United States: Paying For Software Development? Make Sure You Own It!

In a digital society dominated by the saying, "there's an app for that," copyright protection is essential. Paying to have a work created does not automatically vest ownership of the copyright in the paying party. When making the decision to hire an individual to develop software either as an employee or independent contractor, companies must address ownership before work commences. In general, the individual who creates the work will own the copyright; however there is one exception: works made for hire. According to the U.S. Copyright Act, if a work is made for hire, then the employer or hiring party is considered the author and the owner of the copyright. However, to fall under this exception to the general rule of copyright law, the contracting parties must memorialize their understanding in a written agreement and such agreement must define the relationship between the contracting parties (e.g., employment or independent contractor) and the parties' IP ownership rights.

The Rights

The U.S. Copyright Act, 17 U.S.C. § 101, et seq., provides a set of exclusive legal rights to the owner of a copyrightable work (which includes software). These include the right to reproduce the copyrighted work, the right to prepare "derivative works" and the right to distribute (sell, license, etc.) copies of the work. This set of rights also allows owners to block others from doing the same thing. Thus, hiring parties must own the copyrightable works created by individuals they hire to be able to utilize the work.

Employees

Section 101 of the Copyright Act divides works made for hire into two parts: work created either within the scope of employment, or by an independent contractor. In general, it is far more likely for a work to be considered a work made for hire, and the property of the hiring party, if the work is the product of an employment relationship. In short, if an employee creates the work within the scope of his or her employment, the work will generally be considered a work made for hire.

The employment relationship is defined by the common law of agency. According to the ruling in Community for Creative Non-Violence v. Reed, the law provides for three categories of factors to employ in examining whether or not an employee-employer relationship exists: (1) employer's control over the work, (2) employer's control over the employee and (3) status and activities of the employer. No one factor is controlling; however, as long as an employer maintains a sufficient amount of control over the employee, his or her work and/or defines the employment so that the work completed falls within the scope of that employment, the employer should be considered the author of the work and owner of the copyright.

To ensure the work created by an employee belongs to the company, employers should develop a broad scope of duties and job description documentation for employees. For instance, in the case of Miller v. CP Chemicals, Inc., a lab supervisor responsible for the "operation of the quality control laboratory" sued his former employer for continuing to use a computer program the supervisor created at home to assist with organization of the lab. Even though the hourly paid supervisor did not receive additional or overtime pay for the creation of the program, the court found that the program was created within the scope of the supervisor's employment and belonged to the employer.

In addition, employers can include as a safety precaution to any work for hire agreement a copyright assignment assigning any interest the creator has to the hiring party. In the event the work is not classified as a work for hire under copyright law, then the backup assignment will still convey ownership rights to the employer/hiring party in a slightly more limited way.

If ownership is properly conveyed to the employer before the work is created, employers can rest easy after an employee leaves his or her employment because the exclusive set of legal rights provided by the Copyright Act undoubtedly remain with the employer. The U.S. Copyright Act states once ownership in the copyright is established, copyright on a work for hire runs for 95 years after the first publication or 120 years from its creation, whichever expires first.

Independent Contractors

In order for a work created by an independent contractor to be considered a work made for hire, the following conditions must be satisfied: (1) the work must be "specially ordered" or "commissioned" by the hiring party, (2) the hiring party and the individual must enter into a written agreement that memorializes their understanding and expressly defines the work as a work made for hire and (3) the work must fall into one of the nine statutory categories under Section 101 of the Copyright Act. Those categories include: a contribution to a collective work, part of a motion picture or other audiovisual work, a translation, a supplementary work, a compilation, an instructional text, a test, answer material for a test or an atlas.

If an independent contractor completes a project for a company without a valid agreement in place, the company is left with hurdles to jump through. When no such agreement exists, ownership rests with the independent contractor and must be transferred to the hiring party via an assignment with the language required in Section 204 of the Copyright Act.

The Assignment Agreement

The assignment agreement can be in any form, but must be explicit as to the copyright interests being transferred and the timing of the transfer. The consequences of a company's failure to adequately transfer ownership were demonstrated in the case of Woods v. Resnick, when Woods wrote the source code for a software program conceived by a partner in the company, F&I Source. Woods drafted the terms and conditions on the company website stating that company was the sole and exclusive owner of the copyrights and also signed (on behalf of the company) a service agreement with a third party that reserved rights in the source code to the company. However, because these documents were between the company and third parties and did not deliberately transfer ownership interest or provide a clear guide to the parties of their responsibilities, the statutory requirements were not met for the assignment of copyright from Woods to the company. Thus, the court determined that Woods was the owner of the company's valuable source code.

Further, regarding the timing requirement of an assignment, courts have interpreted statements like "developer agrees to assign ownership of the work product to customer" as a mere promise to assign ownership at a future date, rather than an actual assignment of ownership. As a result, a present assignment should be made by using language such as "developer hereby assigns" to satisfy the timing requirement.

Ultimately, the key is for companies to define ownership before the work is created. Companies seeking to protect their software IP portfolios should reach out to a qualified attorney for questions or assistance with copyright ownership.

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.

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