Members of the rock group The Velvet Underground (“VU”) filed a complaint last month in the U.S. Southern District Court of New York seeking a declaration that the Andy Warhol Foundation for the Visual Arts (“Warhol Foundation”) does not have copyright in a banana image designed by Andy Warhol (“Banana Design”). The Court dismissed the declaratory judgment claim for lack of subject matter jurisdiction ruling that a covenant not to sue provided by the Warhol Foundation “eliminated any justiciable controversies between the parties” over the Banana Design.

The Banana Design was first published in 1967 as cover artwork for the album The Velvet Underground & Nico. At the time, artist Andy Warhol was involved in promoting the band. This support included financial and artistic input. Warhol designed the cover art for the album, which was a commercial failure, but over time came to be recognized as deeply influential and a classic of the genre. In 2009 Rolling Stone Magazine ranked the album 13th on its 500 Greatest Albums Of All Time list, calling it “the most prophetic rock album ever made.”

The conflict exists because while ownership of the Banana Design is unclear there is no doubt that it has market value. Members of VU have for decades used the Banana Design for band and tour promotion. It is featured prominently in advertising materials for the albums six disk, 45th anniversary release out this month. VU and the Warhol Foundation have independently licensed the image for use in ad campaigns and on consumer goods. Apparently the parties were either unaware of or unconcerned of this dual use until members of VU discovered that the Warhol Foundation planned to allow the image to be used as part of a series of Warhol-art themed iPhone and iPad accessories. Upon learning of this activity, VU demanded that the Warhol Foundation cease its licensing activities, which they claimed infringed on VU trademark rights. The Warhol Foundation rejected the demand and countered that it “may have” a copyright interest in the Banana Design. Suit was filed shortly thereafter.

In response to VU’s lawsuit the Warhol Foundation provided a covenant not to sue VU for copyright infringement. VU countered by amending its complaint to request a declaration that the Warhol Foundation had no copyright in the design.  The Warhol Foundation then filed a motion to dismiss the claim for declaratory judgment under Fed. R. Civ. P. 12(b)(1) asserting that the covenant “eliminated any actual controversy between the parties over the Banana Design’s copyright.” The Court agreed that the covenant eliminated the prospect of injury from the asserted copyright and dismissed VU’s claim for declaratory judgment.

In dismissing the claim the Court found that none of VU’s arguments of an existing controversy had merit. Of particular interest was the Court’s handling of the third issue identified by VU; the claim that the Warhol Foundation’s licensing of the Banana Design would have a “material adverse economic effect” on VU. The Court stated that:

because the Warhol Foundation has broadly covenanted not to sue VU for VU’s potentially copyright-infringing uses of the Banana Design, there is no “underlying cause of action” . . . and VU has not pointed to any concrete legal detriment derived from the Warhol Foundation’s possible claim of copyright from which it needs to be “shielded” . . . [d]eclaratory relief is therefore unavailable.

It is important to note here that the Banana Design has never been registered for copyright or trademark. While the Court ruled that the covenant nullified the controversy by granting VU free use of the copyright, I can’t help but think the ruling avoids VU’s primary issue; the ongoing economic gain realized by the Warhol Foundation from the use of the image. I struggle to understand the conclusion that the Warhol Foundation’s covenant not to sue VU over the image eliminates a justiciable controversy regarding it. The ruling suggests 1) that the Warhol Foundation has demonstrated actual copyright in the mark; and 2) that by agreeing not to sue VU over use of it any economic impact to VU has been eliminated. Granting a covenant not to sue may seem a generous act but the Warhol Foundation has not demonstrated the existence of a copyright. Granting a benefit to a party based on a covenant not to sue absent demonstration of copyright strikes me as a strange handling of the issue. Additionally, suggesting that there is no imminent economic impact is also strange. VU isn’t concerned about their ability to use the image without getting sued. They don’t want other parties to be able to license what they claim is their image. Considering that the iPad covers are listing at $79.95 each I think the argument that the licensing activities is “hypothetical” and not “of sufficient immediacy” sounds thin.

Let me take a moment to clarify that I’m not suggesting that either VU or the Warhol Foundation is the rightful owner of the image. The background is confused and the history suggests that neither party really was interested in asserting ownership until recently. I can understand the Court being unwilling to flatly grant or refuse rights without a further exploration of the facts. My gut agrees with the outcome the Court reached. But I can’t agree with the reasoning applied. I can’t wrap my head around making a ruling based on a covenant not to sue without the proponent having to demonstrate actual ownership in the copyright. I don’t believe that has occurred in this case.

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