Should I send the source file to a client where the design was built upon their source file?

Question

I created a design for an agency's client based on their client's original mascot design. The final design consists 10% of their original illustration, 40% modified by me for different postures, and the remaining 50% is my original work where I designed the costume of the mascot from scratch.

The agency (my client) and I have a common understanding that all source files belong to me and they will need to pay extra if they want to buy the license to edit the final work. However, they are now asking for the source files from me on the account that the assets belongs to their client.

Should I send the source file to them even though most of the work is done by me? Does the IP still belongs to me even though it was based on their client's source file?

Some background information that may help (if relevant at all):

• I was paid on an hourly basis.
• The agency recently hired an in-house designer so the likelihood of me having more future freelance works with them is not likely.
• It was not made known to their client that a freelance designer was working on their design.
• My guess on their intended use of the source file is to have further amendments in the future for their client if needed for future campaigns without having to go through me.
• I have personal ties with this agency as I used to work there.

Update

My client (the agency) replied stating that the work that I did isn't considered under my IP. Below is her response. What do you think?

"The graphic assets from which you made your amendments is a copyrighted and confidential item, which would otherwise have been inaccessible to you without this engagement. Hence, the source file must by extension, be made available to the client. The use of the source file is also simply to make implementation on the web page easier. Compressed files such as .pngs and .jpgs make it difficult for the web developer to layer the different elements on to the web page. If you are worried about modification to final design, please rest assure that we operate on integrity, and will not leave you high and dry with regards to creative outsourcing. If it makes for more assurance, I can prepare an MOU to state that you will be commissioned for this project till its conclusion with regards to creative work.

For clarity, I have explained the stance on derivative work below. This is primarily for alignment, and may not necessarily applicable in all scenarios. Happy to take this to a call to clarify things if required. :)

Regarding derivative work, it is a creative expression from an original art form. As this engagement is a paid assignment, it is a service you are rendering to the client, and not ground-up creation of a graphic asset. In essence, the client is paying for your creative services to make modifications to their existing graphic assets, as per their requirements and creative direction, and is not considered a legal expression of your personality (quote: "The transformation, modification or adaptation of the work must be substantial and bear its author's personality to be original and thus protected by copyright.").

As per Lawful works requirement: Copyright ownership in a derivative work attaches only if the derivative work is lawful, because of a license or other "authorization." The U.S. Copyright Office says in its circular on derivative works:

In any case where a copyrighted work is used without the permission of the copyright owner, copyright protection will not extend to any part of the work in which such material has been used unlawfully.[11][12]

There was no license or other "authorization" for ownership in derivative work in this matter for withholding the source file. While we accede that modifying the final design is within your purview, there was no authorization from us nor the client to license you the original working assets, for any purpose other than modification, specifically for purposes of this project. Also, as your engagement is not managed directly with the client, there is no permission that has been handed over with regards withholding the source file."

Answer 1

I'm not convinced there is a "proper" answer to this - It's really something you need to decide, based on:

• Is it worth anything to them (can they just re-create it anyway)?
• Is it worth anything to you?
• Is it worth loosing good-standing with them?

For the legal aspect, please see https://en.wikipedia.org/wiki/Derivative_work

What you have created may or may not constitute a "Derivative work" and therefore may be covered my your, the agency's or the client's copyright (or a mixture thereof.

Answer 2

The client/agency is correct. Anything you did to the original source material is derivative work and therefore the IP is not directly owned by you unless it is relinquished by the client.

Updates, revisions, changes, to anything you are provided are never yours and are not the same as "ground up" creations. You can only claim ownership of ground up, original, work and only when it's not under a work-for-hire agreement.

Be nice, provide the source material they are asking for and hope they return for more work. Any other stance will simply ensure the agency finds every possible way to not hire you in the future.

Ultimately, the mistake seems to be the hourly rate. More realistic profits could have been earned via a flat fee for modification where a percentage could have been calculated and added to cover the future benefits the client is receiving as a result of the modifications.

For the record, I don't provide source files without fees either. But in the same position, I'm aware that derivative work is derivative work and my retaining it is of no value other than that client returning for more derivative work. I'd rather keep a client happy than store a file on a hard drive I have no use for. If the client is annoyed I won't provide the file to them, they won't return to me.... which means I kept the derivative source and it's just wasting hard drive space with no possibility of further use or income because it's derivative work. It can be resold. It can't be modified and sold to another client, it can't be reused for another client. It is essentially a dead file for anything other than this client's use. So why piss off the client?

Even if you never have further use of this particular file after providing it because the client simply modifies it themselves, whose to say they would never return for a different mascot later knowing you were "great" to work with on the last mascot?