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‘What Do You Mean I Paid for It, but Don't Own It?’

by Gary M. Schober

One of the least-understood provisions of copyright law is the treatment of works made for hire. In today’s world, with more and more business activity involving the creation of important work product that can be protected with a copyright, there needs to be more awareness of how ownership of works made for hire is treated.

Most non-copyright lawyers, not to mention most non-lawyers, might generally assume a person paying for the development of work product subject to copyright protection, such as software, would be the owner of the copyright in the absence of any agreement providing otherwise. Intuition and general principles of fairness would probably lead most of us to conclude ownership should lie with the person paying for development of the work product.

For example, if ABC Corp. pays XYZ Corp. a sizable amount of money for the development of software, wouldn’t you assume ABC owns the copyright to the software? You may be surprised to learn XYZ very well may own the copyright in the software, even if an agreement between the parties grants title to ABC—or, worse yet, it may actually be quite difficult to determine which party owns the copyright.

The Parties Concerned

Needless to say, the question of who owns the copyright on a work made for hire could be critically important to all parties involved. Also, ownership of the copyright could be equally important to third parties who may receive licenses to use the work product.

A licensee of the work product, not knowing much about the work product’s origin, may, for example, be surprised to learn its licensor doesn’t own the work product, and the true owner is holding the licensee accountable for copyright infringement. Assuming XYZ owns the copyright in the software, but ABC believes it owns the copyright simply because it paid for the software’s development, ABC’s licensees will be extremely shocked, to say the least, when they get sued for infringing XYZ’s copyright.

In the case of ABC and XYZ, depending upon the facts, either party could own the copyright. Although there aren’t enough facts available in our hypothetical situation to conclusively determine ownership for ABC and XYZ, a quick review of the issues would need to be considered in making that determination is possible.

As a general matter, copyright law favors the author or other developer of the work product. Section 201 of the Copyright Act of 1976 provides the copyright in work product “vests initially in the author or authors of the work.” Thus, in the absence of an exception to the general rule, the copyright for a work product will be owned by the developer. For ABC and XYZ, that means XYZ will own the copyright in the software unless an exception is available to ABC.

Work Made for Hire

One exception to the Copyright Act’s presumption in favor of the developer is work made for hire. Work product qualifying as a work made for hire will be owned by the person paying for the work product’s development. According to § 201, “In 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 [the Copyright Act], and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all the rights comprised in the copyright.”

Applying § 201 to the case of ABC and XYZ, if the software is a work made for hire, ABC will own the copyright. Conversely if it is not a work made for hire, XYZ will own
the copyright. Thus, in order to identify the owner of the copyright, we must first determine whether or not the software is a work made for hire. The answer to that question requires an analysis of § 101 of the Copyright Act.

Section 101 defines a work made for hire as work product that has been (1) prepared by an employee within the scope of his or her employment or (2) specially ordered or commissioned for use as a contribution to one of the categories of works specifically enumerated in § 101, (discussed in more detail below), and the parties expressly agree in a written instrument signed by them that the work product is considered a work made for hire. Whether or not a work product falls within this definition will answer the critically important question regarding ownership for ABC and XYZ. Unfortunately, application of this definition to a set of facts is not always easy.

The definition of work made for hire creates two scenarios in which the person who pays for the development of work product will be anointed owner of the copyright.

The first is relatively straightforward. Work product developed by “an employee within the scope of his or her employment” will be a work made for hire. Pursuant to § 201 of the Copyright Act, unless the parties have expressly agreed otherwise in a written instrument signed by them, ownership of the copyright will belong to the employer. This result is likely one most people would expect. It can easily be justified on the basis that the employee is being paid to develop work product for the employer. Since the employer pays the employee for that development, it is reasonable the employer would exclusively benefit from the fruits of the employee’s efforts. Besides, any other result would create considerable confusion in the marketplace, leaving a fair amount of confusion regarding ownership of work product developed by employees. Granting title to the work product to the employer is as practical as it is logical.

But what about the other scenario in which the work product will constitute a work made for hire, resulting in title being in the name of the payor? In attempting to qualify as a work made for hire in this scenario, two criteria must be met.

The first is that the work product must be a contribution to one of the enumerated categories. If it is, then the second test must be met. The second criterion is the parties must expressly agree in a written instrument signed by them that the work product is considered a work made for hire. It is important to emphasize that both criteria must be satisfied. Having just a written agreement stating that the parties intend for the work product to be a work made for hire may not be enough to qualify for work-made-for-hire status under the Copyright Act.

