6 Va. J.L. & Tech 8

1. On August 1, 2000, the U.S. District Court for the Central District of California granted summary judgment in a case of first impression and great potential significance regarding the law of copyright licensing. The case is Gardner v. Nike, Inc.[2] and the general issue is familiar to most students of licensing law: “What are the limits of the statutory copyright monopoly?”[3] Some of these limitations, such as the Fair Use Defense[4] and the First Sale Doctrine,[5] are defined by statute, while others are based on equitable concepts or originate in other bodies of law, such as the Copyright Misuse Defense.[6] The subject matter of Gardner v. Nike, however, differs from other limitations on the copyright monopoly in that no previously published U.S. case squarely addresses the issue of whether an assignee or exclusive licensee of limited rights under a copyright may assign or sublicense those rights without express permission of the original copyright owner.[7] The controversiality of the case is heightened by a circuit split on whether, as a general matter, federal law applies to the entire interpretation of any licenses of a federally granted intellectual property monopoly, and judicial disagreement on whether federal or state law applies specifically to the question of assignability. Courts have clashed over the determination of what rules govern a license agreement – Janus-faced creation of both state contract and commercial law and federal intellectual property statutes – and have accordingly come to contradictory and sometimes ill-considered conclusions about which rules apply and what their effects should be.

2. With the Gardner decision now being considered by the U.S. Court of Appeals for the Ninth Circuit, the time seems opportune to analyze the issue of whether a licensee of federally-granted intellectual property rights may freely transfer its rights to a third party in the absence of a contractual prohibition against such transfer. The timeliness of this issue is not due solely to the current disposition of the Gardner case, however. Issues of federalism have increasingly occupied the U.S. Supreme Court, and the issue of licensing has assumed increasing importance in commercial law, the common law of contracts, and federal intellectual property law in general. The efficient division of labor often results in a disjunction between inventors of technology and publishers or manufacturers of the ultimate product. The relationship between these parties must necessarily be governed by a license agreement. At the end-user level, consumers of intellectual property (such as music, software, books, electronics equipment, etc.) very often receive some kind of express license purporting to define and limit their rights to use or copy the purchased goods. As the sale and licensing of intellectual property, particularly software, assumes ever increasing centrality as a component of the U.S. economy, the importance of creating certainty in the applicable bodies of law grows proportionately. Thus, the determination of what body of law governs which aspects of the intellectual property license is ripe for analysis and, one hopes, resolution.

3. Section I of this Article offers a brief introduction to the problem of delimiting the scope of intellectual property protection. Section II will examine the arguments presented in Gardner v. Nike, and the rationale and precedents underpinning the district court’s holding in that case, including the statutory intent behind the wording of the 1976 Copyright Act. Section III discusses the constitutional issues relating to whether state contract law or federal intellectual property law should determine whether a license is assignable. Specifically, Subsection III.A considers the import of the federal preemption issue. Subsection III.B reviews how courts have applied the preemption issue in nonexclusive license cases, and Subsection III.C analyzes the arguments for applying state law to an exclusive license despite the many cases apparently applying federal policy to nonexclusive licenses. Section IV examines the effects on federal policy of applying state law to determine the assignability of a license agreement. Finally, Section V discusses the general policy issues relating to license assignments, and concludes that, although the case for applying state law to nonexclusive licenses is weaker than the case for applying state law to exclusive licenses, it remains highly questionable whether courts have properly applied federal law to determine whether nonexclusive licenses are assignable.

II. Expanding the Scope of the Intellectual Property Monopoly

4. Cases testing the limits of the statutory grant of license rights arise with increasing frequency as the importance of intellectual property to the U.S. economy grows, and as the scope of intellectual property law expands to encompass new subject matter, such as copyrights on compilations of data[8] or patents on business methods.[9] But new intellectual property law is hardly created spontaneously by foresightful legislative technocrats or formed by the passive absorption of technological changes into an otherwise static legal regime. Rather, it is very often the pounding of innovative and aggressive business strategies against law designed for a past technological or political era that provokes courts to heed the litigant or class of litigants demanding accommodation of their interests in new ways under the old laws.

5. In other words, it is the nature of intellectual property ownership that owners to seek to extend their statutory rights to the farthest permissible reaches, and if possible, to stretch the law itself through liberal judicial interpretation. Consumers and licensees, resisting, must invoke the assistance of the federal or state government, which often necessarily means courts, who must evaluate whether such stretching threatens the public policy upon which the federal intellectual property statutes are founded. That public policy, it has often been observed, seeks to balance free public access to the functional, nonoriginal, or otherwise unprotectible elements of protected works with incentives for artists and inventors to innovate and create such protectible works.[10] But, due to frequent imbalances in bargaining power, the pressure toward the extension of intellectual property rights is very strong. For example, copyright licensors have so far enjoyed surprising success in skewing judicial interpretations of the First Sale Doctrine in their favor to the detriment of the public policy underlying (and sometimes the clear words and intent of ) the Copyright Act.[11] The First Sale Doctrine provides that each sale of a copy of a copyrighted work terminates the rights of the copyright owner to control future transfers of that particular copy.[12] The purpose is to prevent copyright owners from warping the market structure and obtaining unnecessary extra compensation for sales of their works by monopolizing the aftermarket for the works. Yet, some courts have allowed copyright owners to continue to control copies after sale by characterizing the sales agreement as a “license” supposedly not subject to the First Sale Doctrine.[13] By deferring to the language of the contract to override the congressional intent behind the First Sale Doctrine, courts have sometimes allowed copyright owners whose rights have been extinguished by the sale of their product to reach out beyond the grave to try to strangle statutory or common law rights of licensees.

6. But the basic purposes of federal intellectual property laws are not to recognize or promote some inherent property right of the creator in his or her ideas, expressions, or inventions. Federal policy is more Utilitarian (in the Benthamite sense). The intellectual property monopoly conferred by federal law seeks to balance public access to information, inventions, and art with the need to grant creators incentives to continue production. “There is no need of giving this power [of monopoly] any broader construction in order to attain the end for which it was granted, which was to reward the beneficent efforts of genius, and to encourage the useful arts.”[14] Determining how much incentive is necessary – how far the monopoly need extend to promote the progress of the arts and sciences – is the perennial and intractable question. The answer may be an empirical one difficult to resolve in a court of law, but the duty of courts to maintain a healthy balance between the rights of the public and the creator is clear.

III. Assignment of the Exclusive Copyright License

A. Gardner v. Nike, Inc.

7. There may be signs that the mistakes courts have made in interpreting the First Sale Doctrine will be followed increasingly in other realms of intellectual property licensing. Gardner v. Nike, alluded to above,[15] is one such sign. Gardner has a somewhat peculiar factual history. In 1992, Nike, Inc. (“Nike”) and Sony Music Entertainment, Inc. (“Sony”) entered into a licensing agreement for certain rights to a cartoon character created by Nike. The cartoon character, known as MC Teach, represents a cat in baggy street clothing. In exchange for royalties equal to fifteen percent of Sony’s revenues from the exploitation of MC Teach on merchandise other than phonographs,[16] Nike transferred the exclusive, worldwide, perpetual right to use MC Teach:

on and in the packaging of phonograph records;

in publicity, advertising, and allied exploitation of such records;

in television programs or motion pictures conveying the musical compositions embodied in the records;

on educational materials; and

on clothing.[17]

8. The agreement did not limit Sony’s right to sublicense or assign its rights; on the contrary, by virtue of its exclusivity, it removed Nike’s ability to transfer any rights to the character without Sony’s express consent. In short, Nike permanently transferred to Sony a broad range of rights to MC Teach, and permanently disclaimed its own interest in such rights in consideration for Sony’s payment, reserving only to itself nominal ownership of the copyright and the right to an automatic endorsement on all merchandise except clothing.[18]

9. Unsurprisingly, Sony sought a licensing agent to assist it in exploiting the copyrighted work, and in June 1993 concluded an exclusive agency agreement with defendant Bien Marketing, Inc. (the predecessor to the plaintiff, Bien Licensing Agency, Inc.) (hereinafter referred to as “Bien”).[19] In July 1996, Sony assigned its remaining rights in MC Teach to plaintiff Gardner on a quitclaim basis in exchange for a share of the revenues derived from the marketing of MC Teach.[20] Gardner continued to use Bien’s marketing services. The plaintiffs had begun, in 1992, to use the MC Teach image on various educational materials and school supplies,[21] which Nike believed to be outside the scope of the license. Nike was aware of these marketing efforts (because the plaintiffs had kept them informed), but took no action until November 1996, when it threatened Bien, Gardner and Sony with legal action, claiming that Sony had no right to license or assign its rights to a third party. However, rather than suing Sony for breach of contract, Nike threatened copyright infringement litigation, claiming that an exclusive license confers no right to assign the licensee’s rights. Bien then filed suit seeking declaratory relief in California Superior Court, but the court dismissed the case for lack of subject matter jurisdiction, apparently in the belief that the issue of assignability should be governed by the federal Copyright Act rather than the California common law of contracts. The plaintiffs then filed an action in the U.S. District Court for the Central District of California.[22]

10. On June 5, 2000, Nike moved for summary judgment. Based on the parties’ briefs, the district court formulated the determinative issue as “whether the 1976 Copyright Act allows Sony to transfer its rights under an exclusive license lacking the original licensor’s consent.”[23] Nike claimed that Bien had no standing to sue because Bien’s license was invalid under the Copyright Act. Bien argued, to the contrary, that the exclusive, worldwide, perpetual license made Sony the “owner” of the rights licensed to it, and ownership entails the right to assign such ownership rights to a third party.[24] Bien cited two key provisions of the Copyright Act. First, it relied upon 101, which defines a “Transfer of Copyright Ownership” as the:

assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright or any of the exclusive rights comprised in a copyright, whether or not it is limited in time or place of effect, but not including a nonexclusive license.[25]

11. Obviously, then, Nike had transferred “copyright ownership” in the licensed rights to MC Teach to Sony, as it was uncontested that Nike had granted to Sony an “exclusive license” of a wide variety of “exclusive rights comprised in a copyright.” The court noted that, under § 101, an exclusive license had the same legal effect as an assignment.[26]

12. Bien next turned to § 201(d) of the Act to determine the rights conveyed to a “copyright owner” by “transfer.” Section 201(d) provides:

(d) Transfer of Ownership. –

(1) The ownership of a copyright may be transferred in whole or in part by any means of conveyance or by operation of law, or may be bequeathed by will or pass as personal property by the applicable laws of intestate succession.

(2) Any of the exclusive rights comprised in a copyright, including any subdivision of the rights specified by § 106, may be transferred as provided by clause (1) and owned separately. The owner of any particular exclusive right is entitled, to the extent of that right, to all of the protection and remedies accorded to the copyright owner by this title.[27]

Bien argued, in effect, that one of the protections accorded to a copyright owner under Title 17 of the U.S. Code was the right to transfer one’s interest in the copyrighted work. Nike countered by arguing that § 201(d) of the 1976 Copyright Act only confers upon the “copyright owner” two “protections and remedies”: the right to sue and the right to defend suits relating to copyright infringement in its own name. This right is set forth in § 501(b) of the Copyright Act, which provides that “the legal or beneficial owner of an exclusive right under a copyright is entitled . . . to institute an action for any infringement of that particular right committed while he or she is the owner of it.”[28] Courts have consistently upheld the right to sue as a right incidental to an exclusive license.[29] However, these cases do not address what other rights an exclusive licensee might have pursuant to § 201(d)(2).

13. The court then addressed and expanded upon Nike’s legislative history argument. Both sides apparently agreed that, under the 1909 Copyright Act, an exclusive licensee had no innate power to assign or sublicense its rights without an explicit contractual grant; a key controlling case had established as much.[30] In that case, the U.S. Court of Appeals for the Ninth Circuit had interpreted the 1909 Copyright Act to prevent even an exclusive licensee from assigning its interest in the copyright rights licensed to it.[31] In Nike’s view,

[n]othing in the 1976 Act itself, nor in any pertinent legislative history . . . suggests that Congress intended in the ‘76 Act to materially change the ‘delicate balance’ between licensors and licensees on the issue of free assignability of licensed rights struck in the 1909 Act.[32]

It is certainly true that nothing in the legislative history of the 1976 Copyright Act decisively indicates Congress’ intent to determine the right of an exclusive licensee to assign or sublicense its own rights. The plaintiffs did not argue that the Ninth Circuit had misinterpreted the 1909 Act. The 1909 Act was no clearer on the assignability of copyright licenses than the 1976 Act. One strong argument would have been that the 1909 Act, being ambiguous on the point, did not govern the issue in the first place. Instead, the plaintiffs relied upon a popular copyright treatise, Nimmer on Copyright, to argue that the difference in the wording of the 1909 and 1976 Acts indicated Congress’ intent to make exclusive license rights assignable by default.

