It is all-too-common for software development contracts with independent contractors to
improperly classify deliverables as works made for hire. The work for hire doctrine does not include literary works and is therefore inapplicable to computer software. A company which seeks to retain the copyrights to work product created by a software engineer acting as an independent contractor must include a valid IP assignment clause in the independent contractor agreement or classify the contractor as an employee.

Software Programs and Technical Documentation

The development of software and technical documentation is a standard occurrence for
San Francisco start-ups and Silicon Valley technology companies alike. Companies frequently enlist the services of an independent contractor to perform this work. Naturally, the company seeks exclusive ownership and right of use of the product(s) developed.

However, using the work for hire approach with independent contractors for software development agreements without an assignment clause fails to transfer copyright ownership to the hiring party. Payment for the work does not alter the independent contractor's rights of ownership of the software. See § 101 U.S. Copyright Act.

Work for Hire under the U.S. Copyright Act

As review, when hiring independent contractors, there are three elements which must be in place for deliverables to qualify as work made for hire:

First, all deliverables need to be original works, specifically created for the project.

Second, the contract must be in writing and must declare that the deliverables are work for hire.

Third, the deliverables must fall into one of nine limited categories of works outlined in the Copyright Act (17 U.S.C. § 101), as previously discussed in Work Made For Hire Agreements: Who Owns the Copyright? Part 1: Federal Law.

Because literary works are not included within the nine limited categories of works eligible for work made for hire status under the U.S. Copyright Act, companies must use other methods of obtaining ownership rights in the software created by contractors.

A Solution - Assignment of Copyright Clause

For most companies, the options include 1) classifying the software developer as an employee, because all works created by employees are owned by the hiring party, or 2) including an assignment of copyright clause in the written independent contractor agreement.

For employers who seek to retain the independent contractor status of software developers, obtaining an assignment of copyright in all works created under the agreement is essential. In this manner, the copyright to all works created for the company by the independent contractor are transferred to the company.

It is imperative that the language used in such an assignment clause be absolute and in the present tense. Unclear wording can result in the company receiving nothing more than a promise by the independent contractor to transfer the copyright at some future date. Should the independent contractor fail to assign the copyright, the company may have a valid breach of contract claim, leaving it with an award of monetary damages, but not the copyrights to the software.

To ensure the benefits and security of IP protection it is always advisable to consult with an experienced attorney.

Related Blog Posts

Work Made For Hire Agreements: Who Owns the Copyright? Part 2: California Law

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

Sources

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

U.S. Copyright Office

17 U.S.C. § 101: Definitions

Continue reading "Work Made For Hire Agreements: Who Owns the Copyright? Part 3: Software Development and Technology" »

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" »

In my experience as a San Francisco Bay Area start up company attorney I frequently talk with software developers, technology companies and other inventors and creators who seek to protect trade secrets by use of non-disclosure agreements and compliance with the rules of confidentiality. Trade secrets, confidential information and other proprietary assets must be secured to guard a company's unique competitive advantage.

In my last post entitled IP Protection for San Francisco California Entrepreneurs Part 1: Trademark & Copyright, I discussed the essential characteristics of trademarks and copyrights. In this post, I will describe the defining characteristics of patents and trade secrets.

Patent

A patent protects ideas and discoveries and grants a complete right to the profits of an invention by the U.S. Patent Office for a specified time. The criteria for a patent includes, novelty (previously unknown), "non-obvious" (something that an expert in the same field could not identify) and usefulness.

While awaiting federal registration of the patent, the company may mark the designs or product "patent pending". Once the patent has been issued, the product can be marked with "patent" along with the number assigned by the U.S. Patent Office. A patent holder can sell or transfer the patent to another, as long as the transaction is in writing, signed and notarized.

Trade Secret

A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. The recipe for Coca Cola is the most famous trade secret.

For most businesses in California, trade secrets are invaluable assets. Trade secrets afford successful businesses the edge over competitors. This information can be in the form of ideas, devices, business procedures, formulations or recipes. With such intrinsic value at stake, businesses must keep proprietary information confidential and away from unethical competitors.

Companies attempt to protect their trade secrets with the signing of non-disclosure agreements. A non-disclosure agreement is a contract, where the parties agree to keep certain information confidential, shielded from public view.

If that secrecy is breached, the survival of the business itself may be in jeopardy. Conversely, just the allegation of trade secret violations or security breaches can place a business's reputation or a professional's career at risk.

Sources:

United States Patent and Trademark Office

Uniform Trade Secrets Act/CA Civil Code Section 3426-3426.11

Continue reading "IP Protection for San Francisco California Entrepreneurs Part 2: Patent & Trade Secret" »

While not every company is entitled to patent or copyright protection, almost every business has a word, mark or symbol used to identify its product or service. This word, mark or symbol is a trademark or service mark eligible for state or federal trademark registration. All businesses have valuable IP to protect.

In my San Francisco IP and business law practice I frequently talk with manufacturers, distributors, restaurants, retailers and other service businesses who want to protect trademarks, service marks and logo designs. Software developers, technology companies and other inventors and creators may have software code to copyright, trade secrets and patents to protect. Creative works of all types (photography, books, music, film, architecture and other original works of authorship) should be copyright protected.

Intellectual property includes trademarks, copyrights, patents and trade secrets. In this post, I will describe the defining characteristics of trademarks and copyrights. In my next post I will explore patents and trade secrets.

Types of Intellectual Property

Trademark

A trademark or service mark is any word, mark or symbol used in commerce to identify the source of a service or product. It is imperative that you protect your trademark and/or service mark, as your customers and clients associate your brand with the quality for which you are known. Valid state and federal trademarks protect investments in time and energy building your brand and advertising and marketing dollars. Whether it is a company name, logo, distinguishing brand color(s), or the name of a signature product, it is essential to safeguard your IP by identifying and protecting your trademarks.

In the United States, one can obtain trademark rights by using the trademark and achieve certain legal advantages by registering it with the United States Patent and Trademark Office (USPTO). If an individual or company acquires trademark rights through use, this is called a common law trademark. Common law trademarks are only valid within the geographical area the symbol is used. When an identification symbol or word is registered with the United States Patent and Trademark Office, the symbol becomes a legally recognized federal trademark. State trademark registration is an option for those using their mark solely within one state, not in interstate commerce. State registration provides fewer advantages than federal trademark registration; however, the appearance of the mark in state databases and on subsequent third party trademark search reports can deter potential competitors from adopting your mark or a potentially confusingly similar mark.

Copyright

A copyright is an original work of authorship fixed in tangible form. Although federal registration confers certain legal rights, a copyright is protectable the moment it is created, whether the work is federally registered or not.

Copyright protection is a form of federal legal protection to those who create or compose original works, including literary, dramatic, musical, and artistic works, such as computer software, architectural drawings, photographs and musical recordings. The U.S. Copyright Act grants the owner of a copyright, independent of the original work being published, the exclusive rights to:

• Reproduce the work
• All derivative forms of the work
• All forms of distribution of the work
• Any public performance or displays of the work

Additionally, only the owner of the copyright may give permission to others to use their work.

Next, we will examine the characteristics of the two remaining types of IP; patents and trade secrets.

Sources:

United States Patent and Trademark Office

United States Patent and Trademark Office-Trademarks Home

California Secretary of State-Trademarks and Service Marks

Model State Trademark Law/CA. Business and Professions Code Section 14200-14202

United States Copyright Office

United States Copyright Office - Copyright in General (FAQ)

Continue reading "IP Protection for San Francisco California Entrepreneurs Part 1: Trademark & Copyright" »