(written by David Francis for ACEC/PA's newsletter Design of the Time - April 2008)

Introduction

Design Professionals expect the Copyright Laws to protect their work from unauthorized use, copying and distribu-tion. There is a perception among design professionals that if someone else (e.g. your client or another design pro-fessional) uses your design without your permission, they have violated the copyright laws. This is frequently a misperception.

The truth is that courts sometimes find that the allegedly infringing party has an “implied nonexclusive license” to use the design. As explained in this article, this “implied nonexclusive license” is “inferred” from the conduct of the parties. An implied nonexclusive license authorizes the allegedly infringing party to use the design in ways consis-tent with the terms of the implied license.

Whether an implied nonexclusive license exists is typically determined by the federal courts in response to a copy-right infringement action. Although the courts sometimes determine the existence of an implied nonexclusive li-cense based upon undisputed facts, this is not always the case. Sometimes ultimate resolution of the copyright in-fringement claim occurs only after an expensive and time-consuming trial.

The good news is that design professionals can protect themselves and their interest in the design. Before we dis-cuss how to protect yourself, let us discuss how you can fall into the trap and how this implied nonexclusive license doctrine is applied.

Copyright Law Basics

The Copyright Law provides that “Original Works of Authorship” are copyrighted when created. There is no re-quirement in the copyright law that parties register a copyright with the Copyright Office before the copyright is effective.
The copyright law also provides that the creator of a work is the copyright owner unless it is transferred to an-other. The transfer of copyright ownership can be by contract or by virtue of a separate agreement. An exclusive license (i.e., the recipient has the exclusive license to use the copyright) is such a transfer. Any such transfer must be made in writing

However, the copyright law does not require writing for the issuance of a nonexclusive license. The courts have inferred the existence of an implied nonexclusive license from the objective conduct of the parties. This is an implied nonexclusive license.

Courts look at three elements when they “infer” the existence of an implied license. These elements are:

1. A client requests the creation of a work; and

2. The design professional makes the particular work and delivers it to the client who re- quested it; and

3. The design professional intends (based upon objective evidence) for the client to copy and distribute the work to others.

The first two elements are frequently satisfied in copyright infringement actions involving a design of a project. Accordingly, finding an implied nonexclusive license typically comes down to the third element of intent. This element can be determined by looking at the objective facts, not the subjective intent of the parties. Because the exis-tence of an implied license is an affirmative defense, the defendant in an infringement action has the obligation to prove that this implied license exists.

Development and Application of the Implied Nonexclusive License Doctrine

An early and important case that helped establish the principle that nonexclusive licenses can be implied from objective conduct was Effects Associates v. Cohen, 908 F.2d 555 (9th Cir. 1990). Although not a design professional case, it nevertheless is very important to the development of this doctrine for design professionals.

The Effects case involved a movie entrepreneur’s use of special effects footage without making payment in full and/or obtaining an express written license. In Effects, Cohen hired Effects Associates to prepare footage for a horror movie. According to Cohen, he was not satisfied with the footage and therefore only paid one-half of the amount billed. Effects demanded the full amount on several occasions, but Cohen simply refused to pay it. Notwithstand-ing Cohen’s dissatisfaction with the footage, he used it anyway. Effects then sued him for breach of contract and copyright infringement.

Cohen raised several arguments in defense, including the existence of an implied nonexclusive license to use the footage. The court decided this matter before the actual trial based upon the uncontested facts. The trial and appellate courts agreed that Effects had provided Cohen with an implied nonexclusive license to use the footage. The courts noted that Effects had created the footage at Cohen’s request and had provided it to Cohen with the inten-tion that Cohen use it. Effects’ actions created the implied nonexclusive license. Cohen’s failure to issue payment to Effects was irrelevant to the issuance of a copyright license. Accordingly, the court rejected Effect’s copyright action.

The doctrine of an implied nonexclusive license set forth in Effects was subsequently applied to design profession-als. A significant and often cited case that relied upon Effects was I.A.E. Inc. v. Shaver, 74 F.3d 768 (7th Cir. 1996). In Shaver, a regional airport authority entered into a contract with a joint venture for the design and construction of a new air cargo/hangar building. The joint venture subsequently subcontracted with Shaver, a licensed archi-tect, for architectural design services. The joint venture and Shaver entered into a written agreement—which was a letter prepared by Mr. Shaver—that only addressed the schematic design phase of the project. Although it was Shaver’s subjective belief and understanding that his firm would be hired to perform all of the design work on the project, the contract did not address the remaining design phases.

Shaver completed the schematic design and forwarded it to the joint venture for review along with an invoice for payment. The joint venture approved and paid for only one-half of the design fee, and then hired a subsequent firm to provide architectural services for the remainder of the project work. After Shaver found out, he notified the joint venture that he expected to be paid the full contract value, his expenses and a copyright assignment fee of $7,000 for the use of his drawings. The joint venture refused to pay and filed a declaratory judgment action seek-ing, among other things, an order ruling that the joint venture had the right to use Shaver’s schematic design drawings. Shaver filed a counterclaim for copyright infringement and breach of contract.

