Tuesday, July 02, 2019

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.

1 comment:

Anonymous said...

It would really help me understand the decision and follow your arguments if you separated out more clearly what the court said and what you think about what the court said. As it stands they are so intertwined that I often found myself re-reading in order to sort out which was the court's view and which was yours.