This seems to come down to the patron not understanding the difference
between copyright and ownership.  Just because a work is out of copyright
doesn't mean anyone can do whatever he or she wants with it.  The rights of
ownership still apply, and the person or repository that owns that item has
the right to place restrictions on its use.  This topic gets discussed
periodically on the Archives & Archivists Listserv; you may wish to post
your dilemma in that forum as well.  Here's an example of one such past
discussion:
http://listserv.muohio.edu/scripts/wa.exe?A2=ind9901D&L=archives&P=R12728&I=
-3

You've done nothing wrong; as David Harvey says, you had a signed agreement
with the patron and he broke it.  Asking him to stick to the conditions of
the agreement he signed hardly constitutes libel.  Your institution did the
right thing by asking the store owner to either take the images down or sign
a new agreement.

Julie Kerssen
Museum of History & Industry
Seattle

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