Protecting Your Rights: Protecting Works Created by Employees and Independent Contractors

Ruder Ware
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Many businesses work hard and invest heavily to develop and protect their intellectual property rights, including trade secrets and proprietary processes, designs, and know-how.  However, special rules apply in determining ownership of these intellectual property rights when the work product is created by employees and independent contractors or consultants, particularly in a technical or creative role.  In some cases, these special rules can result in an unpleasant surprise for companies that do not take proper steps to protect their proprietary rights.  This post will summarize some key considerations for your business.

Under U.S. law, whether a company automatically owns inventions and other work product created by an employee or independent contractor depends in part on the form of the work product. Patents, copyrights, trademarks, and trade secrets all have different rules.  For example, an invention that may be covered by a patent application is owned by the individual inventor (such as one or more employees responsible for the invention) and must be assigned to the company by a written agreement signed by the inventor.  Also, there are differences involving ownership depending upon whether you are dealing with employee-created works or those created by third-party consultants or other independent contractors.

Unfortunately, there is widespread misunderstanding about the so-called “work made for hire” doctrine.  Many companies believe that “work made for hire” means that if the company paid for the work, then the company must own the resulting work product and intellectual property rights.  This is not necessarily true.  The fact is, the “work made for hire” doctrine is very narrow and often requires a written agreement which specifically assigns rights in the work product over to the company.

In fact, “work made for hire” is a concept that arises under the U.S. Copyright Act and results in ownership of copyrightable works which are created by an employee during his or her scope of employment being vested in the company as employer. In those cases, the company is generally the owner of the resulting work of authorship, even without a written agreement. Copyrights cover works of authorship such as designs, drawings, written documents such as source code, and other specific works enumerated in the U.S. Copyright Act.  For example, this protection does not apply to inventions or ideas, as those are not subject to copyright protection.

Even in cases where the “work made for hire” doctrine applies, it generally protects less than many companies may expect.  For example, these statutory “work made for hire” concepts do not apply to work product developed by a third party consultant or other independent contractor, which means work product created by these parties will not belong to the company retaining the contractor without a clear written agreement assigning ownership to the company.

Depending on the nature of a company’s business and the type of work it expects its employees or independent contractors to perform, the default rules may or may not provide adequate protection for a company’s interest in intellectual property rights in employee and contractor work product.

However, to best protect itself, a company should not rely on the default rules unless it clearly understands the scope and application of “work made for hire” and similar doctrines.  Instead, in many cases it makes sense to design policies and implement agreements to ensure ownership of key works and related intellectual property rights developed by employees and independent contractors, especially for those whose responsibilities are focused on creation of technical or creative information for the company.  This includes the development of policies requiring employees to disclose inventions and assign over rights to the company as employer.  Some states prohibit these kind of required employee assignments, and while Wisconsin is not one of these states, it makes sense to review if the company has employees in these restricted states and adjust accordingly.  For consultants and other independent contractors, this generally requires a written contract between the contractor and the company that clearly spells out the assignment of work product and related intellectual property over to the company that has retained the contractor.  Whenever a contractor creates designs, drawings, source code, ideas, or other intellectual property that the company expects to own, the written agreement must be properly drafted to achieve this goal.

Understanding how these special rules apply, followed by an assessment of a strategy tailored to your business, can go a long way to avoiding unpleasant surprises surrounding key proprietary assets of your business.

© 2021 The Business News. Wausau, WI.  Reprinted with permission.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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