What is the impact of granting a license to a property owner to use a set a schematic drawings?  The United States Court of Appeals for the Fifth Circuit recently answered this question in Loeb-Defever v. Mako, LLC.

In Mako, Pauda Realty requested Loeb Architects, LLC to prepare a design for an assisted living facility in Conroe, Texas.  Pauda and Loeb subsequently entered into two separate service contracts each of which contained a limitation that schematics could not be used on other projects except by agreement in writing and with subsequent compensation to Loeb.

After Loeb partially completed its contractual obligations for the project, the business relationship soured and Pauda retained a new architect to complete the project. Pauda provided the second architect with Loeb’s initial designs as a starting point. After the second architect redesigned and submitted its design for the project, Loeb realized its schematics were being used on the project. In response, Loeb registered the designs with the U.S. Copyright office as architectural works and then sued Pauda and others for copyright infringement and breach of contract.

Pauda moved for summary judgment on the grounds that the contracts granted an express, nonexclusive license to use schematic design in connection with the project, including to make derivative works. The district court granted Pauda’s motion and Loeb appealed.

On appeal, the Court of Appeals held that the contract entitled Pauda to make derivative works from the schematics so long as they were not used on other projects, “The parties clearly contemplated this use because otherwise, Padua Realty would have entered into contracts that effectively prevented it from completing the project and paid $10,800 for useless schematics.”

In upholding the dismissal of Loeb’s lawsuit, the Court held, “Plaintiffs [Loeb] must show that defendants engaged in the prohibited conduct with the intent or knowledge that such conduct would, ‘induce, enable, facilitate, or conceal an infringement.’ Defendants [Pauda] could not have intended or even known that their conduct would ‘induce, enable, facilitate, or conceal an infringement’ when they were not infringing plaintiffs’ copyright in the first place because they held a license.”

The Court’s ruling highlights the importance of including language in contracts with design professionals that grants a license to use the designer’s instruments of service on the project, including preparation of derivative works.  Without the license, Pauda may have infringed on Loeb’s copyright and faced significant exposure.

The attorneys in our Austin and Dallas office frequently negotiate and litigate professional services agreements with design professionals and are available to answer any questions you may have.  Please contact us at info@gstexlaw.com.

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