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Schrock v. Learning Curve International

September 29, 2010


The opinion of the court was delivered by: Charles P. Kocoras, District Judge


This case comes before the court on two motions filed by Defendants Learning Curve International, Inc., ("LCI") and RC2 Brands ("RC2"). First, LCI and RC2 move to dismiss Plaintiff Daniel Schrock's ("Schrock") Amended Complaint for lack of subject-matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Second, LCI and RC2 move for summary judgment pursuant to Fed. R. Civ. P. 56.*fn1 For the reasons set forth below, the motions are denied.


Learning Curve International ("LCI") is a producer and distributor of children's toys.*fn2 LCI entered into a licensing agreement with HIT Entertainment ("HIT"), the owner of all worldwide rights in the famous "Thomas & Friends" characters.*fn3 In the agreement, HIT granted LCI a license to create and market toys based on HIT's characters and properties. Pursuant to that license, LCI has developed hundreds of different toys with worldwide distribution.

Daniel Schrock ("Schrock"), is a professional photographer based in Chicago, Illinois. Schrock began his direct business relationship with LCI in 1999.

At first, Schrock negotiated the use of his services over the phone with Mary Ann Borgmann ("Borgmann"), art director of LCI. Schrock initially proposed a day rate of $2,000; Borgmann responded that she was working on a tight budget and that such compensation was not acceptable. Schrock then offered to lower his rate to $1,800 per day and the parties agreed to that amount. From March 8, 1999, to April 2003, LCI would repeatedly engage Schrock to create product photographs of its toys for marketing purposes. During that period, Schrock produced approximately 1,800 photographs, embodied in color transparencies, illustrating several of LCI's toy lines, including part of its "Thomas & Friends" toys.

The parties never memorialized any agreement in writing. As a consequence, the parties' interpretations of the terms of their business relationship diverge extensively.

Schrock contends that during a three-day shoot in March 8, 1999, Schrock and Borgmann had a conversation regarding the extent of the license Schrock would grant for use of his photographs. Over the course of this conversation, Schrock expressed his desire to retain ownership of the copyright on his photographs and impose limitations on the use of his work. Schrock's first limitation pertained to the mediums in which his photos could appear. Schrock asserts that he made clear to LCI employees, namely Borgmann and her superior, Nora Knaup Mavrelis ("Knaup"), that his license would only permit use of his photographs in specific annual catalogs and/or on specific years' packaging.

Schrock's second limitation related to the duration of LCI's use of his photographs. Schrock stated in his deposition that during the March 8 shoot, he told Borgmann that use of his photographs was typically granted for one year. According to Schrock, Borgmann told him she had relayed the proposed temporal limitation back to Knaup, her supervisor, and Knaup objected to the one-year limitation because LCI needed longer usage periods. Schrock testified that he offered to accommodate LCI by granting a two-year usage which would provide ample time to prepare catalog and packaging materials. Schrock stated that Borgmann orally agreed to all the license restrictions. In other words, Schrock and LCI reached an understanding that Schrock's work could only be used for a period of two years for product packaging and for specific product annual catalogs. Any use beyond the term authorized by the license would trigger additional fee payments.

LCI recalls a different sequence of events. LCI asserts that Borgmann never accepted the two-year term. First, Borgmann testified that the verbal understanding the parties had reached over the content of the license was that Schrock would grant LCI an unlimited license for use with the exception of national advertising. Moreover, Borgmann avers that she never had any discussion with Schrock as to limitations on years of usage. Borgmann stated that she never told Schrock that LCI had accepted Schrock's proposed limitations on use of his works or agreed to any additional fee payments.

Regardless of their respective understanding of their arrangement, the parties proceeded to shoot. Schrock provided LCI with his services from 1999 to approximately May 2003. Consistent with his practice, Schrock would first send to LCI estimates based upon the latter's description of its usage needs. Upon approval of the estimates, Schrock would perform the photographic session and would thereafter send separate invoices for each session. As part of LCI's course of dealing, Borgmann and Knaup would keep the estimates in a file in order to review them against the invoices. During the parties' four-year-long relationship, Schrock sent LCI roughly one hundred invoices. Borgmann and Knaup would review the invoices, handwrite some observations, and finally approve them for payment. All invoices from March 1999 to May 2003 were promptly and fully paid. During this period, Schrock received over $400,000 for his services.

Both sides rely on the invoices Schrock sent to LCI to support their version of the oral licensing agreement. LCI highlights the very first invoice which they believe disproves Schrock's account of the agreement. The invoice for the March 8, 1999 shoot contained a written restriction as to "product packaging" but did not indicate a two-year usage limit. The only reference to "usage" appeared at the bottom of the invoice and remained blank. Schrock replicates that the first twelve invoices he sent to LCI included restrictions as to packaging and catalog use and that such invoices contained Borgmann's and Knaup's hand-written notations demonstrating that LCI understood and agreed to the restrictions. LCI claims that none of them referred to a two-year limitation and that the spot for a usage fee always remained blank. LCI notes that more than a year into the parties' relationship Schrock unilaterally inserted the phrase "usage for two years with no usage fees" into the invoices' job description.*fn4 Borgmann maintains that she did not object to the invoices containing the two-year usage limitation because she did not notice the change in the licensing language.

In November 2002, LCI attempted to memorialize the parties' relationship in writing by requesting that Schrock sign a photography agreement. Schrock grew suspicious of LCI's attempt to transform their business relationship into a "work-for-hire" arrangement that would allow LCI to secure ownership and control of his copyrighted photographic creations. Schrock refused to sign the document. Subsequently, Schrock continued to work for LCI. After April 2003, LCI, which had been since acquired by RC2, decided to stop engaging Schrock.

In spring 2004, Schrock became aware that LCI continued to use some of his pictures in its printed advertising, on packaging, and on the internet. Schrock argues that he never licensed any of his photographs for use on a website. LCI claims it possessed an unrestricted license. At about the same time, Schrock learned that LCI had, without consent, infringed his works by reproducing his photographs outside the time frames for which Schrock had granted licenses, both in catalogs and on packaging. The same year, ...

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