Copyright Ownership; You Paid For It, So You Own It. Right? Wrong; Or Maybe.
Gregg Zegarelli Esq.
Managing Shareholder at Technology & Entrepreneurial Ventures Law Group, PC
A copyright is a property interest. And property is what the law says it is. No more, no less. [*1]
One of the trickiest things about copyright law is ownership of the presumptive property itself. The reason? It is technical, not intuitive. Copyright law spans from the very simple to the incredibly complicated.
According to the U.S. Copyright Act, copyright ownership "vests initially in the author or authors of the work." ?Now, be really careful about that word "author," because it begs the question. Who is the author? This simple question can be confounding.
As a "General Rule," the author is the party who actually creates the work.
Now this is critically important and tends to defeat common sense experience and intuition:
Copyright law does not state that the person paying for the work is the owner of the work. This is not intuitive, such as, if we buy a chair at the store and pay for it, then we own it.
Perhaps you see the problem already from the General Rule. What if you are not the person who actually created the work? That is, what if the author (the creator) is your employee, or a paid contractor?
Applying the General Rule by default:
The copyright initially vests in the paid employee or contractor, not you. Therefore, by default, your employees and independent contractors own the copyright to the works you paid to have them create.
"What? This is absurd!" you say, "Are you telling me that my website, my creative textual content, my photographs taken by the professional photographer, my artwork, my custom software, my user manual, my internal operating documents, my videos, even my headshots, are not mine?"
Well, you went awry at that "my," which begs the question. Indeed, it's not a "my" if the law says it's not yours in the first place. And this is exactly where a lot goes wrong in a commercial setting.
Copyright law tends to be incredibly easy if you create a work for yourself. (Observe the reflexive match: you and yourself.) That is, you developed your own website, created your own textual content, took your own photographs, drew your artwork, and wrote the custom software, user manual and internal operating documents, and selfied your videos and headshots, all yourself. Everything else is not quite so easy, and perhaps incredibly complicated. Just as it is with trademarks, even experienced professionals can miss it and I can say respectfully from 35 years of IP practice, they often do miss it. [*1, 2]
Specific Rules. Now, for some details. The Copyright Act carves out an important exception to the default, if the work is a "work made for hire." ?
If the "work is made for hire," then ownership will be in the person for whom the work was prepared. (Noting that we are beyond the reflexive you and yourself, but now with two different legal persons. And further noting that it is a work "made" for hire, not the often-used "work for hire.") Yet, even this begs the question; to wit:
What is a "work made for hire" that overrides the default ownership in my employees and contractors?
The Copyright Act defines a "work made for hire" as:
If...if...either of the above conditions are satisfied, then the work will be a work made for hire, which will override the default ownership in your employees and independent contractors. To say it colloquially, if it is a "work made for hire" then it is treated as if (almost) you created the work yourself.
The first category tends to be the far easier of the two conditions. Generally speaking, an employer can be reasonably comfortable that any copyrightable subject-matter is owned by the employer, if created by an IRS Form W-2 employee. The "scope of employment" is always a factual issue, but the category itself, as a function of a W-2 employee, tends to be a bright line for the test.
But...but "out-sourcing" is now pervasive in commercial transactions, where independent contractors (IRS Form 1099, W-8BEN, offshore) create the presumptively copyrightable subject-matter. Since every outsourced transaction is not a W-2 employee transaction by definition, then the transaction must fit into the second condition to be a work made for hire, if it can do so at all.
The challenge is that the second non-W-2 category is incredibly complicated and stringent. Indeed, to be a work made for hire on this condition, it is a 4-part test. The work must be (1) specifically commissioned and (2) within one of nine enumerated categories and (3) there must be a written deal document and (4) in that deal document the subject-matter must be called a "work made for hire."
Working in reverse, ticking the checklist items of a written deal document that also calls the work a "work made for hire" is the easier part of the test; certainly, if the deal is oral and with an independent contractor, it generally fails the test immediately (with the independent contractor owning the copyright).
What can be incredibly difficult is determining whether the work was specifically commissioned and also fits nicely within any of those nine enumerated categories. Even highly experienced IP counsel can have a difficult time opining, for example, whether a work is a "compilation" or "instructional text," etc.
And, just so you don't miss the point, if the copyrightable subject matter does not fall within one of those nine enumerated categories, or if it is not specifically commissioned, the statutory test will fail and the work will not be a work made for hire (meaning the contractor, as author, owns the copyright you paid to have created). Contrary to popular belief, and for those knowing enough to be dangerous..., calling something a "work made for hire" in a deal document does not make it so. If the law says it cannot be so, then it cannot be so. Property is what the law says it is, no more, no less.
