I frequently encounter intellectual property disputes between companies and independent contractors doing work for those companies. Often the disputes involve trying to determine who owns the copyright to materials developed during their working relationship. Whether you are an employer or a worker, failing to know your rights with respect to copyright can be a costly mistake.
Companies often get into trouble by falling into the trap of assuming that they completely own whatever their employees or contractors produce. By contrast, contractors and employees often unknowingly sign agreements that transfer copyrights to the employer.
The first question to ask is whether the person who creates the copyrighted material is a contractor or an employee. This is a crucial question because if the person is an employee and the material was created in the course of regular employment, then the employer has substantial rights to the material in question. For instance, if a company hires someone whose job is to write updates or create graphics for the company’s website, the company is the owner of the material posted to the website. Simply put, an employer usually owns the copyright to material created by employees. In such situations, the law considers the company to be the author, not the employee.
It is more complex, however, with independent contractors. An independent contractor is someone who does work for a company but is not fully integrated into the company as an employee would be. In both the United States and Canada, determining whether someone is an independent contractor or employee depends upon how much control the employer has over the person. A worker who can refuse assignments, sets his or her own hours, uses his or her own equipment, and only gets paid for the actual work performed, is very likely to be a contractor. By contrast, someone who has no discretion to accept or reject assigned tasks, works on a fixed schedule, is provided equipment and supplies by the company, and is paid a regular salary, is very likely an employee. While a company may be entitled to more rights to materials created by employees, simply calling someone an employee doesn’t make it so. As the Supreme Court of Canada put it, “it is the true nature of the relationship” that matters as opposed to the label given to the relationship by the parties.
In the example of the website developer, a contractor who developed the website would retain the copyright to the content or graphics created for the website (assuming there was no contract between them that covered intellectual property rights). The developer could then use the copyrighted material on other websites for other clients. In short, a company might spend a substantial amount of money for a contractor to create something for the company, only to then find out that contractor can turn around and sell the same material to a competitor.
Even if there isn’t a signed contract, a company would not be without some rights to the material. At a minimum, the company would be permitted limited use of the material created by the developer. But if the company wanted to sell the material or stop someone else from using it, then it would become a real problem, as the company would not have any right to do that. This is why it is critical to establish ownership and control of copyrighted materials before the work even begins.
It frequently is the case that one side to the dispute misunderstands their legal rights, and often the business relationship turns acrimonious and becomes another casualty of such disputes. When one side learns the legal reality, it is often a shock. Imagine being a company vice president and having to explain to the CEO that the company doesn’t actually own the copyright over its own website. Or imagine being a contractor who sells his software only to learn he no longer owns the rights to it.
If there is no contract or the contract is inadequate, it is almost inevitable that at some point a dispute will arise as to who owns the copyright. In the absence of a written agreement, a company is taking a huge risk that could cost it the rights to copyrighted material. There is very little middle ground in these sorts of disputes. Either one side or the other owns the copyright. Accordingly, these disputes often become nasty and lead to litigation, which can be both risky and expensive. There are also hidden costs that can arise from the loss of the working relationship. For example, if a computer programmer learns that a company is asserting ownership of software written by the programmer, the programmer may refuse to do any more work on the project, which could render the software useless. Or other contractors may learn of the dispute and could become suspicious of dealing with the company.
Fortunately, these and many other potential problems can be avoided. In fact, there is little excuse for there ever to be such a problem. Simply put, before any business hires an employee or contractor to create copyrightable works, the company should insist upon a written agreement establishing in clear language what will be created and who will own the copyright to such work. When parties make efforts to establish clear boundaries before the work begins, acrimony can be avoided.
Similarly, if you do not have contracts with your employees or contractors governing your copyrights, the best time to remedy that is before any dispute begins. If handled appropriately and with proper legal advice, you can put out these fires before they start.
Brown, C. Donald
(416) 972-9001, Ext. 236
clientservices@heydary.com
Heydary, Javad
(416) 972-9001 Ext. 201
clientservices@heydary.com
