By: Sarah Krosnick

There is a well-known and overused adage that says, “It takes a village to raise a child.” The adage also applies to entrepreneurial ventures. Quite frankly, startups take a lot of work and benefit from different perspectives and skillsets. When there are so many people contributing to the startup, who owns what? How can you ensure that you maintain ownership rights over your product?

In many cases, startups will feature tech products that involve intellectual property. Intellectual property is the bundle of rights associated with creating something; these rights include copyright, patents, trade secrets, and trademarks. Copyright is of particular interest here because a person derives copyright ownership by creating something. A simplified example of copyright is if you compose a song entirely by yourself, you maintain copyright ownership over the song as soon you created it/fixed in a “tangible medium of expression”. Determining copyright ownership becomes a little more complicated when you hire someone to contribute to the creation of your product. Who maintains copyright ownership in that situation?

Under copyright law, a company may own its employees’ work product under the work for hire doctrine. Courts assess the employment relationship between the employer and the person who created the work, as well as the circumstances under which the work was created, and any written agreements that define the working relationship. This blog will explain the basic underpinnings of work for hire, such as how to determine what is a work for hire and how employers and creators can contract around work for hire.

Work For Hire

Employee v. Contractor

Courts will determine if a product was work for hire based on the creator’s employment status. Work created by person who is an employee of a company will almost always be considered work for hire. The default is that someone who is paid by a company to use company resources and build a product for the company does not individually own the work. The distinction becomes less clear in the case of an independent contractor. An independent contractor works with the employer on a case-by-case basis. Independent contractors are not employees and do not receive the same benefits that an employee receives. Independent contractors often maintain copyright ownership over their product but there are exceptions. The exceptions include work that is:

  1. A contribution to a collective work
  2. Part of a motion picture or other audiovisual work
  3. A translation
  4. A supplementary work
  5. A compilation
  6. An instructional text
  7. A test
  8. An answer material for a test
  9. An atlas.

In creating any of these products, the copyright ownership automatically vests in the employer. Please visit the United States Copyright Office for specific definitions of each of these categories. https://www.copyright.gov/circs/circ30.pdf

Contract

One exception to the independent contractor rule is if the contract between the employer and the independent contractor includes a provision on work for hire. If the contract explicitly states that the employer will own the copyright, and the independent contractor agreed to the contract, then little doubt remains. The employer will own the copyright.

Factors and Misclassification

In the case of confusion about employment status or absent a written agreement, courts will assess the circumstances under which the product was created to determine if the creator was actually an independent contractor or if the creator functioned as an employee in practice. There is not an exhaustive list of factors but the United States Copyright Office offers suggestions to consider. Did the creator utilize company resources and time to create the product? Did the creator receive benefits from the employer that an employee would receive? Does the product align with the employer’s usual products and business? How was the creator hired? Answering “yes” to many of these questions will likely characterize the creator as an employee rather than an independent contractor, and therefore grant copyright ownership to the employer.

What does this mean for entrepreneurs?

Entrepreneurs ought to consider copyright ownership during their creative processes. Maintaining copyright ownership can only serve to benefit an entrepreneur as it strengthens the value of the company. Those who wish to invest in the company or perhaps even acquire the company prefer complete copyright ownership. Splitting copyright ownership amongst multiple owners can create tension later on in a company’s life, as a partial owner can still claim profits and be involved in the decision-making process. In acting as the sole copyright owner, the entrepreneur can freely make decisions on her own about the future of the product. Entrepreneurs who wish to maintain sole ownership should hire only employees to produce work and/or include a work for hire or an intellectual property (IP) assignment clause in the agreement with an independent contractor.

Absent a work for hire clause or an IP assignment clause, entrepreneurs have other options. Entrepreneurs can sign an IP assignment agreement with the creator. In an IP assignment agreement, the entrepreneurs receive the creator’s rights of ownership in exchange for a current benefit, such as monetary payment or equity share. This method will allow the entrepreneur to fully own the copyright. A final option is an implied license, in which the entrepreneur can still use the product without an IP assignment from the creator, with the understanding that the creator still jointly owns the copyright. This method can often lead to future legal disputes and is advised as a last resort.

Entrepreneurs should pay careful attention to any contracts they sign with creators and under what circumstances the products are being created. Courts recognize the value in collaboration and thus offer methods for entrepreneurs to both be collaborative and protect their rights.

 

Sources