Intellectual Property Law: Under Copyright Law, You Don't Always Get What You Pay For

Several surprises lurk in federal copyright law that are often revealed to employers after it is too late to avoid harsh consequences.  Most employers mistakenly assume that everything an employee creates that may relate to the employee’s job automatically belongs to the employer.  Equally surprising to most employers is that nothing ­that an independent contractor (“IC”) creates that could be copyrighted, even if the employer pays the IC, is the legal property of the employer unless there is an agreement in writing that transfers ownership.  Even then, the transfer from an IC cannot be permanent, no matter how comprehensive and ironclad the contract.

The Basics of Copyright

To clearly understand these issues and how important it is for employers (and their attorneys) to foresee and address them requires a basic understanding of certain principles of copyright law, most of which are embedded in the federal Copyright Act, 17 U.S.C. § 101, et seq.   First, the Copyright Act applies automatically to any material that is copyrightable and, for the most part, preempts any state law or private contract that contradicts it.  With few exceptions, employers, employees and ICs cannot circumvent the requirements of the Copyright Act that are discussed in this article.  Second, copyright rights, including ownership, vest automatically the moment an author creates an “original work of authorship fixed in any tangible medium of expression,” 17 U.S.C. § 102(a).  Thus, a federal copyright registration is only evidence of an author’s exclusive rights to reproduce, distribute and display his or her copyrighted work, as well as the right to create “derivative works” from the original.  17 U.S.C. § 106 (listing all of the exclusive rights granted to copyright owners).

A third important principle of copyright law is that a copyright does not protect ideas (patents do, but that is outside the scope of this article).  Rather, a copyright applies only to an author’s original expression of an idea that is fixed in some tangible medium.  The phrase “original” in this context does not mean that the author’s creation must be novel or unique.  For purposes of copyright law, the term “original” simply means that the author created the work on his or her own (or in the case of joint authors, on their own), even if the work is similar or identical to another person’s independent creation. 

Finally, and perhaps the most important to employers, all kinds of works of authorship are copyrightable, including pictures, designs and artwork.  For example, website designs artwork and text is copyrightable, as is software code.  Thus, web designers, software programmers and mobile application developers are “authors” under the Copyright Act.  Indeed, these days, copyright ownership issues often arise in connection with the creation of business websites, software, mobile device applications and other technology by employees and ICs.  The issues, however, continue to have much broader application.  For example, one famous copyright battle arose over whether a sculptor or a building owner had the rights to a sculpture that the owner commissioned for the lobby of the building.  Other common disputes concern ownership of architect and interior designer plans for office space, buildings and other structures.  In one case, ownership of an artist’s design of a mascot for the New York University that the school had used for a significant period of time was even at issue.  The scenarios in which copyright ownership issues can arise are limitless.

Against this backdrop, we now turn to an employer’s rights and limitations with respect to copyrightable material developed by employees and independent contractors.

Employees versus Independent Contractors

Employees.  The Copyright Act provides that a work prepared by an employee “within the scope of his or her employment” automatically vests with the employer as a “work made for hire.”  17 U.S.C. § 101.  In this circumstance, the employer is deemed to be the “author” of the work.  An author is always deemed to own all copyright rights the moment that a work is created and fixed in a tangible medium of expression.   Thus, when an employer is deemed the “author” in a work for hire scenario, the employer has complete ownership of, and right to control, register and to license or sell the work that its employee created.  The employee has no rights to or in a work for hire. Issues arise, however, when an employee creates something that he or she contends to be outside of the “scope of his or her employment” and thus, not a work for hire.

For example, if an employee works in the company’s marketing department and is hired to market and sell a product or services, but then creates a software program for use at the office that tracks sales prospects and all activities related to them, is that software program considered a work made for hire?  Or, suppose that the controller of the company steps outside of the boundaries of his position and creates a unique website design that the company begins to use.  When the marketing associate and controller leave the company, the question of whether their creations were “works made for hire” becomes very important.  If not, the company may not have any rights to the works, at least not without a license from its former employees.

To determine whether an employee’s creation was created “within the scope of his or her employment” and is thus a work made for hire, courts consider whether: (1) the employee’s creation was the kind of work that he or she was employed to perform; (2) the creation occurred substantially within the employee’s authorized time and space limits; and (3) one of the employee’s motivations in creating the work was to serve his or her employer.   All three of these elements must be proven; otherwise, authorship (and thus, copyright ownership) remains vested with the employee.  

