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What Happens When a Freelancer Does Graphic Design Work for a Client Without a Contract: Mark’s Copyright Case Study

Photo Credit: No Contract by Leo Reynolds used under CC BY-NC-SA 2.0

Photo Credit: No Contract by Leo Reynolds used under CC BY-NC-SA 2.0

Mark is a self employed graphic artist.

He routinely works with clients on an independent contractor basis.

Mark decided to work on a particular client’s project without a written agreement or contract stating the terms of the association.

The client later refused to pay Mark for his work.

The client then began to freely use Mark’s work claiming (1) there was no written or verbal contract for services and no “course of dealing understanding” between them and (2) and that based on the lack of any formal agreement Mark retained no copyright ownership interest or rights in the work he contributed to the project.

Mark feels the client not only ripped off his creative input and artwork but he seems to have been able to misappropriate the copyright interest in his work. Mark has proof his client is using his artwork.

Is there anything Mark can do? You bet there is!

Valid Transfer of Copyright Ownership

Let’s assume that Mark has a valid copyright in his own artwork even when he has produced the work under a client’s requests and directions. Can the client claim ownership of Mark’s copyright in the work?

The Copyright Act of 1976 establishes methods of transferring a copyright. Rights can be transferred in an assignment of rights, a mortgage, an exclusive license transfer, a transfer by will or intestate succession, and any exchange of rights within a non-exclusive transfer of rights or a transfer of only specific rights but not all as in an exclusive license.

This transfer of rights is only valid when the individual transferring the rights signs a written agreement detailing the rights to be transferred as required by the Copyright Act of 1976, 17 U.S.C. § 204(a). Multiple subsequent federal court decisions have also recognized the validity of an author’s transfer of his copyright interests using an electronic agreement such as the one used by Kunvay. Federal courts now routinely accept an individual’s electronic “click” or “tap” within an electronic transfer of copyright document as a valid “electronic signature” fulfilling the signature requirements of the Copyright Act of 1976.

Based on this understanding Mark should assume that the copyright to his artwork did not transfer to the client due to the lack of the required “signed writing” that is necessary to effectively transfer his rights. If Mark has proof that his client is using his artwork without permission or license then pursuing an infringement action in court may be an appropriate response.

Infringement Action Awards of Attorney Fees and Damages

What does Mark need to do to initiate an infringement action against his client?

Many times a demand letter, often called a “cease and desist” letter, addressed to a difficult client, whether an individual or entity, will provide a fast and somewhat painless resolution to the matter. If a letter demanding that the author’s copyright interests be observed is not helpful then the author may want to move on reviewing the pre-litigation requirements of pursuing an infringement action.

Copyright registration may be required as a prerequisite to initiating an action for copyright infringement. The certificate of registration will usually be referenced in the complaint for infringement and will be attached to the complaint at filing. Copyright registration creates the rebuttable presumption that the copyright ownership interest claimed is a valid one.

Actual and statutory damages may be awarded to a copyright owner that successfully prevails in an infringement action as well as a recovery of all attorney fees. Actual damages are those damages that are provable. This would mean that the plaintiff must be able to prove his losses in connection with the infringement activity.

For example, a plaintiff could show a loss anticipated revenue from the copyrighted material or a loss in actual sales of the copyrighted material. Actual damages can also be proven by reviewing that defendant’s profits from his marketing the copyrighted materials.

The Copyright Act of 1976 also provides the court with the discretion to award statutory damages to a successful plaintiff. Statutory damages can add up well into thousands of dollars and can be awarded concerning each separate instance of copyright infringement. Damage award rates are set forth within the copyright statute itself. Statutory damages do not require proof of a plaintiff’s monetary loss or proof of a defendant’s unjust enrichment, or profit, before a court may award them.

The intent of the defendant is a factor in a court’s award of statutory damages. A court must determine whether the acts of copyright infringement were innocent or willful before an award. Willful copyright infringement would be shown where the acts of copyright infringement are committed with reckless disregard for the rights of the plaintiff.

What is Quantum Meruit and How Might it Help Mark?

It is frustrating to any small business owner to have a client refuse to pay for work. Sometimes a proprietor has to make a judgment call as to whether or not a client genuinely has the ability to pay for the work.

