclusive right is limited to digital audio transmissions only (and does not include the transmission of any audiovisual work). A digital audio transmission is a digital transmission of sounds only, which are received beyond the place from which they are sent.
Subject to certain exemptions, the distributor must negotiate a public performance license to transmit recordings across the Internet for public performances. Similar to performance rights in musical compositions, copyright owners in sound recordings will likely permit performing arts societies like ASCAP or BMI to license their public performance rights. ASCAP and BMI have begun proscribing guidelines and standards for licensing these rights on behalf of the copyright owners.
Compulsory Mechanical License - The Act also extends the compulsory mechanical license for musical compositions to the context of digital transmissions. Thus, subject to obtaining a mechanical license for a specific piece of music, the distributor will be entitled to digitally transmit the music to a recipient over the Internet (and the recipient may store the music on a disk or other device). As with all compulsory mechanical licenses, the distributor must separately negotiate the right to transmit the composition in conjunction with audiovisuals.
Payment - To receive the license, the distributor will be required to pay the copyright owner the statutory royalty amount each time the distributor digitally transmits the composition and the transmission results in the making of a phonorecord by or for the recipient.
Negotiations - The distributor’s rights are best negotiated with the Harry Fox Agency, which acts on behalf of the copyright owners.
A & M Records v. Internet Site Known As Fresh Kutz - This recent case involved many of the major American record companies collectively, who sued an Internet site for infringing on the sound recordings of the companies and their affiliates. The companies alleged that Fresh Kutz engaged in, aided, encouraged, materially contributed to and abetted the unauthorized copying and distribution of their records. These infringements were willful, and without regard for the plaintiffsÕ intellectual property rights. The Southern District of California issued a temporary restraining order, enjoining the defendants. In addition, the defendants, as well as those providing and maintaining their services, were ordered to immediately block access to all unauthorized sound recordings which infringe upon the plaintiff's recordings.
Public Display Rights: Playboy v. Frena - A recent case implies that use and display of works over the Internet requires a license of the copyright owner’s exclusive public display right. In Playboy Enterprises v. Frena the court found a computer bulletin board operator liable for infringing the public display rights of Playboy Enterprises, Inc. in certain photographs. The infringement was due to the uploading and downloading of the photographs onto the bulletin board. In reaching its decisions the court noted that the public display right includes "the transmission of an image by electronic or other means and the showing of the image on a . . . viewing apparatus connected with any sort of storage and retrieval system."
Distributor Liability - Recent cases involving computer bulletin board systems and Internet Service Providers suggest that Distributors should take precautions to avoid liability for copyright infringement.
Direct Infringement: Playboy v. Frena - In this case, previously discussed, the court noted that intent or knowledge are not needed to find copyright infringement. Even though Frena, the bulletin board operator, may not have known that direct copyright infringement occurred on his system, he was liable. Innocence may be relevant only when the court determines statutory damages.
Contributory Infringement: Religious Technology Center v. Netcom - Recent case law indicates that Internet access providers may be held liable for the infringing actions of their subscribers. In Religious Technology Center v. Netcom Online Communication Services, Inc., a California district court denied the summary judgment motion of Netcom (an Internet service provider) on the issue of its contributory infringement for its subscriber’s actions. In this case, a Netcom subscriber, Mr. Erlich, posted copies of the Church of Scientology writings to the Internet through Netcom. The court concluded that Netcom could be found liable for contributory infringement if it knew of its subscriber’s infringing activity and did not take steps to prevent it. In rendering its decision, the court found that Netcom should have known that Mr. Erlich was infringing the church’s copyrights since the church had provided Netcom with notice of Mr. Erlich’s actions.
By analogy, the distributor of a multimedia work could be found liable for contributory infringement if it knows that the work contains infringing content and does not take action to stop it (cease distributing the work). Moreover, a distributor could be deemed to know that the work is infringing where the circumstance demonstrates that the distributor should know.
