As the World-Wide Web becomes an increasingly important research medium, many new services are emerging which seek to organize the wealth of information available on the Internet for specific purposes identified by clients. Ironically, the easy access to a universe of information and data available in digital form is fast becoming one of Internet’s greatest vulnerabilities, leading to potential liabilities for doing business in cyberspace. There are some who believe that existing laws are inapplicable in cyberspace, there are others who believe that sui generis law is the only basis for structuring commercial relationships in cyberspace and seek compliance only with specifically enacted legislation, but the truth as usual lies in between these extremes. Virtually every aspect of engaging in commercial business activities on the Internet raises some novel issues of law, therefore companies doing business on the Web should seek qualified legal advice to properly structure the relationships with clients and information providers to strike the balance between the freedom of cyberspace and potential liabilities in the material world.
This article will specifically focus on legal issues arising in licensing agreements between service providers (“Provider”) specializing in aggregating and analyzing information from various sources (broadcast, video and audio) and creating products based on the results of such analyses for commercial distribution to clients.
Under copyright law, unless permission or a license has been granted by the owner, any copying, reproduction, publication or distribution of copyrightable material is generally illegal, including the materials available on the Internet. Even though the information may be readily available to the public on the Internet, any commercial use of such data by Provider seeking to incorporate it, even in part, into a product for commercial distribution, must be authorized by the owner, usually in a license or service agreement. Since the Copyright Act is a strict liability law, penalties for infringement can be severe.
To identify the rightful owner of copyrights, especially in multimedia fields, is not always an easy task, and may involve significant due diligence efforts.
To the extent practicable, license agreements should be sought with every owner of information (“Licensor”). Once this process is initiated, general and individual copyright notices (as the case may be) should be prominently displayed by Provider. If the products will be distributed in hard copy format individual copyright notices should be prominently displayed in the body of the product, clearly identifying the licensor by a statement that materials have been reproduced under a license. If products will be available on line, or access to a database containing aggregated copyrightable materials will be provided to clients, a general copyright notice should be prominently displayed on the home page or log-in page and, to the extent possible, within the database components, stating: “All materials contained herein reproduced with the permission of its respective copyright owners. Any further reproduction is strictly prohibited. All Rights Reserved.”
Two other issues related to copyrights must also be considered: (i) use of copyrighted material by Provider’s clients and (ii) indemnifications for third-party copyrights in materials delivered by Licensor. At the outset, the license or service agreement must clearly define the product and the data to be incorporated into the product. It is generally advisable to identify each product, rather than a product category and each source of information rather than using such general terms as “any available sources”, or “media” or the like. Then careful attention must be given to defining terms “Permitted Means of Distributions” and “Permitted Uses”. The terms “Permitted Uses” will generally be limited to the internal use of Provider’s products by its clients. In addition, Licensor may require that the Provider bind its clients in a separate agreement (i) to specifically restrict the use for non-commercial and internal purposes, such as analysis and internal review, and (ii) to prohibit public exhibitions and dissemination, and restrict the use in legal matters. Licensor may also request that Provider, upon becoming aware of unauthorized use by its clients, cease the sale of products to such clients until it obtains assurances that violations will not continue and assist Licensor in exercising its rights (the Provider, however, is usually not required to seek injunctive relief in order to comply with this requirement). “Permitted means of distribution” will usually focus on distribution or sale to Provider’s clients only.
The second significant issue to be addressed as stated above is the responsibility and liability of Provider for distribution of material to which licensor does not hold the copyright. Depending on the source of the information, incorporated into the Provider’s product, the indemnification may be provided by either party. Licensors generally should not allow the distribution of information to which they do not hold appropriate copyrights. On the other hand, some materials may contain information from various sources to portions of which Licensor holds no copyrights, in which case Provider may require Licensor to obtain rights authorizing distribution. If such rights are not easily obtainable yet the Provider wishes to use the information anyway, Licensor may require that the Provider assume responsibility and agree to indemnify Licensor for any third-party liability as a result of Provider’s activities.
Standard Terms with Novel Twists
While there are certain terms considered standard in every license agreement (such as scope of the license, territory, exclusivity, distribution, marketing and promotion, basis of royalties), these standard terms when involving relationships in cyberspace must be described with particular care and often present novel issues. For instance, while negotiating a license agreement, on behalf of a new media client, for distribution of a service product through the Internet the term “Territory” presented a challenge. While a standard license agreement would identify “territory” based on physical attributes, i.e. distribution of a product in a particular state or country, in cyberspace “territory” automatically covers the whole world. Therefore, a definition of “territory” must be necessarily tied to some physical attributes relating either to the location where product was created, or location of clients places of business, or some other aspect of the business relationship.
Among the other items to be negotiated while structuring a licensing relationship for new media clients are the follows:
The Contracting Party. While this may seem obvious, the actual legal owner of copyright is not always clear, especially in the entertainment or multimedia fields. The actual owner may not be the entity which distributes or broadcasts the information, but a production company which created a particular product. It is, therefore, advisable to verify which is the appropriate party to grant the rights.
Grant of License. It may be helpful when applicable, to track closely the language of the Copyright Act when referring to the grant of rights. In other instances, a detailed description of the actual process by which the licensed data will be transformed or incorporated into Provider’s product should be used in defining the granted rights. There should also be a corresponding right to distribute the Provider’s product in different formats (i.e. via the Web, e-mail, hard copy, etc.) The Licensor may choose (i) to reserve certain rights, in which case they should be clearly specified or (ii) to specifically exclude some rights from each category or format, in which case the excluded rights should be listed and attached as an Exhibit to the license agreement in order to provide a clear record of negotiated rights. There may also be rights which can be exercised only with the consent of Licensor or both parties or over a particular period of time.
