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Case Summary: I.A.E., Inc. v. Shaver, 74 F.3d 768 (C.A.7 (Ind.), 1996)

Category : Case Summaries, Contract, Copyright Infringement

Key Holdings: Affirming the U.S. District Court for the Northern District of Indiana, the Seventh Circuit holds that, as stated under 17 U.S.C. §204(a) of the Copyright Act, an exclusive license may be granted only through a written agreement. Conversely, under 17 U.S.C. §101 a non-exclusive license is explicitly exempted from the writing requirement imposed by §204(a). Thus, it is possible for a licensee to obtain an implied, non-exclusive license through either oral statements or the conduct of the copyright holder. Conditions precedent are not favored and will not be read into a license absent plain and unambiguous language.

Background: Shaver, an architect, entered into a letter agreement with I.A.E./BEMI Joint Venture (“Joint Venture”) for Shaver to prepare a series of schematic design drawings for various airport buildings at a total cost of $10,000 plus out-of-pocket expenses. While Shaver’s contract with Joint Venture only concerned the preparation of the building schematics, Shaver expected, as was industry standard, that he and Joint Venture would execute further written contracts for the remaining phases of the architectural work. Thereafter, Shaver prepared and delivered the schematic drawings to the airport, Joint Venture and several other parties involved in the project. When the airport approved one of the schematic drawings, Joint Venture paid Shaver $5,000 of his $10,000 fee. Joint Venture then entered into a contract with a third party to perform the remaining architectural work.

Upon discovering that he would not be retained for future work on the project, Shaver sent a letter to Joint Venture acknowledging that Shaver’s role in the project had ended and stating that “We [Shaver] trust that our ideas and knowledge exhibited in our work will assist the Airport in realizing a credible and flexible use Cargo/Hanger facility.” One week later, Shaver demanded that Joint Venture pay the remaining $5,000 of the agreed fee along with $887.29 in out of pocket expenses and an additional $7,000 for the assignment of Shaver’s copyrighted schematics to Joint Venture. Joint Venture paid Shaver the $5,887.29 owned to him under contract but refused to pay the $7,000 copyright assignment fee.

Joint Venture filed suit against Shaver seeking declaratory judgment that its use of the schematics did not infringe any copyrights owned by Shaver. Shaver counter claimed against Joint Venture and cross claimed against the new architect, the Airport and others alleging copyright infringement. The District Court dismissed Shaver’s infringement claim on summary judgment on the basis that Shaver granted Joint Venture an implied non-exclusive license in the letter agreement to make use of Shaver’s schematics. In so finding, the Court rejected Shaver’s argument that he revoked any implied license he may have granted on the basis that once “consideration is paid for a [nonexclusive] license, it is irrevocable.” (citing N. Nimmer and D. Nimmer, 3 Nimmer Sec. 10.01[C] and at 10.01[B] (1995)). Shaver appealed.

Issues: Did the District commit reversible error by finding that Shaver implicitly granted a nonexclusive license to Joint Venture, that Joint Venture’s use of the schematics was within the scope of the implied license and that payment in full was not a condition precedent to license?

Standard of Review: The Circuit Court conducts plenary / de novo review of a District Court’s summary judgment award. Summary judgment is appropriate if “there is no genuine issue as to any material fact and … the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c).

Analysis: The Circuit Court began its analysis by noting that there are two elements for a copyright infringement claim: i) the claimant owns a valid copyright; and ii) the “’constituent elements of the work that are original’ were copied.” (citing Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991)). The first element was satisfied as none of the parties challenged Shaver’s ownership of the copyrights in the schematics. Shaver satisfied the second element for the purposes of summary judgment by asserting that the schematics were copied. Nevertheless, the Circuit Court found that Joint Ventures “use of the works was permissible because … Shaver had granted an implied nonexclusive license.”

