Ownership Of Creative Works

 

All startups and existing businesses must understand one basic legal principle when it comes to logos and other creative works: If you are not the actual creator of a creative work, then the only way that you can acquire exclusive rights to the work is by having a signed and legally sufficient writing transferring some or all of those rights exclusively to you or your business! This means you should always secure all of the exclusive rights to any works you have someone else create for your business by either using a written work for hire agreement, or by obtaining a written assignment exclusively transferring all rights of ownership you.

The full bundle of rights to any logos, illustrations, web site graphics, website templates, creative banners and other works belong to the creator. Without a valid, comprehensive written and signed agreement transferring all or certain rights, the full bundle of rights that comes with holding a copyright becomes completely clouded. You might be left with only an implied license to use the work, but not full rights of ownership and use (the concept of an implied license is discussed in detail below). These rights may then be left up to the courts to decide, causing all sorts of uncertainties and problems. If you don’t use a proper written agreement, you may not ultimately have the right to use the work in a manner other than intended by the creator when he or she was hired, or the ability to create derivative works based off of the work. You also would not be able to transfer the copyright to someone else and might not otherwise be able to sell the work down the road.

The Work For Hire Doctrine

This is where the work for hire doctrine comes into play for your business. Under the concept of a ‘work for hire’, all of the attributes of copyright ownership vest in the hiring party, not the creator or author. There are only two situations in which a work for hire exists legally. Those situations are: (1) a work created by an “independent contractor,” and a (2) “work prepared by an employee” within the scope of his/her employment. A work created by an independent contractor will qualify as a work for hire if the following three specific conditions stated in the Copyright Act are met:

  • New Creation- The work must be “specially ordered” or “commissioned,” meaning the independent contractor is paid to create something new (as opposed to an existing piece of work); and
  • Written Agreement- Prior to commencement of the work, both parties must expressly agree in a signed, written instrument that the work shall be considered a work made for hire; and
  • Commissioned Work- The work must fall within at least one of the following nine statutory categories of commissioned works list in the Copyright Act: (1) a translation, (2) a contribution to a motion picture or other audiovisual work, (3) a contribution to a collective work (such as a magazine), (4) as an atlas, (5) as a compilation, (6) as an instructional text, (7) as a test, (8) as answer material for a test, (9) or a supplementary work (i.e., “a secondary adjunct to a work by another author” such as foreword, afterword, chart, illustration, editorial note, bibliography, appendix and index).

 

However, since a work does not become “for hire” unless it falls within one of these nine narrowly defined categories, a written work for hire agreement does not always protect your interests by itself. So, as a safety net, your website development agreement or any other work for hire agreement should also contain an exclusive assignment and transfer of the copyright of each and every separate work you commission.

A work created by an “employee” within the scope of his or her employment is automatically considered a work for hire. These works do not have to fall into one of the nine statutory categories of works for hire and no written agreement is required. But, “work for hire” situations typically involve independent contracts, not employee-employer situations. Where a traditional employee-employer relationship exists, no work for hire agreement is necessary.However, you should still include a well-drafted statement in your Employment Agreement acknowledging that any work created by your employees in the scope of employment will be considered a work for hire.

Termination of Transfer Rights

If a work is done as a work made for hire, the creator has no rights to terminate the transfer under the Copyright Act. This is why your agreement should create a work for hire arrangement with the creator, to the extent the work qualifies as such. The functional difference of a work made for hire agreement versus an exclusive transfer not done as a work made for hire is that the creator may terminate the transfer of the original rights approximately 35 years from the assignment if the transfer was made on or after January 1, 1978 (or 56 years from the date copyright was originally secured if the transfer was made before January 1, 1978).

Will the work have value in the future? Some work will not likely have much future value, such as programming or web design work. However, some work, such as logos including those used for trademark purposes, illustrations for children’s books, concert posters or other art and other works may have great value in the future.

Using Written Work For Hire Agreements!

All work for hire agreements should be signed before any work commences. The law is unsettled over the issue of whether a work for hire agreement signed after the work has begun is valid. Without an agreement signed by both parties before work begins, the status of the parties’ rights may be unclear in some jurisdictions. In Schiller & Schmidt, Inc. v. Nordisco Corp. (7th Cir.1992), that Court held that in order to be a valid work made for hire agreement the parties not only must have agreed before the work was commenced that the transfer of rights would be as a work made for hire but, more importantly, the actual agreement must have been signed by the parties prior to work having been even commenced. But, in Playboy vs. Dumas (2nd. Cir. 1995), the court said the parties could verbally agree to the work for hire arrangement before the work was started and sign an agreement afterwards.

What is a Signed Writing?

You should always play it safe and use a written work made for hire agreement that expressly mentions the work is being created as a “work made for hire.” The copyright act does not specify that the signed writing need be a ‘formal’ contract. The copyright statute (17 USC §101) specifically requires that “the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.” So, we have to look to case decisions (case law) to answer this question. For instance, some cases have held that a legend on the back of a check can meet the obligation of a writing (Playboy vs. Dumas (1995). We can probably conclude from relevant case law that any writing must specifically mention the words “work made for hire” and reflect the express agreement that the parties intend the writing to be a work made for hire arrangement.

Determining whether a given work is a work for hire is crucial in deciding what party holds which rights to the work. With a work for hire arrangement, the hiring party holds the copyright. Without a work for hire agreement in place, the exact rights of use and ownership of the hiring party depends upon the terms contained in any written agreement with the creator. If no agreement exists at all, the hiring party must then rely upon the concept of a non-exclusive, implied license to use the work. (I discuss the concept of the implied license in detail below). If you are forced to rely on an implied license, or if some existing agreement limits your use, you may come to find out you do not have the right to alter, reproduce or produce derivative works based on the work you paid to have created!

