Copyright 2008 by The American Law Institute. Reproduced with permission. All rights reserved.
INTELLECTUAL PROPERTY:
PRINCIPLES GOVERNING JURISDICTION, CHOICE OF LAW,
AND JUDGMENTS IN
TRANSNATIONAL DISPUTES
(with Comments and Reporters’ Notes)
Part III
APPLICABLE LAW
Chapter 2
Title to and Transfer of Rights
Introductory Note
This Chapter addresses the law applicable to ownership of rights; it does not address the
law applicable to determine whether the rights exist or are infringed. The latter are covered by
§§ 301 and 321(1). While territoriality remains the default rule for infringement and for most
issues regarding registered rights, some unregistered rights, particularly copyright and
neighboring rights, generally arise worldwide out of the act of creation, rather than upon
complying with any State’s formalities or substantive examination. As a result, rather than
making ownership subject to the different laws of the different countries in which the work is
exploited, which could lead to uncertainty in the exercise of rights, it makes more sense to
identify an owner who will, initially, be considered the owner of these intellectual property
rights throughout the world.
§ 311. Initial Title to Registered Rights
(1) Initial title to rights that arise out of registration is governed by the law of each State
of registration, except as provided in subsection (2).
(2) When the subject matter of the registered right arises out of a contractual or other
preexisting relationship between or among the parties, initial title is governed by the law
that governs the contract or relationship.
Comment:
a. State of registration. With respect to rights that arise out of registration, because these
rights are the most territorial of intellectual properties, a coherent approach holds that the
State whose laws will determine the existence and scope of the rights would also designate the
ownership of the rights. The Principles follow that approach, but with an important
modification for contractual relationships.
b. Contractual relationships. The Principles propose applying the law of the relationship
to determine initial ownership of rights in the subject matter of registered rights: where a
contract creates or confirms the relationship and selects a governing law, that law will apply
to determine initial ownership; in the absence of an agreement, the law of the State with the
closest connection to the parties and the subject matter will apply. As a practical matter, most
questions regarding initial title arise in the context of employment agreements. The Principles
favor the solution of party autonomy, as it gives a uniform answer throughout the world.
Knowing that the initial title holder will be the same throughout the world facilitates
marketability and enhances the value of the registered rights. The primacy of party autonomy
may, however, create a risk that employers and similar co-contractants will impose a national
law unrelated to the parties or the subject matter of the rights, solely for the purpose of
denominating the employer the initial owner. This concern may be more theoretical than
practical, however, because many States in which employers are resident may limit the extent
to which employers may contract out of local law. See, e.g., SPIL art. 121(3) (limiting choice
of law governing employment contracts to the laws of the employer’s or the employee’s
residence). Moreover, where other States impose employee-protective mandatory rules, the
court may take account of these by virtue of § 323.
In addition, the law governing the contractual relationship may impose requirements for
perfection of title in the registered right. So may also the law of the State of registration. The
party to whom the applicable law assigns the right must comply with both those requirements.
c. Preexisting relationship. The relationship contemplated in § 311(2) includes
employment relationships.
REPORTERS’ NOTE
Subject matter of registered rights created pursuant to a contractual arrangement.
Section 311(2) is inspired by article 60 of the EPC, concerning subject matter created
pursuant to an employment contract. Art. 60 designates application of the law of the State
where the inventor is principally employed. This connecting factor is more pertinent than the
employee’s residence, because the focus of inquiry is on the employment relationship rather
than the employee. While the employee may often reside at his or her place of employment,
some employees may work as expatriates for an employer outside the State of the main place
of business of the employer. Under the EPC, the residual connecting factor is the residence of
the employer.
Art. 60 of the EPC provides:
Right to a European Patent: (1) The right to a European patent shall belong to the inventor or
his successor in title. If the inventor is an employee, the right to the European patent shall be
determined in accordance with the law of the State in which the employee is mainly
employed; if the State in which the employee is mainly employed cannot be determined, the
law to be applied shall be that of the State in which the employer has his place of business to
which the employee is attached.
The Principles follow a similar idea, but instead designate the application of the law of
the State whose law governs the employment contract. This law may often be that of the place
of employment, or of the employer’s residence, but these connecting factors are arguably
proxies for the law with the most significant connection to the employment relationship. The
State whose law the parties have selected, or where (in default of a choice-of-law clause) the
contract is localized, may more closely correspond to the essence of the employment, with
respect to a particular creation. In some countries, however, local law limits the freedom of
parties in choosing the law applicable to the employment relationship. See, e.g., Swiss Law
on Private International Law art. 121(3). As Professor Ulmer explained, one reason national
laws impose this approach is to “prevent the possible choice of a legal system which is more
favorable to the employer by the inclusion of standard clauses in contracts of employment,”
see Eugen Ulmer, Intellectual Property Rights and the Conflict of Laws, pp. 73 & 101 (1978).
Ulmer also counseled application of the law governing the employment relationship with
respect to design patents (“dessins et modèles”), id. art. I(4).
