Implied Copyright Licenses: A Last Resort For Unwritten Agreements

Consider the following scenario: A small business owner finds a graphic designer on Craigslist to design a logo for his business cards. The graphic designer designs the logo, the business owner pays the graphic designer, and both parties happily go their separate ways. No agreement is ever put into writing. Months later, the business owner launches a national advertising campaign featuring the business card logo created by the graphic designer. Upon seeing the advertising campaign, the graphic designer contacts the business owner, claims that she owns the copyright to the logo, and demands that the business owner pay for a license to use the logo on a national scale. Is the graphic designer’s demand legitimate? If so, what can the business owner do in this situation? More fundamentally, who actually owns the copyright in the logo?

Copyrights Ownership

Generally, copyright ownership in a creative work is vested in the author(s) of the work itself. Thus, in the scenario above, the graphic designer is in fact the author and rightful copyright owner. There is an exception to this rule, however: in the case of a work made for hire, the employer is considered the legal author of work created by his/her employees. There are really only two scenarios in which a work for hire can exist: (1) work created by an independent contractor, and (2) work prepared by an employee within the scope of his employment. For work created by an independent contractor, two important conditions must be met to invoke the work for hire doctrine: (1) the work is commissioned; and (2) there is a written contract memorializing the arrangement as a work made for hire.

So what does this mean for the business owner in our scenario? The graphic designer was not his employee, and there is no written contract, so the doctrine of work for hire does not apply. Is our business owner entirely out of luck? Fortunately for him, the doctrine of implied license may create the contract he failed to obtain.

The Implied License

Each copyright author generally has five exclusive rights: (1) the right to reproduce the copyrighted work; (2) the right to prepare derivative works based upon the work; (3) the right to distribute copies of the work to the public; (4) the right to perform the copyrighted work publicly; and (5) the right to display the copyrighted work publicly. Copyright authors are free to license all or a portion of their rights to third parties.  While the ownership of the copyright stays with the author, a licensee may be permitted to distribute copies of the copyright, or use it publicly, etc. In the absence of an actual written agreement between the parties, an implied license to use the copyright may arise based on the conduct of the parties. Ultimately, an implied license provides the licensee (the business owner in our scenario) some nonexclusive rights to use the copyrighted work to the extent that the copyright author would have allowed had the parties initially negotiated and signed an agreement.

Generally, courts create implied nonexclusive licenses where (1) the licensee requests the creation of the work, (2) the licensor makes that particular work and delivers it to the licensee, and (3) the licensor intends that the licensee copy and distribute his work. See I.A.E., Inc. v. Shaver, 74 F.3d 768, 772 (7th Cir. 1996). In our initial scenario, the graphic designer owns the copyright to the logo. However, the conduct of the parties clearly demonstrates that the logo was created for use by the business owner. As such, an implied license may be created based on what the parties would have agreed to had there been a written contract. Nonetheless, courts analyzing the same scenario would still consider to what extent and for what purposes the graphic designer created the logo in the first place. Is its use in a national campaign advertisement outside the scope of the implied license, which may have been limited to use on a business card? Is it reasonable to assume that the business owner can use the logo so long as it is used for the purpose of his business? While the implied license may be an effective gap-filler in the absence of a written agreement, it does not absolve our business owner from liability for unfettered use of the logo.

The best way to avoid such ambiguity is, of course, to negotiate the terms of the agreement and put everything into writing: who owns the logo, what the business owner can do with the logo, what rights, if any, does the graphic designer have in the logo after the business owner pays, etc . If you are interested in learning more about implied licenses or have a copyright dispute,  please feel free to contact us to speak with one of our attorneys at Acumen Law Group.

Authored by Dominika Szreder Fard, Esq. & Shoko Asaka (Law Clerk)