Key Point
- Businesses that want to own copyright in original works created by independent contractors should actively monitor engagement documents to ensure there is an assignment of copyright.
Increasingly, businesses are using a variety of employment arrangements for flexibility. A recent decision of the Federal Magistrates Court (Centrestage Management Pty Ltd v Riedle [2007] FMCA 1147) serves as a timely reminder that where companies engage an individual who is in substance an independent contractor (even if described as an employee), the default position is that the individual owns the copyright in original works he or she creates pursuant to the engagement.
Businesses wanting to ensure they own the copyright in works created by such individuals should ensure that an assignment of copyright is expressly provided for in a signed engagement agreement.
The proceedings
Centrestage Management Services Pty Ltd (CMS) is a small computer consultancy company. Mr Roberts is a director of CMS and, in 2000, he wrote a computer program for the Salvation Army for its home collection services. In late 2003, the Salvation Army told Mr Roberts that it was contemplating an upgrade of the program. It was agreed that CMS would provide an updated program in three stages. As Mr Roberts was unable to do the update himself, he contacted Mr Riedle, a computer programmer, to undertake the work. Pursuant to an unwritten contract between CMS and Mr Riedle, Mr Riedle provided stage one, stage two did not go ahead, and Mr Riedle did a certain amount of work in connection with stage three.
A dispute arose as to the ownership of the copyright in the updated computer program.
Who owns copyright created in the workplace?
Section 35(2) of the Copyright Act 1968 (Cth) says that:
"Subject to this section, the author of a literary, dramatic, musical or artistic work is the owner of any copyright subsisting in the work by virtue of this Part."
One of the exceptions arises where the author is an employee:
"Where a literary, dramatic or artistic work to which neither of the last two preceding subsections applies, or a musical work, is made by the author in pursuance of the terms of his or her employment by another person under a contract of service or apprenticeship, that other person is the owner of any copyright subsisting in the work by virtue of this Part." [section 35(6)]
An employer thus owns the copyright in works created by an employee under a contract of service. However, an independent contractor owns the copyright in works he or she creates under a contract for service.
Employee or independent contractor?
There are various recognised factors that courts will consider in determining whether a particular person is an employee or independent contractor. At one time, the degree of control over the way in which work was to be done was regarded as almost determinative. However, the control test has been superseded by a more flexible approach that regards it merely as one of a number of indicia which must be considered.
In examining the arrangement between CMS and Mr Riedle, Federal Magistrate Riley gave weight to the following factors:
- the form of the person's remuneration;
- the extent to which the person bears risks if, for instance, the project takes longer than expected;
- the person's entitlement to benefits and rights typically enjoyed by employees, such as regular holidays, a workspace at the business premises, workers compensation insurance, superannuation benefits, holiday pay and sick pay;
- the extent to which the person bears the costs of equipment and resources required to carry out the contract, including vehicles, uniforms and office expenses;
- the tax arrangements between the two contracting parties, particularly for GST and for pay-as-you-go income tax;
- the person's freedom to transact business with other clients separately from any work under the contract.
Taking into account all the factors, Federal Magistrate Riley found that Mr Riedle worked for CMS as an independent contractor, not an employee. Notwithstanding this, Federal Magistrate Riley declined to make a declaration about the ownership of the copyright in the program as he considered the Salvation Army ought to have the opportunity to be heard on the matter before any declaration was made.
Implied license
The courts will imply a license permitting the person who commissions a work to use it for the particular purpose for which it was commissioned. However, Federal Magistrate Riley held that an implied license for CMS to use the computer program created by Mr Riedle did not extend to delivery of the source code to CMS. This was because CMS could use the program for the purpose for which it was commissioned in the form provided by Mr Riedle without the source code.
Ownership of copyright
In Australia, copyright automatically subsists in certain types of original literary, dramatic, musical and artistic works upon their creation. Unlike patents, designs and trade marks, there is no system of registration for copyright. As a result, companies need to consider the ownership of copyright prior to the creation of original works.
The most straightforward way for companies to protect intellectual property (including copyright) is pursuant to the contract under which a person is engaged. However, as Federal Magistrate Riley noted, descriptions of a person as an 'employee' or similar in a contract or elsewhere are not of significant weight. Courts will look to the substance of the relationship. Yet many modern employment arrangements blend features from conventional employee and independent contractor relationships.
Accordingly, a company wanting to ensure it owns the copyright in original works created by an individual, regardless of whether they are an employee or an independent contractor, should insert an express term in the engagement document assigning copyright to the company. It is essential that this assignment is in writing and signed by or on behalf of the assignor to be effective (section 196(3) of the Act).
Conclusion
Copyright, like other forms of intellectual property, is a valuable asset for many companies. An assumption that an individual is an employee, not an independent contractor, could prove very costly. A simple clause inserted into a written contract can ensure that copyright in original works created by independent contractors is owned by the company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.