Exclusive v. Nonexclusive Licenses. The Seventh Circuit recognized that Section 204(a) of the Copyright Act requires that any transfer of a copyright must be in writing. 17 U.S.C. § 204(a). Section 101 of the Copyright Act defines “transfers” to include exclusive licenses, but expressly excludes nonexclusive licenses. Thus, nonexclusive licenses are exempt from Section 204(a)’s writing requirement and may be “granted orally, or may even be implied from conduct.” (citing N. Nimmer and D. Nimmer, 3 Nimmer Sec. 10.03[A] at 10-40.1 (1995); Effects Associates, Inc. v. Cohen, 908 F.2d 555, 558 (9th Cir. 1990).

The Circuit Court explained the difference between exclusive and nonexclusive licenses. With an exclusive license, the copyright holder permits “the licensee to use the protected material for a specific use and further promises that the same permission will not be given to others.” On the other hand, with a nonexclusive license the copyright holder “simply permits the use of a copyrighted work in a particular manner .… In fact, consent given in the form of a mere permission or lack of objection is also equivalent to a nonexclusive license and is not required to be in writing.” In any event, “the existence of a license, exclusive or nonexclusive, creates an affirmative defense to a claim of copyright infringement. (citing Effects, 908 F2d at 559).

Implied Nonexclusive Licenses. The Seventh Circuit adopted the Ninth Circuit’s analysis in the Effects case in determining whether Shaver granted an implied license.

[A]n implied nonexclusive license has been granted when (1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work. (citing Effects, 908 F.2d at 558-59).

Shaver argued that there could be no implied license because he did not intend to grant one. Citing Indiana law, the Seventh Circuit noted that while contractual terms can be “implied from the intent and action of the parties, the ‘intent relevant in contract matters is not the parties’ subjective intent but their outward manifestation of it.’” (quoting Real Estate Support Servs., Inc. v. Nauman, 644 N.E.2d 907, 910 (Ind. Ct. App. 1994).

Effects suggests several objective factors to guide the judicial inquiry as to whether an implied license exists: the language of the copyright registration certificate, the letter agreement and deposition testimony; and the delivery of the copyrighted material without warning that its further use would constitute copyright infringement.” (citing Effects, 908 F.2d at 559).

In the case at hand, the Seventh Circuit noted that the copyright certificates of registration state that they are to be used for the “Airport Facility.” The letter agreement also evidenced that Shaver understood he was being retained to produce preliminary schematic drawings that would be used “to describe the scope of the project and also for general reference.” The letter agreement even set forth the consideration for Shaver’s preliminary design services. The letter agreement did not state that Shaver would perform any additional services or suggest how he would be compensated for any such services. Finally, Shaver delivered the schematics to Joint Venture, the airport and others without any indication that their further use would constitute copyright infringement. Instead, after learning that he would not be retained for further work, he wrote “[w]e trust that our ideas and knowledge exhibited in our work will assist the Airport in realizing a credible and flexible use Cargo/Hangar facility.” The Seventh Circuit found that “[t]his statement, accompanied by the delivery of copies of his drawings, certainly constitutes a release of those documents to the Airport for it Project” and further validated a finding that the objective factors support the existence of an implied license.

Condition Precedent. Shaver argued that even if his language and conduct could be interpreted to create an implied license, the license never came into existence because Joint Venture paid only half of the specified consideration. In effect, Shaver argued that full payment was a condition precedent to the license. The Seventh Circuit disagreed, stating that “conditions precedent are disfavored and will not be read into a contract unless required by pain, unambiguous language.” (citing Effects, 908 F.2d at 557-58 (9th Cir. 1990). As in Effects, there was no indication in the letter agreement that full payment was a condition precedent. Moreover, Shaver “distributed his drawings before any payment was made, and next handed them over to the Airport, with no mention of payment…”.

Holding: Shaver “created an implied nonexclusive license to use his schematic design drawings in the Airport Project. Accordingly, there was no infringement of [Shaver]’s copyrighted works.” The Seventh Circuit was compelled to affirm the District Court’s award of summary judgment given Shaver’s failure to raise any genuine issues of material fact.

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