DO YOU OWN THE SOFTWARE YOU PAID FOR?
by
Sheldon Mak Rose & Anderson

Scenario: Your company retains an outside programmer to write software that later is copied by a competitor. Your company sues the competitor, but loses. Or, your company retains an outside programmer to write software for internal use. The program is so good that your company decides to make a few modifications and market the program. The programmer sues your company for copyright infringement, and wins. How can this happen? Because in each case, the copyright to the program was owned by the programmer, not you. Unfortunately, many businesses today find themselves battling over intellectual property ownership issues. There are steps businesses can take to protect themselves from these situations, and understanding how the law works provides a key. Employee vs. Contractor Assigning outside contractors to write software rather than using employees is a common practice for many software companies because it can be a low-cost alternative. Additionally, going outside can give a company access to highly talented programmers who want to work independently. It's well understood that a computer program has copyright protection. But it's not so clear who owns the copyright when a hired person creates a program. Ownership determination hinges on whether a hired person is an employee or an independent contractor. Generally, if the programmer is an employee, then the copyright is owned by the employer. But if the person hired is an independent contractor, then the copyright is owned by the independent contractor. This determination of whether a hired person is an employee or an independent contractor is a multifactor analysis. There is no clean-line rule. Under the Copyright Act of 1976, ownership of the copyright in an original work belongs to the author or authors of the work. However, if the work is a "work made for hire," the employer or other person for whom the work was prepared is considered the author and owns all of the rights comprised in the copyright. The law seems simple, but Congress defined the "work made for hire" narrowly. Section 101 of the Copyright Act defines a "work made for hire" as either "a work prepared by an employee within the scope of his or her employment" or "a work specially ordered or commissioned for," only if the work fits into one of nine specific categories. Computer programs are not specified in the statute. Therefore, the program must rely on the category or "a work prepared by an employee within the scope of his or her employment." The Court's Multifactor Test The controlling U.S. Supreme Court case in analyzing whether a person is an employee or an independent contractor for purposes of copyright law is Community for Creative Non-Violence vs. Reid. In the Community for Creative Non-Violence case, hereafter referred to as CCNV, the Supreme Court has applied the multifactor analysis of the federal common law of agency. The multifactor test used by the Supreme Court in the CCNV case lists several factors that are based on the Restatement of Agency. These factors are: The hiring party's right to control the manner and means by which the product is accomplished The skills required to produce the work The source of the instrumentalities and tools used in creating the work The location where the work was done The duration of the relationship between the parties while the work was created Whether the hiring party has the right to assign additional projects to the hired party The extent of the hired party's discretion over when and how long to work on a given period The method of payment - whether by a period or by a project The hired party's role in hiring and paying assistants Whether the work is a part of the regular business of the hiring party Whether the hiring party is in the business related to the work The provision of employee benefits The tax treatment of the hired party The good news for employers is that the U.S. Supreme Court has settled the law regarding the test to be used in determining whether a person is an employee or an independent contractor. Unfortunately, the clarity as to which test to apply has not solved all the problems, and courts must deal with multifactor analysis. Each determination of whether a person is an employee or an independent contractor is left to the courts, and they must weigh each factor based on the evidence of the case. The difficulty with the multifactor test is that courts may weigh each factor differently. In one case, for example, the California Court of Appeals for the First District ruled that an associate dentist was not an employee of an established dentist. The court relied heavily on evidence that no taxes were paid by the established dentist on behalf of the associate dentist. Of course, a tax treatment of an employee is not a dispositive factor, but when courts apply a multifactor test, the outcome often is determined by how the courts have loaded each factor. Such an outcome often is unpredictable. Written Assignment A solution to this problem is to require each software programmer to assign to the company in writing his or her copyrights. Then, if a work fails to qualify as a work for hire, the company owns the copyright by assignment. But even a clearly expressed assignment does not guarantee a completely safe haven for the company throughout the life of the copyright protection. If the author is determined to be an independent contractor, so that ownership by the company was given by transfer, then the author has a right to terminate transfers and licenses after 35 years from the assignment or license. Bottom line: Any organization that contracts for work should request a written agreement that includes at least the assignment of copyright. Using independent contractors may be a time- and cost-saving practice, but you should enter such agreements with your eyes open.