By: Michael Stanley and Michael Lambert
March 31, 2020
The First Circuit, in an issue of first impression in the federal circuit courts, put copyright holders on notice: non-exclusive copyright licensees may sublicense copyrights by implication. Photographic Illustrators Corp. v. Orgill, Inc., No. 19-1452 (1st Cir. Mar. 13, 2020). This means that a licensee can create a sublicense to use a copyright holder’s intellectual property without the holder’s input or control. To preserve this control, copyright holders should draft license agreements to require: 1) sublicense agreements to be written and express and; 2) place the same controls on the sublicensee as the copyright holder places on its licensee. Doing so will allow the copyright holder to retain control and monitor who holds sublicenses on its intellectual property.
How Did We Get Here?
This case can be boiled down to a few key facts. Photographic Illustrators, Corp. (“PIC”) provided commercial photographic services to Osram Sylvania, Inc., (“Sylvania”) by photographing Sylvania lighting products. As the author of these photographs, PIC owned copyrights to thousands of photographs of Sylvania lightbulbs. Sylvania (and its dealers) used these photographs to market and sell Sylvania products. After a dispute arose between Sylvania and PIC, they entered into a license agreement for $3 million dollars allowing Sylvania to use PIC’s photographs. This license agreement forms the crux of this case.
The license agreement granted Sylvania “a non-exclusive, worldwide license in and to all the Images and the copyrights thereto to freely Use, sub-license Use, and permit Use, in its sole and absolute discretion, in perpetuity, anywhere in the world.” Additionally, the license agreement required Sylvania to provide proper attribution to PIC when it used the licensed photographs. Sylvania then allowed one of its distributors, Orgill, Inc., to use PIC’s photograph in its advertising and catalogue. To obtain the photographs, Sylvania either sent the photographs to Orgill or told an Orgill employee where he could download the photographs from Sylvania’s website. Sylvania did not tell Orgill that it must attribute the photographs to PIC.
PIC then sued Orgill for copyright infringement under 17 U.S.C. § 501, violations of the Digital Millennium Copyright Act, and false designation of origin and false advertising under the Lanham Act because Orgill failure to attribute the photographs to PIC. The District Court granted summary judgment for Orgill, finding that Sylvania granted Orgill an implied sublicense and that the requirement to attribute the photographs to PIC was a covenant rather than a condition precluding PIC’s copyright infringement claim. PIC appealed to the First Circuit.
First Circuit’s Opinion
The First Circuit affirmed, explaining that this was an issue “of first impression in the circuit courts.” The Court held Sylvania and Orgill’s conduct established an implied sublicense to use PIC’s photographs. The First Circuit relied upon the Copyright Act’s text, or lack thereof, in reaching this holding. Put simply, nothing in the text of the Copyright Act required an express grant of a sublicense through specific language. Instead, the First Circuit noted that courts traditionally apply a three-part test for implied licenses, requiring that: 1) the licensee request the creation of the work; 2) the licensor create and deliver the work; and 3) the licensor intend that the licensee distribute the work. The First Circuit held that these factors should be applied in a flexible manner and that “[t]he touchstone for finding an implied license … is intent.” Ruling that licenses and sublicenses should be treated in the same manner under the Copyright Act, the court applied these standards flexibly. Based upon the parties’ business dealing, the Court concluded that Sylvania intended to grant a sublicense to Orgill through its conduct, especially where Orgill could select and download the images from Sylvania to use on its own.
Additionally, the Court rejected PIC’s policy-based argument that only express sublicensing promotes predictability by allowing an author to control his work. PIC, however, was not entitled to these policy considerations because it chose to enter into a license agreement with no limitations on the licensee’s ability to sublicense. Instead, the court noted that the freedom of the copyright holder to chose how to license its copyright was a better policy than a blanket requirement for express sublicenses.
Lastly, the Court explained that copyright holders can prevent this result by taking affirmative conduct in its license agreements. Copyright holders have the power to set the terms of its license agreements. Thus, they can control, if, when, and how its copyrights can be sublicensed.
What Does this Holding Mean Going Forward?
The holding in Photographic Illustrators Corp. appears to place copyrights on a different footing than trademarks and patents. Non-exclusive licensees of trademarks and patents may not sublicense the use of the intellectual property by implication. The long-standing federal rule of law provides that trademark and patent license agreements are personal to the licensee and not assignable unless expressly made so in the license agreement. Copyright holders must now be aware that absent restricting language, copyrights are freely assignable. This leads to Photographic Illustrators Corp.’s second upshot. Copyright holders must take care to include explicit restrictions on sublicensing in licensing agreements. Without proper restrictions in place, subsequent copyright transfers may create unwanted sublicenses.
 Specifically, the Court stated: “where a licensor grants to a licensee that unrestricted right to sublicense and permit others to use a copyrighted work, a sublicense may be implied by the conduct of the sublicensor and sublicensee.”