Don't Crap Out on Copyrights

In the October 2009 issue of Casino Enterprise Management, my colleagues Michael J. McCue and Ken D’Alessandro wrote about common mistakes made by casinos with respect to intellectual property rights. This article discusses how copyrights play an important role in the construction and operation of casinos and the manufacture of electronic gaming machines (EGMs), and how even a basic understanding of copyrights by casino management and EGM manufacturers can avoid unnecessary, lengthy and expensive litigation. This article provides basic answers to five questions:

1. What are copyrights?
2. What do copyrights protect?
3. What is copyright infringement?
4. Who can be held liable for copyright infringement?
5. How can a casino executive or EGM manufacturer minimize the risk of being sued for copyright infringement?

What are Copyrights?

Copyrights are several distinct rights that protect the unique ways in which human beings express their ideas.

Thus, the starting point for understanding copyrights is understanding that there are many different forms of expression. Ideas are expressed through words, sentences, paragraphs, numbers and symbols, as in the case of books, articles, magazines and poems. They can be expressed through sound, for example, when someone tells a story, sings a song or plays a musical instrument. They can be expressed in screenplays and scripts and in the performance of plays and movies. They can be expressed in photographs, drawings, maps, schematics, diagrams, pictures, computer source code and architectural plans. And they can be expressed in 3-D objects, such as sculptures, faucets, light fixtures, tables, models, and even in the style and shape of buildings.

When you think about all of the different forms of expression, it is easy to see how copyrights are potentially at issue in the many forms of expression present throughout modern hotel-casinos and in electronic gaming machines. Casino properties utilize signs, brochures, menus, pictures, advertisements, artwork, music, websites, diagrams, maps, movies and live shows. They contain many custom-designed physical elements, from wallpaper designs to carpet designs, water fountains, bar tops and the shape and style of the very buildings themselves. Similarly, electronic gaming machines contain pictures, words, music, sounds, symbols, computer source code, graphics and characters.

For a work of expression to be protected by copyrights, there are two basic requirements: originality and fixation. Originality means that the work was independently created (as opposed to copied from other works) and that it possesses at least some minimal degree of creativity. Fixation means that the work must be embodied in a form from which it can be perceived, reproduced or otherwise communicated. For example, words can be “fixed” by writing them down. Music can be “fixed” by recording it. Pictures can be “fixed” in a drawing. Photos can be “fixed” in a negative.

Thus, when a writer thinks of an original story and writes it down on paper, she has created an original work of expression and, through the act of writing it down on paper, has fixed it in tangible form. When a musician creates an original song and records it, she has created an original work of expression and, through the act of recording, has fixed it in tangible form. When a sculptor creates a new marble sculpture, she has created an original work of expression and has fixed it in tangible form. When a computer programmer creates original program code for a casino game, she has created an original work of expression and, by writing it down or entering it into the computer, has fixed it in tangible form. When an artist creates an original painting for a casino, she has created an original work of expression and has fixed it in tangible form. When a glass manufacturer creates a custom designed bar top for a casino, he has created an original work of expression and has fixed it in tangible form.

What Do Copyrights Protect?

Copyrights are, for all practical purposes, creatures of federal law. As mentioned above, the term “copyrights” refers to several distinct rights. These include: (1) the right to make copies of the work; (2) the right to create different versions of a work (called “derivative works”); (3) the right to sell or rent copies of the work; (4) in the case of works that can be performed (for example, plays, music and movies), the right to publicly perform the work; and (5) the right to publicly display the work. In addition, the author of a work of visual art (for example, a painter or a sculptor) has the right to be known as the author of the work and has the right to prevent the use of his or her name in connection with a work that he or she did not create. These rights are exclusive, meaning that the owner of the copyrights in a particular work is the only person that has these rights. They are, however, divisible, meaning that they can be separately sold, leased, licensed or purchased.

