Schrock v. Learning Curve International, Inc., 110509 FED7, 08-1296

Docket Nº:08-1296
Opinion Judge:Flaum, Williams, and Sykes, Circuit Judges
Party Name:Daniel P. Schrock, d/b/a Dan Schrock Photography, Plaintiff-Appellant, v. Learning Curve International, Inc., RC2 Brands, Inc., and HIT Entertainment, Defendants-Appellees.
Judge Panel:Before Flaum, Williams, and Sykes, Circuit Judges.
Case Date:November 05, 2009
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Daniel P. Schrock, d/b/a Dan Schrock Photography, Plaintiff-Appellant,

v.

Learning Curve International, Inc., RC2 Brands, Inc., and HIT Entertainment, Defendants-Appellees.

No. 08-1296

United States Court of Appeals, Seventh Circuit

November 5, 2009

Argued September 9, 2008

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 04 c 6927—Milton I. Shadur, Judge.

Before Flaum, Williams, and Sykes, Circuit Judges.

Sykes, Circuit Judge.

HIT Entertainment ("HIT") owns the copyright to the popular "Thomas & Friends" train characters, and it licensed Learning Curve International ("Learning Curve") to make toy figures of its characters. Learning Curve in turn hired Daniel Schrock, a professional photographer, to take pictures of the toys for promotional materials. Learning Curve used Schrock's services on a regular basis for about four years and there­after continued to use some of his photographs in its advertising and on product packaging. After Learning Curve stopped giving him work, Schrock registered his photos for copyright protection and sued Learning Curve and HIT for infringement.

The district court granted summary judgment for the defendants, holding that Schrock has no copyright in the photos. The court classified the photos as "derivative works" under the Copyright Act—derivative, that is, of the "Thomas & Friends" characters, for which HIT owns the copyright—and held that Schrock needed permission from Learning Curve (HIT's licensee) not only to make the photographs but also to copyright them. Because Schrock had permission to make but not permission to copyright the photos, the court dismissed his claim for copyright infringement.

We reverse. We assume for purposes of this decision that the district court correctly classified Schrock's photographs as derivative works. It does not follow, however, that Schrock needed authorization from Learning Curve to copyright the photos. As long as he was authorized to make the photos (he was), he owned the copyright in the photos to the extent of their incremental original expression. In requiring permission to make and permission to copyright the photos, the district court relied on language in Gracen v. Bradford Exchange, 698 F.2d 300 (7th Cir. 1983), suggesting that both are required for copyright in a derivative work. We have more recently explained, however, that copyright in a derivative work arises by operation of law—not through authority from the owner of the copyright in the underlying work— although the parties may alter this default rule by agreement. See Liu v. Price Waterhouse LLP, 302 F.3d 749, 755 (7th Cir. 2002). Schrock created the photos with permission and therefore owned the copyright to the photos provided they satisfied the other requirements for copyright and the parties did not contract around the default rule.

We also take this opportunity to clarify another aspect of Gracen that is prone to misapplication. Gracen said that "a derivative work must be substantially different from the underlying work to be copyrightable." 698 F.2d at 305. This statement should not be understood to require a heightened standard of originality for copy­right in a derivative work. We have more recently explained that "the only 'originality' required for [a] new work to be copyrightable . . . is enough expressive varia­tion from public-domain or other existing works to enable the new work to be readily distinguished from its predecessors." Bucklew v. Hawkins, Ash, Baptie & Co., LLP, 329 F.3d 923, 929 (7th Cir. 2003). Here, Schrock's photos of Learning Curve's "Thomas & Friends" toys possessed sufficient incremental original expression to qualify for copyright.

But the record doesn't tell us enough about the agree­ments between the parties for us to determine whether they agreed to alter the default rule regarding copyright or whether Learning Curve had an implied license to continue to use Schrock's photos. Whether Schrock could copyright his photographs and maintain an infringe­ment action against the defendants depends on the con­tractual understandings between Schrock, Learning Curve, and HIT. Accordingly, we remand to the district court for further proceedings consistent with this opinion.

I. Background

HIT is the owner of the copyright in the "Thomas & Friends" properties, and Learning Curve1 is a producer and distributor of children's toys. HIT and Learning Curve entered into a licensing agreement granting Learning Curve a license to create and market toys based on HIT's characters. HIT and Learning Curve maintain (through an affidavit of HIT's vice-president of licensing) that HIT retained all intellectual-property rights in the works produced under the license. The licensing agreement, however, is not in the record.

In 1999 Learning Curve retained Daniel Schrock to take product photographs of its toys, including those based on HIT's characters, for use in promotional materials. On numerous occasions during the next four years, Schrock photographed several lines of Learning Curve's toys, including many of the "Thomas & Friends" toy trains, related figures, and train-set accessories. (We have attached two of the photos as examples, although they are extremely poor copies because the originals are in color.) Schrock invoiced Learning Curve for this work, and some of the invoices included "usage restrictions" purporting to limit Learning Curve's use of his photographs to two years. Learning Curve paid the invoices in full—in total more than $400,000.

Learning Curve stopped using Schrock's photography services in mid-2003 but continued to use some of his photos in its printed advertising, on packaging, and on the internet. In 2004 Schrock registered his photos for copyright protection and sued HIT and Learning Curve for infringement; he also alleged several state-law claims. HIT and Learning Curve moved for summary judgment, arguing primarily that Schrock's photos were derivative works and not sufficiently original to claim copyright protection, and that neither HIT nor Learning Curve ever authorized Schrock to copyright the photos. They argued in the alternative that Schrock granted them an unlimited oral license to use the photos.

The district court granted summary judgment for the defendants. The judge began by noting the long tradition of recognizing copyright protection in photographs but said he would nonetheless "eschew" the question whether Schrock's photographs were sufficiently orig­inal to copyright. The judge focused instead on whether the photos were derivative works under the Copyright Act and concluded that they were. Then, following language in Gracen, the judge held that Learning Curve's permission to make the photos was not enough to trigger Schrock's copyright in them; the judge said Schrock must also have Learning Curve's permission to copyright the photos. Schrock did not have that permission, so the judge concluded that Schrock had no copyright in the photos and dismissed his claim for copyright infringement.2 Schrock appealed.

II. Discussion

Schrock argues that the district judge mistakenly classified his photos as derivative works and misread or misapplied Gracen. He contends that his photos are not derivative works, and even if they are, his copyright is valid and enforceable because he had permission from Learning Curve to photograph the underlying copy­righted works and his photos contained sufficient incremental original expression to qualify for copyright. HIT and Learning Curve defend the district court's deter­mination that the photos are derivative works and argue that the court properly read Gracen to require permission to copyright as well as permission to make the derivative works. Alternatively, they maintain that Schrock's photographs contain insufficient originality to be copyrightable and that copyright protection is barred under the scènes à faire or merger doctrines. Finally, the defendants ask us to affirm on the independent ground that Schrock orally granted them an unlimited license to use his works.

As a general matter, a plaintiff asserting copyright infringement must prove: "(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original." Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991). There is no dispute here about copying; Learning Curve used Schrock's photos in its promotional materials. The focus instead is on the validity of Schrock's asserted copyright in the photos. The Copyright Act provides that "[c]opyright protection subsists . . . in original works of authorship fixed in any tangible medium of expression . . . from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." 17 U.S.C. § 102(a). In this circuit, copyrightability is an issue of law for the court. Gaiman v. McFarlane, 360 F.3d 644, 648-49 (7th Cir. 2004).

Much of the briefing on appeal—and most of the district court's analysis—concerned the classification of the photos as derivative works. A "derivative work" is:

[A] work based upon one or more...

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