However, if a client does have the ability to pay then it makes sense for an entrepreneur like Mark to appreciate that he does have a cause of action against his client for failure to pay even in situations where there was no written or verbal contract or “course of dealing” creating a reasonable expectation of a client’s agreement to pay.

Quantum meruit is a remedy in equity that measures a plaintiff’s recovery under a legally implied contract to pay and at a rate or a value generally reasonable for similar services within that specific trade. In short, quantum meruit is an equitable doctrine based on the concept that nobody who benefits from the labor and materials of another should be unjustly enriched by that labor and those materials.

In Mark’s situation, there was no written or verbal contract to pay nor any historical course of dealing between the traders to be enforced in the event of the client’s nonpayment for valuable services received and so imposing an implied contract to pay on the recalcitrant client may be an equitable alternative that a court may opt to enforce in Mark’s favor. Quantum meruit recoveries include the possibility of damage awards and attorney fee awards to a prevailing litigant.

How to Write a “Cease and Desist” Letter

It is always good practice to try to stay out of a lawyer’s office and out of a courtroom by taking every possible option that might lead to productive litigation avoidance.

Writing a “cease and desist” letter to a client infringing on a copyright and at the same time demanding payment for work supplied to that client even where there was no formal contract for service exists is an excellent first response and plan of action. The cease and desist letter must be drafted to inform the infringing party of the copyrighted on the work at issue, the nature of the acts of infringement and the remedies the copyright owner intends to pursue. The letter is used to demand the infringer’s immediate cessation of all infringing activities and an accounting of all profits from those activities.

Mark should remember that the cease and desist letter he writes should be carefully worded as it will become an exhibit or addendum to papers filed with the court in any subsequent infringement action. The letter is an important step to secure rights prior to being forced into any good faith litigation on the issue. In addition, any infringing party that refuses to cease the acts of claimed copyright infringement after receipt of a “cease and desist” letter will be determined to be an individual or entity engaging in willful acts of infringement for the purposes of statutory damages.

Because you care about navigating copyright smartly follow us on Twitter, or learn how to transfer copyright and IP ownership rights to freelance work online with Kunvay.

About the Author: Christine Varad is the principal writer and editor for Varacolors. She earned her JD in law from New England Law and holds a BFA from Massachusetts College of Art and Design. As an artist and a lawyer she has a long standing interest in Intellectual Property law and protecting the rights and interests of writers and visual and performing artists.

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  • TheInternetGuy

    Sir, you were not ‘forgotten’ out of $1,000, they never intended to pay you in the first place. Think about it, you never knew who the winner was (or if there was one) but you were offered a measly $1,000 on a take-it-or-leave-it basis (who does that?), giving you no further options. That’s incredibly unusual, especially given a 72-hour period to decide?

    When you decided to hand over the IP they probably collected the large sum from whatever company launched the challenge and their job was finished, leaving no reason to actually pay out the fees since you had signed a contract transferring the IP. The hiring company probably has no clue of what happened and this should not reflect negatively on them.

    Sadly, that’s how some businesses are run.

    • Reggie Solomon

      It’s true. I never did find out who the actual grand prize winner was; I wish there had been more transparency around that. It would definitely have improved my confidence in the process.

      The actual IP however was never formally transferred to them because they never followed through with the actual prize award rendering the transfer incomplete. That’s actually, one of the saving graces of the whole experience reflected in point #2 of lessons learned.

      Thanks for chiming in and sharing your thoughts. Much appreciated.

  • Juan Mario Inca

    Really interesting Kunvay, thanks ​!

    Given your interest, I think you’ll be very much interested in this list of emerging Open Innovation research: http://www.openinnovation.eu/07-05-2013/768/

    And in this new research too:

    - The Contours of Crowd Capability
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324637

    Powerful stuff!

  • Will Tennant

    Registering the copyright is required prior to bringing an infringement lawsuit.

    • airtonix

      um no?

      Perhaps you are thinking of trademark or patent.

      Copyright is given the instant you create the work.

      • Will Tennant

        True, But See Copyright Statute Title 17 Section 411 requiring registration prior to bringing lawsuit.