So, let us re-group with perhaps a colloquially-stated summary: A copyrightable work is owned by the person creating the work, unless it is: a) created by a W-2 employee; or b) created by an independent contractor for a specially commissioned work falling within one of the statutory categories with a written document calling the work a "work made for hire."
Now, if you're really paying attention, the next question is: "Well, my 1099 guy has a "work made for hire agreement" but I'm not sure it's specially commissioned or within one of the nine categories, and I'm spending $500K on this work and my company needs to own it, so what do I do?"
If you asked this question, you are already ahead of the game. Case in point: Community for Creative Non-Violence v. Reid, a landmark U.S. Supreme Court case. In this case, a non-profit entity wanted to commission a new sculpture of a modern-day nativity scene, so it engaged an independent contractor sculptor. Later, the payor wanted to stop the sculptor from a continued publicity tour for the sculpture, but the transaction failed as a work made for hire, even though the payor "paid for it." Alas, the payor effectively lost the case. All the payor bought was an implied license for a limited use of the sculpture, which is like renting a property when you thought you owned the property. Not good.
Alas, did you ever pay for a simple "head shot" from a contractor photographer without a written contract meeting the above second condition, later learning that you didn't own the photograph and thereby violated the copyright by using it on your promotional flyers (being beyond the implied license)?
Such things happen all the time in IP law, flying under the radar, until they don't and then it's too late. This is why IP lawyers will "belt and suspender" the ownership language in the contract (if there is one). That is, the contract will call the work a "work made for hire" so that the copyright passes title by operation of law if possible, being the Copyright Act itself, and then doubles-up with "catch-all" assignment language to catch whatever falls through the statutory cracks.
Don't try this at home, and this is only conceptual language, but something like, "The work is specially commissioned as a "work made for hire" to the fullest extent provided by law; provided, however, to any extent that the work does not qualify by operation of law to be a "work made for hire," then all right, title and interest in and to the work shall be and hereby is assigned to Buyer."
The above language attempts to moot the question by basically saying, "If it is a work for hire, then I own it by operation of law (the statute itself "coveys" rights), and otherwise I own it by contractual conveyance (the contract conveys rights)."
However, whether a property is owned by operation of law or by contract transfer are not equivalents, since they are sourced from different legal authority. What falls within the Copyright Act also pulls in international copyright treaties with a bundle of those rights, and what falls only within contract transfers is subject to contract interpretation, enforcement issues, whose law applies, etc., such as every contract.
Now, there are a couple of twists regarding copyrightable subject-matter, both of which might be cognizably framed as "artist rights" in the traditional sense.
The fist twist is called “Moral Rights” (or, "droit moral" rights). It is subtle, but moral rights are personal to the creator artist and cannot be assigned or transferred as such. They must be waived. Basically the two legal rights are the right of attribution and the right of integrity. Big picture, something like this: Leonardo da Vinci paints the Mona Lisa and then transfers the copyright to IBM; IBM can neither say John Doe painted her nor can IBM paint mustaches on her; that is, da Vinci retains his right of attribution and integrity of the art.
The way moral rights are handled in the deal document (assuming it exists) is to say something like this, conspicuously, "Artist hereby waives any moral rights of attribution and integrity." Again, don't try this at home, the foregoing is only conceptual.
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Now the second twist is wildly out of scope for this short post, but I will mention it for additional illustrative purposes as to the complicated nature of copyright property ownership; to wit: § 203. Termination of transfers and licenses granted by the author. Sometimes, I call this the "starving artist exception." Here goes (portions emphasis added):
(a) In the case of any work other than a work made for hire, the ...transfer or license of copyright or of any right under a copyright, executed by the author on or after January 1, 1978, otherwise than by will, is subject to termination under the following conditions: (3) Termination of the grant may be effected at any time during a period of five years beginning at the end of thirty-five years from the date of execution of the grant...(5) Termination of the grant may be effected notwithstanding any agreement to the contrary.
(b) Upon the effective date of termination, all rights under this title that were covered by the terminated grants revert to the author, but with the following limitations...
"What? This is absurd!" you say, "Are you telling me that the artist from whom I purchased this copyright masterpiece, making a crazy-clever bargain, can be terminated during some screwy period long-after the deal?"
