Work for Hire or Assignment – Does your Business Really Own Certain Intellectual Property?
After many years of contemplating starting your own business, you decided to pull the trigger and start a Limited Liability Company (LLC). You create the name, the business purpose, open up a brick and mortar location, and are ready to go. But, one thing is missing. You want a flashy graphic/logo to stand out in the marketplace. So, you hire a graphic design artist to help you create the perfect and most unique business logo.
But who is the owner of the final design? You pay the artist a lot of money for the final product and they provide you with the final product to start using with your enterprise. Does the artist own any intellectual property rights, or is the LLC free to claim the design as 100% its own?
Before diving into this question, please note that a copyright applies to an original expression (not an idea) and is a creative work fixed in a tangible medium. This applies to literary works, musical works, dramatic works, pantomimes, pictorial/graphic/and sculptural works, motion/audiovisual works, sound recordings, and architectural works. The owner of a copyrighted work has the right to stop others from using their work and/or can sue for damages.
A trademark is a distinctive source identifier that distinguishes a company’s products from those of another. It can be a catchy word, phrase, logo, and/or design, all of which let the consumer know that they are dealing directly with the company.
Absent an agreement with the owner of the graphic or mark, the unauthorized sale and distribution of the protected expression could be a violation of the owner’s rights.
Copyright
To the extent federal copyright laws apply, the federal Copyright Act spells out work for hire in this manner.
17 USC s. 101 states that:
A "work made for hire" is-
(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 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. For the purpose of the foregoing sentence, a "supplementary work" is a work prepared for publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting upon, or assisting in the use of the other work, such as forewords, afterwords, pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, answer material for tests, bibliographies, appendixes, and indexes, and an "instructional text" is a literary, pictorial, or graphic work prepared for publication and with the purpose of use in systematic instructional activities.
Circular 30 better clarifies it as follows:
Section 101 of the Copyright Act defines a “work made for hire” as
A. A work prepared by an employee within the scope of his or her employment
or
B. A work specially ordered or commissioned for use
1. as a contribution to a collective work,
2. as a part of a motion picture or other audiovisual work,
3. as a translation,
4. as a supplementary work,
5. as a compilation,
6. as an instructional text,
7. as a test,
8. as answer material for a test, or
9. 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.
17 USC s 201 states that:
(a) Initial Ownership.—Copyright in a work protected under this title vests initially in the author or authors of the work. The authors of a joint work are co owners of copyright in the work.
(b) Works Made for Hire.—In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.
If the product doesn’t fit under one of the 9 referenced items for work for hire noted in Circular 30, then it is technically not work for hire. Nevertheless, there should be a written contract in place concerning who the owner is and whether all rights are assigned over to the company by the freelance artist, or not.
Trademark
"Work for hire" is a term related to copyright law. However, issues of ownership can still arise if a freelancer or employee created a trademark for a company. The question remains, who owns the rights to the mark?
Absent an agreement, the one who created it may have an argument that the work / mark is their own and they are licensing the mark to the company for use. This is why having an agreement in place beforehand is critical. The author needs to assign the trademark (they should really assign all rights over to the company, if the company wants to be the owner).
Licenses and assignments
Something that happens a lot. There is no written contract as nobody was thinking about the intellectual property rights at the time. This is a common issue, and even the most careful person may overlook this.
First, absent a written contract, there could be an implied license. The company paid for the work and the artist delivered. This can be proven by a cashed check, e-mail correspondence, etc. The company is free to use the work and is licensed to do so without having to worry about whether the artist is going to pursue damages for posting his or her work on the company’s website, or on their place of business.
However, absent a written agreement where the artist agreed to “assign” his or her rights over to the company, there is an argument that the artist is retaining certain rights in the final product and thus has an ownership interest in this. The implied license would be that the artist is the owner of the work, and licensed his or her work product to be used as an advertisement method for your company. But this means the artist can still sell the final logo to others or perhaps use it for his or her own purposes.
This also matters if the LLC goes to actually register the logo with either the U.S. Copyright Office and/or U.S. Patent and Trademark Office, or other state agency for state level trademarks, one question that will be asked is whether the LLC can say it is the sole owner of the product (phrase, graphic, symbol, logo, etc.).
This also matters to the extent their artist’s design is used for sale of it on future merchandise (say a company hat or clothing line with the logo displayed on it). But for the catchy logo, the merchandise may not have sold for a profit, and the artist may make an argument for a cut of the profits that the company is realizing. The artist may try to claim rights to the design and rights to be paid for its continuous use.
Another example may be if the artist wants to go out into the market place and use the logo for something. This would obviously create marketplace confusion, but the LLC would want to be able to immediately stop this.
What if there is no agreement?
So, here are some questions to ponder if there wasn’t an agreement in the first place.
What if the final work product that is being used doesn’t qualify as work for hire? What should a company do?
When in doubt, and there is a threat of someone bringing a claim for monetary damages, please consult with an attorney. However, there are many creative solutions that could be considered just from a business standpoint. And most of these creative business decisions are often the better solution in lieu of taking a litigation posture.
Maybe the business wants to give a nod to a really good artist and state publicly that the artist is out there and is working with the business. This could be mutually beneficial and adds an element of good faith in maintaining a healthy relationship for future work. If the logo is placed on future merchandise and sold by the company, perhaps the artist and company can work out a business deal and split the proceeds.
Maybe the company can contact the artist and pay a fee (additional consideration) to fully assign the work over to the company so that the company can use the logo as it sees fit for sale and redistribution. This would obviously need a written and fully signed agreement for a full and proper assignment, but if drafted correctly it can give the company full control.
Or, perhaps altogether it’s a non-issue and the company is willing to accept that the logo is licensed for use to advertise itself in the marketplace, and there is no future intent to sell anything where profits may be attributed to the logo. If that’s the case, then there might not be anything to worry about.
A note to freelance artists
The above referenced questions should also be contemplated by freelancers working in the marketplace. Before delivering work to a company, it is important to know if the work is something that you can take with you, or if it belongs to the company. Did you know you may have sold and assigned all of your rights in a graphic design to a company, who now is able to state it is the sole owner?
Negotiations for the right amount of money and ownership are questions that apply to both sides of this equation.
Overall, when in doubt, or have questions, please contact a licensed attorney.
-Kyle and Niles
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