Who Owns Software Created by Contractors?

To acquire the copyright in the contractor’s work, a written assignment agreement should be signed by the contractor.

When a person or company hires an independent contractor to create or contribute to the creation of software, it is important to obtain ownership of the copyright in the contractor’s work. To do this, a written assignment agreement should be signed by the contractor. Why is such an agreement so important? Copyright law vests creators with certain exclusive rights over their creations, whether those creations are, for instance, novels, paintings, or pages of software code. Thus, unless your independent contractor actively assigns his or her rights, that contractor can still claim copyright in the software that he or she created.

Assignments of Rights

The word “assignment” means a transfer of all the rights a person owns in a piece of property. So whenever a person or entity transfers all the intellectual property rights it owns in a work of authorship, the transaction is usually called an “assignment” or sometimes an “all rights transfer.”

When such an assignment transaction is completed, the original intellectual property owner no longer has any ownership rights at all. The new owner—the assignee—has all the rights the transferor formerly held.

Unless the software involved has been patented (a rare situation), you will normally use a copyright assignment to transfer ownership to others or obtain ownership of others’ software content.

An assignment of a copyright must be in writing to be valid. However, an assignment need not be a lengthy or complex document. At a minimum, it should contain:

  • the names and addresses of the person creating the work and the person or entity paying for it, and
  • a description of what rights are being transferred—for an assignment, the following phrase may be used: “[Name] hereby assigns all his right, title, and interest in [description of software/application/app/work].”

The assignment agreement may be signed before or after the work is created.

What If the Contractor Does Not Sign a Transfer Agreement?

If the contractor does not sign a work for hire agreement or assignment, there are three possible consequences:

  • the contractor will be considered the sole copyright owner of the work he or she creates
  • the contractor and hiring party will be considered to be joint authors and share ownership, or
  • the hiring firm will be considered to be the sole copyright owner.

What Happens When the Creator Owns Copyright

Unless the hiring firm can obtain an ownership interest by claiming joint authorship or by virtue of some written assignment agreement, the contractor will solely own all of the copyright rights in the work product.

EXAMPLE 1: The law firm of Dewey, Cheatum, and Howe hires Sally, a freelance website designer, to design and code custom case management software for the firm. Sally is not Dewey’s employee and signs no document assigning her ownership rights in her work to Dewey. Sally completes the program and is paid in full. Sally is also the sole copyright owner of the case management software. This means that Sally may sell the software to others, reproduce it, create derivative works from it, or otherwise exercise her copyright rights in the software.

However, all will not be lost for Sally's hiring firm. At the very least, a company or person who pays an author to create a protectable work has a nonexclusive license to use it as intended. This seems only fair, considering that the hiring party paid for the work. A person with a nonexclusive license in a work may use the work, but may not prevent others from using it as well. Nonexclusive licenses may be implied from the circumstances; no express agreement is required.

Dewey's nonexclusive license to use the software would not, however, prevent Sally from allowing others to use the software as well. This could present a big problem for Dewey, which now must essentially share the software with competitor companies.

What Happens When a Joint Work Is Created

The best situation that could result from the hiring firm’s perspective, in the absence of a written agreement, would be for the software to be considered a joint author of the work. This way, the firm would share ownership with the other creators. However, for a person or company to be considered a joint author, it must contribute actual copyrightable expression to the finished work. Simply describing how a program or website should function or contributing other ideas or suggestions is not sufficient.

EXAMPLE: Assume that Sally in the example above was aided by Dewey’s employees. The employees contributed not only ideas, but actually helped design the program; contributing work that was separately copyrightable in its own right (flowcharts, for example). In this event, the software would probably constitute a joint work and would be jointly owned by Sally and Dewey.

What Happens When the Hiring Party Is Sole Copyright Owner Under Work for Hire Rules

Many companies use form agreements with independent contractors, stating that the contractor’s work will be a work made for hire. But such an agreement will be effective only if the contractor’s work falls within one of the work for hire categories enumerated under the law. Websites ordinarily fall into one or more of these categories, but software may not fall into any. In the case of software, this means that the contractor’s work may not be deemed a work made for hire even though the contractor signed the agreement.

EXAMPLE: Assume that Dewey in the example above had Sally sign a contract stating that the case management software would be a work made for hire. Unfortunately for Dewey, such software does not come within one of the nine categories of specially commissioned works. This means that regardless of what the contract said, the work is not a work made for hire and Sally is the author and initial owner of the copyright.

However, it is possible that a court would interpret the work made for hire contract as a transfer by Sally to Dewey of all her copyright rights in his work. Sally would still be the initial owner and author, but Dewey would still end up owning all the copyright rights in the work. Put differently, Dewey would have the exclusive right to use and reproduce it, create derivative works based upon it, and so on. But it is also possible that a judge would rule the contract unenforceable and simply award Dewey a nonexclusive license.

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