Graham v. James

Citation: Graham v. James, 144 F.3d 229 (2d Cir. 1998).

Factual Background
Richard Graham marketed CD-ROM disks known as “Shareware,” “Freeware” and “Public domain software” which contained compilations of computer programs. In March 1991, Graham hired Larry James, a freelance computer programmer to create a file retrieval program for Graham’s PDSI-004-1 CD-ROM disk. James developed a new file retrieval program called the “C-Version,” which was included in PDSI-004-1. In creating the C-Version, James built a copyright notice into the program attributing authorship and copyright to himself.

In September 1991, Graham and James had an argument about the copyright notice. Graham claimed ownership of the C-Version and James asserted that he owned the program entirely. The dispute was not resolved and Graham removed the copyright notice without James’ permission. In August of 1991, Graham released PDSI-004-1. Over the next year, he released five different versions of PDSI-004-1 all containing C-Version. Subsequently, James sold the C-Version to another CR-ROM publisher.

Graham brought suit against James claiming ownership of copyright in the C-Version under the “work-for-hire doctrine” contending that James had created the program as Graham’s employee, and asserting that James had infringed Graham’s copyright rights by selling the program. James brought counterclaims alleging he owned the copyright and that Graham had infringed on his copyright by installing C-Version onto his CR-ROM releases and removing James’ copyright notice.

Trial Court Proceedings
The District Court rejected Graham’s copyright claims under the work-for-hire doctrine. The court found in favor of James concluding that he owned the copyright because he was “an independent contractor [rather than an employee] when he developed the program,” and Graham’s CD-ROM releases contained the C-Version thereby infringing on James’ copyright.

Additionally, the district court found that Graham and James had entered into a licensing agreement whereby Graham was to pay James $1,000 for each CD-ROM release containing C-Version and one dollar for each disk sold and that Graham had breached that licensing agreement by failing to pay James accordingly. Thus, the court awarded James $137,258 in damages. Graham appealed.

Appellate Court Proceedings
First, the appellate court affirmed the district court’s finding that the C-Version was not a work-for-hire, and that James owned the copyright. The court used the Aymes v. Bonelli factors in its analysis to determine whether or not James was an employee of Graham. The court held that the Aymes factors weighed in favor of finding that James’ was an independent contractor: (1) James was a skilled computer programmer; (2) he was paid no benefits; (3) no payroll taxes were withheld from his payment; and (4) his engagement by Graham was project-to-project.

Second, the court vacated the district court’s copyright infringement award in favor of James. The court reasoned that the district court had erred in ruling that Graham had infringed on James’ copyright, when it also ruled that Graham and James had entered into a licensing agreement. The court explained that “a copyright owner who grants nonexclusive license to use his copyrighted material waives his right to sue the licensee for copyright infringement.” The court held that since James has failed to demonstrate that he had revoked the license agreement, he cannot recover on a copyright infringement claim. The court vacated the judgment and remanded for determinations as to whether James had rescinded the licensing agreement. Lastly, the appellate court vacated the district court’s award of $25,000 for Graham’s omission of a notice of James’ [[authorship]. It held that the amount was “arbitrary” and remanded the matter to determine if the award could be supported by actual evidence.