Photographic Illustrators Corp. (“PIC”) provides commercial photography services – primarily photos of consumer goods – through its principal photographer, Paul Picone. Osram Sylvania, Inc. (“Sylvania”) is one of the world’s leading manufacturers of lightbulbs. PIC owns valid copyrights to thousands of photographs of Sylvania lightbulbs. Sylvania uses the photos in marketing and selling its products, as do Sylvania’s dealers and distributors.
After a dispute arose between PIC and Sylvania concerning the scope of Sylvania’s permission to use the photos, PIC and Sylvania negotiated a detailed, sixteen-page license setting forth the precise terms of the parties’ agreement. The license was to be effective from 2006 to 2012. Sylvania paid PIC approximately $3 million in consideration for this license.
Orgill, Inc., a global hardware distributor, is one of those third parties that markets and sells Sylvania lightbulbs through a network of dealers. At issue was Orgill’s use of PIC photos of Sylvania lightbulbs in Orgill’s electronic and paper catalogs. As best the record shows, it would have been unrealistic to try to market and sell the lightbulbs without pictures of the product.
To obtain those pictures, Orgill’s catalog editor, Dennis Sills, told Sylvania which photos Orgill wanted to use. Sylvania then sent the photos to Sills, who used them as he told Sylvania he would. On occasion, instead of sending the photos to Sills in response to his requests, Sylvania directed him to copies of the photos maintained on Sylvania’s website from which Sills then cut and pasted copies for Orgill’s use.
Sylvania did not tell Orgill (or other Sylvania customers) that Orgill needed to abide by the attribution restriction in Sylvania’s license. Deeming this omission to violate the PIC–Sylvania license, PIC commenced more than thirty separate lawsuits against Orgill and other Sylvania dealers and distributors.
A number of those actions filed in the District of Massachusetts were consolidated, with Sylvania intervening as an interested party. The district court, with the consent of the parties, referred those consolidated cases to arbitration. Sylvania also moved to intervene in the case at issue lodged by PIC against Orgill and one of Orgill’s dealers, Farm & City Supply, LLC (“Farm & City”). The district court denied that motion.
PIC’s claims against Orgill and Farm & City included copyright infringement under 17 U.S.C. § 501, violations of the Digital Millennium Copyright Act (DMCA), and false designation of origin and false advertising under the Lanham Act. The district court granted the defendants’ motion for summary judgment as to the DMCA and Lanham Act claims.
As to the copyright claim, the court determined that Orgill had a sublicense from Sylvania to use the photos. Left unresolved by that ruling on summary judgment was the scope of that sublicense and whether Orgill exceeded it. The court also found Farm & City to be an innocent infringer. At that point, PIC dropped Farm & City from the case, and the court granted the parties’ motion to stay proceedings pending the outcome of the arbitration.
Thereafter, the arbitrator issued a partial final award in the dispute between PIC, Sylvania, and the non-Orgill distributors. A key ruling in that decision framed the remainder of this litigation. The arbitrator construed the attribution restriction in Sylvania’s license to be a “covenant,” rather than a “condition.”
This matters because a licensee who violates a condition of a license (and thus exceeds the license’s scope) cannot claim the license as a defense to copyright infringement, but if the licensee merely violates a covenant, the licensor’s only remedy is for breach of contract.
The arbitrator went on to determine that Sylvania breached this covenant by permitting its distributors to reproduce PIC’s photos without attribution. As compensation for that breach, the arbitrator awarded PIC approximately $8.5 million.
As to the other distributors, the arbitrator briefly noted – apparently based on a concession by PIC – that they had sublicenses from Sylvania, so the arbitrator awarded no damages from those parties.
Following the arbitrator’s decision, Orgill renewed its motion in this case for summary judgment on the sublicense defense and on the new ground of defensive, nonmutual issue preclusion. The district court held that the arbitral award precluded PIC from relitigating the arbitrator’s construction of the PIC–Sylvania license, including the finding that the license permitted Sylvania to grant “implied sublicenses” to its distributors.
The district court viewed that finding as implicitly assuming that a copyright sublicense could be implied in the absence of an express grant. Nevertheless, because the parties to the arbitration did not raise and contest that assumption, the district court allowed PIC to argue in this case that, as a matter of law, sublicenses of copyrights are ineffective absent language expressly granting permission to use the copyrighted work.
