Reprinted with permission from the April 26, 2017 issue of Corporate Counsel © 2019 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

By Andre Gibbs and Dan Ovanezian

Software copyrights continue to be an important intellectual property for many companies. Such prominence can be seen by several recent cases pertaining to software copyrights. For example, a verdict against Oculus VR, a Facebook subsidiary, for $500 million in damages included claims of copyright infringement of video game developer ZeniMax Media’s software. Hewlett Packard Enterprise Co. (HP) is facing a claim for vicarious copyright infringement asserted by Oracle alleging that HP support companies distributed copyrighted Oracle code without its permission. With the prominence of ensuring a company’s copyrights are adequately protected, there is renewed focus by the legislature to address any oversight in the Copyright Act pertaining to software. More specifically, the issue of ownership rights to copyrighted materials, especially when created by independent software developers, is an issue that may be interpreted differently by the Federal Circuit courts. Therefore, it may be time for Congress to clarify this issue by amending the work for hire doctrine as defined in the U.S. Copyright Act.

Copyright Act

Under the U.S. Copyright Act, authors of a copyrighted work have exclusive rights to reproduce, prepare derivative works, distribute, and publicly perform, display or perform the copyrighted works they create. However, at times, ownership rights to copyrighted works are not vested in the original author. The Copyright Act enumerates specific categories when, absent a separate agreement, ownership rights to copyrighted works may be automatically vested to a party other than the original author (better known as the work for hire doctrine). Under 17 U.S.C. Section 101 of the Copyright Act, a work for hire is: a work prepared by an employee within the scope of his employment would be owned by the employer; and 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 instructional text, as a test, 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.

The definition of work for hire and the enumerated categories were enacted as part of the Copyright Act of 1976. The 1976 act was a total revision of copyright law in the United States, and one of the purposes of the act was to modernize the copyright law in the face of new technologies. In view of this, it is interesting that none of the nine enumerated categories in 17 U.S.C. Section 101 of the Copyright Act explicitly encompass computer programs. At the time, the computer industry was a mature and profitable industry. In addition, the federal court system including the U.S. Supreme Court had recently decided a number of cases that made it difficult for companies to obtain patent protection for some software implemented inventions. As such, copyright protection was the popular alternative to protect computer software. Furthermore, even though the software industry was not such a huge part of the economy as it is today, the use of independent contractors to write specially ordered or commissioned software was alive and well at the time.

Today, one might find it odd that Congress felt the need to grant ownership rights to a “specially ordered or commissioned” atlas but not “specially ordered or commissioned” computer software. The legislative record is silent as to why. Even still the Copyright Act has been amended numerous times over the years since 1976, such as to add the definition for “computer program” in the Copyright Act in 1980. Likewise, and even more interesting, is that the actual definition for work for hire was modified by Congress in 1999 and in 2000. At these times, the software industry was booming, use of independent contractors to develop software was pervasive, and copyright infringement litigation with regards to software technologies was common. Thus, Congress has had ample opportunity to amend the Copyright Act to include computer software in the enumerated categories of work for hire but has not.

In the meantime, there have been a few district court decisions over the years touching on the issue of whether an independent contractor’s software development work qualifies as a work for hire, but there has been no conclusive higher authority on this issue. These district court decisions have not directly held that software falls under one of the enumerated categories of a work for hire under the Copyright Act. Rather, the district courts have approached the issue in an indirect manner holding that software programs meet the statutory definition because they are “contributions to collective works” or “compilations.” And, yet, there are many examples of companies hiring an independent software developer to develop code under a “work for hire” agreement, and it is later determined that the written agreement did not adequately assign rights to the specially made software to the company. This is especially problematic for small businesses that may lack adequate legal counsel to prevent these situations from occurring.

Andre Gibbs is a senior legal director of intellectual property law at Dell Inc.