14. The district court itself cited Nimmer at length, concentrating on its explanation of the changes to the 1976 Act, which purportedly resulted from congressional rejection of the concept of indivisibility of the copyright.[33] According to Nimmer, this rejection appeared to result in a congressional policy of free alienation of a right “owned” by the licensee. However, the court rejected Nimmer’s conclusion summarily. Instead, the court held that § 201(d)(1) did not apply because that section addressed only the divisibility of the copyright owner’s interest in the totality of the copyright and its right to transfer any part of such ownership to another party and thereby make that other party a joint owner.[34] Determining that only § 201(d)(2) applied to Sony’s case, the court held that, contrary to the conclusion of the treatise from which it had just drawn liberally, the rights conferred under § 201(d)(2) in an exclusive license include only the “protections and remedies” of the copyright owner under the Act and none of the rights. The legislative history of the 1976 Act seemed to indicate that the import of the use of the word “owner” was merely to emphasize the divisibility of the rights comprising a copyright.[35] Quoting a brief by Nike, the court held that “the right to freely assign the licensed rights cannot, by any fair interpretation, be characterized as either” a protection or a remedy.[36]

B. Prior Copyright Cases

15. Perhaps the case of most direct relevance to the Gardner plaintiffs’ arguments was In re Patient Education Media, Inc., a bankruptcy case from 1997.[37] In that case, a copyright owner granted a perpetual, worldwide, nonexclusive license to one party (the “debtor”). The debtor eventually filed a Chapter 11 case, and then assigned its assets and executory contracts (including the copyright license) to a third party. The copyright owner contested the assignment.[38] In upholding the copyright owner’s right to avert the assignment, the court noted that “[o]wnership is the sine qua non of the right to transfer,” and that the holder of an exclusive license is entitled to all the “rights and protections” of the copyright owner to the extent of the license under § 201(d)(2). “Accordingly, the licensee under an exclusive license may freely transfer his rights . . . ,” but a nonexclusive licensee is not an owner and therefore has no such rights.[39]

16. The Gardner court had sound reasons for dismissing the relevance of In re Patient Education Media. The holding with respect to exclusive licensees was mere dicta, as only a nonexclusive license was before the court. However, the Gardner court also noted that the bankruptcy court had misstated the rights granted by § 201(d)(2). The bankruptcy court had stated that an exclusive licensee is entitled to the “rights and protections” of the copyright owner, but § 201(d)(2) grants instead the “protections and remedies” of the copyright owner.[40] In the Gardner court’s view, granting someone “protections” does not necessarily grant them any rights.

17. However, the Gardner court did overlook precedent it should not have ignored so lightly. The same court had decided the same issue differently only two years earlier. The Gardner plaintiffs had cited the case in their brief, but the district court declined to address it. The case was Leicester v. Warner Bros.[41] In Leicester, a developer had hired the plaintiff, an artist, to create a work of public art in Los Angeles. The contract allocated rights to two-dimensional and three-dimensional reproductions or representations of the work between the developers and the artist. Regarding three-dimensional representations, the artist granted to the developers the exclusive, perpetual, irrevocable right to make reproductions for certain purposes, and denied the artist the right to duplicate the work in another project. Three years later, the developer granted a license to the Warner Bros. movie studio to use inter alia three-dimensional representations of the work in a movie. The artist then registered his copyright and sued Warner Bros. for copyright infringement.

18. Although the nature of the artist’s license to the developer was not entirely clear from the contract, the district court determined that an exclusive license had been granted. Without detailed analysis, the court stated that “[c]opyright law is such that the grant of the license may not be assigned or sublicensed by the licensee unless the grant of the license is exclusive.”[42] Because the court had concluded that the artist’s license to the developer was exclusive, it followed that the latter “had the right to sublicense three-dimensional reproductions”[43] to others without the copyright owner’s consent.

19. The holding of Leicester could leave no doubt about the court’s interpretation of the law. An exclusive license to aspects of a copyright confers a right to assign or sublicense the right to those aspects unless the license agreement specifies the contrary. In ignoring Leicester, the Gardner court ignored stare decisis and effectively overturned precedent only two years old. It is unclear why the court chose to avoid discussing the case, unless it was due to the fact that Leicester was not published in the Federal Supplement or alternatively, the court disagreed with the conclusions of its predecessor too strongly to follow it, and did not feel comfortable reversing such a recent decision. Another possibility is that the Gardner court distinguished between the right to sublicense rights and a right to assign them. Thus, the Leicester language about assignments would only be dicta, because that case really involved only involved a sublicense. However, this explanation seems unlikely in light of the traditional similarity of treatment between assignments and sublicenses – one being almost a subset of the other.

20. Leicester itself was not, however, the first U.S. case to interpret § 201(d)(2). In a 1982 case, the U.S. District Court for the Eastern District of Pennsylvania had also interpreted § 201(d)(2). In that case, Library Publications v. Medical Economics Co., the plaintiff was a trade book publisher and distributor who had allegedly procured an oral (nonexclusive) copyright license from the defendant, another publisher and the undisputed assignee of the copyright, to distribute the Physician’s Desk Reference throughout the world. When the plaintiff undersold the defendant to a large retail outlet, the defendant refused to sell any more books to the plaintiff, allegedly in violation of the license. The district court read § 201(d) to confer on an “owner of an exclusive right” the further right to “transfer, in whole or in part, any of the exclusive rights comprised in a copyright.”[44] Thus, while the court found that the defendant could have granted an exclusive license to the plaintiff, it did not because an exclusive license cannot be granted orally.[45] Thus, the Library Publications court echoed the Leicester and In re Patient Education Media courts’ interpretations of an exclusive license as intrinsically assignable, but, also like those cases, did so only in dicta.

C. Statutory Intent and Structural Logic

21. The most notable holding of Gardner was not the rejection of § 201(d)(2) as making an exclusive license freely assignable; it was the unwritten assumption that the Copyright Act governed the issue of assignability of a license agreement in the first place. However, even the court’s interpretation of the Copyright Act was dubious. Most notably, from the phrasing of §§ 101 and 201, it is clear (as the court itself noted) that an exclusive, perpetual license “is equated with an assignment” of the licensed rights under the Act.[46] Yet, may not an assignee dispose of his rights in any way he wishes within the grant of § 106 of the Act, and the limitations of the following sections? Why, then, did the court call upon the ambiguous word “protection” of § 201(d)(2) to negate such a clear presumptive right?

22. The court, in holding that no “rights” were included in § 201(d)(2)’s grant of “protections and remedies,” effectively interpreted § 201(d)(2) to limit the meaning of “ownership” as set forth in § 101. This interpretation rejects equating the term “protections” with the term “rights.” Yet, the court made no effort to consider what such “protections and remedies” might therefore be. The court did cite Nike’s contention that the phrase encompassed only “the right to sue and defend suits in its own name.”[47] This contention presumably expresses the court’s own opinion. But there are two vulnerable points in this argument. First, if Congress intended § 201(d)(2) to confer on the licensee only the right to institute an action for infringement in its own name, it seems likely that Congress would have referred explicitly to the relevant grant of authority in the legislation – i.e., § 501(b). It would seem that, if Congress had intended the § 501(b) rights to be the only “protections and remedies” conferred upon an exclusive licensee, it could have said so explicitly. Cross-references to particular sections of the Copyright Act are quite common.[48] More tellingly, by Nike’s own admission, even the “protection and remedies” of § 501(b) were “rights” in a sense.[49] This point seems more semantic than substantive. Is not every “protection” a “right” insofar as it is a “right to protection?” Each provision of § 106 affords “protection” of a copyright owner’s defined rights. Nonetheless, the court latched onto the word “protection” as if it were intended to include only the very limited protection of a right to sue already stated more clearly elsewhere in the Act, and not the protections of § 106 more generally. Indeed, at least one other court in dicta interpreted the word “protection” to be equivalent to “rights,” which meant (in that court’s opinion) that an exclusive licensee may “freely transfer his rights.”[50]

23. The 1976 Copyright Act does not help matters by using the term “owner” to refer to the original copyright owner as well as an assignee, exclusive licensee, etc., when it might have referred to a “copyright owner” versus an “owner of rights.” Nike advanced a well-argued case that, if Congress had wished to confer on exclusive licensees all of the original copyright owner’s entitlements restated in § 106, there would be no need for Congress to include § 201(d)(2) of the 1976 Act, because calling the exclusive licensee the “owner” of the granted rights would have sufficed to entitle the licensee to those § 106 rights as the owner. From this perspective, unless the purpose of the § 201(d)(2) entitlement was “to define and limit the incidents of an exchange of ‘ownership’ of licensed rights,” then the “protections and remedies” language is “mere surplusage.”[51]

24. Although this argument prevailed at the district court level, it has little to commend it. In the first place, it concedes that the use of the term “owner” to refer to an exclusive licensee was intentional. The most natural assumption, based on the clear wording of the Act, is that Congress wished such exclusive licensees to have all the rights of an owner except as limited by contract. Having admitted this much, Nike’s argument collapses of its own weight. For, if its interpretation of § 201(d)(2) were accepted, this would render § 501(b), which explicitly grants an exclusive licensee the right to sue for infringement and defend such suits in its own name, “mere surplusage.” In effect, Nike was arguing that, as a matter of statutory construction, § 201(d)(2) should be interpreted to say obscurely what § 501(b) says clearly, rather than to stand on its own as an elaboration of § 101’s ambiguous definitions of “copyright ownership” and “transfer of copyright ownership.” Indeed, the Copyright Act could hardly define “copyright ownership” as possession of exclusive rights and then fail to define what such ownership entails. Congress seems to have drafted § 201(d)(2) to explain (albeit poorly), not limit, the consequences of such deemed “ownership.”

25. The structure of the 1976 Act seems to support this conclusion. The Act treats an assignment of rights and an exclusive license equally for purposes of the “protections and remedies” granted under the Act. Yet, it would be difficult to argue that an assignment of rights under a copyright – even limited rights – would be so “personal” to the assignor as to preclude the right of the assignee freely to alienate its rights. Nike did make such argument; it claimed that only an assignment of all of the original copyright owner’s rights under the Copyright Act could result in an automatic right of alienability.[52] But this argument finds no support in the text or legislative history of the 1976 Act, which altered the wording of the 1909 Act to make an exclusive licensee an “owner.” It also makes little sense from a public policy perspective. When a licensor such as Nike willingly relinquishes the licensed rights in perpetuity and throughout the world, it is hard to avoid the conclusion that the assignor maintains no such vital interest in those rights that federal law demands that the licensor be granted more than a contractual remedy. Nike had only one significant interest in the copyrighted work after granting the license – the right to royalties. Nike was perfectly capable of protecting this right by imposing minimum revenue targets or other restrictions on Sony. Whether Sony used the copyrighted work on products for sale or licensed another party to do so for it is so clearly irrelevant to Nike that it seems bizarre that Nike would object to the assignment rather than the offending (alleged) breach of the license agreement.

26. The point of this line of argument is not to refute the Gardner court’s holding that the 1976 Copyright Act does not confer a right to assign upon an exclusive licensee, but rather to show that the statute does not clearly resolve the question at all. There are reasonable arguments on both sides, but none is decisive. The problem was not the court’s failure to find a right to assignment in the Act; it was the court’s apparent failure to understand the relationship between the concept of “license” and the transfer of intellectual property. The license agreement between Sony and Nike explicitly contemplated that Sony would sell copies of representations of MC Teach, and equally that Sony would broadcast such representations on television. Sales and broadcasts by Sony would include – as they must – implicit or explicit “sublicenses” to the television station and to consumers.[53] If Sony can “sublicense” the work directly to consumers, what section of the Copyright Act forbids Sony from “sublicensing” the its rights to an agent, who in turn “sublicenses” the work to consumers? The answer is “none.” This is normally a question to be resolved by the state law of contracts, which infers the right of sublicense from the structure of the contract (it was, after all, presumably the intent of the parties to allow the sublicense of the copyrighted work to consumers). Whether the license to manufacture is exclusive or not, it is difficult to imagine why sublicensing or assigning one’s rights should make any difference to the licensor as long as suitable contractual and state law protections remain in place and are upheld.[54] In the absence of a federal rule, such restrictions must be imposed by contract, or under state law, or not at all.

27. Thus, notwithstanding the Gardner court’s decision to base its holding entirely on the issue of whether Congress intended the phrase “protections and remedies” to encompass all § 106 rights or only the § 501(b) rights, this particular question was irrelevant to the matter before the court. The issue addressed should have been whether California law permitted the assignment. The Gardner court’s misfocus is understandable; the court should not have been called upon to determine whether the 1976 Copyright Act confers upon exclusive licensees the right to assign their licenses. Notwithstanding the use of the term “owner” in the Act, it does not itself confer a right to assign the license. Nor does it prohibit such assignments. In fact, it does not govern the question at all. It is an issue to be determined by state law unless and to the extent that state law conflicts with a clear federal policy. In the case of Gardner, as I will argue below, there was no such conflict.

IV. Contract or Intellectual Property? State or Federal Law?

A. Federal Preemption and State Common Law

28. Because the Copyright Act contains only very limited provisions regarding the law of copyright licensing, it seems natural to look to state contract law to resolve this issue. But this approach failed for the plaintiffs in Gardner. As discussed above, the Gardner plaintiffs originally brought their case in California Superior Court. Nike objected to the subject matter jurisdiction of the state court, claiming that the question was purely federal.[55] The court accepted Nike’s argument and dismissed the case, even though the issue of assignability of a contract is generally a question of state law. Unfortunately, the state and federal courts failed to address the crucial preliminary question: Whether, by virtue of the fact that an agreement concerns property or rights that are created by federal statutes, that agreement may no longer be interpreted according to state law and must be resolved by reference to a federal common law developed by the federal courts.

