Innovate Articles

From time to time, a company, business owner, or a sole-proprietor will need to bring in outside help to get the job done. Typical examples of hiring third parties for specific projects include:

• Hiring an ad agency or marketing firm to create promotional materials and/or packaging for the company's products or services
• Hiring a programmer to write software for the company’s products, or to create or improve some internal operating software for the company
• Hiring an artist to design a logo for use as a trademark or service mark by the company
• Hiring a website developer to design and/or update the company’s website

In each of these examples the company hires outside resources to take advantage of their creative expertise - expertise the company doesn’t have in-house. For purposes of this discussion, we’ll call the product created by these outside resources the “work” and what has been physically delivered to the company, the “deliverable.”

Whenever a company arranges for non-employees to design, build and/or implement creative activities for the company, it is imperative that appropriate contractual safeguards be in place to make certain that the company owns the copyrights in the works it has purchased.

Without a written agreement with the person paid to create the work that is effective to transfer the creator’s copyright rights to the claimant (the company), the creator of the work retains the copyrights rights to that work. Where there is no written agreement, what the company paid for is only the physical copy of the work it received, i.e., the “deliverable.” The creator or author owns the copyrights.

Since the company is not the owner, it doesn’t have the right to do any of the following: make copies of the packaging, make copies of the software (so it can put it on several computers), make copies of the design (logo) so it can freely advertise and put the logo on any product or service that it sells, and make copies of the new content on its website. Only the owner of the copyrights has, among other things, the right to make and distribute copies of the work. The company is not the owner. The company only owns the “deliverable”.

Why must there be a written agreement? Because Section 204 of the Copyright Act, 17 USC § 204, provides that copyright rights can only be transferred in writing:

"A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent."

But wait!  What about a “work made for hire”? Can’t a work be deemed a “work made for hire” to deal with copyright ownership issues? “Work made for hire” also is defined in the Copyright Act, 17 USC § 101, and there are only two situations in which a “work made for hire” can exist.  The first is when the work is prepared by an employee within the scope of employment. Under US Copyright law, the employer is then deemed to be the “author” and thus, no written transfer of copyrights is needed from the employee.  

The second situation relates to a specially ordered or commissioned work for nine very specifically defined types of works.  These works are

• a contribution to a collective work; 
• a part of a motion picture or other audiovisual work; 
• a translation; 
• a supplementary work (to another author’s work, such as a foreword); 
• a compilation; 
• an instructional text; 
• a test; 
• an answer material for a test; or
• an atlas.

If someone attempts to create a work made for hire by contract, but the work is not one of these nine enumerated works, that work will not be deemed a “work made for hire” and the contracting party will not own copyrights in the work notwithstanding an agreement stating that it is a “work made for hire.”  You cannot contractually create a “work made for hire” simply by inserting this phrase in an agreement if the work is not one of the nine enumerated works defined in Section 101. 

For example, in Community for Creative Non-Violence et al. v. Reid ¹, the Supreme Court addressed ownership of copyrights in a situation where the facts required interpretation of the terms "employee" and the "scope of employment" as well as the type of work commissioned. As an initial matter, CCNV hired Reid to create a sculpture for CCNV. CCNV suggested aspects of the design of the sculpture and supervised Reid's work. 

The Court looked directly to the wording of Section 101 of the 1976 Copyright Act which defines a work made “for hire” and its two circumstances:

1. a work prepared by an employee within the scope of his or her employment; or
2. a work specially ordered or commissioned for use as a contribution to a collective  work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

Since the work did not fit any of the specifically defined types of ordered or commissioned works, the Court looked to whether Reid was an employee. After reviewing the legislative history of the work made “for hire” language, the Court held that the term "employee" was to be defined according to general agency principles.² Under that definition, the facts in CCNV indicated that Reid was not an employee of CCNV, but was an independent contractor. There was no written agreement between CCNV and Reid. The Court concluded that CCNV was not an author under the work made “for hire” provision of the statute. However, the court also ruled that CCNV may be a co-author based on its involvement in creating the sculpture and thus this issue was left for determination upon remand. 

We have seen many agreements stating that the work being created is a “work made for hire.”  The enforceability of such a written provision is doubtful, unless the work is one of the nine statutorily enumerated types of works in Section 101.

A situation where a written instrument (while encouraged) may not be required arises where a copyrighted work was created by one party at the request of another, but only an oral grant of permission to use the work was given by the creator (copyright owner). As discussed, Section 204 provides that all transfers of copyright ownership must be in writing. Section 101, which is the definitions section of the Copyright Act, defines “transfer of copyright ownership” as “an assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright or of any of the exclusive rights comprised in a copyright, whether or not it is limited in time or place of effect, but not including a nonexclusive license.”  Section 101 expressly removes a "nonexclusive license" from the scope of a written agreement required by Section 204 

That is, a non-exclusive license can be granted orally, or may be implied from conduct.³   An oral license to use the commissioned work may only be enforceable in a nonexclusive situation where a number of others may also be able to use the work and the requesting party still doesn't own all the copyrights in the work.

In Effects Associates, Inc. v. Cohen,⁴  Cohen wrote, directed, and produced a horror movie (titled "The Stuff"). Effects was asked by Cohen to create footage to enhance certain action sequences in the film.  Effects offered to prepare several sequences and Cohen orally agreed to the deal. However neither party addressed who would own the copyright in the footage. Cohen was unhappy with the climactic sequence Effects created, and Cohen responded by only paying Effects half the agreed upon amount for that shot. Nevertheless, Cohen incorporated Effects' footage into the film (which was later distributed). Effects then brought a copyright infringement action, claiming that Cohen (along with his production company and distributor) had no right to use the special effects footage unless Effects was paid in full. 

To find that a non-exclusive implied license was formed, the Court looked at the acts of the parties. Effects created a work at Cohen's request and handed it over, intending for Cohen to copy and distribute it and "to hold that Effects did not at the same time convey a license to use the footage in "The Stuff" would mean that" Effects' "contribution to the film was "of minimal value". A conclusion that can't be squared with the fact that Cohen paid Effects almost $56,000 for this footage."⁵  The Court then concluded "that Effects impliedly granted nonexclusive licenses to Cohen and his production company to incorporate the special effects footage into "The Stuff" and to New World Entertainment to distribute the film."⁶

So what is the take away? Whenever a company hires a non-employee to create anything for the company, that non-employee, the creator (i.e., author) needs to agree in writing -- before any work is done -- that anything created in the course of the project (and the associated copyright rights) are assigned to and owned by the company.  Coupling an assignment with a work made for hire agreement ensures that the contracting party will own any resulting copyrights either because of a work made for hire agreement covering one of the nine enumerated works or by virtue of the assignment.

NOTES:

1. 
   2.  Id. at 740
   3.  Nimmer & D. Nimmer, Nimmer on Copyright § 10.03[A], at 10-36 (1989)
   4.  908 F. 2d 555 (9th Cir. 1990)
   5.  Id. at 559
   6.  Id.
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