Your situation is not new and there appears to be good news, and bad news:
Good news, immediately removing the image from your site will prevent willful copyright infringement claims by this copyright holder.
Bad news, copyright infringement is a strict statutory crime punishable by anywhere from $750 to $thousands in penalties, even if the infringer did not know the work was copyrighted (although "innocent infringement" can mitigate the penalties).
Good news, you are not ignoring the letter you received (and this has become a rampant scourge across the internet where literally thousands are being threatened with lawsuits (Getty Images famously) and they almost always leads to a lawsuit, where attorney fees start adding up.
Bad news, you are one of those thousands.
Good news, an attorney may help you... somewhat: a claim of innocent infringement can greatly mitigate the statutory damages One could also consider enjoining the owner of the website where you first obtained the copyrighted image, to force them to pay their fair share (100%?), and they in turn can enjoin their source, etc, until this crazy pursuit of balance between visible copyright identification and protection is achieved. Maybe your simple "innocent infringement" would not be worth the effort for them to enforce. All these seem costly pursuits to me.
Bad news, again, you are one of the thousands reeiving these "settlement offers."
I am eager to see what more experienced attorneys may offer.
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You've probably got no good legal argument. This isn't a standing issue, which refers to your right to be in court.
Copyright infringement is a "strict liability" tort. That means your intent doesn't matter. It means that you've got _all_ the responsibility to find out who owns something before you use it.
Just because something's "public" in the sense that it's displayed on the internet doesn't mean it's "public domain." In fact, most everything on the internet is owned by someone, and _not_ available for others to take and use as they like.
You seem to think that copyright notice is prerequisite to finding liability. It's not, but it would certainly help you fight any claim of "willfulness" of there was one. Here, it's clear that a demand for only $500 doesn't assume your use was willful, in the face of their clear rights.
$500 is a relatively cheap lesson. Ask the law firm to provide you with a copy of the copyright certificate and any assignment to any stock photography gallery, if that's who's making the claim, rather than the photographer themself. Then once you pay, make sure you get a written release and maybe a license to use the photo in the future, if $500 is what they get for licenses.
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I agree with my colleagues. Given the dollar amount demanded, your best bet is to follow Attorney Koslyn's advice.
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Many different items can be found "on the street." In this instance it is kind of like you missed the invisible price tag on somebody's bicycle. Just because it wasn't chained down, doesn't make it yours to take.
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The simple answer is that you cannot expect to get something for free. Since the Berne Convention went into effect in the late 80s, there is no longer an obligation to provide a copyright notice. Copyright protection attaches as soon as a work is created. I agree that the $500 is getting off easy. When I get calls from people who have received demand letters, it is usually several times that.Ask a similar question
If you copied or distributed the photo without permission, then you may have little legal ground to stand on.
Owners are not obligated to use a copyright notice for works published on or after March 1, 1989. In other words, use of the copyright notice is optional. Even when an owner chooses not to display the copyright notice, that owner still retains all the copyrights to the work. Failure to display the notice will allow you to claim the defense of innocent infringement, which can result in a reduction of damages. So you can get off more easily, but you can't avoid liability all together based on that defense alone.
I've dealt with copyright infringement defense, and $500 is generally a very generous offer. I would make sure that whoever is asking for the money in fact represents the owner and that you obtain an adequate release.