What Do You Mean I Don’t Own It?

By: Joshua Kaufman © 2000

What do you mean I don’t own it? Is a question I hear from clients with surprising regularity. They tell me, “it was my idea, I hired the programmer, gave her advice and paid for it, of course I own it.”  When I tell them that they may not own their specially commissioned program, website or other materials incredulity would be a mild understatement for the response that I receive. The idea that after paying for a product, one does not own it is an alien concept to most business people. Surprisingly, it is also a matter that is often overlooked by in-house counsel and even the most astute business lawyers without a background in copyright law.

It has been over 15 years since the Supreme Court ruled in the case of CCNV v. Reid that creators, not the acquiring parties, own the rights in commissioned works.   Yet, its rulings have not taken hold in the consciousness of American business. This is not an obscure ruling; it has been cited almost 1000 times in a wide variety of cases. With such a broad application one would think that its basic conclusions would have established themselves firmly in the business landscape, they have not.

CCNV v. Reid was a case about ownership of a copyright in a dispute between the commissioning party and the commissioned party. CCNV commissioned the sculptor, James Reid, to create a sculpture for it. They raised the money, provided ideas for the design and sent delegates to the artist’s studio to track his progress.  A dispute arose between the artist and organization and, as a result of the dispute (which initially had nothing to do with copyright), the issue over who was the copyright owner in the sculpture came to the forefront.  As is often the case, the issue of copyright ownership was never mentioned between the parties; nor was there a written agreement.  At the time the dispute arose, there was a split into the circuits as to ownership of the copyright in commissioned work when there was no writing which clearly defined ownership. Under copyright law the parties with a properly drafted agreement can always determine ownership. Unfortunately there are thousands of instances each year in which websites, computer programs, architectural plans, writings, videos, advertisements, promotional materials, multimedia works, artworks and a wide variety of other properties which are commissioned and which the copyright ownership issue is not addressed in writing (or at all).  As we will see below, a writing is of paramount importance in copyright.

Under current law, in order for a commissioning party to own the copyright, there must either be a valid, written “Work-for-Hire” agreement or written assignment of the copyright.  The term “Work for Hire” is a much used yet misunderstood term. It is a term of art and if the conditions set out in the Copyright Act are not strictly adhered to the intent of the parties will be frustrated. Even if the parties intended ownership of the intellectual property to vest in the commissioning party, if the guidelines set out in the Copyright Act are not followed, the ownership will remain vested in the creating party.

For a work to be a “Work for Hire” in which ownership vests in the commissioning party, it must be either a work created by an “Employee” in the scope of his or her employment or a specially commissioned work in which there is a written agreement, signed before the project is undertaken, stating that the work is a “Work-for-Hire” and the commissioned work fits into one of nine very specific and limited categories. The nine categories generally do not apply to computer programs, web sites architectural plans, artworks, music or promotional materials.  As such unless an employee of the commissioning party in the scope of his or her employment (there is much case law surrounding what is in the scope of employment) created the work, the creator, programmer, web designer, ad agency, photographer, etc., owns it, at least initially.[1]

In the computer and e-commerce worlds, we generally find that the programs and websites are written and designed by outside companies or independent contractors.  By definition these individuals or entities are not employees and as such copyright ownership will vest with them. The key issue in CCNV was how far one could stretch the definition of “employee.”  Before 1978, when the current copyright law was enacted, if one paid for work and exercised supervision and control over the independent contractor, the commissioning party owned the copyright in the work.   That changed with the 1976 Copyright Act which became effective in 1978.  However, many judges had a hard time unlearning the lessons and rulings of 70 years. A number of courts were calling people who were clearly independent contractors, employees, solely for the purpose of their losing their copyrights.  In CCNV the Supreme Court decided that the definition of an employee should be that which is found in the Restatement of Agency.  Since the CCNV decision, courts have been almost uniform in finding that, absent some form of formal employment relationship, the creative/commissioned party has been independent contractors and not employees.

The ownership, or lack of ownership, problem affects not only small businesses who might be expected not to understand the nuances of a sophisticated area of the law but even the largest Fortune 100 companies with their in-house counsel and large armies of outside attorneys. Even if this matter is properly handled in the initial drafting of documents, it is often lost sight of during the subsequent revisions to the computer programs or websites or when in a new project between the parties is entered into. Often the commissioning party simply assumes that the "deal" that they had in the prior agreement will be binding for the new arrangement.  That is not the case, with the creation of every copyrightable product a writing must cover the new work.

