Exclusive Versus Sole

Earlier this year I wrote about exclusive licenses and how they can make a big difference in your legal rights, when it comes to infringements. Today, I was reminded of a related issue: how to grant a client the rights to use a work only for that client’s materials, and not get caught in an exclusive license trap.

Here’s what I suggest: only use the word “exclusive” (or non-) for actual, legal rights–specifically the ones covered by the statute (17 USC §106) and stick with “sole” for other limiting factors in a license, like media or geography.

For example, let’s say IlloBob wants to license an illustration of a squid to SurferSam for use on his surfboards and newsletters. He wants to make sure SurferSam doesn’t use the illustration on t-shirts or to be able to re- or sub-license to third parties for their use. He also wants to be able to license the same illustration to others including for their use in their newsletters. His license might read like this:

Conditioned upon full and timely payment received, IlloBob grants to SurferSam the non-exclusive right to reproduce the Squid Illustration solely on SurferSam surfboards and in SurferSam newsletters for one year, starting January 1, 2019. SurferSam may not license these rights or any other rights to any third party, except as required to produce the surfboards and newsletters permitted by this license.

By using the word exclusive (or non-exclusive) only with the rights (as opposed to the media), a licensor is protected from accidentally granting exclusive rights. To see the difference, look at this variation of the license above:

IlloBob grants to SurferSam the right to reproduce the Squid Illustration exclusively on SurferSam surfboards and in SurferSam newsletters for one year, starting January 1, 2019.

Is that an exclusive license? Can IlloBob license the work to anyone else to use in a newsletter? Can SurferSam use the work on t-shirts but without exclusivity? Maybe yes to all of the above. Well informed lawyers could debate all that and more, just because of how the word “exclusively” is used.

If you don’t fully grasp the differences here, that is what I (like other lawyers) am here for. I can help you draft licenses that will provide your client what it needs while making sure you aren’t accidentally giving away more, and it won’t cost you an arm and a leg. A little professional hand-holding now can save you lots of money and frustration in the future.

Forming an Entity: The Other Stuff

I wrote recently on some of the copyright considerations related to running your business as an entity. Today, I want to address some of the other things you have to do whenyou decide to form an entity. First, a quick reminder that I am speaking generally here and with California law in mind: each state has its own laws so your mileage may vary, so to speak.

Most creative pros start their businesses as sole proprietorships. As Ive explained before, there are no formalities required to do that, outside of maybe having to register a fictitious business name (DBA) with your county or city. Forming an entity requires filing various papers with the state, but after that is done, are you done? Not by a long shot.

Assuming youve been running your business like a business, you may have things like business banking accounts, credit cards, or insurance policies. When you have a new entity, you are going to have to convert all of these to the new entity. In some (probably most) cases, youre going to have to close existing accounts and open new ones. Youll also have to get new checks printed.

Its particularly important to talk to your insurance provider to get your policies worked out. You dont want to get caught with those proverbial pants down. This may also mean your auto policy, dont forget.

Speaking of your car, did your CPA tell you it would be best to have your company own your car? Then, youll have to transfer it (and yes, we all love the DMV, but do it). What about your other assets? Computers? Cameras? Furniture, etc.? Even if you own these things outright, it would be best to document the transfer of the assets to your new entity. Talk to your CPA before doing any of this to make sure you dont do anything to mess up her/his careful tax planning for you.

You also need to think about your IP licenses. No, not your licenses out (those you sell to other people to permit them to use your work–although you will need to update those moving forward) but the one ones you purchased for things like the software that you use in your business. Some of those will be non-transferable and you will have to purchase new licenses. Dont get angry about it and dont skip this–especially if you issue non-transferable licenses, you should understand this.

You may also have issues with any office/studio space you lease (landlords often will be fine with updating a lease) and definitely youll need to set up new payroll accounts if you have employees, including getting a new EIN number for the entity not to mention new workers comp., etc. Also, if you have a business license with the city (or county) you’ll have to get a new one for the new entity, too.

Finally, you need to learn how to sign documents properly for your entity. You may no longer sign justBetty Smith, but rather must sign as Betty Smith, Managing Member, Smith Creative, LLC, a California LLC, if you formed an LLC; or, if you did the corporation thing, Betty Smith, President, Smith Creative, Inc., a California Corporation. Yes, it’s a pain in the butt but if you don’t sign properly you can personally be liable for things. No, I’m not kidding.

