Copyright law protects original "works of authorship" that are fixed in a tangible form of expression. Most businesses create or use works of authorship. Common examples of works of authorship used in a business include logos, websites, advertising materials, the artistic designs used on products or packaging, computer software programs, and many other things.
It is quite common for a business to hire others (e.g. graphic designers, software developers, industrial designers, and photographers) to create works of authorship for the business. Many business owners and executives assume that if the business hired someone and paid them to create a work of authorship, then under the law this makes it a "work made for hire" that the business owns. This isn't necessarily true. In this post we cover the steps that must be taken by a business to ensure that it can enjoy uninterrupted ownership of a work of authorship it pays to create, and the deadline for taking such steps.
AUTHOR OWNERSHIP OF COPYRIGHTS
Under U.S. law copyright ownership vests initially in the author or authors of the work. The general rule is that an "author" is the person who actually creates the work of authorship and NOT the person paying them to do so. For example, if ACME Inc. pays graphic designer John Smith to create a new business logo for ACME Inc., then the general rule is that if John Smith is the author of the new business logo then copyright ownership of the business logo will initially vest automatically in John Smith.
The mere fact that ACME Inc. paid John Smith to create the business logo does not, by itself, give copyright ownership to ACME Inc. If John Smith is the author of the business logo then copyrights will initially vest with him, and for ACME Inc. to obtain those copyrights John Smith will have to transfer them to ACME Inc. in a written assignment agreement. Accordingly, whenever a business pays for the creation of a work of authorship it is important that there be a written agreement assigning any copyrights from the authors to the business.
However, simply having an assignment of copyrights from an author can still pose problems for a business. For example, a primary concern for ACME Inc. in this example is that under U.S. law an author who has assigned his copyrights can terminate the assignment and get the copyrights back as soon as 35 years after making the assignment simply by timely serving a proper notice of termination. 35 years may seem like a long time, but if ACME Inc. plans on investing millions of dollars in using its business logo for the foreseeable future, then the possibility of John Smith terminating ACME Inc.'s ownership of the copyrights in the logo could pose a real problem for ACME Inc.
Business Value Tip
Many business owners and executives can find it hard to be concerned about something that simply might happen 35-40 years in the future. Especially since it is possible that an author who could terminate an assignment of copyrights will simply never do so.
However, prospective investors or purchasers will take into account the risk of losing copyright ownership in any work of authorship that contributes value to a business. So, the issue is important in the present moment to maximize the business valuation for any prospective investment in, or a sale of, a business.
WORK MADE FOR HIRE - BUSINESS AUTHORSHIP
The most viable solution for ACME Inc. to this problem is if ACME Inc. was legally the "author" of the business logo instead of its paid graphic designer John Smith. If ACME Inc. is the author, then copyrights will initially vest in ACME Inc. and John Smith can't terminate ACME Inc.'s copyrights in the business logo. So, how does ACME Inc. become the author of the business logo instead of John Smith? By making sure that the business logo will be considered a "work made for hire" under the law.
Under U.S. copyright law if a work of authorship qualifies as a "work made for hire" then it is the employer or other person for whom the work was prepared that is considered to be the author of the work, and copyrights will initially vest with them. So, if ACME Inc.'s business logo is a "work made for hire" prepared by John Smith for ACME Inc., then ACME Inc. will be the author and not John Smith. So, all ACME Inc. has to do is make sure that its business logo will be a "work made for hire". But how does ACME Inc. do this?
As stated above the mere fact that ACME Inc. is paying John Smith will NOT make the business logo a "work made for hire". Under U.S. copyright law a "work made for hire" is defined as:
- a work prepared by an employee within the scope of his or her employment;
- a work specially ordered or commissioned for use as. . .
- a contribution to a collective work;
- a part of a motion picture or other audiovisual work;
- a translation;
- a supplementary work;
- a compilation;
- an instructional text;
- a test;
- answer material for a test; or
- an atlas
- AND if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.
THE WORK MADE FOR HIRE DEADLINE
So, if ACME Inc. is to be considered the author of any work created by John Smith, then BEFORE the work is created John Smith must either be (1) an employee of ACME Inc. acting within the scope of his employment, or (2) have agreed with ACME Inc. that the work (assuming it falls within one of the listed categories) will be considered a work made for hire. If the work is created by John Smith before he is employed as an employee of ACME Inc. to create the work, or before he agrees it will be a work for hire if he is not an employee, then John Smith will be the author and not ACME Inc.
As stated above, any eligible work that is created by a non-employee will only be considered a work made for hire if there is a signed written agreement that the work will be considered a work made for hire. The courts have determined that parties must agree BEFORE the work is created that the work will be a "work made for hire". However, the courts have allowed for the execution of a writing memorializing the prior agreement to occur after creation of the work. Accordingly, as long as there is a prior agreement, a delay in execution of a written agreement is not necessarily fatal to a work being considered a work made for hire. However, to minimize risk a written agreement should be executed before creation of the work.
THE INDEPENDENT CONTRACTOR TRAP
As you may have noticed, a business logo for ACME Inc. does not clearly fit into one of the categories that may be considered a "work made for hire" by a non-employee (i.e. the logo is not a test, an atlas, an instructional text or any of the other categories). This can be the case for many types of works that businesses commonly "specially order or commission" from independent contractors: Works such as photographs, designs, or software. Accordingly, it is a mistake to believe an agreement with an independent contractor will by itself suffice. Any commissioned or specially ordered work authored by a non-employee must fit into one of the listed categories: If it doesn't the independent contractor will be the author, initially get the rights, and be able to terminate them.
So, in our example if ACME Inc. wants to make sure that it is considered the author of the business logo it is paying John Smith to create for it, then ACME Inc. should hire John Smith as an employee of ACME Inc. to create the logo, and NOT hire John Smith as an independent contractor.
WHAT YOU NEED TO KNOW
A business that wants to be assured of complete copyright ownership that is secure against future termination from the individuals who created the work must timely take the necessary steps to make the business the "author" of the work. This means that the business must take steps to ensure that the work will be a "work made for hire" for the business.
To be a "work made for hire" the business must BEFORE the work is created have all individuals who will be involved in creating the work either hired as employees of the business to create the work, or if using independent contractors for a work that is in an eligible category have them agree that the work will be a "work made for hire" for the business.