Copyright Infringement and the New Use of Architectural Works: What Realtors Need to Know

(Reprinted from the June/July 2003 issue of tarheel Realtor)

Copyright infringement probably ranks very low on the list of legal issues that worry North Carolina realtors. Copyright infringement is generally thought to be a problem for authors, musicians, artists and persons who deal in such creative works. A realtor client of mine, however, recently was sued for quite a large sum of money for copyright infringement. If you are a realtor who sells newly constructed homes, you too could be blindsided by a copyright infringement lawsuit.

Realtors, like literary agents and music publishers, deal in copyright protected works. "Architectural works" – including the design of a home and the home itself – are subject to copyright laws. The owner of copyright in an architectural work has the exclusive right to: make copies of architectural drawings; construct a building based upon the drawings; prepare "derivative works" (i.e., modified versions) from the drawings; and distribute copies of protected works to the public. A person who copies, distributes, or modifies a protected architectural work without permission of the copyright owner is guilty of copyright infringement.

The actions that led my realtor client into trouble were not at all unusual. The realtor entered a standard listing agreement to market a speculative house for a builder. The builder gave my client a copy of the architectural drawings for the home. My client used the drawings to assist in his marketing efforts. The realtor gave copies of the plans to potential purchasers of the home, attached reduced size copies of the floor plan drawings to information flyers, made the flyers available at open houses, and placed the flyers in the information box below the "FOR SALE" sign in the front yard. As a result of the realtor’s efforts, the house sold. Interest generated through marketing the first home ultimately led to contracts for the builder to construct several new homes based upon slightly modified versions of the original design. The realtor, of course, received commissions for all of these home sales.

The realtor did not know, however, that the builder failed to secure permission from the design company to use its designs in the construction of the homes. When the design company realized its plans had been used without authorization, it filed suit against the builder for copyright infringement. The design company also filed suit against my client -- the realtor – claiming that he was also guilty of copyright infringement. The designer had two basic grounds for complaint. First, the designer claimed that brokering the sale of a home built with infringing designs constituted the "distribution" of an infringing architectural work – just as the sale of a bootleg concert tape constitutes the "distribution" of an infringing musical work. Second, the designer claimed my client infringed copyright by making unauthorized copies of the drawings for marketing purposes. The designer sought recovery of the fees it would normally charge for the right to use its plans to build each of the homes in question. In addition, the designer sought recovery of all the realtor’s commissions from sales of each home built using a version of the designer’s plan.

The realtor, of course, was horrified to be the subject of this lawsuit. He had always relied on builders to obtain the necessary permission to use home designs, and had no reason to know the builder had failed to secure the necessary rights. The problem, however, is that ignorance is generally not a defense to a claim of copyright infringement. Rather than let "innocent" infringers off the hook, copyright law generally piles special penalties on top of ordinary damages in the case of so-called "willful" infringers.

Had the lawsuit continued, we were prepared to present vigorous defenses to the designer’s claims. Inclusion of floor plan drawings in advertising flyers, for instance, may be an appropriate "fair use" of architectural blueprints since that does not seem to interfere with the market for the designer’s work. Similarly, brokering the sale of a stationary object like a home may not be considered "distribution" comparable to the distribution of a CD or book. Nonetheless, my client faced potential liability and ultimately chose to settle the case. That potential liability faces other Tar Heel realtors as well.

To protect yourselves from this risk, I recommend taking the following steps:

• Before entering into a listing agreement with a builder, ask who prepared the home plans and request documentation showing that the builder has the right to use the plans for this particular project.
  

• Ask whether the builder or designer used someone else’s original drawing as a starting point. It is quite common to draw inspiration from a plan in a plan book or another house, for instance. If the drawing or home that served as inspiration for the builder or designer is "substantially similar" to the new drawing or home, the new drawing may be a "derivative work." Unauthorized use of a derivative work to build a house constitutes copyright infringement. There is no obvious measure for determining when a new drawing is different enough from its inspiration to be considered an "original" work under the copyright law. The basic test is whether the new plan and the old plan, viewed side by side, are "substantially similar." Several people have told me of a popular myth that there is no infringement if the original plan is changed by a certain percentage, such as 20%. I am aware of no legal support for such a formulation. The safest practice is to require the builder to obtain permission from the original designer unless it is obvious that the new and the original are not similar.

• Have legal counsel add a provision to your listing contract requiring builders to warrant that they have the right to use the home plans they are using to construct the house, and to indemnify and hold you harmless from any claims or lawsuits alleging that the builder did not have permission to construct a home from the home design used.

• Refrain from making or distributing copies of architectural drawings -- in marketing materials or otherwise -- without first obtaining written permission from the designer.

• Finally, if you do end up on the receiving end of a copyright infringement claim or lawsuit, be sure to immediately notify your business liability insurer. Many business insurance policies contain "advertising injury" or other provisions that will cover your legal defense.

Following these measures will greatly reduce your risks from copyright infringement suits.

If you have any questions regarding this article or other copyright issues, please contact Eric Stevens at 919.783.1017 or estevens@poynerspruill.com.