Yes. Let's say you're da Vinci, a starving artist. You sell the Mona Lisa copyright for $100 to buy food and drink. No one knew at the time that the art was a masterpiece, and da Vinci might have to die to make it so. Thusly, the copyright transfer can be terminated under specific conditions. It is incredibly complex, and most people (artists, photographers, musicians, sculptors, etc., and their heirs) do not even know it is there.
And, note the exception of this provision for other than works made for hire. As stated above, if a work fell within the work made for hire provisions above, this termination provision does not apply. Therefore, there is a major difference in the future as to whether you pay for a work of art for a W-2 employee, or you relied upon the catch-all contract belt and suspenders assignment in the contract. For this reason, again contrary to popular belief, it might be wiser to pay for your art, musical composition, etc., as a W-2 employee rather than a 1099 to prevent these termination rights.
The Bubble-Up
One of the most overlooked details of outsourcing to independent contractors is how title must "bubble up" to the ultimate intended owner.
Let's say you're an US website contractor who is bound to convey title to a complex online e-store website made for your client. That is, your development agreement has all the bells and whistles that you will guarantee clear title to be transferred to your client. Let's assume the subject-matter is duly a work made for hire. As between you and your client, all is presumptively well. If all the work was performed in-house by W-2 employees, the copyright issues are reasonably safe, as set forth above.
However, and this is a big one, if any non-employees assisted in the workproduct, then you need to make sure that you get all the rights yourself, so that you can convey those rights. If you don't get perfect title, you cannot convey perfect title, placing you into breach to your client.
As soon as you use independent contractors, all those rights have to "bubble up" to you, starting with the deepest tier of service; that is, if the ownership and work made for hire rules fail to push the rights upward anywhere in the entire development chain of title, starting at the bottom, incrementally working your way up, then you will breach your client development agreement. There will be a flaw in the property rights, no less than a flaw in the chain of a real estate title.
And, to make that more complicated, if your contractor is "off-shore," or your contractor is USA based but uses off-shore resources, or someone on the team is offshore, now there is a whole additional tier (perhaps many more than one) of complexity, because the country of deepest origin (or anywhere in the chain) might not be a member of a copyright treaty with the USA or might not recognize copyright transfers or ownership in the same way as the USA, which can be catastrophic. Therefore, use of independent contractors and off-shore providers adds additional complexity to the transaction. The question of whether you can convey the rights you have is a completely distinct question from whether your 1099 or outsourced development team can transfer rights to you.
Sometimes, none of the flaws in the chain of IP title are discovered until it is too late, such as in a really great opportunity for an acquisition, with legal counsel for the buyer conducting due diligence on rights. Just like with real property, flaws in the chain of title in a purchase of intellectual property can and do blow up deals.
As a final note, unlike trademarks that can last forever if maintained, be aware that copyrights have limited terms, depending upon the year of the applicable version of the Copyright Act, which also can be a function of whether or how the copyright notice was used.
As a result, the best practice is to have a well-considered deal document with every creative person who contributes to any copyrightable subject-matter. Every creative person. The law always follows along, sooner or later.
The statements or opinions made in this article are solely the author's own and not representative of any institution regarding which the author is affiliated. Nothing in this article is legal advice or purports to set forth the law applicable to any particular context, each person is exclusively responsible to determine the law and how it may apply to each person's own context. Always engage experienced IP counsel to assist you with your particular rights.
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*?Gregg Zegarelli, Esq., earned both his Bachelor of Arts Degree and his Juris Doctorate from Duquesne University, Pittsburgh, Pennsylvania. His dual major areas of study were History from the College of Liberal Arts and Accounting from the Business School (qualified to sit for the CPA examination), with dual minors in Philosophy and Political Science. He has enjoyed Adjunct Professorships in the Duquesne University Graduate Leadership Master Degree Program (The Leader as Entrepreneur; Developing Leadership Character Through Adversity) and the University of Pittsburgh Law School (The Anatomy of a Deal). He is admitted to various courts throughout the United States of America.
Gregg Zegarelli, Esq.,?is Managing Shareholder of?Technology & Entrepreneurial Ventures Law Group, PC.?Gregg is nationally rated as "superb" and has more than 35 years of experience working with entrepreneurs and companies of all sizes, including startups,?INC. 500, and publicly traded companies.?He is author of?One: The Unified Gospel of Jesus,?and?The Business of Aesop? article series, and co-author with his father,?Arnold Zegarelli, of?The Essential Aesop: For Business, Managers, Writers and Professional Speakers.?Gregg is a frequent lecturer, speaker and faculty for a variety of educational and other institutions.?
? 2023 Gregg Zegarelli, Esq.?Gregg can be contacted through?LinkedIn.
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