Technology - Law Firms The Most Counterintuitive Legal Principle - The "Work Made For Hire" Doctrine!

Thursday, September 1, 2005 - 01:00

It is natural to believe that if you pay to have a work such as software, a website or even a statue created, you own all the rights in that work. This well-formed belief, however, may be wrong. Consider the following scenarios:

Constrained by a tight budget, Newco, a young corporation, opts to hire two independent contractor programmers rather than a single permanent employee. Because of space restrictions, Newco allows the new programmers to work from home part-time and rotate through the single available on-site office. Because the programmers are skilled and experienced, Newco, which has no IT expertise, exerts no control over the ways in which they design and write the software. Newco's financial situation eventually deteriorates, and it is compelled to discharge the programmers, who promptly establish their own company and proceed to market to Newco's competitors versions of the Newco software. Can the corporation then successfully sue the programmers and competitors for copyright infringement? Maybe not.

In a different scenario, a consultant is hired to update a company's already existing website. He contracts his services through an oral agreement that is formalized in a letter. He revises the graphics and otherwise re-designs the presentation of the site. It now looks wonderful. The company is delighted and its online business dramatically increases. Three months later, the company is shocked to see that its main online competitor has an almost identical website designed by the same consultant. Can the company successfully obtain an injunction based upon copyright infringement? Maybe not.

The Work Made For Hire Doctrine

For many corporations, hiring outside contractors to write software or design websites is an exciting option. It gives them access to a broader pool of talent and, in many instances, it is an effective way to reduce costs. Problems can arise, however, when employers assume that they own the works these hired programmers produce. Though it may seem counterintuitive, such independent programmers or designers often retain copyright ownership of their works under the "work made for hire" doctrine. Under the courts' interpretation of the doctrine, even workers who are employees may be able to assert copyright ownership rights successfully against their employers if the work was not created within the scope of employment. This article examines some "work for hire" scenarios where ownership of software or a website could be disputed, analyzes the applicable law and suggests some practical strategies for employers to minimize the likelihood of protracted and costly litigation over ownership rights.

Under Federal law, a computer program is copyrightable. Moreover, a website contains numerous separate elements that are copyrightable as well, conceivably by different people, as some components go to the look of the site and others to its content: script files, programs, HTML coding, graphics and other design elements, links, and text. The author of a computer program or a website designer, if an independent contractor, owns the exclusive rights to it, which means that he has the sole authority to exploit it commercially (reproduce it, distribute it, etc.). When a work is "made for hire," however, the party hiring the creator owns the copyright and all the rights and privileges that ownership entails.

A work can be regarded as "made for hire" under two concepts of Federal copyright law. It can be a "work for hire" if it is "work prepared by an employee within the scope of his or her employment." The employer-employee relationship is unambiguous in the sense that courts generally recognize that if the developer of a program is clearly a salaried, on-staff employee, the employer is the author of the program and the owner of the copyright.

Often, however, instead of being found to be a company employee, a hired software programmer or web designer is classified as an independent contractor. The work of an independent contractor can be considered "for hire" only: 1) when it falls within one of the categories of "specially ordered or commissioned" works enumerated in § 101 of Title 17 (contribution to collective work, part of motion picture or other audiovisual work, translation, supplementary work, compilation, instructional text, test, answer material for test, atlas); and, 2) if the parties have expressly agreed in a written instrument signed by both parties that the work shall be considered "made for hire."