Relatedly, you will need to update all your business paperwork to reflect the new entity–like your licenses you offer clientsand your contracts/estimates/invoices/model releases/etc. Also be careful in the contracts you are offered: make sure they are naming the entity and not you as the party and that there are no “Personal Guarantees” or other clauses that effectively remove the protections of the entity.

Your CPA should provide you with a lot of guidance on the financially related changes you needs to make. An attorney can help you with the rest.

WMFH Affects More Than Copyrights

Creative pros have been understandably angry at the words work made for hire (WMFH) for some time. I mean, clients try to sneak that into contracts all the time and it means you, creative pro, have to carefully watch out for it, lest you sign that bad boy and end up making the client the author and owner of what should be your copyrights. So sure, those words tend to raise a creative pros hackles.

But this post isn’t about how your copyrights are affected with a WMFH contract; it’s about other effects of such an agreement.

Now, before I go any further, I’m only talking about California law here. If you are in another state, the rules (probably) aren’t the same. That being said, if you ever work in California or for a company in California, you might want to pay attention.

There is another side to WMFH agreements in the Golden State. If you are a sole proprietor business (that is, not an entity of some kind, like a corporation or an LLC), and someone hires you as an independent contractor, and the signed contract includes a WMFH clause, then you are statutorily an employee and the employer has to follow the laws regarding unemployment, disability, and workers compensation insurance as if you were a regular employee. According to the California Labor Code[1], if a person is hired to create a commissioned work and the parties agree in a signed writing that the work shall be considered a work made for hire, as defined in Section 101 of Title 17 of the United States Code, then, boom, the hired person is a statutory employee. Moreover, the California Unemployment Insurance Code[2] says almost exactly the same thing. Basically, every code that deals with unemployment, disability (including paid family leave) and workers comp has something about WMFH like this.

Anyway, failure by the employer to follow the rules means the employer can be hit with substantial fines and even jail time! Yikes!

So what? you may be thinking, Only the state cares but it doesn’t really affect me, but you’d be wrong. Those are rights to which you are entitled under California law. If you get injured on the project, for example, Workers Comp should pay your medical bills (roughly speaking). Also, the law is unclear[3] about other benefits that employers in California must supply to employees so it may be that you, as the employee, are entitled to other things… like being paid as an employee (including having the employer pay its half of FICA) rather than an independent contractor, having limits on time/overtime, etc.

If you live and generally work in some other state but come to California for a WMFH project, then you too would likely be considered a statutory employee under California law as well[4],and maybe if the company is here but you aren’t. Also, if you work physically here, your pay would probably be subject to California personal income tax withholding[5].

Most importantly, if you are in California (resident/business) and you hire assistants or other independent contractor workers and you have a WMFH clause in the contract you have these people sign, you also need to know this info. You have to follow these same rules! There are ways to avoid some of these issues (for example, maybe an assignment clause instead of a WMFH), but there are downsides to the other options as well. Talk to an attorney to get the best advice for your particular situation.

Oh, and don’t forget, if you are in California, you really, really must pay your people on time.

_________________________

[1] California Labor Code Section 3351.5(c).

[2] California Unemployment Insurance Code Section 686.

[3] The statutesdon’t seem to say explicitly one way or the other; a court could possibly make the analogy and apply the same rules to pay, time off, etc.

[4]Seehttp://www.edd.ca.gov/pdf_pub_ctr/de231d.pdf.

[5] Id. (That means, same source as I just cited, for the non-nerdy readers).

Breach or Infringement?

I’ve heard that some photo organizations may be suggesting that the way to avoid the costs of litigating an infringement claim is to have a liquidated damages clause in your site’s terms of service (TOS), because then (they say) it’s a breach of contract rather than an infringement. For example, if you put something on your site’s TOS like “If you use any of the work from this site without a license, you agree to pay to PhotoBob three times his usual fees for the license” and someone uses your work, then you can bring a breach of contract case in small claims court and avoid the cost of litigating infringement in federal court.

I have to say, I think this is very bad advice. I hope that pro groups are not recommending it. Short answer? It probably won’t work and, even if it could, it’s not a good choice. Let me explain.

First, it is very possible that your TOS are not binding on your visitors. There is case law that says that in order for TOS to be binding, a user has to either click to agree to those terms (called a clickwrap agreement) or those terms have to be so obvious as to, essentially, be on each page of your site–just having a separate page with your TOS won’t cut it. (Lawyers reading this, yes, I’m generalizing from the cases–we need to know the nitty gritty but creatives really don’t.)

