Contractor Copyrights

Contractor
Contractor

Want to pay a contractor to produce creative material for you, and then actually own the copyrights? Getting ownership of contractor copyrights is tricky.

Copyrighted material – be it text, images, music, or code, is important for many creative and commercial efforts. None of us have the time or talent to do all of this ourselves, and so it is natural to turn to experts to help provide this material.

We could hire employees for this purpose.  However, many projects are of limited duration, and alas, unlike “the good old days” where employees had no rights and could be hired and fired at whim, these days employees actually have rights and benefits. These include unemployment insurance, social security, tax withholding, and the like. No one wants to go back to the Victorian era, but at the same time, it can be a hassle to employ someone.

Contractors are often used to avoid this hassle.  Contractors are expected to deliver results, but to do so in their own way. We pay money, expect to obtain the benefit of the deal, and then no more hassles or obligations. This simple expectation breaks down when it comes to IP, however, and contractor copyrights are particularly tricky.

To somewhat oversimplify, if you want to pay someone and obtain ownership of copyrighted material in return, the following legal considerations can apply:

  • Under Federal law, full copyright ownership requires a “work for hire” agreement
  • “Work for hire” agreements may imply (and in California, can define) that the worker is an employee
  • Employees are legally entitled to various employee benefits
  • Contractors are not legally entitled to employee benefits
  • Absent an assignment, copyright ownership remains with the contractor
  • Copyright ownership assignments must be in writing
  • Copyright assignments that are not “work for hire” can be terminated by the author or heirs after 35 years

This creates interesting legal problems.  It is common to put “work for hire” terms in contract agreements. The idea is to automatically acquire full copyright ownership this way.  However, such “work for hire” terms can be inconsistent or even incompatible with the definition of “contractor”.  This can open the door to potential legal headaches.

In an alternative approach, there is no “work for hire” clause, but as part of the deal, the author-contractor agrees to assign all contractor copyrights to the work that you have paid for. This is not perfect either. Additional assignment paperwork is often needed, and Federal copyright law allows an author-contractor to petition to terminate this assignment 35 years later.

35 years is fine for most purposes, but what if you are thinking on longer terms? Here, efforts to work around the 35-year copyright assignment termination issue should be considered. One option is to contract with a corporation that in turn “work for hire” employs the author.

Contractor ownership of IP

Agree on IP ownership in advance
Agree on IP ownership in advance

The ownership rules for copyrights, patents, and other IP vary depending on if the IP creator is an employee or an independent contractor.

In today’s world, the distinction between employee and independent contractor is often blurred, but legally, these two forms of working are very different.  As a result, whether you are working as an employee or independent contractor, or hiring employees or independent contractors, it is good to be aware of how these different types of work engagements impact IP ownership rights.

These laws can vary from state to state.  Consider California. Generally, work done by an employee for an employer, at the employer’ request, does belong to the employer. However the IP assignment process is not always automatic (patents, for example, generally need to be assigned to the employer in writing).

One of the reasons why California has a booming high-tech economy is that California labor code sections 2870-2872 mandate (with certain exceptions) that work that does not relate to an employer’s business (and is done with the California employee’s own time and materials) generally belongs to the employee. However, this section of California law may not protect independent contractors.  So if you are an independent contractor, you may want to negotiate this.

US copyright law (writing, art, software, etc.) also distinguishes between employees and contractors. For employees, copyright ownership for works made for the employer typically goes to the employer. However for independent contractors, absent a signed written agreement (such as a work made for hire agreement) that copyright ownership is being transferred, often ownership remains with the independent contractor.  So if you are hiring an independent contractor, absent a written agreement, just because you paid for something doesn’t automatically mean that you own it!

How to distinguish an employee from an independent contractor?  Generally, the difference is the amount of control.  For an independent contractor, whoever is paying can control the work result, but generally not how the work is done.  By contrast, even an employer who gives his employees freedom still has the legal right to specify how the work is done.

Regardless of work arrangement, it is always a good idea to work out the issues of who is going to own what in writing and in advance.  For employees, spell this out with a proprietary information and inventions agreement. For independent contractors, negotiate and sign an agreement on these issues before starting work.  This topic often comes up in due diligence.