        • John Feminella

          If you’re the author, you don’t need to register beforehand. Otherwise, registration is required. The law is very clear on this — it’s the very first part of the relevant section. See §411:

          **Except for an action brought for a violation of the rights of the author under section 106A (a)** [...] no civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title.

          Then §106A says:

          the author of a work of visual art [...] (1) shall have the right [...] (A) to claim authorship of that work, and [...] (B) to prevent the use of his or her name as the author of any work of visual art which he or she did not create;

          So, in this case, since Mark’s client is ripping off the work and presenting it as his own, registration would not be required since the original author is bringing the suit.

          However, even if you don’t need to register, you may want to do so anyway. That’s because the law requires courts to presume that a plaintiff who has a registered copyright is the holder of that copyright. So a defendant would have to prove that the registration certificate is in error, fraudulent, or otherwise not accurate.

          • Will Tennant

            This is true if you’re claiming a 106A right of attribution or integrity. The famous artist Anish Kapoor, for example, would not appreciate someone taking credit for his work, or suggesting he authored the work of another. However, my comment was with respect to copyright infringement. If Mark’s client is ripping him off by copying or reproducing the work, which is Mark’s exclusive right, then 106 applies. Most of my clients are in the former category and whether it’s a picture or web-design, etc., they’re just looking to get paid for the work they do.

          • Richard_M

            Registration within 90 days of first publication grants the copyright holder the right to recover attorney and court costs. This is what puts teeth into copyright laws. It is true that copyright is given the moment a writer expresses their work. It is also true that not registering within 90 of first publication is not a good business practice.

  • Heather Cuthill

    This is a classic example of why artists should always insist upon a written contract from every client: you’ll get paid, you’ll protect your rights in your own work, and you’ll save yourself the hassle and the costs of trying to get paid through the courts – which may end up losing you money even if you’re successful. Here’s a contract template that is comprehensive and easy to customize for each of your graphic design projects: http://www.megadox.com/d/22.

    • Mo Kane

      Having a written contract is meaningless. Have you heard of breach of contract? If the client is not going to pay because they never intended to, having a piece of paper will not obligate them to do so. If the design work was done for a pitch and the client didn’t get the project, the client may not have the money to pay subcontractors like the designer. Not his fault. See my other post as to what to do next (TL:DR:Nothing).

      • Heather Cuthill

        You can always ask for money up front – either a deposit of 50% of the contract price payable at the time the contract is signed, or the full contract price to be placed in escrow or trust until completion. Clients who intend to honor the contract should not have a problem with that.

        • Mo Kane

          A 50% deposit is an excellent idea. But if the client is going to rip you off, all you are going to get is the 50%. Placing the money in trust requires a cooperating attorney that both sides agree upon and adds cost. The trust department of a bank won’t do this; they would need a trust instrument, etc. I am unaware of any commercial escrow services though this is a good idea as well, can you suggest any?

          • Heather Cuthill

            There are a number of online escrow services, such as Escrow.com. Their fees are typically based on the dollar value of the transaction. It’s the most cost-effective way I know of – a lot cheaper than a lawyer.

  • I’ve been a prayin.

    Why on earth would you do $1000 worth of work without a contract? Of course it’s heinous on the part of the contractee to not pay, but you should do what you can to prevent being taken for a ride.

  • Will Tennant

    (a) Except for an action brought for a violation of the rights of the author under section 106A(a), and subject to the provisions of subsection (b), no civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title. In any case, however, where the deposit, application, and fee required for registration have been delivered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringement if notice thereof, with a copy of the complaint, is served on the Register of Copyrights. The Register may, at his or her option, become a party to the action with respect to the issue of registrability of the copyright claim by entering an appearance within sixty days after such service, but the Register’s failure to become a party shall not deprive the court of jurisdiction to determine that issue.