§ 312. Initial Title to Unregistered Trademark and Trade-Dress Rights
(1) Initial title to an unregistered trademark or trade dress is governed by the law of
each State in which the trademark or trade dress identifies and distinguishes the source
of the goods or the services, except as provided in subsection (2).
(2) When there is a contractual or other preexisting relationship among the parties, the
law applicable to that contract or relationship will govern initial title.
Comment:
a. Territoriality of trademark ownership. Although trademark rights in some States do
not arise out of registration (or do not exclusively arise out of registration), they tend to be
bounded. This is because trademarks symbolize the goodwill of the product or service to its
consumers. The trademark exists where there is a market for the goods or services that the
mark identifies. Unregistered trademark rights cannot arise without the connection between
the mark and the goods or services. For some trademarks, market recognition may be
worldwide; for others, it may be national or regional. Accordingly, the same mark may have
different owners in different markets.
Illustration:
1. Edelweiser is a mass-market beer that dominates the Pontevedran market. The beer
was first produced in Pontevedro by Danilo, an immigrant from the town of Edelweiss in far-
away Freedonia. For many years, Edelweiser was sold only in Pontevedro. In the meantime,
in the Freedonian town of Edelweiss, Zeppo has started up a brewery and has given its
product the town’s name, Edelweiser.
Under these Principles, Danilo (or his successors) owns the Edelweiser mark in
Pontevedro, and Zeppo (or his successors) owns it in Freedonia. With respect to other States,
rights to the unregistered mark will depend on which entrepreneur first develops goodwill in
each market.
b. Contractual or preexisting relationship. When a market is developed under a licensing
agreement, the law governing the licensing agreement determines who the owner of the mark
is in the new market. The law governing the contract may designate the ownership of the
licensor rather than the licensee who is actually providing the goods and services to that
market. This approach was adopted to reflect the notion that in preexisting relationships, the
parties desire a single owner. The contract governs only rights between the parties; it does not
affect local rules regarding validity of the trademark or attribution of goodwill. See § 302.
Illustration:
2. Edelweiser (Pontevedro) has begun expanding into foreign markets. It licenses
Gummo to sell its beer in the State of Chaos. The agreement between Edelweiser
(Pontevedro) and Gummo is governed by Pontevedran law, which attributes to the licensor
the goodwill generated by the licensee. Gummo accordingly develops that market. Later, it
terminates its agreement with Edelweiser (Pontevedro), but continues to sell beer under the
Edelweiser mark in the State of Chaos. Gummo asserts that, notwithstanding the licensing
agreement, under which Edelweiser would own the mark in Chaos, Gummo, as the actual
exploiter of the mark in Chaos, owns it as a matter of Chaotic law.
Under § 312(2), the contract determines initial ownership of the unregistered trademark
rights in Chaos. Thus, as between Edelweiser (Pontevedro) and Gummo, Edelweiser
(Pontevedro) is the owner in the State of Chaos. However, the contract cannot affect third
parties, such as consumers. If Chaotic law would disregard the contract’s attribution of
goodwill to the licensor, and instead looks to consumers’ understanding of the mark, then
Edelweiser would be able to enforce its trademark rights in Chaos only if it can demonstrate
that Chaotic consumers associate the mark with Edelweiser. In other words, while the license
cannot give Edelweiser trademark rights in Chaos, it can preserve the licensor’s ability (vis à
vis the licensee) to enter the market and earn the goodwill that Chaotic law requires to
establish trademark rights.
REPORTERS’ NOTES
1. Preexisting relationship. The Principles employ the term “preexisting relationship” as
well as contractual relationship, because controversies arise not only in a licensing
relationship, but also when a mark has been exploited by multiple co-owners, such as family
members, whose relationship subsequently deteriorates. See, e.g., Gucci v. Gucci Shops, Inc.,
688 F. Supp. 916, 920-921 (S.D.N.Y. 1988) (agreement among family members, if binding,
would have determined Paolo Gucci’s rights to use his name as a trademark for his
independent leather-goods business). See also the Swiss de Terry case, RSPIDA 1976, at 64
cons. 4d, citing Bundesgericht [BGer] [Federal Court], Mar. 30, 1965, BGE 91 II 117, 125
and BGer, Sept. 13, 1957, BGE 83 II 312, 335, which involved the entitlement of Spanish
family members to use a family name as a company name and a house name. The Swiss
Supreme Court, which entertained the case after the Spanish Supreme Court decided the same
issue for Spain, stated that:
The Spanish Supreme Court held that the company name of the Defendant can sufficiently be
distinguished from that of the Plaintiff and ordered its inscription in the register for industrial
property. The Swiss judge can consider that the use in Switzerland by the Defendant of the
company name amounts as such to unfair competition vis-à-vis the Plaintiff only to the extent
that a particular danger of confusion regarding the name of the two companies exists in
Switzerland.
