Part One: Do you own the intellectual property to work created by your supplier?

When you retain a supplier to design software, customize its standard product to meet your needs, create engineering specifications, or develop documentation, do you have the right to use it over and over?  Can you re-use it in another application? Does your supplier have the right to re-sell it to another customer?

These questions have, at their heart, the basic principles of copyright, ownership and intellectual property.OWNERSHIP OF COPYRIGHTS Under copyright law, the author who creates an “original work of authorship” owns the copyright to that work.  Among other things, an original work of authorship includes designs, specifications, software, documentation, photographs, website development, artwork, or multimedia work.The author who owns the copyright automatically owns the exclusive rights to it and the rights to prevent others from copying, distributing, or preparing works based on the copyrighted materials.

As counter-intuitive as it may seem, even though your company pays your supplier to develop a work, or customize or modify the supplier’s product to your requirements, your company will not own the copyright to the work created unless it obtains a written assignment of copyright ownership signed by the author/ owner of the work. An assignment is simply a transfer of copyright ownership.

EXCEPTION:  WORKS FOR HIRE DOCTRINE
(Read this carefully:  It’s often misunderstood)

The “Works for Hire” doctrine is an exception to the above general rule.

Employee:
If a work was created by an employee as part of his or her job, the law considers the creation a work for hire, and the employer will own the copyright.

Independent Contractor (defined as any supplier you retain who is not an employee – whether sole proprietor or large company):
If the creator is an independent contractor, the works will be considered works for hire only if:
(1) the parties have signed a written agreement stating that the work will be a work for hire; and
(2) the work is commissioned as a contribution to a collective work, a supplementary work, an instructional text, answer material for a test, an atlas, motion picture, or an audiovisual work.

Note that the above list for independent contractors is very narrow and specific. Outsourcing the development of software, designs, photographs, catalogs and the like are not contained in this list and would not be considered “works for hire”.  

Merely including the “work-made-for-hire” language with your supplier is not enough to ensure that your company obtains ownership to the copyright in most cases.

BOTTOM LINEYou should obtain a written assignment before your supplier starts work. This language should specifically require that the supplier will assign (transfer) all intellectual property rights in the work to the company. Without a clear, written contract, your company may end up with only a limited license (right) to use the work.

A clause that simply says that your company owns the rights but does not specifically assign the rights does not legally transfer the ownership rights.

A simple NDA does not transfer the IP rights. You need an agreement with a specific assignment clause that transfers these rights.

EXAMPLE LANGUAGE

The following is an example of a very simple assignment clause to include in a contract with your independent contractor:

Independent Contractor hereby assigns and agrees to assign to Company, and shall require its subcontractors in writing to assign to Company, all right, title and interest in and to the (name of the work) and all intellectual property rights therein.

NEXT ISSUE 

These concepts are not terribly complicated. So, why all the back and forth negotiations between your company and the supplier?

Next month I’ll discuss the underlying problems by addressing the customer’s perspective of ownership vs. the supplier’s perspective and provide you with possible approaches to resolution.