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Thursday, 24 February 2011

"Work Made for Hire: When Is There Contractual Abuse?


It is a form of clause that I suspect many readers of this blog have encountered. The circumstances are as follows: You represent a non-U.S. entity in an employment or development agreement in which copyright may be created by your client. Your client will perform the agreement outside of the U.S. on behalf of a U.S. entity, and your client is asked to execute a form of assignment, either as part of the agreement. The agreement is governed under the law of one of the U.S. states.

The clause typically goes something like this:
The Employee acknowledges that any original works of authorship that are created by the Employee (solely or jointly with others), within the scope of and during the period of the Employee's relationship with the Company, are deemed a "work made for hire", as that term is defined in the United States Copyright Act, and are protected in accordance therewith. To the extent that any such work is not, by operation of law, a work made for hire as aforesaid, the Employee does hereby transfer and assign to the Company, on a world-wide basis, all her right, title and interest therein, including copyright.
To round out the clause, permit me to set out Section 101 of the U.S. copyright law, which 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 instrucitonal text, as a text, 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."
I must confess: I simply don't understand such a clause in the context that I have described. Let me ennumerate various reasons for my bewilderment:
1. "A work made for hire clause" under U.S. copyright law deals with authorship, not copyright "protectability"(whatever that term means). The issue of authorship is determined by the national copyright law in which the issue arises (at the most, if appropriate, exercise of choice of law provisions will determine which national copyright law shall apply).

2. Stated otherwise, the governing law (being the law of one of the U.S. states) applies to the construction and performance of the agreement. However, the governing law provision cannot provide which substantive copyright law will apply to the issue of authorship. 
3. The parties cannot ex ante provide in the agreement whether a work will, or will not, constitute "a work made for hire". That determination is made in accordance with the statutory provisions of the U.S. copyright law as construed an applied by the courts. More particularly: 
a. If the work is created by an employee, then the first part of the definition will apply (namely--"a work prepared by an employee within the scope of his or her employment"), as construed by U.S. courts. 
b. If the work is created by a contractor, then the second part of the definition, being a narrow list of ennumerated exceptions, will apply. It is noted that here, unlike in (a), the parties need to execute a written agreement acknowledging the "work made for hire" status. That said, such a requirement only applies when the parties are in a contractor relationship (which is at its core a contractual arrangement) and not an employer-employee relationship, which is governed first and foremost by a combination of fiduciary duty law and statute, and only secondarily by contract law. All of this, of course, is subject to U.S. case law on the subject. 
4. In either case, as a matter of contract, the parties cannot directly override these statutory provisions ex ante. That renders all reference to the statutory meaning of "work made for hire" irelevant as a contractual matter between the parties. One cannot apply U.S. copyright law to the issue of ownership, unless U.S. copyright law other applies to the question of authorship. 
5. At the most, the parties can ex post provide for an assignment of copyright ownership, whereby the party deemed to be the initial author may transfer ownership to another party.
If the foregoing analysis is correct, the question is then asked: why does this type

of clause persist? I have several possible explanations:
1. Analytical error--The employer/contracting party fails to understand the distinction between rights fixed ex ante pursuant to national copyright law and the contractual arrangements reached consensually by the parties with respect to ownership. As a result, it conflates these two different issues within the framework of the clause, resulting in a distorted form of contractual belt and braces. 
2. Inertia--The U.S. party replicates the clause used for an agreement where both parties are American (whether or not the clause is even appropriate here is still an open question--see above) to a situation where the work is created outside of America, without giving sufficient thought to the difference between these two circumstances. 
3. Mea culpa--My analysis above is incorrect, and in fact the clause is appropriate as a matter of both contract law as well as the application of U.S. copyright law to the circumstances.
Thoughts anyone?

7 comments:

Anonymous said...

Great timing Neil - this is the very next clause of the employment contract I'm currently reading! I'm pretty sure the explanation is 2. Inertia. Strangely, my clause (which was taken from a US contract for use by an Australian company and which I am now required to adapt for the UK) refers to "works made for hire" as that term is defined in the Australian Copyright Act of 1968". I suspect this is an extreme example of inertia, but does anyone know if the Australian Act actually uses this term?

David said...

http://www.austlii.edu.au/au/legis/cth/consol_act/ca1968133/

I can't seen that wording (but only did a search for "hire" and "work for hire" rather than read it!