This decision indicates that the Swiss courts will look to the decision rendered by the
courts of the place where the family company was formed to determine ownership of the
trademark. However, where under that State’s law, the trademark or trade name may be
shared, the Swiss court retains the right under Swiss law to dispel local confusion. See also
the Swiss conflict-of-law rule, Swiss Law on International Private Law art. 155(d).
2. Illustration 2. This Illustration is inspired by one of the Budweiser/Budvar
controversies, see BGer, Feb. 15, 1999, BGE 125 III 193 (Anheuser-Busch, Inc. v.
Budejovicky Budvar Narodni Podnik) (Switz.) (holding for the Czech company based on
geographic-denomination protection, rather than trademark law).
§ 313. Initial Title to Other Rights That Do Not Arise Out of Registration
(1) Initial title to other rights that do not arise out of registration is governed by:
(a) If there is one creator, the law of the creator’s residence at the time the subject
matter was created;
(b) If there is more than one creator:
(i) the law of one of the creators’ residences, as designated by contract between or
among the creators;
(ii) if no contract resolves the issue, the law of the State in which the majority of the
creators resided at the time of the creation of the subject matter;
(iii) if no contract resolves the issue and a majority of the creators did not reside in the
same State, the law of the State with the closest connection to the first exploitation of the
subject matter; or
(c) If the subject matter was created pursuant to an employment relationship, the
law of the State that governs the relationship; or
(2) If the State whose law would govern under subsection (1) does not extend protection
to the subject matter, then initial title is governed by the law of the first State in which
the subject matter is exploited and the right is recognized.
Comment:
a. Single place of initial title. Some unregistered rights, particularly copyright, generally
arise worldwide out of the act of creation, rather than upon complying with any State’s
formalities or substantive examination. To make ownership subject to the different laws of the
different countries in which the work is exploited may therefore engender uncertainty in the
exercise of rights, because it may not be clear whether the person or entity purporting to
license rights in fact had the rights to license. Accordingly, it is preferable to designate an
owner who will, initially, be considered the owner of the intellectual property rights
throughout the world. Once the starting point for the vesting of rights is identified, it becomes
possible to trace and to validate further grants. Admittedly, this approach will not create
complete certainty, so long as States remain free to reject the application of the law initially
designating ownership, when the designation produces a result fundamentally contrary to
public policy (ordre public) in that State. While the Principles preserve a role for ordre public
(see § 322), its application should be truly exceptional. For example, some States may assign
a high public-policy value to laws protecting employee-creators; those policies would seem to
be most intense when the employment relationship is centered in the employee-protective
State. It is less clear that an employee-protective policy is implicated when the employment
relationship is centered elsewhere.
b. Point of attachment for determining initial ownership. These Principles do not
designate the “country of origin” as the point of attachment for determining initial title to
intellectual property rights. That term is well-established in other contexts in intellectual
property law, and, at first blush, would appear to offer a unifying point of reference for
determining worldwide rights ownership. In fact, however, the term proves rather unwieldy in
this context. The definition of “country of origin” set forth in the Berne Convention, art. 5(4),
presents several alternative criteria for determining the country of origin of a work of
authorship, thus it identifies too many possibilities.
As intellectual property covers creative works of the mind, as well as related subject
matter, it seems appropriate to link the country of origin to the creator’s residence at the time
of the work’s creation. Arguably, this linkage could promote a sort of “forum-shopping” for
the most creator-protective law. That risk (if indeed it is a “risk” deserving of concern or
condemnation) is nonetheless attenuated: The residence of the creator, who (as used in the
Principles) is always a natural person and thus has only one residence
(§ 201(2)), is usually stable, or if it changes, generally does so without regard to possible
choice-of-law consequences. “Residence at the time of the work’s creation” is not the same
criterion as “place of creation.” The latter is not a test adopted by these Principles because it
may be entirely fortuitous or unrelated to the work’s subsequent commercialization, for
example, if the author is simply visiting or passing through a country when inspiration strikes.
As the recently enacted Belgian Code of Private International Law elaborates, “circumstances
of a personal or professional nature that show durable connections with that place or indicate
the will to create such connections” are strong indicia of residence; art. 4(2)(1).
c. Joint works. If the cocreators have different residences, they may resolve by contract
the problem of a multiplicity of points of attachment in the case of works of collaboration, by
designating the law of one of their States of residence. The coauthors’ choice is limited to one
of their countries of residence because these Principles choose as the fundamental point of
attachment for works of authorship the residence of the author. (Section 313(1)(c) allows an
important derogation in the case of employee works, however.) In the absence of such an
agreement, the court should refer to the law of the State most closely connected overall to the
creation and dissemination of the work.
Questions may arise concerning the law applicable to the rights and obligations of joint
authors (or, with respect to neighboring rights, joint performers): may any coauthor license
rights without the others’ accord; is there a duty to account? The law of the State in which the
joint authorship is localized will determine the existence and extent of those rights and
obligations.
