The 9th Circuit Court of Appeals recently ruled in favor of a software company hit with a copyright infringement suit filed by its founder over the company's continued use of software integral to its business. The holding in the case, Johnson v. Storix, Inc., should be of particular interest to startups and their investors who might be concerned about whether transfers of founders' early-stage works of authorship were effective-in other words, who owns the company's copyrights?
Background of the Case
The plaintiff, Anthony Johnson, developed and marketed the company's software sometime around 1999, and then formed the company Storix, Inc. in 2003. Johnson never executed a "proper" copyright assignment document transferring his copyright in the software to the newly-formed corporation. Typically, at the time of formation, startups require all founders and employees to transfer any copyrights, patents, or other intellectual property they have created to the company via assignments or work made for hire agreements.
Johnson left the company in May 2014, and in August 2014 filed a copyright infringement suit based on Storix's continued, allegedly unlicensed use of the software. The district court denied his summary judgment motion and his motion for a new trial after losing.
Neither "Magic Words" Nor a "Magna Carta" Necessary, Says 9th Circuit
The premise of the plaintiff's argument was sound enough at first glance: absent a written copyright assignment, a transfer of a copyright is not valid. Under 17 U.S.C. § 204(a), “a transfer of copyright ownership...is not valid unless an instrument of conveyance, or a note or memorandum of the transfer is in writing and signed by the owner of the rights conveyed.”
However, the trial court and the appellate court both found that Johnson had indeed transferred the software copyright to the company. Both courts based this conclusion on a 2004 Annual Report that Johnson signed in which he personally stated that “all assets from Storix Software were transferred to Storix Inc., as of its incorporation as of February 24, 2003.”
The 9th Circuit found that the Annual Report satisfied §204(a)'s writing requirement "as a “note or memorandum” because it was signed by Johnson and memorialized a transfer of assets," despite that fact that the words "copyright" or "software" were never used in the report. The court noted that a writing evidencing transfer "does not require any “magic words . . . Rather, the parties’ intent as evidenced by the writing must demonstrate a transfer of the copyright.” Further, the court stated the writing does not “have to be the Magna Carta; a one-line pro forma statement will do.”
The lesson learned from this case is that failure to execute a simple, written copyright assignment at the time of business formation leaves the door open for founders or employees to dispute a company's ownership of copyrights, thus potentially exposing the company to expensive and resource-draining litigation.