Implied, Non-Exclusive Licenses

As stated under our discussion of copyrights, without full rights of ownership, an implied license to use the work for some intended purpose may exist. Implied licenses arise when the conduct of the parties indicates that some license is to be extended between the copyright owner and the licensee, but the parties themselves did not enter into a written agreement. Since the terms of the license are not specifically agreed to, the license is implied from the conduct of the parties. The purpose of an implied license is to allow the licensee some right to use the copyrighted work. However, the extent of this use is typically limited to the use the creator intended when he or she created the work for the licensee.

Section 204 of the Copyright Act invalidates attempted transfers of copyright ownership made without a writing. 17 U.S.C. § 204(a) (2000). However, section 101 of the Act excludes nonexclusive licenses from the definition of “transfer of copyright ownership.” (17 U.S.C. § 101). Thus, a nonexclusive license may be granted orally or arise from the conduct of the parties. Such an implied license will arise where “(1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes the particular work and delivers it to the licensee who re- quested it, and (3) the licensor intends that the licensee- requestor copy and distribute his work.”

In a common example, if you hire an illustrator to design an e-book cover without a written work for hire agreement, you would have an implied license to use the cover in connection with the sale of your e-book. The conduct of the parties is such that your illustrator intends for his or her work to be used for that specific purpose by you. So, the issue really hinges upon the intended use of the work by the hiring party in the eyes of the creator. Of course, this depends on the facts of each situation. Any implied license is non-exclusive, however. That means the creator may be able to use the work, or even license it to third parties.

Unfortunately, it is not at all clear in any given instance what rights the publisher/owner has and what rights the artist/designer retains. This type of right is called an “implied, non-exclusive license.” Otherwise, there needs to be clear indications that you are being granted an exclusive license-i.e. a signed writing or email- to use the work exclusively for the stated purposes.

What About Using Freelance Contractors?

I am asked often whether using a freelance contractor found on the web, such as designers found through Odesk or Elance, creates a valid work for hire agreement. In fact, the question of whether you own whatever your freelance contractor creates is the critical legal concern with using these freelance providers. The short answer is that the terms of service contained on both popular freelance sites provide that the creator transfers copyright ownership to the hiring party upon job completion and successful payment in full. An agreement signed directly by the creator under a work-for-hire situation would obviously leave no doubt whether the creator intended to retain ownership of any work(s).

Your business should ask all freelance designers to sign a simple Work for Hire Agreement. Any contractors who have been hired through Elance or oDesk have already agreed to do so anyways under the terms of service. But, a work for hire agreement should absolutely be signed by your freelance designers if they have not previously agreed to such terms directly through a freelance provider forum. This is yet another area where the law as yet to catch up with technology. I suppose the technically correct answer is that until a court of law decides the issue, we can only make an educated guess using the principles of established law. This would represent a fact pattern not yet seen by the courts: a work for hire dispute found on a freelance Internet forum whereby all parties have agreed to terms and conditions upon registration. This is worth discussing given the popularity of Elance and the growing popularity of oDesk.

We can take a look at the Copyright Act and previous cases like the Playboy case to help answer this question. There has to be a signed writing that expressly contemplates a work for hire arrangement for some work commissioned by the hiring party. A work for hire arrangement is made clear when you use Elance or Odesk under their terms and conditions. Is it a signed writing though? All users must click on a link acknowledging they have read and agree to the terms and conditions during the registration process. Given the genesis of Internet law with electronic signatures, this type of assent shows acceptance of the terms under established electronic contract principles. Since you are hiring a contractor to create a work on your behalf, it is commissioned by your or your business. The critical question really boils down to whether the parties intended that it be a work for hire arrangement.

However, I would be surprised if a court ever did rule that a valid work for hire arrangement does not exist with contractors found on Odesk, Elance or some other forum, provided the nature of all work as a work for hire is made clear during the registration process. In other words, it must expressly state a work for hire agreement is made with all contracts entered into for eligible works (and assign and transfer all copyrights over to the hiring party as a backup).

Beware of California “Contractors”!

California state law prohibits transferring copyrights from the creator to a client under any work for hire agreements unless the creator is also treated as an employee under state law. The law provides that one who commissions a “work made for hire,” as defined in Section 101 of the Copyright Act, is considered the employer of the creator of the work for purposes of workers’ compensation and unemployment insurance. (Cal. Labor Code §3351.5 and Cal. Unemployment Insurance Code § 686 (2009)). When an author creates a work on a “work made for hire” basis, that creator becomes an employee under California law.

Basically, this means your business MUST carry workers compensation insurance for any creator you hire who resides in California. In addition to being liable for failure to maintain workers’ compensation insurance, your company is also potentially liable for failing to comply with the requirements of the California Unemployment Insurance Code.You may even have to withhold federal and state taxes from any payments made to them. This includes any independent contractor you may find on Elance, O-desk, or some similar freelance exchange forum. California labor law requires that worker’s compensation insurance be purchased and in place before you sign a Work for Hire agreement and before any work is done and payment is made. It is a crime not to comply with this law and you could potentially be liable for up to a year in jail and/or a stiff fine.

This law could apply to your business even if it is not located in the State of California. Clearly these laws apply to a California business and a California resident creator. But the laws may also apply to a creator located in California that is engaged by a business located in another state.The reach of these laws through long arm statutes is not clear. This lack of clarity should make any Internet business, no matter where located, hesitant to engage a California creator. If you plan on entering into this type of relationship, I strongly urge you to seek a qualified California based business attorney to clarify the reach of California’s law on your out-of state business.