While it would seem that the parameters of an employee-employer relationship are obvious, much of the case law in this area revolves around the difficulty of distinguishing between employees and independent contractors. Copyright ownership primarily turns on whether or not a true employer-employee relationship can be established. In a seminal decision, Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989) ( "CCNV" ), a case involving the copyright to a statue commissioned and paid for by CCNV, to determine whether a hired person is an employee or an independent contractor, the Supreme Court established a test with the following factors:

  • hiring party's right to control manner and means by which product is accomplished

  • skill required

  • source of instrumentalities and tools

  • location of work

  • duration of relationship between parties

  • hiring party's right to assign additional projects to hired party

  • hired party's discretion over when and how long to work

  • method of payment

  • hired party's role in hiring and paying assistants

  • whether work is part of the regular business of hiring party

  • whether hiring party is in business

  • provision of employee benefits

  • tax treatment of hired party

Many courts have applied the CCNV test in software programmer cases. The rulings are extremely fact-dependent. See, e.g., Aymes v. Bonelli, 980 F.2d 857 (2d Cir. 1992); MacLean Assoc., Inc. v. Wm. M. Mercer-Meidinger-Hansen, Inc., 952 F.2d 769 (3d Cir. 1991). The loose hiring structure of many companies - technology-based or not - complicates matters. In a recent case with facts not unlike those described in the software hypothetical above, the Ninth Circuit again determined that commissioned software was not a work made for hire. The court considered a broad spectrum of factors, noting that the claimed employer-for-hire did not have the right to control the manner or means of the programmers' work and that the programmers had flexible hours, and neither received employee benefits nor were treated as employees for tax purposes. It concluded that the programmers' were not employees but independent contractors. Thus, the employer did not own the copyright to its software. Jou v. Accurate Research, Inc ., No. 02-15076, 2003 U.S. App. LEXIS 17691 (9th Cir. Aug. 22, 2003).

As discussed above, unlike computer programs, websites have many separate but interrelated design and content elements that are often copyrightable. There is no doubt that the CCNV test and principles of copyright law discussed above also determine whether a web designer or website owner is entitled to the copyright. Courts have raised the possibility that the work of a graphic designer on a website display performed within the control of a hiring party could be that of an employee. See, e.g., Holtzbrinck Publ. Holdings, L.P. v. Vyne Communs ., 2000 U.S. Dist. LEXIS 5444 (S.D.N.Y. Apr. 26, 2000). See also, Attig v. DRG, Inc ., 2005 U.S. Dist. LEXIS 5183 (E.D.Pa. Mar. 30, 2005), where the hiring party raised a "work for hire" defense to a claim of copyright infringement by a designer.

Foreign Outsourcing

An additional consideration in the current market is outsourcing abroad. Increasingly, companies look beyond the United States for independent contractors to design their websites and craft their software. A programmer working for an American company may very well be based in South Asia or Eastern Europe. Which country's law governs ownership of the work is clearly important, as there is no recognized global work for hire principle. To date, American courts have largely assumed the dominance of United States' doctrine. For choice of law purposes, however, the law of the country with the greatest relationship to the property and parties at issue has been held to govern. See, Itar-Tass Russian News Agency v. Russian Kurier, Inc., 153 F.3d 82 (2d Cir. 1998). Thus, when outsourcing software or website development to a foreign country, counsel should research the IP laws of the foreign nation and also explicitly deal with this critical issue in a written outsourcing agreement.

Practical Tips

The copyright to software or a website can be a very valuable asset. To deter any challenge to an employer's claim of ownership, an employment agreement should contain a clause establishing that works prepared by an employee within the scope of his employment will be treated as "works made for hire." In anticipation of a challenge, however, it makes sense to include a back-up provision assigning the IP rights to the employer. This "belt-and-suspenders" approach will ensure that, at least under U.S. law, the employer will own the copyright.

When a company engages an independent contractor to create a "work for hire," it is imperative that the contractor execute a written "work for hire" agreement, together with an assignment of rights, if the company wishes to retain the copyright.

Marc S. Friedman is the Chair of the Intellectual Property Practice Group at Sills Cummis Epstein & Gross P.C. in New York City and Newark, New Jersey. Sayuri Rajapakse is an attorney at the firm and formerly an attorney-advisor at the U.S. Copyright Office.

Please email the authors at mfriedman@sillscummis.com or srajapakse@sillscummis.com with questions about this article.