San Francisco Business Lawyer Blog

In my previous entry, Work Made For Hire Agreements: Who Owns the Copyright? Part 1: Federal Law, we reviewed the federal copyright law governing work for hire agreements. This entry will examine the California state law implications of work for hire agreements for both employers and independent contractors.

Work Made For Hire Doctrine Under US Copyright Act

To begin, let's revisit the United States Copyright Act of 1976. Under this Act the copyright immediately becomes the property of the author who created the work, subject to two limited exceptions, as follows: 1) if the work is created by an employee within the scope of his or her employment, then the copyright ownership vests in the employer; and 2) if the work is a "work made for hire", copyright ownership vests in the hiring party.

As discussed in my previous post, the work made for hire doctrine permits businesses hiring freelancers to acquire the rights to the creative work if two conditions are satisfied: (1) the work must be within one of the nine categories of works listed in the Act, and (2) there must be a written agreement signed by both parties stipulating that the work is a work made for hire.

In California, state law changes the independent contractor's status to that of an employee for purposes of workers compensation and unemployment benefits.

Statutory Employee Status

In California, an individual engaged to produce work on a work made for hire basis is regarded as a "statutory employee." When this is the case, the hiring party is responsible for payment of state disability insurance and unemployment insurance. California Labor Code § 3351.5 (c) defines "Employee" in relevant part as:

"Any person while engaged by contract for the creation of a specially ordered or commissioned work of authorship in which the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire, as defined in Section 101 of Title 17 of the United States Code, and the ordering or commissioning party obtains ownership of all the rights comprised in the copyright in the work."

Additionally, the hiring party's failure to acquire workers' compensation insurance once a work made for hire agreement is entered is subject to criminal penalties under California law. See California Labor Code § 3700.5 There may be serious consequences for the misapplication of California's "statutory employee" laws which must be considered when entering a work for hire agreement in California.

How Can California Employers Best Navigate Work For Hire Complexities?

One option is to simply handle independent contractors like employees regarding unemployment insurance and workers' compensation.

A second option is to leave the "work for hire" wording out of independent contractor agreements completely. Choosing this route requires adding an assignment provision to the agreement; whereby, the independent contractor agrees to assign all intellectual property created by the contractor to the hiring party.

Finally, an employer may request the independent contractor to form an LLC that is treated as a corporation for federal income tax purposes. If the independent contractor agrees to this, the employer could validly enter a "work for hire" agreement with the LLC without incurring the insurance obligations under California's statutory employee law since LLCs cannot be employees. See California Unemployment Insurance Code § 621(d)

In summary, both California employers and individuals must carefully evaluate the implications of work for hire agreements before entering such arrangements.

Related Blog Posts

California Independent Contractor or Employee Classification Part 1: California Test

California Independent Contractor or Employee Classification Part 2: Federal Test

Sources

California Unemployment Insurance Code § 686

California Labor Code § 3351.5(c)

California Labor Code § 3700.5

17 U.S.C. § 101: Definitions

U.S. Copyright Office-Circular 9 Works Made for Hire Under the 1976 Copyright Act

U.S. Copyright Office

Continue reading "Work Made For Hire Agreements: Who Owns the Copyright? Part 2: California Law" »

At the intersection of copyright, business and employment law lies the "work made for hire". This complex legal issue commonly arises in my San Francisco business law practice in the form of copyright ownership and rights of use to original works of authorship created for a hiring party by an independent contractor. This post examines the federal law governing work for hire agreements. In a follow up post I will address California state laws affecting work for hire agreements.

Who Owns the Work?: Independent Contractor or Employer

The 1976 Copyright Act fundamentally altered the application of the work made for hire doctrine to the creative works created by an independent contractor.

The copyright in any "specially ordered or commissioned" work created by an independent contractor on or after January 1, 1978 is presumed to be owned by the independent contractor. This presumption may be overcome only by a written agreement, and then only if the work falls within the nine categories of specially commissioned works that can be works made for hire prescribed by the Copyright Act.

The federal courts have imposed strict requirements on the specific writing required in order to alter the de facto rule that an independent contractor owns all rights to his creative works. In order for the commissioning party to be deemed the sole owner of the work as a work made for hire, there must exist a written agreement, signed by both parties, which specifies that the particular work is to be made as a work made for hire. See 17 U.S.C. § 101; Quintanilla v. Texas Television Inc., 139 F. 3d 494. 497 (5th Cir. 1998); Playboy Enterprises, Inc. v. Dumas, 960 F. Supp. 710 (S.D.N.Y 1997) (endorsement of checks by artist's business manager or accountant did not bind artist to work for hire agreement).

If the work for hire agreement is ineffective, because the work does not fall within one of the nine statutory work for hire categories, an alternative contractual provision assigning the copyright in the work to the hiring party will transfer the copyright. See Teevee Toons, Inc. v. MP3.com, Inc., 134 F.Supp. 2d 546, 549 (S.D.N.Y 2001).

