Is Customized Software a ‘Work Made for Hire’?

Your company just hired someone to help develop your new mobile app. Your agreement with this programmer or engineer specifically states that anything she creates for your business is a “work made for hire”. Your business is good, right? No way that the new hire can ever lay claim to the deliverables, correct?

In my Phoenix startup and technology law practice, I get this question a lot as it pertains to software and app development.   Unfortunately, the term “work made for hire” (or, more colloquially, “work for hire”) is a term as misunderstood by companies as it is misused.

The “Work Made for Hire” Doctrine Explained

Generally speaking, a work that is copyrightable is the sole property of the person who created it (and assuming the author has not transferred some or all of the bundle of copyright rights to someone else). This is the default rule.

The “work made for hire” doctrine, on the other hand, basically overrides this default rule, but only if certain requirements are met. Under 17 U.S.C. §101, a work constitutes a “work made for hire” only if it is either:
1) a work prepared by “an employee in the scope of his or her employment”; or
2) a work specially ordered or commissioned for use as one of nine specific types of works set out in the statute (see below for the nine); and 

3) the parties “expressly agree in a written instrument signed by them that the work shall be considered a work made for hire”. 

So what does this all mean?  I find it helpful to remember the “work for hire” basics by using a sort-of decision tree.  I will eventually try and post one here but, for now, you can think about it in the form of these Yes/No questions:

QUESTION 1:  Is the person the company is hiring (or already hired) an employee?

YES: If the answer is Yes, then you have to then ask: was the employee working within the scope of their employment when the work was created?  If the answer again is Yes, the analysis pretty much ends there.  Where an employee creates a work within the scope of her employment, the employer is deemed to be the author of the work, and therefore the copyright owner. No actual agreement or incantation of the magical words “work for hire” or “work made for hire” are needed. 

This is the easiest scenario in the “work for hire” analysis but, particularly among my startup clients, is also the least common, of course.

NO: If the answer to Question 1 is No, then the chances are pretty good that the person is being classified by you as an independent contractor (for this article, I will ignore the possibility of software developer “volunteer”), which brings us to the next question:

QUESTION 2:  Did your company and the independent contractor agree in writing to the work being a “work made for hire”?

(Yes, I realize that I am taking these questions out of order, but the reasons for this will become apparent below, so just work with me here)

YES: If the answer is Yes, then move on to Question 3 below. 

NO: If the answer is No, and your company does not or did not have an adequate independent contractor agreement in place stating that the deliverable is a “work made for hire”, then the analysis ends there.  At least per statute anyway, the work will NOT constitute a “work made for hire” and will belong to the independent contractor.  

QUESTION 3:  Was the work specifically ordered or commissioned for use as one of the nine categories of works set forth under 17 U.S.C. §101?

NO: If the answer is No, then the analysis ends—no “work made for hire” for your company. (Houston, you may have a problem)

YES: Here’s where it gets interesting. The “specially ordered” or “commissioned” part of the “work for hire” test is usually not a real gray area or subject to much debate.  Rather, where the thorny issues arise in the context of software programming is with the nine types of “works made for hire” outlined in the Copyright Act.

The Nine Work for Hire Categories

As promised, the nine specific “work made for hire” categories are:

  • a contribution to a collective work
  • part of a motion picture or other audiovisual work
  • a translation
  • a supplementary work
  • a compilation
  • an instructional text
  • a test
  • answer material for a test
  • an atlas 

As you can see, not only is software code not on this list, it also doesn’t fit particularly well under any of these nine categories.  Therein lies the problem.

Some creative arguments have been made by a few (no doubt very high priced) attorneys in some lower level Federal courts. At least at the lower court level, there is case law to suggest that software programs could be considered as either a “contribution to collective works” or “compilation” under 17 U.S.C. §101, or both.   

A pretty recent decision from the Southern District of New York found that an independent contractor had developed and joined a number of disparate programs to create a new software program which, as a whole, could be seen as a “compilation,” and that,  alternatively, the source code for each program could also be considered a contribution to the “collective work” under 17 U.S.C. §101. Stanacard, LLC v. Rubard, LLC, 12CV05176 (S.D.N.Y. (February 3, 2016))

Unfortunately, we have yet to have one of the U.S. Circuit Courts of Appeals definitively take up the issue of whether or not computer software fits under one of the enumerated nine categories so as to qualify as a “work made for hire” and, while some in Congress have attempted to introduce legislation to clarify this issue and amend the doctrine as defined in the Copyright Act, there has yet to be any movement on an actual bill through either houses of Congress. 

