Does this story sound familiar? Faced with a tight timeline, a marketing manager forgoes contacting the legal department and hires a graphic designer to create a new logo for the company's flagship brand. The graphic designer is told the new logo is intended to be used as part of a major tradeshow presentation and a new national advertising campaign. If the new logo is well received, the marketing manager envisions redesigning all of the product literature and product packaging with the new logo. The logo drawings are completed and the marketing manager pays the graphic designer for her services. The new logo is unveiled at the trade show and is a hit. Orders for the company's product skyrocket. The company decides to proceed with the national advertising campaign promoting the product with the new logo prominently featured in the campaign. Upon hearing of the success of the new logo, the graphic designer contacts the marketing manager and claims ownership of the copyright in the logo and demands that the company immediately cease using the logo. The marketing manager calls the general counsel's office wondering if there is any legitimacy to the graphic designer's demand.
The first question facing the general counsel is ownership of the copyright in the new logo. Does ownership of the copyright belong to the designer, the company, or possibly both? Section 201 of the Copyright Act states that the copyright in a work "vests initially in the author or authors of the work." 17 U.S.C.§ 201(a) (2002). Under limited circumstances, ownership of the copyright vests in a person or entity other than the author of the work. Section 201 of the Copyright Act states that "in the case of a work made for hire, the employer... is considered the author for purposes of this title, and... owns all of the rights comprised in the copyright." 17 U.S.C. § 201(b) (2002). Section 101 of the Copyright Act defines a work made for hire as "a work prepared by an employee within the scope of his or her employment..." 17 U.S.C. § 101 (2002). Does the graphic designer's work on the new logo constitute a "work made for hire?"
The Copyright Act does not define the terms "employee" or "scope of employment." The U.S. Supreme Court, in Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), stated that the terms "employee" and "scope of employment" should be understood in light of the common law of agency. The Reid Court then turned to the definition of "servant" in the Restatement (Second) of Agency. The Restatement (Second) of Agency defines servant as "a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other's control or right of control." Restatement (Second) of Agency §220(1) (1958). The Reid Court noted that the Restatement contained a list on non-exclusive factors to be used in determining whether or not an individual was a "servant" or an independent contractor. The factors include: (1) the hiring party's right to control the manner and means by which the work product is completed; (2) the skill required to complete the work product; (3) the location where the work is performed; (4) the duration of the relationship between the parties; (5) whether the hiring party can assign additional tasks to the hired party; (6) the method of payment; and (7) the tax treatment of the hired party.
Applying the criteria articulated in Reid to the hypothetical situation, it is likely that the graphic designer is an independent contractor. While it is probable that the marketing manager had control or approval rights over the graphic designer's work and that the marketing manager could hire the graphic designer for additional projects, the remaining factors weigh in favor of finding that the graphic designer was an independent contractor. Specifically, it is conceivable that the skill required to create the new logo is quite high, the graphic designer ostensibly worked in her own studio, and the relationship between the company and the graphic designer is not expected to continue. In addition, it is doubtful that the company paid the payroll or social security taxes for the graphic designer. Given that the above are true, the graphic designer is an independent contractor and, as such, owns the copyright in the new logo.
The other alternative is that the company and the graphic designer are joint authors of the new logo. If the company is a joint author of the work, then it would share equally in the ownership of the work with the graphic designer and the company would be entitled to exploit the new logo as it desired. See 17 U.S.C. § 201(a) (2002). To qualify for joint authorship, the parties must desire to create a jointly authored work at the time of the creation of all elements of the work and each author must intend that the creation of his contribution constitute a part of a total work to which another will make a contribution. See Edward B. Marks Music Corp. v. Jerry Vogel Music Co., 140 F.2d 266 (2d Cir. 1944), mod. 140 F.2d 268 (2d Cir. 1944). In the present hypothetical, it is likely that the graphic designer did not have the desire to create a jointly authored work. Accordingly, the test for jointly authored works would not be satisfied and the new logo would not be considered a jointly authored work.
