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When Copyright Goes Wrong

Contributing Author: Marc Fineman of Levenfeld Pearlstein, LLC

Have you ever hired an independent contractor or outside consultant to create something? Maybe you retained a graphic designer to design a logo or marketing collateral. Perhaps you worked with a website development company to create a website. Or maybe you hired a software developer to develop an app. Did you know that in each of these examples, and in many others, you may not own the copyright rights in what was created for you, even if you paid for the work?

There is a common, but potentially dangerous, misconception that if an independent contractor or outside consultant (I will use the word “contractor” to refer to both) is hired and paid, the copyright in the resulting work automatically is owned by the hiring party. This concept sometimes is described as “work made for hire.” However, while the phrase “work made for hire” does have a legal meaning and the concept does apply to some contractor engagements, in the vast majority of cases, the concept of “work made for hire” does not apply and the contractor retains ownership of the copyright unless there has been a signed written copyright assignment. This can come as an unpleasant surprise when it is discovered, often by the potential buyer of a business or when a business looks to monetize, commercialize or enforce rights in a contractor’s work.

Under the US Copyright Act, the copyright in a “work made for hire” is automatically owned by the hiring party. But the situations in which the “work made for hire” concept actually applies are surprisingly limited when it comes to contractors. In fact, when a contractor is hired to create a work, that work will qualify as a “work made for hire” only if it is “specially ordered or commissioned for use (1) as a contribution to a collective work, (2) as a part of a motion picture or other audiovisual work, (3) as a translation, (4) as a supplementary work, (5) as a compilation, (6) as an instructional text, (7) as a test, (8) as answer material for a test, or (9) as an atlas,” and then only if the parties expressly agree in a signed written agreement that the work is a “work made for hire.”

The preceding categories of works either are very specific (tests, test answers, atlases, etc.) or have special meanings under the US Copyright Act that do not typically apply to everyday works commonly created for businesses by contractors. In other words, works such as logos, websites, marketing and advertising collateral, apps and numerous other types of works typically cannot qualify as a “work made for hire” and require a signed written copyright assignment from the contractor.

To understand the potential real-world implications, consider a relatively simple, but surprisingly common, example. I start a new online business and I need a professional website to advertise and sell my products and services. I find a website designer with a great reputation at a reasonable price, and I sign a short statement of work (SOW) that outlines the design and functionality of the website, specifies the payment terms and includes some typical boilerplate language. The SOW is silent, however, regarding ownership of intellectual property. As a startup, money is tight and I decide not to have an intellectual property attorney review the SOW. The website is created on time and on budget and it looks great, and I pay the designer in full.

Five years later my business has taken off and a large international company is in negotiations to buy it. As part of the process, the company asks to see a copy of my agreement with the website designer to confirm that I own the copyright on the website; I happily provide a copy of the SOW and payment receipt. The buyer responds that the SOW does not include a copyright assignment and requires me to go back to the website designer to get a copyright assignment before the buyer will agree to move forward. However, the website designer has since retired and is nowhere to be found. Now what? Time to call my attorney (luckily, I know a pretty good intellectual property attorney).

In almost all cases, including the preceding example, it will be more expensive and cause more business disruption to try to obtain a copyright assignment after the fact than it would have been to include the correct language in the contractor’s agreement at the start. Therefore, when engaging a contractor, be aware of the “work made for hire” limitations and obtain a signed written copyright assignment from the contractor when necessary. In the long run, it will save time, money and aggravation.

Please note that this blog post is for general informational purposes only and is not intended to be legal advice. You should always consult with a qualified attorney to discuss your specific situation.


Marc Fineman
Partner at Levenfeld Pearlstein, LLC

Marc Fineman is a partner and chair of the Intellectual Property Group with experience in all facets of patent, trademark, industrial design and copyright law.  Marc’s ultimate goal is to use practical and strategic intellectual property advice to help clients achieve their goals while striking the proper balance between risk and reward.

Marc provides guidance during all stages of the product development lifecycle, from conception, to research, market analysis, development, testing and, finally, launch. This includes conducting product and trademark clearance searches, identifying complementary and cost-effective forms of intellectual property protection, developing and implementing worldwide intellectual property filing and maintenance programs and enforcing and monetizing intellectual property rights through licensing, litigation and sale.

 

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