Unlike patent rights, copyright rights spring automatically upon being written (fixed in tangible form) without registration. The general rule is that copyrights are owned by the individual who created the work or copyrightable subject matter. The author of a creative work (including a software application) owns the entire copyright in that work. Ordinarily, the person who created the work is the author. For purposes of the issues addressed here, the only exceptions to the general rule of an author owning the copyright in the creative work are (1) joint authorship, and (2) works made for hire.

Joint authorship happens when several people work together to create a single work. Under this scenario, a joint work may be created under the Copyright Act. The Copyright Act defines a joint work as “a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.” Under this definition, both authors must intend that their contributions be combined, and this intention must exist at the time the contribution is created. It is not necessary, however, that the contributions be of equal effort or value nor is it necessary that the joint authors work in the same physical area or at the same time.

The second exception to the general copyright rule that the author owns the copyright is that of a work made for hire. In a work made for hire situation, the author of the work is no longer the individual who created the work. Instead, the author is considered to be the entity that hired the actual creator of the work (such as a corporation for whom the author works as an employee).

The U.S. “work made for hire doctrine” provides two exceptions. The first is that works created by an employee within the scope or his or her employment are considered works of authorship of and owned by the employer. The second is that the copyright in works created by independent contractors and other non-employees (and employees outside the scope of their employment) can be owned by the commissioning party only if two conditions are satisfied: the independent contractor signs the appropriate instrument, and the work itself fits within one of enumerated categories in the Copyright Act.
This becomes a crucial issue because a work is considered a work made for hire, you are the author and owner of the work. If the work is not a work made for hire, you have no copyright ownership in the work. Your ability to use the work would therefore depend on the specific terms of the agreement with the contractor, or upon the concept of an implied license to use the work. If you are forced to rely on an implied license, you may find you only have limited rights to alter, update, copy, transform, or use the work for which you paid.

The results reached by copyright law and the U.S. Supreme Court may run counter-intuitive to what you think. You hired the contractor, you told the contractor what to build, you managed the project with the contractor, and you paid the contractor the agreed-upon price for the application. If that was done without a written agreement, you have an implied license to use the application (the details of that implied license being in question) and no more. The contractor has the ability to resell the application and keep all the money, reuse the application on a project for your biggest competitor, and otherwise take the benefit of the code written while performing this application development work and reuse that to the consultant’s sole benefit.

Where the works made for hire doctrine does not apply to the application at hand, a specific transfer of ownership must be in the consulting contract. The attached sample contract transfers ownership from the consultant to you. The language used is not can be varied but it is important, however, that the transfer of ownership be explicit and in writing.

Accordingly, it is possible that the copyright in software created by an independent contractor is not owned by the hiring company even if an instrument has been executed because the work may not fit within one of the statutory categories. In such case, the hiring company must acquire rights by written assignment.

Even though copyrights arise automatically, as a general rule, the copyright in U.S. works must be registered with the U.S. Copyright Office before bring suit can be brought against an infringer. Works registered within five years of first publication are entitled to the benefit of certain presumptions that can be beneficial in litigation as well as settlement. In addition, only if the work is registered within three months of first publication is eligibility preserved to recover attorneys’ fees and statutory damages in the event that the copyright owner prevails in the litigation. Due diligence should ascertain the date and fact of registration.

If the technology involves software, copyrights may come back to bite you in two important ways. First, if the program is developed by company employees and/or consultants, are agreements in place to ensure the software is a “work made for hire” that the company owns, or alternatively that has been properly assigned to the company? Second, have steps been taken to ensure that the software does not incorporate copyrighted works of others, for example, by incorporation of open source works which are in fact not in the public domain and are owned by another party? Whether the company has full ownership rights to its copyrights would be a key factor in determining the value of its IP portfolio and thus its attractiveness as an investment.

It is common practice for programmers to use readily available source code that can be downloaded and incorporated into the software they are developing. Using open source software (OSS) in this manner can be very efficient. Unfortunately, there are many misconceptions about OSS and the legal uses of OSS are not always well understood. It’s important to know that OSS is not generally not “public domain” software that is free for the taking. Most OSS provides for some limitations on use, most typically the ability to incorporate it into other application, to modify it and to redistribute it. Often, OSS will incorporate a general public license that does not permit the OSS code to be incorporated into a proprietary product. Depending upon the terms of the original license, if the OSS code is incorporated into a company’s software product, the company may need to provide the same rights of use to anyone who receives a copy of the software that the OSS vendor gave the company under the general public license. In effect, a general public license can cause the OSS code can turn proprietary software into open source software or will require a re-write to remove the OSS.

Software copyright due diligence is made more difficult due to recent cases holding that certain aspects of a computer program may not be protected as copyrightable authorship. These aspects include elements of the program which are already in the public domain; elements of the program which are dictated by “efficiency” and elements of the program which are dictated by “external factors.” As a result, copyright registrations should need to be handled differently, and as a result of that, copyright due diligence must be conducted in light of these new developments.

The copyright in a work can be divided and can be assigned in whole or in part by the copyright owner. Therefore, it is important to verify that the party granting specific rights has the rights to grant the acquiring company.

Sample Copyright Assignment Form 

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One Comment

  1. “If that was done without a written agreement, you have an implied license to use the application (the details of that implied license being in question) and no more.”
    Hello, I realize that it has been some time since this was posted. I am a 3rd year law student researching an area of law that is new to me. After 2 days of research, I think I have a (very) basic grasp of copyright law. However, I find myself stuck with a specific issue.

    The quoted passage from the original post is exactly the situation that I am researching. I am thrilled to hear that the party paying for the work would have an implied license to use the application, but am unable to find any authority that confirms this.

    All the case law that I have found requires 3 elements for an implied nonexclusive license: 1) the licensee requested the creation of the application; 2) the licensor created and delivered it; and 3)licensor intended for the licensee to copy and distribute the application.

    The first 2 are easy, but the 3rd just kills it. Any ideas out there?

    It seems to me that the law for “work-for-hire” and implied license regarding independent contractors is outdated.