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What Do You Really Get When You Acquire Copyrighted Materials Through Foreclosure?

AAAI is an architecture firm that developed plans for a building project called “Murray’s Walk” for MWDL. In April 2009, AAAI filed a builder’s lien on the project over unpaid fees. In May 2011, the project was restarted after AAAI was paid $190,000 and released the lien. AAAI submitted the plans to the city of Langley and created revised plans for MWDL.

In 2012, AAAI developed a drawing package to support an application for building permits, but refused to release them until they were paid in full for work completed after May 2011. AAAI agreed to release the drawing on the understanding that it would be paid from the construction loan because a construction financing loan sought by MDWL was dependent on obtaining permits. By April 2013, the general contractor on the project ceased work for non-payment.

MDWL then went bankrupt and the Newmark Group acquired “all of MWDL’s present and after-acquired personal property” through foreclosure. At the time of the foreclosure, AAAI was still owed roughly $63,000 and sent Newmark a letter indicating that it retained copyright in the plans, asserting:

The purpose of this letter is to confirm, that [AAAI] has copyright, and is the sole owner of all drawings and specifications pertaining to the subject project. I would draw your attention to the Client/Architect Agreement that I forwarded to you on Monday, June 6, 2014, clause 9.00 “Copyright and Use of Documents”

I understand that you have bought the site, but should you wish to use our design, drawings or our services we will be expecting fair compensation

After receiving the letter, Newmark provided AAAI’s plans to a new architect who used AAAI’s plans to secure building permits and construct the project. AAAI then sued Newmark and the new architect for copyright infringement.

An issue between the parties was whether the additional work performed by AAAI was part of the work for which AAAI had been partially compensated or new work for which AAAI had received no compensation. The Court characterized the work as new work and held that that the second lien obtained by AAAI implicitly revoked MWDL’s licence to the drawings:

[41]        Hence, when full payment was not provided, and AAAI realized that its fees were unpaid and filed the builder’s lien on April 25, 2013 as security, the conditional implied licence was implicitly revoked ending the licence held by MWDL. The filing of the builder’s lien signified that its work product may not continue to be used until its debts were settled.

[42]        Needless to say, if MWDL had indeed lost the licence, it follows that the licence could not have passed to the Newmark Group through the foreclosure proceedings in which case it would have breached the copyright by using the drawings without consent.

….

[54] The respondents did not provide any consideration to AAAI to use the plans. Importantly, AAAI did not receive funds from the sale of the lands or any funds from the respondents for that matter. In these circumstances, it can be concluded no consideration was given, and thereby AAAI had the automatic right to revoke its consent at any time

AAAI was awarded approximately $55,000 in damages corresponding to the amount Newmark would have had to pay to obtain AAAI’s consent to use the plans.

A copy of the decision can be found here.