No. 99-40632

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In The

United States Court of Appeals

For The Fifth Circuit

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PETER VEECK, doing business as RegionalWeb,

 

Appellant,

 

v.

 

SOUTHERN BUILDING CODE CONGRESS INTERNATIONAL INC.,

 

Appellee.

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Appeal from the United States District Court

for the Eastern District of Texas

Honorable David Folsom

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Brief for Amicus Curiae

Association of American Physicians & Surgeons, Inc.

 

Filed in Support of Appellant

Peter Veeck, doing business as Regional Web

Supporting Reversal

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Karen B. Tripp

1100 Louisiana St., Suite 2690

Houston, Texas  77002

Phone:  (713) 658-9323

 

Andrew Schlafly

521 Fifth Avenue – 17th Floor

New York, NY 10175

 

Attorneys for Amicus Curiae

 

 

Supplemental Statement of Interested Parties

 

 

 

Peter Veeck, doing business as RegionalWeb,

Appellant,

 

v.                                             No. 99-40632

 

Southern Building Code Congress International Inc.,

Appellee.

 

 

The undersigned counsel of record certifies that the Association of American Physicians & Surgeons, Inc., has an interest in the outcome of this case.  These representations are made in order that the judgment of this court may evaluate possible disqualification or recusal.

 

 

                                                          ___________________________

Karen B. Tripp

Attorney at Law

1100 Louisiana Street, Suite 2690 

Houston, Texas  77002

Phone:  (713) 658-9323

                                                                   

Attorney of Record for Amicus Curiae

 

 

TABLE OF CONTENTS

 

Supplemental Statement of Interested Parties ………………………………1

 

Table of Contents …………………………………………………………...ii

 

Table of Authorities ………………………………………………………..iv

 

Concise Statement of Identity of Amicus Curiae, Interest in the Case, and

Source of Authority to File ………………………………………………….2

 

Summary os=MsoNormal align=center style='text-align:center'> 

CASES

American  International Pictures, Inc. v. Foreman,

          576 F.2d 661 (5th Cir. 1978)……………………………………………20

Avtec Sys., Inc. v. Peiffer,

          21 F.3d 568 (4th Cir. 1994)……………………………………………..23

Bobbs-Merrill Co. v. Straus,

          210 U.S. 339 (1908)……………………………………………………19

Building Officials & Code Admin. v. Code Technology, Inc.,

          628 F.2d 730 (1st Cir. 1980)………………………………………3, 7, 15

Burke & Van Heusen, Inc. v. Arrow Drug, Inc.,

          233 F. Supp. 881 (E.D. Pa. 1964)……………………………………...20

De Forest Radio Telephone & Telegraph Co. v. United States,

          273 U.S. 236 (1927)……………………………………………………22

Disenos Artisticos E Indus., S.A. v. Costco Wholesale Corp.,

          97 F.3d 377 (9th Cir. 1996)……………………………………………..21

Effects Associates, Inc. v. Cohen,

          908 F.2d 555 (9th Cir. 1990)………………………………………..21, 23

Feist Publications, Inc. v. Rural Tel. Svc.,

          499 U.S. 340 (1991)…………………………………………………7, 15

Gracen v. Bradford Exchange,

          698 F.2d 300 (7th Cir. 1983)……………………………………………23

Hotaling v. Church of Jesus Christ of Latter-Day Saints,

          118 F.3d 119 (4th Cir. 1997)……………………………………………20

I.A.E., Inc. v. Shaver,

          74 F.3d 768 (7th Cir. 1996)……………………………………………..23

In re CFLC, Inc.,

          89 F.3d 673 (9th Cir. 1996)……………………………………………..22

Jacob Maxwell, Inc. v. Veeck, 110 F.3d 749 (11th Cir. 1997)