1. Unarco Industries v. Kelly Co.: The Farthest Shore

29. One circuit court has answered this question in the affirmative. In Unarco Industries v. Kelly Co.,[56] the U.S. Court of Appeals for the Seventh Circuit framed the issue before it in precisely these terms. A nonexclusive patent licensee had entered into an asset sale agreement with a competitor of the licensor. When the licensor warned the two parties that its license was not transferable, the licensee and competitor brought suit, requesting that the district court declare that a nonexclusive patent license was assignable in the absence of a contrary term in the agreement. The district court, applying the law of Illinois, determined that the license was assignable based on the state public policy against restraints on alienation of property.[57]

30. On appeal, the Seventh Circuit first undertook to examine whether the state common law governing the license agreement was an appropriate choice of law or whether Erie Railroad Co. v. Tompkins[58] allowed the creation and application of “federal common law.” Erie stands for the proposition that the Rules of Decision Act[59] and, by implication, the Tenth Amendment,[60] forbid the creation of a general federal common law applicable in the states, unless such law was created pursuant to Congress’ constitutionally allocated powers.[61] The Erie Court stated quite broadly that, “[e]xcept in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state.”[62] The Erie decision was primarily concerned with federal courts inventing law in diversity cases and, in contrast, federal courts deciding which law to apply to the assignment of intellectual property license agreements typically attempt to construe the public policy underlying federal legislation in resolving this question. Yet, it is not by any means clear that federal courts should prefer to invent common law to fill lacunae in federal legislation rather than applying state law, particularly where it is unclear that the application of state law would undermine the purpose of the federal statute. Subsequent Supreme Court cases have, with some exceptions, fleshed out the circumstances in which federal courts should apply state law to the interstices of a skeletal federal statute. For example, the Court has proven reluctant to infer that federal courts should invent remedies even for abuses of federal legislation.[63] In such cases, litigants must rely on state law remedies, if any. Erie did not, however, in any way affect the ability of Congress to legislate, or the federal courts to adjudicate, in areas of federal competence (nor could it).

31. In Unarco, a federal question was obviously implicated, because the Constitution grants to Congress the power “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”[64] In other words, Congress is constitutionally empowered to grant patents and copyrights and such matters are therefore prototypical federal questions. The Seventh Circuit therefore properly found that a federal statute enacted within the powers of Congress (such as the Patent Act) must trump conflicting state law: “To the federal statute and policy, conflicting state law and policy must yield.”[65]

32. However, after firmly planting its feet in the established case law of federal preemption, the Seventh Circuit then made an enormous leap directly into the face of the published precedent. Instead of first examining whether the state common law of assignments conflicts with the federal Patent Act in order to determine whether the provisions or policy of the Patent Act should preempt the state law, the Seventh Circuit merely held that the patent monopoly created by federal statute “so affects the licensing of patents, and the policy behind such licensing is so intertwined with the sweep of federal statutes, that any question with respect thereto must be governed by federal law.”[66] Citing precedents between seventy and one hundred twenty years old, the court noted that federal courts have consistently held that patent license agreements “are personal to the licensee and not assignable unless expressly made so in the agreement,”[67] and the court therefore denied the declaratory judgment that the plaintiffs sought.

33. Unarco applied federal law to a nonexclusive license – an arguably more defensible application than it would have been for a less inherently personal exclusive license.[68] But the court’s reasoning nonetheless proves far too much. Federal courts do retain the power in “few and restricted”[69] circumstances to supplant state law by inventing “specialized federal common law.”[70] For example, a federal court may firm up a vague statute by interpreting the statute’s terms in light of legislative intent and commonly accepted rules of interpretation.[71] Federal courts may even be authorized by a statute – expressly or by implication – to create more detailed rules of law to fill out a skeletal statutory framework, as occurred with the Sherman Antitrust Act.[72] Such “interstitial lawmaking”[73] occurs primarily where Congress manifested an intention to entrust to the courts the development of rules giving effect to the federal policies expressed in the statute.

34. In the absence of such a manifestation of intent, however, courts may only develop federal common law where “necessary to protect unique federal interests”[74] or a “distinctive national policy.”[75] When federal judges assume, without analysis, that federal policy (as interpreted, or possibly invented, by them) is so important that it must preempt state law simply because the matter is within a realm upon which Congress could have legislated constitutionally (but did not), such judges come dangerously close to putting themselves in the place of legislators, violating the separation of powers and undermining principles of optimal democratic governance and subsidiarity. The arguments condemning outright judicial legislation are well rehearsed;[76] there is no need for this Article to belabor the point. It should be noted, though, that because the development of federal common law must rest on the need to protect important federal interests,[77] such development must be built on firmer ground than a speculative conflict between state law and federal policy. It befits the Judicial Branch to analyze carefully and, where possible, empirically, whether such interests are actually implicated and, if so, to examine the necessity of creating federal common law, such as the policy uniformly holding nonexclusive licenses to be personal, and thereby preempting even the contemplation of their free assignability. Had the Unarco court considered this question even in passing, it might have come to the conclusion that, because federal law seeks to reward the patentee or copyright owner only enough to ensure the continued creation of protectible works,[78] and because the free assignability vel non of a license lacking a nonassignment clause has little bearing on whether such a patentee or copyright owner achieves an adequate reward, no federal policy is implicated in such cases, and even if a federal policy were so implicated, it would not be so germane as to justify preempting the state common law of contracts. Unless state law is somehow hostile to the interests of copyright owners, it simply cannot be said that applying state law to the question of assignability would “set at naught” the federal policy of encouraging the creation of protectible works, or “deny the benefits” of the federal statute.[79]

2. The Erie Doctrine and the License Agreement

35. It has been observed that federal courts sometimes pounce upon any opportunity to create federal common law without first analyzing whether the preemption of state law is necessary or advisable.[80] Yet, federal courts have often shown admirable restraint in intellectual property licensing cases. When deciding cases relating to the licensing of intellectual property, federal courts, including the Supreme Court, had been building their judicial reasoning upon the assumption of state law applicability to licensing agreements even before Erie was decided. It has long been established that state law of contract is not displaced merely because an agreement relates to intellectual property.[81] In fact, most questions arising from licensing disputes call for the application of state, not federal, law.[82] For example, the Supreme Court had long held that the regulation of the transfer of patent rights to prevent fraud was a matter to be determined by state law.[83] Similarly, most disputes relating to patent royalties had long been governed by state law,[84] and in the absence of diversity jurisdiction, the jurisdiction of state courts is exclusive.[85] Had the Seventh Circuit considered its wording and the facts of the case more carefully, it could have come to the same result without making the assertion that “any question” with respect to a patent license must be governed by federal law, and that no patent license is assignable without the consent of the licensor. Such a pronouncement is unsupported by any precedent and threatens to create a vast empire of federal common law based upon little more than the ideas of federal judges ungrounded in federal legislation or an articulable federal policy. For if the default rule of state law applicability is ignored, there is little else upon which federal courts can base their decisions in the absence of a federal statute or clear public policy.

36. Thus, lacking any precedent, the Seventh Circuit cited no cases holding that federal law governs “any question” with respect to a patent license. However, the court did cite three Supreme Court cases at least eighty years old by that time, two Eight Circuit cases at least fifty years old, and a treatise, to support its blanket assertion that no license agreement is assignable absent the licensor’s express consent.[86] These cases were not controlling of the issue before the court; none of them had applied this theory to an exclusive license. Three applied to a nonexclusive license (or the equivalent, a simple agreement not to sue for use of the patent), which is intuitively more personal because it is essentially an agreement by a licensor not to sue the licensee for particular conduct that would otherwise infringe the licensor’s intellectual property.[87] In one, not only was the license nonexclusive, but the licensor brought the action not on a theory of infringement nor to contest the validity of the assignment, but to recover unpaid royalties.[88] Finally, in the fifth case, the validity of an assignment was not even remotely at issue, as the court found that no license had been granted in the first place, and that in any case the plaintiff was barred from proceeding by laches.[89]

37. Yet, even if the federal courts had created a rule that exclusive patents are not assignable, these cases cannot rest their holdings on preemption grounds. Although the subject matter of a patent or copyright license is surely within Congress’ sphere of regulation, Congress has chosen not to regulate the terms of the contract itself. “The statutes governing patents are basically silent on the issue of licenses.”[90] It is for this reason that courts have consistently held that, unless state law conflicts with a federal statute or policy, “construction of . . . [a] licens[e] agreement is solely a matter of state law.”[91] This makes sense from both a constitutional and jurisprudential perspective. Congress was surely aware that the intellectual property license agreement would develop a Janus face when it enacted intellectual property statutes with few or no rules governing the construction of license agreements. A grant of rights must be based on federal intellectual property law, but its form is embodied in an agreement to be interpreted under state contract or commercial law. Federal law provides and defines the content of the license’s subject matter, but leaves it to state law to determine how these rights may be licensed. The Seventh Circuit itself has often applied state commercial law to license agreements.[92] Where the federal law is silent or ambiguous, state law fills the lacuna if it does not conflict with federal law or policy. It is for this reason that license agreements routinely include a choice of state law provision to govern their interpretation.

38. Returning to Gardner, a copyright case, there are two likely interpretations of congressional policy as expressed in § 201(d). One possible reading of the plain wording of the Act indicates that an exclusive licensee benefits from all the protections of § 106 of the Act. If such were the case, one could argue that an exclusive license would be assignable. However, this argument misreads the rights conferred by § 106. The right to assign a copyright is clear under the Copyright Act, but the Act says nothing about the assignment of a license. Rather, it is a right inherent under state common law that property may be freely alienated by its owner. Another reasonable reading is that the Act is ambiguous on the assignability of an exclusive license. In such a case, if federal public policy on this issue is not clear, the court is free to invent judicially a special federal rule only if there is a “significant conflict between some federal policy or interest and the use of state law.”[93] As I will argue below, no conflict is evident, and therefore state law should have applied under either interpretation of the Act. Federal courts may reserve to themselves the right to annul a state law that specifically operates to the detriment of a federal policy, but to do so without even examining the outcome under state law constitutes federal judicial overreaching contrary to the Tenth Amendment.

B. Judicial Treatment of the Nonexclusive License

39. In those cases in which courts found a federal policy against the application of state law to the question of free assignability, they often did so based upon a perception that federal policy requires a license to be considered inherently personal in order to protect the interests of the patentee or original copyright owner. Other courts have examined the license in dispute and declared it to be to be personal and therefore not freely assignable under federal policy. Thus, some courts interpret federal policy to require courts to treat license agreements (at least nonexclusive ones) as intrinsically personal and other courts actually examine the agreement and, if the evidence shows the agreement to be personal, deny the license’s assignability based on a federal policy against the assignment of an agreement in which personal services involving intellectual property are to be rendered. The relative dearth of cases in which federal courts have found a license agreement not to be personal to the licensee might be explained on a theory that, if the agreement was not personal to the licensee, the licensor is less likely to object to an assignment of the license and litigation on the matter would rarely come before the courts.

40. The Gardner court did not actually follow either “personal license” line of cases, but rather based its decision on its reading § 201(d) of the 1976 Copyright Act.[94] It was defendant Nike that had urged the court to follow the decisions of the nonexclusive licensing cases on the grounds that all licenses were inherently personal.[95] In support of its argument that intellectual property is so personal that only a complete assignment allows the transferee freely to alienate his rights to the work, Nike raised the example of patents. The text of the Patent Act differs markedly from that of the Copyright Act. The Patent Act does not define “patent ownership” and has no language analogous to § 201(d)(2). Thus, on a textual analysis such as that conducted by the Gardner court, the patent analogy has no persuasive power (which may explain why the Gardner court never mentioned the patent cases cited in Nike’s brief). However, due to the historic kinship between patents and copyrights,[96] the analysis of federal policy for one usually follows the other. Nike’s examination of patent cases was therefore appropriate for its case.

41. In patent cases, courts have consistently held that, absent contractual permission, an exclusive licensee of a patent has no right to assign or sublicense his rights, and Nike used this position as a platform to argue that all intellectual property was so personal as to render free alienability of an exclusive license intolerable. However, the value of these precedents for policy analysis is very limited; the patent cases relied for their reasoning upon elements not present in the Gardner case. For example, in Schlesinger v. Regenstreif,[97] relied upon by Nike in its brief, the patent license at issue was not a broad grant of rights to work or copy the patent at all; it was limited to the exclusive use of a single leased machine.[98] Moreover, the Schlesinger license agreement contained an explicit nonassignment clause that contained only one exception that did not apply to the assignment in that case. Based on the nonassignment clause, which made clear the belief of the parties that the grant of rights was personal to the licensee, the trial court held that the license was a grant of a “personal power” to use the leased machine, not transferable by the licensee.[99] The “personal nature” of the license found by the court had nothing to do with the nature of intellectual property, as Nike argued.[100] Rather, the personal nature of the rights stemmed from the fact that the licensor and licensee were deemed joint venturers by the court, and for a joint venturer to transfer its interest in the venture without the assent of the other venturer violates the first joint venturer’s fiduciary duty.[101] The Schlesigner court therefore based its opinion on strong evidence adducing the parties’ intent for the license to be nonassignable.

