Many businesses outsource work such as website creation, software development or other creative tasks, engaging the services of companies or individuals experienced in these fields. Some are surprised to learn, often the hard way, that paying someone to create your website, develop software or produce other works of authorship does not mean you own the copyright in the final work product. Lack of ownership may prove costly, as a copyright owner has the exclusive right to reproduce, distribute and even modify the original work.

Copyright protection, which has been referred to as the “forgotten stepchild” of intellectual property, deserves more respect and attention than it often receives. For starters, copyright protection is rather cheap — in fact, it’s actually free (more on that below). Unlike patents, you don’t need to spend thousands of dollars on an application, hoping that the Copyright Office agrees that you created something artistic or worthy of copyright.

Copyright protects works of authorship, including: literary works; musical works; dramatic works; pictorial, graphic, and sculptural works; motion pictures and other audiovisual works; sound recordings; and architectural works. 17 U.S.C. § 102(a). Though copyright does not extend to ideas, processes, systems, discoveries, etc., the tangible expression of these — e.g., computer software — is entitled to copyright protection.

Copyright protection arises the moment a work is “fixed in any tangible medium of expression.” 17 U.S.C. § 102. Though a copyright registration (which is inexpensive) is beneficial, it is not necessary for a work to be protected by copyright. Registration is necessary in order to file a copyright infringement lawsuit. Registration prior to any infringement will also allow the copyright owner to seek statutory damages (which can be substantial) as well as attorneys’ fees in an infringement suit.

Behold the Monkey, for example

Try this experiment. Hold out your left hand, palm up, and pick up a permanent marker with your right. Now quickly draw a self-portrait on your left palm. You just created a work of authorship which is protected by copyright! It may not be a good drawing (especially if you are left-handed), but copyright protection does not require that the work is good — just ask Ms. Cecilia Giménez, who famously botched an attempt to restore a fresco on the wall of a church in Spain. Through her less than stellar efforts, Ms. Giménez transformed a painting depicting Jesus, affectionately known as Ecce Homo (“Behold the Man”), into Ecce Mono (“Behold the Monkey”). Ms. Giménez and the church recently agreed to share the revenue from the marketing of her creation. We might soon start seeing Ecce Mono coffee mugs and t-shirts once copyright licensing deals are in place (and, perhaps, copyright infringement suits against those who have been using the image without permission).

The owner of the copyright in a work has the exclusive right to reproduce, display, distribute copies of and prepare “derivative works” based on (e.g., modify) the work. Only you can add a cheesy mustache or silly hat to the self-portrait you just drew on your hand. Only you have the right to put your hand on the photocopier down the hall and make copies of your hand art for distribution to your co-workers.

A copyright is owned, at least initially, by the author of the work. In addition, except for transfers by operation of law, copyright may only be transferred by a written instrument signed by the owner (or authorized agent of the owner). However, “[i]n the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of [copyright].” 17 U.S.C. § 201(b). Doesn’t that mean if a business pays someone to write software or create a website that it’s a work made for hire and therefore the business owns the copyright? Not necessarily. In fact, even if you have a written agreement which states that the end product is a work made for hire, that often will not be sufficient to give you copyright ownership.

Defining a work for made for hire

There are two types of works made for hire:

  1. Works prepared by an employee within the scope of employment; and
  2. Works specially ordered or commissioned, but only if:
    a) The work fits into one of nine specified categories, and
    b) “The parties expressly agree in a written instrument signed by them
          that the work shall be considered a work made for hire.”

17 U.S.C. § 101. Many incorrectly assume that a contract stating that the end product will be a work made for hire is sufficient for copyright purposes. Unfortunately, that is not the case. In addition to the parties expressly agreeing that the end product is a work made for hire, the work must be specially ordered or commissioned for use as one of the following:

  1. A contribution to a collective work;
  2. A part of a motion picture or other audiovisual work;
  3. A translation;
  4. A supplementary work;
  5. A compilation;
  6. An instructional text;
  7. A test;
  8. Answer material for a test; or
  9. An atlas.

The above nine categories are not as straightforward as they might appear. Software, for example, might seem to fit into one or more of the above categories. In most instances, however, software will not.

What does all of this mean for businesses and copyright ownership? For starters, an employer owns the copyright in a work created by an employee within the scope of employment. The employer is considered the author and therefore owns the copyright from the moment of creation. However, in order to avoid disputes over what works are created “within the scope of employment,” it is certainly a good idea to have employees sign a comprehensive intellectual property assignment when they join the company.

If the work is created by someone other than an employee within the scope of employment, there must be a written agreement sufficient to either:

  1. Satisfy the statutory requirements for a work made for hire (in which case the party commissioning or ordering the work is the author), or
  2. Transfer the author’s copyright (i.e., a copyright assignment).

The best approach to ensure copyright ownership is to rely, first and foremost, on a written agreement which includes a copyright assignment clause. So the next time you hire an outside software developer to write code or engage any non-employee to create a work of authorship, make certain you have a written contract that unequivocally assigns to you the copyright in the work product (e.g., “Author agrees to assign, and hereby does assign all right, title and interest in the copyright for the work product”).

A belt and suspenders approach might be even better (with one caveat, as mentioned below). Thus, the contract would include a work made for hire clause, as well as an outright assignment of copyright which applies in the event that the work made for hire clause is ineffective (e.g., the work product does not meet one of the nine categories). If the work made for hire clause is effective, the commissioning party is deemed the author under copyright law. One advantage of this outcome is that the original creator of the work will not have termination rights. Under the Copyright Act, an author who assigned or licensed their copyright in a work has the right to terminate that assignment or license, regardless of what their original agreement states, 35 years after the assignment or license. 17 U.S.C. § 203. This termination right, however, does not apply to a work made for hire.

So what happens if you outsource the creation of software, your company’s website or other works of authorship and you don’t secure copyright ownership? At best, you might have a limited implied license to use the material in its original form. Want to change your website or update your software? You better hope that the original author will agree to do the work at a reasonable price, as only the copyright owner has the right to create derivative works. In addition, the nonemployee author/copyright owner also may have the right to copy, distribute and even sell the very thing you paid to have produced.

One caveat

Finally, an additional cautionary note. As noted above, the belt and suspenders approach generally is a good idea. However, you may want to avoid a work made for hire clause if you are commissioning or ordering a work from an independent contractor in California. Under California law, such a work made for hire clause will result in the independent contractor being deemed your “employee” for purposes of things such as workers’ compensation and unemployment insurance and payroll taxes (along with penalties for failures to pay).