Thread by @CBLDF

The controversy over nonpayment of royalties to Alan Dean Foster following the assignment of his book contract to Disney, a third party, raises important issues re all IP contracts, including comics creators’. (by #jefftrexler)

1st, disclaimers: This thread is my opinion, not CBLDF’s. It’s not legal advice, & explanation is *not* endorsement. Same with hashtags - I’m including #disneymustpay here as a reference, not as a legal conclusion...

I haven’t read the contracts involved, though I did read ADF’s open letter and watched the press conference.

The most important takeaway from the upcoming thread: before signing contracts, read carefully and get a legal opinion - or several! OK? Let’s go …

Before we get into the finer details of contract law, a couple big picture notes about law and ethics ...

One core principle it’s vital, if somewhat disheartening, to recognize from the outset is that law and ethics don’t always align. Law all too often runs contrary to what a vast % of population might see as ethical, as law re copyright contracts exemplifies.

Equally important is a fundamental legal maxim that especially applies to legislated rules & agency regulations: law is an old solution to old problems. It takes time to get passed & longer to evolve; it's often not well adapted to current practices.

The law re purchasing contract rights without also acquiring contractual obligations is a case in point. It seems ethically self-evident that a third party shouldn’t be able to acquire copyright from an original assignee without owing royalties, but contract law is more complex.

Sometimes a court or arbitrator will find that both rights and obligations were transferred. Sometimes it’s just the rights - and often, the rights are divvied up and sold to different parties.

Which rights and obligations are conveyed will depend on such factors as the applicable legal category, contract wording, the property or service being transferred, the parties involved, and the personal sensibilities of the decisionmaker.

For example, with regard to legal categories, contract law distinguishes between assignment and novation. Novation is when a party assumes all of a certain party’s rights and obligations in a contract, effectively replacing that original party to the contract.

A lot of the critique seems to be treating the Disney deal as a novation or an assumption of all of the rights & obligations in the original contract, w/ Disney replacing Warner Books as a party.

But third-party transfers of book copyrights & comic IP are typically not done through novation, nor is assumption of all rights & obligations an inexorable rule.

Often the author assigns rights to the publisher, who subsequently assigns some or all rights to third parties, which might later assign those rights to others.

An original contract can get carved up in multiple ways to a web of assignees, which is how we end up with such things as royalty auction sites. royaltyexchange.com

There are also licenses, where the IP owner retains ownership of the IP – you see those a lot in merchandise. licenseglobal.com/keywords/chara…

Given the prevalence of copyright assignment in publishing & the complexity of issues that can arise, for our present purposes we'll focus on assignment contracts.

A longstanding principle in the law re assignments: in personal property (as distinct from real estate), an assignment of rights does not automatically involve an assignment of obligations. Surprising, I know, but this goes back a long way.

For the obligation to transfer there needs to be contractual language to that effect, with the traditional rule being that the original assignor (e.g., the copyright author) has to consent to the obligation transfer.

(If you're thinking I'm about to knock #disneymustpay, please take a break to read my last 15 years of writing on comic creators' rights, then read on for the rest of this thread!)(reminder: this is #jefftrexler speaking own views)

For background, here’s summary of the standard rule from the portentiously named Corpus Juris Secundum: “An assignee of a contract usually is not liable to the other contracting party on the contract assigned, unless such liability has been expressly or impliedly assumed.”

And here’s a summary of an article re the problematic rights/obligations split in IP contract assignments from a UK perspective, a foundational influence on US jurisprudence. academic.oup.com/jiplp/article-…

Legal rules are famous for having conditions, exceptions, and varying interpretations, and contract law re third-party assignments is no different.

IP assignment contracts law tends to track to the standard rule, though the nature of the specific content at issue + the context of the transaction can make a significant difference.

Why such a counterintuitive rule? Originally it served to protect the original assignor + the third-party assignee. For instance, under privity of contract principles, one rationale was that the rights/obligation split protects ... the author!

The idea there was that the publisher shouldn’t be able to escape its obligation to the author by contracting it away to another company without the author’s consent.

On the flip side, there was a sense that the third-party purchaser shouldn’t be bound by obligations to which it was not an original party — like when you purchase a collectible comic on eBay & you don’t acquire the credit card charge its previous owner used to buy it.

But what about real estate & mortgages, you might ask? Note that the above rule was for personal property; there's a different traditional rule re real estate, tho over time a lot of carveouts happened there too. (See: 2008 economic crisis.)

