Recently Eric Goldman (otherwise know as @ericgoldman) alerted me to In re SuperMedia, Inc., an opinion by the Delaware U.S. Bankruptcy Court. (Go here for a PDF copy.) It has a lesson to offer regarding how to avoid confusion over whether contract terms apply to changed circumstances.
Marketing company SuperMedia had a contract with Yellow Pages Photos, Inc., a provider of stock images. Here’s the relevant provision:
[SuperMedia] may not transfer these images to other parties or individual[s] unless authorized by YPPI; provided, however, that [SuperMedia] is authorized by this Agreement to use the photographs and images in advertising purchased by its customers for inclusion in [SuperMedia’s] products. All users must be employees or contractors of [SuperMedia].
The idea was that YPPI photos would be used on SuperMedia’s own computer system, but that contractors would be allowed to use that system, by sitting at computers in SuperMedia’s offices.
But you won’t be astonished to hear that SuperMedia got into outsourcing in a big way. As part of that, it transferred YPPI’s photos to outside contractors. And YPPI’s images started appearing in all sorts of unexpected places—hence the lawsuit.
SuperMedia argued that “contractors could not feasibly use the images unless SuperMedia transferred them.” The court wasn’t sympathetic, pointing to the previous arrangement, with contracts using SuperMedia’s system.
I have some sympathy for SuperMedia. The no-transfer and contractors-okay parts of the contract were compatible as long as contractors were using SuperMedia’s system. But once SuperMedia started outsourcing, the potential for disconnect arose, and SuperMedia went with the part of the contract that seemed to allow them to do what they wanted to do.
What’s the moral in this for contract drafters? Whoever drafted the contract at issue in this dispute would have done well to be explicit about what arrangement was contemplated: “All users must be SuperMedia employees or contractors and may access YYPI images only on SuperMedia computer networks.” Generally, being explicit would make it clear whether changed circumstances pose a problem, whereas being oblique would leave it to contract parties to figure out whether the original terms still apply to the changed circumstances.
4 thoughts on “Being Specific in Contracts Can Help Avoid Confusion When Circumstances Change”
I have faced this situation on several occasions and your solution might not be sufficient.
“All users must be SuperMedia employees or contractors and may access YYPI images only on SuperMedia computer networks.”
We went further by limiting the types of devices and their location because computer networks can be remotely accessed. So, in this situation, it might have been better to limit the use by contractors to computer terminals IN a specified SuperMedia office during business hours–or some such limits consistent with the interests and intent of the parties.
Seems to me the court reached the right result. Nothing in the quoted language said where the contractors had to be. And if YPPI had proposed language such as Ken or Globalcapjames suggested, if I were SuperMedia I’d refuse; it’s how the photos are used rather than where they’re used that should be the real issue. The correct solution here is to make SuperMedia liable if the contractors used the photos for anything but SuperMedia’s customers. In any case, of course, YPPI has a copyright claim against the contractors (assuming it registered its photos–if not, they got what they deserved).
I was responding to these facts in the initial post:
“The idea was that YPPI photos would be used on SuperMedia’s own computer system, but that contractors would be allowed to use that system, by sitting at computers in SuperMedia’s offices.”
If that was supposed to be the case then the agreement should have specified that condition.
Vance, I think you are half-right–i.e., how the photos were to be used but in that fact pattern, the “where” was part of the “how.” The drafting lesson is this: Specify the conditions–the how and if the clients want it, the where–under which the photos are to be used. We represent quite a few players in the stock photo and digital content space. The problem with digital content is that once it is “out there” (i.e., someone has a digital copy), then there is always the risk of widespread re-distribution.
I disagree on the remedies. Copyright claims always exist but policing is a huge problem. Liability is a problem once a company is in bankruptcy (but it should still be included). Another approach is that misuse could lead to throttling, suspending or terminating access, which tends to be relatively effective (but see above as to copies being “out there”). It is also quite effective in the SaaS space.
Adams is right, though: How can an agreement respond to changed conditions? Vance and I concur–specify uses–and I suggest going further with access control remedies.