Use Lessons from “The Social Network” and Other Examples

You have probably heard of the company Facebook, and you may very well have seen the film The Social Network. One of the great teaching points of that film and that story is how relatively young individuals, college students, spoke with each other, met, discussed opportunities, and then later disagreed about who owned what. The underlying legal issue in the lawsuit against Mark Zuckerberg, the founder of Facebook, is whether or not Mr. Zuckerberg broke a contract, indeed an oral contract, not a written contract, as to who was going to own the work product and ideas behind what became Facebook.

The suit was over oral contract, whether or not an idea was taken or misappropriated, as they said in their lawsuit, copied, and whether or not source code was used by Mark Zuckerberg that was originally developed by his founders. That case ultimately settled for $65 million, although it was a confidential settlement. Unfortunately, someone on the legal team ultimately filed certain papers in court and disclosed this information, so now we know. The takeaway message here is that collaborations that are not well-documented, whether you’re a college student or whether you’re a multibillion dollar company.

If you do not document who owns what, who’s contributing what, who’s going to get a share of the revenue from the commercialization of this product, who’s going to be allowed to create the derivative works based upon that product, you can find yourself in a lawsuit where people who are not present at those discussions, namely the jury or the judge, will decide in fact who owns what. This is an area of intellectual property law which dovetails with other areas of business law, meaning business law recognizes you can have a partnership without having formal partnership documents. You can have a partnership because you decide to work together for a particular product, a particular service, and to share the revenues.

Other business law doctrines that come into play in these disputes are whether someone has been unjustly enriched, whether someone has breached a fiduciary obligation they owe another, a very high duty under the law. In some cases, whether or not the court should create what is called a constructive trust, reach in and take certain assets and give them back to another party. One of the most significant cases in the area of copyright and collaboration resulted in a United States Supreme Court decision about 25 years ago, and it involved the creation of this particular work of art. Community for Creative Non-Violence is a nonprofit organization.

It wanted to have an artist create a sculptural work that would depict the plight of the homeless in our nation’s capital, Washington DC, so CCNV met with an artist, Mr. Reed, and they had many discussions about what exactly CCNV was looking for in this work of art. CCNV said, well, we would like it to be a couple, two individuals, because so many of the homeless in Washington DC are families. We want them to be huddled over a grate where the heat rises up from underneath the city because that is one way in which the homeless remain warm.

We would like them to have African-American features because such a disproportionate percentage of individuals who are homeless in Washington DC are African-American, and we want the use of the shopping cart because it is an iconic element for many homeless individuals. It is a device where they can house sometimes all of their worldly possessions, so CCNV was very involved in describing in at a great level of detail of what they were looking for. Mr. Reid created the sculpture, ultimately, there was a dispute when it came to reproducing new copies of the sculpture. CCNV said, we own it, we own not just the sculpture, we own the copyright. We paid you $15,000, and Mr. Reid said, you don’t own it.

You didn’t actually create the sculptural work, I created the sculptural work, I’m the artist, I own the copyright. To make a five-year legal battle short, the takeaway message for companies, sometimes even if you don’t discuss it, copyright can be jointly owned. Other times, when one party is primarily responsible for making all of the creative decisions, and the party who is hiring them but is not involved in the creative elements, the party who pays the money does not own the copyright. They own the work product that was delivered, not the rights in it, so the takeaway message for business is, you must document collaborations or circumstances where you’re paying a contractor.

Because you may assume, because you pay the money, you own all of the rights in the work product, but that is not true under copyright law.

Another area of consideration with copyright, as you can see from this rather crowded slide, is there are many different kinds of ways to own or share copyright. So for example, we see in the software community we often have freeware, software that is written by individuals. They actually relinquish their copyright, they do not assert ownership in their product, then we have shareware where indeed there is an individual or organization that claims to own copyright but is willing to make it available on certain terms.

There is a general public license, a very well-known form of license, where, indeed, there are certain uses that are granted, to the user or the licensee, but copyright itself is retained by the organization that developed the code. I won’t go through each of these other kinds of ownership, open source, copyleft, public domain, Creative Commons. What you need to be aware of is that these terms are often thrown around, and they may be used accurately or inaccurately, but they have implications for not just copyright. They have implications for what you want your users to do with your product.

Maybe you want to make your source code open so that others in your community can create products that will interface with your software, so you might make a conscious decision. You’re not going to claim trade secret in your source code, you’re going to make it open, but you are going to assert copyright so you can limit who can make copies without permission from you. You can also decide, for example, with Creative Commons you want some of your materials frequently used by others, and under Creative Commons licensing you take a certain tag. You affix it to your work, and through that tag you communicate to the world. Can they make other copies? Do they have to get attribution to you?

Can they make commercial use? Can they change your use product? There are really just a few questions that are asked, but it gives you great flexibility to decide, yes, I want to retain copyright, but I want to allow all kinds of different uses for different segments of the community. You could decide you want educators to use certain content, and you don’t want for-profit entities to use that content, so you should think of copyright as an asset that gives you a great deal of flexibility in deciding who can do what with your content. You also need to be sure that, when your development team downloads software from websites and says to you, we’re free to use it, it’s freeware.

