What Do the Proposed PayPal Terms Updates Mean for My Business?

Apr 26, 2015

Topic: Business, Payments
Time Investment: 5 minutes
Suggested Product: Payment Plan Contract


In the famous words of Biggie Smalls, “Damn, [PayPal] wanna stick me for my paper.”  

But is it?

In the last few days, the internet has been running rampant about the new PayPal User Agreement, which goes into effect on July 1, 2015. 

If you were to run a search with the following or similar search terms – “PayPal intellectual property” or PayPal user agreement” or other similar search terms, you’ll find a ton of Internet fear-mongering and ponderings over what it means.  

You will have blogs and articles stating that PayPal’s new user agreement is threatening to assert copyright ownership over ALL intellectual property of anyone who uses it’s payment services.

But are they?


PayPal’s Amendment 

We are adding a new paragraph to section 1.3., which outlines the license and rights that you give to us and the PayPal Group (see paragraph 12 below for the definition of “PayPal Group”) to use content that you post for publication using the Services.

A similar paragraph features in the Privacy Policy, which is removed by the addition of this paragraph to the User Agreement.

The new paragraph at section 1.3 reads as follows:

When providing us with content or posting content (in each case for publication, whether on- or off-line) using the Services, you grant the PayPal Group a non-exclusive, worldwide, perpetual, irrevocable, royalty-free, sub-licensable (through multiple tiers) right to exercise any and all copyright, publicity, trademarks, database rights and intellectual property rights you have in the content, in any media known now or in the future. Further, to the fullest extent permitted under applicable law, you waive your moral rights and promise not to assert such rights against the PayPal Group, its sublicensees or assignees. You represent and warrant that none of the following infringe any intellectual property right: your provision of content to us, your posting of content using the Services, and the PayPal Group’s use of such content (including of works derived from it) in connection with the Services.”

See Full Amendment to the PayPal User Agreement


What The Heck Does This User Agreement Mean? 

First, let us define what a license is and what it is not?

A license is a simple way to allow others to use your work or items by granting them full rights, often at a price.  For example, you the user (i.e. Licensor) may give PayPal (i.e. Licensee) a license of the uploaded content to its website.

A license agreement doesn’t grant the licensee ownership of the copyrighted material, merely limited use of it.  If the license allows others (including the licensor) to exercise the same license transferred in the license, this license is said to be non-exclusive.

Under the new PayPal User Agreement, if you provide PayPal with “content” on its site or posting “content” using its PayPal Services then you are granting them a license. The word “content” is vague and not defined.

It does not mean that anything that you upload through PayPal will belong to them.  PayPal CANNOT take your bank account, phone number, etc. 


In fact, in its Privacy policy, PayPal states how your personal information will be collected and used when using its Services.  It also does not mean that it can override [your] copyright if [you] channel it through them in any of their Services.  However, when you upload to its site, you are agreeing to give them a license. For example, when you upload a logo to an invoice, you have given PayPal a license to use this logo to market its services by listing you [or your business] as one its users. 

The amended section is not a standalone agreement and must be read together with the current agreement.  Under section new user agreement, some capitalized terms have specific definitions, like “PayPal Group” and “Services.”

In the User Agreement, “PayPal Group” and “Services” have been amended. (See Definitions)  The phrase “…using the “Services”…” under the new User Agreement means all products, services, content, features, technologies or functions offered by PayPal and all related sites, applications, and services.”  The word “Service” refers to PayPal Services. The word “services” in lower case, refers to “goods and services” and does not refer to PayPal Services.  

Simply put, PayPal “Services” is any activity where individuals and businesses send and receive electronic money online [and] other financial and non-financial services closely related to online payments. 

Anything else is not PayPal Service.


What Is A Derivative Work?

Another phrase of contention is “PayPal Group’s use of such content (including of works derived from it) in connection with the Services.”

Whenever you take an existing image and modify it to create a different image, you are making a “derivative work.” (see Section 106 (2) of the Copyright Act).  A derivative work is a work based on or derived from one or more already existing works. (see US Copyright Office Circular 14: Derivative Works)  Forming derivatives is a property right held by the copyright owner.  

The licensee (here, PayPal) may own a copyright in ITS version of the image [the scope of which would be limited to the creative elements that licensee added and would not include any of the original content] but absent the right to display derivative work from the owner of the copyright in the original.


PayPal Tweets To Clarify

In its user Tweets, PayPal addresses the issue with an attempt to clarify the language. PayPal states that the new intellectual property provision “lets us share the nice things you say about us on social media, in the press or online without us having to ask you to sign a release form first.”

Based on these Tweets, PayPal has a nonexclusive right to use what you post/upload to their site, and none of it is infringing.

If you use someone’s art or name or brand with permission, or pursuant to Fair Use, the content you are submitting does not infringe on any intellectual property rights. However, the language as read does not convey this – it is rather misleading. 

If that is all PayPal wants, then its User Agreement should read “we have the right to retweet or to use for marketing purposes.”


Stop! PayPal “wanna stick me for my paper”  

The mere act of transacting business by using its payment processing Services [does not] give them full to your intellectual property right. So as long as you don’t post anything to PayPal or one of its “subsidiaries or sub-licensees”, it won’t affect you.

Remember you are giving a license, not of copyright for the items that are subject to these terms.

Quite frankly, it will not affect anyone just using the services to exchange funds.


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