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The question of what rights a project owner gets to the copyrighted plans and specifications prepared by its design professionals is one of critical importance that needs to be clearly addressed by contract. In Eberhard Architect’s v. Bogart Architecture, Inc. et al., 314 F.R.D. 567 (U.S. District Court, N.D Ohio), when a project owner failed to pay its architect, the architect terminated its contract for default and terminated the owner’s nonexclusive license to use the architect’s documents. The owner and its new architect and contractors continued to use the documents over the protest of the architect. In response to the architect’s suit, the defendants moved to dismiss the complaint based on the argument that the payment requirement of the contract was a mere “covenant” upon which the architect could sue for damages, but was not a “condition precedent to the existence of the nonexclusive license.” The court concluded that this was indeed the law of the state, but it was the wrong argument to raise in this case. That is because, although the nonexclusive license came into existence “upon execution” of the Agreement before payment was due, the contract expressly provided for “termination” of the license for subsequent non-payment.” In other words, the parties agreed by contract that the license could be revoked. For this reason, the defendants’ motion to dismiss was denied, and the matter will go to trail unless a settlement is reached.

 

The project was a 12-bed hospice inpatient facility. The agreement between the owner and architect granted the owner a nonexclusive license to use the instruments of services created by the architect in connection with the Project. It further provided that any failure on the part of the owner to provide any payment due under the Agreement will result in a termination of the nonexclusive license. In addition the Agreement contains a provision that requires [owner] to reimburse and indemnify the architect for legal fees incurred in connection with the Project. The court found that the owner breached the contract by failing to make the required payments. The architect duly notified the owner of the breach and advised that the nonexclusive license was terminated.

The owner and follow-on architect and others ignored all notices to cease and desist using the architect’s documents. As explained, by the court, their basis for doing so was their belief that payment to the architect was a not a condition precedent to the existence of the license to use the documents. The court agreed with that argument but explained that this was only one-half of the issue.

The more important point was that the architect had been prudent enough to include language in its contract stating that even if a license was granted at the outset of a project, the license would automatically terminate upon failure of the client to pay the architect’s invoices.

The court pointed out that the defendants cited a number of cases in which courts have repeatedly held that a failure to pay invoices does not give rise to a copyright infringement claim. But none of those cases, says the court, contain an agreed upon termination provision expressly directed at the termination of the license. “Here, by agreement of the parties, the nonexclusive license ceased to exist upon plaintiff’s rightful termination of the Agreement. The Contractor Defendants cite no law suggesting that a copyright infringement claim will not lie even though the license was terminated in a manner agreed to by the parties.”

Comment: In reviewing design professional contracts for our design professional clients, we often add provisions similar to the one here. Many project owners now seek to obtain copyright interest in the design professional’s documents, or even state that the documents were prepared for the owner by the design professional who served as an employee for hire – and that the owner obtains exclusive rights to the copyright such that the design firm forfeits its own rights to the documents. They are many issues and concerns with that. But if a designer is going to agree to give the owner either a license or copyright to the documents, it is well advised to state that the license and copyright do not come into existence until payment is made (some states may permit that as a condition precedent) and that any license or copyright that has come into existence is automatically terminated for failure to make payment.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 19, No. 2 (February 2017).

Copyright 2017, ConstructionRisk, LLC