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I have a question regarding copyright law.

Take this for example: Company A owns the copyrights of Picture A. Some designer came across this picture and proceeded to save the picture into his computer. He then began transforming picture A by adding drawings or words to the picture. Ultimately, he managed to bring about an entirely new expression of his own to Picture A. He then proceeded to upload his transformation of the picture on his personal website, and attempted to sell it for profit.

In this scenario, does his picture constitute a new, original work, or does it constitute a derivative work? And ultimately is there any copyright infringement?

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17 USC §103:

(a) The subject matter of copyright as specified by section 102 includes compilations and derivative works, but protection for a work employing preexisting material in which copyright subsists does not extend to any part of the work in which such material has been used unlawfully.

(b) The copyright in a compilation or derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material. The copyright in such work is independent of, and does not affect or enlarge the scope, duration, ownership, or subsistence of, any copyright protection in the preexisting material.

Part (a) says that if you infringe copyright in creating the derivative work, parts of the derivative that use material unlawfully are not given protection.

Part (b) says that you only get copyright in the parts of the derivative that are new as compared to the pre-existing material.

You do not necessarily need the owner's permission to create a derivative of their preexisting material. If the incorporation of the preexisting material is fair use, for example, the new work could be copyrighted.

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The new work is clearly derived from the first work: it is a derivative work. An original work can be inspired by picture A, as in it gave the creator an idea, but as soon as it has anything recognisably picture A in it it is derivative.

To make a derivative work of a copyrighted item you need the owner's permission; you then have copyright in the derivative.

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