By Stephen D. Milbrath Accel IP Law, PLLC
In November 2021 a United States District Judge in Los Angeles confirmed an arbitration award totaling $1,690,074.39 in damages and attorneys’ fees in favor of noted painter and illustrator William Silvers and his company, William Silvers Art.  Silvers has enjoyed a justly celebrated career as a digital matte painter for Walt Disney Feature Animation Studios and as a prodigious producer of fine art, much of it interpreting Disney classic film scenes or art. 
In 2008 Silvers agreed to create fine art pieces as an independent contractor for a licensee of Disney and Lucasfilm Ltd, Verbata, Inc., which does business under the name “Acme Archives” (“Acme.”) As is customary in such arrangements, Silvers signed an artist publishing agreement which granted, subject to reversion under various circumstances, work for hire rights in his art to Acme. The art he created was original to him but constituted derivative work art under the Copyright Act because it was inspired by or interpreted classic film studio imagery or scenes from famous Disney or Lucasfilm works. After a dispute developed between Silvers and Acme over royalties and artist proofs, however, Acme claimed through its counsel that it owned all of the Silvers art through a 2013 alleged work for hire agreement that Silvers had neither agreed to nor signed. This cast a cloud over the ownership of Silvers’ derivative work art created while Silvers was working as an independent contractor to Acme, and effectively prevented Silvers from commercializing that art through permissible Disney channels of distribution.
A derivative work is a work “based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version sound recording, art reproduction, abridgement, condensation, or other form in which a work may be recast, transformed, or adapted.”  The Copyright Act says that a work which consists of “editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a ‘derivative work.’” 
If the owner of a copyright commissions an independent contractor to create a new version or new adaptation of an existing copyrighted work, and if the resulting work is sufficiently original to qualify as an original work of authorship itself, the work qualifies as a derivative work under the Copyright Act and is protectible as such. The legal protection of the work, however, only extends to the creative material contributed by the derivative work author. 
The owner of the original copyright, such as the film studio, “holds a bundle of exclusive rights in the copyrighted work, among them the right to copy and the right to incorporate the work into derivative works.”  In such a case, absent a properly prepared work for hire agreement or assignment, the “aspects of a derivative work added by the derivative author with the original owner’s consent are that author’s property, but the element drawn from the pre-existing work remains on grant from the owner of the preexisting work.” 
Rights owners are typically keenly aware of the potential value of new derivative works, and they should be. The derivative work copyright becomes legally protectable once “fixed in a tangible medium of expression”  and it can become of great value as a free-standing work, perhaps even competing in some ways with the original work. The derivative work owner has the right to make reproductions of the work, or even new derivative works based upon the existing derivative work, drawing upon his or her own contribution of originality to the original preexisting work.
As a hedge of protection from the derivative work author, rights owners typically insist upon a work for hire agreement, one which gives the commissioning party ownership of the derivative art as well as the right to register copyrights in the art as the author. The 2008 agreement Silvers executed was a work for hire agreement of sorts, but it had significant drawbacks for Acme as the publisher. The 2013 purported agreement, however, was an entirely different sort of agreement, one that took away nearly all of the rights of the author and imposed significant restraints upon the author that Silvers would never have consented to.
An expert in questioned documents determined that the signature on the alleged agreement had been digitally harvested from an authentic agreement Silvers had signed and superimposed onto the purported 2013 agreement, making it in effect a forged document. Silvers sued in the Ocala Division of the United States District Court for the Middle District of Florida, seeking, among other things, a declaratory judgment that the agreement in dispute was a forgery, that the 2008 agreement was not a valid work for hire agreement, and that he was the owner of the derivative work copyrights in the Silvers art, some of which were mysteriously showing up for sale on websites Silvers had not authorized and for which he was not being paid.
Silvers also sued Acme and its principals for fraud and for conspiracy to defraud, and conversion. After many skirmishes over personal jurisdiction  the district court in Florida granted a motion to compel arbitration in Los Angeles, even though the 2008 agreement was never signed by Acme.  Hence the case moved to a JAMS arbitration forum in California, where Silvers underwent nearly two years of litigation before a highly experienced JAMS arbitrator, Barbara A. Reeves, on Silvers’ claims and Acme’s counterclaims, the latter of which produced the ironic result that Silvers had the benefit of insurance defense counsel to assist him in the case and in paying the expensive forum fees to arbitrate —always a significant shortcoming for an artist in litigation with a publisher.
After twelve days of arbitration and countless motions and memoranda, the Arbitrator ruled in favor of Silvers, granting a declaratory decree that Silvers owned the copyrights in his derivative works and determining that the 2013 alleged agreement was a fraud and that Acme and its principals and Silvers’ manager had engaged in a conspiracy to commit fraud and that they had engaged in conversion of Silvers’ missing art. The arbitrator awarded compensatory and punitive damages. 
She also ruled that Silvers was entitled to an award of attorneys’ fees under the Copyright Act, awarding fees in the amount of $546,525. After considering a motion to vacate the award, United States District Judge Virginia A. Phillips confirmed the award on all issues and granted a final judgment in favor of Silvers.
