The issue of who owns the copyright in newly-developed software may arise in a number of business situations—an employee creates a work-related program on his home computer, a company hires a freelance developer to write software, a worker at an informal technology start-up develops software without an employment agreement or other formal arrangement in place. To address such questions, the Copyright Act contains provisions governing "works for hire," which allow for two exclusive ways for a work to be deemed a work for hire.
This article will discuss work for hire generally, some recent decisions interpreting work for hire provisions regarding employees and programmers, as well as a discussion of some differences between a work for hire agreement and a copyright assignment.
Work for Hire Generally
Pursuant to the Copyright Act, 17 U.S.C. §201(a), a copyright "vests initially in the author or authors of the work," which is generally the party who actually creates the work in a fixed, tangible expression. The Act provides an exception for "works for hire," where an employer or other person for whom the work was prepared is considered the author. Congress provided two exclusive ways for works to acquire work for hire status, one for employees and another for independent contractors. As such, 17 U.S.C. §101 defines a "work made for hire" as: (1) "a work prepared by an employee within the scope of his or her employment"; or (2) "a work specially ordered or commissioned" for use as one of nine enumerated types of works (contribution to a collective work, compilation, part of a motion picture or audiovisual work, translation, supplementary work, instructional text, test, answer material for a test, or atlas), if the parties agree in a signed written agreement that the work is a work made for hire. Works are "specially commissioned" when a person or company asks another to prepare a copyrightable work to benefit the requesting party.
Employment Status and Scope
Given that "pet" software projects are often developed during off-hours on a home computer or that a software professional’s job description may be vague, the determination of whether an employer or employee is the owner of source code may turn on the issue of "scope of employment" under the Copyright Act’s work for hire provision. Although the statute does not define "employee" or "employment," the U.S. Supreme Court in CCNV v. Reid, 490 U.S. 730 (1989), instructed courts to apply common-law agency principles in determining whether a party is an employee or independent contractor, including using the Restatement (Second) Agency §§220, 228 (1958). Factors relevant to this flexible, fact-based inquiry include, among others: the skill required for that occupation, the location of the work, the duration of the parties’ relationship, the extent of the hired party’s discretion over the work, and the tax treatment/payment method for the hired party. CCNV at 751-52 (citing Restatement (Second) of Agency §220(2) (1958)).
While the so-called Reid factors are used to determine whether a worker is an employee or an independent contractor during the period when a work was created, it is not used to determine whether a particular project by an employee was developed within the "scope of employment." Shaul v. Cherry Valley-Springfield Cent. School Dist., 363 F.3d 177, 186 (2d Cir. 2004) (where it is undisputed that the worker was an employee when the subject work was created, "the key issue…is whether the materials in question were prepared ‘within the scope of employment’").
In deciding the question of whether a particular work was created within the scope of employment, courts look to three factors—whether the work: (1) was the kind of work that the employee was employed to perform; (2) occurred substantially within the authorized time and space limits of the job; and (3) was actuated, at least in part, by a purpose to serve the employer. Restatement (Second) of Agency §228.
The question of scope of employment was taken up in Le v. City of Wilmington, 736 F.Supp.2d 842 (D. Del. 2010), aff’d 480 Fed.Appx. 678 (3d Cir. 2012) (unpublished). In that case, an information analyst employed by the defendant municipality claimed that he owned the copyright to a ticketing program he developed outside of the office and which was beyond his general job description. The appeals court affirmed the lower court’s grant of summary judgment in favor of the municipality, ruling that the plaintiff-employee did not hold a copyright in the program because it was a work made for hire created within the scope of his employment for the benefit and use of his employer. Since it was undisputed that the plaintiff was a city employee at the time of development and that the city did not sign a written agreement assigning ownership of the work, the only issue was whether the plaintiff created the work within the scope of his employment.
