As the business world continues to shrink due to the proliferation of rapid communications through the internet and social media outlets, one area that becomes a little murky is who owns the rights to custom software? What I mean by this is that as a software developer living and working in the United States of America, my business is bound to U.S. laws. For example, determining the ownership of any custom software I create is governed by the United States Copyright Law. But what happens when I create work for foreign entities, such as enterprises based in Europe or Scandinavia? Which country’s laws prevail in an ownership dispute? I don’t know the answer to this question. I am not an attorney, have no desire to be one, nor do I want to be tested to answer this question. I develop software. I enjoy developing software. Developing software is one thing I do well. But as my business continues to grow and I serve clients from different parts of the world, I have to make it perfectly clear that unless otherwise agreed to in writing, the United States Copyright Law governs who owns the custom software I create.
Why is This Important?
This is important because it is not uncommon for clients to be surprised to learn that they do not own custom software produced for their use by a developer unless those rights are explicitly transferred to them in writing. The Copyright law protects a work from the time it is created in a fixed form. From the moment a computer software program is created in an electronic or print format, also known as source code, the copyright becomes the property of the author who created it. It generally doesn’t matter who’s paying for the service. Only the author or those deriving rights from the author can rightfully claim copyright. There is one exception to this principle. This is known as “work for hire”. If a work is made for hire, an employer is considered the author even if an employee actually created the work. The employer can be a firm, an organization, or an individual. The concept of “work made for hire” can be complicated. However, its definition in copyright law draws on the Supreme Court’s interpretation of it in Community for Creative Non-Violence v. Reid, decided in 1989.
Definition in Law
Section 101 of the Copyright Act (title 17 of the U.S. Code) defines a “work made for hire” in two parts:
- a work prepared by an employee within the scope of his or her employment or
- 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.
Supreme Court Interpretation
Determining whether a work is made for hire can be difficult because it is not always easy to apply the legal definition of “work made for hire.” The Supreme Court’s decision in Community for Creative Non-Violence v. Reed addressed that definition. The Court held that one must first ascertain whether a work was prepared by (a) an employee or (b) an independent contractor.
If an employee created the work, part 1 of the definition above applies, and the work will generally be considered a work made for hire. But note that the term “employee” in the definition differs from the common understanding of the term. For copyright purposes, “employee” means an employee under the general common law of agency. (More on this below.)
If an independent contractor created the work, and the work was “specially ordered or commissioned,” part 2 of the definition above applies. An “independent contractor” is someone who is not an employee under the general common law of agency. A work created by an independent contractor can be a work made for hire only if (a) it falls within one of the nine categories of works listed in part 2 above and (b) there is a written agreement between parties specifying that the work is a work made for hire. Just because a person performs work as an independent contractor does not automatically mean that their work product is work for hire.
To help determine who is an employee, the Supreme Court in Community for Creative Non-Violence identified factors that make up an “employer-employee” relationship as defined by agency law. The factors fall into three broad categories:
- Control by the employer over the work. For example, the employer determines how the work is done, has the work done at the employer’s location, and provides equipment or other means to create the work.
- Control by employer over the employee. For example, the employer controls the employee’s schedule in creating the work, has the right to have the employee perform other assignments, determines the method of payment, or has the right to hire the employee’s assistants.
- Status and conduct of employer. For example, the employer is in business to produce such works, provides the employee with benefits, or withholds tax from the employee’s payment.
All or most of these factors characterize a regular, salaried employment relationship, and it is clear that a work created within the scope of such employment is a work made for hire (unless the parties involved agree otherwise).
Who Owns It?
Getting back to the original question about Who Owns the Copyright? If the software is created by an independent contractor, and there is no written agreement transferring ownership to the client, the contractor owns the copyright and licenses it for use by the client. Think about how you use software from Microsoft. If you install Microsoft Office on your computer because you paid for an Office 365 account, this doesn’t mean that you own Microsoft’s software. You only purchased a license to use that software. On the other hand, if a work is made for hire, the employer or other person for whom the work was prepared is the initial owner of the copyright unless both parties involved have signed a written agreement to the contrary.