Negotiate Non-Infringement Representations - It is critical that the distributor negotiate strong representations from the developer that the work does not infringe any third party rights. If the distributor is uncertain, the distributor should require that the developer provide evidence of its rights.
Negotiate Third Party Infringement Remedies - If the distributor is informed by a third party that the multimedia work allegedly infringes its copyright, the distributor may be deemed to know of the infringement and obligated to cease distribution of the work. Thus, the distributor will want to negotiate a remedy with the developer in the event a third party alleges that the work infringes its rights. Typically this remedy would require the developer to either replace the infringing content or obtain appropriate rights to the infringing content. If neither of these options are available, the distributor may also want the right to terminate its agreement with the developer and receive a refund of any money it may have invested in the deal.
The developer will likely oppose granting these remedies for an alleged infringement (but may be more willing in the case of a final judgment holding that the work infringes a third party right). However, without such remedies, the distributor will be left with the choice of (i) continuing to distribute the work and risk being deemed a contributory infringer or (ii) ceasing to distribute the work and lose revenue.
WIPO Treaty Implementation - On December 20, 1996, the WIPO concluded two treaties, the Copyright Treaty and the Performances and Phonograms Treaty. These treaties, which will probably be ratified by the United States in some form, may affect laws controlling multimedia agreements.
Copyright Treaty - This treaty, which specifically covers computer programs and compilations of data and other material, provides the following rights of authors:
- Right of distribution - The right to authorize the publication of the original and copies through sale or other transfer of ownership.
- Right of rental - The right to authorize rental of the original and copies to the public.
- Right of communication to the public - This includes the right to authorize any form of communication to the public, particularly Internet communication.
Performances and Phonograms Treaty - This treaty protects the rights of performers and producers of phonograms, who are those people who initiate and are responsible for the fixation of sounds.
Performers - The rights of performers protected by the treaty are limited to their performances fixed in phonograms, not audiovisual fixations such as motion pictures. Performers receive rights to protect their live performances, as well as moral rights:
- Right to identification - The right to be identified as the performer.
- Right to object to distortions - The right to object to any distortion, mutilation or other modification that would prejudice the performerÕs reputation.
- Economic Rights - Although the treaty treats performers and producers of phonograms separately, it provides the same four economic rights to both groups. These rights are to last at least 50 years.
- Right of reproduction - The right to authorize reproductions of the phonogram in any manner or form.
- Right of distribution - The right to authorize the publication of the original and copies through sale or other transfer of ownership.
- Right of rental - The right to authorize rental of the original and copies to the public.
- Right of making available - The right to publicize the phonogram in a way that individuals may access the phonogram from a place and at a time chosen by them. This specifically includes Internet communication.
U.S. Implementation - Although the Clinton Administration contends that these treaties can be ratified by the Senate with minimal changes to U.S. copyright law, bills have been introduced which ratify the treaties but also make other changes to U.S. copyright law, such as expanding exemptions for copyright liability for Internet service providers, libraries and archives. Multimedia Developers should follow the status of the bills which ratify the WIPO treaties to keep abreast of new developments in copyright law.
Acquiring the appropriate rights to use and distribute the elements of a multimedia work is the foundation to a successful multimedia deal. This process entails:
- Specifying all content to be developed for the project;
- Identifying all preexisting content to be incorporated in the work; and
- Determining what rights are required for each such element.
Once these issues have been determined, the parties must negotiate licensing or other types of agreements to document the transfer and ownership of rights. Acquiring and negotiating these rights upfront is crucial. Further, each party must understand their rights in the work and not exceed the scope of rights negotiated.
John C. Yates is partner-in-charge of the Corporate Technology Group at Morris, Manning & Martin, LLP, in Atlanta, where he represents technology companies and corporate users of information systems in intellectual property and venture capital/financing transactions.
The author wishes to acknowledge the contribution of co-author in preparing this article.