Business Counsel Services

Do You Own What You Believe You Have Paid For?

Custom Software, Other Work Products and Copyright Ownership

A startup company with an e-commerce platform as its sole intended business engine re­tains a software developer to develop the company's online platform and related functional­ities. The parties have a friendly and informal relationship and never enter into a written agreement detailing the terms of the arrangement.

The developer creates and en­hances the platform for a cou­ple years until their relationship sours because the company has outgrown the capabilities of the developer. Believing that the company owns what it retained and paid the developer to cre­ate, the company notifies the developer of its desire to move on and requests the source code to the platform.

The developer responds that she never intended for the company to own her work product, but instead the com­pany has only a limited license to the platform. The company contacts its legal counsel and is shocked to learn that it may not own ‘its’ e-commerce platform and may be facing a costly legal battle.

Like the example above, some companies find out too late that the tens of thousands of dollars, or more, that they have spent for a software developer to create a customized software solution, which they thought they owned, in fact is owned by the software developer.  While the company may have acquired some sort of license to use the software program, the developer retained ownership of the copyright because the parties either did not address copyright ownership in their written agreement, or they didn’t have a written agreement in the first place.            

Unfortunately, this situation occurs more often than it should, often when the software is a critical element or even the dominant business engine for the company.  The situation plays out in many other areas as well when one party is creating copyright material or other works for another party, including, for example architectural drawings, photographs, films, or literary works.

The general rule under copyright law is that the author of the work owns the copyright. In the context of software, the software developer or the person writing the computer code would be the author.  Ownership of the copyright is paramount as the owner will have the exclusive right, among other things, to distribute, reproduce, and create derivative works from the original work.

For both the client and the software developer, having a written agreement, in place clearly setting forth the terms of ownership of the copyright prior to the beginning development is of critical importance.  The Copyright Act of 1976 is the federal law that addresses the subject.

While generally the author or creator of a work is the owner of the copyright in the work, the Copyright Act provides an exception.  This exception is known as the “work made” for hire doctrine.

(1) a work prepared by an employee within the scope of his or her employment; or

(2) a work specially ordered or commissioned for use as a contribution to a collective work; as a compilation; as an instructional text; as a test; as answer material for a test; or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a “work made for hire” (17 U.S.C. §101).

Software, however, notably does not fall into any of the categories described in part (2) above.  Accordingly, if you engage a software developer to create a custom software program for you, your written agreement with the developer will need to contain provisions assigning the copyright to you, if your intent is to own the software.

Often the developer may also be creating instructional manuals or other materials related to the software that could qualify as a work made for hire.  The best option is thus to ensure your agreement has both the appropriate “work made for hire” clause and backup assignment provisions to cover all types of works you are commissioning from the developer 

When it comes to third party creation of copyright material, as with almost any arrangement, the importance of getting a written agreement in place which clearly sets forth the parties’ intent, duties, and obligations, as well as the

Terms of the arrangement, cannot be overstated.

By James M. Stanford 

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