The Supreme Court remanded CCNV back to the District Court to see if perhaps a joint authorship relationship had been established. The case was settled before the issue was reached. However, other parties who found themselves in similar situations to CCNVtook false hope in that argument.    There have been a number of unsuccessful cases in which people who contributed the ideas behind the copyrightable materials claimed to be joint authors. The courts have uniformly held that in order to be a joint author you have to first be author. In other words you have to contribute copyrightable material in order to be copyrightable material, the contribution, must be fixed into tangible form. Therefore giving advice, ideas, directions and funds will not rise to the level of authorship.

One would certainly expect that they would at least have an exclusive license to exploit that for which they have paid.  Even if the commissioning party does not end up owning the copyright, logic would dictate that they have the exclusive right to use it. Wrong again! Under copyright law, any exclusive license must also be in writing. If there are no documents or the documents do not specifically state that the commissioning party is receiving an exclusive license, none is being granted. Also, in order to affect the sale of a copyright (an assignment), there must be a writing. Simply put, if there are no writings it is not a “Work-for-Hire, no exclusive license has been granted nor has there been any assignment (sale) of copyright.

What then does the commissioning party have after they have provided assistance, ideas and funds?  If there is no writing or an insufficient writing, what is the commissioning party left with?  It would seem based on the state of the law today that they have a non-exclusive license.   This is where the true fun begins -- figuring out the terms and scope of an oral nonexclusive license. 

Perhaps there are documents (notes, emails, RFPs, memos, etc.) which outline the basic framework of and uses for which the commissioning party specifically obtained in the work.   In those circumstances it certainly can be argued that the license being granted will cover the intended uses of the commissioning party. However, what happens when the programmer was not made aware of the scope and nature of the use to which his or her program or website was going to be used. The instances in which the ultimate use of the product or its scope is kept confidential or is provided only on a need to know basis is widespread. It would be difficult to argue that the creating party granted a license to the commissioning parting for uses to which they had never been made aware. 

Even if one is able to establish the parameters of the preliminary basic license what happens with the creation of new versions, patches, fixes or adaptations. One of the exclusive rights of the copyright holder is the right to create derivative works from the underlying work.  Translating the computer program from one language to another, adding features in order to modify it will often be considered derivative works and only the owner of the copyright will be entitled to grant those rights or create the revisions.  Proving that an oral license extended to the creation of the derivative works is often very problematic. One can of course bring in their experts, claim custom of trade, that in the specific niche of the industry "everyone knows" that these are the type of licenses that are provided. Many courts are helpful in finding ways of fashioning broad non-exclusive licenses but not all have taken that path.  In particular, in the area of architectural works, courts have not been receptive to the idea of oral non-exclusive licenses. Courts have found that while a developer may in fact have a license in regard to the use of drawings that no license has been granted to actually build a structure from the drawings.

The issue as to who has the burden of proof in regard to demonstrating the terms of the oral non-exclusive license is certainly not a settled matter. Nor are the effects of various defenses that a creator can raise. For example, some jurisdictions provided that a contract without a fixed term is terminable at will. If so then the non-exclusive oral license could be terminated by the copyright owner at any point in time. What of the Statute of Frauds? A contract, which cannot be completed by its own term a year, is normally considered in violation of the Statute Frauds. If the terms of the oral non-exclusive license provide for ongoing maintenance or the payment of royalties that extend beyond a one-year term it might violate the Statute Frauds. One must look to the various states to see how their laws have been applied to the validity of such agreements.

What of the monies paid? Do they have to be returned in the event that a non-exclusive license is found to be in place instead of the exclusive license or assignment or work for hire that the commissioning party believed it was acquiring? Are the courts going to allow such “windfalls” to the commissioned parties or require them to pay back part of the proceeds? These are all questions, which are currently being litigated throughout the country.

Copyright law is deceptively complex. On its face it often appears to be simple. However, the nuances and subtleties and lack of what appears to many, any rhyme or reason, have led to problems for many lawyers and their clients. Nowhere has this become move evident then in IP ownership issues in the area of computers, e-commerce, and website development.  Well negotiated and drafted documents are a must or else you will soon be hearing, “What do you mean I don’t own it.”

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Joshua Kaufman is in the Washington, DC office of Venable LLP, chair of its Copyright & Licensing Group and successfully argued, CCNV v. Reid, before the US Supreme Court.

[1] A copyright is created, when a work is fixed in a tangible form and vests in the creator for their life plus seventy (70) years and if owned by an entity for ninety-five (95) years.