Last week, I received a call from a client. She had hired a company that specializes in website development to create and host a website for her small business. The website is now up and running and it looks great; but she received a letter demanding that she pay $8,000 as a licence fee for the use of one of the photos on it.
It turns out that her website developer had taken the photo from an online stock image company, and $8,000 is the licence fee payable by anyone who uses the photo, whether they knew about the licence fee or not. By having that photo on her website, my client was deemed to have agreed to pay the fee. Unfortunately, this type of demand letter is not at all unusual.
As we discussed the situation, I learned that my client had not signed a contract with the website developer; rather, she received a quote which merely told her what the cost would be and when the work would be finished. Essentially, unless the website developer does the honourable thing and pays the licence fee, she is on the hook for it.
Stock image companies
Stock image companies enter exclusive contracts with photographers and other artists to acquire and license images for commercial use. The photographers and artists are paid a royalty every time an image is used. Merely removing an image that was used without permission will not resolve the problem. The stock image company has a contractual obligation to its artist to obtain licence fees for the use of their images, whether the use was authorized or not.
The use of the image without a licence constitutes copyright infringement. The end user is liable for the infringement and must pay the retroactive licence fee. It is a strict liability offence – lack of knowledge doesn’t excuse or dismiss unauthorized use, nor does it affect your obligation to pay the licence fee.
“I found it on the internet”
Many people use images which they find on the internet. The fact that an image is found on the internet does not mean that it is in the public domain. Public domain is a very narrow exception to the Copyright Act and relates only to works in which the copyright has expired or in which the copyright owner has clearly declared that the work is not subject to copyright. As an aside, every time a client tells me that they are entitled to use something because it is in the public domain, I shudder. It almost always brings problems.
What is copyright?
Copyright is a bundle of rights which applies to certain types of work. That bundle includes the right to copy, reproduce and distribute the work. The scope of the works protected by copyright is very broad – the long list includes printed material such as books, manuals and instructions, artwork (including the logo you have created for your business and the paintings in your lobby), films, videos and software.
My client has a bigger problem – she doesn’t own her website
If you are having materials prepared, it’s important to be aware of certain provisions in Canada’s Copyright Act. The Copyright Act is a federal law, and it says that when work is created by an independent contractor (that is, by someone who is not your employee), the copyright in it belongs to the creator. This means that the creator controls what you can and cannot do with the work. For example, if you have a piece of software developed by someone who is not your employee, the copyright in that software will belong to the developer. You will merely have the right to use it, but you won’t be able to license it to others so that they can use it in connection with their businesses.
The only way of changing who owns the copyright is to have an agreement in writing, signed by the creator, assigning the copyright to you. Since my client didn’t get such an agreement, the website developer owns the copyright on her website. This could pose problems for her in the future.
What else should your contract deal with?
Copyright isn’t the only issue that your agreement should address:
- In addition to transferring the copyright to you, the agreement should also include an assurance from the creator that the work delivered to you will not infringe anyone else’s rights. In the case of a website, those rights include trademark, privacy, personality rights and, as my client learned, copyright.
- You should also consider whether you need an assurance of confidentiality (that the creator won’t reveal any information that you have provided about your business) and that the creator will not create something with a similar look and feel for anyone else, including one of your competitors.
- In addition, I recommend including a timeline for delivery, a process for changes and corrections, and a penalty for late delivery.
- Finally, every agreement should include some provision to deal with disputes. If you believe that the other side hasn’t met its obligations, are you entitled to cancel the agreement? Often, you will be entitled to give written notice of the default and if it isn’t remedied, you can cancel; but that right should be spelt out. Should you be required to go to court if there is a disagreement? Or can you go to arbitration? Again, this should be addressed in your agreement.
What if you receive a letter like my client received?
If you receive a letter saying that you have violated someone’s copyright, don’t ignore it! Unless you are certain that you have the right to use the image in question, speak with your lawyer. He or she will probably advise you to remove that image as soon as possible. If you are in the wrong, you may wish to consider negotiating with the holder of the rights. Sometimes it is possible to reach an agreement that will result in you paying less than the amount they demanded.
This article has been provided for general reference only. It is not intended to provide you with legal advice regarding a fact situation. For advice on an actual matter, you should consult a lawyer.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.