Illustration:
1. Tweedle Dee and Tweedle Dum both reside in Patria, where they coauthored the
novel Slithy Tove. Under Patrian law, in the absence of a contract to the contrary, any
coauthor may grant nonexclusive rights in the work without the others’ accord, but must
account for any profits to coauthors. Without consulting Tweedle Dum, Tweedle Dee grants
nonexclusive worldwide rights in the work.
If Tweedle Dee and Tweedle Dum did not contract to the contrary, Tweedle Dee’s grant
of rights will be valid, but he must split the proceeds of both domestic and foreign
exploitation with Tweedle Dum. If, by contrast, the Tweedles did enter into a contract
requiring that all grants be jointly authorized, and/or allocating the proceeds unequally among
coauthors, the law of the contract would govern.
d. Works created pursuant to an employment relationship. The “law of the contract”
governs the question whether the actual creator will in fact be vested with initial title to the
intellectual property subject matter, or whether another person or entity, such as the employer,
will enjoy initial ownership. This can be either the law specified by the contract or, if there is
no choice-of-law clause, then the law of the State in which the contract is localized (or the law
of the State with which the contract has the greatest connection). The person or entity that is
the owner pursuant to the law of the contract should then, under these Principles, be
considered the initial owner in all States whose authorities subscribe to these Principles.
Illustration:
2. The motion picture “It’s Not About the Money” is publicly exhibited for the first time
at the annual Film Festival in the State of Chaos. None of the film’s creative participants
reside in Chaos. Moreover, the director, the screenwriter, and the composer all resided in
different States at the time of the work’s creation. The issue of the work’s initial ownership is
raised in litigation.
The coauthors’ residence in several different States at the time of the film’s creation
eliminates a point of attachment based on the authors’ residence (assuming they have not
executed a contract designating one State of residence). In the case of an audiovisual work
first divulged at a film festival in a State other than the State in which the creative participants
reside, the connection between that State and the film’s creation and exploitation may be too
attenuated to warrant application of Chaos’s ownership rules to the film. A more pertinent law
would be that of the State from which the film’s distribution and marketing were organized.
If, by contrast, the coauthors are employees, the law of the State governing their relationship
with the film producer will determine who the initial owner of the copyright in the film is.
If the contract determines the law applicable to initial ownership, the concern arises that
the dominant party to an author-employment contract will choose a national law designating
the dominant party as the initial right holder. In Illustration 2, this would be the case if the
producer of “It’s Not About the Money” were resident in a creator-vesting State, but selected
the law of a producer-vesting State to govern the employment contract with the film’s
contributing coauthors. As discussed in § 311, Comment b, however, this concern may in fact
be more theoretical than practical. Section 323 of the Principles provides the creators further
recourse, because it instructs the court to consider applying the mandatory rules of the forum
or of third countries with points of attachment to the employment relationship, and some of
these rules may require creator-ownership.
e. Cases where the law designated does not provide a solution. Section 313 makes the
author’s residence the point of attachment for determining initial ownership. In most
instances, this will provide a clear point of departure for analyzing a chain of title. But
anomalies may occur if, in the designated State, the work is not protected, for example,
because that State does not protect a given category of works, or imposes a merit or quality
threshold that the author’s work does not meet. How can one trace ownership from a place
where the author is not an owner because she has nothing to own? Section 313(2) addresses
this problem by designating the law of the State of first exploitation. This criterion derives
from one of the Berne Convention’s points of attachment, the State of first publication. With
respect to many works, particularly those not initially disclosed over digital networks, the
State in or from which the work is first made available to the public, whether by transmission
or by distribution of copies, will be the State whose laws have the most significant
relationship to the work. By organizing its first distribution or transmission in that State, the
creator or initial rights owner will, in effect, have chosen that State as the State of the work’s
nationality.
Illustration:
3. Beancount, Ltd. is a Freedonian-based database producer with an effective
establishment in the United Kingdom. Its Freedonian employees have compiled a nonoriginal
database of all widget manufacturers in Freedonia and the European Union. Under Freedonia
law, there is no sui generis protection of nonoriginal databases. Beancount first distributed
copies of the database in the United Kingdom. While Freedonian law would normally
determine who the initial owner of sui generis database rights is, it is not competent to
designate the initial owner of a work not protected under that law. Therefore, UK law will
apply to determine whether the initial owner of the database is the employer or the
employee(s) who gathered and systematized the information.
REPORTERS’ NOTES
1. Fortuitous character of place of upload. See, e.g., Jane C. Ginsburg, The Cyberian
Captivity of Copyright: Territoriality and Authors’ Rights in a Networked World, 15 Santa
Clara Computer & High Tech. L.J. 347 (1999).
2. Point of attachment, linked to the residence of the creator. Cf. Berne Convention art.
5(4)(c) (creator’s residence as point of attachment for country of origin of unpublished
works).