The appeals court found that while the plaintiff developed the software at home, he installed the program on the city’s computer network for ongoing testing and feedback from the department and modified some code from existing department programs in developing the software at issue. Moreover, the court stated that it was clear that the plaintiff developed the work for the purpose of helping his division reduce its workload and reliance on paper ticketing. The appeals court rejected the plaintiff’s argument that work on the program was not within the scope of his employment because his job description did not list computer programming. Instead, the court found such a narrow position misguided and stressed that the more relevant question was whether the plaintiff created the program while an employee and for the benefit of his employer. But see Quinn v. City of Detroit, 988 F.Supp. 1044 (E.D. Mich. 1997) (designing computer programs was not the kind of work that a managing attorney for a city’s law department with no programming experience was hired to perform where his employer never requested him to develop it and the city had its own computer programming department).
Work for Hire and Start-ups
Another work for hire situation that might warrant an intense fact-based inquiry is the relationship between a software developer and a technology start-up. Given the often-frenetic, nontraditional nature of such a workplace, some of the Reid factors that tend to show that a party is an independent contractor—such as the hiring party’s lack of day-to-day oversight over the other party and failure to pay employment benefits—might have less weight given how technology start-ups operate. In JustMed v. Byce, 600 F.3d 1118 (9th Cir. 2010), the dispute centered on whether a small technology start-up company owned source code developed by a computer programmer, and ultimately whether the programmer was an employee or independent contractor.
The appeals court affirmed the lower court’s holding that defendant was an employee and that the source code was a work made for hire, even though there was evidence that the programmer worked from home, that his work was not directly supervised, that he set his own hours, that he did not receive benefits, and that he was not treated as an employee for tax purposes. The programmer argued that common law agency principles weighed in favor of his independent contractor status, particularly given the company’s failure to file the appropriate tax and employment forms. In finding the defendant was an employee, the court focused on the open-ended tenure of defendant’s employment, his monthly salary, and the defendant’s other job tasks beyond writing software code.
Notably, the court recognized that as a small start-up, the plaintiff conducted its business more informally than an established enterprise. While the company did not exercise much control over the manner and means by which the programmer created the source code, the court found that this factor was less important in the context of a technology start-up and that it was now commonplace for a computer programmer to work independently from home and set his or her own hours. In short, the court found that the company’s treatment of the programmer with regard to taxes, benefits, and employment forms was more likely attributable to the start-up nature of the business than to the defendant’s alleged status as an independent contractor.
Typically, businesses that engage independent software developers include an assignment clause in any work for hire agreement to act as a backstop in the event the work for hire characterization of the transaction is ever disputed. An assignment clause outlines the rights and obligations of the parties regarding the software at issue and generally states that if, for any reason, the work is not deemed a work for hire, the creator of the work assigns all rights, title and interest in the work to the commissioning party (absent any reservation of rights in certain code that the developer might retain).
For example, in Siniouguine v. Mediachase, 2012 WL 2317364 (C.D. Cal. June 11, 2012), the plaintiff filed a declaratory judgment action against his employer, alleging copyright ownership in certain computer programs he developed for the company. Agreeing with the company’s arguments, the court held that the company owned the copyrights in the software by either application of the work for hire doctrine or a written assignment. The court held that the undisputed facts demonstrated that although the plaintiff contributed to the development of the programs, they were created in the course and scope of his employment, and, thus, qualified as works for hire under the Copyright Act. In the alternative, the court found that the programs were a work for hire "specially ordered or commissioned" and memorialized by a written agreement. The court found that the programs qualified as a work for hire as "contributions to a collective work," one of the nine enumerated works listed in the statute. The court stated that the programs were "contributions to a collective work" because they were separate and independently protectable works that were intended to be combined with customers’ own programming and content to create a collective work, namely a commercial website.
