When you pay an outside contractor to create something for your business — for example, a website, some software, a logo, or some other created work — it would seem logical to assume that since you paid the contractor for the work, you own the copyright. Unfortunately, that isn’t always true. Here’s what you need to know to be sure the copyright ownership stays with you.
It’s really basic: ownership of the copyright in work a business pays for can often be critical for the successful commercialization of that work. Unfortunately, the U.S. Copyright Act contains arcane provisions that will often produce a counterintuitive result — leaving full copyright ownership with the contractor. How could this possibly be? Internet attorneys, advisors, and businesses can’t afford to be unaware of the applicable laws.
Background
When a copyrightable work is created, it can become the property of the employer in one of two ways: either by qualifying as a “work made for hire” as defined in Section 101 of the U.S. Copyright Act or by having the work assigned to the employer.
A “work made for hire” can be created by an employee or by an independent contractor. If created by an employee within the scope of his or her employment, then all such work is automatically owned by the employer as a “work made for hire.” No written agreement or mention in an employee manual is required, though this may be recommended.
HOWEVER, when work is created by an independent contractor, then the law starts getting strange and, as time has passed, out of touch with reality. The work created by an independent contractor will only qualify as a “work made for hire,” and therefore owned by the employer, IF (1) there’s a written agreement that the work is a “work made for hire” and (2) the work falls within one of the following categories: “a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas.” When was the last time you hired a contractor to prepare a test or an atlas?
If the work doesn’t fall into one of these categories, then even a written agreement stating that the work is a “work made for hire” will not be effective in causing the work to be owned by the employer. In such a case, only a written assignment of copyright will be effective. Computer software, websites, graphic work, and music will often not be considered included in one of the “work made for hire” categories.
Let’s be clear on this: the default under the law is that copyright will be owned by the contractor UNLESS there is a written agreement that the work is a “work made for hire” (if it qualifies under one of the listed categories) or the work is assigned in writing to the employer. This is a counterintuitive result — but that’s the law.
To make things worse, what if a business has all of the correct documents in place with the independent contractor, but the independent contractor hired a different independent contractor and didn’t have the correct documents in place with this second independent contract. Well, you get the picture.
What is an independent contractor?
There are multiple factors that can be applied to determine whether there is an employment or an independent contractor relationship. Here are some of the factors that will be considered, and no single factor will be determinative:
- Does the hiring party have the right to control the manner and means by which the work is created?
- Who provides the equipment and tools needed to produce the work?
- Is the hired party working on the hiring party’s premises or on their own premises?
- Does the hired party have discretion as to when and how long to work?
- Is the method of payment hourly or by the project?
- Is the hired party getting any benefits offered to employees?
- Is the hiring party withholding taxes?
Implied License
If you don’t obtain copyright ownership in work you commissioned based upon the above analysis, then all might not be lost. Usually, when work is commissioned and paid for, then the hiring party and independent contractor understood that the goal of the project was that the hiring party was going to use the work that was created. This would create an implied license. Whereas, a “work made for hire” agreement or a copyright assignment, MUST be in writing, a license (other than an exclusive assignment) does not have to be in writing.
The complications begin when trying to define the scope of use granted by an implied license. For instance, if a website was developed for a business, then the business would have the right to use the website for the purpose for which it was created. However, could the business “white label” the website and license it out to third parties? Could the business modify the website or take components from the website and use them for a different purpose than for which is was originally developed?
Bottom Line
Make sure you don’t fall into this trap for the unwary and end up paying a lot for a product that you can’t properly use.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
William Galkin, Esq. is an Internet lawyer who has dedicated his legal practice to representing Internet, website, e-commerce, computer technology and new media businesses in the U.S. and around the world. Go to http://www.galkinlaw.com/services to learn more about agreements needed by websites.