  • Mo Kane

    So much for the law, what about the reality of the situation? What happens, say, if there was a contract and the client simply refused to pay? What should the artist/designer do? Assume further that the contract was for $1000. You will not get an attorney to represent you in small claims court for less than $250. And that doesn’t include filing fees and subpoena fees. Figure on at least one continuance. And then your attorney will ask for more money for the second hearing. Assume you win. Now you have a judgment. Do you know where the client’s bank account is? Do you have the client’s bank account number? No? Then you have to pay someone to find it. That is not necessarily cheap, either. Can you garnish your client’s bank account? Sure, if you know where it is. But you have to file a separate proceeding. Your attorney will charge extra for that. At an absolute minimum, you’re at $750 in attorneys fees, not including the costs of filing the new case, the costs of service on the bank, etc. And don’t think that even if you get all the numbers right that the bank is going to simply mail you a check. No, they may very well answer and wait for yet another court hearing. Or your client, who may well be a small business like you are, simply lives paycheck to paycheck and there’s not much money in the bank either. Now what? Seize the client’s car? It’s probably a lease. You mean you didn’t get a full financial statement from the client when you started working on the new project? How much time have you spent on this collection effort? And in the meantime, you have opportunity costs because time spent on the lawsuit(s), just like time spent on the original project, is unrecoverable. You could be working on something else. My advice: if the amount of your bill is less than $5000, chalk it up to experience. In the future, insist on a down payment. That’s one way to cover your loss. Tell the client that you will not hesitate to truthfully inform anyone who asks that he has not paid you. This is a somewhat obscure reference, but when relatively small amounts of money are involved, trying to collect on a debt in the United States is like Captain Kirk’s comment on the Kobayashi Maru: the only way you can win is not to play the game.

  • Mo Kane

    For some reasons everyone’s comments seem to be repeated under separate posts. My comments about whether the law protects those who have been swindled for small amounts obviously does not apply to situations such as Winklevoss v. Zukerberg.

    • http://www.kunvay.com/ Kunvay

      Sorry about that Mo. There seems to be a Disqus bug. We’ll get fixed this week. Thanks for the note.

  • mr.t

    What if you worked for a large company as an artist and began working with one of there biggest clients producing original artwork for them wich was being printed on tshirts. Wich was and still is being produced and making lots of profit. You only worked on the clock hourly and left the company after some time. You never signed anything at all stating anything about royalties or copywrites. You have the proof that these are your works. Are you entitled to any royalties or rights about these works of art in the fact these have generated thousands of dollars and you are left pennyless and kicked to the curb?

  • Oliver Gerasimov

    I think that’s the most freelancer risk because most of them worked in a client without written contract. But thanks for sharing this post at least they will know that they have the right to claim their work.

  • Paul Thomas

    As a photographer, I needed exclusive ownership of my work. After some extensive research I found out about this firm called Levy, Levy & Sosa in Miami. I decided to set up a consultation to meet with their attorney and I’m sure glad I did. They assisted me with applying for copyright registration, the process was so simple and they guided me along the way, explaining in ways that were easy to understand. I encourage you to contact them on 1-800-464-5554 or visit their website http://www.trademarklaw101.com/practice-areas/copyright/ to secure your work!

  • Tony

    Can someone tell me the legality of creating a shirt (not for resale) that says something like “Pepsi is Shit”. Would that be illegal if I am not selling it? Thanks in advance.

    • http://www.kunvay.com/ Kunvay

      Hi Tony – Good question. If you created a t-shirt that said “Pepsi is Shit” that would constitute an expression of opinion and would be protected speech. Pepsi wouldn’t like it, but you could sell a shirt with that message. Just be sure not to use the Pepsi logo; that’s where you could get into murky waters.

  • Gerrie7407

    If I decide to print 20 t-shirts for a concert, am I allowed to print the artist logo on it ?
    Example a Justin Bieber logo with a face ? what the legal implications

    • http://www.kunvay.com/ Kunvay

      Gerrie7407 – If you print someone else’s logo on a t-shirt for sale, you would unfortunately be violating the logo owner’s copyright. The legal implications are if the logo owner saw the shirt and was able to trace it back to you or your company, you could be liable for damages. You could take the risk that the logo owner wouldn’t find out given how large the Bieber brand is and the unlikelihood that they’d find you, but you’d be taking a risk.

      Below is an article with a 4-part test to determine “fair use” vs. “copyright theft. http://blog.kunvay.com/copyright-theft-vs-fair-use-how-to-determine-if-your-work-has-been-stolen-or-adopted-for-fair-use-with-a-4-factor-test/