Debate Continues Whether A Photograph Is A Derivative Work But 7th Circuit Issues Broad Ruling

By Dave Rein

Derivative.  Is there a less appealing or scarier word in which to start a horror novel or blog post? The very word conjures up everything complex in the financial world and is synonymous with our current economic disaster. Woe be to the one who missteps in the financial derivative world for he or she will quickly be escorted by a torch-lit mob to the nearest Congressional inquiry!

So it is in the wide world of copyrights.  The simple mention of the phrase "derivative work" is likely to spur many a copyright lawyer to dust off the copyright statutes and brandish them in one hand while holding a Tiki torch in the other.

When one makes a movie which is substantially based upon a novel, he or she is making a derivative work.  A derivative work is one "based upon one or more preexisting works such as a . . . musical arrangement, dramatization . . . or any other form in which a work may be recast, transformed, or adopted. 17 U.S.C. § 101.   As the owner of the underlying work has the exclusive right to make derivative works, whether a work is or is not a derivative work matters. 

Is a photograph of a sculpture or a toy a derivative work?  Professor Patry  has firmly stated more than once that a photograph of another copyrighted work is not a derivative work, but the extensive comments to his blog posts demonstrate that others are not persuaded.  Likewise, the courts have yet to find their footing on this issue as well. 

And so I've been curious to watch the reaction to the 7th Circuit's decision in Schrock v. Learning Curve.  Short of a few comments including one from Michael Kahn, the reaction has been muted.  No torches, no dramatic readings from 17 U.S.C. § 101 . . . nothing.  Admittedly, the Seventh Circuit two-stepped around the question that we were waiting for it to answer: "Is a photograph a derivative work?"  It did so by assuming -- without deciding -- that the photographs were derivative works.  But, the case is still worth a read whether or not you have any interest in photographs because it did address two broader questions about derivative works: 

(1) Should the new derivative work be subject to a higher standard of originality before it receives its own copyright?

(2) Does the creator of the derivative work need the original creator's permission to register the copyright of the derivative work?

The 7th Circuit said "No" to both questions and changed its prior rulings or at least its dicta that was followed by the lower courts.  The case involved the maker of Thomas & Friends toy trains, Madeline and other toys along with Daniel Schrock who was hired to photograph the company's toys for marketing.  Just like in all good litigation, the relationship soured.  When the toy maker allegedly breached the terms under which the photographs were licensed, Schrock sued for copyright infringement. 

Surprisingly, the toy maker spent considerable time in oral argument pressing that the photographs themselves were not sufficiently original to to be copyrightable.  The 7th Circuit stood fast that the test for whether a photograph is entitled to a copyright is not a high hurdle to overcome and found, like most every court, that originality can be found in the staging of the scene, the choice of perspective, focus, lens and lighting.  As the court said, the toy maker's alternative argument, i.e. that a heightened standard of originality should apply to determine if a derivative work is copyrightable was a more interesting argument -- even if it was equally unsuccessful: 

If the photographer's rendition of a copyrighted work varies enough from the underlying work to enable the photograph to be distinguished from the underlying work . . . then the photograph contains sufficient incremental originality to qualify for copyright.  Schrock's photos of the 'Thomas & Friends' toys are highly accurate product photos but contain minimally sufficient variation in angle, perspective, lighting, and dimension to be distinguishable from the underlying works; they are not 'slavish copies.'

The 7th Circuit also changed course on one other question about derivative works.  The toy maker argued that:  (a)  even though the photographer had permission to take the pictures (it hired him to do so), it never gave him permission to register the copyrights and (b) without registration, the photographer could not sue for copyright infringement.  This had seemed to be the rule of law in the 7th Circuit.  Therefore, any creator of a derivative work would not only have to have permission to create the work, but also the underlying copyright owner's permission to register the copyright in the derivative work.  After Schrock (at least in the 7th Circuit), one who creates a derivative work no longer has to get permission from the owner of the underlying copyright to register the new copyright.  

Could the parties have avoided four years of litigation and lawyers with Tiki torches?  Absolutely!  How they could have done so is the subject of my next post. 

When Celebrities Hang Out At The Pawnshop

By Dave Rein

It is no secret that banks large and small pulled the Persian rug (perhaps a green one for St. Patrick's Day) out from art buyers who sought to finance their purchases with a loan.  The Wall Street Journal noted this trend back in April 2008.

So given the current economic mess we are in, it should not come as a surprise that the borrowing-to-buy-art trend has taken a step in the other direction -- the number of pawnshops dedicated to loaning money in return for high-end art as collateral is on the rise.  An article in the New York Times mentioned several prominent art pawnshops:

It is also not unusual for auction houses such as Christie's and Sotheby's to provide a similar service as the art pawnshops by providing a bridge loan to tide the seller over until the auction is over and the proceeds have been collected.  But, the auction houses generally did not offer their clients the ability to pawn art.  In the bad old days of economic prosperity, someone pledging his or her Andy Warhol used to have to stand in line at a traditional pawnshop behind the guy pledging his toaster oven.  Not anymore apparently.

The part of the NYT article that caught my eye was that Annie Leibovitz, one of the most famous celebrity photographers of our time, pledged all of her photographs to Art Capital Group for $15.5 million.  The terms  include not only all of the photographs and contract rights of those that she has taken, but also all of the photographs that she will take.  The Guardian has an excellent audio discussion of the Leibovitz transaction and the possible reasons why Ms. Leibovitz may have been compelled to pledge all of her photographs.  

The photograph that Ms. Leibovitz takes next week?  Pledged to the Art Capital Group.  Next year?  Art Capital Group gets those as well.  That's on top of the 6 to 16% interest rate.  Those are tough terms.

Presumably she gets to receive the income stream from fees and royalties that her photographs generate unless her loan goes into default.  She has a number of projects in the works which should bring in a tidy wad of cash so nobody should count her out yet.

I am still curious about the remaining terms of these types of loans and how, if at all, they would affect her copyright ownership and the right to enforce them.  During the term of the loan, does she retain all rights to the copyrights?  Does she retain the right to enforce the copyright?  My suspicion is that Ms. Leibovitz retains her ownership and enforcement rights unless the loan goes in default.

But what other terms does the contract provide?  For example, it would seem that among the terms is the requirement that she enforce the copyrights so as to protect the value of the pledged collateral, but how much discretion does she have in deciding whether to sue a possible infringer?  Please let me know if you are familiar with the loan terms and the impact on her copyrights.

If there is a clear winner in this story, it is probably Art Capital Group because others looking to pawn their art may be more inclined to use Art Capital Group knowing that prominent artists themselves have pledged their work to it.  But, will it be a short-term winner?  Will there be a great demand to pawn expensive pieces of art when the economy bounces back and we can once again crawl out of the Stone Age?