The Data Format. As was stated above, if the licensed data will be available on-line or in other electronic format, it is advisable to describe in detail the product and the electronic environment in which licensed data will be commercially distributed. In addition, it is useful to include a “catch all” language regarding a grant of rights “in all media, whether now existing or hereafter developed” or such similar language.
Exclusivity. The issue of exclusivity may require devising novel definitions similar to the question of “territory”. It especially requires careful drafting when both Licensor and Provider utilize the Internet to distribute their respective products.
Distribution of Products. Distribution over the Internet again defies the territorial restrictions, therefore, while a license or service agreement may state that hard copy distribution is limited to the United States only, an exception should be provided for distribution over the Internet in electronic formats. The law is in the early stages in resolving the conflict between territorial boundaries and definition of personal jurisdiction in terms of physical contacts on the one hand and enforcement of rights in cyberspace in the absence of any physical contact on the other hand. The best solution for the time being is thoughtful negotiation and clear drafting.
Advertising and Promotions. Obtaining a license does not automatically include the right to use the materials and associated logos and trade names or service marks of Licensor in advertising and promotional materials prepared by Provider. This right has to be specifically negotiated and usually such promotional materials have to be submitted to Licensor for review and approval.
Archiving data. The Provider who may wish to retain licensed information for archiving purposes needs to negotiate such right as a separate matter. Licensors may feel that the risk of violating third-party copyrights or exposure for defamation and other liability increases with time, particularly given the development of new technologies which allow Worldwide transmission and easy copying of almost any data. In addition, archiving may also compete with the services Licensor wishes to provide directly itself. Therefore, the terms of archiving rights, specifying which data and in which formats as well as for which period of time, must be specifically negotiated.
Accounting and Audit Rights. Again, since products may be distributed via Internet, accounting for royalty payment purposes will need new definitions. For instance, if a database access is contemplated on a commercial basis, the payment unit for information must be defined (i.e. based on each screen of text, or a file of data or a complete story, regardless of the number of screens of its text, etc.). For audit purposes, Licensor may be provided with access to electronic log-files tracking access to data by clients.
Governing Law and Jurisdiction. Given many novel issues related to doing business and enforcing rights in cyberspace, it is always advisable to contract for applicability of the law of a particular jurisdiction, based on traditional contacts of the parties with a particular location to avoid finding oneself litigating in a jurisdiction to which one has no contact other than location of a server for client’s web page.
As the Internet’s popularity and business value soars, the legal community continuously strives to find or create tools necessary to safeguard clients’ interests in cyberspace. To understand these issues the lawyer must have a basic understanding of computers and networks generally and the Internet and the World Wide Web specifically. It is not sufficient to simply know the meaning of various terms and abbreviations, however. It is most important to develop an understanding of the culture that developed among the users of on-line networks and electronic formats. A lawyer cannot provide a well-reasoned advice about the Internet without an understanding of its unique characteristics.
Juliette M. Passer, is a U.S. attorney, has over 14 years of broad international transactional experience, specializing in corporate and project finance, as well as the new media transactions and e-commerce.
Ms Passer holds a JD (cum laude) from Cardozo School of Law and studied Soviet Law at the Columbia University School of Law. She practiced law with the international law firms of Debevoise & Plimpton and Patterson, Belknap, Webb & Tyler in New York specializing in corporate and project finance. She has represented both US and foreign clients in transactions in such sectors as aviation, aircraft leasing, transportation, pharmaceuticals, petrochemicals, telecommunications, technology transfer, information technology (IT) and the Internet, advertising, clothing manufacturing, defense conversion, entertainment, non-profit organizations and printing. She has worked on international transactions ranging from mid-size joint ventures (such as a venture between a US-based IT company with a Turkish software developer with a Russian outsourcing team or a Russian tractor manufacturer and a US investment fund) and debt and equity investments into Central and Eastern European manufacturers by U.S. investment funds to $300 million debt restructuring of a U.S. telecommunications company and a $250 million petrochemical plant financing by a Finnish company, among numerous others, in such diverse markets as the former republics of the USSR, Eastern and Western Europe, China and Turkey.
During the last four years she also has been working with the Internet-based companies on a broad range of projects, from financings to licensing and domain names disputes, as well as international business transactions and general corporate representation for new media and IT companies. She also serves on boards of several companies. She is listed in Who’s Who in American Law and Who’s Who in American Women. As a pro bono undertaking she represents Russian artists, dancers and musicians.
She is fluent in Russian and has a working knowledge of Ukrainian. She writes and speaks widely on the issues of law and commerce in the emerging markets as well as the Internet, IT and e-commerce. She is a member of the Council on Foreign Relations and served on the Boards of Directors of the Council for Trade and Economic Cooperation and other companies. She maintains a wide range of contacts in Russian regions as well as in Central Asia, Eastern Europe and China. From 1990-1993 she was an adviser to the Committee of Economic Development of St. Petersburg for the development of free economic zones and participated as an US expert in drafting and commenting on various legislation for several Republics of the former USSR. From 1997 until January 1999 she was an US adviser to the Finance Committee of St. Petersburg.
Ms Passer holds BM and MM degrees from the Manhattan School of Music majoring in harp, conducting and music education; postgraduate work at the New York University in child psychology and music therapy. She also studied at the Santa Cecilia Conservatory in Rome, Italy. She performed in the US and Europe as a harpist, as well as directed numerous productions of American musicals before embarking on the career in law. She currently serves as music director for ES Records, Inc. and has co-produced and released three original recordings of classical and neo-classical music.
Juliette M. Passer, Esq.
Specializing in International Corporate Finance, New Media & Technology Transactions