What Type of Work Can Be "Work for Hire"?

The Copyright Act provides that the work must fall within one of the explicit categories of works set forth in the statute, which when prepared as a specially ordered or commissioned work, may constitute a work for hire. Those categories are: works specially ordered or commissioned for use (1) as a contribution to a collective work, (2) as part of a motion picture or other audiovisual work, (3) as a translation, (4) as a compilation, (5) as an instructional text, (6) as a test, (7) as answer material for a test, (8) as an atlas, (9) as a supplementary work.

A "collective work" is a "work, such as a periodical issue, anthology, or encyclopedia, in which a number of contributions, constituting separate and independent works in themselves, are assembled into a collective whole." 17 U.S.C. § 101.

A "supplementary work" is defined as "a work prepared for publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting upon, or assisting in the use of the other work, such as forewords, afterwords, pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, answer material for tests, bibliographies, appendixes, and indexes." 17 U.S.C. § 101.

A "compilation" is defined as "a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship. The term "compilation" includes collective works." 17 U.S.C. § 101.

An "instructional text" is defined as "a literary, pictorial, or graphic work prepared for publication and with the purpose of use in systematic instructional activities." 17 U.S.C. § 101

Exceptions to Nine Categories - Some Creative Works Cannot Be a Work for Hire

It is important to note that photographs, computer programs, sound recordings, choreographic works, and musical compositions are not included in these nine categories under the Copyright Act. In other words, not all creative works are eligible for work for hire status under the federal statute. Therefore, the commissioning party in industries such as software, music recording, photography and dance, among others, must obtain an assignment of copyright from the independent contractor in order to secure copyright ownership rights in the creative work and cannot rely upon a work made for hire agreement to secure ownership rights.

In summary, unless a (1) written agreement, signed by both parties, stating the particular work is to be created as a "work made for hire" and (2) the work falls within one of the nine statutory categories of works which when specially ordered may be a work for hire; the independent contractor is deemed to be both the author of the work and the owner of the copyright. See Playboy Enterprises, Inc. v. Dumas, 53 F.3d 549 (2d Cir. 1995).

Even though the commissioning party may not own the copyright, it will most likely be deemed to have an implied nonexclusive license to use the work in the manner contemplated by the parties at the time they entered the agreement regarding the specially ordered work. See Effects Associates, Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990).

Next, we will examine whether California state laws affect the practical application of the work for hire doctrine in Work Made For Hire Agreements: Who Owns the Copyright? Part 2: California Law.

For related reading on the employee versus independent contractor determination review the following posts on this blog:

California Independent Contractor or Employee Classification Part 1: California Test

California Independent Contractor or Employee Classification Part 2: Federal Test

Sources

17 U.S.C. § 101: Definitions

U.S. Copyright Office-Circular 9 Works Made for Hire Under the 1976 Copyright Act

U.S. Copyright Office

Robert Lind, J.D., L.L.M, Professor of Law Southwestern University School of Law, Los Angeles, California, Copyright Basics (9th ed. 2006).

Continue reading "Work Made For Hire Agreements: Who Owns the Copyright? Part 1: Federal Law" »

The appeals court is expected to decide Louboutin v. Yves Saint Laurent in the next few weeks. This case, originated by Louboutin in 2011, and now on appeal, brought two of the world's elite fashion designers and most exclusive brands to court over Louboutin's trademark for its famous China red soled shoes. As a San Francisco trademark lawyer, I think this is an interesting case which greatly affects the rules regarding color trademarks and possibly which shoes you should buy this spring.

The District Court Denied Louboutin's Request for Preliminary Injunction

The U.S. District Court for the Southern District of New York, in its August 10, 2011 decision in Christian Louboutin S.A. v. Yves Saint Laurent America, Inc., calls into question whether a single color may serve as a trademark for fashion. The case arose from an action for trademark infringement brought by luxury shoe designer, Christian Louboutin, against Yves Saint Laurent America. Louboutin is well-known for his collection of luxurious women's shoes, which have bright red glossy soles. He also owns U.S. Trademark Registration No. 3,361,597 for the mark, which is described in the registration certificate as "a lacquered red sole on footwear:"

Louboutin alleged, in relevant part, that Yves Saint Laurent's sale of four shoe designs that are entirely red, with a red sole, were likely to confuse consumers as to the source of the Yves Saint Laurent shoes, in violation of Louboutin's trademark rights. In the 2011 decision, Judge Victor Marrero denied Louboutin's motion for preliminary injunction, finding that Louboutin was unlikely to be able to establish that he had a protectable mark, since color cannot serve as a trademark if it is functional. Judge Marrero's lengthy opinion discussed the similarities between high fashion footwear designers and fine artists and held that Louboutin's trademark has an aesthetic purpose which obstructs fair competition.

