In this day of a new app being developed every day, how does the
company owner or management know who owns the code developed and when
they could lose control over it?
Most issues of ownership for
software code fall into areas of copyright (a form of intellectual
property or IP), since they are usually "written works of authorship"
and primarily covered by US copyright law. Copyright protection
provides the author with protection from reproduction by others. There
are times when works can be reproduced without violating a copyright
under things such as the "fair-use doctrine," such as when sample pages
from a book are reprinted in a blog with commentary by the blog author
about their thoughts or criticisms about what is being said in the
book. The rights for copyright protection are generally given to the
original author of the work for long periods of time (anywhere from 70
years to over 120 years depending upon all the facts). After that
amount of time has passed, the work is considered in the public domain
and others can copy it without worrying about infringement.
When
an existing tech company or startup hires someone as a developer to
work for them, they need to be cautious regarding who will own the code
the developer is writing. One of the first questions to be answered is
whether the developer was hired as an independent contractor or
employee. Many people think that just because you call them an
independent contractor, even in a written contract, or "1099" them by
paying compensation hourly without deducting payroll taxes, the person
is, in fact, an independent contractor. That is not the case for
several reasons. The IRS has its main test for determining what
classifies as an independent contractor and they don't simply look at
how you pay them or what you call them. Their are a number of factors
involved such as who determines when they work, where they work, and how
they work. Generally, the more control the company has over them, the
more likely they will be an employee under the IRS test. There are
other tests as well, such as in California, employees must be provided
workers compensation insurance coverage by their employer. California
tends to go beyond what the IRS requires to impose the added costs and
obligation of getting workers comp coverage for what many would consider
a contractor.
After determining whether they are an employee is
to see whether the work created is a work
made-for-hire. Normally a
work made-for-hire arrangement is when the company hiring the developer
makes it clear that any code written by the developer is owned by the
company, not the developer. You are hiring them to make the work. If
the developer is an employee, the creation of the work must be within
the scope of what you hired them for and the company retains ownership.
If they are a contractor, you need a clear written agreement that the
work will be for hire to retain ownership. However, there are
additional requirements beyond simply stating in a written agreement
that it is for hire. The work you hire them for must also fit within
the following categories defined by 17 U.S.Code Section 101:
contribution to a collective work, part of an audiovisual work,
translation, supplementary work, compilation, instructional text, test,
answer material for a test, or an atlas. Again, similar to the tests
for employee versus contractor, these categories are subject to certain
tests or review by a court looking at existing statutes, case law, or
other relevant factors. You can see that it is much easier to claim that
something is within the scope of employment by hiring the employee and
clearly stating what they are to do versus having to clearly fall within
one of these categories and have a written agreement defining those duties.
So when looking at who owns software code or who may end up
owning it, many issues need to be examined and it is not as simple just
"1099-ing" someone for a few hours to coding. Even at the formation and
startup stage, these issues must be addressed so that management or the
founders can properly analyze and plan for how they will hire. Even if
they choose to hire the developer as an employee with the increased
company copyright protections, they still should have written agreements
in place protection their existing or to be developed IP. If hiring the person as a contractor,
it is crucial to have well written agreements in place. Simply
downloading sample forms from the internet may seem like a quick and low
cost solution, but if something is not done properly, a tech company
could end up losing its ownership rights to what could be the most
valuable asset they own. Laws not only vary by state or country, they
change over time, so any form you may find may not comply with local law
or be up to date for any recent changes. This is where looking for a
local licensed attorney familiar with intellectual property (IP)
protections, technology transactions, licensing issues, or copyright can be invaluable.
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