09 / 26 / 2017

AIA Contracts and Architectural Firm Disputes

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Can an architectural firm terminate a license to use its drawings and specifications? Yes, yes it can.

 In a contractual dispute with a client, the architectural firm of Eberhard Architects, LLC, had its case upheld in federal court when the client, Lifecare Hospice, failed to make payments to the firm on time.

 The ability to terminate a license is a powerful tool in a dispute for architectural firms because the right to use drawings and specifications is one of its best bargaining chips. The rest of this post illustrates the reasons the court came to its decision.

The Case 

Lifecare Hospice entered into an AIA contract with Eberhard, which granted a nonexclusive license to use its drawings and specifications for a project. The agreement contained a clause stating that Eberhard could terminate the contract and the license if Lifecare discontinued payments, which it did approximately halfway through the project.

When Lifecare continued to use the drawings and specification, Eberhard issued multiple cease-and-desist warnings, all of which were disregarded. Eventually, Eberhard sued Lifecare and its contractors to stop the improper use of Eberhard’s intellectual property.

A federal court ruled that Eberhard rightfully terminated the agreement when Lifecare ceased paying the architect’s invoices allowing Eberhard to revoke Lifecare’s license per the contract. It also gave Eberhard the right to sue on charges of copyright infringement since the drawings and specifications were considered intellectual property covered by the Copyright Act.

Similar cases had been filed and dismissed in the past in which an architect attempted to bring a claim for copyright infringement because the plaintiff had failed to pay the invoices. In those cases, the contractual language found in the Eberhard case was lacking.

The Arguments 

Lifecase argued that the case was not covered by the Copyright Act; instead, it argued the case should be framed as a contract dispute around non-payment of invoices. However, the court disagreed with this assessment and maintained the complaint was indeed infringement, and therefore covered by the act.

The next set of arguments from Lifecase was also discarded, in which it maintained that Lifecase did not exceed the scope of the license because the drawings and specifications were used on the project Eberhard had intended. Furthermore, the defendant stated that it did not breach the contract because complete payment was not specified in the contract. 

The court disagreed because the contract granted a license "upon execution" and not when full payment was due; therefore the contract showed no intent of tying full payment to granting the license. In addition, the parties agreed through the contract that the license would “cease to exist” if Lifecase did not pay Eberhard on time. 

The court held that it was clear Lifecase, its contractors, and subcontractors knowingly continued to use the drawings and specifications even though the license may have been expired, especially since they had received multiple cease-and-desist notifications. In any case, when the charge became one of infringement of the Copyright Act, there was no need for the defendant to be shown as willful or knowing because it is not required to prove infringement.

By discontinuing payments and continuing to use copyrighted materials for which the license was terminated, whether they acknowledged it or not, Lifecase exposed itself to liability.

The Outcome

This dispute highlights the importance of including contractual language in the agreements between Owners and Architects that stipulate the precise actions that shall result in the Architect terminating the Owner’s license to use the Architect’s instruments of service (in this case, the drawings and specifications).

By virtue of the additional clause, Eberhard Architects, LLC won a case that, in the past, had been dismissed due to the lack of a stipulation defining if and when an architectural firm can terminate a contract and a license. Also, the nature of the instrument of service means that its unlicensed use could be considered infringement of intellectual property and therefore protected by the Copyright Act.

Breach of contract cases are won or lost based on the language the contract contains. The courts are not typically willing to assume any stipulation where the language does not exist.

Because Lifecase agreed to “substantially perform its obligations [to Eberhard], including prompt payment of all sums when due under the Agreement,” it agreed to the termination of the license by halting payments due. It then compounded the issue with copyright infringement by continuing its unlicensed use of protected intellectual property belonging to Eberhard.

If Eberhard had not had the foresight to include the clause, “including prompt payment of all sums when due,” it may have failed to win its case as architects had before it.

To ensure your contract will protect your interests, consult an experienced intellectual property attorney to review your contract and provide guidance in its language.

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