USDC N.D. Texas, August 24, 2009

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  • Court holds that the Derivative Works Exception applies to derivative works created by making changes, after termination of a license, to an existing derivative work which was created pursuant to the terms of a license, provided that the post-termination changes do not incorporate the original copyrighted work

In August 2005, plaintiff Architettura, Inc. submitted architectural plans for a Fort Worth apartment complex to the defendants (Cumberland), developers associated with the “Cumberland at Granbury” development project. Although Cumberland did not choose Architettura to be the project’s architect, Cumberland retained permission to distribute copies of Architettura’s plans to others involved in the project until November 24, 2006. On October 3, 2006, Cumberland chose Warren S. Wilke & Associates, Inc. (Wilke) to be the architect for the project. Cumberland then showed Architettura’s plans to Wilke. Based in part upon the design expressed in Architettura’s plans, Wilke created its own set of plans for the apartment complex. After November 24, 2006, when Architettura withdrew permission for Cumberland to continue using its plans, Wilke continued to make changes to its own plans for the project.

Architettura brought suit against Cumberland for infringement of copyright in its architectural plans and both sides moved for summary judgment. As a preliminary matter, the court granted Cumberland judgment on Architettura’s claims based on alleged acts of infringement occurring before November 24, 2006. Although Architettura’s complaint included allegations of infringement prior to November 24, 2006, Architettura admitted in its motion papers that no act of infringement occurred before that date. Before addressing Architettura’s infringement claim, the court also found that Architettura had granted Cumberland a nonexclusive, revocable license to use Architettura’s plans and that the license was revoked on November 24, 2006.

Architettura’s infringement claim relied upon the argument that Wilke’s plans were a derivative work based on Architettura’s plans and that Cumberland’s use of that derivative work was unauthorized. The court denied Architettura’s motion for summary judgment, finding that, based on the factual record, it could not make a determination about the substantial similarity element of infringement as a matter of law.

The court went on to grant Cumberland’s motion for summary judgment based on Cumberland’s argument that, even if Wilke’s plans were a derivative work, Cumberland’s use of those plans falls within the Derivative Works Exception. Found at 17 U.S.C. § 203(b)(1), the Derivative Works Exception acts as a defense to a claim of infringement. The Derivative Works Exception provides that a derivative work prepared under the terms of a license “may continue to be utilized under the terms of the [license] after its termination.” The court found that, contrary to Architettura’s argument that the exception applies only to statutory terminations of licenses, the Derivative Works Exception applies to oral, implied licenses of indefinite duration, including the license at issue. Considering Architettura’s allegation that Cumberland had no right to continue distributing works derivative of its plans after termination of the license, the court applied the Supreme Court’s holding in Mills Music, Inc. v. Snyder, 469 U.S. 153 (1985), that “an entitlement to continue to distribute derivative works under the Derivative Works Exception depends on the terms of the license.” Assuming that Wilke’s plans were a derivative work, the court reasoned that Cumberland’s continued distribution of those plans fell within the Derivative Works Exception, and was therefore not actionable as infringement, because Cumberland had unrestricted rights to distribute Architettura’s plans prior to termination of the license.

Alternatively, Architettura argued that Wilke created, and Cumberland used, derivative works that fell outside the Derivative Works Exception because Wilke made changes to its plans after Architettura terminated its license. Architettura based this argument on the language of the Derivative Works Exception provision that “this privilege does not extend to the preparation after the termination of other derivative works based upon the copyrighted work covered by the terminated grant.” 17 U.S.C. § 203(b)(1).

In response to this argument, the court held that “the Derivative Works Exception applies to derivative works that were created pursuant to the terms of a license, after its termination, provided that the post-termination changes are wholly unrelated to the original work.” The court found that, because Wilke’s post-termination changes did not incorporate Architettura’s copyrighted work, Wilke’s changes created derivative works within the Derivative Works Exception. Reasoning that its holding is consistent with the Derivative Work Exception’s purpose of “balancing the rights of the originator with those of owners of derivative works created before termination,” the court stated that to hold otherwise would create an absurd result. If the Derivative Works Exception were read as Architettura urged, “after the date of termination, [Wilke] could still use site plans created prior to that date, but no further changes could ever be made . . . [b]ecause the plans were not yet finalized, this would effectively force [Wilke] to destroy any work it had previously done on the Project, just short of completion.”