The value of copyright in architect designs

1.    Background

The AS 4122 consultancy agreement was updated by the AS 4122-2010 and it was envisaged that the use of this standard form would be in the building, construction and engineering industry.

The standard form contract deals specifically with the intellectual property rights in relation to the materials produced under the contract. 'Intellectual property rights' has been interpreted as meaning 'any patent, registered design, trademark or name, copyright or other protected right'. In the case of architects, this will include the copyright in their design work.

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2.    Relevant components

Clause 21 of AS 4122-2010 relates to 'Copyright and other intellectual property rights'. In the context of ownership of copyright, it provides two alternatives:

• The architect retains ownership of the copyright in a design and grants a licence to the client to use the copyright.
• The copyright in a design vests in the client, but only upon payment by the client, of all fees due under the contract, and an 'additional fee' if specified.

Clause 21.4 of the AS 4122-2010 provides that an 'additional fee' may be payable by the client to enable it to exercise its rights under licence or under the assignment of the copyright.

If an additional amount for completion in Item 20 of Annexure Part A of AS 4122-2010 is nominated then the client and the architect need to agree on the additional fee. The agreement on the additional fee gives rise to a number of questions, including:

• What is the value of the copyright?
• Given the value of the copyright, how should the additional fee be calculated?

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3.    What is the value of a copyright?

The fair market value adopted for the purpose of this note is the maximum price that could be realised for the design in an open and unrestricted market between a seller (the architect) and a buyer (the client), both acting with full information.

Full-service commissions for an architect typically involve:

• sketch design and detailed design
• contract documentation
• contract administration.

A typical outline of the fee attributable to each of the above components is provided in the following table.

For full-service commissions, a reasonable proxy for the fair market value of the design is as follows:

• The fee to be charged for both sketch design and detailed design where such fees are specified in the documentation.
• 30% of the fee to be charged for the full-service commission, where fees for concept design and detailed design are not specified in the documentation.

For design-only commissions, the fee to be charged for both sketch design and detailed design appears to provide a reasonable estimate of the fair market value of copyright in the design.

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4.    Licence over the architectural design

As noted above, alternative one provides for the architect retaining the copyright in a design, and alternative two provides for the client owing the copyright upon payment of fees due and an additional fee. However, even where the architect retains ownership of copyright in a design, the circumstances of the engagement mean that the client is granted a licence to use the copyright material for the purpose of the project. Typically, this means the client can:

• build the design only once and only on the site for which the design was prepared
• maintain the building in question throughout its useful life
• improve, extend or modify the building as necessary, subject to the architect's moral rights.

The exact scope of the licence (e.g., its commencement, exclusivity) will depend on the terms of the agreement between the client and the architect.

Given the entitlements under licence generally entitles the client to undertake a broad range of activities, clients generally have little need to acquire the ownership of the copyright in a design from an architect.

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5.    How should the additional fee be set?

Despite the comments made above, a client may still seek to acquire the copyright in a design from an architect. Key commercial factors that may encourage a client to acquire the copyright in a design, include a desire to:

• protect the uniqueness of the item which has been designed
• consider opportunities to subsequently re-use the design
• consider opportunities to subsequently re-sell the design.

Should the client want to acquire the copyright in a design and one or more of these factors is present, there is a case for charging a fee for the copyright to transfer to the client.

The fee should consider the value attributed to the design using the guidelines in Section 3, but will ultimately depend on the:

• rights that possession confers upon the owner of the design (as the definition of fair market value requires 'a willing but not anxious buyer')
• amount of adaptation the design requires to facilitate re-use of the design on another site
• likelihood of a continuing commercial relationship between the client and the architect on adapted design to facilitate re-use of the design on another site.

Even re-siting of a design may involve significant adaptation to facilitate re-use, which could make a substantial proportion of the total design work in the original commission obsolete.

If there is a strong likelihood of a continuing commercial relationship between the client and the architect on adaptation of the design, the following is a reasonable basis for the additional fee:

• 40% of the total design fee in the original commission, where evidence suggests further use or sale, but no more than one use or sale, of a design.
• 20% of the total design fee in the original commission where evidence suggests multiple uses or sales of a design (such as with standard designs for use as project houses or school buildings sought by government departments), multiplied by the number of expected uses or sales of the design.
• 20% of the total design fee in the original commission, where evidence suggests no further use or sale of the design.

The rationale behind the 'concessional approach', where evidence suggests no further use or sale of the design, is that the 'opportunity cost' to the architect is expected to be less than if there was a further use or sale.

In situations where there is little or no likelihood of a future commercial relationship between the client and the architect on adaptation of the design, the additional fee should be increased from that proposed above. The agreed additional fee will ultimately reflect market forces.

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6.    Conclusion

Generally, there is little or no reason for a client to acquire the copyright in an architect's design. The licence provisions in most client-architect agreements enable the client to fully enjoy the benefits and the design that results from their commission of the architect.

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The Australian Copyright Council (ACC) kindly reviewed this note with regard to the operation of copyright law. The ACC does not provide advice on the commercial valuation of copyright.