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Chain of Title – Corporate Copyright Ownership

When reviewing the “chain of title” for an entertainment product (borrowing from Gordon Firemark, “chain of title” is “the paper trail that establishes a person or company’s right to take proposed action with respect to a piece of property”), questions may arise regarding the ownership status of copyrighted works which were created by individuals who are shareholders, officers and/or directors of a corporation and who did not sign an agreement with the corporation which expressly granted to the corporation copyright in the works which they created in their capacity as officers and/or directors.  This can often arise in situations where a “closely-held” corporation (owned by, say, one, two or three individuals) is used as the business vehicle for an individual – the most straight-forward example would be the so-called “loan-out” or “personal services” corporation which might be used by a key creative (such as a writer, director, performer, designer, etc.), but could also apply where one or more people render their services “through” a corporation (such as a team of designers).

Canadian courts have been generally consistent in holding that works created by officers and directors of closely-held corporations will be owned by the corporation, even if there is no written agreement expressly setting forth that arrangement.  For the most recent court pronouncement to this effect, see Harmony Consulting Ltd. v. G.A. Foss Transport Ltd. (2011 FC 340).

A bit of background: the Copyright Act (Canada) stipulates that the author of a work is the first owner of copyright in that work, unless (a) the author was (i) in the employment of some other person (ii) under a contract of service or apprenticeship, and (b) the work “was made in the course of his employment by that person” – if both of those criteria are met, then the employer of the author will be the first owner of copyright in the work.  When it comes to “closely-held” corporations – let’s use the example of a screenwriter who uses a loan-out corporation, of which the screenwriter is the sole shareholder, director and officer – it’s not always obvious that those criteria have been met.  Is an officer/director of a loan-out corporation properly considered an “employee”? Have they entered into a “contract of service”?  It is not always the case that the individual has memorialized their relationship with the corporation into a written document (of course, a contract need not be in writing to exist).  Rather than get mired in analytical gymnastics, Canadian courts have adopted the following approach (from Harmony Consulting Ltd. v. G.A. Foss Transport Ltd.):

This principle [i.e., the “work made in the course of employment mechanism] is also generally applicable to officers, directors, and key employees who create a work for the benefit of the corporation. Ownership normally vests in the corporation in the absence of an agreement to the contrary; see Dubois v. Systèmes de Gestion et d’Aanalyse de Données Media, (1991), 41 C.P.R. (3d) 92 (Que. S.C.), Setym International inc. c. Belout, [2001] J.Q. no 3819 (Que. S.C.) (Q.L.) and B & S Publications Inc. v. Max-Contacts Inc., [2001] 287 A.R. 201 (Q.B.).

The court went on to quote from David Vaver’s 2000 Copyright Law text (at page 85 – I’m going to quote an additional sentence that the court did not):

Problems of copyright ownership also arise in cases involving senior officers of corporations especially presidents or chief executives of closely-held companies. These officers sometimes do not reduce to writing their status or obligations to the corporation which they often regard as their alter ego or instrument. The officer will also usually be an employee of the company whether or not a written contract of service exists. Copyright in most work produced for the company’s benefit will therefore be owned by the company as is also true for comparable work done by lower-level employees.  Thus the copyright in design and art work produced for the business in the course of running a one-person corporation is typically owned outright by the corporation.

It is worth noting that Vaver’s 2011 Intellectual Property Law text uses somewhat different language to treat the same matter (from page 127):

… one would expect that copyright in work produced on the job by the president or sole shareholder of a one-person corporation, who treats the company virtually as her alter ego, would belong to the corporation; and so it usually does.  The president or sole shareholder may sometimes qualify as an employee [citation omitted] but would in any event usually hold the copyright in trust for the company in order to fulfil the duty of good faith owed to the company. [citation omitted] [emphasis added]

I’ve added the emphasis in that passage because I think it worth highlighting that, on Vaver’s account, at least, it may not be required that the shareholder/officer/director satisfy, strictly speaking, any test of “employment” since they will functionally be held to hold the copyright in trust for the corporation – which should suffice for chain of title analysis purposes.  Ideally, of course, one would obtain a written instrument signed by the shareholder/officer/director which confirmed that copyright in the work had been assigned to the corporation – but in situations where that isn’t possible, the foregoing analysis offered by the courts (with an able assist from Professor Vaver) might be relied upon.

Chain of Title – Corporate Copyright Ownership

Chris Castle on Record Producer Agreements

Chris Castle has collected all of the installments from his ongoing series of posts More Questions for Artists: Record Producer Agreements which covers, in fascinating detail (but readable prose!) just about everything you could possibly want to know about record producer agreements.  The collected posts are an incredibly valuable resource for recording artists and the lawyers who advise them.

Chris Castle on Record Producer Agreements

Creating Contracts By Email – “Written” Doesn’t Always Mean “In Writing”

Two recent court decisions (one Canadian, one American) serve as useful reminders that binding contracts and assignments of rights can be created via exchanges of emails almost as easily as they can be created by “written” documents.  In the entertainment industries, which sometimes exhibit fast-moving and casual interactions in which the intention of the parties to create binding contractual commitments is not always clear, it is worth being cognizant about the fact that email communications can bind you to a deal.

