A couple of basics: There is a difference between rights predicated on copyright and rights that arise out of a contract. The former attach automatically, by statute, to original works (e.g., literary works, artistic works, etc., but not useful objects). Contractual rights do not arise automatically. They require consent. In other words, they depend on the agreement of two or more parties to specified terms.
Can you ask someone to agree to utilize the pattern you are licensing them for only a limited term or limited purpose? In my opinion, yes.
Will the contract be enforced, if someone violates its terms? That depends on several things. First of all, it will probably depend upon your evidence that the other person consented to your terms. Are your licenses actually signed by your licensees? Or, are you simply relying on evidence, as in the "clickwrap" situation, that someone has clicked through to your underlying pattern? Or on evidence, as in the "shrinkwrap" situation, that someone has torn open a particular package?
Second, it will depend upon whether your claims are found to be "preempted"- that is, displaced by federal law. In other words, it will depend upon whether a court concludes that the rights you are claiming have been violated are or are not the "equivalent" of copyright. If it concludes they are equivalent, it will likely dismiss your contract claims. If it concludes your claims require proof of an additional element (such as "consent"), it will very likely refuse to dismiss them and enforce the contract.
Since courts differ widely on the preemption issue, it is impossible for any attorney to predict what the outcome will be in any particular case. You would be well-advised to retain an attorney to assist you in setting up your business model.
Finally, there is one further question: Even assuming the cottage license were found to be valid and enforceable, what would the remedy be if someone violated its terms? Here again, no one can give you a precise answer since outcomes are likely to differ. Some courts (or juries) might conclude that you are only entitled to some multiple of the price at which you sold or licensed each pattern. Others might conclude that you are entitled to the licensee's "profits." Still others might conclude that you were entitled to copyright damages on the theory that the license was invalidated altogether and the underlyight copyright infringed. I think the latter is unlikely. It is not impossible, however.
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The term “cottage license” is one that is used almost exclusively within the knitting community. I’ve seen it applied to rubber stamps as well, but not much else. As stated by my colleague above, you must distinguish between the analysis of such a license purely under copyright law, from an analysis under the terms of a contract. Absent an mutually agreed upon contract (and a license agreement can be just that), copyright law alone does not allow the holder of a copyright on a pattern to prevent the purchaser of the pattern from using it to make the knitted article (after all, that is the intended purpose of the pattern), nor does it allow the copyright holder to prevent the buyer from then selling the article that was made from the pattern.
Therefore, anyone who writes a “cottage license” is depending upon contract law to allow them to enforce the agreement, which comes with the pitfalls discussed by my colleague above. However, it is important to note that sometimes, the true, practical strength of a contract is that the parties believe it to be enforceable, whether or not it actually is. The knitting community appears to have placed a lot of stock in these “cottage licenses,” and while you will find a few people within the community saying they are unenforceable, they appear to be “working” for the community for the most part.
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