Work for Hire

March 20, 2006

In the world of intellectual property (IP), there is a commonly held assumption that you own that for which you have paid. This can be a costly mistake.

The confusion is understandable. In most cases where IP is developed in-house by employees, the IP rights belong to the employer. However, where IP is developed by external contractors the IP rights may remain with the contractor. The IP may relate to a new product invention or design, software or literary, artistic or dramatic works. Clearly, it is essential for businesses to be clear about the ownership of IP rights as this can affect the value of the businesses themselves.

Employee works

Where IP is created by an employee in the course of employment, then the law says that the IP belongs to the employer. This sounds straightforward, but can give rise to complications.

First, there is the issue of whether or not someone actually is an employee. This is not about the label that the parties have applied to their relationship. The courts have developed a series of sophisticated tests to determine if someone is an employee. This question is relevant not just for IP ownership but also to decide if someone is entitled to employment rights or the tax treatment of the remuneration.

Second, even if the creator of the IP work is an employee, it may not always be clear cut whether work was created “in the course of employment”. For example, what about the computer programmer who writes a computer game in his spare time but using his company laptop? In this context, the terms of the employment contract and scope of the job description can be crucial.

Contractor works

Where IP is created by an independent contractor (for example, a consultant, a self-employed contractor or a company providing services to a client), then the ownership of the IP depends on the nature of the IP right and terms of the contract between the parties.

The position on ownership of copyright is that the contractor will own the copyright in the work. If the client who has commissioned and paid for work (for example, to develop some software or design a web site) wishes to own the IP in it, then the contractor must sign a document assigning the IP to the client. This can be done in advance and is best contained in the contract under which the work is commissioned.

If the contractor does not assign the IP to the client, then the position is more complicated. The client has paid for work to be done, but does not own the IP in it. So, what rights does the client have? The law will imply some basic terms, but only so far as necessary to give the client a right to use the work. The client may, for example, have an implied licence to use the work, but this may not be an exclusive right so the contractor could be free to license it to others as well. In other cases, perhaps where significant sums had been paid for the work, the contractor may be deemed to hold the IP on trust for the client.

The default position on ownership of design rights is different to that in respect of copyright. The commissioner of a design, and not the designer, is the first owner of the design right in the work or entitled to any registered design. So, confusingly, it could happen that the client will own the design right to the work, but not the copyright in the design drawing.

Time for a review?

In the context of the Gowers review, this is perhaps an area that could be looked at again. Is there a good reason for having different rules on first ownership for different types of IP? And, in today’s increasingly flexible labour market, is there a good reason for maintaining the distinction between work created by an employee and work created by a self-employed contractor?


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