As to the assignment theory, the court reasoned that even if the plaintiff could be considered the author of the program, the company was the copyright owner because the plaintiff transferred interest in the program pursuant to the express terms of a written agreement signed at the start of his employment, wherein he assigned "all right, title and interest in the Results [of his work to the company] throughout the universe in perpetuity." See also Warren v. Fox Family Worldwide, 328 F.3d 1136, 1141-42 (9th Cir. 2003) (agreements providing that a company would "own all right, title and interest in and to [an independent contractor's] services and the results and proceeds thereof" established that the company, rather than the independent contractor, owned the copyright in the works the independent contractor created for the company).
When an employee creates a work in connection with his or her employment, the rights in such a work for hire generally vest in the employer rather than the employee-author, absent a contrary agreement. On the other hand, if a work is specially ordered and prepared by an independent contractor, then it can qualify as a work for hire if the work falls within one of the nine enumerated categories listed in 17 U.S.C. §101 and the parties expressly agree to the arrangement in a signed writing. Thus, whichever the arrangement, parties must pay close attention to ensure that all of the requirements of the Copyright Act are met to establish a work for hire situation. Often, companies are prudent concerning ownership rights in software and rely not only on the work for hire doctrine but also on a written assignment that gives the company extra protection in the event of a dispute.
Prior to retaining an independent software developer, however, companies should consult with counsel, given the specific quirks inherent in the work for hire doctrine with respect to software and the legal differences between a copyright based on work for hire and assignment. As previously discussed, the Copyright Act’s work for hire provision for independent contractors requires that the work at issue be one of nine enumerated categories, a list that does not include "literary works," which, in the copyright context, generally includes software. Depending on the project, some software would not automatically qualify as a work for hire under the independent contractor provisions of the Copyright Act, but some could. For example, in the aforementioned Siniouguine case, the court reasoned that the software developed in connection with a commercial website was a "contribution to a collective work." Moreover, the development of a videogame might be considered a contribution to an "audiovisual work," another category listed in the work for hire statute. See also Logicam Inclusive v. W.P. Stewart & Co., 2004 WL 1781009 at *9 (S.D.N.Y. 2004) (computer program was a "compilation" and thus subject to 17 U.S.C. §101(2) "work made for hire" status). For this reason, practitioners often advise companies to avoid the risk of an adverse interpretation and instead rely on assignment clauses to obtain the rights for software developed by nonemployees.
Both the hiring party and the software developer should also understand how the Copyright Act and state employment law treat a work for hire and an assignment differently. Each method has its pros and cons with respect to the duration of copyright and tax treatment of the hired party. Generally speaking, the term of copyright protection of a work made for hire is 95 years from the date of publication or 120 years from the date of creation (whichever expires first), while the copyright term for a work assigned by the author would be the life of the author plus 70 years. However, if a transaction is labeled an assignment, the original author of the work could take advantage of the Copyright Act’s "termination of transfer" provision, 17 U.S.C. §203, which allows the original author to serve notice 35 to 40 years after the copyright assignment of his or her intent to terminate the assignment and "recapture" the copyright in the work. While this might be disconcerting for certain assignees (most notably record companies who have begun to receive termination notices in 2013 from recording artists who assigned rights in works released in 1978), the stakes are different for computer programs, where the viable life of software is generally short-lived in the digital age.
Lastly, concerning state employment law, a company should understand that characterizing a software development transaction as a work for hire may inadvertently implicate state taxation requirements, at least in California, and may impact a company’s obligations to pay unemployment benefits or workers compensation insurance. For example, the definition of "employee" under California Labor Code §3351.5(c) includes an independent contractor in a work for hire arrangement and the definition of "employer" under California Unemployment Insurance Code §§686, 621(d) includes a party who commissions a work for hire. In the end, parties should work with counsel to tailor their hiring arrangements to maximize their rights in the underlying work and also avoid certain unwanted obligations.
Richard Raysman is a partner at Holland & Knight and Peter Brown is the principal at Peter Brown & Associates. They are co-authors of "Computer Law: Drafting and Negotiating Forms and Agreements" (Law Journal Press).