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INTELLECTUAL PROPERTY UPDATE:
FEDERAL PREEMPTION

2001 National Legal Research Group, Inc.

In February of 2000, Divorce Litigation published a comprehensive article on the division of intellectual property rights. Brett R. Turner, Division of Intellectual Property Interests upon Divorce, 12 Divorce Litigation 17 (2000). That article took particular notice of Rodrigue v. Rodrigue, 55 F. Supp. 2d 534 (E.D. La. 1999), the first and only case ever to hold that federal law prevented state courts from dividing copyrights upon divorce.

In a very important development, Rodrigue was recently reversed by the Fifth Circuit. Rodrigue v. Rodrigue, 218 F.3d 432 (5th Cir. 2000). The district court had held that state court division of copyrights would interfere with federal policy by potentially depriving the owning spouse of creative control over the work. The court recognized that the natural solution to this problem was to leave creative control with the owning spouse and divide only the right to receive royalties that is, to divide only the value of the copyright. But the court believed that this common-sense solution could not be implemented without specific authorization from Congress.

On appeal, the Fifth Circuit agreed with the general thrust of the trial court's analysis but disagreed with the need for further statutory authorization. The court noted that federal copyright law does not give exclusive "ownership" of the copyright to the creator; it defines ownership in terms of title and possession. The owner of a copyright has only five specific rights: the rights to reproduce the work, prepare derivative works, distribute copies, perform the work, and display the work. 17 U.S.C. 106. "Notably absent from the Copyright Act's exclusive sub-bundle of five rights is the right to enjoy the earnings and profits of the copyright." Rodrigue, slip op. at 6. Because federal law does not award the owner the exclusive right to receive all economic benefits from the copyright, the court held that an order awarding part of those benefits to the creator's spouse would be consistent with federal law.

The court had little concern that state court division of copyright royalties would interefere with federal policy. As long as the owning spouse retained exclusive management and creative control, there would be no danger that ownership disagreements would interfere with distribution of the work, and the owner alone could convey good title to third persons. To the extent that joint ownership of the proceeds could interfere with the author's motivation to continue his or her creative efforts, the court noted that federal law expressly permits joint ownership of copyrights. Moreover, such ownership had traditionally been a matter of state contract law. State court division of copyright royalties upon divorce would not create any greater problems than types of joint ownership already recognized by federal law. Finally, the court held:

We decline to assume globally that the commercial and economic interests of spouses during marriage are so at odds that one spouse would be disinclined to create copyrightable works merely because the economic benefits of his endeavors would inure to the benefit of their community rather than to his separate estate. As for a former spouse's lack of incentive following divorce, we perceive the presence of the proverbial stick and carrot. To mix metaphors, the carrot is the half-a-loaf incentive of the author to exploit pre-divorce copyrights to the best of his ability rather than shelve them and receive no benefit whatsoever; the stick is exemplified by the . . . affirmative duty "to manage prudently" former community property that remains under one spouse's exclusive control.

Rodrigue, slip op. at 7 (emphasis added). The court therefore held that federal law did not prevent state courts from dividing copyright royalties.

Rodrigue is a breath of fresh air in the field of federal preemption. Federal court decisions in this field have typically underestimated the importance of family law policy, including most importantly the policy of dividing property equitably upon divorce. They have further expanded legitimate concerns over the manner in which state courts treat federal benefits into overblown charges that the mere concept of dividing federal benefits somehow violates federal policy.

Rodrigue, by contrast, takes a careful and realistic look at the actual effect of the division of copyright royalties upon federal policy. It realizes that federal law permits transfers of copyright royalties under state contract law and that the division of such benefits upon divorce would not impose a materially greater burden. It further realizes that creator spouses already share the fruits of their labors with their spouses during the marriage and that to require such sharing after the marriage is not all that different. Finally, and most importantly, the court realized that the issue is not actual joint control of copyrights; state courts have a strong distaste for awarding joint ownership of any business property, copyright or otherwise. Joint ownership is almost always a recipe for further litigation, litigation which is a real burden upon state courts. The state policy interest involved dividing the value of the copyright can be met, and almost always should be met, with a division of royalties alone. If these points have been recognized in the Fifth Circuit, traditionally one of the most conservative of the federal courts, there is reason to hope that future federal decisions generally will stop overemphasizing the effect of state court actions on federal policy.

It is important to note that Rodrigue did suggest fairly strongly that the actual division of the copyright would interfere with federal policy. In particular, awarding joint ownership to the creator and noncreator spouse would create a number of very real problems. These problems interfere with state policy as much as federal policy, and awards of joint ownership of any sort of property have so far been rare. But Rodrigue suggests that the rule against the joint ownership of copyrights may have federal as well as state elements.

The court's concerns mostly apply to awards of joint ownership, and perhaps to awards of sole ownership to a noncreator spouse. In a situation where divorcing parties have joint title ownership of a copyright, a state court decision awarding that copyright to one spouse alone would not seem to conflict with the court's concerns. In fact, given the court's justified fear that joint ownership would make use of the copyright for public benefit more difficult, it could be argued that to continue joint ownership, where the parties are antagonistic, would harm the federal interest.

The only situation in which a rule against joint ownership could harm state policy would be the case of a spouse who shows an intention to exploit a copyright in a manner which harms a former spouse. Our February article cited unconfirmed reports that Jerry Lewis agreed to serve as consultant for the remake of his movie The Nutty Professor rather than receiving a percentage of the royalties, with the intent of avoiding a provision giving his former wife an interest in future movie royalties. Actual joint ownership of the copyright would provide additional remedies against this sort of misconduct. An equally effective alternative remedy, however, can be found in Rodrigue's express reference to the fiduciary duty to manage former community property for the benefit of both parties. The court clearly did not believe that the enforcement of this duty against a dishonest former spouse would violate public policy. Outside of community property states, the law is unclear as to the duties owed between former spouses who share the economic benefits of a pension, business, or other asset, and agreements dividing intellectual property royalties on a deferred basis should probably include a specific provision establishing some form of duty. But state courts should have ample means available to deal with the dishonest manipulation of copyright interests without any need to award actual joint ownership of copyrights.

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