By Thomas M. Fafinski
There was a split between several of the Federal Appellate Circuits regarding the registration requirement of copyright infringement suits. Last week, the United States Supreme Court resolved the split and will likely impact the number of applications being made with the U.S. Copyright Office. Importantly for MSPs, there is an opportunity to increase your leverage in settlement discussions involving former employees using your protected information.
Pursuant to the Copyright Act, copyright protection attaches to original works, i.e. literary, musical, and dramatic works which are “fixed in any tangible medium of expression”. Such protection can be applied to training manuals, internal processes and procedures, designs and schematics. The author of the original works obtains the exclusive rights upon creation of the work. These rights include the right of reproduction, distribution (even if the distribution is to only 1 person), and display. Federal copyright protection does start upon the creation of the original work. However, the Copyright Act requires the copyright owner to register the copyright before instituting a civil action for infringement. Registration is an application process that takes months to accomplish. Some Circuits indicated that the registration requirement was accomplished upon application. Other Circuits held that the registration had to be approved by the United States Copyright Office.
The United States Supreme Court, in the case of Fourth Estate Public Benefit Corp. v. Wall-Street.com, resolved the dispute in favor of the registration approval by the United States Copyright Office as requirement or condition of maintaining an infringement action. As a result, before pursuing any infringement claim in court, the copyright claimant must comply, with limited exceptions, with the requirement that “registration of the copyright claim has been made.”
Importantly, authorship or ownership rights exist separate from registration requirement. Infringement is still actionable even if the infringement occurred prior to the registration. Registration is, essentially, an administrative hurdle that the owner must satisfy before suing to enforce ownership rights.
So, what is the impact of this decision?
Whether someone will infringe upon your copyrighted work is an unpredictable event. If the author wants to immediately protect such work and stop the infringement of others without having to wait months and months, the owner of the copyright will have to file application.
In another United States Supreme Court decision involving copyright infringement actions released on the same day, the Court decided in Rimini Street, Inc. v. Oracle USA, that only the costs provided for through the Copyright Act were recoverable. Specifically, an aggrieved party can recover (1) clerk and marshal fees, (2) transcript fees, (3) printing and witness fees and costs, (4) exemplification and copying fees, (5) docket fees and (6) compensation of court-appointed experts and interpreters.
Rimini Street provided software support to customers of Oracle. During that support, Rimini Street copied Oracle’s software without permission. The underlying action authorized Oracle to recover nearly $13 million in litigation expenses, $3.4 million in costs and $28.5 million in attorney’s fees. The underlying action also resulted in a jury award of $35.6 million for copyright infringement and $14.4 million for violation of state computer access statutes. While Rimini Street lost the underlying action, the appeal here resulted in a savings of $12.8 million for the costs awarded beyond the Copyright Act.
What does this mean for Managed Services Providers?
Successful MSPs have defined processes and procedures, training manuals, scenario sequences, design schematics, strategies for implementation which combine various solutions and other material. This information, whether internally disseminated or distributed to customers themselves, provide the MSP with a competitive advantage. Specifically, MSPs compete with two distinct groups. First, market competitors, some of whom employ the MSPs former employees. This group is who most MSPs regard as their competitors. There is another, more latent competitor who likely is accessing the MSPs Copyright Act protected information – the former customers of the MSP. Sometimes the customer continues to use the information with their subsequent providers – even supplying the new MSP with all the information. Oftentimes, the customer has hired away one of your employees and try to create the identical solution for significantly less cost. To prevent such infringement immediately with an injunction, registration of the above works is required in advance of initiating suit. Clearly, the leverage associated with a preliminary cease and desist letter, accompanied by the copyright registration, to a former customer that has hired an employee of yours and refuses to pay the liquidated damages fees in your Master Services Agreement for the placement fee equivalent would make the effort for registration worthwhile.
Thomas M. Fafinski is co-founder of Virtus Law PLLC. Virtus Law PLLC has a practice focus in technology, primarily supporting managed services providers.