Who owns the intellectual property created by a contractor?

Does paying a contractor mean you own their work?

No, payment alone does not usually transfer ownership of the intellectual property in a contractor's work. Under the Copyright Act, copyright vests initially in the author of a work. Where an independent contractor creates the work, the contractor is generally the author, so they keep the copyright unless they transfer it.

Without a written transfer, the business that paid for the work may have only an implied, non-exclusive license to use it for the purpose it was commissioned. That license may not let the business stop the contractor from reusing the work for others, register it as its own or sell it with the company. Employees are different: work an employee creates within the scope of employment is generally a work made for hire owned by the employer, although whether someone is an employee is itself a fact-specific question.

What is the difference between work made for hire and an assignment?

A work made for hire is owned by the commissioning party from the moment it is created, while an assignment transfers ownership from the creator to the business. With a work made for hire, the law treats the hiring party as the author. With an assignment, the contractor is the author and owner first, then transfers their rights under a signed document.

The distinction has practical effects. Section 204(a) of the Copyright Act requires a transfer of copyright ownership to be in a writing signed by the owner of the rights. Assignments can also, in some circumstances, be terminated by the author decades later under the Copyright Act, which does not apply to works made for hire. For most commercial work that long-range point matters less than getting a valid signed transfer in place now.

Does a work made for hire clause cover software and design?

Usually not, because commissioned work from a contractor qualifies as a work made for hire only if it falls into one of nine categories listed in the Copyright Act and the parties agree in a signed writing. The categories are a contribution to a collective work, 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, and an atlas.

Most standalone software, logos, product designs and websites do not fit neatly into any of these. A contract that relies only on work made for hire wording may therefore fail to transfer ownership. Well-drafted agreements state that the work is a work made for hire to the extent permitted and, as a fallback, assign all rights that do not qualify. Some states attach employment-law consequences to work made for hire language, so the wording should be chosen with the contractor's location in mind.

What should a contractor IP clause include?

A contractor IP clause should include a present assignment of all rights in the deliverables, together with terms that deal with anything the contractor brings to the project. Wording such as hereby assigns is generally preferred to will assign, because it transfers rights as they arise rather than promising a future transfer. The clause should also cover work in progress and drafts, not only final deliverables, since early versions can contain the most valuable ideas.

• A present assignment of copyright, patent and other IP rights in all deliverables
• A license to any pre-existing materials or tools the contractor reuses in the work
• Disclosure of open-source components and the licenses that apply to them
• Confidentiality obligations covering the business's information
• A promise to sign further documents needed to record or register the transfer
• A waiver of moral rights, where the contractor is located in a country that recognizes them

Do the same rules apply to inventions and patents?

Similar logic applies, because a patent belongs to the inventor unless rights are assigned, and the Patent Act requires patent assignments to be in writing. A contractor who devises a new process or technical solution during a project may be an inventor, and without an assignment the business may not own the resulting patent rights.

Assignments of patents and patent applications can also be recorded with the U.S. Patent and Trademark Office. Recording matters because an unrecorded assignment may be void against a later purchaser who pays for the patent without notice of the earlier transfer, unless it is recorded within the statutory window. Confidential know-how that is never patented can still be protected as a trade secret under the Illinois Trade Secrets Act and the federal Defend Trade Secrets Act, provided the business takes reasonable steps to keep it secret.

How do you fix missing IP assignments after the work is done?

The usual fix is a confirmatory assignment, a short document in which the contractor confirms that they assign to the business all rights in work already delivered. It often recites the original engagement, describes the deliverables and includes the same further assurances clause as a standard agreement.

Confirmatory assignments are easiest to obtain while the relationship is good and the contractor is reachable. They become harder when the contractor has moved on, disputes the scope of the original deal or knows a financing or sale depends on their signature. Running a periodic check of who has contributed to core products, and whether each has signed, keeps the list short. Where a contractor cannot be found or will not sign, take advice on the options, which may include re-creating the affected work or documenting the business's license to use it.

From our practice

In our work, the gap we see most often is a business that used freelance developers or designers in its early months under short statements of work or email agreements that never mentioned intellectual property. It rarely matters day to day. It tends to come up when an investor or buyer asks for evidence that the company owns its core product, at which point the business is tracking down people it last spoke to years ago.