There are “country of origin” definitions in other statutes as well. For example, the U.S.
federal marking statute, 19 U.S.C. § 1304, requires every item imported into the United States
to be marked in a manner that indicates “the country of origin of the article.” Australia’s Free
Trade Practices Act similarly requires country-of-origin representations on imported products,
see Trade Practices Amendment (Country of Origin Representations) Act 1998 (Austl.),
available at http://www.aph.gov.au/Library
/pubs/BD/1997-98/98bd213.htm (last visited Jan. 3, 2008); Alexander Moriarty, Australia—
Trade Legislation: Country-of-Origin Product Labeling, 5 Int’l Trade L. & Reg. N-17 (1999).
International trade agreements have similar requirements, see, e.g., North American Free
Trade Agreement art. 311, Dec. 17, 1992, 32 I.L.M. 289, available at http://www.nafta-sec-
alena.org/DefaultSite/index_e.aspx?DetailID=78 (last visited Jan. 3, 2008). See also id. annex
311. However, the definitions provided in these agreements are not appropriate here. First,
there is no general international consensus on a single definition. Second, these measures
apply to tangible goods, where the main problem is determining how much transformation in
the state of the goods is necessary to change the country-of-origin designation.
Transformations are sometimes a problem in intellectual property (a book can be transformed
into a play, for example). However, the main problem will often be that the work is created by
mingling multiple international inputs, cf. Rochelle Cooper Dreyfuss, Collaborative Research:
Conflicts on Authorship, Ownership, and Accountability, 53 Vand. L. Rev. 1161 (2000).
Thus, the rules used for goods are not apposite.
3. Relationship to Berne Convention, art. 14bis(2)(a). The Principles’ approach may be
inconsistent with art. 14bis(2)(a) of the Berne Convention, which generally submits
“[o]wnership of copyright in a cinematographic work” to the laws of the “countr[ies] where
protection is claimed.” This is the only provision of the Berne Convention to specify a rule of
copyright ownership. The rule, however, is more complicated than first appears, for
subsections (b) and (c) impose a complex presumption conferring on the producer the control
over the film’s exploitation even with respect to countries in which contributing coauthors are
deemed copyright owners. (The presumption does not apply in countries in which the
producer is already vested with copyright ownership.) As a practical matter, these provisions
displace the role of the law in certain States of exploitation in order to achieve a result to
which the Principles also aspire: the efficient multiterritorial exploitation of the work. The
Principles do not attempt to replicate the Berne solution, which is widely viewed as
incoherent and unworkable: it “does very little to achieve the uniform system for the
exploitation of cinematographic works that was desired by its originators,” Sam Ricketson &
Jane C. Ginsburg, International Copyright and Neighbouring Rights: The Berne Convention
and Beyond 7.41 (2006).
4. Other points of attachment. Four other points of attachment, each in some way
compatible with the principle of territoriality, can be considered in order to establish the law
applicable to the initial title to unregistered rights. Each of them, ultimately, must be rejected
for the reasons indicated below.
First, initial title can be deemed to be governed by the lex fori, i.e., the law of the
jurisdiction seized. This solution, however, would encourage forum-shopping, and would be
unpredictable. A licensee needs to know, at the time of negotiating the license, if the party
with whom he or she is negotiating in fact is the owner of the rights it purports to license. The
law applicable to determining ownership therefore must be ascertainable at the time of
licensing.
Second, if an intellectual property right is considered to be analogous to real property,
the initial title can be subject to the lex rei sitae, as proposed by Jacques Raynard, Droit
d’auteur et conflits de lois: Essai sur la nature juridique du droit d’auteur 391-411 (1990). In
this case, the right would be localized in the territory of the State where it is actually
exploited, Muriel Josselin-Gall, Les contrats d’exploitation du droit de propriété littéraire et
artistique: Étude de droit comparé et de droit international privé 276 (1995) (indicating,
however, that the cases Raynard relies upon are consistent with both lex rei sitae and lex loci
delicti), which will be in fact the State for which protection is sought, Raynard, supra, at 410.
This latter theory is also unsatisfactory. If the work is exploited in more than one State, then
this approach could lead to designating different initial owners. This would undermine
predictability.
Third, initial title to unregistered rights can be subject to the lex loci delicti commissi, as
proposed by Lucas and Lucas, André Lucas & Henri-Jacques Lucas, Traité de la propriété
littéraire et artistique 869-876 (3d ed. 2006). This theory extends the law that would govern
the violation of an intellectual property right to the determination of initial ownership
regarding the same intellectual property right; see Josselin-Gall, supra, at 280. This approach
encounters the same criticism as the lex rei sitae approach, however,
Fourth, initial title to unregistered rights can be governed by the law of the country of
origin of the work. This approach gives a “nationality” to works that does not change
whenever protection is sought in another State or every time rights in the work are violated in
a different country, Raynard, supra, at 360. See also the comments to the “country of origin”
theory in Josselin-Gall, supra, at 283-288 (describing the evolution of French case law
regarding the law applicable to initial ownership of copyright). Cf. Mireille van Eechoud,
Choice of Law in Copyright and Related Rights: Alternatives to the Lex Protectionis 121-124
(2003). The Principles favor a fixed point of attachment for determining initial ownership, but
adopt the country-of-origin approach only as a subsidiary point of attachment (see § 313(2)).