42. Nike also cited five other patent cases in support of its claim that an exclusive license of intellectual property rights is personal and not assignable. Chief among them was the venerable Hapgood v. Hewitt.[102] In Hapgood, the plaintiffs ran a company that had hired an inventor, the defendant, to improve the company’s plows. The inventor was given a managerial position in the company and instructed to improve the plows in certain defined ways. As instructed, the defendant perfected and patented the invention, but after practicing the patent for a short time, the company was liquidated. The trustees of the dissolved company brought an action to cause the defendant to assign the patent. The Court claimed that no instrument recorded that the company was to have title to the defendant’s inventions, and therefore he retained title to the patent. Although the patent was procured on behalf of the company and in anticipation of its use of the patent, “[t]he utmost that can be made out of the allegations is that the corporation was to have a license or right to use the inventions in making ploughs.”[103] The license being considered “one confined to that corporation, and not assignable by it,” the Court sustained the defendant’s demurrer.[104] Although it is unclear from the decision whether the Court considered the license to be exclusive, the language of the decision (“a license to use the invention”) suggests the opposite. In short, Hapgood does not support a general rule that the exclusive license of a patent is nonassignable in the absence of the express consent of the patent owner. Indeed, the Hapgood decision gives very little basis to justify the Court’s holding even on the facts before it. Nowhere did the Court explain why the particular license under scrutiny was personal to the licensee, or why federal policy mandates an assumption that all licenses are necessarily personal. The Court’s reasoning was so scant and addled, and the case itself so outmoded by subsequent developments in state contract and commercial law in favor of assignability (such as the almost universal adoption of Article 2 of the Uniform Commercial Code), that its precedential value for any type of license has been dubious for decades.

43. The second case, Unarco Industries v. Kelley Co.[105] (discussed at length above) also involved a nonexclusive patent license. The third, Rock-Ola Manufacturing Corp. v. Filben Manufacturing Co.,[106] involved a nonexclusive patent license, which in fact contained a clause forbidding transfer or assignment of the license without the consent of the licensor.[107] Thus, the claim brought by the licensor was not one of federal patent infringement, but of state common law breach of contract.[108] The fourth case, King v. Anthony Pools, Inc., did not even involve a license.[109] Finally, Nike relied heavily on In re CFLC, Inc.,[110] a federal bankruptcy case before the U.S. Court of Appeals for the Ninth Circuit.[111] Like all other patent cases relied upon by Nike, In re CFLC, Inc. involved a nonexclusive license. Moreover, the agreement, which embodied a license to use (and not manufacture under) the patent, contained a clause specifying that the license was nontransferable.[112]

44. It is certainly the case that most courts considering the assignability of nonexclusive patent licenses have found that, in the absence of language indicating that the license is personal or explicitly granting the licensee a right to assign, the licensee is not free to assign its rights. The pedigree for this holding is long indeed. Even before the Civil War, the Supreme Court had declared in dicta that “a mere license to a party, without having his assigns or equivalent words to them, showing that it was meant to be assignable, is only the grant of a personal power to the licensees, and is not transferable by him to another.”[113] As discussed below in Section V, even this long line of cases is open to question as based upon pre-Erie federal conceptions of jurisdiction, and pre-Uniform Commercial Code distrust of state contract law. But more immediately, a strong argument could be made that there are considerable differences between an exclusive and a nonexclusive right for purposes of determining the assignability of intellectual property license.

C. Exclusive and Nonexclusive: Contrasting Ownership Paradigms

45. The broad federal judicial pronouncements regarding the inherently personal nature of assignments contrast conspicuously with the position taken by some state courts that patent licenses are assignable without the express consent of the licensor unless there is some showing that the license calls for the parties to render ongoing services of a “personal nature.” In Fenn v. Pickwick, for example, a California appellate court considered an exclusive manufacturing license with no term governing assignability.[114] The licensor objected to the assignment, claiming that the license was not assignable because the licensee undertook responsibilities of a personal nature. The licensor pointed to two conditional clauses in the agreements by which the licensee might be obligated under some circumstances to cross-license any new inventions it might develop, and by which the licensor would indemnify and hold harmless the licensee against third party infringement claims. Noting that the licensee had no obligation to develop new inventions and the licensor had no obligation to protect the licensee against third party infringements of the licensed patent, the court found no personal obligations that would support denying assignability. Other courts, including the California and New York Supreme Courts, have long taken the same position requiring a clear showing that the services were personal.[115]

46. Most prominently, in Farmland Irrigation Co. v. Dopplmaier,[116] the California Supreme Court issued a well-researched opinion finding that state law may apply to the assignment of intellectual property licenses, exclusive or not. In Dopplmaier, an inventor entered into a nonexclusive license agreement with a manufacturer to produce his patented agricultural sprinkler apparatus in consideration for royalties on each apparatus sold. The license agreement allowed the licensee to sublicense his rights, but the licensee would retain the ultimate responsibility for payment of royalties. A few years later, the licensee corporation was dissolved and its assets passed to its shareholders, who in turn sold them, including the license agreement, to a third party assignee. The inventor accepted the assignee’s first royalty payment, but rejected all others, claiming they were too low.[117]

47. The assignee then sued in California state court and successfully established at trial that the licensee’s rights were assignable. On appeal, the late Justice Traynor, writing for the unanimous Supreme Court, affirmed the judgment of the trial court. In his opinion, Justice Traynor drew attention to the established U.S. Supreme Court practice of applying state law to many aspects of patent licenses. As the Supreme Court observed in Wilson v. Sandford, if a dispute that “does not arise under any act of Congress; nor . . . depend upon the construction of any law in relation to patents” and “there is no act of Congress providing for or regulating contracts of this kind,” that dispute must necessarily arise out of the contract.[118]

48. The question faced by the Dopplmaier court, then, was whether a dispute relating to the assignment of a patent or copyright license “arises under” or “depends upon the construction” of a federal statute. In the case of a patent license, it is fairly clear that, regardless of whether the license is exclusive or nonexclusive, the issue is not directly answerable by reference to federal law, which merely affirms that the patent itself is assignable.[119] Justice Traynor noted that the Patent Act makes no reference to the free assignability vel non of a license agreement; patent licenses have no federal statutory basis.[120] Therefore, this question must arise under and be governed by the general common law of contracts.[121] It is appropriate to recall at this point that the 1976 Copyright Act equally eschews any reference to the assignability of a license agreement, exclusive or not, but instead merely refers to an exclusive licensee as the owner of the rights licensed.

49. In the absence of federal legislation, a court must still address whether the application of state law would conflict with some federal policy.[122] The California Supreme Court discerned no policy underlying the federal patent statutes that would mandate “a uniform federal rule of construction of license contracts” in order to determine their assignability.[123] While recognizing that Congress could legislate to the contrary if it were so inclined, in the absence of a clear federal law, any federal interest in such a uniform rule is “too remote and speculative to justify displacing state law.”[124] As long as state law did not “destroy the advantages of the [patent] monopoly,” federal policy would be respected.[125] The court might also have noted that it would be illogical to postulate that the mere fact that state law governs the assignability of contracts will inherently harm the value of the patent, unless state law is somehow anti-patentee. Moreover, parties to a contract may choose the applicable state law, as long as the state whose law is applied bears some substantial or reasonable relation to the contract.[126] The choice of law is valid and must be enforced by federal courts as long such choice is not clearly preempted by or contrary to the policies of the Patent Act or Copyright Act.[127]

50. Justice Traynor then opined that “the value of the patent is not significantly affected if the state applies a rule of construction favoring assignability. Such a rule would not hamper the patentee’s right to profit from his monopoly by licensing under it.”[128] This particular section of the opinion was not particularly thorough in spelling out the court’s reasoning. It is possible that the court intended to allude to means that the patentee could deploy to protect its interests under state law other than a federal action for infringement. Or it could mean that the court believed that the incentives to invent and innovate are adequate to reward a patentee without the additional incentive of controlling the ultimate disposition of rights that it grants by license. In either case, the court had to face the U.S. Supreme Court decision in Hapgood v. Hewitt, which stated quite broadly that licenses are personal.[129] Rather than trying to distinguish the holding of the then-seventy-one year old case as not controlling the facts before the court, Justice Traynor confronted the precedent head on and rejected it. He first noted that, while Hapgood stood for the proposition that a patent license is intrinsically personal, the U.S. Supreme Court failed to indicate any “peculiarly personal rights involved” in the license then before it. The court explained the many later cases following Hapgood as relying on actual personal rights conveyed in the license agreement, and opined that the U.S. Supreme Court would not follow Hapgood in the present day in light of the “modern tendency in favor of assignability.”[130]

51. In other words, in the view of the California Supreme Court, the courts invalidating the assignment of patent license agreements had not created a general federal policy against the free assignability of licenses; rather, they had applied and interpreted state law to honor the intentions of the parties. The court was correct in holding that applying state law to determine the contractual intent of the parties is not preempted by the federal intellectual property laws or federal policy.[131] Because the facts in those cases indicated that the parties intended that the rights conveyed be personal, they must also have intended that the rights not be freely assignable – intentions that state contract law will enforce. “There is no reason to exempt these contracts from a general rule adapted to facilitate the freest possible transfer of valuable contract rights, while at the same time respecting the parties’ intentions . . . . Nothing in the nature of patent licenses makes the rights conferred by them necessarily so personal that the parties must have intended that they be nonassignable.”[132] In the court’s view, the fact that the license contained no express provision against assignment tended to indicate that the parties did not consider the rights licensed to be personal. Moreover, the provisions of the license evidenced no particularly personal rights. The court therefore held that the nonexclusive license was assignable under California law.[133]

52. As with patents, the issue of copyright assignability of either an exclusive or a nonexclusive license does not “arise under” or “depend on the construction of” the 1976 Copyright Act because that issue is not addressed by the Act. The Act does provide that exclusive licensees benefit from the protections and remedies of their licensed rights to the same extent as the original copyright owner, but provides no statutory basis for the creation of license obligations or agreements. The Dopplmaier holding would therefore seem equally applicable to a copyright license such as the one before the federal district court in Gardner.

53. Nonetheless, there is no doubt that a federal policy, even one without any explicit statutory basis, that disfavors the application of state law to the assignability question would settle the matter.[134] As Justice Traynor observed in Dopplmaier, applying state law to the assignability of a license agreement does not inherently conflict with the federal policy of encouraging the creation of protectible property by rewarding the creator. But such a conflict would arise if state law does in fact fail to protect the intellectual property owner’s congressionally-granted rights and thereby undermine the congressional intent to encourage such creation. The Dopplmaier court failed to analyze the likely effect of state law, instead assuming the worst case scenario that state law uniformly favors assignability. The question therefore remains open, whether state laws do, in fact, generally or necessarily fail to protect the interests of intellectual property owners. As I will show below, state law does provide adequate protection by honoring the parties intentions to forbid assignment if the rights assigned are personal or if the agreement forbids assignment, and by protecting the licensor against an assignment that materially impairs the licensor’s chances of obtaining the expected performance.

V. State Law Effects on Intellectual Property Owners Rights

54. Under the common law of contracts, if copyright owner A drafts a contract that simply says “A hereby grants to B an exclusive license to my copyrighted work for the term of this agreement,” there is no apparent limitation on B’s rights beyond those inherent to the intellectual property monopoly. A did not exclude the right to sublicense or assign the rights. Under the common law, the right to assign a contract is a normal incident to a contract absent language to the contrary, unless the services to be performed are personal or require personal skill or discretion,[135] such as services provided by a particular doctor or lawyer. Under the clear language of A’s simple license to B, A conferred on B all of A’s rights except its reversionary interest under the contract, and had A made the exclusive license perpetual and irrevocable, it would have given up even that right and effectively “assigned” the licensed rights to B, even if the contract did not use that term. But where A simply wishes to transfer all rights for a limited time to another party, without any risk of that party transferring its rights to an unknown intervenor, A could have limited the right to transfer the license thus: “A and B recognize and agree that the intellectual property license granted hereby is personal to B. B may not sublicense, assign, or otherwise transfer any right or rights to the licensed intellectual property without the prior express, written consent of A. Any attempt to sublicense, assign, or otherwise transfer any right or rights to the licensed intellectual property [without such consent] will be void and without effect.”[136] Such a provision is almost uniformly valid under state law.

55. Superficially, Congress seems to have recognized the adequacy of state common law protections against assignment in the 1976 Copyright Act. By using the term “owner” to refer to an exclusive licensee, Congress may have intended to acknowledge that all rights in an exclusive license are transferred except as limited by the contract. It is for the licensor to define the limitations on the grant. Under state law, the “owner” of a right is free to assign that right to a third party absent contractual language to the contrary. Those federal courts that have found that, absent such contractual language, state law favors the free assignability of licenses have been generally correct. But it is also true, as very few federal courts have bothered to discover, that state law also tends to honor the intentions of the parties, including the intent to preempt assignment of the rights licensed. Moreover, as described below, the common law contains innate protections to prevent such an assignment from harming the licensor.

56. In Gardner v. Nike, Sony attempted to assign all of its rights and obligations under Nike’s license agreement to another party. To understand how the common law of contracts would treat such an assignment, it is crucial to separate the rights that may be assigned from the duties that may be delegated. The delegation of duties under an assignment agreement receives different and more restrictive treatment under the common law than the assignment of rights. In most license agreements (as in Nike’s), the permission to use the intellectual property is the primary right granted to the licensee, and the payment of fees or royalties is the primary duty.

