It is ideal for a business to employ policies and strategies to own intellectual property, not merely to receive an assignment or license thereto. One tool for doing so is to ensure that copyrightable works are created under effective “work made for hire” circumstances. In the United States, the initial owner of a copyrightable work is generally the person who reduces a copyrightable expression to a tangible medium. However, the individual who reduces a copyrightable expression to a tangible medium is not the owner if it is a work made for hire. A work made for hire exists generally when: (1) the work is prepared by an employee within the course and scope of employment for the employer; or (2) the work is prepared by an independent contractor who has signed a work made for hire agreement pursuant to 17 U.S.C. Section 101.
When the employment status of an individual who created a copyrightable work is unclear, courts consider numerous factors to determine whether the individual was an employee of another or an independent contractor. In Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), the Supreme Court set out a nonexclusive seven-part analysis to determine whether a work is created by an employee as contemplated by the Copyright Act, rather than an independent contractor using traditional agency principles: essentially to ascertain “the hiring party’s right to control the manner and means by which the product is accomplished.” Id. at 751.
Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party's discretion over when and how long to work; the method of payment; the hired party's role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. See Restatement [(Second) of Agency] Section 220(2) (setting forth a nonexhaustive list of factors relevant to determining whether a hired party is an employee). No one of these factors is determinative. Reid, 490 U.S. at 751‒52 (footnotes omitted).
Although no one factor is determinative, the tax treatment of the hired party and whether the hired party receives employee benefits are generally given great weight. Nonetheless, the essential issue, as stated in Reid, is whether the hiring party has the right to control the manner and means by which the product is accomplished.
An issue that arises from time to time is when a work is created by the owner or one of the owners of a business. The individual’s employment status may not be clear, and the owners of the business may not have had the foresight to include a work made for hire provision in their bylaws, operating agreement or otherwise plan for the protection of intellectual property contributed by an owner or owners. See Woods v. Resnick, 725 F.Supp.2d 809 (W.D. Wis. 2010) (a limited liability company with two equal members, the court found the company does not control either owner; thus, “there is no basis for finding Woods was an employee under the control” of the company, id. at 824 and thus no work made for hire circumstance existed); JustMed, Inc. v. Byce 600 F.3d 1118 (9th Cir. 2010) (holding Byce’s work was a work made for hire; he was a shareholder and director of the corporation JustMed, Inc.; and the court concluded he was an employee of the corporation when he worked on the source code at issue, although Byce was not an employee for tax purposes).
Why is an assignment or license, as opposed to securing rights as the author initially, different? Because the Copyright Act allows authors and the authors’ heirs to terminate assignments and licenses after a statutory period of time. 17 U.S.C. Section 203(a)(3) (grant issued by the author on or after Jan. 1, 1978, 35 years after the grant), 304(c)(3) (grant issued by author or heirs before Jan. 1, 1978, 56 years from the date copyright was originally secured, or beginning on Jan. 1, 1978, whichever is later). See Horror, Inc. v. Miller, 335 F.Supp.3d (D. Conn. 2018), aff’d 15 F.4th 232 (2nd Cir. 2021) (writer of a popular horror film (“Friday the 13th”) properly terminated assignment of rights, after having been determined to be an independent contractor and not an employee at the time he wrote the screenplay). A termination right does not exist for works made for hire or in the event of a proper transfer by will. 17 U.S.C. Sections 203, 304(c).
A recent example of a case involving termination rights is Yonay et al. v. Paramount Pictures, Case Number 2:22-cv-03846 (C.D. Cal., Complaint filed June 6, 2022). According to the complaint filed in that case, Ehud Yonay claims to have been the author who wrote an article published in the May 1983 issue of California magazine and registered the work with the copyright office that year. The plaintiffs allege that Paramount secured an assignment from Ehud Yonay for the rights to the story to produce the motion picture “Top Gun.” Ehud Yonay has passed away, but his heirs contend they properly issued a notice of termination of Ehud Yonay’s assignment, effective Jan. 24, 2020. Yonay’s heirs contend that the completion of the motion picture “Top Gun: Maverick” constitutes infringement of their inherited copyright rights to the 1983 work. The complaint filed in the Central District of California asserts, upon information and belief, that Paramount substantially completed the motion picture in May of 2021, Complaint at ¶ 35. The plaintiffs allege that Paramount takes the position the motion picture was substantially completed prior to the effective date of the termination notice. Complaint at ¶ 38. The issue of when the portions of the work derived from Yonay’s copyrighted work were completed will surely be hotly contested.
The termination of the assignment of rights reverts all United States copyright rights to the author(s) or heirs. See e.g., 17 U.S.C. Sections 203(b), 304(c)(6). However, there is one important limitation of the reversion right: the former assignee or licensee may continue to use derivative works lawfully in existence prior to the termination of the grant. 17 U.S.C. Sections 203(b)(1), 304(c)(6)(A); 17 U.S.C. Section 101. Although the extent of “use” of the derivative works may be unclear.
Navigating the termination right afforded by Sections 203 and 304 of the Copyright Act can be confusing. See Milne Coyne v. Stephen Slesinger, Inc. 430 F.3d 1036 (9th Cir. 2005). If possible, a business should avoid the termination right issue and engage counsel to create a proper work made for hire agreement at the time of engaging independent contractors and before any copyrightable works are created.
Failure to properly secure and maintain intellectual property rights early can be devastating. That is why it is important to engage counsel to provide assistance in circumstances when creation of copyrightable works might be at issue. The alternative is to engage in litigation and have a court determine rights to a work.
This document is intended to provide you with general information regarding work made for hire agreements. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.