Third Circuit requires showing irreparable harm in (c) case, rejects “compelled speech” argument

TD Bank N.A. v. Hill, No. 16-2897 (3d Cir. Jul. 1, 2019)
Commerce Bank, which merged with TD Bank, has been in a
“bitter feud” with its former CEO, Vernon Hill II. TD Bank sued Hill, alleging
that a portion of his 2012 book infringes a neglected manuscript that Hill
co-authored while CEO of Commerce Bank. The trial court agreed, and granted a
permanent injunction because there was irreparable harm inherent in violating
the Bank’s “right to not use the copyright.” The court of appeals agreed that
the bank owned the copyright (with a highly employer-friendly ruling that a
failed WFH agreement evinced an intent to assign the copyright) and that Hill
infringed, but found that the trial court abused its discretion in relying on a
theory of irreparable harm that would apply to any infringement, in the process
pointing out that infringers don’t compel copyright owners to speak in any way
that implicates a First Amendment interest.
Hill was, according to American Banker, “the closest thing
that the staid banking industry has to a rock star,” and in 2006 he decided to
write a book about his business philosophy and more than 30-year tenure at the
Bank. Commerce Bank supported him by hiring a business book author to
collaborate with Hill in drafting the manuscript. Hill mostly worked on it
during evenings and weekends; other Commerce Bank employees sometimes assisted
by answering inquiries and providing feedback. “Resembling both an
autobiography and a marketing tool, the 2007 manuscript included both a
personal dedication to Hill’s wife and ‘the entire Commerce team,’ and a $20
gift certificate to open an account at Commerce Bank.” Commerce entered into an
agreement with a division of Penguin Books as the “Author,” representing and
warranting that it was the exclusive owner of all rights in the manuscript: “The
Author [i.e., Commerce Bank] hereby represents and warrants . . . that Vernon
Hill is the sole author of the Work; that the Work is or will be Vernon Hill’s next
book length work . . . ; that the Author is the sole and exclusive owner of all
rights granted to the Publisher … ; . . . that the Author has full power to
enter into this Agreement and to make the grants herein contained.”  Hill also signed a guarantee that this was a
WFH.
Hill and Commerce Bank broke up and, the 2007 manuscript was
never published.  Commerce Bank terminated
the publishing agreement.  Eventually,
Hill sought to use portions of the manuscript in a 2012 book describing “Hill’s
experiences founding Metro Bank UK, the British banking system, and Hill’s pet
insurance company, Petplan USA.”  [This
list is an example of how the Oxford comma does not in fact remove all
ambiguity and you might be better off rewriting than relying on the comma for
help; I’m guessing Hill did not actually found the British banking system.]  TD Bank admitted that, at most, 16% of the
book infringed the 2007 manuscript, and that it has never published the 2007
manuscript or any competing work and has no interest in doing so. Still, the
district court granted a permanent injunction when Hill apparently kept
promoting the 2012 book.
First, the Copyright Act’s three-year statute of limitations
doesn’t apply to Hill’s defense that he’s the co-owner of the copyright,
regardless of whether it applied to his counterclaim for ownership; a statute
of limitations precludes claims, not defenses.
Second, the WFH agreement failed as a WFH but succeeded as a
written transfer of ownership. The book manuscript didn’t fall within the
listed statutory categories that could be WFH by written agreement, so using
the magic words was no help.  “Had
Congress intended to permit parties to ‘deem’ works by employees as ‘for hire,’
it would have so specified in subsection 101(1), just as it did for independent
contractors in subsection 101(2).” It might be a WFH as the work of an
employee within the scope of his employment, but the district court did not so
find; the parties could litigate the matter on remand if they cared to figure
out the term of the copyright or whether Hill owned termination rights.
However, the Bank still won the issue because the agreement
“operated as an assignment.” Hill “unconditionally guarantee[d] that the Work
is a work made for hire within the meaning of the United States Copyright Law
and that the Author is the owner of copyright in the Work and has full power
and authority to enter into the Agreement.” His agreements “convey[ed] an
unmistakable intent to effect a present transfer of any interest he possessed
in the manuscript. Hill’s assurance that the manuscript ‘is a work made for hire,’
though insufficient to actually render it for hire, denotes an intent to
relinquish his interest in the copyright.” 
