When you think of work made for hire, what comes to mind? Most people think of it as an employee-employer relationship, but did you know that it can also involve commercial contracts?
Work made for hire is a legal concept created by U.S Copyright Law. Under this law, a business can hire someone to create a piece of work and retain ownership of it after its completion. This can be a very beneficial arrangement for both parties involved.
In this blog post we’ll cover everything you need to know about “work made for hire” and how it may affect your business — both good and bad.
What is “Work Made for Hire”?
Section 101 of the Copyright Act defines “work made for hire” as:
“work prepared by an employee within the scope of his or her employment” or “a work specially ordered or commissioned for use . . . if the parties expressly agree to in a written instrument signed by them that the work shall be considered a work made for hire.” (1)
Work Made for Hire in Limiting Employees
In an employee-employer relationship, it’s expected and often included in non-competition agreements signed upon employment that, if an employee is producing work for the direct benefit of their employer, that work is the property of the employer.
For example, an engineer working for a large tech company that designs new products and solves engineering technical issues would not be able to take a new product design and use it for his or her own benefit.
Unless there’s a carve-out, or some agreement to the contrary, an employee that walks away and begins competing with their employer using work they created while employed would quickly lead to a dispute and likely some sort of court action (i.e., cease and desist).
It’s important to note that work made for hire can apply to independent contractor arrangements as well.
Work Made for Hire in Commercial Contracts
Beyond the employer-employee relationship “work made for hire” may, to the contracting business’s chagrin, appear in commercial contracts.
You might not think of it this way, if you’ve ever paid someone to assist with an ongoing project by creating work on behalf of your company that’s tangential to the operation of your business — such as a marketing campaign, website design, or software application — there’s a good chance that the agreement will specify that the work is being performed and delivered to you or your company’s benefit.
You may also see these types of provisions appear in master supplier agreements, master sales agreements, and even software as a service (SaaS) agreements.
While it’s easy to assume a “work made for hire” provision is benign since it’s not truly applicable to the contemplated business relationship, it’s important to remember that, like with any contract, if you sign it, you agreed to it.
So, while a provision, on it’s face, may not appear to have any effect, a “work made for hire” provision may incidentally hand over the rights to your intellectual property both pre-existing and newly developed during the course of performance if the clause is not limited properly or struck altogether based on the given situation.
Let’s use an example.
Company A offers SaaS to hospitals around the country. Hospital System X decides it would like to utilize Company A’s offering to streamline it’s medical records. Hospital System X requires Company A utilize their form agreement, which is used for all service providers, which means it contains a lot of language that may or may not be applicable based on the type of services rendered in each unique business arrangement.
Hospital System X’s agreement contains a robust “work made for hire” provision that stipulates they own any and all deliverables furnished under the agreement and any of the intellectual property contained in the deliverables.
You should hear major alarms going off in your head right about now.
In our example above, Hospital System X should have no right to stake an ownership claim to any portions of Company A’s software. Even though “work made for hire” is limited to copyrightable material, often these provisions go above and beyond scooping up any and all inventions, ideas, know-how and intellectual property rights.
The important question you have to ask yourself is what sort of rights are you incidentally giving up or losing if you sign a contract with this sort of broad-sweeping language? Arguably, if the other party wants to enforce their right as written, even if you never intended for it to apply, you might struggle to protect your intellectual property rights or newly developed ideas.
Work Made for Hire Provision Examples
Having read, reviewed and negotiated countless commercial contracts, I’ve seen “work made for hire” appear in various forms — from an entire article devoted specifically to all of the ways deliverables are owned now and in the future to a simple provision included in the boilerplate language.
Here is a simple “work made for hire” example:
”The Work Product shall constitute works made-for-hire belonging exclusively to the Client. To the extent that any Work Product does not constitute a work-made-for-hire owned by the Client, Service Provider agrees to assign and transfer all of its right, title and interest in such Work Product to the Client.”
Here is a portion of a more robust “work made for hire” section:
”All right, title and interest in any and all writings, ideas, inventions, know-how, designs, improvements or other property created during Consultant’s consulting relationship relating directly to the business of the Company, constituting copyrights, patents, trademarks, service marks and related rights or other forms of proprietary rights or information (regardless of whether any such copyrights, patents, trademarks and service marks or other rights have or may be registered) that are created, adapted or improved by Consultant (whether alone or in conjunction with any other person or employee), and all material created during Consultant’s consulting relationship that includes any of the foregoing (collectively, “Covered Material”), shall be owned by the Company and to the extent that it includes copyrightable subject matter, shall be deemed a work made for hire for the Company within the meaning of the United States Copyright Act of 1976 and for all other purposes. If any Covered Material is deemed not to be work made for hire, such Covered Material is hereby assigned by Consultant to the Company and Consultant shall not have or claim to have, under this Agreement or otherwise, any right, title or interest of any kind or nature whatsoever in such Covered Material.“
How Work Made for Hire Can Either Benefit or Hurt Your Business
There are two sides to this coin.
What are the benefits of having a “work made for hire” provision in your business contracts?
You own the work product outright and don’t have to worry about the person you hired trying to claim ownership or royalties down the road. It can be helpful in establishing your company as the author of the work product (i.e., for marketing purposes). It can also help to ensure that your trade secrets or other confidential information remain protected.
Perhaps you’re hiring someone to make a deliverable or provide you with a specific work product. In this case, you want to have a robust “work made for hire” provision to protect what’s being developed specifically for your business. Examples of this type of arrangement:
A manufacturer hiring an engineering consulting firm to solve a specific problem with their physical product
A company hiring a marketing firm to create content for their blog and social media accounts
A furniture designer hiring an intern to help them create new designs and product lines
What are the downsides to a “work made for hire” provision for your business?
The potential downside of having a work made for hire provision is that you may inadvertently create an employee-employer relationship where none existed before (e.g., if you have a service provider who is considered an independent contractor per the IRS, but your level of control over their work product is similar to that exerted in an employer-employee relationship). This can create problems down the road if the person sues your company claiming they were actually an employee all along.
Another potential downside is that you may in some cases be limited in your ability to use the work product going forward. For example, if you hire someone and they produce a work made for hire deliverable that’s based on their pre-existing software code, you may not have the right to modify or distribute the code as you see fit. This could limit your company’s ability to fully utilize what was developed for you.
When a “work made for hire” provision isn’t needed
On the flip side, you may be a business entering into a relationship whereby you’re selling a product or service to another business and there are no deliverables or work that should be captured by a “work made for hire” provision. Examples of this type of arrangement:
Manufacturer entering into a master sales agreement with a big box retail store
Software company entering into a SaaS agreement to provide a local municipality access to their software on a monthly or yearly subscription service
Product reseller and service provider entering into a master supply agreement whereby it agrees to sell, through a manufacturer, and install products on-site
Work made for hire is an interesting legal concept that can have benefits and drawbacks depending on the situation. When entering into a contract with another business or an individual, it’s important to be aware of what a work made for hire provision entails so you can make the best decision for your company.
Are you comfortable with the contracts your business has been entering into? Our experienced contract attorney can help you create standard form documents as well as quickly review, revise and negotiate the critical aspects of your business contracts to ensure your interests are adequately represented and protected.