Restrictions on License

[renaissance501]

Jurisdiction

US Federal Law

Hi,

I am going through a bankruptcy and need to value licenses I have obtained to intellectual property. My question here doesn't pertain to the value, but to whether certain restrictions on the license are enforceable.

The intellectual property in question is a collection of digital home study courses that teach skills in sales, marketing, and business. The courses are not bound in any physical matter as part of the sale. You purchase and then they are loaded onto your members area page, where you can listen to or watch them in your browser, or download the digital files to your personal hard disk(s). The files are all one of the following file types - zip, pdf, mp3, mp4.

The license reads as follows (from the terms and conditions page)-
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All our educational materials are transferred via an Individual Use license. None of our educational materials or courses are sold out right. The terms of this Individual Use License are simple: the buyer, you, purchase an Individual Use License that affords you, use of the material. You may not transfer this in any way. Including… You may not sell your license to anyone else. You may not loan the material, allow others to copy the material, put this on any other site for any other reason etc. In other words, the information is for your eyes only. Of course, we have no objection with you sharing this with your significant other. And other than that, this information is for you.
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Note that all references on the website to the term "Individual Use License" are included in the above snippet. There is no separate section for defined terms.

I have contacted the author of the material, and the **intent** of these terms is to:

-Convey the rights to view, use, or listen to the digital content to the specific individual who first completes the purchase

-Restrict transfer of the license completely, meaning that when I buy a license I may not sell it, give it away, donate it, or in any way convey for any reason any of the rights of the license to someone else

My questions are-

1. Is it a legally valid term of a license to limit use of the digital material to the original license owner? By this I mean that selling a license subject to this term would not convey the recipient the rights for the recipient to use the material (meaning view, watch, or listen to it).

2. Is it legal to impose a restriction that the license cannot be transferred?

3. If the answer to question 2 is no, does this make the entire license agreement unenforceable, or only that specific provision of the license agreement?

To give a tad more detail to my use case, depending on the correct answer to the above questions, I intend to argue that any sale of my license would convey only **my** right to use the material, and the effect of the sale would be to take away my rights but not to confer any rights to the buyer, making the fair market value of my licenses $0.

 

[Tax Counsel]

Copyright law gives the holder of the copyright the right to control how his works are used and distributed. The holder may refuse to allow others to copy his work, to transfer his work, alter his work, etc. So, with one exception I'll mention in a moment, the holder of the copyright may restrict the use of his protected material in pretty much anyway he wishes.

The exception to this is known as the first sale doctrine. Under this doctrine, someone who buys a physical item containing the work — a printed book, a music CD, a movie DVD — may legally sell that physical item (the book, CD, DVD) to someone else notwithstanding whatever restrictions the copyright holder may have. The logic here is pretty straightforward: the copyright holder was already paid for that particular copy of the work, let's say a printed book. And thus the sale or transfer of that book does not deprive the copyright holder of anything since there is still just that one copy out there. When the buyer transfers it, he no longer has the book to read. The buyer is still prevented from copying the book for himself and then selling the one he bought unless he has consent from the copyright holder to make that copy. In short this is a very limited right that allows transfer of that one physical copy of the work.

The problem is that the first sale doctrine does not neatly work in the digital world. You don't have a physical object to transfer and it's very easy to make copies of digital files. As a result, so far buyers have not had success in winning approval in the courts to have the first sale doctrine apply to digital files. A federal appeals court rejected just such an attempt a year ago, stating:

We conclude that the operation of ReDigi version 1.0 in effectuating a resale results in the making of at least one unauthorized reproduction. Unauthorized reproduction is not protected by § 109(a). It violates the rights holder's exclusive reproduction rights under § 106(1) unless excused as fair use. For reasons explained below, we conclude that the making of such reproductions is not a fair use.

Our conclusion is supported by the fact that the Copyright Office also concluded that the resale of digital files is infringing. In 1998, Congress mandated that the Register of Copyrights evaluate "the relationship between existing and emergent technology and the operation of section[ ] 109 ...." Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860, 2876 (1998). The Copyright Office conducted a multi-year evaluation, including review of comments and testimony from the public, academia, libraries, copyright organizations and copyright owners. DMCA Report 2001 at vi. The Register concluded that § 109 does not apply to otherwise unauthorized digital transmissions of a copyrighted work, reasoning that such transmissions cause the recipient to obtain a new copy of the work. Id. at 79-80. The Register reasoned that the creation of a new copy of the work would constitute an unauthorized reproduction falling outside the authorization of § 109(a). Id.; see also 2 Nimmer on Copyright § 8.13[A] (describing the Register's "recommend[ation] against amending the Copyright Act to facilitate a digital first sale").
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Capitol Records, LLC v. ReDigi Inc., 910 F.3d 649, 659–60 (2d Cir. 2018), cert. denied, 139 S. Ct. 2760, 204 L. Ed. 2d 1148 (2019).

In short, I see nothing invalid in the restrictions in your license and would agree with you that the fair market value of your rights are zero since you cannot sell or otherwise transfer them.

 

[flyingron]

The other exception is certain things that are subject to a compulsory license. If you write a song that is used to produce a phonorecord (which includes everything from CDs to digital streaming these days), others are permitted to use your song for their own records provided they pay you the statutory royalty rate.

 

[renaissance501]

Thank you much flyingron. Those were my intuitions as well,'after thinking and researching a little. The most relevant aspect of this after digging in further- licenses are not property. If I am calculating the value of my real and personal property (which includes intellectual property) any intellectual property licenses I have are not relevant in any sense.

I'm going to post another question or two now. Thanks for your great answer

 

[adjusterjack]

I'm going to post another question or two now.

Please keep all of your bankruptcy questions in one thread, this one, and don't open any new ones. It's all the same topic and we like to avoid parallel discussions.

Here's your new question from your other post, which has been deleted:

Hi,

I am in the process of valuing my personal property. The bulk of my property is a large collection of nonfiction books, roughly 1,200 of them.

I also have some electronics that are hard to find used items for online. Then I have a professional
Pool table.

Can anyone reference any websites to value electronics and computers? I've found one so far that is pretty good. By the looks of it, my property will be 100% exempt or near it, so I know that the plaintiffs counsel will Contend with every figure I have.

also, I plan on doing a full CMA on each book I own, on a book by book basis. This is to make sure the value is 100% accurate. In anyone's experience, will the court go with that?

 

[renaissance501]

Got it. I was trying to go to the correct forum. My OP was about intellectual property, with bankruptcy being the application and a side note.

 

[adjusterjack]

We all read all the forums so all your questions will be addressed here anyway, each time the thread gets back to the top of the active list.