How Licensing Works. Don’t Let Congress Orphan Your Work

My name is Joanne Fink, and I am the President of Lakeside Design, a Central Florida design studio which specializes in developing products for the gift, craft, and stationery industries. Most of our clients are manufacturers who sell their products to major retailers such as Wal-Mart, Costco, Target and Michaels. These clients range in size from small family businesses to huge international corporations, but they all have one thing in common; they license art to put on their
products. Through my business, I have been involved in the art licensing industry for many years, and often speak about art licensing at major trade shows such as The Licensing Show and The Craft and Hobby Association show. I don’t know if you are aware of the devastating consequences that two pending bills (H.R. 5889 — The orphan Works Act of 2008 and S. 2913– The Shawn Bentley Orphan Works Act of 2008) will have on the entire art licensing industry, so I felt compelled to share my concerns in hopes that the bill could be reworked to address them.

While I oppose the Orphan Works amendment, I applaud the intention of those who created it; there have been several occasions in the past decade that I wanted to use a particular image as part of a design, but because I was unable to determine where the image had originated and/or who owned the copyright to it, I was unable to use it. While I would welcome the ability to use images of this sort, I would NOT welcome it at the expense of undermining the entire Art Licensing world and current copyright protections, particularly as they relate to visual artwork such as photography, painting, and illustration. Unfortunately, as currently written, the Orphan Works amendments will have a devastating economic impact on artists and manufacturers in numerous industries; it will basically change American copyright and intellectual property laws.

My belief, from having read the bills in detail, is that whoever drafted them may not have fully considered their impact on the licensing world. Since art licensing is one of my areas of expertise,
I thought it would helpful if I could share some information about how licensing works, and why passing this bill in its current state will be detrimental to the millions of people involved in the field.

LICENSING IS BIG BUSINESS

The following statistics have been provided by LIMA (the Licensing International Merchandiser’

s Association). Licensing is big business; it accounts for $175 billion in retail sales of licensed merchandise worldwide, and over $105 billion in the United States.

In 2006, the $3.3 billion in retail sales of products featuring a licensed piece of art brought licensors — artists and designers— royalty revenues of $182 million. These sales came from the following categories, affecting a wide range of American manufacturers:

36% gifts and novelties
15% home décor
15% housewares
10% paper products
7% accessories
5% apparel
4% publishing
3% food and beverage
3% health and beauty
2% infant products

HOW THE ART LICENSING INDUSTRY WORKS

Whoever owns the rights to a 2-or 3-dimensional design or image (usually the artist/creator of the design) is the LICENSOR, and whoever wants to acquire the rights to reproduce that design or image is the LICENSEE. Artists/LICENSORS make money by licensing (essentially “renting”) the right to reproduce their design or image to different manufacturers (LICENSEES) to use on different sorts of products. For example, a sailboat image can be licensed to company A for a mug; company B for a coaster, and company C for an art print. Licensing is an interesting and complex business, and it is a successful and profitable business because our current copyright law protects the creator’s rights and safeguards their ability to profit from their intellectual property. This $3+ billion art licensing industry will no longer be able to function should the proposed legislation be passed. RAMIFICATIONS OF THE PROPOSED LEGISLATION

When a manufacturer wants to feature an artist’s work on one or more of their products, it is important to them that they are the only company who has the right to reproduce that design on that particular product. If other manufacturers are able to put the same design on the same product then it hurts the licensee, especially if the manufacturer licensee has to factor the artist’s royalty payment into their price structure while the infringing manufacturer does not and can therefore bring the product to market at a lower price point. In fact, one of the great incentives NOT to infringe on an artist’s copyright, is that currently there is a stiff penalty — up to $150,000 for each instance that infringement is proven. The proposed Orphan Works bills removes the penalty for infringement, which will make it easy for unscrupulous companies to infringe on someone’s copyright and receive nothing more than a ‘hand-slap’ as punishment.

Consider for a moment, that you are an artist, and imagine how you would handle the following hypothetical situation:

In the 1990’s, you licensed a series of pictures for one-time use in a corporate annual report. As often happens in such cases, the copyright notice and artist credit were left off of the printed piece. As a business-savvy artist and studio owner, you naturally took the time and trouble to register your copyright to the works. Because your brand is important to you, you make it a practice never to license your work for inexpensive or distasteful products, but over the course
of the next decade, you did decide to license some of these images for exclusive use on upscale lines of dishes, wall décor, and jewelry boxes — product lines which enhance your brand’s image.

Fast forward to today; a t-shirt manufacturer is cleaning out his mother’s attic and finds the annual report featuring your pictures, and decides that they would be hot sellers for his fall line. He calls the company to try to find the artists name, but no one there knows. So he begins to manufacture and sell cheap t-shirts bearing your art. Thank goodness for our current copyright law, under which your remedies would include statutory damages, attorney’s fees, impoundment
and injunction for this flagrant infringement — because it’s damaged your ability to exclusively license your work only in high-end markets. And once your work is seen on lower-end products, the brand loses it caché resulting in many upper end manufacturers refusing to license it. Since this adversely affects your income, you hire a lawyer to take your case on a contingency basis, and with their assistance are able to prove infringement.

But what would happen if this same scenario took place in 2014— under the Orphan Works acts of 2008. Since, under the new (proposed) legislation you would only be entitled to ‘reasonable compensation’ for the use of your designs, and even that would be limited to whatever maximum the court might set and would be constructed not to deprive the infringer of the profits he made “in reliance” on his so-called failure to locate you, no attorney would take the case on a contingency basis. As a small business owner, you could not possibly afford the costs of hiring an Intellectual Property attorney and taking the case to Federal court, and so you would be unable to protect your design. In the meantime, the high-end companies which were featuring your work on their products see the same images on cheap t-shirts, decide to drop your work from their line, and sue you for breach of contract, since the contract you signed guaranteed them
the exclusive right to use that design. They also sue you for damages for the loss they take due to sharply reduced sales of products they have produced with your no longer fashionable design. All in all it is a very damaging situation — both from the visual artist’s and the honest manufacturer’s standpoints.

