A Nonprofit’s Guide to Copyright Law for Derivative Works

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 The right to create separately owned derivative works is an important yet often misunderstood area of copyright law.   More specifically, issues of derivative work ownership and authorized usage may arise anytime a copyright owner permits someone else to modify a preexisting copyrighted work.  A common nonprofit example occurs when an organization authorizes an affiliate or joint-venture party to improve and adapt copyrighted program materials for use in specific situations, such as a curriculum, other educational materials, or advocacy information.  Issues also may arise when a nonprofit authorizes volunteers or others to create new versions of copyrighted works that fall outside the “works made for hire” copyright doctrine, therefore making them owners of the new derivative works.

Nonprofit organizations may presume that they own the copyrights in new versions created, simply by virtue of their ownership in the original works.  The law, however, vests the full panoply of exclusive copyrights in derivative work’s creator, so long as such derivative work is authorized by the original work’s copyright owner.  A nonprofit must therefore proactively modify its written contracts with derivative works creators in order to secure ownership or limit the future use of new versions of its original creative works.   This article elaborates on these important legal considerations and provides legal recommendations for nonprofit ownership and licensing for creation of derivative works.

What is a Derivative Work?

Section 101 of the federal Copyright Act defines a derivative work as a “work based or derived from one or more already existing works.”  To be copyrightable, a derivative work must incorporate some or all of a preexisting work and add new original copyrightable authorship to that work. Courts evaluate the originality requirement for derivative works no more stringently than any other copyrighted work.  The requisite level of originality is extremely low and simply requires “independent creation plus a modicum of creativity.”  Fiest Publ’ns, Inc., 499 US 346.  Thus, a derivative work can be sufficiently original for purposes of copyright law, even though it closely resembles preexisting works.

The term “derivative work” refers to the entire new creative work as a whole, not merely the new elements.  The copyright ownership in the derivative work is independent of any copyright protection in the preexisting material.  The copyright in the preexisting materials remains with their owner.  Thus the creation of derivative work does not affect or enlarge the scope and duration of copyright in the preexisting works.

The Right to Create Derivative Works

Copyright law vests the original work’s copyright owner with the exclusive right to prepare derivative works.  Therefore, the owner in the preexisting work must authorize the creation of a derivative work in order for it to be separately owned by another.  If not authorized, the preparation of a derivative work constitutes copyright infringement of the preexisting work and is not copyrightable.  But if authorized, and an absent an agreement otherwise, the owner of the preexisting work will not have any copyright ownership in the derivative work.

Continuation of License

Once the copyright owner authorizes the preparation of a derivative work, the grant to utilize the preexisting work in the derivative work created is perpetual and cannot be terminated by the owner of the preexisting work.  The derivative-work owner holds all copyright rights in the new work created, including the right to license and transfer the derivative work to a third party.  The derivative-work owner does not own the copyright in the preexisting material employed in the work but holds the exclusive ownership in the new derivative work.  The derivative-work owner therefore can license or transfer the copyrights in the derivative work without permission from the owner of the preexisting materials.   

Case in Point – Thomas & Friends

The case of Schrock Photography vs. Learning Curve International, Inc., and HIT Entertainment illustrates the foregoing legal principles.  586 F. 3d 513 (7th Cir. 2009). HIT Entertainment owned the original copyright to Thomas & Friends train characters and licensed Learning Curve International to make toy figures of its characters  (i.e., derivative works).  Learning Curve in turn hired Schroch to take pictures of the toys for promotional materials (more derivative works).  Learning Curve regularly used Schroch’s photographs for its advertising and product packaging.  After four years, they stopped giving Schroch additional work but continued using the photographs. Schrock registered his photos for copyright protection and sued Learning Curve and HIT for infringement.  Id at 515.

Learning Curve and HIT argued that the Schroch’s photographs lacked originality and therefore did not constitute derivative works.  Even if Schroch’s photographs were derivative works, the defendants asserted that they never granted Schroch the right to copyright the photographs.  The Seventh Circuit rejected such arguments, ruling instead that Schroch’s photographs contained “minimally sufficient incremental originality. . . through variation in angle, perspective, and lighting to constitute a derivative work.”  Once defendants granted Schroch permission to create the derivative work, copyright ownership legally vested in Schroch as derivative works.  Id at 522. Since Schroch owned the copyright in the photographs, the subsequent unauthorized use by defendants constituted infringement even though they had other copyright ownership rights in the underlying creative works. 

Legal Recommendations for Nonprofits

Nonprofits can take heed from Thomas & Friends to protect their interests in both original copyrighted materials and derivative works.  For original works, make sure that ownership and usage rights are clear.  For derivative works, remember that they may be unauthorized (and therefore in violation of copyright laws) or authorized (and therefore capable of separate copyright ownership).   Another person’s or organization’s development of authorized derivative works may result in competition with the original nonprofit owner’s programs and public benefit, or they be used in ways harmful to the original nonprofit owner’s reputation and interests.

Consequently, in authorizing the creation of derivative works, a nonprofit copyright owner should carefully consider developing an appropriate agreement to address such issues.  For example, the agreement may provide that the derivative work’s copyright ownership remains with the original nonprofit creator, with a license for others’ use (with any accompanying restrictions).  Alternatively, the agreement may provide that the derivative works creator owns the copyright therefor, but with restrictions on how the derivative works may be used in the future.  For example, the agreement may restrict usage geographically, for a specified time period, or with respect to specific types of usage inconsistent with the nonprofit’s mission.   Any such restrictions should also anticipate potential assignees and successors’ use of the derivative work.  By providing such express safeguards, the original nonprofit owner may protect its copyright ownership interests (as charitable assets), its reputation, and its other interests related to dissemination and usage of such created works.