A recent U.S. Second Circuit Court of Appeals opinion should give contract drafters pause when including what they may consider to be mere boilerplate forum selection clauses in contracts implicating intellectual property rights. In Phillips v. Audio Active Ltd., 2007 WL 2090202 (2nd Cir.(N.Y.) Jul 24, 2007), Plaintiff-Appellant Peter Phillips (a/k/a Pete Rock, an influential hip-hop DJ, producer and rapper) appealed the decision of the New York Southern District Court to dismiss his contract, copyright and state law claims against defendant music companies based on a forum selection clause in the contract between the parties. The clause at issue read: "[t]he validity[,] construction[,] and effect of this agreement and any or all modifications hereof shall be governed by English Law and any legal proceedings that may arise out of it are to be brought in England." The Second Circuit affirmed the trial court’s decision to dismiss the contract claims as clearly falling within the scope of the forum selection clause, but it reversed the decision to dismiss the state law claims (asserting unjust enrichment and unfair competition) and copyright claims based on its determination that those claims did not, as the clause states, “arise out of” the contract.
The defendant music companies argued in the District Court that the copyright claims in particular did “arise out of” the contract provisions giving them the right to distribute an unspecified number of songs to be recorded by Phillips. The Second Circuit disagreed. While it did not give any weight to Phillips’ argument that a claim implicating a law of the United States may never be subject to contractual provisions governing disputes between parties, the court nevertheless found that, on the facts of the case before it and based on the language used in the contract, the forum selection clause had no bearing on Phillips’ right to pursue his copyright claims in any appropriate forum. The songs alleged to have been infringed by the music companies were authored and recorded by Phillips, making him, absent a valid assignment to another party, the owner of the copyright therein, regardless of anything contained in the contract. The defendants clearly could raise the contract terms as a defense against Phillips’ copyright claims, but the source of those claims – where it is that they “arise out of” – is the Copyright Act, not the contract.
The case serves as a useful reminder that a contract drafter who treats any “ordinary” or “boilerplate” provision as a given does so at his or her peril. While the opinion did not specify which party was responsible for drafting the contract, it was likely one or more of the defendant music companies (since it was Phillips who was objecting to litigating his claims in England). Those companies (or their lawyer) likely could have avoided the outcome of the case either by including some measure of specificity in the choice of law or by simply rewording it to include Copyright claims.
You can read the Phillips opinion here.