Capital Concepts, Inc. v. Mountain Corp., 2012 WL 6761880 (W.D. Va. December 30, 2012) The parties in a recent case engaged in expensive litigation they could have avoided if language governing transfer of copyright had been more precise. The decision serves to remind how good drafting in development agreements -- whether for software, content, or, as in this case, t-shirt designs -- can enhance business efficiencies.

Plaintiff sued defendants for infringement, alleging they continued to sell t-shirts bearing the copyrighted designs after the expiration of a license agreement among them. Defendants moved for summary judgment arguing, among other things, that plaintiff never owned the copyright in the designs in the first place, because plaintiff's independent contractor designer did not successfully assign his copyright interests to plaintiff. Defendants asserted that the designs did not constitute "work made for hire" and that the language of the agreement between plaintiff and its designer did not meet the requirements of Section 204 of the Copyright Act to otherwise effect an assignment.

The court rejected defendants' arguments and found that the independent contractor had assigned his rights.

The agreement between plaintiff and its independent contractor provided as follows:

. . . any and all drawings, illustrations, characters, text, layout, designs, ideas, digital files, or any other works (collectively, the “Creative Works”) that I have created or worked on for [the Hiring Party] in the past, or unless mutually agreed to in writing by me and the appropriate Hiring Party, will create or work on in the future, are “Works Made For Hire” within the meaning of the United States Copyright Act.

The agreement further provided that:

I agree that I have no ownership, rights, title, or interest in the Creative Works, nor will I challenge the Hiring Party's ownership, rights, title or interest in the Creative Works and their right to register intellectual property rights, and use or license the Creative Works at their sole discretion. I agree to execute any documents attesting to this that may be necessary for registering copyright or trademark rights with the U.S. or other governments. I do not hold any copyright or trademark interest in the Creative Works, including any changes, derivations, or substantially similar artwork or designs related to the Creative Works.

Plaintiff conceded that the works did not meet the definition of "work made for hire" under Section 101 of the Copyright Act. The designer was not one of plaintiff's employees, and the works did not fall within any of the designated categories of work made for hire set forth in Section 101. So the inquiry turned to whether the designer had otherwise transferred ownership of his copyright interests as required by Section 204.

The court found that the language of the agreement, though it did not specifically reference any "assignment" of copyright, satisfied all of Section 204's requirements. Significantly, the agreement did not simply state that all works that the designer created or may create in the future would be work made for hire. Instead, it clearly evidenced the parties' intent to transfer ownership because the designer:

• relinquished all rights in all creative works that he created for plaintiff in a specified period of time;
• agreed he would not challenge plaintiff's ownership of such works, and that plaintiff had the right to register the copyrights in such works in its own name,
• promised to execute any documents necessary in connection plaintiff's registration of the works

So the court found that no plausible interpretation of the agreement left ownership of the works with the designer. Moreover, the designer executed subsequent documents, and testified in his deposition that he intended to assign his interest.

Though plaintiff ultimately succeeded in arguing that it acquired rights in the works its independent contractor created, that success came at the price of expensive litigation over the issue. Businesses can learn a couple important lessons from this case: (1) the notion of "work made for hire" is more subtle than people believe, and is often misunderstood or misapplied, and (2) independent contractor agreements whereby the contractor is delivering copyrightable materials should precisely spell out that an assignment of copyright is occurring.