Failure to Do Due Diligence in IP Acquisition Means Copyright Infringement Claim Is Barred

Companies which acquire IP rights must, of course, make efforts to ensure that ownership of what they are acquiring is secure.

As one company learned in a recent copyright decision by the Second Circuit, Latin America Music Co. v. Spanish Broadcasting System (2018), failure to undertake proper due diligence as to the chain of title may mean the loss of the ability to enforce those rights.

The takeaway, of course, is that any time rights are transferred (whether through a straight acquisition, merger, or corporate reorganization), the acquiring entity must make sure that no one else has claimed rights in the works at issue. Otherwise, it may discover that it has acquired an unenforceable and hence worthless right

Latin America Music Company manages copyrights for a number of Puerto Rican and foreign artists in music compositions and recordings. It brought claims for copyright infringement against the operator of two New York based radio stations for the unlicensed playing of thirteen songs on the stations.

Plaintiff claimed that it had acquired the rights to these songs from the authors or co-authors in the late 1990s and early 2000s. But applications to register covering these songs were filed by a publishing company with the Copyright Office in the 1970s, who claimed that it held the rights therein based on agreements with the authors. The Second Circuit held that a “reasonably diligent” party in the plaintiff’s position should have reviewed the registrations when it made the purchases. The failure to do that lead to losing the case – and the ability to enforce those rights.

The Copyright Act has a three-year statute of limitations. 17 U.S.C. § 507(b). Every infringement claim includes as a predicate a claim of ownership of the copyrights at issue. The Second Circuit held that “[a] claim of ownership accrues only once, when a reasonably diligent plaintiff would have been put on inquiry as to the existence of a right . . . any number of events can trigger the accrual of an ownership claim, including an express assertion of sole authorship or ownership.” Where ownership is at issue, and “the ownership claim is time barred . . . any attendant infringement claims must fail.”

Note that the defendant did not claim any ownership interest in the copyrights, it had merely been accused of infringement. Nevertheless, the Second Circuit held that where the ownership claim is time-barred, that also bars any infringement claim. (Indeed, ownership of the copyright is one of the two predicate elements of any infringement claim.)

The takeaway for those acquiring IP rights is clear: one must certainly search the public record (such as the Copyright registry) to ascertain who might be making a claim of ownership. For those accused of infringement, it is always worthwhile to research any defects in ownership – including any failure of due diligence that could render the plaintiff’s assertion of rights unenforceable.