When a contractor or consultant performs services for a business often there is a physical item that is the outcome of those services. It might be an employee manual created by a human resources consulting firm, a photograph for an ad, or a software program created for your accounting department. Ownership of that work product is often not what the buyer of the services expects. These tangible items have a copyright. And that copyright generally arises in the creator of the work, not in the party who paid for it.
The law prohibits a second party from reproducing, distributing, displaying, or performing the original work and from creating a derivative work from the original work. Business owners are sometimes surprised to find that the manual they paid for, can not be updated by them without the permission of the original consultant or that a photograph can not be reproduced without paying an additional fee to the photographer.
This unexpected twist to ownership happens because by law, copyright arises in the creator of the work, not the buyer of the work. This statutory twist is intentional. Many consultants, contractors and artists are individuals or small companies. Congress intended to give these smaller entities leverage in negotiations with buyers who are often times larger entities.
The exception to this general rule is a work that is a “work made for hire” under the copyright act.
By law, a “work made for hire” is:
(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.“
The reality is that very few works qualify as a “work made for hire” under the statutory language. Therefore the buyer of the services needs to protect their interest by either an assignment of the copyright, or a license grant under the copyright broad enough to cover the intended uses of the work.
Contract language that will likely transfer the copyright to the buyer reads something like the following:
All right, title and interest in and to the work created under this Agreement, including but not limited to the copyright therein, shall be owned by Company. Contractor shall retain no interest in and to work created hereunder. The Parties expressly acknowledge and agree that all such work is and shall constitute a “work made for hire” under appropriate sections of the U.S. Copyright Act. In the event, for whatever reason, such materials are not considered a “work made for hire” under the appropriate provisions of the U.S. Copyright Act, it is understood and agreed that all such work is hereby assigned to Company, without necessity of further documentation. In the event that it is necessary or desirable to Company to document the above transfer, Contractor agrees to execute such documents at the request and expense of Company.
The above language accomplishes three things. First it sets forth the parties’ intent that the work be owned by the Company. Second, it fulfills the statutory requirement that a written agreement exist if it is to be a “work made for hire” under the copyright act. Third, it contains an actual assignment of the ownership should the work fail to qualify as a “work made for hire”.
Of course, there are situations where it is appropriate for the contractor or consultant to maintain ownership of the underlying work. For example, the consultant may be hired because they can customize existing materials for individual clients. In these cases, license language might read something like: Contractor hereby grants Company a non-exclusive, worldwide right to sublicense others, reproduce, modify, display, perform and distribute all work created hereunder in the normal operation of Company’s business as it now or hereafter exists. This language will, at a minimum, open a discussion between the buyer and the contractor, so that neither the buyer or the contractor is surprised by what is, or is not, covered by the fees being paid.