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Who owns Copyright in Independent Contracting Arrangements

 It is a common occurrence. A company engages an independent contractor to assist, for example, in the development of software to use in its business. The company provides the instructions and what they wish to achieve and the contractor develops the software accordingly. The company pays the contractor and assumes that it then owns the copyright in the software and can do with the software whatever it so pleases.

 

The law on ownership of copyright in independent contracting arrangements

 

Copyright is a legal protection over particular intellectual property, for example “works” such as books, artworks, source code for a website and computer programs. Copyright recognises the creator’s expression of an idea and entitles the owner to monopoly rights over the work including the right to reproduce, to copy, to make adaptations of, to publish and to enter into commercial arrangements.

 

The general rule in relation to copyright is that the original author of the copyright is the owner of it. There are some exceptions to this rule, such as copyright created by an employee during the course of their employment where, in most cases, the employer will own the copyright. Another exception is the creation of a commissioned film; it is the person who commissioned it that owns the copyright in the film, not the director.

 

Contractors are not employees. Unless the contractor assigns copyright to the company in writing, the contractor will own the copyright in the software and the company will (subject to the terms of the relevant agreement) only have an implied licence to use the software in the form provided by the contractor. Accordingly, the company would not be able to, amongst other things, make an adaptation or copy of the software without the contractor’s prior consent.

 

Implications for the company

 

As stated above, if ownership in copyright is not assigned to the company, ownership remains with the contractor. In these cases, typically the contractor will be taken to have granted the company a licence to use the software for the purpose for which it was developed. Accordingly, any use by the company of the copyright that is outside of the terms of the licence granted to it by the contractor will constitute a breach of the contractor’s intellectual property rights, and also potentially a breach of contract. This could entitle the contractor to obtain an injunction preventing the company from using the copyrighted subject matter in this manner and also recover damages or an account of profits.

 

If the company is looking to undertake any form of capital raising activities, it may be difficult to secure investment if the copyright owned by the contractor forms an integral part of the company’s business offering. This is largely because a prudent investor will insist that a warranty is provided by the company in any subscription documentation to the effect that it owns all of the intellectual property utilised by the company in its business. A company that provides the warranty because it mistakenly believes it owns copyright in its software or other intellectual property may then be sued by the investor claiming damages in breach of that warranty. A company aware that it does not own copyright would need to find a way around providing such warranties. However, any such attempts would no doubt raise a red flag with the investor, placing the entire transaction at risk, particularly where a diligent investor will insist on carrying out due diligence in any event.

 

Further, if the company does not own the copyright, the value of the company may be detrimentally affected.

 

Take away messages

 

To avoid copyright issues:


1. agreements with any contractors should contain terms whereby the contractor assigns to the company all rights and ownership in any copyright created during the course of the contractor’s engagement; and


2. obtain legal advice prior to entering into any significant agreements with independent contractors to ensure that you are fully informed in relation to the ownership of, among other things, copyright as well as the implications that it may have on your business going forward.
 

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Author: SMH

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