As all too often happens, this standard rule re non-real-estate contract assignments has had a host of unintended consequences, of which the #disneymustpay controversy is just the latest.

In today’s slice-’n’-dice IP contract world, the company making money off authors' works can be the one they can’t sue. Sometimes their only legal recourse is to sue the original publisher, which might not be as wealthy & might even no longer exist.

I understand it’s been asserted that the federal contract statute requires obligations to be purchased along with rights in third-party assignment agreements, but alas, while the Constitution protects the integrity of contracts, contract law is generally state-based.

There is a standard widely integrated in state contract laws - the Uniform Commercial Code, which is rather technical and often counterintuitive.

In brief, the UCC has obligations automatically transfer with rights when the contract uses such “general terms” as “an assignment of ‘the contract’ or of ‘all my rights under the contract.’” (UCC § 2-210(4)), which savvy biz lawyers know how to circumvent.

One could argue that the proliferation of third-party IP transfers arguably made the law implicitly unfair to creators, but here’s the other side’s response: to maintain contracts’ integrity & predictability, commercial law tends not to make fairness the deciding principle.

Written words and transactional economics tend to define what’s right, but that’s not always the case - content & context are key.

Consider In re Waterson Berlin & Snyder Co., a Depression-era attempt by a federal appellate court to inject fairness into third-party copyright assignment contracts. casetext.com/case/in-re-wat…

In 1932, the 2nd Circuit - the nation's leading copyright appeals court -- ruled that the purchaser of an assigned copyright in bankruptcy effectively acquired the original obligation to pay royalties to the author.

The court noted earlier cases establishing that assignment of rights did not including assigning obligations, but fairness dictated that authors receive royalties.

As I said, though, law does not necessarily follow ethics. Afterwards the revised US bankruptcy code severed rights from payment obligations, such that copyrights can be acquired without having to pay creators.

Check out Thompkins v. Li’l Joe Records, which found that companies can acquire copyrights in bankruptcy w/out having to pay royalties: caselaw.findlaw.com/us-11th-circui….

The court’s mic drop: “Thompkins may think unfair the procedure that Congress devised, but his legal arguments to overcome it are unavailing.”

All of which is to say that from a contract law perspective, a court's affirming that a company could purchase the right to publish works without the obligation to pay royalties would not be a radical new precedent.

It would reflect long-established doctrine in contract law that has in certain - but not all - instances been applied to IP. Not at all saying that outcome would be equitable or inevitable - it simply wouldn't be new.

So where do we go from here? Again, I’m not endorsing either current law or nonpayment of royalties. And as for the notion that law has nothing to do with fairness? It’s a big part of why so many people feel that the legal system is stacked against them - and they’re right.

Nonetheless, while legal doctrine might not always track ethics, ethical concerns can still make a significant difference in business decisions.

Social media pressure can be far more effective than lawsuits, and it wouldn’t be at all unusual for the #disneymustpay campaign to prevail with respect to ADF's royalty payments.

And again, I want to emphasize that I haven't read the contracts at issue - the standard assignments doctrine makes clear that contract language is the legal linchpin, and that language could make a clear case.

Whether due to wording or negative publicity, even if royalties end up getting paid in this instance it could be an exception that proves the rule. Social media campaigns get less effective with each iteration, just as after a while letter writing couldn’t save Star Trek.

Comprehensive legal reform requires persuasive arguments, and step one is understanding the law as it stands. As for alignment of ethics and contract law, there are 3 main avenues for reform: federal IP statutes (esp. copyright), federal bankruptcy law, and the UCC.

If you’re a law student or attorney who wants to get involved in reform efforts, I encourage mastering the game physics of contemporary contract law – and change them. There’s much more nuance & detail than could fit in this thread - feel free to email if you’d like to chat.

On a more granular level, this incident is a powerful reminder to all of us - creators, publishers, retailers, licensees, counsel - to pay careful attention to the language in the clauses at the end of our contracts.

Assignment, indemnification, term, termination, notice, choice of law, dispute resolution, and representations & warranties - boilerplate is rarely boilerplate.

Just as the coronavirus got a generation of lawyers & businesses to pay attention to force majeure clauses, the #disneymustpay campaign will likely lead to all sides to give more careful consideration to drafting assignment provisions.

The best contracts solve problems before they arise. #finis

I'm adding a practical illustrative example here, with additional explanation:

https://twitter.com/CBLDF/status/1329616481815056384