Furryrecords, Inc. v. Realnetworks, Inc.
64 U.S.P.Q.2d 1382 (2002)
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Rule of Law:
A broad license granting rights to exploit a copyrighted work 'by any and all means and media,' including specific 'digital storage, download and transmission rights,' implicitly includes the right to make necessary intermediate copies, such as encoding into MP3 format, to facilitate that exploitation. A contract with a perpetual term is not unconscionable or terminable at will if it is non-exclusive and subject to statutory termination rights under federal copyright law.
Facts:
- On September 3, 1999, musician and attorney Hannah Bentley (performing as Sam LaHanna) entered into a license agreement with music promotion company The Orchard, LLC.
- The agreement granted The Orchard the non-exclusive right to 'sell, distribute and otherwise exploit' LaHanna's recordings.
- The grant of rights applied to 'any and all means and media (whether now known or existing in the future)' and specifically included 'digital storage, download and transmission rights.'
- The agreement stipulated that The Orchard's right to sell the recordings would continue 'in perpetuity.'
- The Orchard subsequently created MP3 copies of Bentley's recordings in order to distribute them digitally via the internet.
- On July 24, 2001, Bentley sent a letter to The Orchard purporting to terminate the agreement.
Procedural Posture:
- Hannah Bentley and FurryRecords, Inc. filed a lawsuit against The Orchard, LLC, and other defendants in the U.S. District Court for the Southern District of New York.
- The complaint alleged violations of the Copyright Act, the Lanham Act, and common law.
- Three other defendants were dismissed from the case by stipulation.
- Both the plaintiffs (Bentley) and the remaining defendant (The Orchard) filed cross-motions for summary judgment.
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Issue:
Does a license agreement that grants the non-exclusive right to 'sell, distribute and otherwise exploit' recordings via 'any and all means and media,' including 'digital storage, download and transmission rights,' but does not explicitly mention 'copying,' permit the licensee to create MP3 copies of the recordings for digital distribution?
Opinions:
Majority - Rakoff, J.
Yes, the license agreement permits the creation of MP3 copies. The broad grant of rights to 'otherwise exploit' the recordings and the specific grant of 'storage, download and transmission rights' inherently include the right to make necessary intermediate copies, such as MP3s, to exercise those rights. The court rejected the argument that the contract was unconscionable, noting that Bentley was a law school graduate who understood the simple, four-page agreement, and that a non-exclusive perpetual license in exchange for promotion is not inherently unreasonable. Furthermore, the contract is not terminable at will under New York law because it expressly provides for a perpetual term, and this term is made 'determinable' by the federal statutory right under 17 U.S.C. § 203(a)(3) allowing the author to terminate the grant after 35 years.
Analysis:
This decision clarifies the interpretation of 'new media' or 'future technology' clauses in copyright license agreements, establishing that a broad grant of exploitation rights includes the necessary technical steps to realize them. It reinforces that courts are unlikely to find a contract unconscionable under New York law when the parties are sophisticated and there is no evidence of procedural unfairness. The case is also significant for demonstrating how federal copyright law's termination provisions can interact with state contract law, providing a 'determinable' duration that prevents a perpetual contract from being terminable at will.
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