License to Build: The Importance of License Terms in Design Agreements

Originally published by the Daily Journal of Commerce on April 18, 2024.

Plans, drawings, and related design documents are needed at all stages of a construction project, from early concepts and permitting to site preparation and construction itself. Many professionals in construction and property development are well versed in contract law, safety regulations, insurance law, and the like. Yet the law that governs ownership and use of architectural works—principally, copyright law—often is not well known even among seasoned veterans of development and construction disputes.

Architectural drawings are protected under federal copyright law. Although architects may not have ownership of the ideas inherent in the drawings, they have the right to prevent others from copying, publishing, or, in some cases, using their drawings. In certain cases, architectural drawings also may be protected by the Visual Artists Rights Act (VARA)—legislation enacted by Congress in 1990 specifically to protect visual artwork. Because VARA applies to limited-edition “drawings,” but specifically does not apply to “technical drawings,” issues often arise regarding whether an architectural drawing is sufficiently technical in nature to fall outside VARA’s protections. If VARA does apply, however, the architects have additional rights, including “moral rights” to prevent modification, adaptation, and some uses with reputational significance. Architects may have tangible property rights in drawings and related works as well. In one recent California case, an owner who gave his original architect’s plans and drawings to a successor architect without permission was found liable for theft and forced to pay treble damages!

The penalties for infringing a copyright go beyond breach of contract and the architect need not prove actual damages. Under the Copyright Act, an infringer can be liable for steep statutory damages—between $750 and $30,000 for each infringement. For willful infringement, statutory damages can be as high as $150,000. An infringer also may be on the hook for paying the architect’s attorneys’ fees. The costs can be quite high.

As such, owners or contractors working with an architect need to be mindful of these rights and secure ownership of them or permission to use them in architecture agreements and construction contracts. Permission can be granted in the form of an express license—a written agreement that the other party can exercise some or all the rights that the architect has under the law. But the terms of such a license can vary widely, from perpetual, irrevocable authorization to copy, alter, and publish to others to revocable grants of limited permission to use only for a specific purpose. As with any intellectual property right, an architect can also transfer ownership of the drawings entirely.

Copying plans for use, transmitting them to others, and, in some cases, even building what is depicted in the drawings can constitute infringement if there is no license in place. Agreements with an architect therefore should include some form of license sufficient for the needs of parties during the project.

The most common form of agreement used by architects is the American Institute of Architects’ (AIA) B101 document, which, as you might imagine, includes a license favorable to the architect. It “grants to the Owner a nonexclusive license to use” the drawings, specifications, and other “Instruments of Service solely and exclusively for purposes of constructing, using, maintaining, altering and adding to the Project, provided that the Owner substantially performs its obligations under this Agreement.” Under the license, the owner may similarly authorize the contractor and subcontractors to use the work for project purposes. But the provision that the owner must “substantially perform” to keep the license raises complicated questions concerning whether the designer may revoke the license and threaten progress of the project.

An owner often will prefer an irrevocable license, which will allow the project to continue despite a dispute with the architect or alleged breach of contract. Some owners require transfer of ownership in the drawings or designation of the work as a “work for hire” whereby the architect creates the drawings on the owner’s behalf and the owner owns the copyright. On projects involving a single-purpose entity like an owner LLC or corporation, the owner also will want to consider whether the rights are assignable to others, including successor entities that may be planned. However, a design professional may have concerns with an owner using its drawings on future projects without employing the design professional’s services and, if so, may seek indemnities from the owner against claims arising from such future use.

Failure to include an express license for the architectural works in a contract can open an owner to significant risk if the relationship with the architect sours. It can be difficult to establish an implied license, and even more difficult to determine the terms of that license. Because of the threat of substantial infringement damages, lack of clarity over the scope, applicability, or transferability of a license can lead to delays and disputes with contractors and subcontractors.

Although perhaps not top of mind when beginning a construction project, these issues are important for owners and contractors. Careful planning, review, and negotiation of licenses can pay dividends on a project if things go awry.