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Posted: January 10, 2012

I paid for it, so I own it—right?

Avoiding costly pitfalls in the IP world

Peter Lemire

The scene is identical nearly every time: A website developer holds a website he designed for our prospective client hostage because of a dispute. "I paid for him to design the site, so I own it, right?" the client asks.

This seems reasonable, given the average daily consumer transaction: I pay you money and you give me what I purchased. In most cases the above concept is an accurate reflection of the law. However, sometimes the world of Intellectual Property can be counter-intuitive. Misunderstandings arise and can prove costly and damaging. Sometimes, in intellectual property worlds, particularly concerning copyrights, you may have paid for it, but you don't own it.

Copyrights protect original creative works of authorship. Obvious items subject to copyright law are books, photographs, movies and music; however, copyrights can also extend to computer software, website designs and architectural plans. U.S. copyright law grants the author of a work the exclusive right to reproduce, adapt, publically display and distribute the work. The author of a work is generally accepted as the person who originates the work: the programmer, the photographer, the web designer, etc.

A business is considered to be the author when one of its employees creates the work or the work is deemed to be a "work made for hire" in a written agreement and the work falls into one of a few exceedingly narrow categories that rarely come into play in the creation of software code or websites. Put bluntly, a business does not automatically own any copyrights to something created for them by an independent contractor or another business.

Put another way, by default, a developer owns the rights to the code or website you paid him to develop - not your business. (That sound you just heard is readers' jaws hitting the floor.)

So what does the money you spent get you? You get an implied license to use the work as agreed to by the parties. In the context of software code, you can continue to use that code in your business; however, you may not have the right to use someone else to modify the code. This often comes up in the customization of large software packages.

Companies regularly pay hundreds of thousands or even millions of dollars for software packages and then hire outside developers to implement and customize the software for the particularities of their use. Unless a developer assigns the copyrights associated with customized code to the business in writing, the developer will own the rights to the customizations and the business will merely have an implied license to use the customizations.

If the business and the developer have a falling out, the business can rely on its license to continue to use the customizations. However, issues can arise if the business needs make additional changes to the customized code. For example, if the business needs to do a fresh install of the software which would wipe out any customization the business might have done, they could lose everything that they paid for.

Another all too common scenario involves the development of websites. Often developers will offer deep discounts on website development if the client opts to host with the developer. Usually these hosting rates are greatly above the going market rate. The dirty little secret is that the developer is only offering a license to use the website to the business as long as they host the site through the developer. The business gets caught in a Catch 22: They either have to continue to pay exorbitant monthly hosting fees, or, if they switch hosting services, they will have to get a whole new website.

How does a business protect itself? The answer is with a well-drafted contract. While work done by an independent contractor is not automatically considered a work-for-hire, copyrights can be assigned. However, these assignments must be in writing and signed by the parties.

It isn't good enough for the developer to simple verbally agree to assign the copyrights. The assignment of the copyrights should be discussed up front often before or contemporaneous with negotiating price. Whenever embarking on a project that might involve these sorts of rights for your company, you should consider having an intellectual property attorney review the contract to (at the very least) make sure that the company is really getting what you believe it is getting.

The alternative can look ugly. Costly negotiations, loss of branding materials, like a well-established website, and even litigation can and often does ensue when copyrights and other intellectual property concerns are ignored at the outset.

It is relatively easy to square-away who-owns-what either at the beginning of a project or even prior to completion. Otherwise, the answer to the question, "I paid for it, so I own it - right?" may not be the answer you and your business hope to hear.
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Peter Lemire is a founding member of the intellectual property law boutique, Leyendecker & Lemire. Leyendecker & Lemire specialize in patents, trademarks and related complex civil litigation. Peter Lemire can be reached directly at 303.768.0641 or peter@coloradoiplaw.com. Visit www.coloradoiplaw.com for further information, including Leyendecker & Lemire's weekly blog, "Control, Protect & Leverage."

 

 

Peter Lemire is a founding member of the intellectual property law boutique, Leyendecker & Lemire. Leyendecker & Lemire specialize in patents, trademarks and related complex civil litigation. Peter Lemire can be reached directly at 303.768.0641 or peter@coloradoiplaw.com. Visit www.coloradoiplaw.comfor further information, including Leyendecker & Lemire’s weekly blog, “Control, Protect & Leverage.” 

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