Copyright Issues for Small Business: Does the Employer or Employee Own the Copyright?

Author: McMillan Metro Editor Date: 01/27/2012

Categories: Corporate and Business Law

Imagine a small business owner with the best new restaurant in town. She hires an artist to paint a mural on the walls. The restaurant takes off. The customers love the atmosphere and food. The small business owner attributes the success, in part, to the mural and she copies the mural in every additional restaurant that she opens. Then the artist sues the small business owner for copyright infringement.

Is the small business owner liable for copyright infringement? If you are the small business owner, how can you protect your business? If you are the artist, how can you protect your work?

In the hypothetical above, the main issue is who owns the copyright. Copyright law answers this question by asking another one: Is the creator of the work an employee or an independent contractor?

If the creator is an employee then the employer owns the copyright as long as it was prepared within the scope of his or her employment unless there is a separate contract that determines the ownership. The work is categorized as “work-for-hire.”

If the creator is an independent contractor then the employer owns the copyright only if (1) the work falls into one of the nine categories in the copyright law; and (2) the parties sign a contract that the employer owns the copyright. The nine categories are: a contribution to a collective work, a part of a motion picture or other audiovisual work, a translation, a supplementary work, a compilation, an instructional text, a test, answer material for a test, or an atlas. This work is also categorized as “work-for-hire.” Otherwise, the independent contractor maintains his right to the copyright.

Often the conflict arises in these cases about whether the creator is an employee or an independent contractor. The courts have answered this question by formulating various tests, which include some of the following factors:

  • the skill required;
  • the location of the work;
  • the duration of the relationship between the parties;
  • the employer’s role in hiring and paying assistants;
  • whether the work is part of the regular business of the employer;
  • whether the employer has the right to assign additional projects to the creator;
  • the extent of the creator’s discretion over when and how long to work; and
  • the method of payment, benefits and tax classification of the creator.

In the hypothetical case above, the artist is likely an independent contractor hired to do one job: paint the mural. The mural does not fall into one of the statutory categories and there is no written contract between the parties. Therefore, the small business owner would be liable for copyright infringement for copying the mural in her additional restaurants.

The small business owner can protect her business by (1) hiring the artist as an employee; (2) executing a licensing agreement with the artist granting the business owner permission to use the mural; or (3) obtaining an assignment of the copyright from the artist.

The artist can protect her work by requiring the contract to state that the copyright belongs to her. Artists, however, are sometimes at a disadvantage in contract negotiations because they often have less bargaining power. The artist should consult with an attorney that can analyze the particular situation and advise on the best way to protect the artist’s rights.

The bottom line: In order to prevent future conflict, a written contract should be used to clearly define the parties’ rights and expectations with respect to the underlying work and copyright.

Contact the attorneys at McMillan Metro at (301) 251-1180 for more information.