The validity of retroactive licenses and transfers of copyright has been thrown into question by a decision of the U.S. Court of Appeals for the Second Circuit issued in late 2007. Anyone considering an after-thefact agreement would be prudent to include settlement language.

The scope of the decision, Davis v. Blige, 505 F.3d 90 (2d Cir. 2007), is unclear and many expect the court to clarify its ruling. As it stands, the court’s sweeping conclusion that “a license or assignment in copyright can only act prospectively” casts doubt on the enforceability of agreements entered after-the-fact. In fact, the court titled the second part of its decision: “Retroactive Licenses and Transfers are Invalid.”

Unless the scope of this decision is narrowed or clarified, clients are advised to include mention of resolution and settlement in all retroactive licenses and transfers of copyright, since the court specifically exempted settlement agreements from its ruling.

Although the Second Circuit encompasses only New York, Connecticut and Vermont, it is generally considered a particularly authoritative interpreter of copyright law. All clients should be cautious in entering into any retroactive copyright agreements in the wake of this decision.

Case Background

Davis v. Blige involved two songs, “LOVE” and “Keep it Moving,” recorded by hip-hop soul singer Mary J. Blige. The plaintiff, Sharice Davis, co-wrote the songs with Bruce Chambliss, who later assigned his rights in the compositions to his son, Bruce Miller. Without consulting with Ms. Davis, Mr. Miller licensed the songs to Ms. Blige and others for what later developed into her 2001 triple-platinum album, No More Drama.

Ms. Davis sued Ms. Blige, Mr. Miller and others for copyright infringement. Ms. Davis’ co-author, Mr. Chambliss, provided testimony for the defense that several years earlier he had orally transferred his rights to Mr. Miller. This oral agreement, Mr. Chambliss alleged, was memorialized by a written agreement executed after the infringement suit was pending. The after-the-fact written agreement transferred all of Mr. Chambliss’ rights, including “all causes of action for infringement … past, present, and future.”

Although the district court acknowledged that the prior oral transfer was in factual dispute, it granted summary judgment to the defendants on the basis that Mr. Chambliss’ written agreement constituted a retroactive assignment that barred Ms. Davis’ claim on the basis that copyright co-owners cannot sue each other for infringement. Because all the defendants had retroactively received licenses through Mr. Chambliss, Ms. Davis’ claims were extinguished.

On appeal, the Second Circuit narrowly defined the question before it as “one of first impression in the courts of appeals,” as to “whether one joint owner of a copyright can retroactively transfer his ownership by a written instrument, and thereby cut off the accrued rights of the other owner to sue for infringement.”

But its holding was much broader:

An owner who wishes to release unilaterally his own accrued claims may do so using whatever language he chooses – including by calling the negotiated settlement the proverbial “banana” – but such an agreement cannot have the effect of eviscerating a co-owner’s claims based on past copyright infringement, nor can it settle accrued claims held by co-owners who are not themselves parties to the agreement. Accordingly, we hold that a license or assignment in copyright can only act prospectively.

The Second Circuit also stated: “[W]e conclude that such retroactive transfers violate basic principles of tort and contract law, and undermine the policies embodied by the Copyright Act.” The court cited public policy concerns, stating that retroactive transfers create uncertainty in copyright ownership that frustrates legislative intent and creates economic incentives for infringement because retroactive licenses cost less than prospective ones.

The court ultimately reversed the summary judgment ruling, but in doing so it stated that certain precedents relied upon in the district court’s opinion were “distinguishable from the instant case insofar as they involved retroactive licenses granted pursuant to negotiated settlements of accrued infringement claims.”

Broad Effect of a Narrow Ruling

Although the scope of Davis v. Blige appears broad, the court arguably intended to limit its holding to (1) licenses that could divest rights of a co-author that are (2) not granted pursuant to negotiated settlements of accrued infringement claims. The second limitation is explicit, the first arguably implicit in the court’s references to circumstances of the case, involving rights divested specifically between co-owners rather than retroactive transfers in general.

Nevertheless, the scope of Davis v. Blige is ambiguous. Until the court clarifies its decision in future cases, clients should include the language of resolution and settlement agreements in all after-the-fact licenses and assignments of copyright, especially those involving co-owners. Adding this language will help place such agreements within the exception laid out by the court. In addition, Davis v. Blige should be viewed as another demonstration of a long-standing principle of copyright law: licensees or transferees should be sure to obtain a written agreement before making any use of a copyrighted work. They should also actively inquire about the existence of joint authors before entering copyright transfer agreements, especially retroactive agreements.