United States Naval Institute v. Charter Communications, Inc.
2d Cir. 1991 (1991)
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Rule of Law:
An exclusive licensee who violates a contractual term limiting the time or scope of the license commits a breach of contract, not copyright infringement, because the licensee is the owner of the specific copyright rights granted and cannot infringe upon rights they already own.
Facts:
- United States Naval Institute (Naval), as the copyright assignee for the book 'The Hunt For Red October,' entered into a licensing agreement with Berkley Publishing Group (Berkley).
- The agreement, dated September 14, 1984, granted Berkley the exclusive license to publish a paperback edition of the book.
- The agreement specified that the license term began on the date of the agreement, September 14, 1984.
- A separate clause in the agreement stipulated that Berkley was to publish the paperback edition 'not sooner than October 1985.'
- Berkley shipped its paperback edition to retailers early, allowing them to be sold before the agreed-upon date.
- Retail sales of the paperback began on September 15, 1985, and were substantial enough to place the book on bestseller lists before October 1985.
Procedural Posture:
- United States Naval Institute (Naval) sued Berkley in the U.S. District Court for the Southern District of New York for breach of contract and copyright infringement.
- Naval's motion for a preliminary injunction was denied.
- After a trial on the merits, the district court dismissed the complaint, ruling that Berkley had not breached the agreement.
- Naval appealed to the U.S. Court of Appeals for the Second Circuit.
- In the first appeal (Naval I), the Second Circuit reversed, holding that Berkley had breached the agreement, and remanded the case to the district court to determine the appropriate relief.
- On remand, the district court found Berkley liable for copyright infringement and awarded Naval $35,380.50 in actual damages, $7,760.12 in Berkley's profits, and prejudgment interest.
- Naval appealed to the Second Circuit again, arguing the award was too small, while Berkley cross-appealed, arguing it should not be liable at all.
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Issue:
Does an exclusive licensee's publication of a work in violation of a time restriction in the licensing agreement constitute copyright infringement?
Opinions:
Majority - Kearse
No. An exclusive licensee's violation of a term in the licensing agreement is a breach of contract, not copyright infringement. The licensing agreement explicitly stated that the term of the license began on September 14, 1984. This grant made Berkley the owner of the exclusive right to publish the paperback edition as of that date. Because it is legally impossible for a lawful owner of a copyright interest to infringe upon that same interest, Berkley's early publication could not be copyright infringement. The 'not sooner than October 1985' clause was a contractual covenant, not a condition that governed when the license took effect. Therefore, Berkley's action was a breach of its contractual obligations, for which the remedy is contract damages (Naval's actual losses), not remedies under the Copyright Act such as the disgorgement of the infringer's profits or attorney's fees.
Analysis:
This case establishes a crucial distinction between a breach of a license covenant and an act of copyright infringement by an exclusive licensee. It clarifies that when a license transfers ownership of a right, the licensee's actions that exceed the license's scope (e.g., publishing too early) are breaches of contract, not infringements. This has significant implications for remedies, limiting the plaintiff to actual damages under contract law rather than the potentially more lucrative remedies available under the Copyright Act, such as statutory damages or the defendant's profits. The decision forces copyright holders to draft licensing agreements carefully, distinguishing between conditions precedent to the license and simple contractual covenants.
