Contractors & Copyright – don’t be held over a barrel

Most of the time I meet a new client, they’re in some sort of crisis. Often it’s a crisis of their own making, in which they’re so deeply mired in that they can’t self-extract. I greatly prefer to work on constructive projects where problems are anticipated, planned for, and ideally never become reality. I’m sure every entrepreneur feels the same way. Far too often, however, my first piece of work for a business is in dispute resolution rather than project-building. Some mistakes that seem like molehills at the time turn into mountains more quickly than anticipated. One common mistake that many small business owners make is to assume that they own all of the creative works that were made for their business by outside contractors – website and branding, most frequently.

Like your Business Depends On It…

For many companies nowadays, creative works – logos, graphic design, custom-built website code – are at the very core of their business. They can be part of your lead generation, customer services, e-commerce, promotions, and product education. For web-based businesses, much of the business’ actual value is in its “goodwill” – or the je ne sais quoi that makes your business profitable. Your web store ain’t going to generate much profit if it’s not online, well-maintained, and has proper user support, after all. Your brand ain’t going to expand very well into new markets if you’re restricted in how you can use your logo and graphics. If you ever hope to sell the business, pass it on to your kids, or bring investors on board, they’re going to want to know that the value of the business is secure. This is why it’s important to be certain of what your business owns. We do this by getting the rights to use creative work that’s made for your business in the way you want to use it. We law-nerds call that a “license”.

Without a license in place, an unscrupulous contractor can hold your company over a barrel for more money and threaten copyright enforcement proceedings if you use what they created. Shady? Hell yes, but it happens disturbingly frequently. I’ve seen it over and over, especially with coders building custom websites for internet-driven businesses. The designer gets to 80-90% completion so the business is fully committed, then work “stops while we work out licensing terms”. All of a sudden they want an annual fee to use the code, to be hired on to maintain and support the site, or to be paid every time you re-use the logo in a new setting. In the meantime, they lock down the 90% complete work so you can’t access it, and your business hangs in limbo.

That’s why It’s hugely important to negotiate the terms of the license – that is, the things you are and aren’t allowed to do – before you start working with the contractor. That’s the point where you, as the customer, have the most leverage, and can get the terms that best suit your needs. There are lots of graphic designers and web-coders out there – it’s a buyer’s market – so don’t be afraid to shop around. It’s easiest make sure that there are terms of license in the services contract that you sign, or an “assignment” of the rights that you need to deal with the work as needed. Otherwise, you’ll need to negotiate a side agreement. Only fools rush in – as soon as you’ve paid the contractor and work has begun, your leverage decreases. Now they have two things you need – your money, and the creative work – and you have neither.

Copyright

Our first stop on this magical journey into licensing is a quick look at copyright. Copyright is the right to produce or reproduce the creative work or any major part of it, to publish or exhibit the work, to perform it, communicate it, rent it, or to authorize any of the above. It applies to all original literary, dramatic, musical, and artistic works, performances, sound recordings, computer programs, and communication signals, which I’ll call “creative works”. Copyright is designed to protect the creator of the work by giving them the exclusive right to profit from what they made.

Copyright protection comes into being as soon as the work is made, and applies to work-in-progress as well. It’s an automatic thing, so the creator doesn’t have to take any steps to register it in order for the work to be protected. Registering copyright work with the Canadian Intellectual Property Office is evidence of ownership, however. Registered or not, copyright lasts for the rest of the creator’s life, plus 50 years afterwards.

Employee or Contractor?

This article is meant for those dealing with outside contractors. Most small businesses will hire a contractor or company to do their creative work – like I did for my kickass business cards – as there’s not enough work to keep a designer busy as an employee.

If you’re lucky enough to have an employee who’s skilled in the ways of creating things, you don’t need a license or assignment. Any work an employee does in the course of their duties as an employee belongs to the employer. That rule is a fundamental part of the employer-employee relationship. That rule can be opted out of by contract.

An independent contractor, on the other hand, will own the copyright in whatever they create. This is true whether the contractor is an individual, partnership, or corporation. The line between employee and independent contractor can be blurry, and there’s a lot of grey area in the law. It boils down to how much control the employer exercises over the worker. The more control – like setting hours and place of work, ownership of tools, having the chance of profit and risk of loss – the more likely it is that they’re an employee in the eyes of the law.

If there’s a chance that a worker could claim they’re an independent contractor, you’re better safe than sorry. Get a license agreement or an assignment of intellectual property rights in writing.

License

A license is a contract giving permission to do something you’re not ordinarily allowed to do. We deal with licenses all the time – a driver’s license allows you to drive a car; a software license allows you to use a computer program; a liquor license allows a bar to sell alcohol; even a Blue Jays ticket is a license to go to the game and occupy a certain seat. Here, I’m talking about the right to use a copyrighted creative work in the ways your business needs to operate.

So, what things might you want to do? The main “rights” granted in creative works include the right to:

  • Use the work
  • Make copies of the work
  • Modify or improve the work
  • Distribute and redistribute the work
  • Sub-license the work

Certain rights, called “moral rights” will always belong to the designer, and can’t be assigned to another person. Moral rights include the right to the integrity of the work, and the right to be associated with the work (or remain anonymous, as the case may be). The creator can waive their right to enforce their moral rights.

Licenses can be exclusive, meaning that the creative work was made just for you, and nobody else can have it, not even the designer, or non-exclusive, meaning that the designer can re-use or re-license out the same design. Exclusive licenses make more sense when there’s a great deal of custom work involved, the creative work is central to your business, there’s risks your competitors might steal your model, or you’re laying out some serious cash to get the work done. Non-exclusive rights work better for simpler, more generic work – like basic web design or package deals – where there’s little risk of losing out if your competitors have something similar.

The most general of all is an open-source license. Sometimes called “copyleft” or a “permissive license”, open-source means that anyone can copy, distribute, and modify the work for any purpose, and without fees. There are several types out there, with varying limits on what can and cannot be done. Many web programming platforms, such as WordPress and Drupal, are subject to open-source licenses for any “derivative” works – as in, anything that’s made to tack-on to their platform must be distributed as open-source as well.

Pro-Tips

The toughest part in negotiating a license is finding the balance point where your business is protected, but the person doing the creative work has the freedom to use the tricks of the trade they’ve picked up to continue to earn a living. That’s why it’s important to know precisely what is being licensed, and what you’re using it for. The most certain way to achieve that is with a written license agreement.

Here are a few things your business can do to make sure you’re in the best position:

  • Know what you’re going to want to use the work for, and ensure that the designer is willing to give you those rights
  • Research what the industry standards are for licensing or assignment in the designer’s field of work
  • Get the license terms or assignment of rights in writing before you pay the designer, and before work begins
  • Know for sure whether the designer is an independent contractor or employee
  • Host the work-in-progress on your own servers, not the designer’s
  • Work with designers in your own jurisdiction – as enforcing an international contract can be all but impossible

Of course, there’s no joy quite like the joy a lawyer can bring to your life by taking the dreary contract drafting work off of your hands… I happen to know a guy… 😉

 

Mike Hook
Intrepid Lawyer
http://intrepidlaw.ca
@MikeHookLaw

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