• A Contract Isn’t “Intellectual Property” Just Because You’ve Named It That

    by  • September 11, 2010 • copyright

    Thanks to Bill Bryner at Kilpatrick Stockton for a report on a recent 4th Circuit decision.  It’s about copyright and furniture, which leads to discussion of some of the more unusual intellectual property legal theories. I’m interested in the challenge to ownership of the copyright in the furniture designs.

    In 1994, a predecessor company, Universal Furniture Industries, Inc. (Industries), entered into a one and one-half page design services agreement with Norman Heckler Design, Inc. for the design of furniture.  In 1998, through merger, Industries became Universal Furniture Limited (Limited). In 2001, Limited sold its assets to plaintiff Universal Furniture International, Inc. (Universal).  The assets included, in the court’s words, “all of [Limited’s] intellectual property rights, including the 1994 service agreement.”

    Norman Heckler Design designed  two lines of furniture that were in dispute, the Grand Inheritance Collection, available for sale in 2001, and the English Manor Collection, available for sale in 2003.

    In 2004, a company called Rhodes Furniture asked defendant Collezione Europa USA to create furniture collections based on the Universal Grand Inheritance and English Manor collections.  Collezione Europa did, believing that the furniture designs were not entitled to copyright protection and unaware of the registrations (practice tip – check the copyright register before making assumptions about copyrightability).

    One of Collezione Europa USA’s defenses was a claim that Universal did not own the copyrights in the furniture designs because the 1994 design services agreement didn’t succeed to Limited in the 1998 merger.  But this argument was a no-go; the copyright registrations in Universal’s name were prima facie evidence of its ownership and there wasn’t enough evidence to rebut it.  The 2001 transaction specifically referred to the 1994 agreement, one indication that Limited had obtained the agreement in 1998.  Further, although Universal offered no evidence that the 1998 merger conveyed the agreement, it wasn’t Universal’s burden. Finally, the court noted that while there typically is a writing requirement for a transfer of copyright, 17 U.S.C. § 204, that’s not the case when the transfer is by operation of law, which a merger is.

    I am baffled by this analysis, which confuses copyright and contract – calling a contract “intellectual property” does not make it so. Notably, at least the English Manor Collection was created by Norman Heckler Design after all the transactions were completed.  Since a copyright exists only upon fixation, there were no copyrights in the English Manor Collection to be conveyed in 1998 or 2001. Thus, the court had more complex issues than it dealt with: whether the copyrights in any existing works were conveyed, whether the 1994 agreement itself was conveyed and, if so, whether the 1994 agreement vested ownership of future copyrights in the hiring party.

    On the contract conveyance question, the answer lies in business org and contract law, not assignment of copyright.  The court may be correct that the burden was on Collezione Europa USA to show that the merger didn’t transfer ownership, but the answer will be in the merger documents or the law of corporate succession, not copyright.

    On the assignment of future copyrights question, this is the relevant provision in the contract about ownership of copyright – you be the judge:

    The district court had this to say on the matter:

    The1994 Design Service Agreement provided that any designs accepted by the manufacturer became the exclusive property of the manufacturer. Collezione asserts that the 1994 Agreement is insufficient to confer copyright rights, citing section 202 of the Copyright Act, which provides that “[o]wnership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material work in which the work is embodied.” 17 U.S.C. § 202.

    Collezione appears to be drawing a distinction between ownership of the furniture designs, which it asserts may have been transferred under the 1994 Design Service Agreement, and ownership of the copyrights associated with those designs, which it asserts was not transferred under the Design Service Agreements. In essence, Collezione asserts that the 1994 Agreement does not transfer copyrights because it does not contain the word “copyright.” This position has been rejected by other courts. . . .  At this point in the proceedings, Universal has presented sufficient evidence to defeat Collezione’s motion for summary judgment as to this “gap” in the chain of title.

    With respect to whether the 1994 agreement operated to convey future copyrights, the Court of Appeals called out this language in the agreement:

    The terms of the 1994 service agreement are not time-limited, and the 2001 asset agreement could therefore include future designs made by Hekler employees. Indeed, the 1994 service agreement provides that Hekler “shall apply its skill, knowledge, and expertise to the design of each item of furniture as [Universal] may, from time to time, request in writing.”

    But I would agree that the agreement probably meant to convey copyright ownership, with a reversion if the designs aren’t used. So no harm, no foul.

    A couple of interesting and more rarely-covered topics were also addressed in the opinion.  Copyrightability of useful articles an obvious one, although somewhat simpler here because the furniture designs had a significant amount of applied ornamental design.  More interesting was that Collezione Europa apparently showed Universal pieces as its own at the High Point Market, a large annual furniture trade show.  Reverse passing off is an uncommon claim, but a successful one for Universal here.

    Universal Furniture Int’l, Inc. v. Collezione Europa USA, Nos. 07-2180, 09-1437 (4th Cir. Aug. 20, 2010).
    Universal Furniture Int’l, Inc. v. Collezione Europa USA, No. 1:04CV00977 (M.D.N.C. April 26, 2007).

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