Get it in Writing -- Software,
Copyrights and Works Made for Hire
By Eric S. Freibrun, Esq.
Suppose a computer programmer is hired by
a local pet shop to develop a custom inventory feeding management system. The programmer
has got his own business: he's either a sole proprietor, Subchapter S corporation or some
other "legal animal." The point is, he's not hired as a formal salaried employee
of the pet shop, but as an independent contractor. He tells his client the project should
take about two months, he'll be working about half the time at his own office and,
balancing this project with the needs of his other clients, should be able to devote about
20 hours per week to it. His client tells him to work whenever and wherever he can.
The programmer's client tells him how her
business operates and what she needs the software to do. Relying on his programming skills
and expertise, she gives him free rein to design and code it. She contributes no existing
code. There's no formal contract, just a couple of letters confirming the retention and
the anticipated fee for the project. Nothing about ownership or copyrights. The programmer
does the development work on his own pc, installs the software on the new one he has
recommended his client purchase, and everything works. His sole compensation is his
$15,000 fee, which the pet shop owner gladly pays.
For the pet shop, business is booming.
Its owner attributes this directly to the efficiencies gained by using the software. She
thanks the programmer for the terrific competitive advantage and begins to think she might
make a fortune marketing the software to other pet shops. Meanwhile, the programmer has
kept a copy of the software and has the same idea. Who has the right to commercialize this
software? The programmer, who created it? Or his client, who paid the programmer $15,000
to do it.
The answer may be surprising to most lay
persons: in this case, only the programmer can further market the software. He owns the
underlying copyright in the software. The pet shop owns the single physical copy of the
software delivered by the programmer. Section 106 of the Copyright Act affords the owner
of a copyright the exclusive right to copy, create derivative works (modifications) and
distribute the copyrighted work (as an exception, the owner of a copy of software can
create a copy for back-up purposes). In the case of computer software, these rights are
essential to commercialization. Anyone exercising these rights without the permission of
the copyright owner is an "infringer" and subject to being sued for damages.
These rights arise automatically upon creation of the copyrightable work (software is a
copyrightable work of authorship) and vest in the creator or "author," in this
case the programmer.
The pet shop would own the copyright
under these two circumstances: (i) if the programmer were not an independent contractor,
but an employee of the pet shop, in which case the software would be a "work made for
hire" under section 201(b) of Copyright Act, prepared by the programmer within the
scope of his employment; or (ii) there was a written contract between the pet shop and
programmer clearly assigning ownership of the copyright from the programmer to the pet
shop. The Copyright Act also lists various types of works that, by their nature, will be
considered works made for hire, and thus owned by the hiring party, if the parties agree
in writing that the works are to be works made for hire. These include "works
specially ordered or commissioned for use as 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...." Software is not on the list.
Disputes over copyright ownership
involving works created by independent contractors are numerous. Quite often, the parties
will agree on the preparation of a work without any formal written contract or, if there
is one, it won't address the issue of copyright ownership. This often turns out be a
guarantee of expensive headaches down the line.
Back to our example. As you recall, there
is no formal contract between the programmer and the pet shop, just a couple of letters,
neither of which speak to the issue of copyright ownership. The pet shop owner wants to
market the software and prevent the programmer from doing so. She sues. Let the headaches
begin!
One of the key factors courts will
examine in this type of disputes is whether the nature of the relationship between the
hiring party and the "independent contractor" more closely resembles a
traditional employment relationship. For copyright purposes, this is critical. Remember,
if an employee creates a copyrightable work within the scope of his or her employment, the
employer owns it. Not so, if the author is an independent contractor.
A key recent U.S. Supreme Court case on
the subject, Community for Creative Nonviolence v. Reid (109 S. Ct. 2166 (1989)), affirmed
the principle that, in determining who owns the copyright for a work created by someone
not a formal salaried employee, courts must look at the true nature of the relationship
between the parties. A court will look beyond what the parties have said or agreed in
writing to determine whether the purported independent contractor should really be
considered an employee. A non-exhaustive list of relevant factors includes: the hiring
party's right to control the manner and means by which the product is created; who
provides the tools; where the work is performed; the duration of the relationship; whether
the hiring party has the right to assign additional projects; the level of discretion the
hired party has over when and how long to work; the method of payment; the hired party's
role in hiring and paying assistants; the provision of employment benefits; and the tax
treatment of the hired party.
In our example, the programmer was able
to control when and how he worked. The project was of limited duration. He received no
employment benefits, used his own computer, had other clients, and paid his own taxes. In
court, the likely outcome is that his independent contractor status will be upheld and he
will retain ownership of the copyright to the software.
Meanwhile, his $15,000 project fee has
been eaten up in court costs and legal fees, it's a year and a half later, and he's had to
defer, pending the outcome of the lawsuit, any possibility of marketing the software or
selling the copyright.
How could this aggravation have been
avoided? The issue of copyright ownership should have been negotiated before work was
begun and the agreement reflected in a signed written contract prepared with the
assistance of experienced legal counsel. While this is no guarantee future disputes won't
arise, the likelihood is greatly diminished if both parties agree and document their
respective rights and obligations from the start.
Attorney Eric Freibrun specializes in
Computer law and Intellectual Property protection, providing legal services to information
technology vendors and users. Tel.: 847-562-0099; Fax: 847-562-0033; E-mail: eric@freibrun.com.
Copyright © Eric S. Freibrun, Esq., Law Offices of Eric S. Freibrun, Ltd. All rights
reserved.