The arbitrator’s award and the ensuing judgment offer instructive points for lawyers and artists, particularly in the copyright context. First, it is frequently a daunting task to protect artists after they have already executed a work for hire agreement. In Silvers’ case, there was no fully executed version of the 2008 work for hire agreement. Because this was so, Acme could not establish that there ever had been a work for hire agreement between the parties that satisfied the Copyright Act’s requirement of a “written instrument” signed by both the artist and the would-be owner providing that the work “shall be considered a work for hire.” [17 U.S.C. §101. 2]. This is a point easily overlooked in a copyright case, but it is essential that the party claiming ownership show that the agreement in suit was in fact signed by both parties; partially executed faxes or electronic copies will not suffice.
Because Acme had lost its Disney publishing rights, moreover, the right to publish the Silvers derivative works had gone “out of print” under the terms of the 2008 agreement itself, and therefore the copyrights in the Silvers derivative works had reverted to Silvers in all events. This last point underscores the importance of negotiating for and drafting a work for hire agreement with a reversionary right back to the artist in the event the publisher ceases publishing the work and therefore ends its attempts to exploit the work commercially for the benefit of the artist and publisher alike. This is a provision that should be bargained for in any properly negotiated work for hire agreement between an artist and a publisher, but one commonly overlooked in the negotiation of such agreements.
The independent artist asked to sign such an agreement is typically the “little guy” in the bargaining process for a license, one who has limited assets and little bargaining power in the relationship. Yet even so, the artist has a genuine need for proper counsel before signing a work for hire agreement. This is because there are many ways to draft such an agreement that will protect the derivative author, or at least to limit the scope of the rights granted the publisher.
This case also underscores the importance of the federal forum in the event of a dispute over unregistered but enforceable copyrights. Where a derivative work is unregistered but there is a dispute over its ownership, the artist is entitled to seek a declaratory judgment of copyright ownership in a federal district court. The dispute qualifies as a “civil action” under the Copyright Act, and thus a dispute that can, as in this case, give rise to the recovery of attorneys’ fees in favor of the prevailing party under 17 U.S.C.§ 505. 
This is a powerful corrective to the use of arbitration to wage economic warfare against the artist, who usually lacks the means to go the distance in an expensive arbitration proceeding. The district court has considerable discretion in determining whether the case qualifies for the award of prevailing party fees, particularly where the claim of copyright ownership is ill-founded and where litigation misconduct has been perpetrated upon the winning party. In this case, the arbitrator found that the respondents had engaged in spoliation of records, including accounting records relating to sales of the Silvers works. The arbitrator took these facts into account in determining that Acme was required to pay Silvers’ legal fees. Here there was not only spoliation but a finding of fraud and fraud conspiracy. In addition, Acme’s counterclaim against Silvers was found to lack merit, which only compounded the inference of bad faith in the litigation.
In a business environment in which film studios and their agents hold most of the cards, this case illustrates that the artist can sometimes emerge from the oppression of expensive arbitration with a victory, and one that vindicates the importance of the Copyright Act to art and to artists. The award was also one that vindicates the rights of Disney as the rights owner in the original works.
The trial team in the arbitration consisted of this author, a partner in AccelIPlaw, PLLC and the Elaine K. Fresch and Mikhail Mdinaradze of Selman Breitman, LLP.
1 See Silvers v. Verbata, Inc., d/b/a Acme Archives, Sean McLain and Lisa, McLain, Central District of California, Case No. 2:21-cv-05808-VAP-RAO (Virginia A. Phillips, District Judge). 2 See, e.g., http://www.williamsilversart.net/ 3 17 U.S.C. §101 4 Id. 5 17 U.S.C. §103(2)
6 Stewart v. Abend, 495 U.S. 207, 223 (1990). 7 Id., at 495 U.S. 223. 8 See 17 U.S.C. §102(a). 9 See, e.g., Silvers v. Verbata, Inc., No.5:17-cv-169, 2018 U.S. Dist. LEXIS 12964 (M.D. Fla. Jan. 26, 2018).
10 Silvers. v. Verbata, No. 5:17-cv-169, 2018 U.S. Dist. LEXIS 73916 (M. D. Fla. Mar. 22, 2018).
11 See Final Award, JAMS REF. NO. 1220059662
1 See Silvers v. Verbata, Inc., d/b/a Acme Archives, Sean McLain and Lisa, McLain, Central District of California, Case No. 2:21-cv-05808-VAP-RAO (Virginia A. Phillips, District Judge). 1 See, e.g., http://www.williamsilversart.net/ 1 17 U.S.C. §101 1 Id. 1 17 U.S.C. §103(2) 1 Stewart v. Abend, 495 U.S. 207, 223 (1990). 1 Id., at 495 U.S. 223. 1 See 17 U.S.C. §102(a). 1 See, e.g., Silvers v. Verbata, Inc., No.5:17-cv-169, 2018 U.S. Dist. LEXIS 12964 (M.D. Fla. Jan. 26, 2018). 1 Silvers. v. Verbata, No. 5:17-cv-169, 2018 U.S. Dist. LEXIS 73916 (M. D. Fla. Mar. 22, 2018).
12 See, e.g., See, e.g., Doc’s Dream, LLC v. Dolores Press, Inc., 959 F.3d 357, 363 (9th Cir. 2020) (declaratory judgment suit to declare rights under the Copyright Act is a “civil action under this title” as used in 17 U.S.C. §505); Mallon v. Marshall, 268 F. Supp. 3d 264 (D. Mass. 2017) (suit over derivative work ownership triggers declaratory judgment rights and invokes the Copyright Act as the necessary basis for deciding the ownership issue and for deciding whether to award legal fees to the successful party in the litigation).