Individuals and businesses in all industries routinely hire consultants to create materials for them. Examples of materials often outsourced include websites, custom software, brochures, manuals and product literature. Most purchasers of these items assume that they own all rights to them as soon as they pay for them. Actually, often times they do not.
Ownership of “works of authorship” such as those mentioned above, is governed by copyright law. The Copyright Act contains specific provisions addressing who owns works of authorship “made for hire,” that is, works one individual or entity pays another to create.
The Copyright Act provides that generally, absent a written agreement providing otherwise, the copyright in a work of authorship created by an employee within the scope of the employee’s employment, is owned by the employer. As the owner of the copyright in the work of authorship, the employer has the exclusive right to reproduce, prepare derivative works from and distribute copies of the work, and for certain works the exclusive right to perform and display the work. The employee does not have any of these rights. The law, however, is different with respect to works created by non-employees.
Under the Copyright Act, works of authorship created by independent contractors are generally owned by the contractor unless there is a written agreement to the contrary. Application of this rule can create unintended results.
For example, imagine paying a software developer a considerable sum of money to create inventory tracking software customized for your particular industry. A principal reason for paying to have the software developed is likely to gain an advantage over competitors. Unfortunately, if there is no written agreement with the software developer stating otherwise, the software developer owns the copyright to the code that he or she created. The purchasing party likely just has certain rights to use the software. Little is stopping the developer from licensing the software to competitors in the industry, or from further customizing the software for use by those competitors.
Similar problems can arise in the marketing context of website development. Imagine a business owner paying a developer to create a website with unique content and functionality so that it can attract customers, only to find out that the developer subsequently used portions of what he created on other websites he developed. Without a written agreement stating which party owns the copyright in the developer’s creations, the customer may not be able to stop the developer from using his creations on other websites.
Competitors acquiring the right to use materials paid for by another is only one of the possible problems created by not owning the copyright to such materials. Consider the software development example above. Absent ownership of the copyright in the software, the party that paid for the software may need to seek permission from the developer — and pay additional fees — in order to modify the software or install and run it at different locations.
As mentioned above, the way to avoid these problems is to enter into a written agreement with independent contractors before they begin to create works made for hire. The agreement should, at a minimum, specifically describe the work being created, and the amount being paid for it. It should also clearly state whether the work is to be considered “a work made for hire” such that ownership of it vests with the commissioning party, rather than the independent contractor.