This strikes me as a reasonable, albeit not mandatory, interpretation of
the parties’ intent.  A regime that would
provide more protection to natural persons as authors would be a penalty for
overreach: a failed WFH agreement would just disappear, not get reconceived of
as an intent to transfer (the partial dissent seems to lean in this direction).
To avoid just this problem, some contracts I’ve seen express the intent to (1)
deem a work a WFH but (2) in the alternative, if it’s not, express the intent
to transfer to the corporate owner. 
Given that the Bank could’ve written that contract, I have some sympathy
for the dissent.
Next, the court of appeals quickly disposed of merger/fair
use arguments.  There were numerous ways
for Hill to express his life story and business philosophy, and the 2012 book
wasn’t transformative— “it did not imbue the prior work with ‘new expression,
meaning, or message’—so the permissible scope of fair use is more
circumscribed. Given this, as well as Hill’s commercial sales of the 2012 work,
the unpublished nature of the 2007 manuscript, and the potential harm to the
market for the original manuscript if TD Bank ever elected to publish it, the
District Court correctly granted summary judgment to TD Bank on Hill’s fair-use
defense.”
Nonetheless, the district court abused its discretion in
granting a permanent injunction. First, eBay abrogated any presumption
of irreparable harm in copyright cases. The district court found irreparable
harm because the Bank was deprived of the “right to not use the copyright.” We
get a very clear statement: “Neither the prospect of continued infringement nor
the ‘right to not use’ a copyright establish irreparable harm.” Continuing
infringement doesn’t itself make future injury irreparable. And “[h]olding
that a violation of ‘the right to not use the copyright’ necessarily amounts to
irreparable harm would not only resurrect the presumption of irreparable harm,
but make it irrebuttable, even where, as here, the infringement bears only a
tangential relation to the copyright holder’s business.”  Copyright protects incentives to create and
publish, not privacy, reputation, or other interests.
The district court relied on dicta in the Second Circuit Salinger
case, which mused that “a copyright holder might . . . have a First Amendment
interest in not speaking” and later asserted that “‘[t]he loss of First Amendment
freedoms,’ and hence infringement of the right not to speak, ‘for even minimal
periods of time, unquestionably constitutes irreparable injury.’” The Third
Circuit declined to take this musing seriously. 
First, Salinger vacated a preliminary injunction and
required a showing of irreparable harm. 
“Equating copyright infringement with compelled speech would justify an
injunction whenever, as in Salinger, an author chooses not to distribute
a work.” Salinger also reiterated that copyright law aims to protect
“the commercial interest of the artist/author” and “not to coddle artistic
vanity or to protect secrecy.” The Third Circuit noted that “secrecy is exactly
what would be protected if the unauthorized distribution of a work were deemed
an irreparable violation of the original author’s right not to speak.”
A footnote pointed out that the “compelled speech” argument
doesn’t make sense.  “Most obviously,
copyright infringement generally lacks the state action needed to implicate the
First Amendment.”  And even if there was
state action, infringement wouldn’t be compelled speech because “regardless of
whether the author takes offense, the infringer’s use does not coerce the
copyright owner to ‘personally speak the government’s message’ or ‘to host or
accommodate another speaker’s message’ so that ‘the complaining speaker’s own
message was affected.’” Indeed, fair use provides special protection to uses
like parodies, and the Copyright Act also provides for compulsory licensing; as
the court of appeals pointed out, neither of these have ever been (or should
ever be) seriously challenged as compelled speech for First Amendment purposes.
It was abuse of discretion to rely on a “right not to use”
for irreparable harm.
Likewise, the district court was mistaken to conclude that
there was no adequate remedy at law because Hill was handing out the 2012 book
for free.  Actual damages would permit a
reasonable royalty remedy, and statutory damages might also be available. TD
Bank argued that it abandoned its request for statutory damages, so it lacks an
adequate remedy at law. But where an adequate remedy at law exists, “the party
seeking redress must pursue it.”
