Friday, July 20, 2007

Independent Contractors and Copyright

(Reposted from ssbooth.com' s Tip of the Week)

Here are two scenarios we run into from time to time…

Scenario 1: Ted started a web development business, and he’s ready to roll it out and start creating websites for his clients. He wants to make a marketing splash, so he’ll need a nice logo. But Ted’s a business person, not a designer, so he decides to find someone to come up with a design. Since he can’t afford to hire an employee just yet, he locates an experienced independent contractor whom he trusts can do the job. She doesn’t present Ted with a contract, and Ted doesn’t bother giving one to her. This is a handshake deal. Anyway, Ted’s got so much going on, he can’t even think about more paperwork. A few weeks go by, and the designer presents Ted with the perfect logo design. Ted pays her promptly, and in return she gives him the electronic and printed versions of her work. Ted’s ready to put his logo on his business cards, website, and letterhead.

Scenario 2: Ted’s web development business is running smoothly, and he’s entered into a contract to create a website for a client. He decides to subcontract some development work out to another independent contractor. Ted likes this contractor, and he’s afraid the contractor will not agree to do the work if Ted presents him with a contract to sign. They verbally agree on the project, and a few weeks later the contractor delivers exactly what Ted asked for. Ted’s now ready to present the website to his client and collect his fee.

In both of the above scenarios, Ted has paid for the materials produced by an independent contractor. But what does Ted really own?
Without a written agreement to the contrary, the independent contractor, not the client, is the author and copyright owner of all materials she creates.
In both scenarios, because Ted didn’t have the contractor sign an agreement in which he or she assigned ownership (or created the materials as a work made for hire) of the copyright in the materials they produced over to Ted’s business, Ted doesn’t own the copyright in them. The “bundle” of rights provided by copyright – the rights of reproduction, distribution, display, public performance, and making derivatives – remain exclusively with the contractor, notwithstanding the possibility of an implied license to use the works.

What does this mean for Ted’s business? With respect to the first scenario, it means that while Ted may be able to use the design as his logo on business cards, his website and letterhead (under a theory of “implied license”), any use beyond that may result in a copyright infringement claim by the contractor. Furthermore, the contractor remains free to make use of those same materials herself or for her other clients, which certainly won’t help Ted’s attempts to distinguish himself in the marketplace.

In the second scenario, although the website is complete and Ted has conveyed it – including, ostensibly, the copyright in all associated materials – to his client, the copyright in whatever portions of the website were created by the contractor remain owned by him. If your client later finds out Ted’s purported to convey copyright he didn’t have the right to convey, Ted may find yourself facing at least a breach of contract claim. Furthermore, the contract Ted signed with the client likely holds his business liable for any copyright infringement claims brought against the client. For a business just starting out, even the mere threat of litigation can grind the gears of progress to a messy, and often permanent, halt.

The bottom line is this: as a business owner, you want to own all of the property you pay for, both physical and intellectual, so you are free to make whatever use you like of that property. You do not want your business potentially held hostage by a contractor who exploits his or her ownership of the copyright in materials critical to your success.

With all of this in mind, we advise both individuals and businesses that any independent contractor they intend to use must sign a written agreement in which the contractor agrees to assign to the client all copyright ownership in any materials produced under the agreement. These agreements are often known as “work for hire” contracts, and if appropriately drafted they needn’t be burdensome in length or language. Any experienced contractor should not be at all surprised to be presented with such an agreement; if the one you’re talking to balks at the mention of it, find yourself a new contractor.

In addition to copyright ownership, the terms of these agreements also address important issues regarding liability, such as situations where the contractor copies code or a design from someone else and passes it off to you as original work, thereby exposing you to a copyright infringement claim.

While ideally the agreement will be executed prior to the contractor beginning work, it is often possible to draft the agreement so its terms apply retroactively. So if you’re in the middle of this scenario now – and if so, you’re not alone – it may not be too late to take remedial action.

(And with that, a reminder that this post and the rest of this blog is provided for informational purposes only, and does not constitute legal advice)

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