          110 F.3d 749 (11th Cir. 1997)…………………………………………..22

Matthew Bender & Company, Inc. v. West Publishing Co.,

          158 F.3d 693 (2nd Cir. 1998),

          cert. denied, 522 U.S. 3732 (1999)……………………………….3, 7, 13

Novell, Inc. v. CPU Distributing, Inc.,

          Civ. No. H-97-2326 (S.D. Tex. May 4, 2000)…………………………20

Practice Management Information Corp. v. American Medical Ass’n,

121 F.3d 516 (9th Cir. 1997),

modified, 133 F.3d 1140 (9th Cir. 1998),

          cert. denied, 119 S. Ct. 40 (1998)…………………………………passim

Quality King Distrib., Inc. v. L’Anza Research Int’l, Inc.,

          523 U.S. 135 (1998) ………………………………………………...6, 19

Stop-N-Go of Madison, Inc. v. Uno-Ven Co.,

          184 F.3d 672 (7th Cir. 1999)……………………………………………..8

Veeck v. Southern Building Code Congress Int’l, Inc.,

          49 F. Supp. 2d 885 (1999)…………………………………………passim

STATUTES

17 U.S.C. § 101……………………………………………………………….15

17 U.S.C. § 105…………………………………………………………….7, 15

17 U.S.C. § 109……………………………………………………………….19


 

OTHER

1 M. Nimmer & D. Nimmer, Nimmer on Copyright (1999)…………………18

2 M. Nimmer & D. Nimmer, Nimmer on Copyright (1999)…………………19

3 M. Nimmer & D. Nimmer, Nimmer on Copyright (1989)………………….21

Calabresi, Guido, “Transaction Costs, Resource Allocation and Liability Rules:

          A Comment,” Journal of Law and Economics 68 (1968)……………….9

Coase, Ronald H., “The Problem of Social Cost,”

          Journal of Law and Economics 1-44 (1960)………………………….8, 9


Concise Statement of Identity of Amicus Curiae,

Interest in the Case, and Source of Authority to File

The Association of American Physicians & Surgeons, Inc. (“AAPS”) is a nonprofit organization dedicated to defending free market medicine.  Founded in 1943, AAPS has thousands of physician members in all specialties.  AAPS members include over one thousand members of the American Medical Association (“AMA”).  Members of AAPS must comply under threat of criminal penalties with the AMA-controlled CPT medical codes that are not readily available over the Internet.  AAPS opposes the amici curiae brief filed in this action by the AMA and others (the “AMA brief”). 

AAPS files this brief to alert this Court to economic fallacies in the AMA brief, and contrast it with the AMA’s own testimony before the Department of Health and Human Services (“HHS”).  The medical profession, including the members of AAPS and their patients, is burdened with enormous costs and restrictions on access due to copyright enforcement of legal requirements, including the AMA’s CPT coding system.

Amicus has a direct and vital interest in the issues presented to this Court here due to the direct costs and obstacles in accessing legal requirements that are imposed on AAPS members and their patients.


Summary of Argument

The posting of legal requirements by Appellant Veeck on the Internet was a public service that enhances compliance with and improvement of the law.  Under the logic of the leading First and Ninth Circuit decisions on this issue, Appellee SBCCI effectively lost its right to complain when it negotiated a contract with the local governments to impose its set of codes.  See Practice Management Information Corp. v. American Medical Ass’n, 121 F.3d 516 (9th Cir. 1997), modified, 133 F.3d 1140 (9th Cir. 1998), cert. denied, 119 S. Ct. 40 (1998); Building Officials & Code Admin. v. Code Technology, Inc., 628 F.2d 730 (1st Cir. 1980).  What Veeck has done here is not materially different from what Lexis did years ago in buying and copying judicial opinions from West Publishing and then providing them electronically, or what Matthew Bender did in copying West Publishing’s pagination for decisions.  See Matthew Bender & Company, Inc. v. West Publishing Co., 158 F.3d 693 (2d Cir. 1998), cert. denied, 522 U.S. 3732 (1999).  The common theme of all these cases is that the law belongs to the public, and thus Veeck’s dissemination of the law cannot be enjoined.  “The citizens are the authors of the law, and therefore its owners, regardless of who actually drafts the provisions, because the law derives its authority from the consent of the public, expressed through the democratic process.”  Building Officials & Code Admin., 628 F.2d at 734.  People must have free access to laws they must follow.  To hold otherwise damages respect for the law and weakens the legal system itself.

In opposing Veeck and thereby defending its own financial interests, the AMA relies on economically fallacious arguments and even contradict its own testimony to the federal government.  See Statement of the AMA to HHS Re: Physicians' Current Procedural Terminology (CPT), T. Reginald Harris, MD, April 16, 1997 (hereinafter, “AMA  Testimony”).[1]  The only efficient benefits for an entity that contracts with governments to impose its set of codes on the public are those benefits provided by government in the contract itself.  The AMA brief argues in its Point A that these contractually negotiated benefits are somehow an insufficient incentive for developing coding systems, and that the additional incentive of copyright enforceability against the public forced to use the codes is necessary.  In fact such additional windfall copyright enforceability is both inefficient and unjustified.  Leading privately developed standards, like the hospital medical coding system ICD-9 and the Uniform Commercial Code, do not suffer in quality from being in the public domain.

