How to incorrectly determine the moment of transfer of the copyright – on the example of a building design
In practice, design contracts tend to stipulate that the proprietary copyright passes onto the orderer (investor) upon payment of the fee for the work (whether an architectural work, or a building design, or any other investment documentation), as it is certainly the safest scenario from the contractor’s point of view. On the other hand, the safest scenario for the orderer (investor) would be to stipulate in the contract that the proprietary copyright passes upon the delivery of the works to the orderer. Although both of the above mechanisms for transferring the proprietary copyright are permitted and used in practice, it is particularly important to clarify these issues in a contract between the parties.
We will try to analyse the provisions regarding transfer of the proprietary copyright between the parties on the basis of judgment of the Supreme Court No. I CSK 104/18. The case pertained to preparation of a building and execution design for infrastructure in connection with the planned construction of a motorway section. The design contract stipulated that upon the delivery of the designs, the proprietary copyright would pass onto the orderer and he would have the right to use the designs in a specific manner (i.e. to use the designs for its own purposes and for purposes of its subcontractors, for presentations, to save them on a computer and to reproduce them using any technology). However, the “final” transfer of the proprietary copyright in the designs was supposed to take place upon payment of the total contract price.
The designs were issued, but the awarding entity failed to pay the total contract price. Nevertheless, the construction works were completed. The contractor concluded that since the total contract price had not been paid, the rights had not been transferred onto the orderer and the motorway building designs had been used in breach of its copyright. Therefore, the contractor decided to bring an action for twice the value of the fees due.
Provisions are one thing, but …
The Supreme Court did not agree with the arguments (accepted in lower instances) that the copyright in the designs had been transferred in stages – firstly, to a limited extent, rendering it possible to exercise and use the copyright for the purposes of the construction, and then, upon the payment of the total contract price, in a complete and final manner.
Having regard to the circumstances of the execution, provisions and goal of the contract and to the intended purpose of the work, the Court concluded that the parties’ actual intention was to transfer the rights upon the delivery of the design to the orderer. Further circumstances, such as the exercise of the author’s supervision or the contractor seeking payment of the outstanding part of the contract price at court, were supposed to confirm such interpretation also on the part of the plaintiff.
At the same time, the Court could not agree with the opinion that in this case the time of the copyright transfer depended on the payment time – this must have been the result of an incorrectly worded copyright transfer clauses. In legal language, there are no such terms as “final” and “non-final” transfer of rights in intangible assets. Without discussing the question whether or not it was possible to create a clause whereby the copyright transfer would be subject to performance of a certain legal or factual act, in the present case (and in other similar contracts) the time of transfer of the proprietary copyright should have been specified precisely.
What does this decision mean in practice?
First of all, that the transfer of proprietary copyright under design contracts should be determined as precisely as possible. It should be clear for the parties when they acquire rights and what is the object of the rights. If neither of the two scenarios presented at the beginning of this article is acceptable to the parties, they may go for yet another solution, i.e. stipulate that upon the transfer of the documentation to the awarding entity, the awarding entity acquires a licence to use it within a strictly defined scope (for on-going activities in connection with the construction), and that the copyright will be transferred at another time agreed between the parties, e.g. upon payment of the total contract price. This scenario is also permissible; in particular, both parties know when they acquire certain rights and what the scope of the rights to use (licence) or to use and dispose of (transfer of rights) the works is.
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