[Originally published in the Oakland Business Review, December 2011/January 2012 issue. Please contact the Oakland Metropolitan Chamber of Commerce for reprints.]

One misconception business owners have is that anything created by an independent or “freelance” contractor for their business is a “work for hire” under copyright law.  But the law is not so clear-cut.  For example, if you retain a software programmer to write specialized accounting computer software for your business, an artist to create a logo for your business, or an advertising consultant to create marketing text or slogans, you do not necessarily have ownership rights in the software, logo, or marketing materials merely because you hired the contractor or consultant.

As to works created by independent contractors, such as consultants or freelance artists, the “work for hire” doctrine only applies to certain types of works under federal law, and these works do not necessarily include software or logos.  As to independent contractors, a “work for hire” is defined in the Copyright Act (17 U.S.C. § 101) as “a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas.”  These are the only types of works created by independent contractors that can constitute “works for hire.”  Merely calling something a “work for hire” in an agreement does not make it so, unless it falls within these specified categories of works.  In addition, to constitute a “work for hire” the parties must have an express written agreement to this effect, signed by both parties.  While some software programs may be considered an “audiovisual work,” other software programs would not.  And whether a graphic logo is covered or not could depend on how it is used.

Consequently, business owners who hire independent contractors should make sure that they have written agreements specifying that the works created are “works for hire” (assuming they fall within the specified categories listed above) and also require contractors to assign ownership of any works to the employer.*   Notably, an assignment of copyright ownership must be in writing; an oral agreement is not sufficient to transfer copyright ownership.  (17 U.S.C. § 204).  As more and more businesses retain independent contractors and consultants, rather than hiring full-time and part-time employees, they should pay special attention to this issue.  The consequences of failing to take these steps can be very problematic, particularly if there is a dispute over payment or work quality with the contractor or consultant.   That said, a business may still be able to use a work created by a contractor, even if the business does not own the copyright in the work, under the theory that there is an implied license granted from the contractor to the business. 

In contrast to works created by independent contractors, if an employee creates a work within the scope of his or her employment, then the work is considered to be a “work for hire” and is owned by the employer, by operation of law.  Still, the more cautious business owners will have their employees sign employment agreements that transfer ownership of works, ideas, inventions, and other items conceived in connection with their employment with the employer.  Copyright law only protects the expression of an idea or concept, in a tangible form, and does not protect the idea itself.  Because many employees often work from home or off-site, and at odd hours, it can be unclear if a concept or idea conceived  by an employee was in the course of his or her employment.  

The toymaker Mattel, Inc., maker of the Barbie dolls, faced this situation recently in a highly publicized case involving the competing Bratz dolls made by MGA Entertainment.   A former employee of Mattel had conceived the idea of the Bratz dolls while still employed by Mattel, and claimed to have conceived this idea outside of work hours.  When that employee move to MGA and the Bratz dolls became a hit, Mattel sued for infringement, among other claims.  Although the employee had signed an employment agreement with Mattel in 1999 in which he agreed to assign all “inventions” he conceived during his employment to Mattel, and “inventions” included “discoveries, improvements, processes, developments, designs, know how, and data computer programs,” an appellate court found that he had not agreed to assign “ideas” to Mattel, even if work-related, and denied Mattel’s claim of ownership.

So business owners should take care to ensure that they have written agreements in place giving them ownership and/or rights in the works created by independent contractors, and the relevant ideas conceived by their employees.

*Note that under California state law, this may require the employer to have to pay workers’ compensation and unemployment benefits as to the contractor.  See California Unemployment Insurance Code §§ 686 and 621(d); California Labor Code §3351.5(c).  A business owner should weigh these considerations in deciding how to obtain ownership.