In fact, it may not be freeware at all, it may be shareware. It may be subject to a general public license, GPL, which has serious implications of what you can do with that software. Some other considerations, especially if your company is being considered for due diligence, is you want to look out whether you have security entries in your copyrights, very commonly done when the company that owns copyright, such as movie studio, a publishing house, recording industry, software company, can actually use their copyrights as collateral for a loan. If they don’t repay that loan, the lending institution can foreclose and take the copyrights.

You can also decide whether you want to grant exclusive licenses, meaning you’re only going to grant a license at that one company, and you are not going to grant licenses to others. Or whether you want to grant nonexclusive licenses, which gives you the flexibility of licensing to others. You can also look at contracts where in exchange for being granted certain license rights in your content, you want to also secure back from that company an agreement not to compete with you.

Sometimes, those noncompetition clauses can be reviewed for antitrust considerations, but from a copyright point of view you can think of your copyright as an opportunity to not just license your content for a revenue stream but secure back limits in competition. As we discussed earlier, copyright is subject to joint ownership. If you don’t decide with your collaborator who can do what with the content, you should know the copyright laws of the U.S. have a default provision, and that is joint owners are free to exploit the copyright in that content in any way they want without permission from their other joint owner. One consideration, they have to share some of the revenues back.

Source code escrows are very common with copyright and software, where we deposit source code for our software with a trusted third-party. In the event the copyright owner or the software vendor goes out of business, we have the ability to secure a copy of that code and use it for certain purposes. Of course, as with trademark, copyright is the basis for bringing an infringement claim, and to have copyright infringement there has to be an actual copying of authorship, and there has to be the creation of a work that is substantially similar.

We find that if we use intellectual property agreements we can sort through issues of ownership, joint ownership, and license rights much more easily, and this has very serious implications when it comes to the next bullet point, employee moonlighting. Just yesterday I had a discussion with a client who said, we’re going to be hiring a contractor to work on a particular project, and we come to find out the the contractor is already employed full-time by another company. Moonlighting is a word that we use sometimes to refer to someone who’s already employed full-time with one company, who is doing some work on the side for a different company.

The copyright implications are that the copyright law says an employer automatically owns the copyright of the work product of its employees. It doesn’t matter whether the employee is sitting at their desk at the company, or whether they’re sitting on a beach, or whether they’re in an airplane. If it’s created by an employee within the scope of their employment, the employer owns it, so you really have to be sure if you’re bringing on a contractor that you thought through whether that contractor is actually free to work for you. Here’s a couple of examples, one involving photography and one involving dolls, where we see the layering of various intellectual property rights in one particular fact circumstance.

So, we’ve heard of Flickr, the website where people can upload photos, and just because somebody may allow you to use copyright does not mean that you can actually use that particular photograph, and here is our example. Here is Alison Chang, who was at a church picnic, there she is with her peace sign. She’s got a cap on her head, you might notice the Adidas logo on her cap, and this photograph was taken of her by her friend Justin. Alison is a teenager She’s a young teenager and lawyers who are listening to this might be thinking, a minor, a child.

Virgin used that photo in an ad, Dump Your Pen Friend, it was an ad to encourage people to sign up with Virgin. Virgin was sued by the parents of Allison Chang for the use of her face, the use of her image, without their consent in this commercial ad, and Virgin’s explanation was, we got the photo off of Flickr. It’s a file sharing site where people share photos. The point is, Allison was not the photographer, she was the subject, and a company cannot assume that even if a photograph is made available through Flickr that they can use that photograph for any purpose.

Here, the concerns were endorsement and invasion of privacy and the use of an image of a minor without permission from the parents, and the point here is, one image can implicate many different legal rights, and here we have issues of copyrights, right of privacy, and trademark. I’m going to flip back one slide because you’re going to see Virgin was sensitive enough to the issue of trademark that it removed the Adidas logo from her cap, but it wasn’t sensitive enough to realize, you can’t take image and use it for commercial purposes without thinking through these other implications.

Now we have one of the great battles over the last few years. Barbie, one of the most recognizable doll brands in the world, Mattel sued MGA which was the creator of this Bratz line, and it created this Bratz line based on work product that had been given to it by a former employee of Mattel, Mr Bryant. There was about a five-year battle. Many millions of dollars at stake here over the question of moonlighting, was Mr. Bryant free to work for another company part-time while he worked for Mattel? There was an issue of whether or not what he actually delivered to Bratz was protected by copyright law at all.

The takeaway message here is that companies need to be sure when they are contracting with an individual who already has employment, either full-time employment or part-time, or who came up with the idea. The idea for this line of dolls, when they were a former employee, it implicates whether or not you, as the new company, MGA, are free to run with that new idea.

Next we are going to talk about the Fair Use cases.