Right to Create Derivative Works Included in Right to Reproduce Work: Fifth Circuit | Practical Law

Right to Create Derivative Works Included in Right to Reproduce Work: Fifth Circuit | Practical Law

In Loeb-Defever v. Mako, L.L.C., the US Court of Appeals for the Fifth Circuit, interpreting a non-exclusive copyright license under Texas law, held that a license to reproduce a copyrighted work includes the right to create derivative works.

Right to Create Derivative Works Included in Right to Reproduce Work: Fifth Circuit

Practical Law Legal Update w-040-6017 (Approx. 4 pages)

Right to Create Derivative Works Included in Right to Reproduce Work: Fifth Circuit

by Practical Law Intellectual Property & Technology
Published on 01 Sep 2023USA (National/Federal)
In Loeb-Defever v. Mako, L.L.C., the US Court of Appeals for the Fifth Circuit, interpreting a non-exclusive copyright license under Texas law, held that a license to reproduce a copyrighted work includes the right to create derivative works.
On August 30, 2023, in Loeb-Defever v. Mako, L.L.C., the US Court of Appeals for the Fifth Circuit, interpreting a non-exclusive copyright license under Texas law, held that the right to reproduce a copyrighted work includes the right to create derivative works and affirmed the district court's grant of summary judgment of non-infringement ( (5th Cir. Aug. 30, 2023) (unpublished)).
Mako, L.L.C., doing business as Padua Realty, is a real estate development business owned and operated by Antonio Padua (collectively, Padua) that initiated a seven-phase project to construct assisted living and memory care facilities, independent living facilities, and cottages in Conroe, Texas (the Project). Padua entered into two limited service contracts with Zelma M. Loeb-Defever and her architectural firm, Loeb Architects, L.L.C. (collectively, Loeb) for Loeb to complete the initial two phases of the Project.
The contracts provided that:
  • Loeb would provide a set of schematics for the Project.
  • Padua could "reproduce, scan, and/or dry mount and laminate as desired" the schematics for use in the Project.
  • Without agreement from Loeb, Padua could not use the schematics for:
    • any other projects; or
    • any extensions of the Project.
After completing the two phases, Padua contracted with another architect, Ted Trout & Associates, Ltd. (Trout), for the remaining phases of the Project. Padua provided Trout with Loeb's schematics and Trout redesigned and provided a full set of architectural plans. After construction, Trout's plans were used in brochures and other marketing material for the Project.
Loeb registered the schematics as architectural works with the US Copyright Office after learning that they were allegedly being used for later stages of the Project. Loeb then sued Padua for copyright infringement, breach of contract, and violations of the Digital Millennium Copyright Act (DMCA) in the US District Court for the Southern District of Texas. Loeb claimed that Padua:
  • Was directly liable for copyright infringement by creating derivative works from Loeb's original plans.
  • Violated the DMCA by removing Loeb's name from the plans.
  • Breached their contract by, among other things, failing to consult with Loeb before using the plans in advertisements or acknowledging Loeb's professional services in advertisements.
Padua moved for summary judgment on each of the claims, arguing:
  • The Loeb contracts granted Padua an express, nonexclusive license to use the preliminary design schematics in connection with the Project, including to make derivative works.
  • Loeb failed to show there was a genuine dispute of material fact regarding scienter for their DMCA claims.
  • Loeb failed to provide sufficient evidence of actual damages from the alleged breaches of contract.
The district court granted summary judgment to Padua on all claims, which Loeb appealed. On review, the Fifth Circuit affirmed the district court's grants of summary judgment.
Notably, on the copyright infringement claim, the Fifth Circuit held:
  • The district court was correct in applying Texas contract law to interpret the Loeb contract because:
    • a non-exclusive license is generally construed under state law;
    • the contract includes a Texas choice of law provision; and
    • in this case, application of state law is not preempted by the Copyright Act or a violation of federal copyright policy.
  • The license to reproduce a copyrighted work appears to encompass the right to make derivative works because:
    • the plain meaning of "reproduce" is to imitate or make a representation or copy of something; and
    • a derivative work, by definition, is substantially similar to the copyrighted work on which it is based.
  • The provision prohibiting Padua from using the schematics in other projects or extensions of the Project implied an understanding that Padua could use them in later phases of the Project.
  • The use of Loeb's schematics as a preliminary design to create derivative works in connection with the Project was within the scope of the contractual license grant.
The Fifth Circuit did not appear to factor into its analysis that the right to reproduce a copyrighted work and the right to create derivative works based on a copyrighted work are separately enumerated exclusive rights of a copyright owner under Section 106 of the Copyright Act (17 U.S.C. § 106(1) and (2)).
In granting summary judgment in favor of Padua on the remaining claims, the Fifth Circuit held:
  • Padua could not have intended to or known that their conduct would induce infringement, as required by the DMCA, because they had a license to use the schematics.
  • Loeb's theory of damages on the breach of contract claim—the profits they would have earned had they completed phases three through seven of the Project—failed to create a genuine issue of material fact because Padua had no contractual obligation to retain Loeb beyond the first two phases.