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software-work-for-hireYou might be surprised by the answer to this simple question. When I began mentoring entrepreneurs almost a year ago I was shocked that almost ALL of them using third-party contractors didn’t have written agreements. If you hire a third-party contractor to write software code for you, but fail to enter into a written contract specifying that the code is a “work-made-for-hire” you don’t own it, I’m not kidding. The courts use a three part test to determine who owns the copyright to the code written by third parties for your company:

  1. was the code commissioned by your company?
  2. is the code consumer facing? (almost all software meets this requirement)
  3. is there a written agreement between the developer and the company specifying the code was developed as a “work-made-for-hire”?

If you fail any one of these tests the actual developer who wrote the code, regardless of how much you have paid him, actually owns the copyright to the software you thought you owned. Even if there is a mutual agreement between you and the developer that the software is a work for hire, failure to obtain a written agreement PRIOR to commencement of the work means he owns the code, PERIOD. Oh and you can’t go back and fix your error. In Schiller & Schmidt Inc. v. Nordisco Corp., 969 F2d 410 (1992) the courts held that retroactive work-made-for-hire is not permitted. This means you can’t go back later and negotiate a contract in an attempt to ensure your startup owns the code.

Of course there is a way to ‘fix’ your screw up. You can enter into a Copyright Transfer Agreement. Work-made-for-hire agreements are far more desirable because the moment you execute the agreement the software is yours EVEN if the actual contract is breached. In the case of the a Copyright Transfer Agreement the developer (or his heirs) has up-to 35 years to terminate the agreement if he determines the contract has been breached. Copyright law is complicated so talk to your lawyer before you freakout, but whenever you hire someone to write software code for your startup make sure the written agreement specifies that the development work is “work-made-for-hire.”

Here is a simple bit of language you should get your lawyer to add to your contract:

The copyright in all works of authorship created pursuant to this agreement are owned by Client. All such works or portions of works created by Developer are “works made for hire” as defined in 17 U.S.C. § 201. Developer assigns to Clients all right, title, and interest in:

(a) The copyright to all works of authorship (“Work”) and contribution to any such Work (“Contribution”) created pursuant to this agreement;

(b) Any registrations and copyright applications, along with any renewals and extensions thereof, relating to the Contribution or the Work;
(c) All works based upon, derived from, or incorporating the Contribution or the Work;

(d) All income, royalties, damages, claims and payments now or hereafter due or payable with respect to the Contribution or the Work;

(e) All causes of action, either in law or in equity, for past, present, or future infringement of copyright related to the Contribution or the Work, and all rights corresponding to any of the foregoing, throughout the world.

Developer may use the Work only until Developer delivers a final product to Client, and may use the Work only insomuch as such use is necessary to the creation of the final product. Client grants no license to developer for any use of the Work other than as expressly described herein. Developer must request a separate license from Clients for any use of the Work other than as expressly described herein. Such license must be explicitly granted in writing, signed by Client, or it is void. Should a court of law with jurisdiction over the parties and the subject matter of this contract deem the Work not a “work for hire,” and should a court of law with jurisdiction over the parties and the subject matter judge the above assignment of copyright void, Developer grants Client an exclusive, royalty-free, irrevocable worldwide license to use the Work without limitation in any manner Client deems appropriate. [via the ASP]