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Valeo IP To Shut Down Sept. 2
by
Posted On July 11, 2005
On June 29, Valeo IP (http://www.valeoip.com), an online copyright licensing service, announced on its Web site and to its employees that it is shutting down operations, effective Sept. 2. The move comes after a volatile spring, which saw the company engaged in a bitter lawsuit with former partner DataDepth (http://www.datadepth.com) and the abrupt departure of its president. The departure of the company will leave a gap in the digital content licensing marketplace.

Valeo IP is one of a growing number of companies engaged in licensing digital content. Like industry leader Copyright Clearance Center (http://www.copyright.com), these companies serve both digital information publishers and users by permitting fast and easy copyright permissions, use licensing, and payment of royalties to copyright holders. Valeo’s content partners include AP and Reuters wire services, Ziff Davis Media, and Healthnostics.

Valeo IP utilizes a number of methods for managing licensed access, including the use of digital tags that content owners attach to their digital documents. Content users click on these hyperlinked tags and are directed to licensing and royalty options managed by Valeo IP. In May 2002, Valeo IP entered into a contract with DataDepth Corp. to license DataDepth’s propriety licensing software and copyright tags. Valeo IP paid royalties to DataDepth for the use of the software and digital tags, and DataDepth in turn assisted in marketing the software and Valeo IP’s services to publishers.

Unfortunately, the relationship deteriorated as both companies sought to develop newer-generation licensing software and copyright tags. DataDepth argued that its new software was not covered by the original agreement and sought a new agreement with Valeo IP. In turn, DataDepth charged that Valeo IP’s new software was based on DataDepth’s copyrighted and proprietary property. Ultimately DataDepth terminated the software licensing agreement and Valeo IP filed a lawsuit for breach of contract.

On May 5, a federal judge in Seattle denied Valeo IP’s request for a preliminary injunction, which would have prevented DataDepth from terminating the software licensing agreement. (A preliminary injunction is an action that a court can take prior to a trial if necessary to maintain the status quo and to prevent irreparable harm to one of the parties.) Valeo IP argued that confusion and alleged misrepresentations about the licensing agreement and the respective companies’ new technologies was causing it irreparable harm and costing it customers.

The court held that the evidence showing that DataDepth breached the contract was inconclusive and suggested that both parties had breached the contract to some degree. While Valeo IP may yet prove its breach of contract allegations at a trial, there was not yet enough proof to warrant a preliminary injunction. The court also questioned whether Valeo IP was actually suffering irreparable harm as a result of the dispute, finding that only one customer had been lost and that the company had waited several months to request the preliminary injunction. Press releases from both DataDepth and Valeo IP claimed victory in the courts. However, it must be noted that less then 3 weeks later, Valeo IP president Corey Johnson left the company, and just over 6 weeks later, Valeo IP announced its forthcoming shutdown.

The departure of Valeo IP will leave a gap in the growing but confusing business of licensing digital content. Both the growth and the confusion come from the increasing awareness of the need to manage copyrights and the use of digital content paired with the uncertainty as to how copyright law applies to digital content.

Content accessed through proprietary databases are usually covered by well-defined and enforceable copyright statements and licensing agreements. However, vast quantities of content are provided “for free” over the Internet, including newspaper and magazine articles, wire service reports, photographs, and other copyrighted content. Additional information is made available for professional, commercial users through Internet portals on a password-protected, per use basis.

It is not necessarily unreasonable to make the conclusion that additional copyright permission or royalties are not necessary when using this information, at least when it comes to passing copies on to others through e-mail or intranet. After all, if I’ve paid for the info—or obtained it free—can’t I do what I want with it?

However, just because content is available on the Internet does not change the fact that it is protected by copyright. The fair use doctrine, often cited as the basis for using copyright content, allows only a very limited right to use content for selected noncommercial purposes. Fair use has also been weakened by the increased ability to manage permissions and royalties through services such as Valeo IP and the Copyright Clearance Center. One factor in determining whether a use is fair is the impact on the market for the work. As a market now exists for the payment of royalties for using copyrighted material at the click of a button, it is more difficult to argue that a proposed fair use won’t impact the royalty market for the work.

As Valeo IP shuts down, two questions remain: How will the copyright-management needs of its clients be addressed, and who will take its place in the digital content licensing marketplace? Several messages left with Valeo IP regarding the first question have not yet been returned.

As to the second question, the Copyright Clearance Center already has a digital content licensing structure in place. Several bloggers have suggested that a company like Microsoft or Google might fill in the gap. Although Google is enmeshed in its library digitization project, its pre-eminent position as a content search engine could provide support for such an initiative. Nevertheless, as of Sept. 2, Valeo IP will not be a factor in the content licensing marketplace.


George H. Pike is the director of the Pritzker Legal Research Center and a senior lecturer at the Northwestern University School of Law. He teaches legal research, intellectual property, and privacy courses at the School of Law in both the J.D. and Northwestern’s innovative Master of Science in Law program. Prof. Pike is a frequent lecturer on issues of First Amendment, copyright, and Internet law for library and information professionals. He is also a regular columnist and writer for Information Today, publishing a monthly column on legal issues confronting information producers and consumers. Previously, Prof. Pike was director of the Law Library at the University of Pittsburgh School of Law, and held professional positions at the Lewis and Clark Law School and at the University of Idaho School of Law, and was a practicing attorney in Idaho Falls, Idaho. Prof. Pike received his B.A. degree from the College of Idaho, his law degree from the University of Idaho, and his Masters in Library Science from the University of Washington. He is a member of the American and Idaho State Bar Associations, the American Association of Law Libraries, and the American Intellectual Property Lawyers Association.

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