Having allowed PIC to make that argument, the district court then rejected it. The district court also reaffirmed its prior ruling that Sylvania impliedly granted Orgill a sublicense and then construed the scope of that sublicense as having an attribution restriction that was merely a covenant, not a condition.
Accordingly, PIC could not recover from Orgill for copyright infringement. Nor could PIC recover on a contract theory because Orgill made no promise to PIC. The court thus granted full summary judgment in favor of Orgill. PIC timely appealed.
On appeal PIC made two more narrowly tailored arguments. First, PIC argued that any sublicense of the right to use a copyrighted work must as a matter of law be “express,” and that Sylvania’s permission to Orgill was at most implied.
Second, PIC argued that even if a jury might find an express grant of permission in this case, or even if an implied grant is sufficient, there are issues of fact that would allow a jury to find that Orgill obtained no permission, either express or implied.
Nothing in the Copyright Act requires that two parties’ agreement to a sublicense be expressed in any specific language. And no circuit court has ever addressed whether such a requirement exists. The case law dealing with copyrights accepts the possibility of implied licenses.
No party cites any reason why PIC, had it wished, could not have insisted in the license to Sylvania that a condition of that license was that sublicenses must be express, or perhaps even in writing. Or PIC could have instead negotiated a license that forbade sublicensing altogether.
Instead, PIC and Sylvania agreed that Sylvania could “sub-license Use, and permit Use, in its sole and absolute discretion.” So PIC already affirmatively gave away many of its rights, and courts need not protect it as much as they would otherwise.
In sum, the appeal held that, where a licensor grants to a licensee the 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. So although implied sublicenses, like implied licenses, are probably not “an everyday occurrence in copyright matters”, the court rejected the contention that they are a legal impossibility.
First, the very nature of the business at hand makes it obvious that Sylvania wanted its distributors to use the photos, just as one might confidently say that Sylvania wanted Orgill to sell lots of Sylvania products. It would be effectively impossible for Sylvania to expect its distributors to have much success in selling its lightbulbs without also permitting them to use photos of those lightbulbs.
Second, Sylvania paid a substantial sum — roughly $3 million — for its sixteen-page license granting it, among other things, the authority to “sub-license Use, and permit Use, in its sole and absolute discretion.” A principal reason for Sylvania’s paying so much for this agreement was precisely to allow its dealers and distributors to continue using the photos.
Third, as a matter of common sense, when Sills called up Sylvania and said he needed copies of the photos to use in selling Sylvania’s lightbulbs, and Sylvania subsequently sent along the photos (or pointed Sills to where to find them), Sylvania surely manifested its permission for Sills (and Orgill) to use the photos in the proposed way, even though Sylvania never uttered some magic words that made express its permission.
Fourth, Sylvania knew that Orgill was using the photos. Twice per year, Orgill provided Sylvania a copy of Orgill’s catalog for Sylvania to review for accuracy. Although Sylvania has periodically responded to make various corrections to the listings in the catalog, Sylvania never objected that Orgill was using copyrighted photos without permission.
Fifth, Sylvania and Orgill entered into a “Confirmatory Copyright Sublicense Agreement” in July 2014, after PIC initiated lawsuit. This document purports to be effective “nunc pro tunc as of June 1, 2006” and states that Sylvania “hereby confirms that it previously granted permission to Orgill to Use and to sublicense the right to Use the Images to its dealers.”
PIC calls this agreement a “sham” intended to frustrate this litigation. But the issue here is not whether the agreement by itself can operate as a retroactive sublicense, but rather whether it is evidence of Sylvania’s prior intent to grant a sublicense. And certainly a statement by Sylvania itself provides such evidence.
Sixth, PIC successfully held Sylvania liable for breach of its covenant precisely because Sylvania permitted its third-party dealers and distributors to use the photos without attribution. Although the arbitrator did not explicitly call out Orgill as one of those distributors, the notion that Sylvania would have permitted (i.e., sublicensed) only some of these third parties to use the photos but not Orgill makes no sense.
Having considered the entire record, the court found it indisputable that Sylvania intended — indeed, wanted — Orgill to use the photos, and gave the photos to Orgill for precisely that purpose, just as the license itself anticipated and allowed. For the foregoing reasons, the appeal affirmed the grant of summary judgment in favor of Orgill.