Addressing several important issues relating to derivative works, a unanimous panel of the Seventh Circuit Court of Appeals reversed an order granting summary judgment in favor of HIT Entertainment, owner of the copyright in the popular “Thomas & Friends” train characters, and Learning Curve International, a toy manufacturer with a license from HIT to make “Thomas & Friends” toys. A photographer who previously worked for Learning Curve sued when Learning Curve continued to use photographs he had taken of its toys. In addition to the interesting legal issues in the case, the decision proves once more that there is no substitute for a clear and comprehensive agreement between contracting parties, spelling out their respective rights and obligations where intellectual property is involved.
Addressing several important issues relating to derivative works, a unanimous panel of the Seventh Circuit Court of Appeals reversed an order granting summary judgment in favor of HIT Entertainment (HIT), owner of the copyright in the popular “Thomas & Friends” train characters, and Learning Curve International, a toy manufacturer with a license from HIT to make Thomas & Friends toys. The plaintiff, Daniel Schrock, is a photographer who was hired by Learning Curve to photograph the Thomas & Friends toys. After Learning Curve ceased using Schrock’s services (but continued to use his photographs), Schrock registered his photographs for copyright protection and then sued Learning Curve and HIT for infringement. Daniel Schrock, et al. v. Learning Curve International, et al., 2009 U.S. App. LEXIS 24253 (7th Cir. November 4, 2009). In granting the defendants’ summary judgment motion, the district court found that Schrock had no copyright in the photographs because, while they were derivative works, Schrock needed permission from Learning Curve not only to make the photographs but also to copyright them. The Court of Appeal reversed, holding that, as long as Schrock was authorized to make the photographs, he owned the copyright in the photographs to the extent of their “incremental original expression” and, barring any contractual restriction, he did not need Learning Curve’s permission to file for copyright protection.
Learning Curve holds a license from HIT to create and market toys based on the famous “Thomas & Friends” television characters. In 1999, Learning Curve hired Schrock to take product photographs of its toys for advertisements and other promotional materials. Over the next four years, Schrock was paid more than $400,000 for this work. Some of Schrock’s invoices to Learning Curve included “usage restrictions” that purported to limit Learning Curve’s right to use the photographs for two years.
Learning Curve stopped using Schrock’s services, but continued to use his photographs in its advertising and on product packaging. Schrock subsequently registered his copyright in the photographs and sued Learning Curve and HIT for copyright infringement. The defendants moved for summary judgment, claiming that Schrock’s photographs were derivative works and not sufficiently original to be entitled to copyright protection; that neither Learning Curve nor HIT authorized Schrock to copyright the photographs; and, alternatively, that Schrock granted Learning Curve and HIT an unlimited oral license to use the photographs. The district court agreed with the defendants’ argument that Schrock needed HIT’s permission to copyright his photographs and, thus, dismissed Schrock’s copyright claim.
The Seventh Circuit reversed. The court first noted that there is “deep disagreement” among courts and commentators as to whether photographs of a copyrighted work (in this case, Learning Curve’s toys) are derivative works that are, themselves, entitled to copyright protection, but the court side-stepped that issue because “[t]he classification of Schrock’s photos as derivative works does not affect the applicable legal standard for determining copyrightability.” Thus, the court assumed, “without deciding,” that Schrock’s photos are derivative works.
The court then turned to whether Schrock’s photographs contain some “originality in their rendition” that entitles them to protection, that is, in the context of photographs, “the effect created by the combination of his choices of perspective, angle, lighting, shading, focus, lens, and so on.” The court agreed with Schrock that his photos possessed such a “minimal degree of creativity” to warrant protection. The court rejected the defendants’ suggestion that, as derivative works, the photographs were subject to a higher standard of originality. In so doing, the court implicitly overruled its earlier decision in Gracen v. Bradford Exchange, 698 F.2d 300 (7th Cir. 1983) to the extent that it “has been understood as establishing a more demanding standard of originality for derivative works.” “The only originality required for a new work to be copyrightable [whether it is the underlying or a derivative work] is enough expressive variation from public-domain or other existing works to enable the new work to be readily distinguished from its predecessors.”
The Court of Appeal also rejected the district court’s holding, again based on dicta in Gracen, that Schrock needed Learning Curve’s permission to copyright his photos. This dicta, the Schrock court held, was “mistaken; there is nothing in the Copyright Act requiring the author of a derivative work to obtain permission to copyright his work from the owner of the copyright in the underlying work.” The court noted that Learning Curve and Schrock could have contractually limited the parties’ rights in the photos, but their agreements were unclear on this point. That is, Learning Curve and Schrock could have (and, in retrospect, should have) addressed these issues at the outset so it was clear who had what rights in Schrock’s photographs. Instead, as the Court of Appeal explained, “[f]rom what we can tell, the agreement between Learning Curve and Schrock appeared to consist of a series or oral agreements followed by invoices for completed photography work.”
Schrock proves once more that there is no substitute for a clear and comprehensive agreement between contracting parties spelling out their respective rights and obligations, particularly where intellectual property is involved. By their nature, derivative works can be tricky to deal with and the question as to whether a work is, in fact, an original work of authorship and does not infringe the underlying work requires careful expert analysis. If nothing else, though, Schrock makes clear that, in the absence of contractual language stating otherwise, as long as the derivative work possesses sufficient incremental original expression, the “default rule” is that copyright in that derivative work arises by operation of law (as it does for any copyright) and not through authority from the owner of the copyright in the underlying work.