Copyright Infringement Risks


A replacement general contractor and replacement architect on the renovation of a single-family residence were recently held jointly and severally liable to the "original architect" for $107,125 in damages for copyright infringement. While copyright issues may not appear to be traditional construction contract problems, contractors need to be aware of the potential risks and add this item to their pre-contract checklist. The price of an after-the-fact education can be very high.

Background

According to the opinion of the federal district court, the original architect had nearly completed its drawings for the renovation; in fact, the city had already approved the plans and was prepared to issue a building permit. Johnson v. Jones 921 F.Supp. 1573 (E.D. Mich. 1996). However, before the permit was issued, the owner terminated the original architect after negotiation of a design/build contract with that architect reached an impasse, in part because the architect insisted upon retention of the copyrights to the plans. The owner engaged a replacement architect and separately contracted with a general contractor to perform the actual construction.

When the newly hired general contractor attempted to pick up the building permit, the city withdrew its approval upon learning that the original architect had been terminated. However, the city assured the contractor that, if it resubmitted plans which were "substantially the same" as the ones the city had already reviewed, the permit process would go much faster. The city then gave a set of the original plans to the contractor who, in turn, forwarded them to the replacement architect. The replacement architect traced some of the drawings and removed the original architect's seal from others, replacing the original architect's seals with his own. This was done after the owner's attorney sent the contractor and architect copies of a letter in which the attorney opined that the owner was "co-owner" of the original architect's copyrighted plans and that "there would be no copyright problems" with their intended reuse of the plans.

The building permit was issued, and construction proceeded, presumably without significant problems, until...the original architect happened to drive by the site and see his design under construction. He stopped his car, located the drawings, photographed them, and ultimately sued the owner, the replacement contractor, and the replacement architect for copyright and trademark infringement.

The trial court held that the contractor and the replacement architect had infringed upon the original architect's copyrights and that the replacement architect's removal and replacement of the original architect's seal violated federal trademark law. (Although the court awarded contract damages in the amount of $19,966.98 to the original architect against the owner based upon the reasonable value of his services, the owner was not held liable for contributory copyright infringement because the owner did not "induce, cause, or materially contribute to the infringement." The owner merely told the contractor and new architect that "she was relatively happy with the plan developed by [the original architect] and wanted to proceed with that design.")

Measure of Damages

The Copyright Act entitles a copyright holder to recover the actual damages suffered by the copyright holder as a result of the infringement plus any profits of the infringer that are attributable to the infringement. To establish its damages, the copyright holder need only introduce evidence of the accused infringer's gross revenues. 17 U.S.C. section 504(b). The infringer then has the burden of proving any offsetting expenses to re-duce the award.

In this case, even though the general contractor played a relatively minor role in the act of copying (and, arguably, benefited little from it, at least relative to the replacement architect who was, in a sense, paid for the copying), the district court held both the replacement contractor and architect to be co-infringers, and, as such, they were deemed to be jointly and severally liable to the original architect in an amount equal to the sum of the profits of both attributable to the infringement (i.e., $107,125.00). Obviously, this was a particularly "unpleasant" outcome for the replacement architect, whose profits were estimated by the court to be only approximately $2,500 -- compared to the profits of the contractor, which were found to be $104,625.

The Appeal

The replacement architect's position did not improve on appeal. The United States Court of Appeals for the Sixth Circuit increased the copyright judgment against the replacement architect to $121,125 (the difference reflecting the replacement architect's entire gross revenues of $16,500-in lieu of the $2,500 estimated by the district court-because the replacement architect failed to introduce any evidence of offsetting expenses related to the infringement.) Johnson v. Jones, 149 F.3d 494 (6th Cir. 1998). The court of appeals also affirmed the trial court's order that the replacement architect reimburse the original architect for its costs and attorneys' fees in this protracted litigation. This award was based upon the court's finding of "willfulness" in the replacement architect's trademark infringement (as evidenced by the removal and replacement of the original architect's seals). The court of appeals called this removal and replacement "quintessential 'reverse passing off . . . [and a] deliberate theft of a marketholder's goodwill [which was] more egregious than ordinary passing off, as it involved actual theft.'" Id. at 504.

The court of appeals expressly rejected the replacement architect's arguments that the acted in good faith because he relied on counsel and that he had not used his own attorney (instead of the owner's) because his attorney "had no experience in copyright matters." The court rejected that argument, noting that "it seems odd, bordering on obtuse, for an architect to retain counsel wholly inexperienced in copyright matters, especially given the fact that every AIA contract contains provisions about copyright ownership." Id. at 504.

Lessons Learned

The court of appeal's statement is consistent with the fact that, more often than ever before, intellectual property rights are being addressed in construction contracts. For example, the latest version of !201-1997, the AIA's General Conditions of the Contract for Construction, includes the following clause: "If the Contractor has reason to believe that the required design, process, or product is an infringement of a copyright or a patent, the Contractor shall be responsible for [loss due to infringements of intellectual property rights] unless such information is promptly furnished to the architect." A201-1997 p. 3.17 (Italics added). Of course, in practice, this clause presents an obvious dilemma to a contractor who is concerned that the architect (or the owner) may be a potential infringer.

More importantly however, as seen above, the contractor may be liable to third parties for copyright, trademark, and patent infringement, and that liability may not be diminished by the terms of an owner/contractor agreement. Certainly, a contractor should not presume that the illusive "protections" included in standard form contract documents such as AIA Document A201-1997 provide adequate protection from third-party lawsuits for infringement. And, as the court of appeals in Johnson noted, knowledge of copyright law is essential when using the AIA documents.

In summary, considering (a) the potentially "draconian" damage awards to which minor (but nonetheless contributory) infringers are exposed, (b) the fact that federal law requires a writing for an effective transfer of exclusive copyrights, (c) the fact that a drawing or spec may be protected whether or not it bears a notice of copyright, and (d) the fact that recent changes to frequently used standard form contract documents may impose upon contractors new and untested obligations related to intellectual property rights, contractors are well-advised to proceed with caution when the source or originality of construction documents is questionable in any way.