This case does not involve a government usurping a private work for its own purposes.  Rather, this case involves negotiated contracts with government by Appellee in seeking to become the official standard-bearer.  Veeck v. Southern Building Code Congress Int’l, Inc., 49 F. Supp. 2d 885, 887 (1999).  Neither Appellee nor the AMA brief provide any evidence or reason why the benefits provided by governments in those transactions would be insufficient incentive to encourage development of the codes provided in exchange.  The terms and conditions of such contracts between sophisticated parties provide an adequate and efficient incentive for standard development.  No additional incentive, such as obstructing public access to legal requirements over the Internet, is necessary or efficient.

Public policy weighs entirely against SBCCI and the AMA here, and nothing in the AMA brief demonstrates otherwise.  The public interest is in compliance with legal requirements by the public – from building codes to medical procedure codes.  There is no policy interest in allowing someone to claim “ownership” over a legal requirement and thereby prevent its complete dissemination to the public.  Speculation about adding windfall benefits in order to encourage code improvements is unfounded, and economically unjustified.  Moreover, the AMA and others have attempted for years to pass legislation in Congress that would provide them with the legal relief they seek here; Congress has notably refrained from doing this.

SBCCI entered into an agreement with governments to impose its set of codes by law upon the public, and thereby effectively sold its codes to those governments.  Resales of that product cannot be limited through enforcement of SBCCI’s copyright, under the well-established first-sale doctrine recently affirmed by the Supreme Court.  See Quality King Distrib., Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135 (1998).  In addition, SBCCI’s conduct intrinsically created an implied license in the public that is forced to use the codes – an implied license that cannot be disclaimed by SBCCI in the absence of consent by the public itself.  SBCCI’s remedy can only be against the government with which it contractually agreed, not against a public servant that freely distributes, inspects, debates, and adheres to the legal requirements.


Argument

I.  Rights to Access and Disseminate Applicable Laws Cannot Be Restrained by a Contractual Relationship Between a Private Organization and Government.

The First and Ninth Circuits each rejected efforts to monopolize legal requirements, albeit for different reasons.  See Practice Management, supra; Building Officials & Code Admin., supra.  The Second Circuit rejected restrictions as well.  See Matthew Bender & Company, supra.  While the rationales of these decisions vary, their result is the same: legal requirements must be in the public domain.  Amicus is aware of no Court of Appeals decision that allows private ownership over legal requirements since the unanimous Supreme Court decision of Feist Publications, Inc. v. Rural Tel. Svc., 499 U.S. 340 (1991) held that facts are not copyrightable and discredited “sweat of the brow” analysis in copyrights.  Cf. 17 U.S.C. § 105.

A.  SBCCI’s Remedy for Legally Imposed Codes It Provides to Government Must Be Confined to Contractual Benefits It Obtains From That Government.

Appellee SBCCI (and the AMA) negotiated contracts with government that require imposition of their standards on the public as a legal requirement.  49 F. Supp. 2d at 887 (“The cities of Anna and Savoy, Texas, under expressed agreements with SBCCI, have enacted ordinances adopting SBCCI's model codes by reference.”) (emphasis added).  It is, therefore, to those governments that SBCCI should turn for any compensation resultant from those contracts.  Third parties who, like Veeck, promote public compliance with legal requirements by posting those requirements publicly, have no obligation to SBCCI for any disappointment it suffers under its contract with the governments.

As sophisticated parties, SBCCI and the AMA are fully capable of negotiating benefits for themselves in contracting with government to impose legal requirements on the public.  Under any economic theory, the efficient level of benefits to the contracting parties are those attained through contractual negotiation by the parties themselves.  See, e.g., Coase, Ronald H., “The Problem of Social Cost,” Journal of Law and Economics 1-44 (1960); Stop-N-Go of Madison, Inc. v Uno-Ven Co., 184 F.3d 672, 680 (7th Cir. 1999) (“While the parties -- both sophisticated and experienced businesses -- were free to arrange this by contract, we are reluctant to reach such a result through tort law.”).  Sometimes a private organization will promise free public access while lobbying the government to impose certain codes, and then never perform on its promise.