A. Common Law Rules of Delegation of Contractual Duties

57. It would seem intuitive that licensors care little about who pays their royalties, as long as they are paid in accordance with the terms of the contract. This is presumably true a fortiori for a fully paid-up license – the licensor has already received his fee, which is everything material that the licensor will receive from the contract. Yet, despite appearances, there are sound reasons for concern about the transfer even of the simple duty to pay royalties. Licensors choose royalty licensees based upon the licensee’s perceived ability to exploit the intellectual property effectively and thus to maximize royalties. If royalties are tied to sales (as they usually are), the licensor relies upon its estimation of the licensee’s marketing and production ability. If the licensee were to assign the right to exploit the intellectual property to another party with less effective marketing and production machinery, the licensor would suffer and would lose some incentive to create the intellectual property in the first place.

58. Yet, this consideration is by no means compelling. It may be true in some cases that the upshot of a damaging assignment would be to discourage the creation of intellectual property and thereby undermine federal policy. Yet, it is equally (or more) believable that permitting a damaging assignment would result only in discouraging intellectual property owners from licensing their intellectual property without including a nonassignment clause in the agreement. More importantly, this argument neglects the substance of state law. The common law imposes three layers of protection for the obligee of a duty (i.e., the licensor). An assignment of duties that is contrary to public policy or the terms of the agreement is void ab initio.[137] In the case of an assignment of an intellectual property license, if such an assignment somehow worked a substantial detriment on the obligee, it could be argued that the assignment would thereby discourage the creation of intellectual property contrary to federal policy. Thus, an assignment to a demonstrably less able party would undermine the exploitation of the licensed rights, diminishing the obligee’s returns, and would thereby become void as contrary to public policy. Of course, the licensor would be required to show actual or likely harm by virtue of the assignment, but this seems to be a logical precondition for interfering with the alienation of the licensed right. In the absence of actual or likely harm, there is little reason to allow the licensor to interfere with the licensee’s exploitation of its uncontested rights.

59. But even a licensor who neglects to include a nonassignment clause in the license agreement need not rely upon this blunt theory of public policy. In those rare situations in which the licensor specifically chose the licensee because of some unique characteristics that allowed it to fulfill some desire of the licensor (e.g., a reputation of rare prestige or unique production capabilities), the obligations embodied in the license agreement are not assignable under the common law.[138] This would require some showing that the licensor relied upon the unique characteristics of the licensee, but again, this requirement seems reasonable when a licensor seeks to interfere with another party’s vested rights.

60. Notwithstanding the assignment, the licensor is further protected by the fact that the licensee would maintain its primary liability to perform the duties imposed by the license agreement. The licensee maintains contractual privity with the licensor, and would therefore remain liable for nonperformance or inadequate performance by the assignee.[139] The obligor may only be released from liability with the binding consent of the obligee, thereby forming a novation of the contract.[140] Thus, assume that an author, X, granted a license to a publisher, Y, to exploit the author’s novel. Suppose that X chose Y in reliance on Y’s enormous publishing and marketing capacity. Because the author’s profit from book sales relies upon royalties on the sale of each book, it is in X’s best interest for Y to promote the book to the maximum extent feasible. Now assume that Y delegates its entire publishing and marketing obligations to a much smaller printing house, Z. If Z is not capable of performing at the capacity that X reasonably expects out of Y, X may annul the assignment. Moreover, even if Z’s capacity matches Y’s, Z must perform at the level of Y’s reasonably expected capacity or else Y will be liable to X for breach of contract.

61. It is also important to note that, if the assignee accepts the benefits under the license agreement, he is bound by the terms of that agreement.[141] Generally, Z would be liable to indemnify Y in case Z breaches the terms of the license agreement. Thus, although there may be a risk of the intellectual property becoming associated in the minds of consumers with the unknown assignee not picked by the intellectual property owner, an assignment could be more beneficial to the author, who would potentially benefit from having sources of damages in case of breach – one party directly (Y), the other party indirectly (Z).

62. Finally, an objection to free assignability of exclusive licenses on the grounds that such assignability may result in acts detrimental to the intellectual property owner is a double-edged sword. Restricting an exclusive licensee’s ability to assign or sublicense all or part of its rights to others could create inefficiencies in exploiting the right. Continuing the example above, consider the possibility that market demand exceeds the publisher’s printing capacity. It would be illogical and inefficient to prevent the publisher, which is the only party able to exploit the work, from recruiting outside assistance in order to promote the work. Demand would not be met, and profits would be diminished. Indeed, recruiting outside assistance is precisely what Sony did in Gardner, and although the copyright owner in that case (Nike) objected to the assignment because it believed that the assignee had breached the terms of the license agreement, such assignments are generally in the interest of the owner where they increase the exclusive licensee’s ability efficiently to exploit its rights under the license. Nike could have relied solely on a theory of breach of contract without denying its licensee’s ability to exploit its exclusive rights in the manner it thought fit and that did not inherently harm Nike.

B. Common Law Rules of Assignability of Contractual Rights

63. As for the assignment of rights, the licensor may have significant concerns here as well, regardless of the form of payment for the license. A licensee may assign the right to exploit the licensed intellectual property to a competitor of the licensor, thereby damaging the licensor’s overall business position in the market. Or the licensee could assign the licensed rights to an unprincipled or scandalous company or individual, so that the licensor’s reputation would be damaged. Suppose again that author X were to grant an exclusive license to publisher Y to print and publish the author’s work based upon the publisher’s renown and high standing, and its large capitalization. If Y determines that it is in its own best economic interests to assign or sublicense its rights to a relatively unknown vanity publisher, Z, which has a much smaller capitalization and no reputation of distinction, this arrangement will lower the author’s profits and fame potential, which would contradict the spirit of the contract.

64. The identification of the intellectual property with its creator presents a sound reason for rejecting an automatic right to assign or sublicense one’s exclusive or nonexclusive license. After all, intellectual property far more than tangible property is identified with its creator.[142] It seems unfair that an assignee of an exclusive license to a copyright or patent, who was not even chosen or approved by the original copyright or patent owner, could blacken the good name of the owner through immoral, illegal, or otherwise objectionable methods of exploiting the protected work. Unless the owner has the inherent right to exercise veto power over any choice of assignee of the licensed rights, the owner is exposed to an unacceptable risk that may chill his interest in instituting an otherwise profitable licensing arrangement.

65. This danger is especially severe when only some of the rights in a copyright or patent are licensed. A patentee or copyright owner may grant several different exclusive use licenses to various licensees, or may limit licenses geographically. For example, the inventor of a certain kind of metal might grant an exclusive license to an automobile manufacturer for use of the metal solely in automobiles, and another exclusive license to an airplane manufacturer for use in airplanes only. Or a software publisher might grant a license to one distributor for the Eastern half only of the United States, and another for the Western half. If one licensee assigns its rights to a third party unapproved by the licensor, the assignee’s use of the rights in a detrimental or even scandalous manner may reflect poorly on the licensor or the other licensees.

66. In Gardner, Nike made an argument in some ways similar to the two raised above, claiming that, when an owner of intellectual property grants limited rights to an exclusive licensee, “the licensee’s use will directly, and perhaps profoundly, affect the continuing value (and even the continued legal validity) of the underlying rights reserved to the owner.”[143] In effect, Nike argued that, unless the copyright owner assigns all of its interest in the copyright to another party, it should be able to control the identity of the owner of those rights for the sake of protecting the residual rights it reserves to itself. In this view, federal policy forbids allowing state law to undermine the value of an intellectual property right by permitting free assignability.

67. It is generally true that the common law permits a licensee to assign his rights freely in the absence of a contractual restriction to the contrary. However, the common law does not leave the licensor high and dry, as federal courts often seem to assume, in the event that the assignment undermines the licensor’s contractual rights. There are three general conditions under which the common law will void an assignment of rights. First, the assignment may not cause substantial detriment to the obligor (i.e., the licensor). This may occur where an assignment would materially change the duties or increase the burden of the obligor, increase the risk to the obligor, impair the obligor’s chance of obtaining return performance, or reduce the value of the performance to the obligor.[144] For example, if, under the license agreement, the licensor had agreed to supply a licensee experienced with the licensed intellectual property with all the technical assistance requested in exploiting it, an assignment by the licensee to an inexperienced company in need of much more technical assistance would be void. Significantly, courts have consistently held that this detriment would be presumed to occur if the licensed rights were uniquely personal to the licensee.[145]

68. Second, where an assignment violates some public policy (or, more obviously, where it violates a statute), the assignment will be void.[146] For example, the Uniform Commercial Code forbids the assignment of the right to draw under a letter of credit unless the credit is expressly designated as assignable.[147] Similarly, it is contrary to public policy for a party claiming negligence in the delivery of personal services (such as the care of a physician or attorney) to assign the negligence claim to another party.[148] Thus, in the rare case that the performance of licensed rights is so personal to the licensee that the assignment of the rights would discourage the creation of intellectual property of the type licensed, then the federal public policy would indeed void the assignment insofar as state law takes cognizance – as it must under supremacy principles[149] – of the federal policy.

69. Finally, it must constantly be borne in mind that, in many cases (including Nike’s in Gardner), the author does have substantial experience in licensing and bargaining power, and can therefore negotiate a suitable nonassignment clause. Thus, the intellectual property owner is adequately protected by a combination of his ability to forbid assignment contractually, and the state law protections against an assignment substantially to his detriment.

C. Common Law Disregard of Nonassignability Clauses

70. Of course, federal courts may fear that, even in the face of a nonassignment clause, some state courts would uphold an assignment of rights under the contract (leaving to the assignor the duty to pay royalties or otherwise perform[150]). Historically, the public policy against restraints on alienation of property typically nullified nonassignability clauses .[151] Courts at one time distinguished between freely assignable property rights and personal, nonassignable contractual rights.[152] This distinction would likely have drawn a line between an exclusive license to a copyright or patent – a chose in possession – and a nonexclusive right – a chose in action. Intellectual “property” in the form of patents and copyrights is intangible property granted by federal statute, but the bundle of rights to the property can be owned like a chose in possession, which can be assigned or exclusively conferred by license. On the other hand, a nonexclusive right is merely an executory right not to be sued. The Copyright Act affirms this interpretation in using the term “owner” for an exclusive licensee only. The Patent Act is even explicit on this point, providing that, subject to the other provisions of the Act, “patents shall have the attributes of personal property.”[153] In contrast, courts have consistently taken the position that a nonexclusive license is a contractual right that may not be assigned save with the express permission of copyright or patent owner,[154] because it transfers no unique interest in the intellectual property. A nonexclusive license is merely an undertaking by the intellectual property owner that he will not sue the licensee for infringement if the licensee performs the activities defined in the license. It is therefore inherently contractual (i.e., it is a promise not to take a certain action against a certain person). An exclusive license, by contrast, does much more; it transfers certain sticks (or all of the sticks) in a bundle of statutory rights to the licensee. In short, it is a transfer of intangible property, and as property, it is presumptively assignable under state law.

71. But this objection is no longer relevant, as it is based upon a long superannuated understanding of the common law.[155] Courts routinely uphold the Restatement (Second) of Contracts rule that an explicit contractual provision forbidding assignment of a contractual duty or right is enforceable according to its terms.[156] A delegation of a duty contrary to a nonassignment clause is void as to both the obligor and the assignee. And while it is true that a contract term prohibiting assignment of a contractual right is valid only against the obligor and not the assignee, this can be overcome contractually or by any showing that the parties intended otherwise.[157] In other words, absent a showing of an intent of the parties to prevent the assignment of rights, an assignment of rights contrary to a nonassignment clause will give rise to a valid assignment, but the obligor may recover damages against the obligee for breach of contract. This remedy is adequate to uphold the federal policy of encouraging the creation of intellectual property, as it ensures that the creator received adequate compensation. Moreover, the contractual or negotiating circumstances may make clear that the parties intended actually to prevent an assignment of rights by, for example, explicitly stating that “any assignment contrary to this provision shall be void and without effect.” Such an assignment is indeed void and the assignee remains liable to the obligor for breach of contract. If, in contrast, the parties did not otherwise manifest any intention to prevent an assignment, their intentions will be honored.

72. Contractual restraints on assignment of a copyright were considered by the Ninth Circuit in Campbell v. Trustees of Leland Stanford Jr. University.[158] In Campbell, a psychologist had developed a vocational interest test for Stanford University under a contract providing that neither party would assign its interest to any third party without the express consent of the other.[159] Stanford then entered into an exclusive license agreement with a publisher to publish and market the test and develop the test further.[160] The issue was whether Stanford breached its agreement with the psychologist by transferring part of its copyright interest to the publisher (the court held that it had),[161] not whether such transfer constituted copyright infringement. In light of the Campbell decision, the Gardner court’s confusion as to the meaning of “ownership” under § 201(d) is understandable. It may not be intuitive that one can violate a contractual restriction on the use of intellectual property rights without infringing the copyright. Yet, a breach of contract and copyright infringement are not equivalent causes of action. Unlike a breach of contract, copyright infringement gives rise to an entitlement to potentially high statutory damages,[162] equitable relief,[163] and a possibility of a criminal proceeding.[164] Moreover, it allows the original copyright owner to proceed against a party that is not bound to the original copyright owner by contract for contributory or actual infringement. Thus, it is a grave error to assume that, because an original copyright owner is empowered to limit the scope of his licenses by contract, a breach of such limitations automatically entails an act of copyright infringement.

