“I paid for it, so I own it, Right?” – How to avoid costly pitfalls in the world of IP.
The scene is almost identical every time: a website developer is holding a website he designed for our prospective client hostage because of a dispute. “I paid for him to design the site, so I own it, Right!” This seems reasonable, as confirmed by normal daily consumer transactions. I pay you money and you give me whatever I purchased. In most cases the above concept is an accurate reflection of the law. However, sometimes the world of Intellectual Property can be counter intuitive. Mistaken understandings can prove costly and damaging. Sometimes with IP, especially copyrights, you may have paid for it, but you don’t own it.
Copyrights protect original creative works of authorship. Some of the more obvious items subject to copyright law are books, photographs, movies and music. However copyrights can also extend to items such as computer software, website designs and architectural plans. U.S. copyright law grants the author of a work the exclusive right to reproduce, adapt, publically display and distribute the work. The Author of a work is generally accepted as the person who originates the work – the programmer, the photographer, the web designer etc. A business is considered to be the author when one of its employees creates the work or the work is deemed to be a “work made for hire” in a written agreement and the work falls into one a few exceedingly narrow categories that rarely come into play in the creation of software code or websites. Put bluntly, a business does not automatically own any copyrights to something created for them by an independent contractor or another business. Put another way, by default the developer owns the rights to the code or website you paid him to develop not your business. That sound you just heard is reader’s jaws hitting the floor.
So what does the money you spent get you: an implied license to use the work as agreed to by the parties. In the context of software code, you can continue to use that code in your business; however, you may not have the right to use someone else to modify the code. This comes up often in the customization of large software packages. Companies regularly pay hundreds of thousands or even millions for software packages and then hire outside developers to implement and customize the software for the particularities of their use. Unless a developer assigns the copyrights associated with customized code to the business in writing, the developer will own the rights to the customizations and the business will merely have an implied license to use the customizations. If the business and the developer have a falling out, the business can rely on its license to continue to use the customizations. However, issues can arise if the business needs make additional changes to the customized code. For example, if the business needs to do a fresh install of the software which would wipe out any customization the business might have done, they could lose everything that they paid for. Another all too common scenario involves the development of websites. Often developers will offer deep discounts on website development if the client opts to host with the developer. Usually these hosting rates are greatly above the going market rate. The dirty little secret is that the developer is only offering a license to use the website to the business as long as they host the site through the developer. The business gets caught in a catch 22, they either have to continue to pay exorbitant monthly hosting fees, or if they switch hosting services, they will have to get a whole new website.
So how does a business protect itself? The answer with a well drafted contract. While work done by an independent contractor is not automatically considered a work for hire, copyrights can be assigned. However, these assignments must be in writing and signed by the parties. It isn’t good enough for the developer to simple verbally agree to assign the copyrights. The assignment of the copyrights should be discussed up front often before or contemporaneous with negotiating price. Whenever embarking on a project that might involve these sorts of rights for your company, you should consider having an intellectual property attorney review the contract to at the very least make sure that the company is really getting what you believes it is are getting. Otherwise you could be in for a rude awakening sometime in the future.