For example, the AMA promised to provide its codes free to the public over the Internet in order to persuade the government to require use of its codes, but then later failed to fulfill its promise.  See AMA Testimony, supra (“The AMA has taken additional steps to make CPT available over the Internet and is expected to complete an agreement with the HCFA in the very near future.  Under the agreement, complete public access to HCFA data files containing CPT will be available, free of charge, both domestically and internationally.”) (testimony was presented in April 1997, and yet the AMA still prohibits anyone from posting CPT requirements on the Internet).

Protecting a government-created monopoly such that it can impose charges on third parties in addition to negotiating a deal with governments is economically inefficient.  The additional public costs of access distort the supply-and-demand dynamic of the contractual process and interfere with full compliance with the legal requirements.  The most efficient and widely followed standards result when the societal costs are incorporated into the initial contractual commitment to use the standard, rather than imposed without limitation on the public after the contractual commitment is made.  See Coase, supra; see also Calabresi, Guido, “Transaction Costs, Resource Allocation and Liability Rules: A Comment,” Journal of Law and Economics 68 (1968) (“if one assumes rationality, no transaction costs, and no legal impediments to bargaining, all misallocations of resources would be fully cured in the market by bargains”) (emphasis in original).

The court below relied on the following: "Non-profit organizations that develop these model codes and standards warn they will be unable to continue to do so if the codes and standards enter the public domain when adopted by a public agency."  49 F. Supp. at 888 (quoting Practice Management, 121 F.3d at 520).  Such warning by these organizations is pure hyperbole, however, as the code developers retain enormous marketing advantages even if codes enter the public domain.  The code developer can, for example, sell “official” revisions and updates to the legal requirements, much as West Publishing continues to profit from selling court decisions despite their free availability over the Internet.  Indeed, many publishers provide their materials for free over the Internet while still profiting from the sale of hard copies.  The court below acknowledged but failed to carry to its logical conclusion: Veeck’s posting will not drive SBCCI out of business.  49 F. Supp. at 891.  The AMA’s own testimony about placing its CPT codes on the Internet belies any claim that such posting would drive the AMA or others out of the coding business.

As always, supply meets demand, and government acquisition of standards will continue unabated even if Veeck prevails here.  The terms and conditions of the relevant contracts for public domain standards will be more economically efficient than they are now.  The claim in the AMA brief that the supply of standards would dry up -- if standard-developers are limited to the benefits obtained in their contractual negotiations with governments -- is economically untenable.

B.  It Is Economically Inefficient to Allow SBCCI to Sell its Codes Twice:  First to Government by Contract, and Second to the Public.

It is economically inefficient to allow SBCCI to impose two costs for its standard: first in its initial negotiation of a contract with government, and then in its additional cost on end-users required to use the standard.  The inefficiency is that the second cost – the burden on end-users – has no economic force disciplining its terms and conditions.  Only the extremely inefficient discipline of political influence, which is mixed with the countless other issues affecting political decisionmaking, remains to limit obstruction of access to legal requirements.  By preventing posting of the legal requirements on the Internet, SBCCI (and the AMA) prevent productive debate over the legal requirements as well.

There is no factual support for the AMA's claim that this inefficiency is a necessary incentive to the private development of standards.  Nor could there be.  Economic inefficiencies do not promote productivity.  The AMA brief points to examples of government agencies using private standards, and to private money being spent to develop standards, but not to the substantial societal costs in accessing and complying with these privately controlled standards.  The AMA brief omits any reference to public-domain standards that are more successful than the privately limited counterparts, such as the UCC and the ICD-9, referenced in the AMA’s own testimony to the government.  See AMA Testimony, supra.  The existence of these public domain and highly successful standards disproves the AMA’s argument that copyright enforcement against the public is essential to the development of government-imposed standards.

AMA warns ominously about "damaging consequences" but cannot give any examples of such consequences when laws became freely available to the citizens bound by them.  All evidence is actually to the contrary.  At one time West Publishing had de facto ownership of many legal requirements, and West Publishing aggressively defended its monopoly against publication by others.  The result of the publication by others, such as Lexis and Findlaw on the Internet, was an enormous benefit to the public.  When the Practice Management Court denied the AMA the ability to enforce its copyright over the government-mandated CPT codes, it still continued to develop and maintain the codes as before because it still enjoyed enormous business advantages even without copyright enforceability.  No dire consequences were noticed, except perhaps a slight decline in the windfall benefits to the AMA itself.  Nor have there been any dire consequences resulting from the loss by West Publishing of its ability to stop others from using its “star pagination.”  See Matthew Bender, supra.