VI. Federal Policy and the Nonexclusive License

73. I have so far argued that, under the Erie doctrine and for reasons of federalism, there is no federal public policy that would preempt the default rule that state law governs the issue of whether an exclusive license is freely assignable. In the course of formulating this argument, I pointed out that exclusive license rights are property rights, while nonexclusive rights are contractual rights. Contractual rights lack the historical hostility to restraints on alienation associated with property rights. This conclusion does not resolve the question of whether federal law properly governs the assignability of the nonexclusive rights, however. The implication is that federal courts should apply “federal common law” to the question of the assignability of a nonexclusive license, but state common law to the same question applied to an exclusive license. The apparent disjunction might be reconciled, however, by reframing the question. The issue is not whether to apply a federal statute to one question and state law to the other. The issue is whether the federal public policy associated with the Patent Act or Copyright Act would be undermined by a state law allowing the assignment of a license of either kind. Differentiating the licenses seems to make less sense in this paradigm. Thus, it may be a good time to examine whether denying the application of state law to the question of the assignability of nonexclusive licenses continues to serve federal public policy as well as courts have so far assumed.

74. In In re CFLC, Inc., the Ninth Circuit correctly rejected the Seventh Circuit’s assertion that all aspects of patent license agreements must be interpreted according to federal law. However, the Ninth Circuit did find that “federal patent policy” justifies the rejection of state law and the judicial creation of a federal rule prohibiting the assignment of a nonexclusive patent license absent the consent of the patent owner. The Ninth Circuit decided that such a policy should overrule the applicability of state law because allowing state law to govern the assignability of a nonexclusive patent license would

undermine the reward that encourages invention because a party seeking to use the patented invention could either seek a license from the patent holder or seek an assignment of an existing patent license from a licensee. In essence, every licensee would become a potential competitor with the licensor-patent holder in the market for licenses under the patent . . . . As a practical matter, free assignability of patent licenses might spell the end to paid-up licenses . . . . Few patent holders would be willing to grant a license in return for a one-time lump-sum payment, rather than for per-use royalties, if the license could be assigned to a completely different company which might make far greater use of the patented invention than could the original licensee.[165]

The court therefore determined that federal law forbade the free assignability of a nonexclusive patent. This holding is consistent with several prior cases holding that a nonexclusive patent license is “personal” and cannot be assigned without the authorization of the patent owner.[166]

75. The Ninth Circuit’s decision in In re CFLC is based upon a subtle misstatement of the issue before the court. That issue was not whether federal policy allowed a patent license to be freely assignable, but whether federal policy forbade the application of state law to a matter of contract relating to the transfer of a federal right. With the issue reframed in this manner, it is difficult to fathom why the Ninth Circuit felt free to ignore the silence of the Patent Act on this issue and preempt the normally applicable state contract law. The court, though able to cite ample precedent (not all of it strictly germane[167]), appears oblivious to the licensor’s ability to impose a contractual limitation on assignment, which renders a judicially created right against assignment superfluous. Moreover, in its solicitude for the licensor, the Ninth Circuit never seemed to consider the other side of its dire prediction. What if a nonexclusive licensee pays a lump sum and then finds his business paralyzed, or is an individual who dies two weeks after the license begins to run? In the absence of a contractual provision allowing assignment, the licensee’s royalty and the benefit of the bargain are equally lost. Yet, this drastic possibility does not seem to have uniformly deterred licensees from accepting nonassignable, nonexclusive licenses.

76. A licensor who assigns all of his interest in certain rights in intellectual property through a nonexclusive license reserves to himself or to other licensees the same rights that are granted to the nonexclusive licensee that seeks assignment. An exclusive license conveys an actual and singular interest in the intellectual property sufficient for the licensee to sue on and be sued on the intellectual property in its own name.[168] This property interest carries with it all the incidents of any conveyance of property, whether perpetual or for a limited time. In contrast, a nonexclusive license conveys no property rights[169]; it merely conveys a contractual right by the licensor not to sue the licensee for the using the intellectual property in certain ways defined by the license.[170] In other words, the nonexclusive license is personal to the licensee by its very nature because it is a promise by the licensor not to sue that particular licensee, not a conveyance of any property rights. The licensor and its other licensees may be affected by the nonexclusive licensee’s decision to assign its rights to an untrusted third party. It could be argued that a state law allowing such an assignment would violate federal policy, because such a conveyance effectively immunizes from an infringement action a party in a different position from the original licensee. The licensor retains its own interests in the rights licensed, and these rights may be affected by the activities of the licensee. But the licensor has not been given the opportunity to review the proposed activities of the third party and to consider its character. Thus, a nonexclusive licensee might undermine the rights of the licensor contrary to federal policy, when all that was intended by the original parties to the license agreement was to allow a specific use by a specific licensee of specific rights.

77. This argument advances a superficially plausible justification for differing treatment of exclusive and nonexclusive licenses. Upon closer examination, however, the argument portrays a distortion of the licensor’s rights under state law and therefore makes unjustifiably dire predictions about the risks to which the licensor exposes himself by granting a nonexclusive license. The licensor of a nonexclusive right may surely be affected by the acts of the licensee. A nonexclusive license granted in exchange for a one-time lump-sum payment may rely upon the licensor’s assessment of the licensee’s production capacity. For example, imagine that intellectual property owner A intends to limit the market for its widgets to 100,000 widgets produced per year in order to maximize profit. A finds, however, that it can only produce 50,000 patented (or copyrighted) widgets without a further investment of capital that would significantly cut into its profit margin. A therefore seeks a licensor who can only produce 50,000 widgets itself, and finds B. A accordingly grants to B a nonexclusive license to produce widgets for one year, for a lump-sum payment of $200,000. A believes it has realized its intentions and enjoys the profitable exploitation of its patent (or copyright) until B turns around and assigns its license to A’s main competitor, the felicitously named C, which has the capacity to produce 500,000 widgets per year, and proceeds to do so, cutting down A’s profit margin to virtually nothing. All because B could freely assign its license!

78. It requires little ratiocination to realize the absurdity of this scenario. Most arguments refuting objections to the free assignability of an exclusive license equally overcome objections to the assignability of nonexclusive licenses. For example, as discussed above, a blanket rule prohibiting the free assignment of a nonexclusive license can render the licensee’s lump sum payment valueless if, for some unforeseen reason, the licensee is unable personally to exploit the license. Another objection to the scenario above is not that B assigned its license, but that A failed to include normal protections in its license. The license could have forbade assignment using a clause similar to the one described in Section III.C.[171] If the rights were truly personal to the licensee, then the licensor would presumably have included a nonassignment clause in the contract. Better still, A could have included a numerical limit on its licensee’s production (there, 50,000 widgets). This would protect A from an unexpected increase in B’s production capacity. Or A could include both clauses. In short, all of the common law protections afforded to a licensor of intellectual property rights apply regardless of the exclusivity vel non of the license. Given the many ways A could protect itself under state contract law, it is difficult to fathom why federal courts have insisted that they should create federal law to protect intellectual property owners from the eventuality that they themselves never feared, contrary to the intentions of the parties to the contract. The antiquated distinction between property rights and contractual rights, while conceptually useful in some situations, no longer serves any recognizable federal public policy with respect to intellectual property licensing law.

79. The one argument persistently advanced in favor of a federal public policy against free assignability of a nonexclusive right is its supposedly personal nature, which is said to be inherent. With the exception of a few outdated cases such as Hapgood v. Hewitt, persistent factual ambiguities in the judicial treatment of the assignability of nonexclusive licenses have prevented the discovering whether federal courts have applied federal policy to determine that nonexclusive licenses are per se personal, or whether the courts have determined that the licenses before them were personal, and then applied state law to invalidate the assignment of so personal a right. If courts have relied on the latter approach, as the Dopplmaier courts seems to have believed, then the reliance of many courts on Hapgood is misplaced, as that case applied a federal public policy to a question of state law. If the courts truly relied on the former approach, then a quotation from Erie is in order: “[N]otwithstanding the great names which may be cited in favor of the doctrine, and notwithstanding the frequency with which the doctrine has been reiterated, there stands, as a perpetual protest against its repetition, the Constitution of the United States, which recognizes and preserves the autonomy and independence of the states . . . .”[172] The mere unsupported supposition that a licensor may have designated a particular nonexclusive licensee because of that licensee’s unique characteristics does not suffice to overcome the presumptive application of state law to the question of assignability. Evidence of such unique characteristics should be required, but even where such evidence is presented, the protections afforded by state law to the licensor of personal rights are adequate to prevent the undermining of the federal public policy of granting sufficient rewards to inventors and authors. Although the Constitution certainly does not forbid Congress to legislate in this area, where Congress has remained silent and no articulable federal policy is threatened, state law must apply.

80. Indeed, it is striking how few strong arguments courts have marshaled to uphold the application of federal law to a nonexclusive license over the past 150 years. Courts typically recite that “the controversy grows out of the patent laws” and that “it is well established” that federal law governs the assignability of a nonexclusive patent license.[173] But ritual recitations are hardly persuasive to overcome the principle of federalism. To say that the issue “grows out of the patent laws” is circular – assignment disputes only grow out of patent law instead of contract law because courts have said they do. The Patent Act and 1976 Copyright Act themselves say nothing about the assignability of license agreements. On the contrary, the statutory language of the Patent Act and the Copyright Act (at least as far as exclusive licenses) implies that it is a matter of ownership of property, ergo an issue to be settled with reference to state law, as there is no general federal property law. The argument that the rule of nonassignability is well established under judicially created federal law is equally circular. Notwithstanding stare decisis, such a rule becomes “well established” only by force of repetition. It does not address whether the rule is appropriate and consistent with the congressionally determined balance between the application of federal and state law to intellectual property contracts. As then-Chief Judge Cardozo observed: “The half truths of one generation tend at times to perpetuate themselves in the law as the whole truths of another, when constant repetition brings it about that qualifications, taken once for granted, are disregarded or forgotten.”[174] The doctrine that a license agreement requiring personal services to be rendered cannot be assigned pursuant to state law absent the licensor’s express consent has become the “whole truth” that all license agreements are inherently personal pursuant to federal public policy and cannot be assigned absent the licensor’s express consent. The rule and its application are equally antiquated.

VII. Conclusions

81. Given the inherent protections to the copyright or patent licensor under state law, federal courts appear to have overreached themselves in continuing to invent federal common law to forbid the assignment of a license agreement. The protections granted by state law to the licensor are largely the same regardless of whether the license is exclusive or nonexclusive. There is, however, one argument that could be raised to support the application of federal policy to deny the free assignability of a nonexclusive license that does not apply to an exclusive license notwithstanding statutory silence on the subject. But this argument – that such licenses are inherently personal to the licensee – finds no support in federal statutes or any rational, well considered public policy.

82. In this Article, I have argued that the current chain of logic supporting a “federal public policy” contrary to the free assignability of licenses is broken at every link. The cases discussed above first assume without support or thorough analysis that the free assignability of license agreements is inherently harmful to licensors and has no offsetting benefits. They then assume that the application of state common law would result in such harmful free assignability. They further assume that there is a federal public policy, under the Patent Act and the Copyright Act, that forbids the application of any state law that might in some circumstances be harmful to the patentee or copyright owner. Finally, they assume that such federal public policy mandates the creation of a uniform federal rule against assignability to protect the patentee or copyright owner against such harm.

[1] Senior Associate, Bryan Cave LLP, Los Angeles; J.D. 1997, Yale Law School; M.A. 1997, Yale Graduate School; A.B. 1993, University of California, Berkeley. The author thanks Larry Sackey, Esq. and C. Dennis Loomis, Esq. for providing copies of their briefs to the author.

[2] 110 F. Supp. 2d 1282 (C.D. Cal. 2000).

[3] Used here in the sense of a legal monopoly, or a “statutory grant of exclusive rights” as set forth in 17 U.S.C. § 106 (2000). An economic “monopoly,” by contrast, is a market structure with a single seller. While the intellectual property “monopoly” only applies to a single work and not necessarily to an entire market, the ultimate effect on consumers will depend upon the availability of substitute goods and on the cross-price elasticity of such substitute goods. In other words, a single work can only represent an entire market when there is significant demand for that work and there are no easily substitutable goods. Thus, a legal monopoly can, but does not necessarily, confer a temporary economic monopoly.

[4] 17 U.S.C. § 107 (1999).

[5] 17 U.S.C. § 109(a) (2000).

[6] See generally Aaron Xavier Fellmeth, Copyright Misuse and the Limits of the Copyright Monopoly, 6 J. Intell. Prop. L. 1 (1998).

[7] It might be said that this issue had previously been decided in Leicester v. Warner Bros., 47 U.S.P.Q.2d 1501 (C.D. Cal. 1998), 1998 U.S. Dist. LEXIS 8366. However, the facts of Leicester involved only a sublicense, not an assignment, and the holding with respect to assignments was therefore technically dicta.

[8] See, e.g., CDN Inc. v. Kapes, 197 F.3d 1256 (9th Cir. 1999); Mid Am. Title Co. v. Kirk, 991 F.2d 417 (7th Cir. 1993).