Without the deterrent of statutory damages and attorneys fees — and without a permanent injunction against repeat offenses by the same t-shirt seller, this experience would now act as an incentive for the infringer to exploit other uncredited (and therefore, effectively orphaned) images by other artists. Worse, the t-shirt manufacturer will discover that publishing ‘orphan works’ is a rational, profitable business decision, which could in turn inspire yet other infringers. It is bad enough we have to deal with infringement issues from China and other countries — we shouldn’t have to deal with it from our own soil.

PRIMARY OBJECTONS TO THE PROPOSED “ORPHAN WORKS” AMENDMENTS FROM THOSE INVOLVED IN THE ART LICENSING INDUSTRY

1. It changes the 1976 U.S. Copyright Act (enacted in 1978), and makes it virtually impossible for artists to protect their work. It basically allows anyone to use a design without the copyright holder’s permission.

Under current law, you receive basic copyright protection even if you don’t register your work. Under Orphan Works law your work could be declared an orphan even if you have registered it. Congress, in enacting the Copyright Act of 1976, provided that copyright exists in the creation of any work that is copyrightable subject matter, regardless of whether or not the owner has performed any legal formalities, such as registration, or copyright notices, or taken any steps to protect or defend the copyright. Since 1978 (when it was enacted) many creators have relied upon the Copyright Act of 1976, and employed business practices based upon the protections it offered. The proposed Orphan Works Acts of 2008 would have the effect of depriving certain creators of the ability to enforce their copyrights because they did not take steps that the Copyright Act of 1976 did not require them to take. In essence, it will give infringers the legal means to use a design without the copyright holder’s permission.

2. It requires artists to attempt to protect their work by registering it with a digital data base system (presumably for a fee, in addition to the copyright filing fee) — when no such system exists!

The proposed legislation is predicated on the establishment of private, profit making registries that would establish databases of digital versions of artworks and provide a place for infringers to try to locate the artist, BUT it will be enacted whether or not these data bases ever come into existence. This will relieve the infringer of liability if he simply attempts a search that cannot possibly be performed successfully.

In addition, the legislation places no limit on the number of these registries or the prices they would charge. The burden of paying for digitization and depositing the digitized copy with the private registry would presumably fall entirely on the artist, and even if an image is contained in the registry, as long as the infringer “looks” without finding it, the infringement is allowed. There is no liability imposed for the failure of a database to find an image registered in that database when it is searched, and no requirement that all available databases be searched, thus potentially requiring multiple registrations (and multiple registration fees). There are also no
safeguards to prevent any person or company from fraudulently registering work they do not own.

3. It eliminates statutory damages wherever an infringer can successfully claim an orphan works defense, thus eliminating the only tool the law provides to prevent deliberate infringement.

Current law almost certainly deters rampant infringement because the present remedies – damages of up to $150,000 per infringing article – make infringement risky. By “limiting remedies,” the Orphan Works amendments will effectively create a no-fault license to infringe.

4. It allows for an infringer to create — and copyright — a derivative work from the original design.

Under current law, the right to create a derivative work is one of an artist’s exclusive rights. Section103 (a) says a user can’t copyright a derivative image that he’s infringed. “Protection for a work employing preexisting material in which copyright subsists does not extend to any part of the work in which such material has been used unlawfully.” Under the proposed new bills, since the entirety of an infringed work can be included in a derivative use, then the copyright
of the derivative will amount to a copyright of the original. This would be a de facto capture of new exclusive rights by the infringer. In other words, these bills allow infringers to make and copyright derivatives — even if the copyright holder to the original work objects.

If this legislation passes it would mean a return to pre-1976 U.S. Copyright Act when many artists’ works fell into the public domain because they could not afford to comply with the formalities of registration as a condition of copyright protection. This violates the trust under which American artists have worked for the last 30 years, and effectively nullifies our U.S. Copyright registrations. Further, it leaves infringing works (and products incorporating them) subject to seizure in other countries under the Berne Convention for the Protection of Literary and Artistic Works (the international agreement governing copyrights to which the United States is a signatory), and invites sanctions from around the world under the World Trade
Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), to which the Unites States is also a signatory, because international artists’ works would be just as
vulnerable to infringement within the U.S. under the terms of the Orphan Works Amendment.

THE HEART OF THE ISSUE

One of the things that I do not understand about this legislation is why it applies to commercial applications. I truly believe that few in the art licensing community would have major issues with the legislation if it only affected non-commercial uses. Rather, we are extremely concerned about losing our ability to earn a living as small businesspeople and entrepreneurs by licensing our work for commercial use– which is what we believe will happen if this legislation passes.

I began my career over 25 years ago as a greeting card designer, and I am still extremely active in the greeting card industry; I am on the Board of Directors of the Greeting Card Association, an organization whose members (e.g., Hallmark and American Greetings) publish over 95% of the greeting cards sold in the United States. I am also the Design Editor for Greetings etc. magazine, the major trade publication for the greeting card industry. While the impact of this legislation will initially be felt by the visual arts communities, I would like to point out that it will also impact American manufacturers who utilize artwork in their product lines.

I strongly oppose this legislation, and respectfully request that you do NOT pass it. If you would like any additional information regarding the broad reaching implications this legislation has for our country, the art licensing community and visual artists both here and abroad, please do not hesitate to contact me.

Sincerely yours,
Joanne Fink, President
Lakeside Design
345 Eden Trail
Lake Mary, FL 32746
www.lakeside-design.com