Copyrights spring into existence when an original work is first fixed in tangible form by the author. No formal registration with the U.S. Copyright Office is required for copyrights to come into existence. Once the work is fixed in tangible form, the rights exist. However, registration of the work with the U.S. Copyright Office is required before these rights can be enforced in federal court, for example, by an action against an infringer for copyright infringement. And, depending on when the registration and infringement occurred, the failure to obtain a registration before the infringement occurs will prevent the copyright owner from recovering statutory damages and attorneys’ fees.

It is also important to note that the ownership of copyrights to a work is distinct from the ownership of the media that embodies the work and vice versa. For example, purchasing a CD containing a copy of a Garth Brooks song is not a purchase of copyrights to the song. Nor would a purchase of copyrights to the song entail a purchase of all CDs containing the song.

What is Copyright Infringement?
Generally speaking, because copyrights are exclusive, copyright infringement occurs when someone who has not been authorized by the copyright owner, or who has not obtained a license from the copyright owner, exercises any one of the distinct rights set forth above, such as the right to make copies of the work, the right to sell the work, or the right to publicly perform or display the work. For example, a person who creates an unauthorized and unlicensed copy of a copyrighted painting has most likely committed copyright infringement. I say “most likely,” because to find copyright infringement, the courts require proof of access to the original work and substantial similarity between the copyrighted work and the allegedly infringing work. Copyright infringement may also occur when a person who has obtained authorization or a license from the copyright owner exceeds the scope of the authorization or the scope of the license. For example, if a license agreement provides for 10 copies of the work to be made but 100 copies are made, then the licensee has exceeded the scope of the license and committed copyright infringement.

A plaintiff who sues for copyright infringement may recover either actual damages plus the direct and indirect profits made by the infringer that can be attributed to the infringement, or statutory damages.
“Actual damages” refers to the market value of the infringing work. For example, in a case involving the infringement of architectural drawings, actual damages would be measured by the cost of obtaining similar drawings.

“Direct profits” refers to the amount of profits an alleged infringer has made that are directly attributable to the infringement. For example, in a case involving the unauthorized reproduction and sale of a painting, direct profits would be measured by the amount of profit realized by the infringer from sales of the infringing paintings. However, plaintiffs in copyright infringement cases may also seek to recover the alleged infringer’s indirect profits. In the casino and electronic game context, this means that the plaintiff may seek a portion of casino and/or game profits. Profits, however, whether direct or indirect, must have been “attributable to the infringement,” meaning that there must be a causal link between the profits earned and the infringement.

Statutory damages are awarded on a per-infringed-work basis (i.e., one award per work infringed) and may range from $200 to $30,000, but can be as high as $150,000 if the infringement was committed “willfully.” Multiple acts of infringement do not give rise to multiple awards of statutory damages.

Defending a copyright infringement action is expensive. Such cases usually involve complex facts, require knowledgeable and experienced counsel, and often require the retention of expert witnesses—especially in the case of computer software. In addition, a plaintiff who prevails in a copyright infringement action may seek to recover attorneys’ fees.

Who May be Held Liable?

Liability for copyright infringement is not necessarily limited to the individual who commits an act of infringement. In addition to the individual liability of the infringer, other persons who have not themselves committed any infringing act may be liable as well. An employer may be liable for an employee’s infringement under the doctrine of respondeat superior if the infringement was committed in the “course and scope” of the employee’s duties. A person or business that knows of the infringing activity and provides assistance to the infringer may be liable under the doctrine of contributory copyright infringement. For example, companies that have sold special equipment used only for the illicit reproduction of copyrighted audio cassettes have been held liable for contributory copyright infringement. Although they did not commit any infringing act themselves, they knowingly contributed to the infringement. Under the doctrine of vicarious copyright infringement, a person or business may be liable for copyright infringement if it had the right and ability to supervise the infringer and a financial interest in the infringer’s activities; knowledge of the infringement is not required.

This doctrine has arisen, among others, in cases where a landlord (e.g., a hotel-casino) leases space to a tenant, has the ability to supervise the tenant and receives rent from the tenant—a financial interest. For example, assume that the tenant is a nightclub that has infringed the copyrights in a popular artist’s song. Assume further that the hotel-casino had the right to supervise the nightclub and received rent from it. Under the doctrine of vicarious copyright infringement, in addition to the nightclub itself, the hotel-casino is also potentially liable for the infringement. 

