So You Need a Consultant ... Copyright Considerations in Contracting

Date: Feb 24, 1997

So you need a consultant. Perhaps you have a magazine or other publication, and need photographs or artwork. Maybe you are working with a software developer to develop software for the company, or with a web master to create your web site. An advertising or public relations agency may be crafting a campaign for you, complete with a catchy character or new logo. You may be commissioning technical research, anticipating that you will get data and a final report covering the tests or evaluations. Maybe you want to produce a video or film. Or perhaps you are asking an economic consulting firm to provide an assessment of an industry or sector. What all these activities have in common is that they involve the creation or use of potentially copyrightable works or other intellectual property by a consultant. Your ability to obtain the full value of this work hinges on negotiating these rights up front.

Copyright Basics. In the normal world we're familiar with, if you buy something you own it. That simple adage, however, is simply is not true of copyright. Under the Copyright Act, the author of a work subject to copyright is legally the copyright owner of the material. Thus, in the examples mentioned above, the actual owner of copyright in any works that qualify for copyright protection is the creator, not the organization commissioning the work. The commissioning firm must therefore negotiate for appropriate rights to avoid potential infringement situations or unanticipated costs. It is also important to understand the differences between copyrightable materials and trademarks. Trademarks identify goods or services, but may include copyrightable elements, as with a distinctive logo. Simple designs, short phrases, and the like, however, do not qualify for copyright protection. Make sure in your negotiations that you address the appropriate intellectual property issues.

Work for Hire. Certain exceptions to the "author is the owner" rule exist under the Copyright Act. First involves works prepared by an employee within the scope of his or her employment; these are properly copyrighted to the employer, not the individual employee. In addition, certain specially ordered or commissioned works qualify in this category, known as works for hire. These include contributions to a collective work, contributions to motion pictures or other audiovisual works, translations, compilations, instructional texts, tests and test answers, provided that the parties agree in writing that the work is a work for hire. Both parties must sign the agreement, and this should be done before the work is created.

Copyright Transfers. Copyright can also be transferred or assigned, either through a contract or by operation of law. Copyright also may be passed on to one's heirs. Under certain circumstances, transfers or licenses may be terminated by the author or his or her heirs. Again, it is preferable to consider the options and to have both parties agree in writing on a transfer or assignment.

Licenses. Copyright rights can be licensed, and licensing opens up a variety of possibilities and options to the parties. Licenses can be exclusive or non-exclusive. Licenses are useful in situations where you do not need to obtain full ownership of the intellectual property, or in instances, as with certain types of software, for example, where it is clear that the copyrighted material is intended to be used by multiple parties.

Various royalty or other payment arrangements may be involved. Royalties are often based on the number of users, viewers or listeners, or on sales of publications, but minimum annual guarantees are not uncommon. Requirements that licensees verify the number of users, or provide certain financial and accounting information to the copyright owner, may be included. Licenses might include sub-license options, or may strictly limit any sub-licensing. Licensing options may offer a less expensive way to get the rights you need than an outright transfer or work for hire arrangement.

Escrow agreements. In the software arena, negotiation of rights can be particularly complex. One technique that may be helpful is to seek an escrow arrangement so that the source code to important programs being developed for the organization is deposited with an escrow agent, with provisions for updated versions of the source code to be periodically deposited and notice provided. In this way, if the company commissioning development of the source code needs to terminate the arrangement for failure to complete the program or for some other breach, it will be able to salvage some of the value of the work.

Conclusion. The field of copyright and other intellectual property is a complex one, and there are many issues to consider. A basic understanding of some of these copyright considerations will help you recognize when you might face a copyright issue in dealing with consultants. Taking action up front to address ownership and rights, should help in assuring that you get what you pay for - and what you expect - when contracting with consultants for any type of copyrightable material.

For more information, please contact Sheila Millar at (202) 434-4143, millar@khlaw.com