Louboutin Appealed the District Court's Denial of his Request for Injunction

On January 24, 2012 Christian Louboutin, through his attorneys, argued his appeal to the U.S. Court of Appeals for the 2nd Circuit to protect his trademark on red lacquered soles. A decision should be rendered spring 2012. The question before the court presents two vastly different views of the purpose of color in fashion design and has implications for other industries where color used as a source indicator arguably has an aesthetic or functional purpose.

Louboutin's Legal Argument

Louboutin known for the lacquered Chinese red finish on the soles of his designer heels argues that this red feature serves strictly to identify his brand. Louboutin attests the red soles are exclusive brand identity, as in the case of Tiffany's signature robin's egg blue used in connection with jewelry and other items. (Tiffany's filed an amicus brief supporting Louboutin's position on color and trademarks.)

On appeal Louboutin argued that Judge Marrero erred: "By putting a distinctive red color on the previously ignored bottom portion of the shoe, Louboutin established a strong brand identifier. The red outsole has no [other] utility." The appellate brief refuted Judge Marrero's decision that the trademark hinders competition, by arguing that the Judge's conclusion was simply conjecture unsupported by evidence.

Yves Saint Laurent's Counter Argument

Yves Saint Laurent countered on appeal that by Louboutin's own admission the red sole has an aesthetic purpose. Therefore, according to Yves Saint Laurent, Louboutin does not qualify for trademark registration under the U.S. Supreme Court's 1995 opinion in Qualitex v. Jacobson Products, which decrees that a color can be trademarked strictly in the event that it "can act as a symbol that distinguishes a firm's goods and identifies their source, without serving any other significant function." When color serves a singular aesthetic function and is not a source of brand identification, as Yves Saint Laurent contends, the color is not viable for trademark protection.

Secondary Meaning

The United States Supreme Court held in Qualitex that a color may be trademarked if it qualifies as having secondary meaning.

Secondary meaning refers to the circumstance where consumers instantly associate the mark (a red color in this case) with the brand, to the exclusion of all others. However, if a color is a functional feature that affects the use, quality or cost of a product, the mark does not meet the criteria for trademark protection.

Therefore, Louboutin's counsel argues that the public associates the red soled high heeled shoe exclusively with Christian Louboutin and compares Louboutin's red sole to the valid trademarks of Burberry's plaid as well as Gucci's stripes. "Outstripping them all has been the Red Outsole Mark. Its trademark status has been conferred upon it by the consuming public." Indeed, would women spend hundreds or thousands of dollars to snag a pair of crimson soled shoes without secondary meaning?

However, the lower court expressed concern that other designers might lay claims to additional colors, leading to the eventual exhaustion of available colors. This could potentially damage the fashion world's creativity and overall viability. Additionally, other fields where the aesthetic use of color is fundamental to the product, such as
cosmetics, home décor and commercial art, could suffer the same fate.

Law School Faculty Members File Amicus Brief in Support of Yves Saint Laurent

Notably eleven law school faculty members filed an amicus brief supporting Yves Saint Laurent. The brief drafted by Rebecca Tushnet of Georgetown Law Center stated: "This court should recognize that the shadow cast by a mark in a single color on a fashion item creates enormous uncertainty for other designers and should regard claims of single color trademarks in fashion with considerable skepticism..."

The professors distinguished between design patents and color trademarks, arguing that trademarks for colors serving an aesthetic purpose would confer similar monopolistic rights as design patents, creating an entirely anti-competitive situation.

There's a lot at stake for Louboutin as his red soled shoes may be one of the most powerful trademarks in the world. If competitors were allowed to produce their own version of red soled shoes, such items would no longer confirm an association with the wealth and prestige currently unique to Louboutin. Additionally, the court's decision could have a broad impact on the fashion industry's use of color as well as any industry where the color of a product would be considered to contribute "expressive, ornamental and aesthetic" functions.

A decision on the appeal is expected this spring. Until then, you may be wise to hold off on a purchase of red soled shoes.

For related reading on trademark law and trademark protection review the following posts on this blog:

Trademark Law 101 for SF Bay Area Start-ups and Entrepreneurs

IP Protection for San Francisco California Entrepreneurs Part 1: Trademark & Copyright

Sources

Christian Louboutin's Appellate Brief U.S. Court of Appeals for the Second Circuit, Filed October 17, 2011

"Protecting Single Color Trademarks In Fashion After Louboutin" 30 CARDOZO ARTS & ENT. L. J, (forthcoming May 2012)

"From The Red Carpet to Red Soles" New York Law Journal, February 27, 2012

United States Patent and Trademark Office - Trademarks


United States Patent and Trademark Office - Trademark Basics

Continue reading "Are Color Trademarks Valid?: A Sneak Peek at Louboutin's Appeal for Trademark Protection for Red Soled High Fashion Heels" »