The ownership of the copyright in the new logo rests with the graphic designer alone, as the graphic designer was an independent contractor, and the company does not own the copyright in the new logo. Does this mean that the marketing manager just paid for a worthless piece of artwork? Not necessarily. It is possible that the company has obtained an "implied license" to use the logo. An implied license is as the term suggests: a license that is "implied" based on the conduct of the parties. In general, intellectual property licenses come in two forms: exclusive and non-exclusive. The U.S. Copyright Act requires exclusive licenses to be in writing, whereas non-exclusive licenses may be written, oral or "implied" from the conduct of the parties.
The leading case in this area is Effects Associates, Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990). In Cohen, the 9th Circuit stated that a non-exclusive copyright license "may be implied from the conduct of the parties." 908 F.2d at 558. Effects Associates, the plaintiff, created special effects footage for Cohen to use in a horror movie. Cohen put the footage in his movie, but failed to pay the plaintiff the full agreed upon price for the footage. The plaintiff then attempted to claim that it owned the copyright in the work and to block Cohen from using the footage in his film.
The 9th Circuit held that the plaintiff did indeed own the footage. Id. However, the Cohen court held that the plaintiff could not bar Cohen from using the footage in his movie. 908 F.2d at 559. The court stated that the plaintiff knew that Cohen intended to put the footage in his movie and that Cohen intended to distribute the movie to the general public. Id. The Cohen court concluded that through its actions, the plaintiff granted a non-exclusive license to Cohen to use the footage in his film and to distribute the film to the public. Id.
In a similar case, the 11th Circuit held that the conduct of the parties created an implied license and allowed the defendant to use the plaintiff's copyright protected work for a limited purpose. Korman v. HBC Florida, Inc., 182 F.3d 1291 (11th Cir. 1999). In Korman, the plaintiff, Mimi Korman, wrote several jingles for a radio station owned by the defendant, HBC Florida. The parties never entered into a formal written arrangement. After the parties severed their business relationship, the HBC Florida continued to play the jingles on its radio station. Korman sued HBC Florida for copyright infringement. The Korman court focused on the fact that Korman wrote jingles for the radio station for seven years and allowed the station to use those jingles during that time. 182 F.3d at 1293. The Korman court held that this behavior constituted the grant of a non-exclusive license to HBC Florida to use the jingles. Id. While the parties never entered into a formal written arrangement, the non-exclusive license was implied based on the conduct of the parties. Id. As such, the Korman court found that HBC Florida could continue to play the jingles. Id.
As is evident in the cases mentioned above, the scope of the implied license depends on the nature of the negotiations and business dealings between the marketing manager and the graphic designer. For example, if an individual hires an artist to create a painting that will hang over the individual's living room sofa, the individual will not obtain an implied license to hang the painting on display in a public art gallery. Similarly, if a company hires a consulting company to develop an employee training manual for internal use, the company will not obtain an implied license to sell or sub-license the training manual to other companies.
In the hypothetical situation, the graphic designer was informed that the new logo was going to be used at the trade show and in the national advertising campaign for the product. However, it is unclear whether or not the marketing manager and the graphic designer discussed redesigning the product literature and packaging to contain the new logo. Based on these facts, the company arguably obtained an implied license to use the logo for the trade show and in the national advertising campaign. However, it is likely that the license does not cover the redesigning of the product literature and packaging. Also, the discussion between the marketing manager and graphic designer only mentioned a "national" advertising campaign. As such, the company will not be able to use the logo outside of the United States. Moreover, since the company does not own the copyright to the new logo, it will be unable to modify the logo without the graphic designer's permission.
In sum, while the company likely has rights to use the new logo, those rights will likely be severely limited and curtailed based on the scope of the implied license. At the end of the day, it might be best for the company to hire a new graphic designer to develop a new logo. This time, the marketing manager might want to call the general counsel before the graphic designer begins work.
Michael J. Smith is an Associate in the intellectual property practice group of Akin Gump Strauss Hauer & Feld LLP in the Philadelphia office. The author would like to thank Ellen E. Foley, Jennifer N. Moore and Kevin R. Hamel for their review and input on earlier drafts of this article.