In any crowded market, retailers and manufacturers rely on eye-catching labels and clever product names to separate from the masses. This is certainly true in the craft beer world. But when companies seek outside artists or designers to assist in the creation of the one-of-a-kind labels, formalities of contract, licenses, and ownership sometimes fall by the wayside in the excitement of the moment.  Later, when the product or company gains notoriety, and of course profit, based on the artwork, disputes can arise as to who owns the rights to the work and the limits of the license.

A lawsuit from 2018 involving North Coast Brewing (Signorelli v. North Coast Brewing, Co.) provides an example of such a situation where a label’s artwork spawned a subsequent dispute that could have been avoided. While the court found in favor of North Coast Brewing’s use of the disputed works, it is easy to see that just a slight tweak of the facts could have led to different result. Moreover, the circumstances surrounding the creation of the label artwork is a common situation but could be avoided through appropriate written contracts and legal review.

Factual Background

The follow facts of the North Coast Brewing lawsuit are taken directly from the Court’s ruling: Plaintiff Joelle Signorelli (“Signorelli”) was the wife of the late artist Eduardo Smissen (“Eduardo”). Eduardo was approached by North Coast Brewing in 2005 to design the artwork for a beer now known as Brother Thelonious Belgian Style Abbey Ale. The artwork was to feature the jazz musician Thelonious Monk. Eduardo responded to North Coast Brewing’s request in an email with a simple proposal which included: (1) $350 for the initial sketches of Thelonious Monk, to be done in coordination with designer Theresa Whitehall of Colored Horse; (2) $1,150 for the final artwork and “licensing of the image for the beer label”; and (3) $1,500 for the original painting, if desired. Apparently, though North Coast Brewery never responded to Eduardo in writing, they had reached an agreement and Eduardo provided the artwork for the beer label which was used in production by the end of 2005.

In 2006 and 2007, Signorelli claimed that North Coast Brewery began using Eduardo’s artwork in a more expanded manner than originally contemplated. North Coast Brewery used the artwork on various types of merchandise and to promote various jazz-related events. Signorelli claimed that Eduardo’s design “had been singularly instrumental in growing North Coast Brewing from a small local brewery into an international presence.” In 2010-2012, Eduardo did some additional artwork for North Coast Brewing involving Thelonious Monk, which was separate and distinct from the original work, but included “tweaks” to the original design for a Christmas theme. Signorelli claimed that this new work was never “sold” to North Coast Brewing.

In 2015, Eduardo passed away and Signorelli sought additional compensation from North Coast Brewing. In late 2017, after her requests were denied by North Coast Brewing, she registered a copyright on Eduardo’s original design from 2005. Thereafter, Signorelli advised North Coast Brewing that any prior consent to use the design was revoked and that the parties would need to enter into a “merchandising agreement with her” to continue to use the label.

The Lawsuit

Signorelli sued North Coast Brewing in Federal Court under various theories including copyright infringement, restitution, and breach of express and implied contract. After a series of motions to dismiss and amendments to her Complaint, the Court granted North Coast Brewing’s motion to dismiss in June 2019. The Court found that North Coast Brewing had an implied license for the artwork, which occurs when: “(1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work.” The scope of an implied license depends on the licensor’s objective intent at the time of the creation and delivery of the copyrighted work as evidenced by the parties’ conduct. Thus, Signorelli/Eduardo had the burden of showing an express intent to limit the scope for the license. From the facts we can see that there was little discussion at all between Eduardo and North Coast Brewing, let alone about the scope or limits to the artwork. Additionally, the Court found that as to Signorelli’s copyright claim, even a limited license would have permitted North Coast Brewing to use the artwork in advertising “articles” under section 113(c) of the Copyright Act (“sometimes referred to as “Advertising Immunity”).

Outcome and Avoiding Litigation

Though North Coast Brewing was victorious in its defense of Signorelli’s lawsuit, it still had to deal with the headache and expend attorneys’ fees defending the case. (While some court costs were likely recovered, other than where provided by contract or statute, each party bears its own attorneys’ fees.) In a twist, North Coast Brewery had already revised the label of the Brother Thelonious beer in early 2019 after a separate, unrelated lawsuit involving Thelonious Monk’s estate. Had the parties confirmed the scope of the license for Eduardo’s work, in writing, at the onset of their arrangement, the entire dispute likely could have been avoided. Moreover, the parties could have included necessary provisions to recoup litigation expenses should a dispute arise. The lack of a formal written agreement is not uncommon, especially when small companies are just starting out, and such formalities and use of legal professionals is a secondary thought. But future successes of the business can lead to disputes over people getting their expected shares based on agreements reached when the company is just starting out.

Business owners, not just in the craft beverage world, should ensure that they are getting appropriate written licenses with artists and designers that clearly establish the limits of the licenses (or lack thereof), the timeframes, the amounts to be paid, and how to resolve future disputes if they arise. Better yet, we would encourage businesses to have any such agreements drafted or reviewed by legal counsel. It is always best to enjoy the present; but prepare for the future. Cheers!

Daniel Brast is an attorney with Balestreri Potocki & Holmes. His practice includes litigation and transactional matters for a variety of businesses, including craft beer. He can be reached at dbrast@bph-law.com.