In sum, the property value in a legally imposed standard results exclusively from the government mandating its use.  Since that value is conferred by contract with the government, the parties can and should negotiate all the costs and benefits as part of that contract.  Unrestricted access by the public to legal requirements cannot be a bargaining chip in that process.  The laws must be available to everyone who must comply with them, and public access cannot be sold by government to the highest bidder.  Rather, public access and distribution must remain unlimited, and the government and SBCCI can and should cut their deal in a mutually beneficial manner without interfering with public access and distribution.

II.  By Contracting for a Legal Mandate Requiring Use of a Standard, the Standard-Bearer Renders Its Copyright Unenforceable.

          It is self-evident that if someone directly or indirectly demands that you do task A, then that person is necessarily consenting to your doing task A.  SBCCI, by contracting with governments to require use of its codes, simultaneously consented to unrestricted public access to its codes. 

The AMA argues that “Veeck can cite to no case that has held invalid the copyright of a privately authored work on the grounds that it has been incorporated by reference in a law.”  But that is not this case.  This case involves, as does the AMA’s copyright over the mandated CPT codes, a contractual arrangement requiring the public to use a privately developed standard.  49 F. Supp. at 887.  The unenforceability of the copyright is not a result of a mere reference by the government, but rather is the result of the “expressed agreement” by Appellant SBCCI.

The AMA misplaces its reliance on its own litigation in Practice Management.  There the Ninth Circuit denied the AMA any enforceability over its copyright because it held that “the AMA misused its copyright by licensing the CPT to HCFA in exchange for HCFA's agreement not to use a competing coding system.”  121 F.3d at 520.  Under Practice Management, the denial of copyright enforceability occurs when government contracts to impose a standard, not when government merely references a standard.

By contracting with government to impose a standard, the standard-bearer implicitly concedes the right of the public to unrestricted access to the standard.  The rights of citizens to access and distribute legal requirements with which they must comply can never be at risk in the negotiation.  Of course private organizations would prefer to enhance their compensation by erecting costs of access to legal requirements, as SBCCI has done here.  But access to the law is not something that government can sell.  “The citizens are the authors of the law, and therefore its owners, regardless of who actually drafts the provisions  Building Officials & Code Admin., 628 F.2d at 734 (emphasis added).

The court below emphasized that Veeck had simply copied codes he purchased from SBCCI, even using a credit card in the process.  49 F. Supp. at 887 (“Mr. Veeck used a telephone to order the codes and purchased the codes by use of a credit card.”).  But that is irrelevant to the issue of enforceability of a copyright to limit dissemination of a legal requirement.  The court below was implicitly applying the “sweat of the brow” approach that was unanimously rejected by the Supreme Court in its Feist decision.  There the alleged infringer copied verbatim the work of the copyright holder, including even fake entries inserted into the work for the purpose of catching copycats.  Feist, 499 U.S. at 344.  The Supreme Court rejected the argument that such plagiarism was significant to the issues of copyright and its enforceability, and the Court here should reject that argument as well.

Finally the AMA argues that the Copyright Act denies copyright protection only to copyrightable works which have been originally created by the federal government or its officials.  17 U.S.C. §§ 101, 105.  But the rationale behind that exclusion – that legal requirements must remain public domain – applies equally to standards acquired by governments by contract and imposed by law.  Appellee SBCCI and the AMA negotiate contracts with government and, in a competitive market for standards, are perfectly capable of negotiating an efficient level of benefits for providing those standards without an additional windfall of copyright enforceability.

III.  Public Policy Requires Free Internet Access to Laws, Not Private Restraints on Dissemination of Legal Requirements.

Public policy overwhelmingly favors lifting any restrictions on the dissemination of legal requirements, as Veeck as done here.  Legal requirements exist not to provide compensation to the drafter, but to provide benefits to the public through as complete compliance as possible.  The level of compliance and improvement in laws is inevitably a function of the breadth and convenience of their availability.

These days, breadth and convenience of availability are synonymous with Internet access.  As the public increasingly relies on the Internet as the oracle of information, it is insufficient to limit access to legal requirements to inspection of paper copies at a library or town center.  Adequate legal notice must adapt to advances in technology and distribution.  For example, the popularity of overnight delivery services as a replacement of the United States mails led quickly to adaptation of legal notice and filing requirements to permit use of such overnight services.  Even the federal mail fraud statute has been updated to conform to the use of overnight delivery services.  Likewise, the popularity of the Internet requires recognition of the need to allow dissemination of legal requirements over the Internet, as Veeck has done.

