How Much Permission Do Implied Licenses Grant?

This article was written for The Licensing Journal and was published in its May 2021 issue.

A recent spate of athlete-driven cases illustrates the increase in implied license defenses to copyright infringement claims. This expansion of the implied license doctrine opens a new set of questions that are yet to be answered.

Implied licenses have long been common in software infringement cases. These cases mostly arise when software developers allow clients to use a product under development and expect the client to eventually purchase licenses for the completed product. When those relationships break down, courts are often put in the position of making an equitable determination of what, if any, damages are owed.

There is also a known problem for employers whose employees market themselves using company owned copyrights. That’s true not just of celebrities and athletes, but of many public-facing employees. A recent case involving Kawhi Leonard raised some of those relatively well-understood issues.[i]

In June 2019, Leonard made a case that he was the best basketball player in the world by leading the Toronto Raptors to the NBA title. During those NBA Finals, Leonard sued Nike over control of a claw logo he and Nike used to promote his brand before Leonard left Nike for New Balance.

Nike had a contract that a federal judge determined made it the owner of the claw logo.[ii] But since Nike let Leonard use the logo outside of their contractual relationship and tacitly endorsed those uses, did Leonard have an implied license? Even if Leonard did not have permission, Nike’s conduct raised questions about whether he believed he had permission and therefore could not be liable for willful infringement. While the terms of the parties’ eventual settlement are confidential, this uncertainty likely led to a resolution that was a bit disappointing for both sides.

Celebrity Tattoos Have Complicated Implied License Concerns

The above examples present relatively straightforward problems. Recent decisions about the inclusion of tattoos in video games have shown how implied licenses can complicate copyright lawsuits and raise a host of novel issues. Both cases discussed in this column involve athletes with prominent tattoos featured in video games.

The case before a New York federal court did not address these difficult issues in any depth, but granted summary judgment in favor of the video game company. The court found, among other successful defenses, that there was an implied license allowing in-game depictions of NBA players to include their tattoos.[iii] An Illinois federal court was less certain. It ordered a trial be held to resolve whether a video game maker had an implied license to use a wrestler’s tattoos.[iv]

The facts of both these cases raise serious questions about whether any implied license was broad enough to cover these reproductions and whether any payment might be due to the copyright owner.

A license is just permission to act.[v] Permission to use copyrighted works normally comes with terms and conditions. The same is true even where the permission granted is only implied based on the parties’ actions.

The two most basic terms of copyright licenses are the scope of the license and the royalties owed. In most cases where permission is granted to use a copyrighted work, that permission has limits. Those limits might be territorial (only in these countries or only in these buildings) or may be use related (only for certain types of customers or only in making certain types of products). Using the work outside that allowed scope is often not just a breach of contract, but also copyright infringement.

The other basic term, royalties owed, can also create liability for a party with an implied license, even where there is no copyright infringement. In these cases, the implied license is a “get out of copyright infringement jail” card. But that defense comes with a cost.

Even With an Implied License, a Defendant May Still Be Liable for Copyright Infringement

The U.S. Court of Appeals for the Federal Circuit recently ruled that the U.S. Navy acted outside the allowed scope of an implied license and was liable for copyright infringement.[vi] In this case, the software developer let the Navy use its product, but it did so only within certain limits. Since the Navy acted outside those limits, it did not have implied permission and was liable for copyright infringement.

The majority of courts have ruled that if a copyright holder intends to limit an implied license, that limit must be expressly stated.[vii] But that principle is not uniform. This raises a question about the extent of any implied license when tattooing a celebrity.

In the Illinois case, the wrestler, Randy Orton, licensed his likeness to World Wrestling Entertainment, which then licensed the likeness to the video game maker. The question raised by that conduct is not as simple as whether Orton can directly license his likeness, including his tattoos.

Did the tattoo artist give an implied license that allows Orton to make unlimited sublicenses and grant those sublicensees unlimited rights to issue their own sublicenses? Can Orton license his image, including his tattoos, to tattoo parlors? Can he license just the tattoos themselves to other tattooists?

Presumably, the line between what is allowed under any implied license and what is outside the permission implicitly granted will be determined at trial. Despite a few recent tattoo cases, this is all unsettled and uncertain.

A Defendant May Owe Royalties Under an Implied License

Even when an implied license is a complete defense to copyright infringement, the licensee may still owe royalties.[viii]

An implied license is generally created by the parties’ conduct. That means the way the parties act toward each other sets the terms of the permission that is granted. The parties’ conduct might include an express or implied royalty. For instance, an implied license between two parties that work together often might include an implicit agreement that the same royalty is owed as the one generally paid in their agreements.

Because implied licenses are equitable in nature, courts can impose a fair royalty, even where the parties’ conduct does not imply the royalty itself.[ix]

The parties to these tattoo-focused lawsuits do not appear to have raised an issue of royalties or other compensation if the court found an implied license existed. It is easy to see that the further away licensing gets from a celebrity directly licensing his own image, the better the argument that a royalty would be due. But until a party raises those arguments, it is hard to know how a court will receive them.

Questions Remain, but Courts are Trending Toward Implied Licenses

The issues raised by these cases are new. While this makes it difficult for attorneys to advise their clients, the trend is clearly in favor of implied licenses. That should give caution to plaintiffs, but it should also cause plaintiffs to make claims for damages even if it is determined an implied license exists.

Please contact Andrew Coffman or any member of Phelps’ Intellectual Property team if you have questions or need advice and guidance.

 

[i] Leonard v. Nike, Inc., 3:19-cv-01035 (S.D. Cal. 2019); Leonard v. Nike, Inc., 3:19-cv-01586 (D. Ore. 2019).

[ii] Leonard v. Nike, Inc., Case No. 3:19-cv-01586, 2020 U.S. Dist. LEXIS 86902, at *8-9 (D. Ore. May 18, 2020).

[iii] Solid Oak Sketches, LLC v. 2K Games, Inc., 449 F. Supp. 3d. 333, 345-46 (S.D.N.Y. 2020).

[iv] Alexander v. Take-Two Interactive Software, Inc., Case No. 18-cv-966, 2020 U.S. Dist. LEXIS 46713 (S.D. Ill. Mar. 18, 2020).

[v] F.B.T. Prods., LLC v. Aftermath Records, 621 F.3d 958, 965 (9th Cir. 2010).

[vi] Bitmanagement Software GMBH v. United States, 989 F.3d 938 (Fed. Cir. 2021).

[vii] See e.g. Latimer v. Roaring Toyz, Inc., 601 F.3d 1224, 1235 (11th Cir. 2010) (citing Asset Mktg. Sys. V. Gagnon, 542 F.3d 748, 755-56 (9th Cir. 2008).

[viii] Wilchombe v. TeeVee Toons, Inc. 555 F.3d 949, 961 (11th Cir. 2009) (“one who grants an implied license may – or may not – be entitled to a royalty, depending on the terms of the implied license.”)

[ix] De Forest Radio Tel. Co. v. United States, 273 U.S. 236, 241 (1927).