In cases similar to the example of the controller who creates a web design, the ownership dispute usually centers on whether the creation was the product of the kind of work that the employee was hired to perform.  The controller might argue that he was not hired to design websites.  In the marketing associate example, the associate might argue that she was not hired to develop software, although if the software had application to the her job the employer may have the better argument.  The second factor that courts consider often becomes central to the dispute when an employee develops the creation from home and on his or her own time.  The third element often is disputed when the employee claims that the primary motivating factor in creating the work was for purely personal reasons, or as part of a plan to establish the employee’s own business. 

In one court case, a lab scientist who had created a computer program that helped organize the lab’s files, contended that his program was not a work made for hire, and demanded that the employer stop using it upon the employee’s departure.  Miller v. CP Chemicals, Inc., 808 F. Supp. 1238 (D.S.C. 1992).  In a lengthy opinion, the court ultimately found that the program was a work made for hire.  In a case that had many similarities, however, another court determined that a full-time employee who developed a computer program on his own time was the owner of the program, even though it related to his employer’s business.  Avtec Systems, Inc. v. Peiffer, 67 F.3d 293 (4th Cir. 1995).  These cases and others highlight some of the potential issues that employers face in these types of circumstances.  Not surprisingly, disputes of this kind are often complex and fact-intensive, but importantly, they can be avoided with some simple planning by a savvy employer and an attorney who understands the nuances of
the Copyright Act.

For instance, employers should consider requiring employment agreements, or at minimum, providing each employee with a job description (whether in an employment manual or in a letter to the employee), that grant the employer broad ownership rights from the start of the relationship.  At a minimum, these employment agreements, job descriptions and/or employment manuals should broadly define what the employee’s responsibilities are and clearly state that all copyrightable works and subject matter that are related or incidental to the employer’s business or its operations, even if created outside of the workplace or using the employer’s own equipment, are works made for hire that vest in the employer.  If, for whatever reason, an employment agreement is not an option, the employee should still sign a form that acknowledges receipt of his or her job description and/or employment manual, and that affirms that he or she has read the document, understands it, and agrees to be bound by it.

Independent Contractors.  The Copyright Act is harsher when it comes to works created by independent contractors (ICs) – including those ICs that an employer uses for discreet projects, such as web design and development, mobile app and other software development or refinement, and the like.  The Copyright Act provides only nine narrow circumstances in which a work created by an IC is a “work made for hire” that automatically vests ownership with the employer.  See 17 U.S.C. § 101.  Regardless, the only effective way to transfer ownership in any copyrightable materials created by an IC is by written agreement.  An oral agreement or understanding that the employer will ultimately own all rights to materials that an IC creates is insufficient.  Moreover, payment to the IC for creating a web design, application, software, or any other type of copyrightable work also is insufficient to transfer ownership rights, without a written agreement transferring the rights.  Thus, companies that rely on a handshake to hire web designers, developers and any other ICs, or that execute agreements without a specific copyright transfer provision, are out of luck when it comes to owning that for which the company contracts and pays.  Although the “writing” requirement can be satisfied after an IC creates the work and long after the project is complete, ICs are often unwilling to give up ownership rights without additional compensation.

Finally, even if a savvy employer secures a transfer of ownership in writing from an IC, the employer is not considered the “author” – as the employer would be in the case of a work made for hire by an employee.   Securing the label of “author” is important under the Copyright Act, because authors have an absolute right to terminate the transfer or license, if the author gives written notice to the current owner of the copyright 35 years after the transfer of ownership.   See 17 U.S.C. § 203.  A company that secures a written transfer or license to copyrightable materials is not an “author” and thus, is subject to termination of the transfer or license by an author (e.g. the independent contractor) 35 years later.  Although it is true that many copyrighted works lose their value long before the thirty-fifth year after their creation, still many others do not – such as designs, written text and other creations that often form the foundation for a company’s long-term existence.  Moreover, in the case of software that becomes obsolete over time, future versions of the software may still incorporate the original copyrighted code.  A termination of the transfer or license to that code, even decades later, could spell trouble for the company that still relies on that code, in part, in its current version.  There are strategies that employers can employ to attempt to avoid the harsh consequences of a copyright termination, including establishing “joint authorship” of the creation so that the employer is never subject to termination of its rights.  These strategies require careful planning but, like most things in business, are usually worth the effort in the long run.        


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