Sing It!
Judge Rules Warner-Chappell Does Not Own Copyright in “Happy Birthday” Lyrics

Yesterday a federal judge ruled that Warner-Chappell does not own copyright in the lyrics to the song “Happy Birthday.” The lawsuit addressed only the lyrics, as the parties agreed that the music passed into the public domain long ago. The opinion is a beast, weighing in at a very dense 43 pages, and leaves the reader hanging until the very last minute.

The court addresses several issues, concluding (1) there is a genuine issue of material fact as to the authorship of the “Happy Birthday” lyrics; (2) there is a genuine issue of material fact as to whether a divestive publication of the “Happy Birthday” lyrics occurred (specifically, whether the lyrics were the subject of an authorized “general publication” under the Copyright Act of 1909 that divested the lyrics of common-law copyright protection); (3) there is a genuine issue of material fact as to whether the purported author abandoned her copyright in the lyrics; and, finally, (4) there is insufficient evidence to establish that the purported author ever transferred her rights in the lyrics to Warner-Chappell’s predecessor-in-interest.

It is important to note that, contrary to various assertions by commentators online, that the opinion does not hold that the lyrics are in the public domain. This is perhaps a wonky copyright distinction, but one that is substantively very important. The ruling holds only that Warner-Chappell does not own copyright in the lyrics. It is at least theoretically possible that some other party could come forward and establish ownership. This seems fairly unlikely, given that the song was authored in 1893 and solid evidence regarding chain of title has faded into the mists of time.

The resulting uncertainty highlights the problem of “orphan works” – works as to which it is very difficult, if not impossible, to establish ownership. The orphan works problem plagues many would-be users of works, who cannot identify or locate the owners of works they may wish to license. There have been many calls for a legislative fix of the “orphan works” problem, and we can only hope that Congress takes it up as part of the broader need for copyright reform.

In the meantime, happy birthday to everyone!

Can’t Transfer This
Licenses in the Context of Corporate Mergers

The Sixth Circuit Court of Appeals recently issued an opinion which should serve as both a warning and a reminder to corporate counsel about the pitfalls of intellectual property in the context of mergers and acquisitions.  In Cincom Systems, Inc. v. Novelis Corp., 581 F.3d 431 (6th Cir. 2009), a software licensee was found to have violated restrictions on the transferability of the software following a series of corporate mergers. 

The licensor, Cincom, granted a nonexclusive license of its software to Alcan Rolled Products Division, an Ohio corporation.  The license specifically prohibited any transfer of the rights granted under it.  Alcan installed the software on a single computer in a facility it owned in New York state.  Years later, Alcan created and then merged into a separate corporation known as Alcan of Texas.  Following a further merger of Alcan of Texas with its subsidiaries, and a few subsequent name changes, Novelis emerged as the sole surviving corporate entity.  Through all this corporate activity, Cincom’s software remained installed on the single computer located in New York state, now owned by Novelis.

Cincom sued, alleging that the various mergers had effected a transfer of its nonexclusive, nontransferable license to a separate entity in violation of the license agreement.  Novelis contended that no transfer occurred because Ohio statutory merger law does not not explicitly effectuate a “transfer” of assets from a predecessor to a successor corporation, instead providing merely that the surviving entity “possesses all assets and property of the predecessor corporation.”

The Sixth Circuit rejected this restrictive interpretation, holding that “in the context of a patent or copyright license, a transfer occurs any time an entity other than the one to which the license was expressly granted gains possession of the license.”  Thus, Novelis breached the license because “the only legal entity that can hold a license from Cincom is Alcan Ohio.
. . . Alcan Ohio no longer exists.”

The case should serve as a reminder to mergers and acquisitions counsel of the importance of thorough due diligence to identify any existing copyright licenses and to determine whether a particular corporate reorganization or merger might result in an unauthorized transfer.  In such a case, the licensee would be well advised to seek permission from the licensor to transfer the license as part of the contemplated merger in order to avoid post-merger liability.

The case is also interesting because of the Court’s heavy reliance on patent precedent and federal common law rather than copyright law in support of its holding.  The license agreement included an explicit prohibition on transfers, and it is generally agreed that under the Copyright Act, a nonexclusive license like the one at issue here is not transferable.  Yet, citing a patent case, the Court relied on federal common law for the proposition that “in the context of intellectual property, a license is presumed to be non-assignable and non-transferable in the absence of express provisions to the contrary.”  Though an essential element of the Court’s reasoning was that “where state law [of corporate mergers] would allow for the transfer of a license absent express authorization, state law must yield to the federal common law rule prohibiting such unauthorized transfers,” state law would similarly give way to the federal Copyright Act.