The Berne Convention art. 5(4), links the point of attachment for country of origin to
publication, rather than to the residence of the creator(s), or, in the case of works created
pursuant to a contract, to the law governing the relationship.
§ 314. Transferability
(1) The intellectual property law of each State for which rights are transferred governs
the extent of their transferability for each State.
(2) The law of each state for which rights are transferred determines any recordation
rules relating to the transfer, and the effect, if any, of failure to comply with them.
Comment:
a. Transferability. The “transferability” of a right refers to whether the right can be transferred
at all. It also encompasses all intellectual property law requirements necessary to the
effectiveness of the grant to transfer rights, for example, as provided in the relevant
intellectual property legislation.
Illustrations:
1. Pipsi Beverage Co. assigns worldwide trademark rights in the registered Pipsi mark
to Icy Pop Co. Pipsi does not transfer any of its beverage business to Icy Pop, nor does it
cease making beverages.
Pipsi’s assignment, without any of the goodwill of its business, is an assignment “in
gross.” Under the Principles, the trademark law of each State in which the Pipsi mark is
registered will apply to determine whether such assignments are valid for that territory.
2. The film director Jan Dallas made the black-and-white motion picture “The Cypriot
Cygnet” under contract with the producer Welter Sisters; the contract purported to transfer all
of Dallas’s economic and moral right, title, and interest in and to the film for all countries. It
also specified that U.S. law applied. Welter subsequently “colorized” the motion picture, and
licensed the altered film’s broadcast in France. Dallas objects that the broadcast violates her
moral right to preserve the integrity of the film, and that, under French copyright law, this
right is inalienable.
The court would look to the copyright law of the State of exploitation, in this case
France, to determine if moral rights are transferable. Because under French law they are not
alienable, Dallas’s transfer of moral rights is ineffective as to France. By contrast, if Welter
Sisters licensed the colorized film’s broadcast in a State in which moral rights are
transferable, then Dallas would have no claim under that State’s law.
3. Welter Sisters (of Illustration 2) seeks to exploit the colorized motion picture in
Patria, a country that permits assignments of moral rights. However, Patria’s copyright law
also requires that all assignments of exclusive rights be in writing and signed by the author. If
Dallas did not sign her contract with Welter Sisters, then she retains her moral rights (and, for
that matter, her economic rights) in Patria.
b. Recordation. Some States require that transfers of rights or interests in patents,
copyrights, trademarks, or other intellectual properties be recorded. The Principles do not
purport to displace local rules promoting effective title-searching. Transferees who fail to
record will incur whatever risks local law imposes.
REPORTERS’ NOTES
1. Law of State for which rights transferred. This provision reflects the widely accepted
principle that the law applicable to the alienability of intellectual property rights is that of the
law governing the existence, content, scope, and remedies for the violation of those rights.
This is a subset of the broader choice-of-law regime for transferability of moveable property,
see, e.g., Belgian Code of Private International Law art. 94(1).
2. Illustrations. Illustration 2 is based on Cour de cassation, première chambre civile
[Cass. 1ère civ.], May 28, 1991, Bull. civ. I, No. 172 (Huston v. La Cinq) (Fr.). In that case,
however, the French high court avoided any choice-of-law analysis, and applied French law
as a mandatory rule (see § 323).
3. Other alienability restrictions. The practical significance of submitting transferability
to each State of protection is highlighted when other conditions on transfer are considered,
such as the unwaivable right of EU authors and performers to mandatory remuneration under
Council Directive 2006/115/EC, art. 5.2, 2006 O.J. (L 376) 28, available at http://eur-
lex.europa.eu/LexUriServ/site/en/oj/2006/l_376/l_3762
0061227en00280035.pdf (last visited Jan. 3, 2008). Under the Principles, the obligation to
remunerate authors and performers would apply only to the transfer of rental rights for
member States of the European Union.
§ 315. Transfers of Title and Grants of Licenses
(1) Except as provided in subsection (3),
§ 314, and §§ 316-317, the contract law of the State designated by agreement of the
parties governs a transfer of interest in, or grant or license of, intellectual property
rights.
(2) In the absence of a choice-of-law agreement, the contract law of the State with the
closest connection to the contract governs. The contract is presumed to be most closely
connected to the State in which the assignor or the licensor resided at the time of the
execution of the contract.
(3) (a) In standard form agreements of transfer or licenses, the contract law of
the State designated in the contract governs if the choice-of-law provision is valid in light
of the factors set out in § 302(5).
(b) If the choice-of-law clause is not valid under this Section, the applicable law is
determined according to subsection (2).
Comment:
a. Contractual issues. Under § 315, rules of general applicability to contracts are supplied by
the law governing the contract.