Categorizing the Work

Since the requirement for a written acknowledgment that the work product is a work made for hire is fairly self-explanatory and simple to satisfy, let’s focus on the requirement that the work product be specially ordered or commissioned for use as a contribution to one of the works enumerated in § 101. Qualification for work-made-for-hire status (other than in the context of an employer/employee relationship) requires the work product must be a contribution to one of the following: a collective work; part of a motion picture or other audio-visual work; translation; supplementary work; compilation; instructional text; test; answer material for a test; or an atlas.

In determining exactly what the Copyright Act means by some of these categories, § 101 provides additional insight. For example, it explains a “supplementary work” is work product “prepared for publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting upon, or assisting in the use of the other work, such as forewards, afterwards, pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, answer material for tests, bibliographies, appendixes, and indexes.” An “instructional text” includes, according to § 101, all work products that are “literary, pictorial, or graphic work prepared for publication and with the
purpose of use in systematic instructional activities.”

It would be difficult—if not impossible—to adequately analyze in this article each of the enumerated categories for purposes of determining whether a specific work product can qualify as a work for hire. Suffice it to say that if you want to be certain title to the copyright in any work product belongs to you, it is important that these categories be
carefully reviewed.

If the work product clearly fits into one of the categories and there is a written agreement acknowledging the work product is a work made for hire, the payor, like the employer, will own the copyright. Since it is necessary to have a written agreement anyway, it would be wise, even when the work product clearly fits into one of the enumerated categories, to have both parties expressly acknowledge in the agreement the work product is considered to be in the appropriate category. Although that type of language would be self-serving, like a bowl of chicken soup, it cannot hurt.

On the other hand, if it is unclear that the work product fits into one of the categories or if it clearly does not fit into the categories, what can a lawyer do to protect the client who pays for the development of work product? For example, what could ABC’s lawyer do to make sure title to the copyright was owned by ABC?

Settling for a License

In view of the Copyright Act’s treatment of works made for hire, there may not be much a practitioner can do to assure ABC will have title to the work product developed on its behalf by XYZ. The act unambiguously provides that, if there is not an employer/employee relationship, either both of the criteria discussed above are satisfied or title will belong to the developer (that is, XYZ).

Fortunately, all is not lost for ABC. There is an approach that may get ABC extremely close to having title without actually obtaining title to the work product. An approach that seems to be followed by most intellectual-property lawyers representing the party paying for the development of work product is to provide in the written agreement an assignment of ownership from the developer to the payor. Sample language that could be used for this purpose follows:

“Each discovery, idea, invention, or other work product developed by XYZ pursuant to this Agreement (collectively ‘Work Product’) shall belong to ABC. To the extent applicable law provides that any Work Product belongs to XYZ rather than ABC notwithstanding the preceding sentence, XYZ assigns to ABC all rights, title, and interest in and to such Work Product for no consideration other than that which is given in connection with this Agreement. XYZ must promptly (1) provide ABC with all information in the possession or under the control of XYZ and relating to all Work Product and (2) at the request of ABC, execute and deliver to ABC each document and other writing, and take each other action, in order to assist ABC in protecting its interest in any Work Product and otherwise enabling ABC to use and enjoy any Work Product.”

In some cases, a complete assignment of title may not be possible to obtain from a savvy developer. A compromise approach in those cases would be for the developer to grant to the payor a license to use the work product coupled with some of the attributes of ownership. Although that may not be as desirable as having title to the work product, the payor may still have adequate rights to use the work product to meet its goals.

Other Provisions

At the same time, the payor may be able to contractually restrict the use of the work product by the developer and other third parties in the license agreement. To be safe, it is also wise to have the developer commit to providing the payor with all information relating to the work product and agree to take any action requested by the payor in connection with the payor exercising its right to use and enjoy the work product. Depending on the circumstances, the payor can also attempt to impose other obligations on the developer, such as an obligation to notify the payor if the developer learns about any infringement claims relating to the work product.

The treatment of works made for hire by the Copyright Act presents lawyers with another trap for the unwary. The illogical, counterintuitive treatment of works made for hire can yield unexpected results for clients.

Fortunately, an appropriately drafted contract provides lawyers with other options for obtaining title or other desired results for his or her client. Even if the payor cannot obtain title to the work product, a license could be adequate to achieve the payor’s goals. However inadequate it may seem to the payor to receive only some characteristics of title without actually having title, it is, perhaps, the best he or she can hope for.