It is indisputable that builders, contractors, engineers, architects, and other citizens will be able to comply with the building code requirements more easily and more completely if they are posted on the Internet.  These building codes help prevent collapsing houses, fire hazards, and other life-threatening problems, so the safety of the community at large is plainly enhanced by Veeck’s posting of the legal requirements on the Internet.  While SBCCI may lose some compensation – although even that is debatable – the public interest is greatly advanced by Veeck’s action.

On the other side of the ledger, there is no public interest in allowing one organization, SBCCI, to garner greater compensation by restricting public access to legal requirements.  There is no evidence that superior codes would result from less access rather than more access, or from private control over the codes rather than public debate about and contribution to improvements to the codes.  At best, SBCCI and the AMA have presented highly speculative claims that the standards would somehow be better if private companies are allowed to impose costs of access on the public.  It is a bit like arguing that a benevolent dictator is superior to democracy as a system of government, because he would have an enormous incentive to do a good job.  The argument is so contrary to our political tradition that it has no credence in the absence of compelling empirical evidence.  But none whatsoever is offered.

Indeed, Congress has repeatedly refrained from passing legislation that would grant SBCCI and the AMA the legal advantages they seek here.  The AMA, for example, lobbied and testified in favor of the so-called Collections of Information Antipiracy Act a few months after it lost in the Practice Management case.  Despite aggressive lobbying by the AMA and others for four years on Capitol Hill for protective legislation, Congress has refrained from embracing the AMA-supported legislation.  See, e.g., 1 M. Nimmer & D. Nimmer, Nimmer on Copyright § 3.04[B][3], at 3-33 & n.79 (1999).  The AMA’s most recent legislative effort for protection of its mandated codes, H.R. 354, has been unable to make it even to the floor of the House of Representatives for a vote, let alone become law.

Public policy overwhelmingly favors the dissemination of legal codes over the Internet as done by Veeck here.


IV.          SBCCI Effectively Sold Its Codes to the Governments, and Use of Those Codes to Promote Compliance are Protected Against Copyright Enforcement by “First Sale” Doctrine.

Under the "first sale" doctrine of copyright law, a copyright is enforceable against the initial purchaser only and cannot restrain the resale of that product to customers in downstream commerce.  17 U.S.C. § 109.  See generally 2 M. Nimmer & D. Nimmer, Nimmer on Copyright § 8.12[B][1], at 8-150 through 8-157 (1999); cf. Quality King Distrib., Inc. v. L’Anza Research Int’l, Inc., 523 U.S. 135 (1998); Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908).  Nimmer explains this as follows:

It is clear that once the copyright owner consents to the sale of particular copies or phonorecords of his work, he may not thereafter exercise the distribution right with respect to such copies or phonorecords.  Thus, in this core situation, Section 109(a) … provides that the distribution right may be exercised with respect to the initial sale of copies or phonorecords of a work, but may not be invoked so as to prevent or restrict the resale or further transfer of possession of such copies or phonorecords.

2 M. Nimmer & D. Nimmer, Nimmer on Copyright § 8.12[B][1], at 8-150 through 8-151 (1999) (footnotes omitted).

Attempts by copyright holders to place restrictions on resale are considered to be without effect under copyright law.  For example, authors may prefer that libraries not lend out their books, which directly reduces sales of the books to the detriment of the author.  Once the library has purchased the book, however, the copyright holder cannot restrict such distribution.  See, e.g., Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 119, 203 (4th Cir. 1997).  Even when a copyright holder places a condition on the initial sale, and the condition is broken, the copyright holder cannot restrain resales of the product.  American International Pictures, Inc. v. Foreman, 576 F.2d 661, 664 (5th Cir. 1978); Novell, Inc. v. CPU Distributing, Inc., Civ. No. H-97-2326, slip op. at 5-6 (S.D. Tex. May 4, 2000); see also, e.g., Burke & Van Heusen, Inc. v. Arrow Drug, Inc., 233 F. Supp. 881 (E.D. Pa. 1964).

