Stolen IP: Who owns intellectual property created by independent contractors and employees?

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Stolen IP: Who owns intellectual property created by independent contractors and employees?

In our work we see many people who do not own the intellectual property in a particular piece of work, such as software, photographs or designs, they firmly believed they did. This is because copyright ownership and copyright infringement are topics that can be highly misunderstood and complicated. One of the most commonly misunderstood aspects is the question of who owns intellectual property created by independent contractors and employees in Australia? Copyright can be an incredibly valuable asset, so working out who owns it is critical. This article deals with some of the most common commercial scenarios where copyright ownership becomes an issue.

So, who owns intellectual property created by independent contractors and employees?

The Copyright Act 1968 is the law that sets out in detail the rules about copyright ownership. As a general starting point, the creator or author of the work, or the person responsible for making the sound recording, film or broadcast is the first owner of the copyright. So, for example, if you were to write a computer program, you would generally be the first owner of the copyright in that software. However, there are some very important exceptions to this general principle.

Here’s what you need to know from the outset. Just because you have hired or engaged someone to create or build something for you, it doesn’t mean you will automatically own the copyright in that piece of work. Even if you had briefed them on every detail involved to create it.

If you are a business owner or manager, that may come as a surprise.

And although the Copyright Act sets out the rules of copyright ownership, parties are always free to enter into contractual agreements that will then take precedence over the provisions of the Copyright Act. As mentioned above, one of the most frequently misunderstood areas of copyright ownership relates to work created by employees and independent contractors.

Employees

Where an employee creates or authors an original work as part of their job, an employer will usually own the copyright in the work. So for example, if you are a graphic designer employed by an advertising agency to do the design elements of a particular client’s ad campaign, the ad agency itself will own the copyright in your designs rather than you personally.

There are two key requirements, however:

  1. The author or creator of the work must be an employee (as opposed to an independent contractor); and;
  2. The copyrighted material must have been created during the course of the employee’s employment.

While this might sound straightforward, confusion and disputes arise around two key elements:

  1. Whether the work was created during the course of the employee’s employment; or
  2. Whether the creator/author is, in fact, an employee (this is where it gets even more tricky!).

When was the work created? 

If the work was created outside the employee’s regular work hours, this does not necessarily mean that the work was created outside the scope of the employee’s employment. The employer still may own the copyright in an original work that was created by an employee outside of office hours, depending on a number of circumstances. For instance, whether the work would ordinarily have been created as part of the employee’s duties, as described in their employment contract.

As an example, if you own or manage a fintech company and employ a software developer who has been developing a fintech app after hours during the term of their employment, the app could be considered the intellectual property of the fintech company. A key factor will be what the employment agreement itself says. The provisions in the employment agreement will trump the provisions of the copyright legislation.

Employment classification queries

Another issue that often comes up in these sorts of ownership disputes is whether the individual is in fact an employee or a contractor or freelancer. This is relevant if the individual is not actually employed by a business, but rather is an independent contractor. If that is the case, the individual will automatically own the copyright in the works they create rather than the employer.

The way each party describes their working relationship is not always definitive. This is a complex area of law and the Courts will look at a range of factors to determine whether a party is, in fact, a freelancer or an employee.

For example, one person who had written software for a business, was referred to by the business as an employee of the business. However, because they had no fixed hours, did not have any leave entitlements, did not have any tax deducted from their pay, amongst other things, it was determined that the software developer was not an employee. Instead, they were a freelancer/independent contractor and therefore the rightful owner of the source code for that software.

The business could have avoided this mess by clearly documenting in a written agreement at the outset who would own the copyright in the final piece of software.

Freelancers or independent contractors

As explored above, independent contractors and freelancers will usually own the copyright in the original works they create. If you have paid for the work to be created, you will generally have a licence to freely use what has been created, even though you may not be the owner.

As an example, if you instruct a graphic designer to create designs for some product packaging, you may assume that you have exclusive rights to use that design. And, you would probably object if the graphic designer was to sell those same images to another business. However, unless the agreement details that you own the copyright, the graphic designer will remain the owner of the copyright. In that instance, a graphic designer would also retain the right to use and display those images as part of their work portfolio or on a website advertising their work, unless there is an agreement that states otherwise. One exception to this rule is where a person commissions someone to do work for a private purpose, such as a freelance photographer taking a family portrait. The person who commissions the photographer for this private work owns the copyright in this instance.

Similarly, when a business engages a software developer to create a solution for them, the developer will generally own the source code in that software even if the business has comprehensively briefed the developer with all the required functionality etc. Many of the disputes we encounter arise because of this misunderstanding between a business and service provider as to who owns the copyright in a work that has been created by the service provider on the businesses’ instructions.

If there is no written agreement, not only is it difficult to determine who owns the copyright but also, once ownership of the copyright has been determined, what the terms of use are. If you want to retain or acquire the intellectual property created, then it is critical that you have proper agreements in place with any parties your business contracts with. These agreements need to clearly identify the intellectual property that will be created, and set out who owns the work and how it may be used.

Retaining or acquiring copyright 

Sometimes, the ownership of copyright will be agreed before the work is created (for example, in an employment contract). But often works are created with no express agreement in place as to who owns the copyright in a particular piece of work.

It is not uncommon for there to be disputes about copyright ownership and intellectual property ownership in businesses of all sizes.

The best way to be clear about who owns the copyright is by formalising arrangements at the outset. For businesses hiring or engaging third parties, that means ensuring agreements are detailed and signed with employees, freelancers or independent contractors before any work is created. Disputes can still arise as to how to interpret the agreement, so having a professional draft an agreement that is clearly understood by both parties assists greatly.

Startups and copyright ownership

It is not uncommon for these issues to arise in startups. When startup co-founders initially contribute to the setting up of their business, they typically do not clearly define who owns the copyright of all the material that has been brought into the business or created. The IP in the early days may include things like logos, designs, software and written business plans.

Just as in the other circumstances outlined in this article, the best way to avoid this is to create very clear relationships and agreements from the outset, and before you create any IP together, ascertain who owns what. You should also establish what the terms are of any licence that is being given to the startup. Not having these contracts in place will not only lead to disputes but will also deter investors who want to make sure that IP ownership is nailed before they invest.

Transfer of copyright ownership

If you ascertain that you don’t actually own the copyright in a particular piece of work you thought you did, and copyright ownership is important for your business, you will need to negotiate a transfer with the copyright owner. This has to be done by way of a written assignment agreement. It’s always good to regularly do a thorough IP audit to make sure that you own important IP. You’ll also want to get professional assistance to look at some of the documents you already have in place, such as:

  • New or existing employee agreements
  • New or existing service agreements for independent contractors
  • Licensing Agreements
  • Software Developer Agreements

Now that you know who owns intellectual property created by independent contractors and employees, spread the word. Given how unaware most people are about how copyright works in Australia, share this article with business owners and people in management, who will benefit from this knowledge when next hiring or engaging a contractor.

If you have concerns about copyright ownership or are in dispute about copyright ownership, we advise and act for parties on either side of copyright infringement matters. Copyright can be an incredibly valuable asset, so working out who owns it is critical. What is essential in all copyright and IP matters is to seek legal advice early. Then you can be armed with knowledge about what rights you have before you embark on any negotiations.

Related Articles: Defending Copyright Infringement Claims – What to do when you receive a cease and desist letter.

We are Brigit Rubinstein and Zan Lee, intellectual property experts who specialise in all copyright matters for startups, small and big businesses. With experience on both sides of copyright disputes, we can see the bigger picture that many cannot. Book a complimentary initial call to discuss your needs here.

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