There’s no categorical rule that all infringement can be
adequately remedied through damages. “But, at a minimum, where the copyright
holder presents no evidence of actual harm and relies solely on the exclusive
nature of the rights conferred by the Copyright Act, a district court abuses
its discretion by concluding that the copyright holder lacks an adequate remedy
at law.”
The balance of equities analysis was also flawed: It relied
solely on TD Bank’s “property interest in its copyrighted material”—the right
to exclude—and dismissed any interest that Hill might have because he had a
property interest in the 2012 book only to the extent that it wasn’t
infringing. “But by that measure, the balance of hardships would always favor the
copyright holder.”  At least three
factors go into a defendant’s claimed hardship: (1) whether the defendant’s own
financial investment, effort, or expressive contribution eclipses the infringing
aspect, (2) how easily the infringing content could be separated from the
defendant’s product, and (3) the degree to which the defendant reasonably
believed his conduct was non-infringing.  (Footnote: (2) differs from merger; merger is
an ex ante issue about whether there was a different way to say the thing.  Separability for hardship purposes is about
how hard it would be to extricate the infringing content, given obstacles such
as sunk costs and path dependence.) 
Here, the balance of equities favored neither party. There was no
evidence of actual harm to the Bank and no more than 16% of the 2012 book
infringed, while Hill’s unsuccessful ownership defense had “considerable
merit,” but there was not much favoring Hill either. Late in the appeal process,
the Bank conceded that a 2016 version of the book didn’t infringe, which
suggested that the book could be noninfringingly rewritten in about a month
(with the benefit of hindsight).
The public interest, however, favored access to the
book.  “Copyright leaves a narrow but
important role for weighing the public’s right to access expressive works, at
least where a copyright owner pursues an injunction not to safeguard the
commercial marketability of a work but merely to suppress unwelcome speech.”  Copyright isn’t “categorically immune from
challenges under the First Amendment,” given its “built-in free speech
safeguards.”  Still, “in exercising its
remedial discretion, a court [need not] ignore whether an injunction would
indefinitely preclude the public from accessing a work.”  In fact, the Supreme Court has suggested that
injunction isn’t always consistent with copyright’s speech-generative
functions; it and other courts of appeal “have emphasized the right of access
to works of public interest.”
None of this was to “countenance blatant piracy or indulge
in second-guessing of a copyright holder’s business model.”  Even with the public interest in access,
injunctive relief might be appropriate. “But, at least where a copyright holder
wields its exclusive rights to suppress unwelcome speech, a district court’s
public-interest analysis should consider a work’s continued availability.”  Hill may not be a great author, but he had
something to say and an audience that wanted to hear him. Meanwhile, the Bank
wasn’t protecting the commercial value of its manuscript with this litigation:
“By its own admission, TD Bank has no real intention of ever publishing or
licensing that work.”
And the injunction—which was granted before the Bank
conceded that the 2016 version didn’t infringe— “also inflicted a far more
subtle and insidious harm on the public by placing Hill in jeopardy of a
contempt finding for sharing anything that ‘sound[s] too much like himself in
the 2007 manuscript.’” [Citing an amicus I worked on.] “In this manner, a
copyright injunction can limit the public’s access to expressive content well
beyond the work at issue in a lawsuit. Far from hypothetical, that danger came
true here when TD Bank threatened to bring a contempt motion against Hill for
the 2016 book, which it did not retract until its appellate response brief. A less
financially secure defendant may well have given up.”
Ultimately, “no invocation of abstract principles can
obscure that TD Bank suffered no actual harm from Hill’s infringement and the
Bank had adequate remedies at law.”
A partial dissent by Judge Cowen would have found that the
Bank waived any argument that there was an assignment.  In addition, Hill’s commitments failed to
“convey an unmistakable intent to effect a present transfer of any interest he
possessed in the manuscript”—the letter, written to a third party and using the
language of “guarantee,” was “doubtful and ambiguous.” There was no
manifestation of an intent to make a present transfer of rights.  WFH and assignment are very different things,
with different consequences.

from Blogger https://ift.tt/2RRuKDL

This entry was posted in Uncategorized and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s