Although the question is simple, the answer can be quite complex. If you’re a client who’s engaged the services of a contractor, you’re inclined to think that since you’re paying for services that lead to code, you own the copyright to the code. You may, in fact, own the copyright, but not because you paid for the services. On the other hand, you may be a consultant and heard something like that in the absence of a contract, you own the copyright for the code you provided your client. You may, in fact, own the copyright, but not because there isn’t a contract.

So…who owns the code? Like most things legal, the simplest answer is "It depends." This article will provide you with the information to be able to answer this question.

DISCLAIMER: This and future columns should not be construed as specific legal advice. Although I’m a lawyer, I’m not your lawyer. The column presented here is for informational purposes only. Whenever you’re seeking legal advice, your best course of action is to always seek advice from an experienced attorney licensed in your jurisdiction.

Avoid Confusion: Have a Contract that Spells Out Who Owns the Code

In my last article, I discussed employment agreements. One of the big items addressed in most employment and independent contractor agreements is intellectual property (IP) ownership. Often, the code and application delivered is regarded as Work for Hire. If that’s the case, that settles the matter: The client who hired the contractor owns the copyright. Often, such agreements can take an overly broad view of what Work for Hire is. Often, such a definition can also include things that are not directly related to the project. This is why it’s important for contractors to get as narrow a definition of Work for Hire as possible.

If you are a W-2 full-time employee, then by default and at the very least, regardless of whether there is any form of agreement, your employer owns what you do while on the clock, on the company premises, or using company knowledge and assets. Sometimes, employees sign agreements that broaden what the employer can claim ownership of. Like consultants, employees should strive to narrow that definition.

When you’re not an employee, what happens when there’s no contract? Or, what if there is a contract but there’s no provision for intellectual property ownership As it turns out, in the absence of a contract, the question of IP ownership depends on whether or not you are, for legal purposes, considered an employee. Even if you’re a 1099 consultant, you may be a Statutory Employee. If you’re deemed to be a Statutory Employee, then just like a W-2, your Employer owns your work.

Are You a Statutory Employee?

I’ve already addressed cases where if someone is an employee, the employer owns the employee’s work. An employee for these purposes is someone who’s hired by the employer and receives W-2 wages. You may be wondering how in the world can someone be a consultant on one hand but be regarded as an employee on the other hand? For that answer, you need not look any further than our friends at the Internal Revenue Service (IRS). All 1099 wages are taxed differently than W-2 wages. For one thing, there’s no employer match on the federal withholding taxes. And that’s where the IRS’s original 20-question test applies. Eventually, this test was reduced to an 11 factor test. Details about the test can be found here: http://www.irs.gov/Businesses/Small-Businesses-&;-Self-Employed/Independent-Contractor-Self-Employed-or-Employee.

In a nutshell, the factors fall into these categories:

  • Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  • Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • Type of Relationship: Are there written contracts or employee-type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

If it turns out that the client exerts a great deal of control over what you do, how you do it, where you do it, etc., then more likely than not, you’re a statutory employee. Those factors vest ownership with the client/employer. Such a determination has consequences for the client/employer given that more likely than not, they weren’t withholding and paying their share of federal taxes as they would be required to do for W-2 employees.

In the absence of actual employment or a contract or anything else that explicitly addresses ownership, the issue of ownership depends on whether the person writing the code is considered a statutory employee.

Watch Those Emails and Any Other Writing

Courts will do whatever they can to find a contract that embodies the intent of the parties. Sometimes, courts infer a contract from the conduct and communications between the parties. Even if you have a contract, emails and other writings, under certain circumstances, can alter the landscape. As the famous former mayor of Philadelphia once quipped: "Don’t ever write a letter. If you get one, don’t ever throw it away."

What’s the Bottom Line?

The issue breaks down as follows:

If you are an employee: At the very least, your employer owns the code.

Depending on your employment arrangement, what your employer owns may be broader than what you think.

If you are a consultant (1099) and you have a contract that specifies that what you do is work for hire: The client owns your work.

Like an employment situation, depending on the arrangement, what the client owns may be broader than what you think. The terms of the contract control who owns the code.

If neither of the above apply, the question of ownership turns on whether you are an employee for statutory purposes. That question is answered by applying the IRS test.

The best advice I can give here is that if you are an independent contractor, have a contract that specifically outlines who owns what! If you have anything less, you’re throwing caution to the wind. Understand what the rules are and to have the ability to cry foul when somebody attempts to claim ownership when no such standing exists.