Do You Own the Software You Paid For?
By Shannon Sheldon and Jeffrey G. Sheldon
All rights reserved…Or are they?
Your company retains an outside programmer to write software that later is copied by a competitor. Your company sues the competitor, but loses.
Or, your company retains an outside programmer to write software for internal use. The program is so good that your company decides to make a few modifications and market the program. The programmer sues your company for copyright infringement, and wins.
How can this happen? Because in each case, the copyright to the program was owned by the programmer, not you. Unfortunately, many businesses today find themselves battling over intellectual property ownership issues. There are steps businesses can take to protect themselves from these situations, and understanding how the law works provides a key.
Employee vs. Contractor
Assigning outside contractors to write software rather than using employees is a common practice for many companies because it can be a low-cost alternative. Additionally, going outside can give a company access to highly talented programmers who want to work independently.
It is well understood that a computer program has copyright protection. But it is not so clear who owns the copyright when a hired person creates a program. Ownership determination hinges on whether a hired person is an employee or an independent contractor. Generally, if the programmer is an employee, then the copyright is owned by the employer. But if the person hired is an independent contractor, then the copyright is owned by the independent contractor.
This determination of whether a hired person is an employee or an independent contractor is a multifactor analysis. There is no clean-line rule. Under the Copyright Act of 1976, ownership of the copyright in an original work belongs to the author or authors of the work. However, if the work is a “work made for hire,” the employer or other person for whom the work was prepared is considered the author and owns all of the rights comprised in the copyright.
The law seems simple, but Congress defined the “work made for hire” narrowly. Section 101 of the Copyright Act defines a “work made for hire” as either “a work prepared by an employee within the scope of his or her employment” or “a work specially ordered or commissioned for,” only if the work fits into one of nine specific categories. Computer programs are not specified in the statute. Therefore, the program must rely on the category or “a work prepared by an employee within the scope of his or her employment.”
The Court Test
The controlling U.S. Supreme Court case in analyzing whether a person is an employee or an independent contractor for purposes of copyright law is Community for Creative Non-Violence vs. Reid. In the Community for Creative Non-Violence case, hereafter referred to as “CCNV”, the Supreme Court has applied the multifactor analysis of the federal common law of agency. The multifactor test used by the Supreme Court in the CCNV case lists several factors that are based on the Restatement of Agency. These factors are:
- The hiring party’s right to control the manner and means by which the product is accomplished
- The skills required to produce the work
- The source of the instrumentalities and tools used in creating the work
- The location where the work was done
- The duration of the relationship between the parties while the work was created
- Whether the hiring party has the right to assign additional projects to the hired party
- The extent of the hired party’s discretion over when and how long to work on a given period
- The method of payment – whether by a period or by a project
- The hired party’s role in hiring and paying assistants
- Whether the work is a part of the regular business of the hiring party
- Whether the hiring party is in the business related to the work
- The provision of employee benefits
- The tax treatment of the hired party
Assignment in Writing
A solution to this problem is to require each software programmer to assign to the company in writing his or her copyrights. Then, if a work fails to qualify as a work for hire, the company owns the copyright by assignment. But even a clearly expressed assignment does not guarantee a completely safe haven for the company throughout the life of the copyright protection. If the author is determined to be an independent contractor, so that ownership by the company was given by transfer, then the author has a right to terminate transfers and licenses after 35 years from the assignment or license.
The bottom line is any organization that contracts for work should request a written agreement that includes at least the assignment of copyright. Using independent contractors may be a time- and cost-saving practice, but you should enter such agreements with your eyes open.