As Mark Weisleder notes in the Toronto Star (Can You Sell Your Home by Email?), a recent court decision in New Brunswick has held that a binding contract for the sale of real property (in this case a condominium) can be created via email exchange (it should be noted that leave to appeal has been granted by the Court of Appeal of New Brunswick).

In the United States, the Court of Appeals for the 11th Circuit (Hermosilla v The Coca-Cola Company) has confirmed that copyright can be transferred by exchanged emails which constitute a contract.  In Hermosilla, it was held that copyright in Spanish lyrics crafted by the plaintiff had been transferred to the defendant because the exchanged emails constituted a binding agreement, even though the parties intended to enter into a long-form written contract but never actually did so. (The Property, Intangible blog has a nice overview of the Hermosilla case – hat tip: Clancco)

Students of Canadian copyright law might query whether these decisions are of relevance to Canadian copyright questions – doesn’t Section 13(4) of the Copyright Act (Canada) require transfers of copyright to be “in writing”? The Act states that “no assignment or grant is valid unless it is in writing signed by the owner of the right in respect of which the assignment or grant is made”. The question of relevance will be answered by reference to provincial/territorial legislation: in Ontario, for example, the Electronic Commerce Act stipulates that “a legal requirement that information or a document be in writing is satisfied by information or a document that is in electronic form if it is accessible so as to be usable for subsequent reference” (Section 5) and also clarifies that “a contract is not invalid or unenforceable by reason only of being in electronic form” (Section 19(3)).

Exchanging emails is often useful because it can assist in providing a documentary record of discussions between the parties – but parties should be careful not to inadvertently create a binding contract (whether or not involving a transfer of copyright).

Creating Contracts By Email – “Written” Doesn’t Always Mean “In Writing”

Pay Me Now and Pay Me Later: Lump Sum vs On-going Royalties

Over at the Dear Rich, Nolo’s IP blog, they’ve got a question and answer segment which is worth some attention for those advising individuals in the creative industries:

Dear Rich: I’m trying to figure out whether to ask for a lump sum payment or royalties for a deal I am making. Is there some formula for figuring out what to ask for in terms of a lump sum?

This can be a critical question for owners of rights who are granting intellectual property rights to others for exploitation by that other person (for example, the owner of rights in a graphic novel or screenplay who is being asked to grant an exclusive option or license to a film producer).  As with many questions, the question of whether to ask for a lump sum up-front payment or royalties is best answered by challenging the premises underlying the question – in short, why not choose both?

The Dear Rich Staff point out the basic pros and cons of each arrangement (and also link to this nice little summary which describes different types of royalty arrangements in more detail):

  • with a lump sum, up-front payment (i.e., payable upon signing the contract), you’re assured of actually receiving the money, since you generally would avoid signing without having the funds in hand (such as in the form of a certified cheque) – you also avoid having to worry about the expensive and stressful process of checking royalty statements, disputing them, auditing them, trying to get paid for discrepancies, etc.
  • but with an entitlement to ongoing royalties, you get to share in the potential success of a particular property (would you rather have had $1,000,000 up-front for Avatar, or 0.5% of world box office gross?)

But describing this as an “either/or” proposition is a little too simplistic when it comes to the entertainment industries.  We can take guidance from the arrangements put in place by many of the creative guilds in the film and television industries: they generally require minimum payments up-front plus ongoing residuals entitlements (which, in the case of some Canadian guilds such as ACTRA, can be “pre-purchased” for limited periods of time by an increased up-front fee).

The combination of upfront payments (sometimes in the form of recoupable advances) and an ongoing participation right in future revenues (though usually defined down to be something less than “gross”) is the norm in the entertainment industries, whether music, film/TV, publishing or videogames.  In film/TV arrangements, grantors of rights should also aim to supplement their future participation in a project by building in quasi-participations in the form of things like box office bonuses (pre-set payments payable upon the achievement of a particular box office gross), budgeted fees (such as for performing “script consultant” services) and royalties (such as per-episode royalties payable as a result of the fact that the episode was produced, irrespective of commercial success) and agreements to engage (such as a commitment on the part of the producer to engage the grantor as the writer of a certain number of episodes for a television series).

Ultimately, the answer to “how am I going to get paid?”, should be a complicated one: grantors of IP rights should be aiming to contractually enshrine multiple forms of revenue participation, so as to ensure both up-front payments and ongoing participations if their property achieves commercial success.

Pay Me Now and Pay Me Later: Lump Sum vs On-going Royalties

Contract Clause Reviews

With a hat tip to Mark Fowler, I thought it worth pointing to keepyourcopyrights.org (dubbed “a resource for creators”), a rich resource of sample clauses regarding grants of copyright rights, sample contracts from a variety of entertainment industries and general advice for contracts ranging from book publishing to photography (the site is based in the United States, so Canadian visitors to the site should be cautious about drawing any conclusions without speaking to a Canadian lawyer).

One of the most interesting features of the site is its “critical review” of individual contract clauses, which includes a “thumbs up” (creator-friendly), “thumbs in the middle” (could be worse), “thumbs down” (creator-unfriendly) and “red claw of death” (incredibly overreaching).  The site is a great resource for anyone who needs sample clauses or anyone who wants to think critically about the language they are being asked to sign or review.

Contract Clause Reviews