It is hard to imagine a business that does not own or use an asset subject to copyright protection. Copyright protection extends to eight non-exclusive classes of works: literary works; musical works; dramatic works; pantomimes and choreographic works; pictorial, graphic and sculptural works; motion pictures and other audiovisual works; sound recordings; and architectural works. 17 U.S.C. §102(a).

Businesses hire graphic designers, advertising agencies and computer programmers to create logo designs, advertisements, websites and computer programs for use in the promotion and operation of their businesses. All of these items are subject to copyright protection. Computer programs are considered literary works. Logo designs, advertisements and websites are encompassed in pictorial, graphic and literary works.

When a business pays a firm to develop a website, or pays a programmer to create software, the business often believes that it acquires ownership of the copyrights in the website or software in exchange for payment. The business is often wrong, however, because copyright ownership does not transfer from the creator to the buyer just because money changes hands.

Nor does copyright transfer with the delivery of the electronic file, thumb drive or other tangible embodiment of the work. 17 U.S.C. §202. Ownership of a copyright is distinct from ownership of the material object in which the copyrighted work is embodied.

As a general rule, the creator (i.e. author) of a work owns the copyright. 17 U.S.C. §201(a). One important exception to the general rule of ownership is works made for hire, pursuant to which an employer owns the copyright in works created by employees within the scope of their employment. 17 U.S.C. §§101 and 201(b).

In contrast, when a business engages an outside party (a firm, entity or individual who is not an employee) to create a work, the outside party is an independent contractor and owns the copyright in the work it creates.

So where does this leave the business? If the business pays an outside party for a work, the business presumably has an implied license to use the work, but its ability to fully exploit the work is limited because it failed to acquire ownership of the underlying, basic rights of copyright ownership which include the right to reproduce or copy the work; to modify the work (i.e. create derivative works); to distribute the work; to perform the work; and to display the work.

So if a company engages and pays a contractor to develop a website or operating software, it may have the right to use the website, or to use the software program internally in the operation of its business, but it may not have the right to modify, sell, or transfer the website or software, because these rights belong only to the copyright owner.

In order to obtain the copyright in a work, a business must obtain from the author a written transfer of the copyright. To be valid, a transfer of copyright, or the grant of an exclusive license to exploit the copyright, must be in writing and signed by the copyright owner. 17 U.S.C. §204(a). So even if a business has paid a contractor hundreds of thousands of dollars for the development of a software program, the business does not own the copyright in the program unless and until the contractor transfers the copyright to the business in writing.

If the business fails to obtain a written copyright assignment from a contractor at the time the work is created (and in consideration of the fees paid to the contractor therefor), it can become a major problem for the business in the future.

For example, a company that later wants to sell its business will not be able to sell and transfer good title to a potentially important computer program or its copyright unless it tracks down the contractor who created the program and convinces that contractor to execute a written assignment. Imagine how hard it is to locate a contractor years after a job has been completed. Consider also that a contractor may refuse to execute an assignment or may even condition its agreement to execute the assignment on the payment of more money.

Similarly, we have had clients who want to run modified versions of advertisements or to make changes in websites created by contractors who never assigned the copyright to the client. As the copyright owner, the contractor may possess the exclusive right to modify its work and it can refuse to permit the client to make changes in the work itself, or to hire another party to do so; essentially the client can be forced to re-hire the original contractor in order to make changes in previously paid for works or to litigate whether its implied license of use encompasses the right to make the desired changes.

To avoid these predicaments, a business should secure a written copyright assignment signed by the contractor at the time the work is created. While the Copyright Act does not require any particular format for the writing evidencing the transfer, it is advisable to include the following information in any transfer document: (1) a clear identification of the work for which copyright ownership is being transferred; (2) the name of the transferor and transferee; (3) an explicit reference to the fact that the “copyright” is being transferred; (4) the consideration given for the transfer; and (5) the effective date of the transfer. The transfer language in a copyright assignment document typically reads as follows:

In consideration of $______ and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, effective as of ____________, creator irrevocably assigns and transfers to the transferee, its successors and assigns, the entire right, title, interest and copyright in and to the work identified in Exhibit A.

Other statements that are helpful to have in the document, but not necessary to accomplish the copyright transfer, include a representation and warranty by the creator that (1) the work is his/her sole and original creation, free of any liens, restrictions or adverse rights/claims of any third party; (2) he/she has the right and authority to transfer all copyrights in the work; and (3) the work does not infringe or violate the rights of any third party, including but not limited to any intellectual property rights. Additionally, the document should include an indemnification by the transferor of the transferee for any claims, losses, demands and expenses incurred by the transferee arising out of a breach of any of the foregoing representations and warranties.

If you need help acquiring, transferring or licensing copyrights, Goodell, DeVries, Leech & Dann, LLP can help. Contact Donna Thomas at 410-783-3522 (dthomas@gdldlaw.com).