Third Circuit holds that agreements involving bank, CEO and book publisher assigned CEO’s copyright interest in unpublished manuscript to bank, but vacates district court’s permanent injunction precluding CEO from publishing infringing book as abuse of discretion, holding on issue of first impression for Third Circuit that eBay Inc. v. MercExchange, LLC abrogates presumption of irreparable harm in copyright cases.
Vernon W. Hill II served as CEO of Commerce Bank from its founding in 1973 until June 2007, several months before Commerce was acquired by TD Bank N.A. In 2006, Hill decided to write a book about his business philosophy and tenure at the bank, which Commerce supported as a potential marketing opportunity. Commerce hired an author to collaborate with Hill on the manuscript, which was completed in 2007, and later entered into a publishing agreement regarding the manuscript with a division of Penguin Books. The publishing agreement defined Commerce as the “author” of the work and stated that the bank was the exclusive owner of all rights conveyed to the publisher thereby. Hill subsequently signed a letter agreement with the publisher, referencing the publishing agreement and unconditionally guaranteeing that the manuscript was a work made for hire and that Commerce was the owner of the copyright therein.
Eventually, the relationship between Hill and Commerce soured, resulting in Hill’s termination and the TD Bank acquisition. TD Bank shelved the 2007 manuscript, with no intention to publish it. Starting in 2010, Hill co-authored a new book with the same collaborator from the 2007 manuscript, focusing on Hill’s business ventures following his termination from Commerce. The book, titled FANS! Not Customers: How to Create Growth Companies in a No-Growth World, debuted in November 2012. Upon learning about the book, TD Bank sent take-down demands to retailers and, shortly thereafter, sued Hill for copyright infringement.
The district court granted summary judgment to TD Bank, holding that Hill’s letter agreement demonstrated the manuscript was a work-made-for-hire and vested ownership with Commerce as Hill’s employer. The district court also rejected Hill’s infringement defenses, including fair use, holding that the 2012 book was not transformative with regard to the copied portion. A year later, based on Hill’s continued promotion of the 2012 book, the district court entered a permanent injunction prohibiting Hill from publishing, marketing, distributing or selling his book, holding that Hill’s infringement gave rise to a presumption of irreparable harm on the part of TD Bank.
Hill appealed, and the Third Circuit affirmed the grant of summary judgment to TD Bank, but on different grounds than those relied upon by the district court. According to the Third Circuit, the district court’s decision was based on the “mistaken belief” that Hill’s letter agreement vested original ownership in Commerce by deeming the manuscript to have been made for hire. The Copyright Act, the court clarified, establishes two means by which a work can attain for-hire status: for employees, if the work was created within the scope of their employment; and for independent contractors, if the work was commissioned, the work falls within one of several enumerated categories set forth in the Copyright Act, and the parties agreed in writing to designate it as a work for hire. The second definition, the court held, was inapplicable because Hill never served as an independent contractor, so the 2007 manuscript could only be a work for hire if Hill created it within the scope of his employment—a question which the district court did not address.
Notwithstanding that, the Third Circuit affirmed the district court’s ruling on the basis that Hill assigned his copyright interest in the manuscript to TD Bank. It held that Hill clearly evinced an intent in the letter agreement to effectuate a transfer of rights to Commence, TD Bank’s predecessor. Among other things, the court noted, Hill covenanted that Commence was the copyright owner and had full power and authority to enter into the publishing agreement, and the letter agreement referred to the publishing agreement, which defined Commence as the author and the sole and exclusive owner of all rights granted to the publisher.
Despite affirming the grant of summary judgment, however, the Third Circuit vacated the lower court’s injunction and remanded for further proceedings. The circuit court noted that it, like many of its sister circuits, previously applied a presumption of irreparable harm in copyright cases once a plaintiff established a prima facie case of infringement. However, in 2006, the U.S. Supreme Court issued its decision in eBay Inc. v. MercExchange, LLC, rejecting the Federal Circuit’s longstanding rule requiring the imposition of a permanent injunction after a finding of patent infringement. Although the Third Circuit had abandoned the presumption of irreparable harm in trademark cases as inconsistent with eBay, it had not yet considered the propriety of applying such a presumption in copyright cases. Pointing to cases in other circuits that had considered this question, the Third Circuit held that eBay abrogates the presumption of irreparable injury in copyright cases and that a district court abuses its discretion if it imposes injunctive relief based on broad principles instead of on a context-specific analysis of the four factors for injunctive relief: (1) irreparable injury, (2) adequacy of legal remedies, (3) balance of equities, and (4) public interest.
Applying those factors, the court held that injunctive relief was inappropriate in this case. First, it determined that TD Bank had not suffered any actual, much less irreparable, harm. Although the district court concluded that Hill’s violation of TD Bank’s “right not to use the copyright” constituted irreparable harm, the Third Circuit rejected this notion because to hold as such would resurrect the presumption of irreparable harm. “A bare violation of a statutory right enshrined in the Copyright Act,” the court held, “does not establish irreparable harm.”
Second, the court held that TD Bank had several legal remedies available for Hill’s infringement. It rejected the district court’s conclusion that because Hill distributed the 2012 book for free, TD Bank’s injury was not easily quantifiable or compensable. Instead, “[a] reasonable royalty and statutory damages may be imposed even if the accused infringer reaps nothing from infringement.”
Third, the court determined that the balance of equities favored neither party, noting that TD Bank had not lost any revenue because it had no intention of publishing the manuscript, and that Hill demonstrated he could easily create a non-infringing version of the work because he had published a 2016 edition within any infringing material.
Last, the court held that the public interest weighed against an injunction, concluding that TD Bank set out only to suppress the distribution of Hill’s book, not to protect the commercial marketability of its own manuscript. Accordingly, the court held, the injunction deprived the public of the ability to purchase the book from any lawful source for the foreseeable future.
Summary prepared by Frank D’Angelo and Jordan Meddy