Illustration:
1. Vincent, a Patrian playwright, orally grants Patrian impresario Sol nonexclusive rights to
perform his play, Dubious, in Patria and Xandia over the next three years. The next year,
Vincent executes and signs a writing granting Xeno exclusive rights to perform Dubious in
Xandia. The Vincent-Xeno contract specifies that Patrian law applies. When Sol that same
year seeks to perform the play in Xandia, Xeno sues in Xandia; Sol defends on the basis of his
oral agreement with Vincent. Neither country’s copyright law makes specific provision for
grants of nonexclusive rights. Patria’s contract law, however, includes a Statute of Frauds
provision requiring that contracts whose duration exceeds one year must be in writing.
Because Patria is the country with the closest connection to the Vincent-Sol oral agreement,
its contract law, including its Statute of Frauds, will govern the validity of the oral agreement.
Thus, Sol has no rights in either Patria or in Xandia.
b. Standard form agreements. These agreements include promotional contests in which
the public is invited to submit such subject matter as illustrations, short stories, slogans, and
jingles. As with other terms in standard form agreements, the Principles require enhanced
scrutiny.
c. Default rule in case no choice has been made. In the absence of a contractual choice
of law, the applicable law is that of the State with the closest connection to the contract. This
is the general test in most contemporary systems of conflict of laws. In practice, the
application of the closest-connection test will usually lead to the State where the assignor or
the licensor has its main business establishment or its residence. The reasons for that
designation are twofold:
1. The intangible subject matter of the transfer or license has been developed by the
transferor or licensor in its factories, workshops, or studios. It is aimed at working or being
used in a given technical or social environment. Therefore, disputes relating to the contract
under which ownership or use of the intangible asset is transferred or authorized are best
adjudicated taking into account the law of that State. It is more closely connected to the
creation of, as well as to guarantees and warranties pertaining to, this asset than the law of any
other State.
2. The licensor’s residence will often correspond to the place of the obligor of the
“characteristic performance” under European conflicts principles. For example, a copyright
licensing agreement is an agreement under which the main promise is the undertaking by the
licensor to allow the licensee to use or copy the work. Thus, with respect to intellectual
property contracts, the characteristic performer is the transferor or licensor. The licensor’s
residence also usually corresponds to the place where the intellectual property assets were
developed and thus may have been instrumental in encouraging production of the work.
The presumption of application of the law most closely connected with the residence or
main business establishment of the assignor may not be helpful when, for example, that State
does not recognize intellectual property rights in the subject matter of the assignment; see
Illustration 3 to § 313, or when the assignor has more than one residence, § 201(3).
d. Relationship to security interests. Section 317(1) provides that a different set of
applicable law rules, entirely outside the Principles, governs the perfection, priority, and
enforcement of security interests in intellectual property rights.
REPORTERS’ NOTE
1. Substantive conditions on transfer. The approach of §§ 314-315 is consistent with
Corcovado Music Corp. v. Hollis Music, Inc., 981 F.2d 679 (2d Cir. 1993). A U.S. court there
refused to recognize the validity of a Brazilian-law agreement assigning a U.S. copyright
renewal term on the ground that, although the U.S. renewal copyright was assignable, the
Brazilian contract did not assign the term effectively because the text of the agreement did not
contain the word “renewal.” Cf. Campbell Connelly & Co. v. Noble, [1963] 1 W.L.R. 252
(Ch. 1962) (holding U.S. copyright law applies to determine assignability of renewal term,
but English contract law determines whether the assignment was correctly effected). Under
the Principles, U.S. law would govern both the question whether the U.S. renewal term could
be assigned, and the question whether the terms of the contract met the requirements for
transferability. But general requirements such as whether the agreement must be witnessed,
would come within the scope of the law of the contract.
Earlier versions of this Section assigned a broader domain to the law governing the
contract, proposing a rule akin to the court’s approach in Campbell Connelly; at first glance,
this would have reduced the number of laws potentially applicable to a multiterritorial grant
of rights. This simplification might, however, have proved illusory for States whose
intellectual property laws dictate the form of a transfer, for example, by requiring that any
transfer be in writing and specify each exploitation for which rights are granted. This is
because the Principles preserve the application of mandatory rules, not only of the forum but
of “any State with which the dispute has a close connection.” See
§ 323.
2. Characteristic performance: “Generally, the characteristic performance in a contract
is the performance for which payment is due. . . . It can often be thought of as the activity that
gives a contract its name,” see Paul Lagarde, The European Convention on the Law
Applicable to Contractual Obligations: An Apologia, 22 Va. J. Int’l L. 91, 97 (1981).
§ 316. Transfers by Operation of Law (Involuntary Transfers)
(1) For rights that arise out of registration, the law of the State of registration governs
transfers by operation of intellectual property law.
(2) For rights that do not arise out of registration, transfer by operation of law is
determined by the intellectual property law of the State for which protection is sought.
Comment:
The Principles do not propose choice-of-law rules for transfers effected pursuant to laws
regulating inheritance, marriage, competition (antitrust), or other national laws of more
general application. At issue are only intellectual property-specific transfers.
