100% of small businesses create some type of intellectual property. What does your business create? Do you know who owns those creations? I hope your business does! Let’s talk about that…
First, let’s limit this conversation to copyrights, which covers a lot: all types of writing, photographs, drawings, videos, and so on. I’m just going to refer to it all as “IP” for easy reference.
Second, let’s be clear about what you’re creating. There are two types of IP: internal and external.
Internal IP is what you create for use inside your business – for marketing purposes, to educate people, for your own processes and procedures, etc. These could be articles, checklists, manuals, graphics, social media posts, blogs, videos, books, website content, photos, presentations, pamphlets, brochures, and on and on. Your business most likely creates some or all of these types of copyrights.
External IP is what you may create for your clients. Certain types of businesses are hired to create IP for their clients – marketing agencies, designers, photographers, videographers, software developers, and many others. These types of businesses create external IP that they transfer to their clients for their clients to use. They “sell” this IP as part of their services – they are the deliverables.
For internal IP, your business is the one to use it. For external IP, you are selling it for your clients to use the IP. Either way, if you use or sell the IP, you better make sure you own the copyright first!
Third, let’s see who actually owns the copyright. For this purpose, it doesn’t really matter whether the IP is internal or external. What matters is – who is creating it? There are two choices here – (1) either employees of your business create it or (2) independent contractors of your business create it. In both cases, you need to pay close attention to some legal rules to see who owns the copyrights.
The rules are separated by relationship – so employees have their rules and contractors have separate rules.
For employees, most business owners think this is an easy answer – if the employee creates the IP, then the employer owns the copyright. Right? In most cases, that’s true.
But it will depend on the employee’s particular job description and what is considered in their normal scope of employment. The “Work-for-Hire” doctrine doesn’t apply in every case for every employee – it only covers employees who would normally create that IP in the course of their employment.
The problem here is in the nature of small businesses. It’s usually an “all hands on deck” approach. Whoever has the time and skills to do something, that’s who does it – regardless of whether that’s in their job description and regardless of whether they’ve done something like that before.
It can be problematic for small business owners to keep track of “who usually does what” and “will this doctrine apply” – all to make sure that your business owns the IP and not the employee himself or herself. Very important purpose, but is tedious to track, so be careful.
Can you imagine a scenario where the employee gets fired or leaves on bad terms, then decides to cause problems over what they created for IP while they were employed by you? Claims of ownership, demands for additional payments, cease and desist letters sent to clients telling them to stop using the IP they paid your business to create… it could get ugly and embarrassing.
Now, let’s talk about contractors. While the “Work-for-Hire” doctrine technically applies to contractors, it only covers very, very, VERY limited circumstances. In reality, most contractors are not covered by the doctrine. So that means = contractors own the copyrights for what they create. Even if you pay them for it. That’s a problem, right? It’s a problem if you want to USE the IP and it’s a problem if you want to SELL the IP.
So it’s important to ask yourself, who owns the copyrights I need for my business (either to use internally or sell to clients)?
To answer this question, it will depend on (1) the relationship your business has with the creator (employee vs. independent contractor), (2) what you hired them to do (job description/scope of work), and (3) whether you have a written contract in place.
That’s the answer. A written contract. It’s the best solution in any case – a written contract.
If you have one in place with your employees, you can include a provision about copyright ownership. Then you don’t have to worry about whether it’s in the job description of that employee or whether this employee creates IP in the normal scope of their employment. It’s covered no matter what – and your business owns the copyrights. End of issue.
For contractors, a written contract is required anyway, so all that needs to be added is a provision about IP ownership. Easy fix.
Soapbox Warning: Too many times, small business owners dismiss the power of a written contract. They think of it as a “technicality” that doesn’t really mean anything. This is just another example of how written contracts can help small businesses avoid problems and build value in their businesses.
At The Legal Department, we consider written contracts to be written relationships and they need to be created with care. Nothing speaks so loudly as an obnoxious contract. We help our clients make sure their contracts fit the situation and the tone that is appropriate for the circumstances.
Your contracts are an important part of your legal infrastructure. Find a legal advisor who has the experience and expertise to help you with your small business needs.