Implied Licenses Are a Last Resort

In the day-to-day counseling about copyright matters, this is perhaps the most common fact pattern, and it’s surprisingly sticky. Company X has hired creative firm Y to create something for it. “It” could be almost anything: computer software code, a logo design, promotional copy, a website, packaging, a photograph—anything that you might want to outsource rather than develop in house.

Want a Mercedes? We got lots of 'em! Credit: Diego Delso, Wikimedia Commons, License CC-BY-SA 3.0

Want a Mercedes? We got ’em! We got lots of ’em! Credit: Diego Delso, Wikimedia Commons, License CC-BY-SA 3.0

Normally, when you hire somebody to make you something, you own the final result. If you hire an interior designer to pick out and configure appropriate furniture for your office, you own the furniture once you buy it—and the particular configuration of furniture that your designer recommended. Not the interior designer, and not the furniture manufacturer.

Hiring (Creative) Guns

But creative works are different. By default, the copyright in a work belongs to the creator, not the commissioning party. There are only two exceptions to this. First, if the creator is your employee, and made the work in the scope of her employment, then you are the owner1.

But didn’t we say that we had outsourced the work? That means our situation can’t fall in this exception, right? Not exactly. It turns out the law cares much more about how you treat the creator than what you call your relationship with her. Just because you send her a Form 1099 rather than Form W–2 doesn’t necessarily mean she’s not an “employee” for purposes of determining copyright ownership2 The Supreme Court has given us a 14-factor test to determine this, but the factors mostly have to do with how much you control the creator’s work environment. Not her work, necessarily, but her work environment. The more control you exert, the more like an employee she becomes.3

The other exception is if you have a written agreement with the creator, the written agreement has the magic words work made for hire, and (this is this is the kicker) the work falls within one of nine categories. Of these nine categories, only two are for things you might actually outsource for: audiovisual works and translations.4 This exception almost never applies outside the specialized industries for which it was obviously drafted.

The good news is that it’s pretty easy to put the copyright ownership where it belongs. You just have the creator assign the copyright in the work to you. Alternatively, you can obtain an exclusive license to the work, which is almost the same thing, since only you could use it. Usually, the creator is glad to assign the copyright. Indeed, creators are frequently just as surprised about copyright ownership as you, and were assuming you’d end up with the copyright.5

The only catch is that assignments (and exclusive licenses) must be in writing, signed by the assigning party, and must adequately describe the work in question. Oh, and it can get tricky if your trying to assign the copyright in something that hasn’t been created yet.

But What if Nothing’s in Writing?

Let’s see how these rules play out in the real world. In Millennium, Inc. v. SAI Denver M, Inc., the plaintiff video-production company offered to make a commercial for the defendant car dealership on spec. There was no written contract, but it appeared undisputed that the video-production company’s president told the dealership’s general manager: “Let me make this sweeter; I’ll produce a completely finished spot for you on spec; if you don’t like it, you don’t pay for it, but if you like it, you pay for it, you can use it.” The offer (such as it was) accepted, the production company made the television advertisement and sent it to the dealership. The dealership appeared to like the ad, and the production company delivered the ad to the local cable company for airing. After the production company fixed some technical issues at the cable company’s request, the advertisement aired 592 times.

Then, and only then, did the production company invoice the dealership. It was for an amount more than what the dealership was willing to pay.6 It also had this express provision: “[P]ayment in full is required in order to receive full clearances on proprietary materials embedded in this work.” I’m not 100% sure what that means, but the production company thinks it means that the dealership would have no right to use the TV ad without payment of the invoice.

The production company sued for copyright infringement and breach of contract. Then, and only then, did the dealership tender payment in full, but this wasn’t good enough any longer. Once you make someone incur legal fees to collect a debt, just paying the debt usually won’t be good enough any longer—it’s just human nature—even if attorney’s fees aren’t actually collectable or awardable.

The dealership moved for summary judgment on grounds that it had the right to air the ad. As you might expect, the production company responded by asking rhetorically where such a license could be found? It also responded that, in any event, it had explicitly made the right to air the ad conditional on payment in full.

What Are You Implying, Sir?

The dealership won the motion and got the copyright claim dismissed, even though there was nothing in writing about copyright ownership. Instead it relied on an implied license.7 The idea is that the dealership wouldn’t have commissioned the ad and paid for it—well, kind of, sort of offered to pay for it—unless it could actually use the ad for its intended purpose. When the production company argued that it had no intention of letting the dealership air the ad, the court arched an eyebrow and pointed out that the production company itself gave the cable company the ad. Why else would it have done so except so the cable company could air it?

You might expect the production company’s other argument to do better. Intuitively, it would seem that the right to air the video would be contingent on payment in full. But copyright law isn’t very intuitive here.8 By default, it treats payment disputes over license fees as breaches of contract, not claims for copyright infringement. If you want to make a license conditional on payment, then the license agreement must be very clear in that regard.

Here, of course, the license agreement is about unclear as can be. We hardly even know how much the dealership really owed. What about the language in the invoice about “clearances” and “proprietary materials embedded in the work”? Assuming that it’s even referring to copyright9, the provision comes way too late. The agreement wasn’t struck when the invoice the issued. That would be unfair to the dealership, since it would be forced to pay whatever amount the production company decided upon. The agreement was struck when the production company’s president told the dealership’s general manager that the production company would make the ad “on spec.” The time to place conditions on the use of the ad was then. The president didn’t, and once the dealership approved the ad, the die was cast (except nobody knew what the roll would be, as it were).

That’s Nice, but…

It might seem as though implied license rode to the rescue, but it has several drawbacks, compared with an express license:

  • You don’t know you have the license, or what its scope is, until a court makes a ruling, after a good deal of litigation. I think you can see why that’s sub-optimal.10 Imagine trying to explain the scope of some implied license to a potential investor or buyer
  • It’s not exclusive. That means the creator can license the work to someone else, even one of your competitors. In this case, that wasn’t much of a problem, since the ad was probably only valuable to the dealership, but you can imagine situations in which this would be a huge problem.
  • It’s not automatically sub-licensable. This means that, although you can use the work, you can’t authorize anyone else to use the work. This includes your customers, who might need to make additional copies in order to make practical use of the work (e.g., end users of software).11

In the end, this worked out for the dealership, but it was lucky. What if the production company hadn’t been the one to deliver the ad to the cable company? Since the ad was made on spec, the court could well have concluded that no license was intended simply because it had been submitted for approval—that’s how “on spec” works.

Thanks for reading!