What Does “Exclusive” Mean?

Last month, the Eleventh Circuit delivered its opinion in the case of Great Bowery v. Consequence Sound. The ruling is not terribly (ahem) consequential for the copyright world. This is not a hot button issue, and the opinion does not establish any new rules—at this stage of the litigation, it is a relatively simple question of standing. But the ruling does provide a useful instruction on the nature of “exclusive licenses,” the meaning of which has become a subject of some confusion in the scholarly publishing world.

Standing is a constitutional requirement for all federal cases. Under the federal courts’ interpretation of the Article III “cases or controversies clause,” courts cannot hear a case unless the party bringing suit can allege they have suffered some kind of injury. In addition, the injury must be an “injury in fact,” rather than merely a trivial or hypothetical one. In copyright, this means you must be the owner of an exclusive right in a work, or the court cannot hear your case.

The question here was whether the plaintiff had such an exclusive right. A well-known photographer granted the plaintiff, Great Bowery, the “exclusive worldwide right to license, market, and promote” certain of her images. However, in the same paragraph, the photographer reserved certain exclusive rights for herself over those same photographs. As part of their defense, Consequence argued that the photographer’s act of reserving rights for herself necessarily meant she could not have transferred an exclusive right. After all, Consequence argued, it cannot be an exclusive right if someone else has an overlapping exclusive right. The District Court bought this argument holding that Great Bowery had no exclusive rights under the contract, and so had no standing to sue.

The Eleventh Circuit held, I think correctly, that the District Court’s argument was “not quite right.” The Court did not go so far as to say that Great Bowery did have standing; rather, the Court ruled that an important assumption on which the District Court relied was faulty, and so the question needed to be reconsidered in light of the correct assumption. The Court remanded the case back to the District Court, which will now reconsider the standing question.

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What caught my attention about this case is an implication it has for understanding a feature of nonexclusive licenses in the copyright system, found in 17 U.S.C. § 205(e). In a nutshell, if a copyright owner grants a signed, written nonexclusive license, and then transfers the copyright in the work to someone else, the prior nonexclusive license is not cancelled out. As we’ve often written, Sec. 205(e) is the mechanism that makes the federal public access policy and many university open access policies tick. The idea is the author grants the institution a nonexclusive license in advance, so that if a publication agreement causes the copyright ownership to changes hands, the institution can continue to provide public access to the work.

Publication agreements sometimes contain wording where the grantor (normally the author) conveys an “exclusive license” to the publisher. An assumption I have sometimes seen is that one cannot assign an “exclusive license” to a publisher when there is a pre-existing nonexclusive license that overlaps with it. An exclusive license, the argument goes, cannot be exclusive if someone else also has rights that conflict with the grantee’s rights. But this reading is incorrect, and the Great Bowery opinion helps explain why.

The confusion arises from distinct, but related meanings of the term, “exclusive.” Under one meaning of the term, “exclusive” refers to something that is undivided. In that context, the party on the receiving end is assured there is no one with existing rights. In journalism, for example, an “exclusive story” is one given to a single news source. An exclusive story would be of little use to a newspaper if their competitor already had standing rights over the same story, so “exclusive” must take this first meaning to make sense. By contrast, in the context of copyright, an “exclusive right” is closer to its root word—it is the power to exclude any future uses, but can coexist with prior nonexclusive rights.

The term, “exclusive license” is not a term that shows up much in the law. Title 17 often refers to nonexclusive licenses, but generally avoids the term “exclusive license.” Under the copyright law, an exclusive license is by definition a “transfer of ownership.” There is no difference between the two terms—they are two ways of expressing the same thing. (Outside a single use in the definition section, “exclusive license” only ever appears in Sec. 114, and that section is a bit of a mess). An exclusive license, then, is a transfer of ownership of an exclusive right. And if you own an exclusive right under Secs. 106 or 106A, then you have standing to sue for infringement of that right. However, at least in copyright, there is no separate “exclusive right to sue”—one must actually own an exclusive right in order to be able to sue over its infringement. 

Importantly for this case, one need not own the entire scope of an exclusive right in order to be a copyright owner. The law allows subdivision of exclusive rights. One party might own the exclusive right to reproduce a work in print, and another the exclusive right to reproduce the work in a digital format. For better or worse, the ability to subdivide exclusive rights is limited only by the parties’ imagination. As an example, in this case the Eleventh Circuit quoted the Nimmer treatise for the proposition that an “exclusive license” could grant a newspaper dealer the sole right (i.e., an “exclusive right”) to distribute a particular edition of a newspaper on a particular day on a particular corner, and that would allow the dealer to exclude anyone else from selling that edition at that time in that place.

The Court explained that, since the exclusive rights are infinitely divisible, the photographer could provide exclusive rights to Great Bowery, and at the same time retain exclusive rights for herself, simply by carving the rights with a finer blade. Put another way, the photographer could (and did) give Great Bowery exclusive rights, but with holes in those rights where she didn’t. She sold the bag of marbles, but kept the red ones for herself.

Though the case is about conflicting exclusive rights, the same logic applies when an exclusive right overlaps with a prior nonexclusive right. When the owner of, say, a research paper assigns an exclusive license in a work to a publisher, any prior nonexclusive licenses are carved out of the exclusive license by operation of law. That does not make the exclusive license any less exclusive. The license is still a transfer of copyright ownership, the publisher still receives an exclusive right, and the publisher can exclude any future uses of that right. But as Great Bowery illustrates, Sec. 205(e) carves out the narrow piece of intellectual spacetime that any prior nonexclusive licenses inhabit.

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Analogies to real property are sometimes problematic in copyright, but they are useful here. The ways a land owner can divide her land are somewhat more limited than they are for copyright, but in principle, the owner of a parcel of land can carve up ownership rights to that land in much the same way the owner of a copyright can. A landowner can divide her lot in two, divesting ownership of one plot while retaining sole ownership of the second. In much the same way, in Great Bowery, the photographer transferred certain exclusive rights to her photographs while retaining different exclusive rights for herself.

In this simile, a nonexclusive license more closely resembles an easement on the property, such as one allowing utility access to sewers or electrical conduits. Easements that “run with the land” remain in place even after the property is sold, but the fact that land is burdened by an easement does not make it any less the landowner’s property—the landowner can still exclude anyone else from using that land. Sec. 205(e) causes signed, written nonexclusive licenses to run with the land, as it were. And as with the land easement, a prior nonexclusive license granted for a work does not make the rights transferred in an exclusive license any less of a transfer of ownership—it just narrows the scope of the rights transferred.

It should be said that the infinite divisibility of copyrights creates many problems, as does infinite divisibility of land. In practice, land is not infinitely divisible—over several centuries, courts have narrowed the means for transferring land. Too much divisibility in land leads to problematic checkerboarding and fractionation, and too much divisibility in exclusive rights makes copyright, as Mike Godwin put it, “fractally complex.” I would love to see Congress fix this, but in the meantime the divisibility does at least help make sense of the nature of exclusive licenses.

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Looking forward, the case presents interesting questions about the nature of copyright licensing agreements as well as third-party rights to bring infringement actions on behalf of another. The District Court will undoubtedly consider them now that this standing question has been resolved. For now, the Eleventh Circuit has provided some useful guidance on some confusing terminology.