For these reasons, whether your independent contractor agreement with that hugely broad “work for hire” clause in it would actually be enforceable is a question that is still very much up in the air.  

Work for Hire Best Practices for Employers (for now)

Assuming you’re a company that can’t necessarily wait for a few lawsuits over “work for hire” software code to make it all the way up to the Circuit Courts to be interpreted, what are some best practices that companies can adopt with their software developer and programmer contractors?

If the contractor is really that good and could be a long-term asset to your company, the best bet might be to actually just hire her or him as an actual employee. Although this would help ensure that anything the person creates in the course of employment will belong to your company, this of course brings in a whole host of other employment-related challenges (e.g., affordability, payroll taxes, vicarious liability, etc.).

If hiring as an employee is off the table, you should make sure you have a well-drafted independent contractor agreement signed by the contractor and your company that expressly commissions or specifically orders the work. It goes without saying that special attention and care should be paid to the description of the work covered in the agreement.

In addition to the commissioning or ordering of the work, the agreement with the contractor should clearly state that the (very carefully thought out and well-defined) work is to be a “work made for hire”.

Finally, your written agreement with the independent contractor should include a “catch-all” assignment of the work from the contractor to your company. This is mainly to address the uncertainty currently surrounding the application of the “work for hire” doctrine to software programs. A well-crafted assignment will have the contractor acknowledge that, even if it is determined that software does not count as one of the nine “work for hire” types, that the contractor nonetheless permanently assigns any works to the company which were created during the time they were a contractor.

A word (or warning) about “work for hire” in California

Note: I am not a licensed attorney in California and this article should not be taken as any type of legal advice on California law.

As if the “work made for hire” doctrine weren’t confusing and uncertain enough, for our clients whose contractors are located in California, or who themselves have operations in California, or whose contracts are or might possibly be governed by California law, we do not recommend including “work for hire” language in their independent contractor agreements. 

Why? California Labor Code (Section 3351.5(c)) says that a person engaged to create a “work made for hire” is an employee.  Moreover, California Unemployment Insurance Code Section 686 provides that a party contracting to receive “works made for hire” is an employer.

Taken together, this means that a person who you have otherwise properly engaged and characterized as an independent contractor could be recharacterized as an employee simply because your independent contractor agreement says that the work your company has contracted for is a “work made for hire”. 

Thus, your company could be required to pay such things as California payroll taxes and workmen’s compensation insurance for re-characterized independent contractors.  And this does not even include potential (and costly) penalties for mischaracterization of the contractor which might have taken place in the past.   

If the risk of potential mischaracterization is worth the hiring of such California talent as your contractor, in lieu of using actual “work for hire” language in your agreement with the contractor, we advise having the contractor instead execute a written and comprehensive assignment such as that described above.     

Conclusion

Companies engaging software programmers or developers for major or even short term projects need to be aware that the mere use of the words “work for hire” in their independent contractor or similar agreements do not automatically make the doctrine apply to any software works which might be developed as a result. The “work for hire” doctrine as it applies to software programs is still very much unsettled law, and works created by independent contractors will arguably become “works made for hire” only under very specific, defined circumstances (and with a lot of help from your agreements with your independent contractors).

BHANDLAW, PLLC represents companies in the review, negotiation, or preparation of agreements with independent contractors and vendors in the software and app development space, as well as invention assignment agreements with both contractors and company employees. For more information, or to discuss your “work for hire” language and intellectual property assignment needs, feel free to contact us at the phone number or e-mail address below or use the contact form to the right.

Ben Bhandhusavee is the Managing Attorney for BHANDLAW, PLLC, a Phoenix business and technology law firm working with start-up companies, creative intellectual property, Internet and digital media matters, and complex corporate M&A and technology transactions.  Ben can be reached at (602) 222-5542 or by e-mail at bbhand@bhandlaw.com