Matti said...

Neil, I think the answer is more psychological than legal. The clause persists because "works made for hire" is one of the most misunderstoon concepts in U.S. copyright law. Psychologically, parties tend to behave in accordance with their contractual "obligations" even if those obligations would not stand up if tested in court (although I do note that test for "employee" and "employment" in a WMFH context are different than other context in U.S. law where those terms are define). So, the clause stays in contracts - by inertia - because it's an easy way to put people on notice that the authorship of their works will vest in the company. The clause contains a "catch-all" assigment that works when the WMFH subclause fails under the Copyright Act. Many a clause I've seen say "To the extent a copyrightable work qualifies as a WMFH, authorship vests in the company. If the work does not qualify as a WMFH, then Employee hereby assigns all right, etc..."

Of course, to complicate matters further, certain states here have state statutes that further restrict the enforceability of any of these clauses, which just adds to the complications of trying to figure out what rights, exactly, employers and employees have.

Francis Davey said...

@Neil - I think its more likely to be explanation 1 rather than 2, but I have no evidence to support that conclusion (other than the reasoning you employ).

@Anonymous - I'm pretty sure that the Australian Copyright Act of 1968 doesn't define "works made for hire". As you will see, section 35:

http://www.austlii.edu.au/au/legis/cth/consol_act/ca1968133/s35.html

provides roughly the same first ownership rules as in the UK (unsurprisingly). Some commissioned works (such as paintings) have special rules, but there doesn't seem to be a rule like 101(2).

I suspect the contract you are reading is even more hopelessly wrong :-).

Gordon Knott said...

Obvious, innit?

Either the work is created in circumstances where US copyright law applies, in which case the parties agree it is a work made for hire so that the employer or deemed employer owns the copyright, or in that tiny percentage of the world where US copyright law doesn't apply, the author assigns to the commissioning party.

Admittedly the words used don't quite say that, but that is the intent...

Pamela Chestek said...

I use this type of clause all the time, fully aware that quite frequently the work is not a work made for hire and what I'm actually getting out of it is an automatic assignment. So I wouldn't say there's necessarily an analytical error, at least not on the part of a specialist, although certainly my non-IP colleagues think the clause makes it a work made for hire.

I agree with Matti that the most significant reason is psychological - I'm writing it so that a person with an incorrect understanding of copyright ownership law has an accurate understanding of where ownership will ultimately wind up. This serves the purpose of avoiding challenges later on.

I have also seen cases where the court (and perhaps the parties) don't get it either, and have assumed that if the agreement says it's a work made for hire, it is. So the fact that the parties have said so might forestall further analysis of the question.

Another reason is that it's not always clear at the outset that a work will not be a work made for hire, i.e., that the person would never be considered an employee under a fact-specific standard and that the work doesn't fall into one of the enumerated categories under 101(2). Having all bases covered at the outset is the best path in that case, and I haven't thought of any harm caused by including a clause that is frequently meaningless in context.

The legally significant piece of this clause is almost always going to be the assignment, not the characterization of anything as a "work made for hire." I think that's equally true inside the U.S. or outside the U.S., because, as you mention, it's not something that a contract will decide (other than to serve as the writing required under 101(2)). But, are you saying that the assignment portion of the paragraph might not be legally valid in another country?

Interesting you bring this up, I just blogged on a case where the same writing was evaluated for purposes of a writing under 101(2) and 204 (assignment). On preliminary injunction the court decided implicitly that an email was not a "written instrument" so the work was not a work made for hire, but on summary judgment that the email (and a subsequent email acceptance of the offer) WAS an assignment. But the author had specifically said "work for hire" in the email, so I question whether it's valid to say that language could be language of assignment. Having both addressed in the agreement solves that problem.

Pamela Chestek said...

Two more thoughts. I find the clause particularly entertaining when combined with a statement in the agreement that the person signing is not an employee but an independent contractor. To the extent that one is hoping that the statement will sway someone into thinking that the person is an "employee" for purposes of 101(1), I think the other phrase kills that.

And I take back the "where's the harm" statement. There is harm - in California, when you use work made for hire language, you will be obliged to treat the person as an employee and get insurance, withhold taxes, etc. See this blog for details; http://www.ontechnologylaw.com/2011/01/entering-into-work-made-for-hire-agreements-with-california-consultants-can-lead-to-significant-problems-under-state-law/

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