Illustration:
1. Tyrrania’s copyright code provides for the mandatory transfer to the State of
copyrights in the works of dissident writers. Zotsin, a Tyrranian author, is a dissident and his
work is transferred to the State. Tyrrania seeks to enforce the copyright in Zotsin’s work in
Xandia.
Under the Principles, the effect in Xandia of the forcible transfer of Zotsin’s copyright
will depend on whether Xandia recognizes the Tyrranian transfer.
REPORTERS’ NOTE
The Illustration is inspired by 17 U.S.C. § 201(e), holding ineffective involuntary
transfers of this kind. A similar result was reached in Peer International Corp. v. Termidor
Music Publishers Ltd., [2004] Ch. 212 (C.A. 2003) (U.K.) discussed in Stephen Sampson,
Music Publishing – Conflict of Laws, 15(1) Ent. L. Rev. 26 (2004), in which the Court of
Appeal declined as a matter of public policy to give effect in England to a Cuban
expropriation of Cuban composers’ copyrights. As a result, the German licensee of the Cuban
publishing company that had acquired the expropriated copyrights was held not to have
copyright interests in England.
§ 317. Security Interests
(1) The laws pertaining to the existence, attributes, and the extent of transferability of
intellectual property rights are applicable with respect to secured transactions to the
same extent that they apply to other transactions involving intellectual property rights.
(2) These Principles do not address the law applicable to the perfection, priority, or
enforcement of security interests in intellectual property rights.
Comment:
a. Security interests generally. There is an emerging body of international norms
governing the perfection, priority, and enforcement of security interests. International
organizations such as UNCITRAL, the Hague Conference on Private International Law, and
UNIDROIT are currently developing rules in these areas. These Principles are not intended to
derogate from those projects’ proposals. Rather, they address the law governing the existence,
attributes, transferability, and transfer of the intellectual property rights that may be the
subject matter of secured transactions.
Illustrations:
1. NeilCo., a resident of the UK, borrows £ 1,000,000 from Berkeley Bank in the UK
and secures the obligation with a security interest in its worldwide trademark rights.
Subsequently, NeilCo. borrows €1,000,000 from Crédit Nantais, secured by the same assets.
Neither security agreement specifies that a security interest in the business accompanies the
security interests in its trademark rights.
Under these Principles, the law of each State in which NeilCo. has trademark rights will
determine whether an interest in the trademark rights may be transferred independently of the
business to which they are appurtenant. These Principles do not address the law applicable to
determine priority rights as between Berkeley Bank and Crédit Nantais.
2. Same facts as above, except that NeilCo. grants only one security interest, to
Berkeley Bank. NeilCo. then defaults on its obligation. Berkeley would like to enforce its
security interest in its collateral.
These Principles do not address the law applicable to Berkeley’s realization on its
collateral. By contrast, these Principles do address the law applicable to an action seeking to
enforce the rights in the NeilCo. trademark against an alleged infringer, whether the action is
brought by NeilCo. or Berkeley.
b. Extent of transferability. Section 314 recognizes that in a given State an intellectual
property right may be only partially transferable. A security interest may be obtained in the
transferable portion, but not with respect to the interests that are not transferable.
Illustration:
3. See the facts of § 314, Illustrations 2 and 3. The economic interests in “The Cypriot
Cygnet” may be transferred, even though French moral rights are not alienable.
c. Security interests and insolvency. Security interests have their greatest economic
importance when the debtor is insolvent. This raises issues of bankruptcy law in addition to
secured-transactions law. Substantive law and conflict-of-laws rules of secured transactions
are interdependent. The policies underlying these Principles could provide guidance in the
insolvency context.
REPORTERS’ NOTE
For examples of emerging international rules on the law governing security interests,
see United Nations Convention on the Assignment of Receivables in International Trade, Dec.
12, 2001, 41 I.L.M. 777, available at
http://www.uncitral.org/pdf/english/texts/payments/receivables/ctc-assignment-convention-
e.pdf (last visited Jan. 3, 2008); and the Hague Convention on the Law Applicable to Certain
Rights in Respect of Securities Held with an Intermediary, July 5, 2006, available at
http://www.hcch.net/index_en.php?act=conventions.pdf&cid=72 (last visited Jan. 3, 2008).
The law on security interests is also harmonizing on a regional basis, see, e.g., Organization
of American States [OAS], Model Inter-American Law on Secured Transactions, available at
http://www.oas.org/dil/CIDIP-VI-securedtransactions_Eng.htm (last visited Jan. 3, 2008),
European Bank for Reconstruction and Development [EBRD], Model Law on Secured
Transactions, available at
http://www.ebrd.com/country/sector/law/st/core/modellaw/modellaw.pdf (last visited Jan. 3,
2008). For U.S. law on these issues, see U.C.C. §§ 1-301 (2004), 1-105 (2000), and 9-301
(2004).