“Work-For-Hire” Pitfalls

May 2003
The Licensing Book

Prior articles in this series have addressed the advantages of patent protection for certain products and copyright protection for others.  Of particular interest to manufacturers of licensed merchandise can be copyrights available for "pictorial, graphic and sculptural works", one of the eight categories of works specifically identified as copyrightable in the United States Copyright Act. 

Artwork used to adorn stationery goods, wall coverings, and clothing is frequently copyrighted by the artist and licensed to manufacturers of the respective products.  Classic comic characters represented in action figures, associated packaging and advertising may be subject to copyright protection owned by the original artist, by the comic publisher, or by the producer of a movie or TV series from which the likenesses are drawn.  Aesthetic elements of home furnishings and accessories can be covered by copyrights of an artist or sculptor and licensed to the manufacturer.

Manufacturers' Dilemma

Manufacturers will also recognize that they frequently outsource to independent artists much of the creative work of applying such licensed properties to their products. Many freelance artists and sculptors specialize in transforming artwork into usable three-dimensional applications. Typically, a manufacturer will engage the providers of such services as independent contractors, whether to develop applications of artwork to existing products or sculptures of super heroes for inclusion in toy lines and collectibles.  An entire cottage industry of graphic artists and sculptors exists to serve industrial users in this fashion, and the results of their efforts fall within this same category - i.e. "pictorial, graphic and sculptural works".

Manufacturers generally engage the services of these creative types under purchase orders or other forms of agreement on a "work-for-hire" basis.  Both parties to such agreements expect that the manufacturer will own the copyright in the resulting applications of artwork and will be able to exploit them in any fashion desired, without future obligation to the outside artist.  Neither party would expect that an additional fee would be necessary for the use of the applied  artwork that the commissioning manufacturer had paid the artist to create. 

Not So Fast

The concept of "Work-Made-For-Hire" (which is the legally proper terminology, but which is referenced more commonly as "work-for-hire") is specifically embodied in the U.S. Copyright Act.  The thrust of this section of the Act is that the employer or, if the parties so agree, the commissioning party automatically owns copyright in the creative work from the instant of creation as though that party were the "author" of the work.  By contrast, in cases other than those of legally defined Work-Made-For-Hire, the individual who creates the copyrightable work will be its author and will be presumed to own the copyright in it.

The Copyright Act contemplates that outsourcing creative works is a significant element of commerce, and facilitates such transactions by modifying the normal course of events so that the commissioning party stands in the shoes of the "author" in respect of the resulting copyright protection.  Such is the case with respect to many varieties of creative works, from magazine articles to motion pictures to compilations to instructional texts and a variety of other classifications of Works-Made-For-Hire which are defined at 17 U.S.C. 201(b).

However…

One classification of copyrightable work that is missing from the list of those which can qualify as Works-Made-For-Hire is … surprisingly… the very category we have been discussing.  That is, "pictorial, graphic and sculptural works" are not listed by Act and therefore cannot be Works-Made-For-Hire under the Copyright Law, unless they qualify under one of the listed categories - e.g. an animation frame as part of an audiovisual work.  The significance of this omission is that, unless additional steps are taken in the agreement between the parties, the outside artist or sculptor would be entirely within his/her rights to demand a second payment from the manufacturer for a license to make use of the commissioned work.  This could happen because copyright ownership in the commissioned work would remain in the artist, notwithstanding that the parties fully intended otherwise.  To add insult to injury, if the parties can't reach agreement on the license fee, the artist could actually sell or license the work to a third party!

What to do?

Every manufacturer who outsources artistic creations would be well advised to thoroughly review whatever forms of agreement it normally uses for such transactions.  As a threshold consideration, even those kinds of works that fall into one of the categories that properly can be "Works-Made-For-Hire" under the law will only qualify as such if the commissioning agreement affirmatively states the intention that the work to be a Work-Made-For-Hire.  Further, the work that is the subject of the agreement must be  specially commissioned - that is, it cannot already exist in completed form prior to the agreement but must be created pursuant to the agreement - -and the agreement must be in writing, signed by both parties.

With respect to pictorial, graphic and sculptural works, if the parties intend that the manufacturer own the copyright and not be required to make additional payment for use of the work, the agreement should incorporate a "belt and suspenders" approach by stating that all rights in the work and the resulting copyright are "hereby assigned" by the artist to the manufacturer, to the extent that the work does not qualify as Work-Made-For-Hire.  Furthermore, in the case of commercially important works, a manufacturer would be well advised to register the copyright with the U.S. Copyright Office.  In this way, disputes over ownership and the requirement of a license for use of the created work can be avoided.

Whatever political forces may have resulted in the seeming gap in the "Work-Made-For-Hire" section of the U.S. Copyright Act, the unfortunate fact is that a substantial part of the commerce between manufacturers and outside creative service providers has not been addressed.  A circumspect manufacturer who desires to avoid paying a second time for using works that it has already paid to have created will take the additional protective steps described above.

The Final Insult

Of perhaps greater concern is that, in the case of an outsourced work that does not qualify as Work-Made-For-Hire and that becomes an evergreen property, even the "belt and suspenders" approach described above has limitations.  Under the U.S. Copyright Act, any individual who assigns his or her ownership of a copyright to another party can nullify the assignment by a termination notification at the 35th anniversary of the assignment.  An example of this recently came to light when a federal court upheld the termination of assignment to Marvel Comics by the creator of the "Captain America" superhero character. Thus, the artist now has the opportunity to offer to the highest bidder a character that Marvel has popularized for 35 years. 

Incredible as it may seem, the same fate can befall manufacturers who are fortunate enough to have commissioned the creation of artworks that prove to have enduring popularity in their product lines.  That is, in situations where it matters most, manufacturers can lose ownership of the artwork embodied in evergreen products to the artist whom the manufacturer paid to create the artwork in the first place.

 

Practices

Top