How Can I Minimize the Risk?

One of the most common situations in which hotel-casinos and EGM manufacturers may be sued for copyright infringement occurs in the context of the design and construction of the hotel-casino and/or the gaming machine itself.

Because copyrights spring into existence when a work is first fixed in tangible form, the person who owns the copyrights is the person who created the work and fixed it in tangible form—in other words, the author.

However, hotel-casinos and EGM manufacturers routinely contract with third parties to create copyrightable deliverables and do not do so themselves. For example, the owner of a hotel-casino may contract with a third party to design and construct the buildings that comprise the hotel-casino, as well as the interior and exterior design features. Similarly, an EGM manufacturer may contract with a third party to develop software, graphics, music or schematics for a new game.

Thus, hotel-casinos and EGM manufacturers may find themselves in the situation where they have built a hotel-casino or manufactured a new EGM, but the third party who created a copyrightable component asserts ownership of the copyrights and may sue for copyright infringement.

Fortunately, however, copyright law has a solution for this problem. It’s called the “work for hire doctrine.” Under the work for hire doctrine, when an employee creates a copyrightable work for his or her employer, the employer automatically owns the copyrights in the work, provided, however, that the work was created by the employee within the “course and scope” of his or her employment.

But what about the more common situation where the work is created by a contractor, as often happens during the construction of a hotel-casino or during the development of a new game? In that case, the work for hire doctrine places ownership of the copyrights in the author unless there is a written agreement between the hiring party (i.e., the hotel-casino or EGM manufacturer) and the author that expressly provides that the hiring party will own the copyrights. If there is no written agreement, or if there is a written agreement but it says nothing about who owns the copyrights in the work—you guessed it—then the author owns the copyrights, not the hiring party. Hotel-casinos and EGM manufacturers who enter into contracts with third parties for the creation of copyrightable material (i.e., original and minimally creative expression) but who fail to specify in their agreements who owns the copyrights may find themselves defending an action for copyright infringement.

For example, when a hotel-casino contracts with a glass manufacturer for the creation of a custom-designed all-glass bar top (essentially a sculpture in the eyes of copyright law) and the contract makes no mention of copyright ownership, the glass manufacturer will own the copyrights. If the casino copies the bar top for use in other areas of the casino or for use at other properties, it may have infringed upon the glass manufacturer’s exclusive right to make copies of the bar top. Similarly, when an EGM manufacturer contracts with a third-party software developer or artist for the creation of source code or artwork, the software developer or artist will own the copyrights in their work unless their written agreement with the EGM manufacturer expressly provides that the manufacturer owns the copyrights. The difficulty for casino executives and EGM manufacturers is to recognize when a third party contract calls for the creation and delivery of copyrightable subject matter and to require a written agreement granting all copyrights to the hiring party.

In addition to knowing the ins and outs of the work-for-hire doctrine, casino executives and EGM manufacturers should also understand how to protect their copyrights in the transactional context. Hotel-casinos and EGM manufacturers routinely enter into agreements for the sale, purchase, lease and/or license of copyrightable subject matter. Because each of the individual copyrights mentioned above can be separately sold, purchased, leased and/or licensed, when a hotel-casino or EGM manufacturer enters into a contract involving copyrightable subject matter, it should make sure to enumerate exactly which copyrights are being sold, purchased, leased and/or licensed and which are not. Contracts involving copyrightable subject matter that refer only generally to “copyrights” are vague. Years after the transaction, no one may know which copyrights were at issue or who owns which rights. Thus, enumerating the specific copyrights at issue in your agreements should eliminate post-transaction confusion and reduce the risk of future litigation to determine which rights were actually affected by the transaction.

Thus, by understanding that copyright law protects many forms of expression, by understanding that agreements with third-party contractors must be in writing and must specify that the hiring party owns the copyrights, and by enumerating the individual copyrights at issue in transactions involving copyrightable subject matter, casino executives and EGM manufacturers can avoid being dragged into costly, burdensome litigation and can avoid the risk of an adverse judgment.