Here, SBCCI essentially engaged in a first sale of its product, the codes, to the cities of Anna and Savoy, Texas.  "The cities of Anna and Savoy, Texas, under expressed agreements with SBCCI, have enacted ordinances adopting SBCCI's model codes by reference."  49 F. Supp. at 887.  By enshrining the codes into the law, the governments effectively lent or resold the codes to the public required to follow them.  While SBCCI is free to demand compensation for its first sale to the governments, it cannot restrain the effective resale of that product by the governments to its citizens.  In essence, the cities of Anna and Savoy, Texas, are akin to libraries that purchase a book and then allow any member of the public to read it for free.  SBCCI could not complain about such distribution by a library, nor can it complain about public access to codes purchased and imposed by government.  Nor is there any significance that a citizen, Veeck, posted the legal requirements rather than the governments themselves; the effect is the same, and the transaction costs are less when a citizen does it.

Indeed, there is every theoretical and empirical reason to find that SBCCI’s contracts with its contracts with governments provided it with an adequate and efficient level of compensation for its efforts, as demonstrated in Part I above.  Adding additional costs for the public to bear in effective “resales” of the product in no way advances public interest or any legitimate rights of SBCCI.  To the contrary, the blocking of public access to the legal requirements over the Internet only serves to add substantial transaction costs that obstruct full compliance with the codes.

V.  By Contracting with Governments to Impose the Codes, SBCCI’s Conduct Confers an Implied License to Veeck to Post the Legal Requirements – an Implied License that Only the Public Can Waive.

 

It is well-established that a party’s conduct can create an implied license to use copyrighted material.  See Effects Associates, Inc. v. Cohen, 908 F.2d 555, 558 (9th Cir. 1990) (holding that a party's "conduct created an implied license" to use copyrighted material”); see also Disenos Artisticos E Indus., S.A. v. Costco Wholesale Corp., 97 F.3d 377, 382 (9th Cir. 1996) (rejecting a copyright infringement claim by finding an implied license); 3 M. Nimmer & D. Nimmer, Nimmer on Copyright § 10.03[A], at 10-36 (1989) ("A nonexclusive license may be granted orally, or may even be implied from conduct.").

The decision in Jacob Maxwell, Inc. v. Veeck,  110 F.3d 749 (11th Cir. 1997), is illustrative.  There the Court of Appeals rejected a claim of copyright infringement by holding that the conduct of the copyright-holder created an implied license for use.  That case involved the continued use of a song by a minor league baseball team despite complaints by the composer.  There, as here, the issue was non-exclusive use of the copyrighted material.  There, as here, it was the conduct of the copyright-holder precluded any right to prohibit the non-exclusive use.

In holding in favor of the alleged infringer, the Jacobs Maxwell Court specifically found that:

The copyright holder's approving conduct - his granting of permission to the [team] on July 2, 1993 to play his song at the next day's game even though he had not yet been paid, his attendance without demur at subsequent games at which the song was played … and his failure to withdraw permission until October - clearly expressed [the copyright holder’s] permission for the [team] to play the song when it did.  Implicit in that permission was a promise not to sue for copyright infringement - a promise that at least one court has found to be the essence of a nonexclusive license.  See In re CFLC, Inc., 89 F.3d 673, 677 (9th Cir.1996) ("[A] nonexclusive patent license is, in essence, "a mere waiver of the right to sue' the licensee for infringement.") (quoting De Forest Radio Telephone & Telegraph Co. v. United States, 273 U.S. 236, 242 (1927)).

110 F.3d at 753.

This holding applies with particular force here.  SBCCI’s conduct in lobbying government to impose SBCCI’s own set of codes as a legal requirement constitutes an implied license for non-exclusive distribution of those legal requirements to those who must comply.  SBCCI cannot now seek to limit such non-exclusive distribution after it has entered into an agreement with government to require use of its codes.  SBCCI has the right to sell its codes and license others to sell them as well, but cannot prohibit non-exclusive distribution to legal requirements to the public.

This implied license for non-exclusive use of a copyright is widely followed.  In I.A.E., Inc. v. Shaver, 74 F.3d 768, 775 (7th Cir. 1996) (footnote omitted), the court emphasized that:

In fact, consent given in the form of mere permission or lack of objection is also equivalent to a nonexclusive license and is not required to be in writing.  Although a person holding a nonexclusive license has no standing to sue for copyright infringement, Paul Goldstein, I Copyright: Principles, Law and Practice sec. 4.4.1.1, at 409 (1989), the existence of a license, exclusive or nonexclusive, creates an affirmative defense to a claim of copyright infringement. Effects, 908 F.2d at 559. The concept of an implied nonexclusive license has been recognized not only by Nimmer, a preeminent treatise on copyright law, but also by the courts, including this one, which universally have recognized that a nonexclusive license may be implied from conduct.

