By Gail S. Kelley
Where in a case of alleged copyright infringement, the Defendant asked the Court to determine that it had an implied license to use drawings that the Plaintiff created for it before Defendant terminated its contract with Plaintiff. The Court found that Defendant did have such a license and granted Defendant’s Motion for Summary Judgment. AHAdams & Co., P.C. v. Spectrum Health Services, Inc., 40 F. Supp. 3d 456 (E.D.Pa.2014).
Spectrum Health Services, Inc. (“Spectrum”) initially hired Arthur H. Adams and his firm, AHAdams, to assist with selecting the location for a new health center. AHAdams subsequently submitted a proposal outlining the services it proposed to perform during the remaining design and construction phases. The proposal did not require Spectrum to use AHAdams’ services through the project’s completion, nor did it restrict Spectrum’s use of the drawings that AHAdams prepared. AHAdams also sent Spectrum a signed copy of an American Institute of Architects’ agreement for architectural services (the “AHAdams AIA Agreement.”) Although Spectrum never signed the Agreement, AHAdams performed services for the project and submitted invoices totaling approximately $558,000 through March 2010. These invoices were paid in full, but Spectrum refused to pay AHAdams’ subsequent invoices, out of concern with AHAdams’ billing. Spectrum also hired a consultant who recommended that Spectrum use the design-build delivery method, such that a single entity would provide both architectural and construction services.
In July 2010, Spectrum asked AHAdams for six copies of the Drawings, which AHAdams provided. However after Spectrum officially terminated their relationship in August 2010, AHAdams told Spectrum that the Drawings could not be used for bidding without AHAdams’ permission and that AHAdams had not given such permission.
AHAdams subsequently sued Spectrum for copyright infringement, claiming that in soliciting bids, Spectrum violated AHAdams’ copyright by copying the Drawings. Spectrum asserted that AHAdams’ copyright infringement claims failed as a matter of law because AHAdams had granted it an implied nonexclusive license to use the Drawings. The Court found that since the AHAdams AIA Agreement was not signed by both parties, it was not a binding contract and thus there was no basis to find an express license. Nevertheless, the Court agreed that there was an implied nonexclusive license.
Basis for Grant of an Implied Nonexclusive License
Courts often use a three-factor test to determine whether an implied license has been granted. A court is likely to find an implied nonexclusive license if (1) the licensee requests the creation of a work; (2) the licensor creates the work and delivers it to the licensee; and (3) the licensor intends that the licensee copy and distribute his work. Because the first two factors were undisputed in this case (Spectrum requested that the Drawings be created and AHAdams delivered them), only the parties’ intent had to be analyzed. The Court noted that the analysis must be an objective inquiry into the facts that show the contractual intent and listed the following factors to consider:
(1) whether the parties were engaged in a short-term discrete transaction as opposed to an ongoing relationship; (2) whether the creator utilized written contracts .. providing that copyrighted materials could only be used with the creator’s future involvement or express permission; and (3) whether the creator’s conduct during the creation or delivery of the copyrighted material indicated that use of the material without the creator’s involvement or consent was permissible.
With respect to the first factor – the parties’ relationship – AHAdams had been working on the project for years. Since AHAdams’ involvement was not discrete or short term, the relationship factor did not support the assertion of an implied license. The second factor, however, did support the assertion. AHAdam’s proposal did not prohibit or limit Spectrum’s use of the Drawings. Furthermore, Section 7.3 of the AHAdams AIA Agreement granted Spectrum “a nonexclusive license to use the Architect’s Instruments of Service solely and exclusively for purposes of constructing, using, maintaining, altering and adding to the Project.” The Agreement also allowed the Contractor and the Owner’s consultants, to “reproduce applicable portions of the Instruments of Service solely and exclusively for use in performing services or construction for the Project.” Even though the Agreement had not been signed by Spectrum, it was strong evidence of AHAdams’s intent.
When evaluating the third factor, courts look at whether the supposed infringer obtained the plans directly from the supposed licensor, which would suggest permission to use them. In this case, AHAdams sent six CDs to Spectrum, knowing that they would be used to price the construction. At the time, Spectrum was under no obligation to continue using AHAdams’ services, and Mr. Adams admitted he was unsure of his future role in the project. The Court found that AHAdams’ conduct supported the conclusion that AHAdams granted Spectrum a nonexclusive license.
AHAdams’ Copyright Infringement Claim
AHAdams’ copyright infringement claim focused on the fact that the Drawings had a copyright symbol, followed by the language “This drawing or parts thereof may not be altered or reproduced in any form without the written permission of AHAdams & Company.” However, the Court noted that merely including a copyright symbol on a drawing does not establish that a party does not intend to grant a nonexclusive license. The court also noted that the language following the copyright symbol was the only indication of record that AHAdams required its continued involvement in the project. In addition, the copyright language was in miniscule type and hard to read. The Court found that this language could not overcome the language in the AHAdams AIA Agreement that explicitly granted Spectrum a nonexclusive license to use the Drawings.
Implied License to Use Drawings
Moreover, the Court noted that Spectrum paid AHAdams almost $100,000 for the Drawings. A finding that AHAdams did not grant a nonexclusive license would mean that Spectrum paid a large amount of money for Drawings that it could not use if it terminated its contract with AHAdams. The Court quoted a holding from the Ninth Circuit that such a finding would allow design firms to hold entire projects hostage, forcing the owner to either pay the firm off, continue to employ it, or forego the value of the work and start from scratch.
The Court concluded that, as a matter of law, AHAdams granted Spectrum an implied nonexclusive license to use the Drawings and Spectrum’s use of the Drawings fell within the scope of this license. Accordingly, the Court found that Spectrum was entitled to summary judgment on AHAdams’ copyright infringement claim.
A copyright is a property right in the tangible expression of an idea. Although a copyright must be registered with the U.S. Copyright Office to bring a claim for copyright infringement under the U.S. Copyright Act, the copyright itself arises automatically when the work is created. Generally the author of the work is the initial owner of the copyright. However if the work is either prepared by an employee within the scope of his or her employment, or specially ordered or commissioned, it may be considered a “Work for Hire.” In these cases, the initial copyright belongs to the employer or the party that ordered or commissioned the work.
The copyright holder has full property rights in the copyright and can grant licenses for use of the work, or transfer the copyright as he or she sees fit. Courts may use the three-part test used in AHAdams to find that an implied non-exclusive license has been granted, but transfer of copyright must be express and must be in writing. Under the AIA design agreements, the design professional retains the copyright to the Instruments of Service and provides the Owner a non-exclusive license to use and reproduce them. Nevertheless, Owners will often change this wording such that they own the copyright or receive an exclusive license, which is equivalent to owning the copyright. An Owner who owns the copyright to the Instruments of Service can re-use them for other projects without retaining the design professional or paying an additional fee. Design professionals should ensure that their contracts protect them from any claims that might arise from re-use of the Instruments of Service in such cases.
About the Author: As a professional engineer, Gail Kelley has performed structural design and analysis of post-tensioned structures, has performed constructability reviews, due diligence inspections, and condition assessments, and has provided litigation support for construction defect and delay claims in both state and federal court. She received her B.S. in Civil Engineering from Cornell University, and Master of Science in Structure and Materials from Massachusetts Institute of Technology (MIT), and she received her Juris Doctorate from American University, Washington College of Law. She provides risk management services for ConstructionRisk, LLC. This article is published in ConstructionRisk.com Report, Vol. 17, No.7 (October 2015).
Copyright 2015, ConstructionRisk, LLC