Second, even if you could make the TOS stick, you would be limited to winning no more than your 3X number, and you’d have to prove that you usually got $X as a license fee in the first place. 3X is likely not going to be much money. In fact, it’s going to have to be under like $5,000 if you want to stay in small claims, depending on what the small claims court rules are where you are–that is, there are limits on how big a case you can bring in small claims. Oh, and you probably can’t use a lawyer (many small claims courts bar representation) so you’re going to have to do it all yourself.

Oh, and let’s say you win a judgment in small claims and the defendant doesn’t pay. You can’t then go marching into federal court claiming that it’s now an infringement and demand a lot more money. Even if by some miracle you did pull that off, that is that the court didn’t dismiss the case immediately, the court would likely say your damages are limited to the judgment you got already or darn close to it.

Third, how are you going to prove that the infringer got the work from your website? Have you posted it anywhere else, like Instagram? Good luck enforcing your site’s TOS, then.

Fourth, and this is the big one (yes, I buried the lede): copyright pre-emption will likely make your breach claim a loser. See, copyright is exclusively federal law and can only be adjudicated in federal court; so, if you bring a claim that is really an infringement claim, a smart defendant is going to tell the small claims court “Hey, this is really infringement we’re talking about here so you have to dismiss this case because this court doesn’t have jurisdiction.” I think a defendant is going to win with that and, boom, you’ve just waisted all your time (and filing fees).

There is one possible exception to pre-emption here, but it’s a narrow window and one I don’t like anyway. That is, if you agreed to license the work to the defendant and it later failed to pay for the license, then courts have said that is a breach of contract rather than an infringement (unless the terms of the written license stated that the license was contingent upon full and timely payment). See Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 559 N.7 (9th Cir. 1990). Now, I think you should have written licenses and those licenses should specifically state that no license is granted until full and timely payment is received; but, if you have that, then the courts say it is not a breach of contract and, so, there you go… pre-emption again.

Really, I think it’s cutting off your nose to spite your face to try and convert an infringement claim into a breach of contract one. I mean, if you register your work in a timely manner (before the infringement) then you have the right to elect statutory damages and you have a decent chance at being awarded your attorneys’ fees as well. That is very, very likely going to be a much larger number than what you’d ever get in small claims court. More importantly, if you want to avoid litigation (and I always say: you want to avoid litigation), you have a better chance at negotiating a better result if you have statutory damages and maybe attorneys’ feesto back up your claim. A breach of contract claim is almost always some kind of wonky and the damages are limited–why do that to yourself?

 

Get it in Writing

This NYTimes articleabout the legal limbo of some Avedon prints just breaks my heart. Besides the obvious part about the amazing work done by all, including the printers, being stuck in boxes, mostly unseen, the stories about why there are issues now make my downright twitchy.

Artists of all kinds are notorious for being crap at paperwork and many so-called great artists often offer(ed)their favors like Raylan Givens asking “one more time” with a smile, while puttinghis hands on his hips,revealing his badge and sidearm. That combo of sloppy business practices or, worse, intimidation by the Artiste, and fear of the employee/contractor to ask for something more concrete or as filthy as actual paymentwill likelyleadto situations like those described in the article, long after the artist is dead and gone.

It even happens when both sides actually like and respect each other but just don’t bother to putsomethingin writing. The road to hell, and all that.

Don’t let this happen to you and, almost more importantly, don’t put your minions in impossible situations.This means having open communication with the people you work with–interns, employees, vendors, whomever–so that you each can offer solutions about how to make something happen, without any one feeling taken advantage of or stuck in ambiguity about what s/he gets for her/his efforts. Intimidation is not becoming to anyone, even an artist. Having your minions fear you only makes you an ass (and generally makes them poor workers).

When you hire employees or independent contractors, pay them actual money whenever possible. Also, have signed agreements describing the relationship, the duties of each party, and anything else that comes up like “InternBetty gets to keep one set of the prints she makes for PhotoBob as a part of her compensation.” Veryimportantly, those agreements should describe what happens when and if the relationship turns bad and someone wants out.For individual projects with special circumstances, take the time to lay out the relationships involved so that everyone is, quite literally, on the same page.

And, whatever you do, put it in writing. A formal contract is best, but anything that lays out the understanding of the people involved and is signed (and preferably dated) by everyone is better than nothing.

Sure, you (like Avedon) won’t have to deal with whatever happens after you die, but I suspect you don’t want to leave your loved ones with big legal expenses to sort out your messes, either. Besides, it’s better business to treat everyone with respect. An agreement is the documentation of that mutual respect.