[9] See, e.g., State St. Bank & Trust Co. v. Signal Fin. Group, Inc. 149 F.3d 1368 (Fed. Cir. 1998), cert. denied, 525 U.S. 1093 (1999).

[10] For an interesting perspective on this issue, see generally Neil Weinstock Netanel, Copyright and a Democratic Civil Society, 106 Yale L.J. 283 (1996).

[11] See generally Lothar Determann & Aaron Xavier Fellmeth, Don’t Judge a Sale by Its License: A New Approach to Software Transfers Under the First Sale Doctrine (forthcoming manuscript, on file with authors).

[12] 17 U.S.C. § 109(a) (2000).

[13] See, e.g., ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F. Supp. 1310 (N.D. Ill. 1990).

[14] Patterson v. Kentucky, 97 U.S. 501, 508-09 (1878).

[15] See 110 F. Supp. 2d 1282.

[16] Gardner, 110 F. Supp. 2d at 1283 n.1. Nike generously agreed to donate the royalties it received from Sony to the United Negro College Fund.

[17] Id. The right to use MC Teach on clothing was subject to the condition that the Nike trademarks and logos not appear on MC Teach’s own illustrated clothing. However, this is virtually irrelevant to the copyright licensing issue, as it involves separate issues of trademark over which Nike clearly has full licensing control.

[18] Specifically, the license agreement provided that a copyright notice with Nike’s name appear on all merchandise other than clothing.

[19] Plaintiff’s Notice of Motion and Motion for Summary Adjudication, Mem. of Points and Authorities at 5, Gardner, 110 F. Supp. 2d 1282.

[20] Gardner, 110 F. Supp. 2d at 1283.

[21] Defendant’s Notice of Motion and Motion for Summary Judgment at 4, Gardner, 110 F. Supp. 2d 1282.

[22] Gardner, 110 F. Supp. 2d at 1283.

[23] Id. at 1284.

[24] Id.

[25] 17 U.S.C. § 101 (2000) (emphasis added).

[26] Gardner, 110 F. Supp. 2d at 1285.

[27] 17 U.S.C. § 201(d) (2000).

[28] 17 U.S.C. § 501(b) (2000).

[29] See, e.g., Campbell v. Board of Trustees of Leland Stanford Jr. Univ., 817 F.2d 499, 504 (9th Cir. 1987); Russell v. Price, 448 F. Supp. 303, 305 (C.D. Cal. 1977), aff’d, 612 F.2d 1123 (9th Cir. 1979), cert. denied, 446 U.S. 952 (1980); Ed Brawley, Inc. v. Gaffney, 399 F. Supp. 115, 116 (N.D. Cal. 1975); Droke House Pub. v. Aladdin Distrib. Corp., 360 F. Supp. 311, 312 (N.D. Ga. 1973).

[30] See Harris v. Emus Records Corp., 734 F.2d 1329, 1334-35 (9th Cir. 1984).

[31] Harris, 634 F.2d at 1334, citing United States v. Studiengesellschaft Kohle, m.b.H., 670 F.2d 1122, 1127 (D.C. Cir. 1981); Western Elec. Co. v. Pacent Reproducer Corp., 42 F.2d 116, 118 (2d Cir. 1930).

[32] Defendant’s Notice of Motion and Motion for Summary Judgment at 2; Gardner, 110 F. Supp. 2d 1282.

[33] 3 Melville B. Nimmer & Raymond Nimmer, Nimmer on Copyright §§ 10.01-.02 (1999).

[34] Gardner, 110 F. Supp. 2d at 1286.

[35] H.R. Rep. No. 94-1476, at 123, in 1976 U.S.C.C.A.N. 5659, 5738 (stating that § 201(d)(2) “contains the first explicit statutory recognition of the divisibility of the copyright in our law”). In other words, the argument is that Congress used the term “owner” to signify that there can be many persons with an ownership interest in a copyrighted work.

[36] Gardner, 110 F. Supp. 2d at 1287.

[37] 210 B.R. 237 (Bankr. S.D.N.Y. 1997).

[38] Id. at 239-40.

[39] Id. at 240.

[40] Gardner, 110 F. Supp. 2d at 1287 n.4.

[41] 47 U.S.P.Q.2d 1501 (C.D. Cal. 1998), 1998 U.S. Dist. LEXIS 8366.

[42] Id. at 1504.

[43] Id. at 1505.

[44] Library Pub. v. Medical Econ. Co., 548 F. Supp. 1231, 1233 (E.D. Pa. 1982).

[45] 17 U.S.C. § 204(a) (2000).

[46] Gardner, 110 F. Supp. 2d at 1285. Interestingly, the court treated the Gardner agreement as an exclusive license, as Nike claimed, rather than as an assignment, as the plaintiffs initially claimed. The fact that the license was worldwide, perpetual, and exclusive tends to lead to the conclusion that the license was actually an assignment of the rights, with some pro forma endorsement rights reserved for Nike. Cf. Andrew Jergens Co. v. Woodbury, Inc., 273 F. 952, 960 (D. Del. 1921), aff’d per curiam, 279 F. 1016 (3d Cir.), cert. denied, 260 U.S. 728 (1922) (holding that the trademark “license” before the court that transferred all interests in a trademark subject to only two exceptions was in reality an assignment). However, I accept arguendo the court’s dubious position on this issue because it leads to much more interesting and difficult policy questions. The case for the free alienability of an assignment is much stronger than for an exclusive license due to copyright owner’s more complete abdication of any claim of residual rights in the work and because of traditional common law hostility to restraints on alienation of property. See H.R. Rep. No. 987, at 2 (1984), 1984 U.S.C.C.A.N. 2898, 2899, citing Zechariah Chafee, Equitable Servitudes on Chattels, 41 Harv. L. Rev. 945, 962 (1928); see also Sebastian Int’l, Inc. v. Consumer Contacts (Pty) Ltd., 847 F.2d 1093, 1096 (3d Cir. 1988).

[47] Gardner, 110 F. Supp. 2d at 1284.

[48] The pertinent section is 17 U.S.C. § 501(b) (2000), which provides: “The legal or beneficial owner of an exclusive right under a copyright is entitled . . . to institute an action for any infringement of that particular right committed while he or she is the owner of it.”

[49] In fact, § 501(b) states that the legal or beneficial owner of an exclusive right is “entitled” to institute an action. An “entitlement” is a “right.” Black’s Law Dictionary 532 (6th ed. 1990) (“Entitlement. Right to benefits, income or property which may not be abridged without due process.”); Webster’s Encyclopedic Unabridged Dictionary of the English Language 476 (1994) (“Entitle . . . 1. to give (a person or thing) a title, right, or claim to something; furnish with grounds for laying claim . . . .”).

[50] In re Patient Educ. Media, Inc., 210 B.R. 237, 240 (S.D.N.Y. 1997). As mentioned above, the Gardner court dismissed this dicta as a suffering from a “critically important mischaracterization of the plain language of § 201(d)(2).” Gardner, 110 F. Supp. 2d at 1287 n.4.

[51] Defendant’s Notice of Motion and Motion for Summary Judgment at 3, Gardner, 110 F. Supp. 2d 1282.

[52] Id. at 1.

[53] This question was considered by the U.S. Court of Appeals for the Federal Circuit in Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1569 (Fed. Cir. 1993), which determined that the patent exhaustion doctrine would immunize a manufacturing licensee from a claim of patent infringement by virtue of its sale of the manufactured chips to another party. The court rightly rejected the plaintiff’s attempted end-run around the first sale doctrine. The plaintiff had contended that the sale of the products manufactured under license constituted a de facto sublicense (prohibited by the license) to the purchaser. Citing Lisle Corp. v. Edwards, 777 F.2d 693, 695 (Fed. Cir. 1985), the court held that “resale [of products] by the [licensee] did not create a sublicense.” Unfortunately, the court reached the right result through the wrong analysis. The sale did indeed constitute a sublicense (as it must) to use the patented product in the manner expressed or implied in the sale agreement. However, this sublicense had no effect on the patent exhaustion doctrine, which applies to any sale of a product, regardless of whether it is accompanied by a license. See generally Determann & Fellmeth, supra note 11 (explaining and debunking judicial treatment of distinction between license and sale in application of First Sale Doctrine).

[54] The arguments for disallowing assignments as a matter of federal policy will be discussed in Section IV.

[55] See Defendant’s Notice of Motion and Motion for Summary Judgment at 1 n.1, Gardner, 110 F. Supp. 2d 1282.

[56] 465 F.2d 1303 (7th Cir. 1972).

[57] Id. at 1305.

[58] 304 U.S. 64 (1938).

[59] 28 U.S.C. § 725 (1948) (“The laws of the several States, except where the Constitution, treaties, or statutes of the United States otherwise require or provide, shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply.”) (later recodified as 28 U.S.C. § 1652 (1994) (“The laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.”)).

[60] U.S. Const. amend. X (“The powers not delegated to the United States by the Constitution, nor prohibited to it by the States, are reserved to the States respectively, or to the people.”).

[61] See Erie, 304 U.S. at 78.

[62] Id.

[63] See Wheeldin v. Wheeler, 373 U.S. 647 (1963); see also Bell v. Hood, 327 U.S. 678, 684 (1946).

[64] U.S. Const. art. I, § 8, cl. 8.

[65] Unarco, 465 F.2d at 1306, quoting Sola Elec. Co. v. Jefferson Co., 317 U.S. 173, 176 (1942).

[66] Id. at 1306.

[67] Id.

[68] A number of cases have held that federal law governs questions of assignability of a nonexclusive patent. See, e.g., PPG Indus. v. Guardian Indus., 597 F.2d 1090, 1093 (6th Cir.); In re Alltech Plastics, Inc., 71 B.R. 686, 689 (Bankr. W.D. Tenn. 1987). This matter will be discussed in some detail in Section IV.B.

[69] Wheeldin, 373 U.S. 647, 651 (1963); see Texas Indus. v. Radcliff Materials, Inc., 451 U.S. 630, 640 (1981).

[70] See Henry J. Friendly, In Praise of Erie – And a New Federal Common Law, 39 N.Y.U.L. Rev. 383, 405 (1964); 19 Charles Wright et al., Federal Practice and Procedure § 4514, at 218 (1982).

[71] See Northwest Airlines, Inc. v. Transport Workers, 451 U.S. 77, 95-97 (1981).

[72] 15 U.S.C. §§ 1-7 (2000). The remarkable vagueness of the Sherman Act has quite reasonably been construed as an invitation to judicial lawmaking. In the words of one court, “Congress has incorporated into the Anti-Trust Acts the changing standards of the common law, and by so doing has delegated to the courts the duty of fixing the standard for each case.” United States v. Associated Press, 52 F. Supp. 362, 370 (S.D.N.Y. 1943).

[73] United States v. Little Lake Misere Land Co., 412 U.S. 580, 593 (1973).

[74] Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 426 (1964).

[75] Bartsch v. Metro Goldwyn Mayer, Inc., 391 F.2d 150, 153 (2d Cir.).

[76] See generally, e.g., Robert A. Burt, The Constitution in Conflict (1995); Alexander M. Bickel, The Least Dangerous Branch (2d ed. 1986); Steven G. Sklaver, Federal Power to Commandeer State Courts: Implications for the Theory of Judicial Federalism, 32 Ind. L. Rev. 71 (1998); John C. Yoo, Judicial Review and Federalism, 22 Harv. J.L. & Pub. Pol’y 197 (1998); John C. Yoo, The Judicial Safeguards of Federalism, 70 S. Cal. L. Rev. 1311 (1997); Bradford R. Clark, Ascertaining the Laws of the Several States: Positivism and Judicial Federalism After Erie, 145 U. Pa. L. Rev. 1459 (1997); Patrick C. McGinley, Trashing the Constitution: Judicial Activism, the Dormant Commerce Clause, and the Federalism Mantra, 71 Or. L. Rev. 409 (1992).

[77] See Texas Indus., 451 U.S. 630, 640.

[78] Patterson, 97 U.S. 501, 508-09 (1878).

[79] Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 229 (1964).

[80] See Charles R. Calleros, Reconciling the Goals of Federalism with the Policy of Title VII: Subject-Matter Jurisdiction in Judicial Enforcement of EEOC Conciliation Agreements, 13 Hofstra L. Rev. 257, 300 (1985). For an interesting example of unexamined judicial preemption with respect to the application of state law to the law of successor liability, see Aaron Xavier Fellmeth, Vicarious Crime and International Trade: Constitutional Limits on Successor Liability for Import and Export Transactions (forthcoming manuscript on file with author).

[81] Aronson v. Quick Point Pencil Co., 440 U.S. 257 (1979).

[82] In re CFLC, Inc., 89 F.3d 673, 679 (9th Cir. 1996).

[83] See Allen v. Riley, 203 U.S. 347, 355-57 (1906).

[84] See, e.g., Wilson v. Sandford, 51 U.S. (10 How.) 99, 101 (1850); Albright v. Teas, 106 U.S. 613, 616-20 (1882); Dale Tile Mfg. Co. v. Hyatt, 125 U.S. 46, 51-54 (1888); Pratt v. Paris Gaslight & Coke Co., 168 U.S. 255, 257-60 (1898); Excelsior Wooden Pipe Co. v. Pacific Bridge Co., 185 U.S. 282, 285-87 (1902); New Marshall Engine Co. v. Marshall Engine Co., 223 U.S. 473 (1912); Luckett v. Delpark, Inc., 270 U.S. 496, 502-11 (1926); Becher v. Contoure Labs., Inc., 279 U.S. 388, 391 (1929).