See also; Gracen v. Bradford Exchange, 698 F.2d 300, 303 (7th Cir. 1983) (holding that "Nimmer is right" that unwritten licenses such as implied nonexclusive copyright licenses are enforceable); Avtec Sys., Inc. v. Peiffer, 21 F.3d 568, 574 n.12 (4th Cir. 1994) ("an implied license may … provide a defense . . . to the counterclaim").

Because the implied license is automatically held by the citizens who must comply with SBCCI’s codes, SBCCI can only negate that implied license by significantly changing its conduct that created it.  The court below erred in relying on a pro forma reservation of rights by SBCCI in its contract with the city governments.  Such recitation cannot negate the implied license created by SBCCI’s conduct vis-ΰ-vis the public.  SBCCI voluntarily engaged in conduct designed to require the citizens to adhere to SBCCI’s codes, and that conduct unmistakably creates an implied license in the citizens to have unfettered access to the codes.

If SBCCI’s conduct demonstrated that it had no intent to require citizens to use its codes, then perhaps it would likewise lack intent to grant an implied license to the public to have unrestricted access to the legal requirements.  Such is plainly not the case here.  SBCCI sought and obtained government imposition of its codes on the public, and there is no evidence that such codes would have been imposed in the absence of SBCCI’s efforts to obtain the mandates, including execution of contracts with the governments.


VI.  Conclusion.

The decision below should be reversed in its entirety.

                                                                   Respectfully submitted,

                                                                   ____________________

                                                                   Karen B. Tripp

                                                                   Attorney at Law

                                                                   1100 Louisiana St., Suite 2690 

                                                                   Houston, Texas

                                                                   Phone:  (713) 658-9323

                                                                   Fax:  (713) 658-9410

                                                                   [email protected]


CERTIFICATE OF SERVICE

          I hereby certify that two true and correct copies (on paper and computer disk) of the foregoing document were mailed, by United States Express Mail overnight delivery, postage prepaid, to counsel of record listed below, and that the same document was filed by placing an original and seven copies (on paper and computer disk) in first class mail, postage prepaid to the Clerk of the Court, pursuant to Fed. R. App. P. 25(a)(2)(B)(i), on this  __ day of May, 2000, at the following addresses:

 

Eric Weisberg
200 West Main Street
Denison, Texas 75020-3025

Counsel for Plaintiff

Robert J. Veal
Burr & Forman

South Trust Tower

420 N. 20th Street, Suite 3100

Birmingham, Alabama  35203

Counsel for Defendant

Michael Lowenberg

Akin, Gump, Strauss, Hauer & Feld, L.L.P.

1700 Pacific Ave., Suite 4100

Dallas, TX 75201-4618

Counsel for AMA

Mr. Charles R. Fulbruge III

Clerk of the Court

United States Court of Appeals or the Fifth Circuit

600 Camp Street

New Orleans, Louisiana 70130

                              ___________________                                                  Karen B. Tripp, Esq.

CERTIFICATE OF COMPLIANCE

Pursuant to 5th Cir. R. 32.2. and 32.3 and Fed. R. App. P. 32(a)(7)(C), the undersigned certifies this brief complies with the type-volume limitations of 5th Cir. R. 32.2.7(b) and Fed. R. App. P. 29(d).

1.                 Exclusive of the exempted portions in 5th Cir. R. 32.2 and Fed. R. App. P. 32.2.7(b)(3), the brief contains 5,492 words.

2.                 The brief has been prepared in proportionally spaced typeface using Times New Roman 14 point font for text and 12 point font for footnotes produced by Microsoft Word 97 software.

3.                 An electronic version of the brief has been provided and if the Court so requests, the undersigned will provide a copy of the word or line printout.

4.                 The undersigned understands a  material misrepresentation in completing this certificate, or circumvention of the type-volume limits in 5th Cir. R. 32.2, may result in the Court’s striking the brief and imposing sanctions against the person signing the brief.

                                                  _________________________

                                                             Karen B. Tripp, Esq.




[1] This testimony is available on the Internet (posted by HHS at http://www.ncvhs.hhs.gov/medicare/amacpt.htm and by AAPS at http://www.aapsonline.org/aaps/medicare/amacpt.htm).