Owning the Copyright in Your Employees' Creations

What did he know and when did he know it?  This question periodically arises in  congressional inquiries concerning the possible wrongdoing of government officials but is asked every day by businesses that depend on the ideas of their employees.  Most recently this question was at the core of the Mattel v. MGA Entertainment case that played out in Federal Court in Riverside, California, where the jury determined that the designer of MGA's Bratz doll line created the wildly popular characters while working for Mattel, not during his later tenure at MGA. Thus, the jury found Mattel the rightful owner of the Bratz designs, not MGA, and Mattel is now prepared to move on to the damages stage of proceedings where they will seek an order for payment in the range of two billion dollars.  

In an increasingly service-based economy businesses rely upon the ideas and intellectual property generated by their employees more than ever.  But how does a business ensure that their employees’ creations, for which they are paid a salary, are owned by and remain in the possession of  the employer?  Most commonly, an employer will rely upon the “work for hire” provisions of the U.S. Copyright Act. 

Under the Copyright Act a work is protected by copyright from the time it is created in a fixed form. Thus, when a work is written down or otherwise set into tangible form – on a piece of paper, a canvas, stone tablets, a computer hard drive -- the copyright immediately becomes the property of the creator, who is deemed the author. Only the author or those deriving their rights from the author can rightfully claim copyright and only the author/owner can make, or allow others to make, copies of the work or create derivative works from the original work, among other rights. 

While the general rule is that the individual creator of a work is the author, there is an important exception to this principle -- a category of works defined as “works made for hire.” If a work is “made for hire,” the employer, not the individual employee, is considered the author and owner of the copyright.

Section 101 of the Copyright Act defines a “work made for hire” as:

(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 part of a motion picture or other audiovisual work, as a translation, as a supplementary 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. For the purpose of the foregoing sentence, a “supplementary work” is a work prepared for a publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting upon, or assisting in the use of the other work, such as forewords, afterwords, pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, answer material for tests, bibliographies, appendixes, and indexes; and an “instructional text” is a literary, pictorial, or graphic work prepared for publication and with the purpose of use in systematic instructional activities.

In this post we will review only the scenario of a work prepared by an employee.  Certainly, there are scenarios where a work may be considered a work for hire though created outside the traditional employer-employee relationship, such as a work created by an independent contractor.  We will look at that situation in later posts. 

If a work is created by an employee, subsection (1) of Section 101 of the Copyright Act applies, and generally the work will be considered a work made for hire owned by the employer, assuming the creation occurred within the course and scope of employment.  So an employer who employs an individual to create computer chip designs will be, under the Copyright Act, the author and owner of those designs from the moment the designs are placed on a tangible medium.  However, if that same employee creates, say, a children’s book or a beautiful oil on canvas, that creation would likely be deemed outside the course and scope of the employment and thus not owned by the employer. 

Since the course and scope of a particular employment is a threshold question in this analysis, employers should consider entering into written agreements with their employees, especially those employees involved in any creative process.  Such an agreement should clearly states the employee’s job duties and explicitly establish the scope of the employment.  Such a document will not only list the scope of the employment (for copyright ownership purposes the employer will want to list the scope more broadly, the employee should seek a narrower definition) but should also advise the employee, at the initiation of the employment, that creations made during the employment within the stated scope will be owned by the employer.  Commonly, such a document will further provide that if, for some reason, works are not deemed to be a work for hire (by a Judge or arbitrator, for example), the employee agrees to assign the copyright to the employer and, failing assignment, the employer will receive a royalty-free license in the work.  This document is commonly known as an Invention Assignment Agreement.  It is an important document and should not be entered into lightly.  The creator of the Bratz line of dolls apparently signed one when he began his employment with Mattel and I suspect that document was submitted into evidence as Exhibit # 1. 

This information about legal issues is for informational purposes only and is not intended to constitute advertising, invite an attorney-client relationship or serve as a source for legal advice. You should not rely upon any information contained herein for any purpose without seeking legal advice from a duly licensed attorney competent to practice law in your jurisdiction.