[85] See Henry v. A.B. Dick Co., 224 U.S. 1, 14-15 (1912); Dale Mfg. Co., 125 U.S. at 53.

[86] See Troy Iron & Nail Factory v. Corning, 55 (14 How.) U.S. 193 (1852); Hapgood v. Hewitt, 119 U.S. 226 (1886); Lane & Bodley Co. v. Locke, 150 U.S. 193 (1893); Wood Harvester Co. v. Minneapolis Harvester Co., 61 F. 256 (8th Cir. 1894); Bowers v. Lake Super. Contracting, 149 F. 983 (8th Cir. 1906).

[87] Troy Iron & Nail Factory, 55 (14 How.) U.S. at 210-11; Hapgood, 119 U.S. at 233-34; Wood Harvester, 61 F. at 257.

[88] Bowers, 149 F. at 985-87.

[89] Lane & Bodley, 150 U.S. at 198, 201.

[90] In re CFLC, Inc., 89 F.3d 673, 677.

[91] Lear, Inc. v. Adkins, 395 U.S. 653, 661-62, 673 (1969); see also McCoy v. Mitsuboshi Cutlery, Inc., 67 F.3d 917, 920 (Fed. Cir. 1995) (“Whether express or implied, a license is a contract ‘governed by ordinary principles of state contract law.’”); Power Lift, Inc. v. Weatherford Nipple-Up Sys., Inc., 871 F.2d 1082, 1085 (Fed. Cir. 1989) (“A license agreement is a contract governed by ordinary principles of state contract law.”).

[92] See, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), rev’g, 908 F. Supp. 640 (W.D. Wis. 1996); see also Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670 (3d Cir. 1991); RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543 (9th Cir. 1985).

[93] Wallis v. Pan Am. Petroleum Corp., 384 U.S. 63, 68 (1966); see O’Melveny & Myers v. Federal Deposit Ins. Corp., 512 U.S. 79 (1994).

[94] Gardner, 110 F. Supp. 2d at 1286.

[95] Defendant’s Notice of Motion and Motion for Summary Judgment at 10, Gardner, 110 F. Supp. 2d 1282.

[96] Sony Corp. of Am. v. Universal City Studios, 464 U.S. 417, 439-40 (1984).

[97] 135 N.Y.S.2d 858 (N.Y. Sup. Ct. 1954).

[98] A license to use a particular patented good is very different from a license to manufacture such goods or use a patented technology. Under the patent exhaustion doctrine, a licensee of a patented good is free to resell it, absent a contractual restriction to the contrary. See McCoy, 67 F.3d 917, 920-21. If the licensee does resell the good contrary to the nonassignment clause, the licensor’s only remedy is contractual. There is an equivalent doctrine for sales of copies of copyrighted goods. 17 U.S.C. § 109(a); see Determann & Fellmeth, supra note 11.

[99] Schlesinger, 135 N.Y.S.2d at 862-63.

[100] Defendant’s Notice of Motion and Motion for Summary Judgment at 9-10, Gardner, 110 F. Supp. 2d 1282.

[101] Schlesinger, 135 N.Y.S.2d at 862. Nike failed to mention this fact in its brief.

[102] 119 U.S. 226 (1886).

[103] Id. at 233.

[104] Id. at 234.

[105] 465 F.2d 1303 (7th Cir. 1972).

[106] 168 F.2d 919 (8th Cir.).

[107] Id. at 920.

[108] Id. at 921.

[109] 202 F. Supp. 426, 430 (S.D. Cal. 1962).

[110] 89 F.3d 673 (9th Cir. 1996).

[111] Defendant’s Notice of Motion and Motion for Summary Judgment at 10-11, Gardner, 110 F. Supp. 2d 1282.

[112] In re CFLC, Inc., 89 F.3d at 674.

[113] Troy Iron & Nail Factory, 55 U.S. 193, 216.

[114] 4 P.2d 215 (Cal. App. 1931).

[115] E.g., Taylor v. Black Diamond Co., 25 P. 51 (Cal. 1890); Rosenthal Paper Co. v. Nat’l Folding Box & Paper Co., 123 N.E. 766 (N.Y. 1919).

[116] 308 P.2d 732 (Cal. 1957).

[117] Id. at 735-36.

[118] Id. at 738 (quoting Wilson v. Sandford, 51 U.S. (10 How.) 99, 101-02 (1850)).

[119] 35 U.S.C. § 261 (1984).

[120] Dopplmaier, 308 P.2d at 739.

[121] Id. at 738.

[122] Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 254-57 (1945); Sola Elec. Co., 317 U.S. 173, 175.

[123] Dopplmaier, 308 P.2d at 739.

[124] Id., citing Bank of Am. Nat’l Trust & Sav. Ass’n v. Parnell, 352 U.S. 29 (1957).

[125] Id.

[126] Restatement (Second) of Conflict of Laws § 187(2) (1988); U.C.C. § 1-105 (1989).

[127] See Fantastic Fakes, Inc. v. Pickwick Int’l Inc., 661 F.2d 479, 483 (5th Cir. 1981).

[128] Dopplmaier, 308 P.2d at 740.

[129] 119 U.S. 226, 234 (1886).

[130] Dopplmaier, 308 P.2d at 740.

[131] See Fantastic Fakes, 661 F.2d at 483.

[132] Dopplmaier, 308 P.2d at 739 (emphasis added).

[133] Id. at 741.

[134] See D’Oench, Duhme & Co. v. Fed. Deposit Ins. Corp., 315 U.S. 447, 456-58 (1942).

[135] U.C.C. § 2-210 & cmt. (1998); Restatement (Second) of Contracts § 317 (1981); see De La Rosa v. Tropical Sandwiches, Inc., 298 So. 2d 471, 473 (Fla. Dist. Ct. App. 1974); Trubowitch v. Riverbank Canning Co., 30 Cal. 2d 335, 344 (1947).

[136] Notwithstanding any federal judicial decisions forbidding the free assignment of nonexclusive licenses, such provisions are very common in exclusive and nonexclusive license agreements.

[137] See Restatement (Second) of Contracts § 318(1) (1981).

[138] Cf. Restatement (Second) of Contracts § 318(2) (1981) (“Unless otherwise agreed, a promise requires performance by a particular person only to the extent that the obligee has a substantial interest in having that person perform or control the acts promised.”).

[139] See, e.g., Cal. Civ. Code § 1457 (West 2000); Cutting Packing Co. v. Packers’ Exch., 86 Cal. 574, 576 (1890).

[140] See Restatement (Second) of Contracts §§ 280, 328, 329 (1981).

[141] See Cal. Civ. Code § 1589 (Deering 2001); Walker v. Phillips, 205 Cal. App. 2d 26, 32 (Ct. App. 1962); Hudson Eng’g Assoc. v. Ames Dev. Corp., 643 N.Y.S.2d 677, 678 (App. Div. 1996). In the absence of an express assumption of the contractual obligations, however, the assignee is not liable for the obligations of the assignor, even if the other party to the contract acquiesces to the assignment. See Kagan v. K-Tel Entm’t, 568 N.Y.S.2d 756, 758 (App. Div. 1991); De Mille Co. v. Casey, 201 N.Y.S. 20, 22 (Sup. Ct. 1923).

[142] To the extent that tangible, non-intellectual property is identified with its creator to any significant degree, it is because of intellectual property – the trademark or service mark. For example, the sole reason that the public identifies the quality of a Mercedes-Benz automobile with Daimler Chrysler A.G. is that the trademark “MERCEDES-BENZ” and logo are affixed to the tangible property, both physically and mentally, through marketing.

[143] Defendant’s Notice of Motion and Motion for Summary Judgment at 10, Gardner, 110 F. Supp. 2d 1282.

[144] Restatement (Second) of Contracts § 317(2)(a) (1981); see Farmland Irrigation Co. v. Dopplmaier, 308 P.2d 732, 741(Cal. 1957); Paper Prods. Mach. Co. v. Safepack Mills, 131 N.E. 288 (Mass. 1921); see also 5 Cal. Jur. 2d 292 [Title] [(date)] (“It appears that the courts will generally refuse to enforce nonassignability clauses, at least as between the assignor and assignee and those claiming under them, where the transfer works no substantial detriment to the rights of the other party to the contract.”) (emphasis added).

[145] See Fenn v. Pickwick, 4 P.2d 215 (Cal. Ct. App. 1931); cf. Restatement (Second) of Contracts § 317 cmt. d (1981).

[146] Restatement (Second) of Contracts § 317(2)(b) (1981).

[147] U.C.C. § 5-116 (1998).

[148] See Restatement (Second) of Contracts § 317 illus. 8 (1981).

[149] Under Article VI of the Constitution, state law and courts must defer to federal law – and, by implication, the federal policy expressed by that law – in matters of federal competence. See U.S. Const. art. VI, § 3, cl. 2.

[150] Restatement (Second) of Contracts § 322 (1981); U.C.C. § 2-210(3) (1998).

[151] See Restatement (Second) of Contracts § 317(2) (1981); Restatement (Second) of Property § 4.1(1) (1983).

[152] See Sacks v. Neptune Meter Co., 258 N.Y.S. 254, 261 (Sup. Ct. 1932); cf. State Bank v. Central Mercantile Bank of N.Y., 248 N.Y. 428 (1928) (holding that the terms of the contract at bar did not appear to prohibit assignment, and it was therefore unnecessary “to choose between the alternatives” of the right freely to contract and the right freely to alienate property rights).

[153] 35 U.S.C. § 261 (2000). The Copyright Act also refers to “copyright ownership” as having attributes of personal property. 17 U.S.C. § 201(d)(1) (2000).

[154] See Melville B. Nimmer & Raymond Nimmer, Nimmer on Copyright § 10.02[B][5] (2000).

[155] See Sacks, 258 N.Y.S. 254, 256 (“My investigation has disclosed no decision in this state or elsewhere which, in the absence of a statute, has ever held that a contractual prohibition against the assignment of a claim is unenforceable.”).

[156] See Restatement (Second) of Contracts §§ 317(2)(c), 322 (1981); 4A Arthur Linton Corbin, Corbin on Contracts §§ 872-73 (1951 & Supp. 1989); 3 Samuel Williston, A Treatise on the Law of Contracts § 422 (3d ed. 1961); 6A Cal. Jur. 2d Assignment §§ 30, 33 (1975). However, it is clear that even in an executory contract, courts will generally refuse to enforce nonassignability clauses as applied to the rights under an agreement (as opposed to duties) between the assignor and assignee, where the transfer works no substantial detriment to the rights of the other party to the contract. Benton v. Hofmann Plastering Co., 207 Cal. App. 2d 61, 68 (Ct. App. 1962).

[157] See Restatement (Second) of Contracts § 322(2)(b) (1981).

[158] 817 F.2d 499 (9th Cir. 1987).

[159] Id. at 503.

[160] Id. at 501.

[161] Id. at 504.

[162] 17 U.S.C. § 504(c) (2000).

[163] 17 U.S.C. § 502 (2000).

[164] 17 U.S.C. § 506 (2000).

[165] In re CFLC, Inc., 89 F.3d 673, 679.

[166] See, e.g., Gilson v. Republic of Ir., 787 F.2d 655, 658 (D.C. Cir. 1986); Stenograph Corp. v. Fulkerson, 972 F.2d 726, 729 n.2 (7th Cir. 1992); PPG Indus., 597 F.2d 1090, 1093; In re Alltech Plastics, Inc., 71 B.R. 686, 689; E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1114 (Del. 1985).

[167] For example, the court supported its position that nonexclusive patent licenses were always personal and unassignable absent consent of the patent owner by citing inter alia Rock-Ola Mfg. Corp. v. Filben Mfg. Co., 168 F.2d 919, 921-22 (8th Cir. 1948), in which the licensor had a clause forbidding transfer, unlike in the case before the Ninth Circuit. The court seems to have confused a federal court’s refusal to allow an assignment in the face of a contract clause forbidding such assignment with the court’s refusal to allow an assignment in the absence of such a clause on the grounds of federal public policy.

[168] See 17 U.S.C. § 501(b) (2000).

[169] See Bell Intercontinental Corp. v. United States, 381 F.2d 1004, 1010 (Ct. Cl. 1967).

[170] See Lulirama Ltd. v. Axcess Broad. Serv., Inc., 128 F.3d 872, 882 (5th Cir. 1997); Harris, 734 F.2d 1329, 1334; Studiengesellschaft Kohle, m.b.H., 670 F.2d 1122, 1127 (D.C. Cir. 1981); Western Elec. Co., 42 F.2d 116, 118.

[171] See supra text accompanying note 136.

[172] Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).

[173] E.g., Wood Harvester Co. v. Minneapolis-Esterly Harvester Co., 61 F. 256, 258 (D. Minn. 1894); Bowers, 149 F. 983, 986.

[174] Allegheny College v. Nat’l Chautauqua Cty. Bank of Jamestown, 159 N.E. 173, 174 (N.Y. 1927).