Do You “Own” Your IP? Understanding the “Work Made for Hire” Doctrine

Originally published in PD Clarity, January 2010

How much of the value of your company is in its IP (intellectual property)? Depending on what business you are in, the answer can range from “a little value” to “the most critical asset”, or somewhere in between.

If you tend toward the “most critical asset” end of the spectrum, then the first IP protection issue for you to address is: Do you own your IP?

To resolve this fundamental question of ownership, many business are unaware that they should pay special attention to the “work made for hire” issue in their dealings with independent contractors. In general, your company will be able to secure patents and copyrights in any inventions and creative works developed by your employees. You might be surprised to find out that an independent contractor who develops something for you automatically owns the rights to any patent or copyright– unless the contract specifies otherwise.

The president of a small medical records software company believes he lost at least two million in business for lack of simple IP protection. He hired a software developer to develop a key product, but the contract failed to address the “work made for hire” doctrine.

The contract should have provided that all copyright to the software belonged to the medical records company. Absent this simple provision, ownership of the software copyright defaults to the software developer.

This unfortunate scenario came as a shock to the president of the medical records company, which paid over $600,000 to develop the software. The unscrupulous developer who owned the copyright turned around and sold the software to several of the medical records company’s competitors for only $50,000. If the medical records company had received the copyright via some simple language in the contract, then the software would have been owned exclusively by the company, instead of being offered at a substantial discount to its competitors.

The president of that medical records company is now keenly aware of the “work made for hire” trap that arises when you use an independent contractor to develop software. This same trap arises very frequently for small businesses that hire someone to create a website, which has copyright issues, or to develop a prototype that yields a patentable invention or two.

Bottom line: You can protect yourself by seeking advice before using an independent contractor to develop a key asset for your business. A brief meeting with an IP attorney may help you identify and protect your valuable IP, and avoid traps like “work made for hire.”