Based upon undisputed facts, the trial court concluded—and the appellate court agreed—that Shaver had provided the joint venture with an implied nonexclusive license to use Shaver’s schematic design documents. The courts held that the contract between the parties did not address Shaver’s continued role in the project work and provided only that Shaver would provide his schematic design phase documents to the joint venture. Citing the Effects case, the appellate court held that it would be contrary to common sense to hold that the joint venture could not use the drawings it contracted for.

However, the courts do not always find the existence of implied nonexclusive licenses, even where the infringing architect has acted in good faith. Another important and often cited case that relied upon Effects and Shaver is Johnson v. Jones, 149 F.3d 494 (6th Cir. 1998). This case was also decided by the court before the trial took place. In Johnson, the homeowner, Ms. Jones, hired Johnson to provide design services in connection with her envisioned custom-built dream home. Johnson submitted two AIA contracts to Jones, each of which contained clauses ad-dressing ownership and use of the design documents. Jones signed neither one of them. Jones’ attorney prepared and forwarded a proposed contract to Johnson; however, the parties did not agree to it either.

While the contract negotiation was ongoing, Johnson continued to work on the project because he expected to be under contract shortly. He provided certain design documents to Jones during this period. However, the parties did not come to terms and Johnson was terminated from the project.

Jones then hired another architect—Daniel A. Tosch—to complete the architectural work on the project. According to the appellate court’s opinion, Tosch expressed concern about the copyright notices affixed to the drawings and refused to proceed until that matter was resolved. Ultimately, Tosch received (incorrect) advice from Jones’ lawyer that Jones was a co-owner of the copyright and that Tosch could use the drawings. Based upon this advice, Tosch proceeded in using Johnson’s drawings.

When Johnson found out about the project, he sued Jones and Tosch for copyright infringement. Tosch argued that under Effects and Shaver. he had an implied nonexclusive license to use Johnson’s work. However, the court dis-agreed finding that there were very few similarities between the facts in that case and those in Effects and Shaver. Most significantly, the court held that because there was no objective evidence of intent for others to use Johnson’s documents, there was no implied license. Accordingly, judgment was entered against Tosch.

Sometimes a determination as to whether an implied nonexclusive license exists requires a trial and submission to the jury. In Saxelbye Architects, Inc. v. First Citizens Bank & Trust Co., 44 U.S.P.Q.2d (BNA) 1634 (4th Cir. 1997), the trial court dismissed a copyright infringement action based upon uncontested evidence, finding that there was an implied nonexclusive license. However, the appellate court reversed, holding that the undisputed facts did not prove the existence of such a license. Thus, the appellate court remanded the case back to the trial court for fur-ther proceedings.

Why this is Important

This is important because design professionals want to protect their designs from infringement, and they want to know the extent of the protection afforded to their design. Where an implied nonexclusive license can be inferred, there is doubt as to the extent of the protection and whether it is advisable to do something when someone in-fringes.

It is also important, however, because of the potential that design professionals could end up paying the legal fees incurred by the other party in defending against your action. The copyright law specifically provides that the prevailing party in a copyright action (whether the plaintiff or defendant) may recover legal fees if so ordered by the court. This award does not require a finding of bad faith; the standard is lower. Accordingly, there is a very real possibility that someone can use your design; you can sue for infringement, lose, and then pay their legal fees.

How Do You Protect Yourself From This Mess?

As you can see, the law surrounding implied licenses can be tricky, time-consuming and expensive. The best way to protect yourself is to ensure that the original written contract between you and your client is unambiguous in addressing the ownership and use of the copyrighted information. This principle was expressed in the Effects case as follows:

Common sense tells us that agreements should routinely be put in writing. This simple practice prevents misunderstandings by spelling out the terms of a deal in black and white, forces parties to clarify their thinking and consider problems that could potentially arise, and encourages them to take their promises seriously because it’s harder to backtrack on a written contract than an oral one.

The agreement should contain, at a minimum, the following:

• A statement identifying who owns the copyright in the design documents. Although the law presumes that the creator (i.e. the design professional) is the owner of the copy- right, sometimes the project owner wants to own the copyright or wants a license to use the design in a certain way. The full scope of this should be expressed in writing so there is no misunderstanding about use of your design.
  
  
• The full scope of work to be performed should be set forth in the agreement. This will help avoid confusion between the parties about the permitted use of your design.
  
  
• A statement addressing the circumstances under which you will authorize others to use your design. This will ensure that there is no confusion about the limits of any license or use of the documents.
  
  
• Where a license is issued, you should address the scope and limit of an indemnification provision so you are not held responsible for others’ misuse of the design.

You should also take appropriate steps to ensure that your employees do not take steps inconsistent with these contract provisions.

Further, where you agree to allow someone to use your documents after execution of a contract, you should ensure that there is a written licensing agreement that describes what information is being provided and what it may be used for. This should be issued in writing regardless of whether additional compensation for the license is sought. This will help you avoid any ambiguity about the extent of the license.

Taking these simple steps can help protect your design from use by others.

For more information about this case or any related issues, David W. Francis can be reached at (717) 237-6738 or dfrancis@rhoads-sinon.com. To view a copy of Part 1 of this series, follow this link.